Healthcare stocks display their resilience after bear market struck in December; well, most do.

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The News:

We’re hardly in a recession, and most forms of healthcare spending remain incredibly robust, regardless of what the overall economy does and what the White House says about pharma pricing, for example. A lot of tough talk but little legislative action. And despite the budget the Trump administration unveiled last week with proposed cuts to NIH, for example, Congress is notorious for ignoring the President’s budget notions and continuing to fund its pet programs.

Let’s take a look at last week’s healthcare stocks, where there were a slew of big winners and one major flop.

1) Atossa Genetics Inc. (Nasdaq:ATOS) led advancing issues, soaring 134% over the week to $3.51 on news of FDA approval for a limited, initial use of the company’s breast-cancer drug, Endoxifen. The recently reported single patient success of Endoxifen was for efficacy, and importantly also for an absence of the negative side effects caused by previous drugs already in the space. Advancing in Phase 2 trials, Endoxifen appears to be a “breakthrough” drug in the fight against breast cancer. Further testing will be needed to confirm results.

This type of an event for a nano cap stock like Seattle-based Atossa is rare and could lead to significant, continued price gains for shares of Atossa, if confirmed. However, the downside risk for this stock is that Endoxifen may not achieve such positive results in future trials and/or individual-case uses as was reported in this instance. Meanwhile, ValuEngine upgraded shares of Atossa Genetics from a Buy rating to a Strong-Buy rating in a report released on Friday.

Steve’s Take:

Atossa has a market cap of $19.8M, placing it squarely in the nano-cap group. Analysts who cover the company give it a mean consensus rating of Outperform and an average target price (ATP) of $5.00.

Given its trading price early afternoon (3/18/2019) of $4.86, there’s hardly any spread left to warrant a buy.

Barchart had a Strong Buy rating on the stock before the breakout last week. For now, though, the party’s over with this name.

2) Elsewhere, Akari Therapeutics PLC (Nasdaq:AKTX) more than doubled–rocketing 123%–to a 15-month high of $4.08, after the company said it plans to commence trials in European and US pediatric patients this year for its treatment of pediatric thrombotic microangiopathy.

The  London-based company said it had a “successful,” pre-investigational new drug (IND) meeting with the Food and Drug Administration regarding its pivotal clinical trial program for pediatric hematopoietic stem-cell, transplant-related thrombotic microangiopathy (HSCT-TMA), which is an orphan condition with an estimated fatality rate of 80%. CEO Clive Richardson said trials in HSCT-TMA patients are planned to begin in the fourth quarter.

“We see HSCT-TMA as a gateway indication into a range of other poorly treated orphan TMAs, and are enthusiastic about the potential of Coversin to offer an improved standard of care for patients with these rare and usually fatal conditions,” Richardson said.

Steve’s Take:

Akari has a market cap of $64.5M–small-cap territory. Analysts give it a mean consensus of Buy and an ATP of $5.50. Shares were trading at $4.56 earlier today, so the spread to the ATP is just 21%. Not bad, but far too early ,and thus too risky, with its med in just the pre-IND stage at FDA.

Barchart rates Akari a Strong Buy. But better to wait for results of trials, if there are trials!

3) Soleno Therapeutics Inc. (Nasdaq:SLNO) raced 79% to $2.68 as the biopharmaceutical company made some headway in a successful clinical trial of a treatment for a genetic disorder. The Redwood City, CA-based company announced that its Phase 3 trial of a med designed for patients afflicted with Prader-Willi syndrome (PWS) showed some improvement.

The Data Safety Monitoring Board (DSMB) is recommending that the trial for a diazoxide choline controlled-release tablet move forward, as is. PWS is an illness that is mostly known for the symptom hyperphagia. This symptom makes those with the condition feel like they are always hungry. PWS can also lead patients to experience behavioral issues, including cognitive disabilities, lower-than-average muscle tone, an excess in body fat and incomplete sexual development.

“We are delighted with the DSMB’s positive recommendation to continue the Phase 3 trial as planned as it further supports DCCR’s safety profile,” Dr. Anish Bhatnagar, Soleno CEO, said in a statement.

Steve’s Take:

Soleno has a market cap of $57.4M (small cap), and analysts given a mean consensus rating of Outperform. It has an ATP of $14, and with its recent trading price of $2.58, the spread to the ATP is a whopping 543%.

Barchart has a Buy rating on Soleno with a Strengthening short-term outlook.

Moving ahead to Phase 3 is great news despite the well-known propensity of such studies to fail. But the spread to the ATP is humongous, so this looks like a rational bet at this stage. But only if you have a section of your portfolio for high-risk names. English translation: you may strike it rich, but be prepared to lose your entire investment.

4) And Bio-Path Holdings Inc. (Nasdaq:BPTH) rallied another 40% to $29.40 and is up a jaw-dropping 1,274% the past three weeks. The spectacular action came after Houston, TX-based Bio-Path released updated Phase 2 data for its lead candidate prexigebersen, code-named BP1001, for treating acute myeloid leukemia, or AML, and also divulged a plan of action for taking the compound through clinical development toward registration.

Updated data from the Stage 1 of the Phase 2 study that evaluated the efficacy and safety of prexigebersen in conjunction with the low-dose chemotherapy regimen cytarabine in 17 newly diagnosed AML patients revealed that the proportion of patients showing a response increased from 47% when assessed in April 2018 to 65%. Of the patients showing a response, 5, or 29%, showed a complete response compared to the benchmarked percentage of 7-13%. AML accounts for roughly 36% of all leukemias, with about 20,000 new cases diagnosed each year, Bio-Path said.

Steve’s Take:

Bio-Path has a market cap of $20M. Barchart rates the company a Strong Buy with the trend strength being Strong.

However, hedge funds don’t have many shares of the company, and as far as I can tell, there isn’t any coverage for the name. Sure, there are some investors who profited to high heaven these past few weeks. That’s based on the company saying that its lead drug “showed some improvement” in a Phase 3. That’s just too “faint praise” for an investment, in my opinion.

I think the party’s over for now and would wait to see how Phase 3’s follow-up data look before jumping in.

5) But thinly traded, nano-cap TrovaGene Inc. (Nasdaq:TROV), which develops therapies targeting cell division to treat leukemia, lymphomas and solid tumors, skidded 21% to $3.77 after nearly doubling the previous week. What had appealed to investors was the clinical pipeline update provided by the San Diego-based biotech, especially on its lead candidate onvansertib, which is being evaluated as a combination regimen for a variety of cancers.

Onvansertib is being evaluated in a Phase 1b/2 trial in combination with low-dose cytarabine or decitabine (chemotherapy) for acute myeloid leukemia, or AML. Following the go-ahead nod from the FDA in January, the company is on track to begin enrollment in the trial by midyear. A data readout from the midstage study is expected in 2019, the company said. The euphoria the prior week erupted when traders circulated word of a “positive” FDA abstract for TrovaGene’s prostate cancer treatment. But nothing substantive emerged in support of that.

Steve’s Take:

Trovagene has a tiny market cap of $14.4M, but it has a mean consensus rating of Outperform with an ATP of $14. With a trading price of $4.00 earlier today, the spread to the ATP is a huge 349%.

Barchart has a Weak Buy on this name. And at this time, Trovagene is simply too volatile to warrant an investment. If, however, this rumor of a “positive” FDA abstract for its prostate cancer treatment proves true, it’s worth a small buy-in, but definitely NOT the ranch!

Bottom Line:

After inching close to a full-fledged bear market in December, healthcare stocks have emerged as investors’ favorites. Rapid innovation, major advances and the ageing population have managed to sustain their popularity. Further, this is a favorite defensive option nowadays for savvy investors in difficult market conditions. With the economy likely to weaken and a gridlocked Congress unlikely to make major legislative changes, picking select healthcare stocks looks like a savvy strategy for 2019.

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