Last week we saw plenty of volatility across the healthcare and biotechnology sectors, driven both by macro and micro factors. We’re expecting much of the same this week, and so as we kick off a fresh session, here are two companies that could really move this week in biotech, and what’s going to drive the action. The two companies in focus are Novan, Inc. (NASDAQ:NOVN) and MannKind Corporation (NASDAQ:MNKD).
Our first highlight is Novan.
Readers might be familiar with this one. The company hit the headlines at the end of January, on the back of some news relating to a couple of phase III studies of its lead acne asset. The asset in question is called SB204, and Novan was investigating efficacy as part of the two just mentioned phase IIIs, with the goal being to use the data derived from the studies to underpin a new drug application (NDA) with the FDA.
Things didn’t go quite as smoothly as planned, however.
Each of the trials had three endpoints, and the drug hit all three in one of the trials, but only one of the three in the second. There was no immediately visible explanation for the missing in the second study, but markets interpreted as pretty much terminal for the drug. Acne drug (as with the majority of common dermatology indications) will generally need data from two reasonably large phase IIIs in order to get an FDA green light. The trial missing on two of the three endpoints in the second study (and by proxy, failing it) left Novan with just one set of data, and – if our expectations are accurate – needing to put together a third phase III study in order to make up the data shortfall.
And herein lies our drawing readers’ attention to the stock today. The company is about to hold a conference call (pre market, US, Monday) to discuss the forward development of 204. Many are heading into this call expecting a discontinuation announcement, so if we get a confirmation from the company of its putting together of a phase III protocol (and in turn, confirmation that the drug will continue along the development pathway) then there’s going to be some strong upside on the stock heading into the US open.
Nothing is certain, of course, and this is a bit of a risky binary play with us having no real indication of which way the company will go. For the risk tolerant player, it might be worth a shot. For the more risk averse out there, there’s still some appreciation on offer longer term after the confirmation comes (if it does).
This one is a slightly less factor specific play, but it’s one to watch nonetheless. The company has just put into effect a reverse split, to the tune of 1-for-5, and has taken a real hit as a result.
That the company is down on a reverse split is no surprise – in the wider markets, a reverse split is generally a sign that things aren’t going so well. However, things are a little different in the biotech sector, and especially at this end of the market. Young biotechs basically run on tacked together cash infusions until they can start bringing in revenues from a drug approval, or a partnership deal, something like that. The impact that has on share price is downside pressure, and it’s not uncommon for a biotech (regardless of the quality of its development assets) to fall below minimum bid threshold for NASDAQ listing. This company has Afrezza, so it’s not technically a development asset, but the concept is the same. It’s pushing to start bringing in revenues, and it needs to maintain min bid to stay on a major exchange. A reverse split brings the company back in line with the NASDAQ requirements, and is – in this instance – a necessary evil.
So what are saying here?
Well, that the company has had to split, yes, but it’s not necessarily indicative of fundamentals, and that there’s a good chance we’ll see some degree of recovery as we move into the latter few weeks of this quarter and beyond.
It doesn’t guarantee the success of Afrezza, of course, but it it far from suggests the opposite (which is how many operators are interpreting it).