An update from Sarepta Therapeutics (SRPT) first thing on Monday morning caught the attention of the biotech world – and sent one of our 2014 recommendations to PropThink Premium subscribers into the green by 150%.
Sarepta will file a new drug application for its muscular dystrophy drug eteplirsen by the end of this year, with approval possible by the second half of 2015. This is big news for SRPT investors, who sent the stock soaring by 60%+. A day later the company announced a $100 million equity financing, not a surprise for those who read our take on Monday. We wrote: “Sarepta ended 2013 with $265 million in cash and equivalents, with guidance for operating burn of $110-120 million in 2014. The company exhausted a $125 million ATM facility at the end of last year, thus it would not be surprising to see SRPT return to the markets sometime this year, likely after the NDA filing.” We had the timing wrong, but frankly, are glad to see SRPT raising the moat now.
In January, PropThink suggested being long the stock for this very event. For those who followed our strategy, the trade has been good for more than a 150% return.
Investors this week were following closely the financial performance of four of the sector’s major bellwethers – Gilead (GILD), Amgen (AMGN), Celgene (CELG), and Biogen Idec (BIIB) – all of which reported first quarter earnings. Sector-tracking ETFs rallied late last week ahead of these earnings reports, but slumped following, despite some impressive outcomes. The Big Four handed investors a mixed bag of results, and the iShares NASDAQ Biotechnology ETF (IBB) closed the week in a ‘business as usual’ weak fashion.
Gilead commanded headline real estate early in the week. PropThink provided investors with a peak into how lofty Street expectations had become, and to what investors were paying attention ahead of Gilead’s earnings (see it here). Gilead delivered handily, blowing consensus estimates out of the water with $5.0B in sales. Sovaldi notched $2.3B in its first full quarter on the market, far above the whisper estimates of $1.6B-$1.8B, and bestowing the new hepatitis C drug with the moniker “the largest drug launch ever.”
In similar grand fashion, Biogen Idec on Wednesday upped guidance on strength in its multiple sclerosis portfolio. Tecfidera, Biogen’s blockbuster new oral therapy for Relapsing Remitting MS, took center stage with $505M in quarterly sales and a cumulative $1.4B since launching in April of 2013. Tecfidera’s vast market potential underscores the thesis for Xenoport (XNPT), which we wrote about in mid-February (here). Although shares have since trended down along with the sector, PropThink remains interested in the company’s long-term prospects in MS. Xenoport is developing a prodrug of Tecfidera – XP23829 – that could potentially offer a 1x daily dosing schedule, besting Tecfidera’s two pills per day. Sell-side shops are starting to take notice with shareholder activists gearing up at XenoPort – Jefferies initiated on XNPT at a buy just this week.
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Amgen disappointed investors with lower-than-expected first quarter revenue of $4.52 billion, missing consensus estimates for $4.75 billion. Likewise, EPS of $1.87 fell short of expectations. Sales of Kyprolis, a blood cancer drug acquired in Amgen’s $10.4B purchase of Onyx Pharmaceuticals late last year, also fell short of expectations; the drug did $68 million in the first quarter vs. estimates for $82 million. The stock closed the week down 3.5%.’
Finally, Celgene announced a bottom-line beat and the signing of a multi-billion dollar licensing deal with Nogra Pharma Ltd, a relative unknown. Celgene paid $710M upfront for Nogra’s GED-0301, a phase 3-ready RNAi therapeutic indicated for Crohn’s Disease. We haven’t seen proof of concept data for the new drug, so investors will simply have to have some faith that Celgene knows what it’s doing shelling out nearly $1 billion upfront for an RNAi asset. Celgene’s flagship cancer drug Revlimid did $1.14B for the quarter, and the company’s total revenue came in $40M light of consensus, while narrowly beating EPS estimates by $0.02.
Recall that last week we took a look at the sector technicals. We wrote: “On Thursday, the IBB yet again touched and bounced from the top of [its current] range (~226) and closed above its 200-day moving average. A strong move next week through that resistance in tandem with/as a result of quality numbers from the Big Four would be a departure from the current range – and technically bullish for the ETF/sector.”
This week the IBB did break out of its month-long downtrend, but remember, it’s fundamentals that rule the day. Whether investors are ready to step into biotech equities en force remains to be seen, though it’s nice to see the technicals starting to support an end to the slide.
We’d be happy to see the sector trade sideways, getting more optimistic if the top of that trend now holds up as support. Likewise, we’re looking to the 200-day moving average and 213 (see chart), as key levels for some rebound.
We closed out the week by revisiting Infinity Pharmaceuticals (INFI), one of David Phillips’ “Drugs that Disappointed Investors in 2013.” IPI-145, the company’s PI3-kinase inhibitor and lead candidate, garnered some serious excitement from investors last year, but toxicity issues began an ugly selling period – INFI lost over $1.6B in market value in 2013. Phillips explained what went wrong and what the future may hold. Investors can learn a lot from this case of enthusiasm.
One or more of PropThink‘s contributors are long SRPT, GILD, AMGN, CELG, BIIB, or XNPT.
