A Trump Presidency May Be Good for Biotech

GuruFocus.com
0

- By Adam Lawrence

With President-elect Donald Trump to take office in January, biotechnology has begun to see an increase in attention. Recent progress by President Barack Obama has also sparked attention as the approval of a new bill could give a large infusion of cash to companies in the space.

The U.S. Senate approved complex health care legislation earlier this month. The bill, $6.3 billion legislation known as the 21st Century Cures Act, is designed to provide funding for things like cancer research, the epidemic of opioid abuse, mental health treatment initiatives and what may be most important is that it helps the Food and Drug Administration (FDA) speed up drug approvals to push for better technology in medicine overall.


As indicated by the iShares Nasdaq Biotechnology Index (IBB), the sector has finally begun to see a boost. The president-elect had biotech investors skittish earlier in December as remarks made about bringing down drug prices had a negative impact on the sector. In light of this, the market has taken a turn for the better in recent weeks with the index now climbing back roughly 3% since hitting 45-day lows during the first full week of December. In response to the rally, several stocks have echoed the trend and with the passage of this new bill, sentiment has recovered its bullish stance leading up to the election.

Companies focused on novel therapies have seen some of the most attention. Take Vitality Biopharma (VBIO), for instance. The company's unique drug therapies dealing with the treatment of narcotic bowel syndrome have sparked interest over recent weeks. Vitality's VB100 directly targets inflammation and pain through the use of a cannabidiol -based (CBD) prodrug. With its ability to achieve targeted delivery and an easier way to administer the drug orally, Vitality has set itself apart from other companies dealing with similar CBD-based solutions.

The company is currently doing formulation work and finalizing preclinical toxicology and safety studies. Preclinical efficacy studies are also ongoing with a goal to file the U.S. investigational new drug application during the second half of 2017 with a Phase 2 trial planned for 2018. This is where the new 21st Century Cures Act could come into play especially as states continue to pursue further legalization. To be able to actually provide a kind of oral pharmaceutical such as the one Vitality has created and doctors can prescribe could be a game changer for investors and for patients alike; shares of Vitality are up more than 40 cents over the last two weeks.

But it hasn't been just the public taking notice of cannabis applications within the biotech space. Many of the industry's experienced leaders have also become involved with Vitality in particular. For instance, CEO Robert Brooke is a biomedical engineer but has also experienced great successes in the public markets through founding the company that eventually became Lion Biotechnologies (LBIO). Avtar Dhillon, M.D., the company's chairman and co-founder, has served on and is serving on the boards of some of the most recognizable names within the arena. These include Inovio Pharmaceuticals (INO), OncoSec Medical (ONCS) and Arch Therapeutics (ARTH).

Achaogen Inc. (AKAO) has also seen a favorable response from the uptick in trading within the biotech space. Similar to Vitality, Achaogen is developing novel therapies. The company focuses on the use of antibacterials to address multidrug-resistant gram-negative infections. What seems to have had the market for this stock in such a frenzy lately could actually be twofold. The company announced positive results in Phase 3 trials of its lead candidate, plazomicin, on Dec. 12.

The trial was to achieve superiority in comparison to meropenem for the FDA and to achieve efficacy endpoints in Phase 3 EPIC registration trial in patients with complicated urinary tract infections as well as acute pyelonephritis. Since making the announcement, the stock has rallied by as much as 114.5% from the opening price on Dec. 12.

Based on these results analysts at Needham & Co. upgraded Achaogen from Hold to Buy and gave a $19 price target for the stock. Analyst Alan Carr commented, "Achaogen announced surprisingly positive results from both Phase 3 trials of plazomicin in CRE infections (CARE trial) and complicated urinary tract infections (EPIC trial). Given small size of scaled-back CARE trial, we had assumed there was no realistic opportunity for plazomicin to demonstrate differentiation from colistin. However, the trial showed plazomicin was statistically superior to colistin with respect to mortality and nearly so with respect to composite endpoint of mortality and disease-related complications. Similarly, we had anticipated EPIC trial would establish noninferiority of plazomicin to meropenem, a potent drug used for more challenging cUTI infections. Achaogen disclosed, however, that plazomicin was superior to meropenem with three of four key assessments."

Additional analyst reactions to the findings prompted increased bullish sentiment. William Blair analyst Y. Katherine Xu reiterated an Outperform rating and raised her price target on Achaogen to $25 (from $11). Xu responded similarly to Needham's analyst stating, "EPIC demonstrated superiority for plazomicin on three of four co-primary endpoints as required by the FDA and EMA over meropenem, although the goal was noninferiority, while CARE demonstrated a 70% reduction in mortality for plazomicin over comparator colistin, a strong and near-statistically significant benefit with a very small sample size."

Other companies like Evoke Pharma (EVOK) have gained ground in the market simply based on guidance from the FDA. The company announced Friday that it received positive guidance from the FDA in a pre-New Drug Application meeting to discuss clinical data for inclusion in a 505(b)(2) new drug application for its Gimoti(TM) therapy. Essentially the company provided clinical data whereby the FDA agreed that demonstration of similar exposure to Reglan(R), the listed drug, in a healthy volunteer pharmacokinetic trial could act as a portion of a new drug application for Gimoti.

Evoke provided Phase 3 data showing significant statistically based efficacy compared to placebo. In a press release issued by the company, Dave Gonyer, R.Ph., president and CEO of Evoke, said, "With the FDA's guidance, Evoke intends to complete an additional pharmacokinetic trial and file an NDA, without the need for additional efficacy studies. Given these two positive pre-NDA meetings, we believe the company is well positioned to move forward to an NDA and potential approval of Gimoti for diabetic gastroparesis in adult women."

Shares of Evoke have seen a relative decline leading up to this announcement but since then shares have spiked as high as $2.52, roughly 87% higher than lows it saw in November.

BioCryst Pharmaceuticals Inc. (BCRX) has found itself taking advantage of this latest trend in biotech over the last few weeks. The company's stock has enjoyed a favorable jump in market momentum uninterrupted by Trump's comments. Just like other companies mentioned, BioCryst develops novel drugs dealing with rare diseases. The passage of the 21st Century Cures Act could quickly become a boon to the company's success.

JMP Securities recently upgraded BioCryst to Market Outperform from previously downgrading the stock to Market Perform back in August. To further support the rating, BioCryst shares have increased by as much as 62% since early November. The company's Rapivab has been fully approved and commercialized for the treatment of acute uncomplicated influenza in patients 18 and older.

They have a license agreement with bioCSL (now Seqirus) to manufacture and commercialize RAPIVAB for the treatment of influenza worldwide. The company's development programs also include BCX7353 and BCX4430 (Galidesivir) to address hereditary blood disorders and side effects of viral infections like hemorrhagic fevers. BioCryst has also said its discovery team is designing drug candidates against two undisclosed rare disease targets.

These key developments have attracted more than just retail investors. Several hedge funds have directed millions into this stock. According to Insider Monkey, the number of funds tracked increased from 15 at the end of June to 16 at the end of September. Of the positions held, the two largest included Baker Bros. Advisors' worth roughly $48.4 million and Deerfield Management with a position of just over $19.4 million.

These are only a few of the bullish biotech's that have been climbing after the election and during the time new bills have been put in place to spur growth within the industry. With the progress that the sector overall has been seeing, which is evidenced by the Biotech Index's climb over recent weeks, it should be a point of focus for investors heading into the new year.

Disclosure: The author does not own any shares of any stock mentioned in this article.

Start a free seven-day trial of Premium Membership to GuruFocus.

This article first appeared on GuruFocus.


Advertisement

Recommended Stories