12:00 AM
Jul 11, 2016
 |  BioCentury  |  Finance

Rethinking risk

Investors' top names and milestones in 3Q16

The second half does not contain the high-impact, sector-moving milestones seen in the first six months of the year, but investors still have at least 90 late-stage milestones from which to choose before 2016 draws to a close.

Some buysiders are looking for companies that already have turned over their data cards in hopes of finding de-risked names. The goal is to own launch stories or companies with a regulatory milestone that is likely to be positive.

Other investors are wading through novel mechanisms and unmet needs in search of upside in the Phase II and III spaces.

Big swings

The biggest events came in June, when Biogen Inc. reported Phase II results for opicinumab (BIIB033) to treat relapsing forms of multiple sclerosis and Merck & Co. Inc. disclosed Phase III results for its Keytruda pembrolizumab as first-line therapy for patients with metastatic non-small cell lung cancer (NSCLC) with high expression of PD-L1.

Biogen's mAb against leucine-rich repeat neuronal protein 1 (LINGO-1) missed the primary endpoint, while Merck's PD-1 inhibitor met.

"The lung data from Merck were a big deal," said Brad Loncar of the Loncar Fund. "You've officially made it when you're front line in a disease like lung cancer. As much as we've been talking about PD-1s for the last few years it would have been a huge disappointment if it missed."

Merck said it plans to present detailed data at a medical meeting this year, and to share the data with regulators as soon as possible.

Biogen said it will use the Phase II data to inform the design of its next study. The company plans to report detailed data from the opicinumab trial at the September congress of the European Committee for Treatment and Research in Multiple Sclerosis.

Even with Biogen's heavy artillery mostly expended, Marshall Gordon of ClearBridge Investments thinks there could be upside in the second half. "There could be readouts that are more positive on their earlier pipeline and it would show there's more to the stock than just LINGO and Alzheimer's disease," he said.

As an example, he pointed to BIIB065 (IONIS-DMPK-2.5Rx). The antisense therapeutic targeting dystrophia myotonica-protein kinase (DMPK), partnered with Ionis Pharmaceuticals Inc., is in Phase I/II testing to treat myotonic dystrophy type 1 (DM1).

"I'm looking forward to seeing the early DMPK data," said Gordon. "It should, based on mechanism alone, be a straightforward shot on goal."

According to ClinicalTrials.gov, results are expected in December.

No catalyst, no problem

Some investors are less enamored of holding stocks in anticipation of key clinical or regulatory events. They say the rewards are lacking.

"If you hold into the catalyst and it's negative it will be painful, and if it's positive you're not making the returns you normally would," said Linden Thomson of AXA Framlington.

Some of her favorite names are product launch stories. These include Intercept Pharmaceuticals Inc. and Swedish Orphan Biovitrum AB.

Intercept shed 4% in the second quarter despite a double dose of good news related to its Ocaliva obeticholic acid (OCA). In early April, FDA's Gastrointestinal Drugs Advisory Committee recommended approval of the product to treat primary biliary cholangitis (PBC). FDA approved the drug on May 31.

"Intercept traded to levels that looked compelling based on the stand-alone PBC indication where you're not paying much for NASH," Thomson said. "The PBC panel went better than expected and so was...

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