Watch These February Biotech Catalysts
No matter how confident one is an investor in biotech, event-driven catalysts always rattle one’s nerves. That is especially true when these catalysts mean life or death for a stock. Even relatively mundane or anticipated catalysts can be a bit nerve-wracking.
In December, I wrote a digest of some of the most interesting catalysts for that month. The article was well-received, so I have decided to make it a regular part of my contributions on Seeking Alpha. Looking at the month ahead, several significant catalysts immediately jump out.
Today, we will discuss three interesting biotechs with catalysts this month: Dynavax Technologies (DVAX), Novavax (NVAX), and Puma Biotechnology (PBYI). These companies each have catalysts in February that can make a big difference for the companies going forward.
Let’s take a look at each of these companies, their catalysts, and the likely outcomes.
Dynavax: ACIP No-Brainer
Dynavax had a great 2017, both as a company and as a stock, thanks to revival of Heplisav-B, its much beleaguered adult Hepatitis B vaccine. The story of Heplisav-B seemed to have ended with tragedy in late 2016, when the FDA issued a complete response letter, or CRL, that scuppered hopes of Heplisav-B approval. Shares collapsed below $4 in relatively short order. Yet, in 2017 shares began to creep upward once more as it became clear that Heplisav-B was not dead, but merely wounded. A resoundingly favorable FDA advisory committee vote turned the creep into a surge. In November, the FDA concurred with the AdCom, giving approval with a clean label. Shares have since fallen back considerably from a pre-approval high of around $23 a share, due to the risky decision to pursue commercialization without a big pharma partner. Despite the greater difficulties, DVAX has stormed ahead, seeking to capitalize on Heplisav-B’s $500 million a year market opportunity.
On February 21st, DVAX will go before the CDC’s Advisory Committee on Immunization Practices, or ACIP, to present the case for recommending Heplisav-B. ACIP’s endorsements “stand as public health guidance for safe use of vaccines and related biological products”, and have a major impact on vaccine providers’ decision-making. DVAX has already begun its commercial efforts, but the positive nod from ACIP would trigger an aggressive marketing campaign for the rest of the year. A positive ACIP recommendation is crucial for the successful commercialization of Heplisav-B.
What Should Happen
When DVAX presented at the last ACIP meeting in October 2017, the panel appeared to consider FDA approval – which had not yet been granted – and its own eventual positive vote to be virtual certainties. Given that level of confidence, we should expect a ringing endorsement from ACIP this month. It will likely do little to move the share price, since it is mostly priced in already.
If Things Go Wrong
Should ACIP deliver a negative vote, or limit its recommendation to certain restricted populations, it would be devastating for DVAX. It would severely limit the commercial opportunity for Heplisav-B and the share price would fall precipitously.
The ACIP recommendation is the closest thing to a “sure thing” among the catalysts included in this article. While no one can predict a government agency’s decision-making with total certainty, in the case of DVAX and Heplisav-B, at least, the outcome appears to be largely assured. With the likelihood of a negative decision vanishingly small and a share price depressed by uncertainty about the commercialization process, DVAX continues to present a highly compelling opportunity in 2018.
Novavax: Second Lease on Life?
NVAX is a company that has spent years promising massive breakthroughs, only to stumble repeatedly. The company took its most recent, and arguably nastiest ever, dive in 2016, when a pivotal Phase 3 trial for its older adult RSV vaccine laid an egg, failing to meet both its primary and secondary endpoints. Shares collapsed 83% percent overnight and listed down further to settle around $1 a share for a large chunk of 2017. Brief glimpses of hope have sent shares climbing only to retrace back toward $1. A maternal RSV vaccine trial is set to deliver topline data later this year, and there is solid evidence that it will deliver where the previous trial failed. More immediate interest lies in an earlier-stage vaccine candidate: NanoFlu. The novel flu vaccine has stoked renewed market and analyst interest, giving the battered biotech some room to maneuver.
In December, NVAX announced that it would release the full data package from NanoFlu’s Phase 1/2 human trial in February. The company had intended to share topline data before the end of 2017, but it opted to delay the readout until the full data analysis was complete, citing difficulty in obtaining wild flu strains for comparative analysis. NVAX has promised that the data will be ready in February, though no specific date has been announced.
What Should Happen
In preclinical trials, NVAX’s novel flu vaccine outperformed the market leader, Sanofi’s (SNY) Fluzone HD. While preclinical success may not translate into human trial success, a lot is riding on the NanoFlu data readout. There is no “sure thing” in clinical trial data, especially early-stage trials. If NVAX’s flu vaccine can show efficacy comparable to Fluzone HD, it will immediately garner a whole lot more attention, sending shares up further – and perhaps even attract a takeover bid.
If Things Go Wrong
A flop would likely send the stock price tumbling, and expose investors to potential low-price dilution if NVAX cannot get to the interim finish line of its RSV vaccine trial before running out of cash. With only a few quarters’ worth of cash on hand, it could be close. Failure to deliver good news on NanoFlu will likely send NVAX back toward penny stock territory, though its floor should be a fair bit higher thanks to progress on the maternal RSV vaccine.
NVAX shares had been climbing through November and December in anticipation of the data reading, and initially retraced downward when the delay was first announced, though that too soon reversed once again. While accumulation in anticipation of a November data reading can explain part of the upward surge, which has carried shares above $2, another major factor is the release of an independent informational analysis that gave a highly favorable impression of the maternal RSV vaccine’s early results. NVAX remains a speculative play, but its long-run outlook looks comparatively, and I stress comparatively, de-risked. As for the immediate question of the NanoFlu catalyst, while its failure would not bury NVAX once and for all, it would drive shares into the ground for the foreseeable future.
Puma Biotechnology: European Blues
After months of uncertainty, filled with analysts arguing with each other over the side-effects of Nerlynx, PBYI’s breast cancer drug, the FDA announced its final decision. In the end, the drug regulator barely blinked at the side-effects, giving its full-throated approval to Nerlynx. After winning the key approval in July 2017, shares continued their climb started two months earlier, briefly reaching a 52-week high of $136.90 in early November. Unfortunately, the rosy picture has since soured. Shares dropped off in the last months of 2017, falling below $100. Things really soured on January 23rd, when the EU drug regulator’s Committee for Medicinal Products for Human Use, or CHMP, delivered a “negative trend vote” after meeting with PBYI to discuss the prospects of launching in Europe. The vote sent shares crashing nearly 29%, to $64.70 per share. The stock has recovered only slightly since then, with shares closing at $65.74 on January 30th.
PBYI’s February catalyst is the scheduled vote of the CHMP on Nerlynx. The committee will deliberate and make a final decision, but the negative trend vote leaves limited hope for a positive response. Still, it is an important catalyst and a negative verdict may allow a path to future reconsideration.
What Should Happen
The CHMP will likely vote against approving Nerlynx in the EU, which is a shame since it has shown solid efficacy in helping prevent the recurrence of particularly virulent breast cancers. It is the latest example of divergence between the FDA, with an enlivened mandate to approve therapies, and the EMA, which continues to slow-walk approval of many valuable drugs. Evidently, the risks of severe diarrhea outweighed the potential lifesaving benefits. On the bright side, the impact of the final vote on the share price should be slight to nonexistent. The drop upon the negative trend vote appears to have priced in non-approval in the EU.
If Things Go Wrong
In the case of PBYI, we should really be asking about what happens if things go right. In the unlikely event that the CHMP actually votes to approve Nerlynx, we would see shares take off like a shot, probably more than regaining the loss incurred from the negative trend vote.
The February catalyst is not going to do anything to dent the picture. There is an outside chance it will deliver great news. Even a negative vote, however, would not necessarily mean the end for Nerlynx in Europe. A further evaluation of existing data undertaken or, more likely, a further supplemental safety trial could be conducted. While that would incur additional costs, and delay access to the lucrative European market, it would probably be worthwhile. The worldwide market opportunity for Nerlynx is, after all, estimated to be about $2 billion. PBYI is not holding its breath for a surprise reprieve from the EMA, and neither should investors. That said, the downward trend has looked rather overdone. Shares were already a tad battered before the negative trend vote. Now, with a market capitalization of about $2.6 billion, PBYI is looking rather attractive.
Disclosure: I am/we are long DVAX, NVAX.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.