Spotlight on three winning stocks from the past week and one absolute washout. But buy the dud first, then see what we think about the others.

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1) Axsome Therapeutics Inc. (Nasdaq:AXSM) led advancing issues, skyrocketing 180% last week to $7.36. On Jan. 7, the NYC-based company reported that its lead drug candidate, AXS-05, hit its primary endpoint in a Phase 2 trial evaluating it as a treatment for major depressive disorder (MDD). The results immediately drew comparisons to Sage Therapeutics, which recently announced that its next-generation depression treatment, SAGE-217, successfully wrapped up a Phase 3 trial in postpartum depression. The two drugs work differently, but offer a promising glimpse at the future of treatments for depression, which have seen relatively little innovation in the last 15 years.

The Axsome drug candidate is actually two drugs in one: the common cough treatment dextromethorphan (sold under brand names like Vicks DayQuil) and bupropion, a common treatment for depression and helping people to quit smoking (under brand names such as Wellbutrin). Both compounds interact with certain receptors in the central nervous system, while the latter also increases the effectiveness of the former.

Steve’s Take:

Axsome continued its march upwards, gaining another ~5% Tuesday (1/15) morning. It’s now on investors’ radar with something exciting, namely a treatment for MDD. The microcap has a market cap of $226M. Analysts have a mean consensus rating of Strong Buy and an average 12-month price target (APT) of $24.00. That suggests a spread to the APT of 216%. The spread to the highest PT is a whopping 492% and spread to the lowest of 97%. The Barchart Technical Opinion rating is also a Strong Buy (96%) with a Strengthening short-term outlook on maintaining the current direction. Longer term, the trend strength is Maximum. Long-term indicators fully support a continuation of the trend, says Barchart

This name, although definitely precarious, is a Buy for the risk-tolerant portion of your portfolio. Although the market cap is petite, the spread to the APT is just too massive to ignore.

2) Elsewhere, thinly traded nano cap PLx Pharma Inc. (Nasdaq:PLXP) slipped 9% Tuesday after soaring 95% to $4.23 last week on no recent company-specific news. The upswing may harken back to the Houston-based company’s Q3 earnings call on November 9 when CEO Natasha Giordano reported that the company had confirmed a new supplier for a key ingredient in lead product Vazalore, a liquid-filled aspirin capsule. The manufacturing of development-scale batches and the preparation of an FDA pre-submission briefing packet should occur this quarter. A Type C meeting with the FDA should happen next quarter, followed by the completion of registration batches in Q3 and an sNDA (supplemental new drug application) submission in Q4. If all goes well, market launch will commence mid-2020.

On the working capital front, PLx had $16.5M in cash and equivalents at the end of Q3 2018 while operations consumed $7.2M during the first three quarters of the year.

Steve’s Take:

PLx Pharma has a tiny market cap of $34.6M. And with just $16.5M of remaining cash and no apparent plans for another raise, it’s got a scant margin for any hiccups with the FDA and/or timing of resumption of sales of Vazalore. Analysts’ mean consensus is a solid Hold. It’s APT is $6.00, leading to a spread to that target of a decent 52%. The Barchart Technical Opinion rating is a Weak Buy (32%) with a Weakest short-term outlook on maintaining the current direction. Longer term, the trend strength is Minimum.

I’m looking for something exciting, you know, some sizzle with this name but can’t find much of anything warranting a Buy call. I’d suggest Holding it until the FDA rules on its pre-submission packet before doing anything else. I think the Hold consensus is correct at the present time.

3) Insmed Inc. (Nasdaq:INSM) blasted up 53% to $22.70 last week following the company’s announcement of preliminary Q4 sales of $9.2 million for its Arikayce antibiotic. Most of the sales came from the US following an FDA approval on Sept. 28, but $0.6 million of the total originated in France, through a “temporary authorization for use.” On the surface, sub-$10 million in sales is hard to get too excited about, but reading between the lines, it appears sales were accelerating at the end of the fourth quarter.

Bridgewater, NJ-based Insmed noted that more than 500 patients in the US had initiated treatment with the drug, which deals with a lung infection caused by Mycobacterium avium, but approximately 600 doctors in the US had written at least one prescription by the end of 2018. Presumably, that means there are quite a few patients who have prescriptions in hand who will be starting therapy shortly.

Steve’s Take:

Insmed (I love the appellation for some reason) tacked on another 2% Tuesday. The small cap has a market cap of $1.7B. The 11 analysts who follow it have a mean consensus of Outperform and an APT of $34.90. That leads to a spread to the APT of 58%. The spread to the highest PT is 154% and -9.4% to the lowest. The Barchart Technical Opinion rating is a 48% Buy (48%) with an Average short-term outlook on maintaining the current direction. Longer term, the trend strength is Strong. Long term indicators mostly agree with the trend. Barchart notes that the market is in highly overbought territory and warns of a trend reversal.

There is some promise here for serious sales growth for of Insmed’s recently FDA-approved Arikayce antibiotic. But again, I don’t get the scent of something exciting, let alone scintillating, that says Buy. More like a strong Hold. Yes, prescriptions for Arikayce might explode, what with the world scanning the skies for new antibiotics in the face of increasing resistance to the current courses of treatment. I’d suggest seeing what Q1 sales look like, then jumping in if the company’s expectations are met or exceeded.

4) Then there’s La Jolla Pharmaceutical Co. (Nasdaq:LJPC), which plummeted 38% last week to $6.55 to pace all Nasdaq losers, after the company provided downbeat guidance on its key drug that treats dangerously low blood pressure in adults with septic or other disruptive shock. The company said its fourth-quarter sales of Giapreza, which was launched in March 2018, rose 20% from a year ago to $4.2M, with 2018 sales expected to reach $10.1M. The Giapreza sales guesstimates of the two analysts that provided estimates to FactSet ranged from $5.2M to $6.9M for the fourth quarter and $11.1 million to $12.8 million for 2018.

For 2019, La Jolla Pharmaceuticals said it expects Giapreza sales to rise to $24 million to $28 million, while analyst estimates ranged from $44.3 million to $55.0 million. The stock, on track for the lowest close since September 2013, has now tumbled 68% over the past three months, while the S&P 500SPX has declined 11%.

Steve’s Take:

Micro cap LJPC shed another 6% Tuesday (1/15) morning. It has a market cap of $164M. Opinions on this name diverge like few others. And sales estimates, whether by the company or by analysts, are guesstimates. Here, the company is being flogged for being too conservative. That’s unfair and, dare I say it, cruel.

But first, despite its near freefall in share price the last three months, the six analysts that cover LJPC still place a mean consensus of Moderate Buy, with four giving a Strong Buy, one a Hold and one a Strong Sell. (Somebody’s going to eat crow among this group.) What’s jaw-dropping is that these analysts place an APT on the stock of $39.80, which leads to a gargantuan spread of 536% from its current close. And, brace yourself, a spread of 1,737% to the highest PT and -4.2% spread to the lone Strong Sell in the group.

Then there’s the Barchart Technical Opinion rating, which weighs in with a Strong Sell (88%) with an Average short-term outlook on maintaining the current direction. Longer term, the trend strength is Maximum. Long-term indicators fully support a continuation of the trend, Barchart indicates

With a current spread of 536% to the APT, La Jolla Pharma is a risky but solid, rational bet. I say Buy. Just don’t get too greedy when deciding just how many shares to acquire. Amidst the cheerleaders, somebody apparently smells smoke.

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