Locking in the Profits as PropThink Wraps Up Another Week

Enanta Pharmaceuticals (ENTA) IPO’d in March but remains virtually flat following an initial spike in share price. In our view, the stock is quite cheap (an EV of just $200M, with a strong balance sheet), yet its lead asset — ABT-450 — is a critical part of one of the premier development-stage HCV regimens.

Since our first focus piece on Questcor (QCOR) in October of last year, the stock has climbed considerably, from its precipitous drop to $20, back to its former highs. As shares reached the $40 range in June, Mr. King suggested that $50 was not that far off — the market confirmed our thesis Friday as Questcor breached the mark on the announcement that it would commence a Phase II study evaluating H.P. Acthar in Amyotrophic Lateral Sclerosis (ALS).

After lifting the veil on the deceptively valued Tengion (TNGN), PropThink Premium Subscribers who secured a short position at the open netted a cool 22.7% return as shares fell to 85 cents in the two days following our expose. To those of you who haven’t had a chance to read our coverage, Tengion’s fully diluted market cap stands at nearly $250M, dwarfing its current $3.34M valuation. Unfortunately, investors looking to invest in Tengion’s assets should expect massive dilution as large investors exercise sizable warrant positions.

Onconova (ONTX), on its first day of trading Wednesday, opened 65% higher than its $15 IPO price. The company’s lead drug candidate, rigosertib, is in Phase III development as a treatment for both high risk myelodysplastic syndrome and metastatic pancreatic cancer. The stock closed the week at $20, a $400M valuation which, compared to oncology peers with similar pipelines, is remarkably inexpensive in our view. Our initial investment thesis can be read here.

Neurocrine Biosciences (NBIX) expects top-line data from a phase 2b study of NBI-98854 for the treatment of tardive dyskinesia (TD) in early September. The news came on Thursday, and Mr. Napodano on Friday explained why the trial, dubbed Kinect-1, and its parallel trial Kinect-2, will succeed. NBIX has doubled since we began covering the stock last year.

Celsion (CLSN) issued a rosy press release last Friday suggesting that a Chinese drug developer has a strong interest in ThermoDox — the stock popped 20% on the news. PropThink explained that afternoon why the news was immaterial. Understanding that the rally was artificially induced, our readers who went short saw a return of over 20% by this Wednesday. Celsion maintains that a post-hoc analysis of the HEAT Study demonstrates ThermoDox’s cancer-treating capabilities, despite the drug having failed a pivotal Phase III trial earlier this year.

We suggested PropThink Premium Subscribers be skeptical of TearLab (TEAR), as we’re not convinced the company can deliver on the top-line with its Osmolarity System. In addition, we expected a capital raise in the near-future. We wrote in June:

…with TEAR’s history of discounted and warrant-laden equity offerings, we believe that a capital raise and subsequent short-term decline are just around the corner, quite likely by mid-year. It’s simply too close for comfort and with its stock up 100% in five months, raising now simply makes sense from a strategic standpoint.

TearLab announced a financing on Monday the 22, and while it remains to be seen whether the stock takes a dive, we maintain our skepticism regarding the company’s commercial prospects.

PropThink has been pounding the table on Illumina (ILMN) since last year. The stock is up 65% since November — new all-time highs — yet Mr. Deryugin believes there’s still upside for the long-term investor. He lays out the thesis for owning this genomic sequencing company.

Last Wednesday, Elan (ELN) announced that ELND005, a treatment for neuropsychiatric symptoms in Alzheimer’s Disease and bipolar disorder, had received Fast-Track designation from the FDA. A full 24-hours later, when collaborator Transition Therapeutics (TTHI) PR’d the news, the small-cap’s stock popped 40%. While we’ve been bullish on TTHI since January, the move was an overreaction, not to mention delayed. We told PropThink Premium subscribers that we were shorting the stock that morning and closed out our position for a 10% gain the same day. Transition out-licensed another Eli Lilly (LLY) drug this week; get the background on TTHI here.

In connection with ENTA and ILMN, PropThink has taken a long position.