Weekend Reading From PropThink: Small-Cap Biotech Insights

Questcor Pharmaceuticals (QCOR) reported stellar earnings this week, topping analyst’s expectations for Acthar sales of $199.7 million by more than 15%: revenues in the quarter came in at $236.3 million, also a 68% increase from $140.3 million in the second quarter. Nevertheless, the stock dropped as investors digested the news that two new regulatory bodies are looking into the company’s marketing practices. While PropThink has been pounding the table on QCOR since last year when the stock tumbled to less than $20 per share, the growing investigations are a continued risk, and in our view, it simply makes more sense for investors to take profits off the table now. Read more here.

On Thursday afternoon, we took a position in AcelRx (ACRX), recognizing that the stock may reverse into the company’s quarterly update this coming Tuesday. As trading set up bullish on Friday morning, we sent the following to PropThink Premium members:

. . . We’re not expecting a major rally, but have stepped in for a trade into next week. This earnings event is particularly interesting to investors because the company may be offering more color on progress in securing a European partner for Zalviso, which would bring non-dilutive capital as part of the deal and indicate that the company is not attempting to commercialize the product alone in the two largest pharmaceutical markets globally. Early action suggests the buying will continue on Friday.

AcelRx, as a fundamental holding, is attractive at these prices, but we have yet to take a sizable position given the continued weakness in the stock. AcelRx submitted the NDA for Zalviso on September 30. The FDA should accept the NDA for filing within the next 30 days. We’ll have an update for PropThink’s readers in the near-term as earnings play out. . .

AcelRx develops Zalviso as an alternative to existing patient-controlled analgesic products, like IV morphine. Scalping even a small portion of the $6 billion post-operative pain market would be quite meaningful for this $300 million company. On Tuesday, investors will be listening for hints that the company is making progress on a European partner, a value-driving event for ACRX.

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Zogenix (ZGNX), to our surprise, saw its extended-release hydrocodone product, Zohydro ER, approved by the FDA last Friday. On Tuesday, we outlined why Zohydro may be an interesting holding once a few overhangs are removed from the stock. The company needs capital, and investors will be waiting to see when (or if) a partner materializes. You can read the article here.

Medivation (MDVN) made new 52-week highs on Friday, closing the trading session at $66.69. More impressive, MDVN traded as low as $48.15 just over a week ago when investors grossly misjudged the results of the phase 3 PREVAIL study, testing Xtandi (enzalutamide) in chemotherapy-naive patients with advanced prostate cancer. You can read the full column here.

On Monday at the Transcatheter Cardiovascular Therapeutics conference, Sunshine Heart (SSH) presented updated results from the ongoing OPTIONS-HF European trial testing the C-Pulse heart assist device in late-stage heart failure patients. Further updates were presented at a SSH investor event on Tuesday morning. In a note to PropThink Premium subscribers, we opined that the updated results were net-positive for Sunshine Heart and the device, although the evidence is largely anecdotal and from a small test population, thus warrants caution. Most interesting, SSH revealed that two additional patients from the feasibility study have been weaned from the device (two had already been weaned), suggesting that patients’ hearts may be recovering as the C-Pulse reduces strain on the muscle. SSH remains one of PropThink’s top, long-term small-cap picks, despite the sell-off since the event.

Investors who’ve been following PropThink’s coverage of Illumina (ILMN) since our launch last year have returned more than 100%, and Mr. Deryugin updated the story last Friday following the company’s third quarter earnings report. See it here.

Last Thursday morning, Mr. Jason Napodano highlighted the high-risk high-reward Zalicus (ZLCS) trade coming into two sets of Phase 2 results for Z160, the company’s N-type calcium channel blocker being tested in post-herpetic neuralgia and lumbosacral radiculopathy. ZLCS climbed to a high of $5.34 from $3.78 in the two trading sessions following his article, before selling off sharply through this week. We expect the proof of concept data in mid-November.

Since PropThink’s May 3rd article and buy recommendation on Viropharma (VPHM), the stock has climbed another 55%. Mr. Deryugin over the weekend is preparing an update to the long thesis following the company’s third quarter report, which will be available – free – at PropThink.com next week.

In connection with SSH, MDVN, ILMN, VPHM, and ACRX, PropThink has taken a long position.