Soon after European regulators announced the approval Thursday afternoon of Relistor, the bowel drug from
, Citibank analyst Yaron Werber pushed out to clients a reiteration of his sell rating and $4 price target on Progenics.
In his note, Werber insisted that despite European approval, regulators in the U.S. would not approve Relistor.
A few hours later, Thursday evening, the U.S. Food and Drug Administration announced the approval of Relistor.
Werber is a good guy and a smart analyst, so I don't mean to mock him for making a bad call on Progenics and Relistor. Heck, everyone makes mistakes, and this time Werber wasn't alone. Cowen & Co. analyst Leland Gershell, for instance, did exactly the same thing Thursday afternoon, except he had a neutral rating on the stock -- not a sell.
But as I
at the end of March when Progenics was trading below $6 and near cash, investors were giving no value at all to Relistor (also known as methylnaltrexone). That didn't seem right. Sure, Relistor had its share of setbacks, but in this case the clinical data made a reasonable case for FDA approval. The stock was already pricing in rejection, so there didn't seem much to lose.
On Thursday, Progenics, a $5-$6 stock in March, closed at $10.64. When news of the FDA approval hit the wires after hours, the stock jumped another 20% to $12.75.
How much higher can the stock go?
The FDA approved Relistor as a treatment for opioid-induced constipation in patients with acute medical illness, or AMI.
AMI is a catchall term, but it generally refers to hospice-care patients who are nearing the end of their lives. These patients are typically offered palliative care that includes large doses of narcotics, which can cause severe constipation. The form of Relistor approved Thursday is injected under the skin and relieves painful constipation and bloating that can't be treated with ordinary laxatives.
Under the terms of their partnership, Wyeth will market Relistor worldwide, paying Progenics a royalty percentage on sales believed to be in the mid- to upper teens.
The size of the palliative care market for Relistor isn't entirely clear. Wyeth has only said that there are 1.5 million Americans with AMI. Analysts have disparate estimates, ranging roughly from $100 million to $400 million.
One hedge fund analyst who owns Progenics pegs fair value for the stock at around $15. That's only accounting for Relistor in its currently approved indication, he says, stripping out value for an intravenous formulation that
failed a phase III study
for a different indication in March, as well as an oral formulation in earlier development.
Progenics management is holding a conference call Friday morning at 10 a.m. EDT, so perhaps more visibility into the size of the AMI market will be offered.
In the meantime, Progenics did itself and its share price a favor by announcing Thursday night a $15 million share-repurchase plan, funded by the milestone payment for Relistor's approval that is being paid to the company by Wyeth.
That, plus inevitable short covering on news of the FDA approval, could push Progenics shares significantly higher, even if it's only temporary. On a personal note, I'm hoping the stock gets back to at least $18, which is where it was when I first
about Relistor's prospects, before the intravenous program stumbled over the failed phase III trial.
Finally, not all analysts got the Relistor call wrong. Kudos to Summer Street Research Partners' Carol Werther, who wrote the following to clients March 20: "The FDA likely will approve subcutaneous methylnaltrexone
Relistor by April 30 for the treatment of opioid-induced constipation in patients with advanced medical illness. Two Phase III studies reached their endpoints -- percent of patients who defecated within four hours of receiving drug. No significant safety issues have appeared."
The only thing Werther missed was the actual approval date. But her clients will surely give her a pass on that small miscue.
Adam Feuerstein writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback;
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