After the resounding thud heard round-the-world Friday upon the failure of Trumpcare, healthcare stocks were back in vogue with investors Monday (March 27, 2017). Here are the top stars and one conspicuous dud:
Cellect Biotechnology Ltd. (Nasdaq:APOP), a little-known, Israel-based stem-cell specialist, announced the first successful stem-cell transplant procedure using its ApoGraft technology in a combined Phase 1/2 clinical trial in a blood-cancer patient, causing its shares to soar 74% Monday to $10.90.
Even though stem-cell transplants can be a curative treatment for many blood disorders and blood-related cancers, they tend to be a treatment of last resort because of their life-threatening side effects, such as graft-versus-host disease (GvHD). So, if Cellect’s ApoGraft technology turns out to be a viable workaround, it would be a major advancement in the field, and potentially an extremely lucrative product for the company.
While Cellect’s announcement is electrifying, its stock still isn’t a great long-term bet, say some analysts. Cellect ended 2016 with a measly $8 million in cash and churned through $4.2 million in R&D and G&A expenses last year. ApoGraft, meanwhile, is probably five to six years away from reaching the market. This current trial, after all, is simply a safety and proof-of-concept study that’s not designed to provide a basis for regulatory approval.
Yes, investors are cheering Cellect’s first successful stem-cell transplant. That’s because the global market for stem cells will grow from $12 billion in 2016 to $26.6 billion by 2021, with regenerative medicine as its major application. All eyes will be on Cellect’s second stem-cell trial, as well as the success (or failure) of its competitors. Still, it’s too early to tell whether APOP stock will continue to hold its gains, or give it all back in one explosive misstep.
This is high-risk/high-reward territory. Analysts have given Cellect an average recommended rating of 2.0, or a “buy.” Most recently, Rodman and Renshaw rated the company a “buy” November 10, 2016. The company is out of the blocks and starting to get some forward momentum. But there are other companies like Bellicum Inc. that already are headed down the backstretch.
My biggest question is, can Cellect raise the additional funds needed to get to the finish line with its ApoGraft technology. By my math, at its 2016 level of cash burn, it has two years left to get to the market, whereas it probably will take at least twice that long.
I call it a high-risk/high-reward “buy,” especially now that it’s settled back at $8.40 a share, down 30% since Monday’s euphoria.
Elsewhere, Impax Laboratories Inc. (Nasdaq:IPXL) rocketed 37% to $12.70 and is holding onto those gains Tuesday morning (March 28, 2017). The upward move came after the company reported it has hired Allergan PLC’s former executive chairman Paul Bisaro as its new president and CEO.
The long-time generics chief will step in immediately for interim chief exec J. Kevin Buchi, who took over in December after Fred Wilkinson departed. After working at Barr Labs in various capacities, Bisaro served as president and CEO of Actavis, and executive chairman of Allergan.
Bisaro is taking on a company that’s standing at a crossroads, with shares trading at levels not seen since 2010, generic competition rising and pricing headed lower. Some analysts even think M&A is exactly what Impax may need right now. Earlier this month, Reuters reported that the California company had hired Morgan Stanley to help it conduct a strategic review and weigh options for buying a rival or selling itself.
All things considered, adding someone with Bisaro’s experience is a coup for Impax Labs, which has struggled following a drop-off in sales of top-selling medicines, including diclofenac sodium gel 3%, metaxaline, fenofibrite, and mixed amphetamine salts ER.
Bisaro will have his hands full, to be sure. Despite cutting its full-year sales and EPS guidance significantly following the third quarter, the company still failed to hit its $840 million or better sales target. Overall, revenue fell 4.2% to $824.4 million. Nonetheless, the company was profitable in 2016, earning an adjusted $1.16 per share in 2016, and it has a pipeline of generic drugs making their way to market that should help stabilize sales.
Monday’s stock action reflected a needed shift in investor sentiment. But I’m joining analysts who give the company an average recommended rating of 2.8, or a solid “hold,” until we see quarterly results that show any strategy Bisaro implements actually succeeding.
And Cancer Genetics Inc. (Nasdaq:CGIX) leaped 29% to $5.05 after announcing record revenue for the fourth quarter and full-year 2016. The company bills itself as a leader in enabling precision medicine for oncology through molecular markers and diagnostics.
Although not all that well known, Cancer Genetics has been one of the leading innovators in medical laboratories and research employing over 220 full-time staff. CGI says it is working with 9 of the top 10 global pharmaceutical and biotech companies.
Full-year 2016 revenues were up 50% year-over-year to $27 million from $18 million. Fourth-quarter revenues were up 32% year-over-year on strong organic growth to $7.2 million.
Perhaps it’s the innocuous name, but Cancer Genetics has been flying under the radar until its latest financial report. Based on data provided from analysts polled by Thomson Reuters, Cancer Genetics has a current consensus target price of $6.00. The current consensus analyst recommendation is sitting at 1.5 on company shares, a solid “buy.” Most recently, Rodman and Renshaw gave it a “buy” rating on September 26, 2016.
This is a tough call as I don’t see a lot of upside potential in the stock price, while also not envisioning a precipitous plunge either. I’d hold it for now but not buy it unless any consensus estimate moves it closer to a 1.0 rather than a 2.0 rating heading into the next earnings period.
But hitting the skids was Foamix Pharmaceuticals Inc. (Nasdaq:FOMX), plunging 42% to $5.05. Shares were crushed after the company’s acne drug bombed in a Phase 3 trial, while competitor Allergan was pulling into the final regulatory lap Monday with its own experimental acne drug.
FMX101, which was used in marketing its uninspiring 2014 IPO, hit the co-primaries for a reduction in lesions and an IGA (investigator’s global assessment) score for success in trial 05. Trial 04, though, proved a flop. And Foamix investors were routed on the mixed results. The drug is a minocycline foam.
Apparently forgotten by investors while fleeing the scene is that Foamix also has three other clinical-stage products in development: FMX103 for moderate-to-severe rosacea, FMX102 for impetigo, and FDX104, a doxycycline foam for the management of acne-like rash induced by certain anticancer drugs.
“Whereas Trial 05 showed significance in both primary endpoints, Trial 04 did not meet significance for the IGA score endpoint,” said Dov Tamarkin, PhD, CEO of Foamix. “Our team has not yet received the full data set and we intend to provide an update on the program as soon as we complete our analysis. As we have previously announced, the safety extensions for trials 04 and 05 are fully enrolled and continue as planned.”
Total over reaction, in my view. Not all of the data are in yet from the Phase 3 studies, but that’s the biotech arena. Get out as fast as you can on any “bad” news.
Analysts give Foamix an average recommended rating of 1.8–a “buy.” Credit Suisse was the most recent company to opine with an “outperform” rating on Feb 15, 2017. The company has $31.7 million in cash and short-term securities, so operating cash flow isn’t a near-term worry. And analysts are bullish on its future, assigning a price target of $22.25. That’s an upside quadruple the current share price.
This stock has been taken marched to the woodshed and bludgeoned. But I see it as a “buy” due to a knee-jerk sell response without calmly assessing the potential upside. And there’s plenty. It’s high-risk, but high-enough potential reward to consider adding to the aggressive portion of a portfolio.