Biotech Stock Mailbag: Spectrum, Intercept, Orexigen, Amarin, MannKind

BOSTON (TheStreet) -- This week's Biotech Stock Mailbag opens with an email from Mike A. regarding Spectrum Pharmaceuticals (SPPI) .

"Will you do a piece on Spectrum Pharmaceuticals' Captisol-enabled melphalan when it files and eventually garners approval, vaulting the company into significant profitability? EVERYBODY knows you and your hedge fund friends continually short Spectrum and you will do anything to tweet misinformation."

Mike's apparently having a bad day at the races, but I'll try to rise above it and answer his question. 

First the basics on this one: Spectrum licensed Captisol-enabled (CE) melphalan from Ligand Pharmaceuticals (LGND) . "Regular" melphalan is a chemotherapy drug used prior to stem-cell transplants in multiple myeloma patients. CE melphalan is an improved formulation which Spectrum believes, if approved, should become the new standard of care. The company is expected to seek FDA approval for CE melphalan before the end of the year.

I have no reason to throw cold water on Spectrum's enthusiasm for CE melphalan. Ligand's "Captisol-enabled" technology has already been validated in other approved medicines and there's no reason believe it won't also be successful with melphalan.

If approved and used widely, CE melphalan is probably a $100 million product at peak. From this amount, Spectrum must pay 15-25% royalties on sales back to Ligand. Will another $75 million in revenue help Spectrum reach "significant profitability?" Perhaps, I don't build financial models. CE melphalan looks to be a nice product but it's no blockbuster.

And therein lies Spectrum's biggest problem. Spectrum sells five cancer drugs, none of which are particularly ground-breaking. None of Spectrum's cancer drugs generate significant revenue on their own. The big buzz in cancer drug circles these days is immunotherapy and genetically targeted drugs -- qualities Spectrum's portfolio lacks. Equally concerning, the company's pipeline has no "wow" factor, consisting mostly of improved versions of older drugs.

Spectrum is boring. That doesn't mean Spectrum can't grow "boring" into profitability. It can and probably will, but investors don't typically pay a lot for boring drug companies. Spectrum is trading about 2.5 times the consensus estimate of $200 million in 2015 revenue. That's relatively cheap but underscores my point about investors not willing to pay a premium for Spectrum's valuation. Wall Street still has little love for Spectrum's CEO Raj Shrotriya -- another reason for the company's smallish trading multiple.

I'm glad you included "long term" in your question about Orexigen Therapeutics (OREX) because it will take some time before a verdict on the success (or failure) of the Contrave weight-loss therapy will be known. I've long called Contrave the "Goldilocks" of weight-loss pills because it seems to have a "just right" mix of efficacy and tolerability relative to competitors Arena Pharma (ARNA) and Vivus (VVUS) .

We only have a couple weeks' worth of Contrave prescription data to examine. The numbers aren't blowing anyone away, but launching a weight-loss pill ahead of Thanksgiving and Christmas isn't exactly optimal timing. I'll be more interested to see what the Contrave prescription data look like in January and February, once fat people decide to start the new year with diets.

An important near-term event for Orexigen will occur on Dec. 19 when the European Medicine Agency announces the approval recommendations from the monthly Committee for Medicinal Products for Human Use (CHMP.)  Orexigen's Mysimba (the European brand name for Contrave) is supposed to be on the December CHMP agenda. If CHMP recommends Mysimba approval, Orexigen will have a significant advantage over Arena and Vivus, both of which have been rejected by European regulators. 

Amarin (AMRN) isn't in danger of imminent bankruptcy although the financial picture might look a lot dicier a year from now. The company does have one of the highest debt-to-market cap ratio -- 155% -- among bio-pharma companies, according to an analysis by EP Vantage. Right now, Amarin's $135 million in cash and relatively lenient servicing terms on the $223 million in debt are keeping the company solvent, but the company continues to burn cash ($15 million in the third quarter) and Vascepa sales growth remains underwhelming.

In its present state, Amarin will need to raise more money before results from the all-important Vascepa REDUCE-IT study are announced in 2017.

Emily K. writes, "I don't understand why Intercept Pharmaceuticals (ICPT) is so weak now when before everyone loved it. Is there anything that turns the stock around again? I own Intercept at a price a lot higher than where it trades today."

Remember back in March when Intercept shares traded close to $500 and the company carried a market capitalization of around $9 billion? Those were the good old days. Today, Intercept is trading around $155 per share with a $3.3 billion market value. There are a lot of reasons for Intercept's precipitous fall, but generally speaking, investors bought blindly into the most bullish, blue-sky Intercept scenario first, without bothering to ask questions or worry about what, if anything, might go wrong.

As often happens in biotech, stuff goes wrong. The best-laid plans require detours. Today, Intercept is awash in uncertainty and doubts about the future of its experimental drug OCA as a treatment for NASH, or fatty liver disease. Legitimate, important concerns raised today about OCA in NASH didn't seem to matter much back in March, but that's the downside of biotech bull markets.

I have no idea if or when Intercept's stock price ever returns to its previous highs, but I do know there's no chance of that happening unless investors get the clarity they now want to assuage concerns about OCA. 

In the short term, Intercept needs to deliver on its promise to start a phase III study of OCA in NASH in the first half of next year. Importantly, the design of the clinical trial, including endpoints, must have the FDA's blessing. Super importantly, the OCA phase III study must NOT include a requirement for pre-approval cardiovascular outcomes data.

At Intercept's investor meeting on Monday night, CEO Mark Pruzanski insisted there was no indication regulators were leaning towards requiring cardiovascular outcomes data for OCA as a pre-condition for approval in NASH. However, Intercept and FDA have not met formally to nail down a design for the phase III study. That planned Intercept-FDA meeting about the OCA study design will be an important stress-reliever -- as long as it goes the way Intercept believes it will. 

Out of Intercept's control but still important will be the outcome of a phase II study of GenFit's GFT505 in NASH. GenFit told investors to expect results from the study at the end of March. From a competitive standpoint, the best-case scenario for Intercept will be lackluster GFT505 data. If the study is positive, investors will invariably compare and contrast the two drugs to see which might be a more potent NASH therapy. 

I also felt Intercept did a good job at its investor meeting Monday night defending the OCA results from the phase II "FLINT" study. Concerns raised in the publication of the FLINT study in the Lancet last week sparked the most recent sell off in Intercept shares. On Monday, Intercept discussed some admittedly post-hoc analyses not included in the Lancet article, but which nonetheless, made a convincing case for OCA in NASH. Don't expect the bull-bear debate over the interpretation of the FLINT study to end until we get more data from the phase III study. 

"MrMookie1790" writes, "Dear Mr. Feuerstein, You published an article months ago concerning MannKind's (MNKD) Bloated Balance sheet. There are really no figures in the article from their balance sheet, so I'd like to hear from you or maybe you could write an article on "The Improving Balance Sheet." Or, your thoughts concerning their cash position now? Or, Maybe you're still under the assumption that it is still bloated. Thanks for reading. Good Luck to you."

The health of MannKind's balance sheet hasn't improved significantly. Still bloated. 

I wrote that column in August just days after MannKind announced the Sanofi partnership to market Afrezza. At that time, MannKind shares were down almost 7%. Here's an update on the stock's performance since the Sanofi deal was announced.

MNKD Chart

MannKind's performance since Afrezza was approved on June 27:

MNKD Chart

See everyone next week. 

Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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