Some Weekend Reading: PropThink’s Top Trades and Stories in Healthcare

Shares of ViroPharma soared by 25% on Friday as Bloomberg reported that the drug developer has hired Goldman Sachs to explore takeover offers following  interest from Sanofi (SNY) and Shire (SHPG), as well as the receipt of an unsolicited offer for the company. This is the 2nd time in the past three months that ViroPharma has been the subject of takeover chatter, and since our December 2012 report, shares are now up more than 70%. Despite this momentum-driven rally, we believe there’s long-term potential in ViroPharma as Cinryze growth continues and investors receive more clarity on both the company’s pipeline and European commercial launches.

Mr. King revisited Endocyte (ECYT) this week with a brief on why the company’s near-term catalysts are more likely to play out positively than negatively. Targeted cancer treatments are rapidly supplementing older forms of chemotherapy, and Endoycte’s small molecule drug conjugates are a compelling approach. The stock climbed 12% in the two days following publication of our report (and early-bird access for PropThink’s Premium readers); since PropThink first highlighted the ECYT opportunity late last year the stock has more than doubled.

XenoPort (XNPT) reported on Monday the outcomes from three early trials of its relapsing/remitting multiple sclerosis treatment, XP23829, which suggest that the drug could rival Tecfidera one day. Our stake in XNPT had come out from underwater in the two weeks leading up to the announcement, which was the gist of a note we sent to PropThink Premium subscribers on August 8th – data for ‘829 was likely to be positive and would drive the stock higher before the end of the third quarter. A position in tandem with the trade note was good for 23% when we suggested to PropThink Premium subscribers to sell into the ‘829 strength. We aren’t enthusiastic about the lack of a clear strategy for ‘829 in the next few months and believe that investors are better off on the sidelines until Horizant demonstrates real traction or XenoPort has clarity from the FDA on the path forward for the Tecfidera me-too.

When the research firm Gravity Research posted a new, bearish report on Avanir Pharmaceuticals (AVNR) to its website on Thursday, we took note and initiated a small speculative short position as the markets failed to react to this highly negative commentary. Our assumption was that, given that Gravity had posted their previous, bearish report on Raptor Pharmaceuticals (RPTP) to Seeking Alpha, and that the report had an initial deleterious effect on the stock, we could expect the same for AVNR within a day. Sure enough, Gravity’s report hit Seeking Alpha before the day was out and we closed our short position at a 15% profit. Not bad for a one-day holding.

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In our last weekly recap, we mentioned that we sold off a significant portion of our position in Amarin Corp. (AMRN) on a technical basis, believing it likely to pull back from the $7.30 range. Long-time PropThink readers will be aware of our position based on what we expected would be a run-up into the Vascepa advisory committee meeting next month. The sale was serendipitous for the PropThink team and readers who followed our cue, as AMRN dropped by 10% on Thursday following a court ruling that will allow a generic version of GlaxoSmithKline’s (GSK) Lovaza to come to market sooner than expected.

After a 2nd set of weak data, we’re throwing in the towel on ChemoCentryx (CCXI), which released interim CCX140 data on September 10. Although CCX140 led to statistically significant (p<0.05) reductions in UACR, the 12% reduction after 2 weeks of dosing fell short of the company’s 20% goal, even though UACR drops increased to at least 27% by week 12 of the trial. With full data to be released in the 2nd half of 2014, and low confidence in ChemoCentryx’s assets, the stock is unlikely to move back to previous levels in the absence of full CCX140 data. With shares down over 54% since our August 5 report, the thesis has clearly failed to play out.

Regeneron (REGN) made new all-time highs on Friday September 13 after comments from Sanofi’s CEO at an investor conference. CEO Chris Viehbacher stated that Sanofi might raise its stake in Regeneron to as high as 30% given an increase in Sanofi’s ability to opportunistically deploy capital. Dual upgrades from RBC also served to boost sentiment on what has become the world’s 5th largest biotechnology company. Our latest column on Regeneron can be accessed here, and shares are up over 61% since our original December 2012 report.

We admit, the timing of our “buy” note on Progenics Pharmaceuticals (PGNX) to PropThink’s Premium subscribers in August was more windfall than skill. As mentioned in an earlier wrap-up, our call on PGNX was Premium-exclusive, and we recommended going long PGNX based on its compelling oncology pipeline and upcoming inflectional events. Since our note in the $4.80 range, shares moved briefly above $6.00 before falling back to close out the week at $5.85, up more than 20% from our last note. Expect a focus piece explaining the long-term Progenics thesis in the coming weeks as the FDA makes some key comments regarding Relistor.

In connection with VPHM, ECYT, AMRN, REGN, and PGNX, PropThink has taken a long position.