This week we want to highlight several biotech stocks with catalysts coming up in the near future. These price-driving catalysts may include the FDA approval decisions, FDA Advisory Committee recommendations, product launches, and clinical data releases.
These catalysts usually gain a lot of investor and trader attention as each company’s binary event draws closer, normally resulting in strong stock price movement in one direction or the other.
Also, now that Donald Trump has won the election, we think this will bode well for biotech in general (and the overall market once the shock of his victory dies down and funds reposition themselves correctly). Additionally, Proposition 61 in California, a ‘yes’ or ‘no’ question as to whether to cap pharma prices has failed (not won easily). This should provide additional upside to biotech stocks in general once the market settles down from the surprise Donald Trump win.
Below, we list several companies with upcoming volatility expected related to catalysts. Furthermore, we offer our opinion and commentary about each catalyst along with longer term views on some of the companies mentioned.
Vericel Corp
Vericel Corp (VCEL) submitted a BLA for next generation cartilage repair product MACI in January this year. The FDA has accepted the filing and assigned a January 3, 2017 PDUFA.
Ahead of the upcoming FDA decision, Ladenburg analyst Kevin DeGeeter reiterated a Buy rating on VCEL, with a price target of $11.60.
DeGeeter wrote, “We recently visited VCEL’s manufacturing facility in Cambridge to discuss the ongoing FDA review of MACI, a next-generation product for treatment of full-thickness cartilage defects of the knee. We are incrementally more comfortable MACI will be approved by the January 3rd PDUFA date based on management’s comments including: 1) confirmation FDA inspected the facility in 3Q16, 2) confirmation the facility currently has no outstanding 483 deficiency letters, and 3) no FDA advisory panel to discuss the single Phase III study conducted in Europe and management’s suggestion clinical data has not been a primary area for FDA questions.”
In addition, Chad Messer of Needham reiterated a Buy rating with a $9.00 price target, noting, “Assuming approval, we estimate a 1Q:17 launch. We anticipate a relatively quick 100% conversion from Carticel to MACI, and subsequent market expansion […] Our target is now based solely on U.S. sales for MACI assuming Carticel sales will eventually be largely cannibalized by MACI.”
Overall, we include Vericel in this list mainly because of the potential upside in the stock if this treatment sees success. It’s a tough road for the company, but with a stock price in the low $2 range, it’s near its 52-week low of $1.69 and far off the 52-week high of $6.69. We see a good chance of decent upside here.
Dynavax Technologies Corporation
Dynavax Technologies Corporation (DVAX) expects an FDA approval decision for Heplisav on or before December 15, 2016.
In August of this year, the FDA announced the cancelation of the previously scheduled November 16 Vaccines And Related Biological Products Advisory Committee (VRBPAC) meeting to discuss the BLA for Heplisav, a hepatitis B vaccine that combines recombinant hepatitis B surface antigen with 1018, the company’s proprietary adjuvant.
At the time of the cancellation, most traders and investors took the news as a negative, resulting in a strong sell-off in Dynavax stock.
If approved, we can expect Dynavax stock to appreciate considerably as there is a substantial need for this type of therapy, so we feel there is a good chance to see a ‘run-up’ trade to the upside here. However, because the original advisory committee was cancelled, this brings into question whether or not there are substantial issues with the new drug application (NDA).
Dynavax currently trades in the mid-$10 range, with a 52-week high of $29.86 and a 52-week low of $9. As such, a move to the upside could be much more magnified. Sentiment is currently tilted to the negative side due to the cancellation of the original Adcomm and the current stock price is very near its 52-week low as well as very far below its 52-week high. We therefore think we should see a decent short cover rally which would enhance a potential run-up as the stock currently has a short interest approaching 30%.
Bottom line, we favor a move to the upside in Dynavax stock, but caution that the odds of FDA approval here aren’t great, but good enough to inspire enough shorts to cover to move the stock substantially higher in the short term.
Calithera Biosciences Inc
Calithera Biosciences Inc (CALA) is a company we think has good potential short-term upside in addition to the stock being one of our longer term investments/plays.
Calithera is an early-stage oncology name focused on the development of metabolic regulators of the tumor micro environment (TME). The company’s lead asset CB-839 is a glutaminase inhibitor which selectively inhibits GLS1 in tumors while sparing T-cells, aiming to shift the balance of resources in the TME to support immunogenic response. A multi-arm phase 1 combination study (clinical ID: NCT02071862) is currently taking place to evaluate CB-839 in combination with various agents that have synergistic MoAs in solid tumors that are known to be more glutamine dependent.
Calithera will update investors on the status of the renal carcinoma arm, which is looking at CB-839+ Novartis’s mTOR inhibitor Everolimus with a forthcoming triple meeting (EORTC-NCI-AACR) in Munich and an oral presentation on November 30. Further, and perhaps more importantly, Calithera will provide additional data for their triple-negative breast cancer arm in combination with Paclitaxel at the San Antonio Breast Cancer Symposium from December 6-10th. As the company progresses into an exciting 2017, we are looking for a first look at CB-839 + BMY’s Nivolumab, first-in-human data for its arginase inhibitor asset, CB-1158, and the initiation of a potentially registrational phase 2 for CB-839.
The above-mentioned details are certainly a lot to review, but in a nutshell, the company has two upcoming catalysts, with the most important one on December 10 where we will get a look at how CB-839 in combination with Paclitaxel is progressing. Current data suggests to us that we may see one complete response (CR), something we have never seen before in a last line setting for triple negative breast cancer.
Additionally, we are hearing Bristol Myers Squibb (BMY) has interest in partnering with the company. We think eventually they will acquire Calithera, and likely in the next 12 to 18 months.
Calithera is also near its 52-week low of $2.20, and far off its 52-week high of $8.89. As mentioned prior, we are also longer term investors here, so we have a one year price target of $25, which represents a very large appreciation from its current level of $2.50.
– Scott Matusow and Dan Cohen
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