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XBiotech’s Misfortune Could Be A Discounted Opportunity

By
ME Staff
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biotech

At the end of November, Texas based biotech XBiotech, Inc. (NASDAQ:XBIT) released an update on an ongoing European phase III for its lead candidate, Xilonix. The trial is investigating the efficacy of Xilonix in the treatment of colorectal cancer. As part of the update, the company reported some inconsistencies in the trial data, when compared to previously released information. As a result, Xbiotech lost 45% of its market capitalization across two sessions, and while it has recovered slightly this week, still remains down close to 40% on its pre-announcement price. This may be, however, an opportunity to get in at a discount. Here’s why.

First up, let’s quickly address the drug in question. Xilonix is what’s called a True Human antibody – a term coined by XBiotech. True Human antibodies differ from Fully Human antibodies (a number of fully human antibodies are already approved in oncology) in that they are created by B-lymphocytes in the human body, rather than though genetic construction in a laboratory. Why is this important? Because when our bodies create antibodies, the antibody and the creator lymphocyte come under extreme scrutiny. If the antibody it has created is ineffective, or if the body rejects the antibody, our immune system induces apoptosis in the creator cell (programed cell death). If the antibodies are functional, our bodies promote the replication of the creator cell. This highly selective process is why our antibodies work, and why our bodies don’t reject them as foreign substances. Fully human antibodies don’t go through this process, and as such, have a weaker safety, efficacy profile than True Human antibodies – or so Xbiotech hypothesizes. Xilonix is a True Human antibody, created in human B Lymphocytes, and replicated in vivo for use as an oncology therapy for, in this instance, colorectal cancer.

And what about the errors in question? Well, the company reported that 25 patients dropped out before receiving treatment, 14 received either placebo or Xilonix in error and 33 completed the study but didn’t undergo the end of study DEXA scan (a bone density X-ray used as one of two primary endpoints), an EORTC evaluation (a conclusion survey, the second primary endpoint) or both. This means that, essentially, 72 patient’s data is unusable. The trial enrolled 276 patients, so 27%. Obviously, this is going to seriously affect the trial’s ability to demonstrate efficacy to the EMA. XBiotech was hoping to submit an NDA to the agency before the end of the year – chances are this will now be delayed as the company decides how to the data corruption. All is not over, however.

The company is running a concurrent phase III in the US, which is on track for completion I the first quarter of 2017. Enrollment is ongoing, and phase II (as well as some promising early indications from this phase III) suggest we will see a positive outcome. If the company can avoid the mishaps of the European trial, and if it can get its NDA to the EMA as scheduled for the European trial, both drugs could hit markets in 2017 (assuming accelerated approval in the US).

Even if the EMA requires a partial re-run of the European trial, it is a 16-month duration trial. Kicking off at the beginning of 2016, XBiotech could tie up the trial before April end 2017. What are we saying here? That essentially, all this amounts to is a delay – and it may not even amount to that, depending on what stance the EMA takes on the 25% fewer participation rate.

XBiotech went public this year, and has a little over $100 million cash on hand, just $4 million debt (and the majorty of that is accounts receivable) and a relatively low burn rate – somewhere in the region of $9 million a quarter based on recent performance. Yes, this burn rate will inflate as the US trial heats up, but even if it doubles the company could still easily make it to the second half of 2017 without having to raise funds; a very stable position in the dev-stage biotech space.

Of course, there is inherent risk. The EMA may take a hard line approach and reprimand XBiotech for allowing the corruption – something that would add cost. Further, Xilonix may not prove effective at all; colorectal cancer is notoriously difficult to treat and True Human antibodies are an entirely new approach.

Risk aside, however, we have a financially stable company with a promising candidate I global phase III trials, that is available today at a 40% discount to the price it traded at a couple of weeks ago. For the aggressive speculator – an intriguing opportunity.

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Gold Finds a New Low But Gold Stocks Don’t Confirm

By
Rafi Farber
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Gold Bug

Gold (NYSEARCA:GLD) broke through the $1050 level morning for the first time this decade, confirming the continuation of a now over 4 year old bear market before bouncing back above $1060. Despite the new low, there is another ray of hope for the bulls: gold stocks have not confirmed the new low.

The mining ETFs remain well above their lows hit in August, with the majors ETF (NYSEARCA:GDX) over 11% above its low of $12.62, and the juniors (NYSEARCA:GDXJ) with a buffer of over 8%. This is especially unique because the metal itself has been down an amazing 27 out of the last 34 days. By comparison, gold miners have only been down 16 of the last 34 days.

That means gold stocks have risen in the face of a falling gold market 9 times in the past 6 weeks.

Another interesting thing happened today, and that is that the S&P 500 (NYSEARCA:SPY), bonds (NYSEARCA:BND) and the dollar index (NYSEARCA:UUP) were all down together while gold and gold stocks were broadly up. The dollar got severely hit by a Mario Draghi QE letdown which sprung the Euro much higher today. As a result the dollar was down over 2%. These kinds of down moves in the dollar are very rare, especially coupled with a sharp fall of nearly 3% in long-dated Treasury bonds (NYSEARCA:TLT).

We are now two weeks away from the Federal Reserve’s next decision on interest rates. Barring a severe stock market crash, the Fed looks set to finally raise its target rate to just a quarter of a percent. Gold’s new low earlier this morning looks to have already priced this rate hike in given the odds of it happening are about 80% as calculated by the interest rate futures market. If and when it actually happens, it is quite possible that gold will actually rally on the news. This is contrary to normal behavior but when everyone expects the opposite, sometimes the market throws these kinds of curve balls.

 

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Two Stocks to Watch This Month in Biotech

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stocks

We may be heading into the holiday period, but things aren’t slowing down in biotech. We’ve got a host of PDUFA dates set for before the end of the year, all of which have the potential to inject some real volatility into the space. Here are two biotech stocks to keep an eye on.

Otonomy, Inc. (NASDAQ:OTIC)

Otonomy is one of those stocks that flies under the radar of market awareness. It hasn’t embarked on any noticeable promotional activity (at least not outside of the sector specific side of things) and has just quietly developed its pipeline over the past few years. The company focuses on treating conditions that affect the ear – known as otic disorders in the industry – and has three candidates in its pipeline. The lead candidate, Auripro, is up for an FDA review date of December 25, 2015, with a target indication of middle ear effusion – fluid in the middle ear that causes pain and discomfort (through infection) in children.

The treatment is pretty much just a reformulation of the current SOC treatment, which is antibiotic ear drops, but is designed as a sustained release therapy. This allows a full course of treatment to be administered in one issue, rather than the multi daily issue of the aforementioned drops. In children undergoing tympanostomy tube placement (TTP) surgery (the surgery this condition is associated with), the benefits of not having to repeatedly administer antibiotics are obvious.

The FDA accepted the company’s NDA back in April and – according to the release – Otonomy believes the agency will not convene an advisory panel pre-review. This suggests the FDA regards the review as pretty straightforward, improving chances of approval. The phase III on which the NDA rests demonstrated efficacy (as measured by a primary endpoint of reducing treatment failures versus SOC) and safety across a sample size of 532 children.

So – the date to watch is December 25. If the FDA gives the green light, Otonomy expects to kick off commercialization during Q1 2016. As always, keep an eye on the company’s PRs in the days heading up to PDUFA. Its not unusual for the FDA to put out is guidance a few days, or even weeks, early, and you’ll want to be ready when they do.

BioMarin Pharmaceutical Inc. (NASDAQ:BMRN)

This is a big one, and one that we will probably look at in a little more detail over the coming weeks – but here’s a primer. BioMarin has spent years developing what – on approval – would be the first FDA approved treatment for duchenne muscular dystrophy (DMD). DMD affects 1 in every 3,500 new borns, and is a fatal condition, meaning any treatment could be a real blockbuster for the company that commercializes it.

The treatment – drisapersen – is what’s called an antisense oligonucleotide. It is a synthesized nuclei acid that binds to the gene that causes DMD, a faulty dystrophin gene, and essentially deactivates it. This deactivation causes the the production of a truncated, but functional, dystrophin gene. DMD comes about as a result in the fault dystrophin gene not creating enough dystrophin protein, which is the protein responsible for muscle structure and stability. By replacing faulty with truncated functional, BioMarin is hoping to improve muscle structure in DMD patients.

It’s not that straightforward, however. The drug missed its primary endpoint in the phase III on which the NDA is based, and all too often this leads to a red light from the FDA. BioMarin has requested the FDA consider the totality of data, which essentially is a request for the FDA to look at all trials, based on the company’s suggestion that the subjects in the phase III were already at an irreparable stage of DMD.

An advisory panel met at the end of last month, and while it didn’t report an overarching recommendation (as requested by the FDA) it did release the votes on certain aspects of the data. You can read them here, but to summarize, they don’t look good. The downside has the majority in each of the four categories surveyed, and there is very little to suggest the panel is behind drisapersen. With this said, there is no DMD treatment available, and the FDA may take the opinion that, as long as the drug is safe (which trials suggest it is) then marginal benefit is enough to give it the greenlight.

Estimates put a 15% upside in BioMarin’s market capitalization on an approval announcement, and a 20-25% downside on a decline. The big day – the PDUFA – is set for December 27.

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Today’s Movers and Shakers in Biotech

By
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biotech

The biotech sector is known for its volatility, particularly across its clinical stage constituents. Trial data dictates market sentiment, which in turn drives market cap. As we know, sentiment can shift quickly. Here are some of the week’s biggest movers so far, alongside an analysis of what initiated the response.

Biotech 1: Zafgen, Inc. (NASDAQ:ZFGN) – DOWN

At the end of last week, Zafgen would have fit comfortably into Market Exclusive’s box of small cap stocks, which we generally define as having a market capitalization of between $250 million and $1 billion. At time of writing, however, the company has fallen out of this bracket, with a current market capitalization of $181 million – a 60% decline on Tuesday’s close price.

Why the decline? Well, the company is trialing its lead pipeline candidate, beloranib, as potential treatment for Prader-Willi syndrome. Prader-Willi is a rare genetic disorder that causes obsessive eating and abnormal, but recognizable, facial features and other growths. The condition also has a learning disability association, with the majority of sufferers having an IQ between 35 and 70 – levels that indicate moderate to mild intellectual disability. There are more than 400,000 PW sufferers globally, and about 1 in 25,000 new borns have the disease in the US, meaning the company that gets an approved cure (there is no cure currently, only symptom therapy) has a real blockbuster on its hands. Unfortunately for Zafgen and its shareholders, beloranib (at least in Zafgen’s formulation) is not that cure.

The FDA put a “temporary” hold on the company’s phase III for PW in October, on the back of an announcement suggesting a patient in the trial had died of unknown causes. Despite the hold, the company continued treating patients in an extension trial, which the FDA did not halt. Zafgen announced this morning that it had learnt yesterday that a patient on this extension trial had died, with COD reported as blood clots in the lungs. Obviously, a death in trial can have serious implications for the fate of the drug in question. A second death pretty much guarantees the trial will be discontinued.

Biotech markets are well aware of this latter fact, and since beloranib forms the basis of the company’s two lead trials (the other is a phase IIb with an obesity indication), chances are Zafgen will not be seeing approval for any of its therapies any time soon. The FDA has not released a statement on the issue as yet, but when the agency reports its opinion, expect further downside.

Biotech 2: OncoGenex Pharmaceuticals, Inc. (NASDAQ:OGXI) – DOWN

This clinical stage biotech is down more than 32% on its Wednesday open. The company is trialing its lead pipeline candidate, custirsen, in a phase III with a metastatic castrate-resistant prostate cancer (CRPC) indication. Late on Tuesday, OncoGenex reported an interim analysis of the trial, which showed that there was no discernible benefit from OS perspective in patients taking custirsenin combination with docetaxel (current SOC), versus patients taking docetaxel on its own. Unlike Zafgen, however, this may be an opportunity to get into OncoGenex at a discount. The results are representative of a small subpopulation of the overall trial, and the company CEO, Scott Cormack, said in a statement that the overall trial remains on track to show statistical significance. Obviously, it is very much in a CEOs interests to suggest efficacy, but if he is right, the interim analysis will be moot. The drug has already proven safe in a final safety analysis, and could be a hit for OncoGenex if approved.

From a timeframe perspective, complete results are on track for release during the second half of next year. The endpoint is as aforementioned, more specifically an 85% power survival benefit, so keep an eye an eye out for the release as a potential upside catalyst. Elsewhere, OncoGenex is trialing the same treatment in NSCLC, and its secondary candidate, apatorsen, in three indications – NSCLC, bladder cancer and prostate cancer.

Having said this, don’t jump in just yet, even if you are looking to pick up the discount. Biotech markets are in selling mode, and there could be a long way to go for OncoGenex before (and if) it recovers.

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Roche Just Picked Up A Range Of Potential Billion Dollar Indications

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Roche

On December 1, 2015, Roche Holding AG (OTCMKTS:RHHBY) announced it has picked up a license to develop a VAP-1 inhibitor – a novel clinical stage inflammatory disease candidate currently being developed by UK based, Upsher-Smith subsidiary, Proximagen. Roche already hit headlines yesterday as it backed out of a much hyped collaboration with Polyphor, and so the news comes as a bit of a surprise to wider markets. Overlooking near term reactions, however, the latest deal gives Roche access to a promising candidate with a number of potential billion-dollar indications. As such, let’s take a look at the science behind the therapy, in an attempt to try and gauge its chances of getting an FDA green light, and in turn, the financial implications of commercialization.

First then, what is a VAP-1 inhibitor? VAP stands for vascular adhesion protein, which is a common synonym for an enzyme called AOC3. The process by which these things work is pretty complicated, but for the purpose of this discussion, let’s just say they are responsible for the oxidation of amines in our body, which are formed when amino acids breakdown into a nitrogen atom and what’s called a lone pair (just meaning two electrons). A lot of the commonly known neurotransmitters are amines – think dopamine, serotonin etc. Anyway, VAP-1 oxidizes two amines called methylamine and aminoacetone to create formaldehyde and methylglyoxal. These latter two substances (called aldehydes, for those interested) induce inflammation, through the recruitment of leukocytes (just another name for white blood cells) to the region in which the oxidation takes place. As the name suggests, VAP-1 inhibits the oxidation process. In doing so, Proximagen hypothesizes, it reduces inflammation and can be used in a variety of inflammatory indications. The exact indication for which Roche will end up carrying Proximagen’s VAP-1 forward remains to be seen; indeed, Roche itself does not yet know. The company has structured the deal in a way that will see both parties try VAP-1 inhibition out in a range of indications (rheumatoid arthritis looks to be a contender) and Roche will assume responsibility for development and commercialization if the tests indicate efficacy.

Staying on this note, what’s in it for Proximagen? Well, as yet, we haven’t got any info on the specifics from a financial perspective. To put forward a reasonable assumption, this is likely because Roche and Proximagen aren’t sure which indication they will carry into phase III, meaning they don’t yet know the size of the market they will be targeting. What we do know, is that both companies will conduct the phase IIs with a view to moving forward into phase III with the most promising candidates. The assumption here, then, is that Roche will fund the trials in return for exclusive choice on which molecules it wants to take forward.

There are also a number of milestone payments earmarked for Proximagen (again, exact details are not yet known) attributed to both the development process and the commercialization phase – if we get that far.

So, what’s next? Well, it’s early days in from a development perspective. Proximagen has only conducted some small scale, pre clinical studies of its VAP-1 candidate, and it will likely be at least Q1 2017 before we see and molecule moved into phase III. Having said this, the Roche collaboration means time to commercialization has probably halved compared to a solely Proximagen-run trial, purely as a result of the economies of scale (and the lack of funding issues) associated with a big pharma partnership. With this in mind, catalysts to look towards as potential upside drivers are interim data relating to the various indications. We have already mentioned one, rheumatoid arthritis, that could be a real blockbuster if efficacy and safety is demonstrated. In light of its potential, any data that infers a candidate is effective in RA therapy would translate to some immediate upside. Other conditions to keep an eye on are any oncologic indication (some cancers are inflammatory in nature) and Crohn’s disease – both of which present minimum billion-dollar annual revenue potential as unlabeled, first line indications (think Johnson & Johnson‘s (NYSE:JNJ) Remicade for Crohn’s).

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INSYS is Targeting a $700 Million Market With Syndros

By
Jennifer Aldershot
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biotech

On December 1, 2016, US biotech INSYS Therapeutics, Inc. (NASDAQ:INSY) is set to present at the Piper Jaffray 27th Annual Healthcare Conference in New York. The company has had a pretty volatile month, with the resignation of its CEO preceding the release of some better than expected financials, but the presentation will likely set the tone for December. The company submitted an NDA for its lead pipeline candidate back in June, and the FDA subsequently accepted the filing in August. This NDA will likely form the basis of the presentation, so in anticipation of the event, let’s take a look at the drug in question in an attempt to examine the implications of an approval for INSYS and its shareholders.

The treatment is called Syndros, and is an oral solution formulation of dronabinol. Dronabinol is a lab-produced version of THC, the active ingredient of cannabis. Its target indication is two-fold as per the latest NDA – anorexia associated with weight loss in patients with AIDS, and nausea and vomiting associated with cancer chemotherapy. How does it work? Well, just as with any cannabinoid therapy, dronabinol interacts with the endocannabinoid system in our bodies. We’ve got a range of cannabinoid receptors (which combine to form the aforementioned system) in our bodies – the two most well known are CB1 and CB2. CB1 is generally associated with the brain, while CB2 generally the central nervous system. When cannabinoids enter our bodies they lock with the receptors, and induce the pain killing and nausea reducing effects commonly associated with their use. Additionally, they induce hunger, which is the basis of the anorexia indication we mentioned a little earlier. In this form, the treatment is a spray form that a patient administers under their tongue.

So how did the drug perform in trials? The trial on which the NDA is based compared Syndros to Marinol, which is the current standard of care prescription for dronabinol. It won out across a range of comparison points. The primary focus was absorption and rate of absorption, with Syndros demonstrating detectable plasma levels (an indication of absorption) at 15 minutes in 100% of patients, versus less than 25% for Marinol. Bioequivalence from an efficacy perspective came in on par, so at a glance there seems to be no reason why the FDA won’t approve the therapy.

What about market potential? The AIDS indication accounts for circa 45% of prescribed dronabinol, while the cancer indication accounts for the remaining 55%. The market is very concentrated, with only 8,000 physicians responsible for more than 70% of total prescribed dronabinol. Why is this important? Well, it reduces the cost of pitching the treatment for INSYS if it only has to pitch (and in turn sell) the benefits of Syndros to a small physician base. The company expects to send out a sales force of 40-50 reps, with a goal of converting more than $500 million annual revenues from current SOC to Syndros. Additionally, INSYS slates an expansion of more than $200 million on this initial $500 million convert. This puts a total market potential for Syndros of $700 million annually, with an expected 5% CAGR over the next five years.

So what are we looking for near term, and when will we find out if the FDA has approved the treatment? PDUFA (decision date) is April 1, 2016, so this is the date to keep an eye on. However, in the run up to that date, we will likely get an FDA advisory panel review, and this will offer insight into the chances of approval going forward. The FDA doesn’t always agree with the opinions of its advisory teams, but more often than not, an advisory panel nod will indicate a corresponding nod from the agency.

If the company gets approval, and can successfully implement its commercialization strategy, the treatment could be a real game changer. INSYS generates less than $100 million a quarter from its currently approved therapies (specifically its Subsys cannabinoid pain management product) meaning Syndros has the potential to more than double the company’s revenues on its initial convertible market. As such, it’s definitely one to watch going forward.

Keep an eye on the presentation for any updates, and expect some upside potential on the coverage. You can check out the live webcast here.

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What are the Implications of Eli Lilly’s FDA Black Box?

By
Roger Hannington
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Eli Lilly

On Wednesday, the FAD announced its approval of Eli Lilly and Company’s (NYSE:LLY) latest cancer drug, necitumumab. Marketed as Portrazza, the drug will target squamous non-small cell lung cancer (NSCLC), but with a caveat – it is only available for patients who have not undergone any other form of medication specifically for treating advanced lung cancer. Additionally, Portrazza will carry a pretty severe black box label, warning patients of its severe side effects, including cardiac arrest, sudden death, and hypomagnesemia. While the approval is good news, the box warning and the restrictions on administration are a real downside for Eli. Markets have recognized this, and the company’s market capitalization has edged downwards since The FDA announcement. Let’s take a look at the drug and try and figure out both why the FDA felt the warning and restrictions are necessary, and what the warning means for its revenues potential.

First then, what’s Portrazza? The drug is part of a family of oncology treatments called monoclonal antibodies, which are antibodies derived from a single parent cell that target a specific antigen. Because they target a specific antigen, they can be used to selectively target cancer cells, rather than affect surrounding cells (as with traditional chemotherapy and radiation). The drug binds to the epidermal growth factor receptors on its target tumor cells (in this instance NSCLC cells) and blocks them, meaning Epidermal Growth Factor (a protein) cannot bind to the receptor. EGF is responsible for the proliferation process – so through the inhibition of the binding process, Portrazza stops tumor cells from replicating.

So why the warning? Well, it’s a case of cost-benefit. The drug has what the industry refers to as a “marginal” benefit – in trials it extended survival by a matter of weeks over alternative chemotherapy options. At the same time, a few patients discontinued based on the aforementioned (and now labeled) side effects. In light of this, the FDA is saying to physicians: it’s risky, and may only add a couple of weeks onto overall survival, but its an option. This, in turn, begs the question, why approve it at all? Well, as Eli Lilly CEO John Lechleiter stated, weeks is a long time for many cancer sufferers. It’s easy to denounce such a short period of time as void of benefit, but for patients with this sort of prognosis, any extra time, however short, can make a big difference. There is also a current trend with the FDA for quick oncology approvals – even those with marginal benefits and severe side effects. Ely itself has been the benefited from this trend, with the FDA approval of Cyramxa back in April. The current opinion of the agency seems to be that giving physicians, and in turn patients, as many options as possible, even if there is some question over risk benefit balance, is better than restricting choice.

So how has the label limit impacted the drug’s revenue potential? Well, there are two sides to the coin. In one sense, the fact that physicians can only administer the therapy to patients that have not received any other type of treatment is a disadvantage, as it limits the the patient population that qualify as eligible. On the other side, it paints the treatment as a first line therapy. This puts it in the picture as a drug that physicians will offer on diagnosis, which gives it a chance to compete with current standard of care first line. With its (albeit small) OS extension, it may have the advantage when pitched like for like. In light of this, analysts put the potential for the drug at top end $500 million, based on a little over 220,000 new diagnoses each year in the US, with approximately 25-30% squamous (just meaning the cancer affects squamous cells, which are most commonly found in skin but also line the lungs, among other auctions).

So what’s the takeaway? Well, markets have sold off Eli in response to the labelling and restricted administration, but this is likely as a result of overbuying in anticipation of approval without limitation. Bottom line is that Eli has its second marginal benefit cancer therapy of the year approved, and with effective commercialization, could have just added half a billion dollars in annual revenues to its portfolio. There is also, of course, the potential for extended indications. The FDA has set the bar pretty low with this approval, and Eli will likely only need to demonstrate similar marginal efficacy in an equally aggressive oncology indication to extend the potential patient population of Portrazza.

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Why Big Data Needs Some Roll-Up

By
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bigdata

Big Data is in a serious pickle. On the one hand, the smaller data analytics and processing companies, while enjoying growing revenues, are struggling with razor thin margins and just don’t have the economies of scale to achieve escape velocity into consistent profitability. On the other hand, the big recognized names in data processing like IBM (NYSE: IBM), Hewlett Packard Enterprise (NYSE: HPE), and Cisco Systems (NASDAQ: CSCO) are all struggling. All three have seriously underperformed the Nasdaq over the last decade (counting HPE as part of HP), and recovery looks far off.

The silver lining is that given Big Data is growing at an exponential rate (over 90% of the data ever created was created since 2011), the solution to these growth problems can seemingly be found there. Indeed, Big Data is IBM’s fastest growing segment, spurring $26 billion of investment, $17 billion of which was spent on 30 acquisitions in total. A full third of IBM Research’s spending is on Big Data.

It’s a similar story with Cisco and HPE. Cisco’s Data Center has been its fastest growing major product category for the last five years. The historic HPE split from HP earlier this month was itself an attempt to isolate the faster growing data services sector from HP’s (NYSE: HPQ) bread and butter PC and printer business.

Given that the most recognized names in Big Data are struggling or even shrinking overall but growing in that Big Data segment, and that the smaller companies are growing but do not have the economies of scale that the larger firms enjoy, it seems inevitable that we will see further roll-up in this sector over the next few years. Here are 3 possible acquisition prospects for IBM, HPE, and Cisco.

Datalink

A look at Datalink Corporation (NASDAQ: DTLK) is a perfect illustration of what is going on with the smaller companies in the Big Data space. Revenues have grown 28% since 2012 and 2015 looks on pace to grow 20% more since last year. And yet, Datalink’s bottom line has been struggling mightily, and that has taken a major toll on its share price in 2015. Year to date, Datalink is down over 40%.

Datalink has made some notable acquisitions in the past, most recently Bear Data late last year, but these have not spurred sufficient growth as hoped. The Bear acquisition made Cisco Datalink’s largest OEM, which could mean that Cisco is the best choice for suitor here since there is already considerable overlap. A takeover by Cisco would mean lower cost of revenue and higher margins on Datalink’s revenue stream, and likely lower SG & A expenses as operations could be streamlined.

Sysorex

Much like Datalink, Sysorex Global Holdings Corp. (NASDAQ: SYRX) has a rapidly growing top line, but as it stands, margins are too small to maintain profitability. Revenues have grown remarkably from just over $4 million in 2012 to over $63 million by the close of 2014, with growing gross margins as well.

Sysorex was founded by an IBM employee and what is notable about it is the speed and accuracy of its technology. Sysorex’s security product billed AirPatrol has the ability to pinpoint the location of wireless devices to within 10 feet, accuracy which is unmatched by any competitor. Its other main product, LightMiner, is an in-memory off-hard-drive data storage solution that is cache-free and runs 100x faster than competing systems.

With both growing revenues and top of the line data processing technology, Sysorex could be an attractive acquisition for any of the three Big Data companies. While Sysorex has no earnings yet, annual revenues are four times its entire market cap. Sysorex could be acquired very cheaply at these rates for anyone who believes its tech could give a leg up on the competition.

CSP Inc.

CSP Inc. (NASDAQ: CSPI) is another data solutions company treading water. Very generous to its shareholder though with a 7.5% dividend, it is not giving up despite razor thin margins and steep competition from the bigger players. That generosity may be the company’s saving grace as the stock began to rise from the pit once dividends were announced in 2012.

Like Sysorex though, CSP struggles with a very low valuation of only $20 million compared with its high annual revenues of over 4 times that. Most data companies in this tier are struggling with the same issue – revenues are there, but growth in earnings is not. CSP competes directly with many of the companies who manufacture its third-party products, and these include IBM, HPE, and Cisco. While the competition is great for customers, it is making the sector almost unprofitable, as CSP looks set to record a net loss this year.

If this is going to change for any of the smaller companies, and any of the big players that have been struggling over the last decade, operations will have to be streamlined in order for margins to grow. Cost of revenue needs to come down and administrative expenses need to be slashed. On the other side, HPE, IBM, and Cisco all need a shot in the arm to show the markets they are still capable of growth. In the case of Big Data, it seems that roll-up could be a viable solution, and better now while valuatioms are low before the amount of data being created doubles or triples again in the next few years.

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This Company Could Be An Opportunity To Buy Into A Dramatic Oversell

By
Jennifer Aldershot
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Repros

Most of the time, when we look at the development end of the biotech space, we focus on small cap stocks with a valuation of between $250 million and $1 billion. Six weeks ago, Repros Therapeutics Inc. (NASDAQ:RPRX) fit nicely into this bracket. As things stand today, however, the market values Repros at just $42.5 million – a close to 80% decline on its October 19 close. The driver behind this decline was the cancellation of an early November advisory committee meeting that would have seen a review team report its opinion on Repros’s lead candidate, enclomiphene, in a secondary hypogonadism indication.

The FDA is set to report its final decision today, however the likelihood of a decline is high. The regulatory agency cited questions concerning the bioanalytical method validation used in the trial as the reasoning behind the cancellation. Apparently, the method used could affect the interpretability of pivotal data on which the drug’s NDA was based. Any doubt over the credibility of pivotal data almost always translates into a non-approval. With this in mind, today could mark another steep decline in Repros’s market capitalization. Of course, some level of sentiment towards the PDUFA will already be priced into Repros stock, but not all.

With this said, the cancellation of an advisory meeting might just be a forerunner to an extension on the clinical phase of enclomiphene. The FDA defines bioanalytical method validation using six broad categories – accuracy, precision, selectivity, sensitivity, reproducibility and stability. The thing is, as bioanalytical processes advance, the way in which these categories are applied changes. If the FDA concerns relate to an element of the process that can be modified easily (which we will gain insight into today), and the data can be alternatively presented in a way that supports the initial hypothesis, approval might not be that far away.

Additionally, while enclomiphene is the company’s lead candidate, it also has another drug in mid to late stage trials that has the potential to generate revenues to the level of, or even higher than, its lead counterpart. Markets seem to have overlooked this candidate in favor of a dominant sell bias. The drug is a uterine fibroid therapy called Proellex. Uterine fibroids are non-cancerous growths that form in the uterus, which have a range of symptoms including heavy menstrual bleeding, pelvic pressure and constipation. As much as 75% of women will develop uterine fibroids during their lifetime, and while a portion of these will go undetected through a lack of any real symptoms, many have symptoms so severe that they necessitate a hysterectomy. Repros is targeting the symptomatic patients, with the goal of reducing the need to undergo this serious operation. Top line is expected from a phase IIb during the first half of next year, and positive results could be a turning point for the company – that is, assuming positive developments surrounding enclomiphene haven’t already initiated an upside reversal.

So what are trying to say here? Well, that Repros has taken a hammering over the last couple of months based purely on expectations of an FDA decline. However, these expectations don’t necessarily mean the end for enclomiphene, as the FDA may report today that it only requires additional data, or even better, an alternate relevance analysis of the current data. With topline from a late stage phase II also coming early next year, we could see both a revised FDA decision and some encouraging trial data contribute to a reversal market sentiment surrounding Repros within a relatively tight timeframe – specifically April-June 2016.

In the development stage biotech space, speculator sentiment is king. When a company has little or no revenues to speak of, its valuation generally relies on trial data and FDA updates. Both the interpretation of trial data and the implications of updates are qualitative, not quantitative, and as such, have the potential to induce over (or under) reaction. In this reaction lies opportunity, and in this instance there may be an opportunity in an oversell of Repros. One to watch going forward, with a strong focus on today’s FDA announcement.

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A Billion Dollar Decision Is Just Around The Corner For Alexion

By
Roger Hannington
-
Alexion

Back in September, the FDA reported it was pushing its PDUFA review date for Kanuma, Alexion Pharmaceuticals’ (NASDAQ:ALXN) Lysosomal Acid Lipase Deficiency (LAL-D) candidate, back by three months. The agency cited a request for more information relating to chemistry, manufacturing and controls – essentially how Alexion plans to consistently produce and store the drug. Those three months are almost up, and with a PDUFA date set for the beginning of December, now is a great time to take a look at the therapy in question, in an attempt to see what impact an approval might have on Alexion going forward. So, here goes.

First then, a look at the drug and its indication. As mentioned, Kanuma is targeting LAL-D, which is a rare condition that causes a deficiency in the production of lysosomal acid lipase. LAL is an enzyme that breaks down fat in humans, and if there isn’t enough, fatty deposits build up in organs and cause, eventually, liver failure. Kanuma is a recombinant (just meaning it was made in a lab, rather than occurring naturally) form of LAL called sebelipase alfa, which is an enzyme targeted at replacing LAL in deficient patients. It performs exactly the same function as LAL (i.e. breaks down fatty material) and has demonstrated in trials that it can be an effective, safe replacement and – as a result – treatment.

The drug got approval in Europe back in September, about a week before the FDA requested the additional data. Approval in another region, especially one with an agency as stringent as the EMA, can be a great leading indicator for a drug’s approval in the US.

So with what did Alexion need to provide the FDA to bolster its NDA? As we’ve said, the FDA only specified publically that the info related to chemistry, manufacturing and controls, which is a predefined requirement section on any NDA. For the majority of the trial period, Alexion produced Kanuma in-house; well, at facilities previously owned by Synageva – the company from which Alexion picked up Kanuma as part of the latter’s acquisition of the former back in June. However, Synageva also stated that a third party had produced the drug in anticipation of approval. The enzyme comes from the egg white of GM chickens, meaning it can be produced and stored (or at least, the raw materials can be) a long time in advance of administration to patients. These latter two factors are likely the driving force behind the FDA’s additional info request. Specifically, the agency is likely asking for info that a) proves the third party facility can produce the drug to the standards of the product used in trial and b) that the already manufactured product is of this aforementioned standard.

So if Alexion gets approval for Kanuma, what’s its market potential? Well, LAL-D is a rare disease, occurring in approximately 1 in 40,000 individuals in the US. This rarity, however, does not mean the drug can’t be a blockbuster for Alexion. Its primary revenue generator, Solyris, also targets a rare disease, aroxysmal nocturnal hemoglobinuria (PNH) – the key is in the price. Soliris is the most expensive drug in the world, coming in at $500,000 annually in most regions. Alexion doesn’t need to price Kanuma that high to hit $1 billion in sales, but we don’t expect it to be cheap. Indeed, Barclay’s (NYSE:BCS) analysts put its peak revenues at an expected $1.5 billion, suggesting the drug will hit these sales levels within three years. For a company that generates the vast majority of its revenues (circa $2.2 billion during 2014) from its flagship drug, a new blockbuster would really shore up Alexion from an investor’s perspective. There have been concerns as late that a drug being developed by Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY) could threaten Soliris’ dominance in its target indication (theories have arisen as to whether this threat caused Alexion to overpay for Synageva, but that’s a story for another day), and diversifying away from overreliance on a potentially threatened treatment mitigates some exposure risk.

The date to keep an eye on? December 8th. That’s the three-month threshold to which the FDA pushed back the PDUFA, and assuming no further delays, it’s the date on which we will hear whether Kanuma has a commercialization green light. Expect some immediate upside in Alexion’s market cap if the news is good.

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