Bret Jensen last regaled us with the stock we “wouldn’t admit to knowing” about six months ago, but he’s got something very different to pitch today in his latest teaser ads for Small Cap Gems.
Back in September, the stock he teased was RCI Hospitality Holdings (RICK), the operator of strip clubs and “breastaurants” around the country… and it has been, well, flat over those last six months or so (no pun intended. OK, maybe slightly intended).
Today, in a sure sign of having achieved Renaissance Man status, he moves on from strip clubs to biotech… and he’s teasing another small cap stock that he says has already turned $10,000 into $41,626, and that might have another 1,000%+ gain coming on the back of their FDA “backdoor” approvals.
So let’s find out what the stock is, shall we? I think you probably know me well enough by now to know I’m not going to be able to tell you whether the drugs they’re trying to get approved are any good, or even what a reasonable valuation for a biotech stock is these days… but I can at least tell you the name and get you started, and I know that a great many Gumshoe readers are avid biotech investors who can probably opine much more wisely than I on the stock.
The intro is plenty exciting:
“The FDA has just opened a backdoor for a fast growing company to bypass the standard drug approval process… putting this company in the fast lane for 2,715.13% growth!
“URGENT: This story is developing faster than expected and the stock has already taken off over 316%… only underscoring my belief that even bigger gains are coming.”
There are all kinds of “backdoor” approvals that get touted when it comes to the FDA — the FDA approval process is so mysterious to most investors, and we all have such a general idea of “it’s really expensive and takes a decade or more to approve a drug” that the backdoor notion has almost immediate appeal… there’s a sneaky way to get approved more quickly, and make money faster! Hurray!
This time, it’s apparently a backdoor that has to do with a reformulation of an existing drug…
“I want to tell you about a tiny pharmaceutical company the FDA has recently given the green light to skip the standard drug approval process.Are you getting our free Daily Update
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“The result? Backdoor access to a $3.35 billion market opportunity.
“And because of this unique FDA backdoor approval process we’re looking at one of those rare times when you’re able to say that 500% or 1,000% revenue increases are conservative targets.
“In fact, my own math suggests growth of as much as 2,715.13% based on just the drugs on their way to the market right now….
“It permits the company to take highly-profitable drugs to market in less than half the standard time — AND at a fraction of the usual cost….
“The company I’m going to tell you about today has discovered an FDA backdoor to legally skip this pathway and cut costs by 99.4%.”
OK, so cutting costs by 99% sounds pretty good. How about some more clues so we can ID the company?
“… the backdoor they’ve been granted typically only requires one confirmation study for a drug to be approved.
“We’re talking a cost of just $3-7 million, compared to the $1.3 billion usually required to develop a drug….
“The FDA has already given them the green light into one relatively tiny $99 million market — which means the stock is still cheap, even with the recent price surge.”
And then some more specifics about that FDA loophole:
“…. a second pathway — the 505(b)(2).
“This legal ‘backdoor’ pathway allows drugs to skip years of testing, as long as the active ingredient has already been approved.
“And our specific company already has 5 drugs in the ‘public’ pipeline — 4 with an approved active ingredient.
“We can expect to see all the drugs in the market by 2017.
“But I’m expecting one of their most promising drugs to go live anytime between now and early 2016….”
OK…. so that gets us close enough to an answer that I can guess. But a few more tidbits and we can be 100% certain… this is a company that focuses on drug reformulations, improving on the solubility or the usability of existing approved drugs (ie, making them easier for hospital staff to administer, or giving them a longer shelf life, or making them work faster or slower, etc.). Here’s a wee bit more for the “clues” pile…
“The FDA-approved backdoor already lets this company take highly profitable drugs to market much faster and for pennies on the dollar…
“Yet this company also has one more advantage up its sleeve.
“You see in January 1983 Congress passed a law called the ‘Orphan Drug Act’ …
“… an extra 7 years’ worth of market exclusivity — and that, on top of any patents a company already holds….
“… our company has three Orphan drugs either in, or coming, to market, they also produce regular drugs.”
And then we get the core of the argument — that they have a big, large-market drug that is going to turn them into a huge winner over the next two years:
“This is the game changer drug.
“It’s the number one reason why I believe this stock will take off imminently… and turn our play into a $1 Billion+ company.
“We’ll call it ‘Drug C’.
“It treats Chronic Lymphocytic Leukemia and Non-Hodgkin’s Lymphoma.
“Every year there are around 86,520 combined new cases of the diseases in America alone — this represents a $709+ million opportunity.
We’re told that this drug uses the same active ingredient as the approved drug, but that it comes already constituted (ie, not powdered) and is more stable, and they’ve gotten patent protection through 2031 and he expects the drug to be on the market and generating revenue by early 2016.
So what is it?
Well, that “Drug C” is Bemdamustine (in two formulations that I’d call “regular” and “faster infusion”), which is indeed a new formulation of an approved drug, Treanda from Teva. They have partnered with Teva on this, so they have received a first milestone payment and will receive double-digit royalties on the drug if it’s approved and sold, which seems to be likely at some point over this next year.
Whether or not that means this new version of Treanda/Bendamustine will be super-profitable is another matter — it looks like Teva itself has now also come out with a liquid formulation of Treanda, and I have no idea whether there are meaningful differences between that original, branded drug and the new version… or, at least, meaningful enough to have Teva pushing the new version through its sales channels, or have pharmacies or doctors buy up the new, presumably more expensive version in place of Treanda. You can ponder that on your own… but I can at least tell you that the company being teased by Bret Jensen is Eagle Pharmaceucicals (EGRX).
This is how the company describes itself:
“We are a specialty pharmaceutical company focused on developing and commercializing injectable products,
primarily in the critical care and oncology areas, using the 505(b)(2) regulatory pathway. Our goal is to enter the market before any generics with enhanced versions of existing injectable drugs.”
And it has indeed been on a heckuva tear — they went public just over a year ago, and the stock was pretty quiet until it came close to that one-year birthday in February… that’s when they settled their patent litigation with Teva and struck the deal with them to partner on new formulations of bendamustine and, at roughly the same time, got the additional 7 years of exclusivity for their Orphan drug, Ryanodex, that is now approved for malignant hyperthermia. That was enough to send the stock jumping skyward in a couple different leaps, so it’s now sitting on gains of more than 400% in the past year. Analysts have penciled in some remarkably high revenue numbers for the next year or two, which presumably is largely based on Bendamustine (Ryanodex addresses a dramatically smaller market in hyperthermia… though they seem to imply that it has potential to be one of those drugs, like adrenaline, that simply has to be stocked by hospitals… and perhaps athletic facilities if it gets broader approval… which would give them a large recurring market). Their other two high-potential drugs are similarly “improved” reformulations, of Angiomax (Bivalirudin) and Alimta (Pemetrexed), and it looks like they’re a year or two behind Bendamustine. You can get a basic idea of what the company’s doing, and how it sells itself, in the latest investor presentation on their website here.
Where will it go? What’s it worth? I don’t know. I generally find the idea of reformulations, deliverability improvements, and royalties to be compelling (that’s why I own shares of Ligand, which is in some ways a little bit similar to Eagle), but I’m no expert on these drugs or their potential, or on the intricacies of these patent and approval timeframes.
The market says Eagle is now worth $800 million, and those huge analyst growth numbers mean that they’re forecast to earn almost a dollar a share on $60 million in revenue this year… and nearly $6 a share on $180 million in revenue in 2016. If that growth materializes, it would not be at all surprising to see the stock continue to heat up… with the stock at $55 that’s a forward PE of less than 10, for a high growth company… but there’s also the risk of non-approval from the FDA, or of continuing (or new) patent litigation since these reformulations are, of course, based on patented drugs that are owned by other companies (and those lawsuits might not all work out as well as the Teva one has so far)… to say nothing of the risk that their reformulations won’t be good enough to compete with generic versions of drugs that are going off patent, so they might have a very brief window of profitability. That’s said just to put some doubts in your mind so you have something to chew on, I have no idea of what the odds are on the success of each of these drugs, or on whether there are other important legal proceedings underway or likely. The stock has come up in discussions here at Stock Gumshoe a couple times in passing over the last year, but I’ve never written about it… nor has Dr. KSS, who writes about biotech stocks for the Irregulars.
… and with that, I’ll leave it to you. Want to ride with the Eagle? Think it looks appealing in a jumpy biotech market? Or is there something that looks better to you? Let us know with a comment below.