Two Companies With Near Term FDA Catalysts

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With the US Federal reserve monetary policy announcement just round the corner, you could be forgiven for staying out of the equities markets at the moment. With all the uncertainty surrounding the announcement, any outcome will likely translate to considerable volatility, and a large number of individual investors will have already shifted allocation towards safe haven assets such as precious metals. However, and as we’ve mentioned in the past, the biotech space will often buck wider market trends. Healthcare is an inelastic industry, and as such, it’s constituent companies have the potential to gain strength while the wider market declines. The announcing of promising trial results or FDA approvals can be strong upside catalysts for any biotech – regardless of what other industries are doing. So, with this in mind, here are two companies set to receive FDA approval outcomes over the coming few weeks that should offer up some bullish reprieve in what could be a weak equities space.

Merck & Co. Inc. (NYSE:MRK)

First up we’ve got Merck. On October 2, 2015, the FDA is set to report the outcome of its accelerated approval review for a supplemental Biologics License Application for Keytruda. Keytruda is currently approved for second-line metastatic melanoma treatment, and this supplemental application is one of a whole host of applications designed to expand the range of conditions with which Merck can target Keytruda. In this instance, the company is looking at patients with advanced non-small cell lung cancer that aren’t eligible for platinum chemotherapy (or that have already received it, to no avail). The company submitted the application back in June this year. It’s worth mentioning that the potential market for this one is not huge. About 75% of newly diagnosed patients are advanced enough to qualify for platinum therapy, and only about 20% of these move onto a second-line therapy such as that under investigation. However, with its Keytruda treatment Merck looks to be targeting a wide range of small population indications, rather than a narrower range of indications that have large potential patient populations. As such, while this announcement is unlikely to have too much of an upside impact on the company’s revenues, it should contribute to an improved likelihood of further indications going forward. Further, these indications should build on each other and could eventually contribute a substantial portion to Merck revenues. So what can we expect from the FDA? Well, safety and tolerability won’t be an issue, as Merck has filed for a dosage at the exact same level as that being currently administered for the melanoma indication. Efficacy is based on these trial results, which showed a 45.2 overall response rate across a 313 patient population. Chances are this should be enough to instigate approval – especially with the treatment already in place for another type of cancer. We may see an FDA approval committee release in the coming week or so that gives us further indication as to the treatments likelihood of reaching commercialization. If we do, look for some immediate upside momentum in Merck stock, likely to continue as we head into the October 2 release.

Relypsa, Inc. (NASDAQ:RLYP)

Next, Relypsa. Back in January, the company reported it had received a target approval date for one of its lead investigator treatments Patiromer of October 21, 2015. It is targeting a condition called hyperkalemia, which simply refers to the presence of abnormally high levels of potassium in a patient’s blood. The mechanism of action of this one is pretty simple. Patients consume the treatment absorbed in water, and it travels through the digestive system binding to potassium ions. The intestines cannot absorb bound potassium ions, so the treatment reduces the level of absorption and – in turn – the amount that reaches the blood stream. This one has a whole bunch of strong data to support the application, with eight clinical trials included in the NDA, one of which is a three-part phase 3 and another of which is a 52 week phase 2 pivotal. Results across both promising look, with the primary endpoint – a reduction in mean serum potassium – coming in as statistically significant (86% to 90% in the phase 2B, not yet reported in the phase 3).

Just as with the Merck catalysts, we will initially look for an FDA approval committee announcement that reveals their recommendations to give us some upside momentum in Relypsa. A further supporting factor behind the attractiveness of Relypsa as a near-term allocation is the recent announcement that the company had signed a two-year agreement with Sanofi (NYSE:SNY), which will see the latter take control of commercialization in return for a service fee. As if this isn’t enough, current estimates put potential revenues for Relypsa at peak $1.3 billion – about 30% higher than the market currently values the company as a whole. Definitely one to watch.

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