Israeli biotechnology shares traded on Wall Street have been trending up for the past few weeks, presumably in the wake of positive results in clinical trials some of these companies have been conducting together with a batch of development and commercialization agreements they have reached with big multinational companies.
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The upward trend doesn’t, however, begin to offset the double-digit declines many of these shares suffered in 2014. Indeed, Israeli biomed companies trading in the United States had an average negative return of 19% in 2014, compared with growth of around 23% for U.S. health care sector indexes overall and about 26% for the biomedicine and pharmaceutical areas in particular.
In one recent positive development, Opko Health, which is traded on the TA-25 index as well as in New York, announced in December a commercialization and development deal with the pharmaceutical giant Pfizer for the company’s long-acting growth hormone hGH-CT.
Opko is to receive an upfront payment of $295 million and is eligible to receive up to $275 million more from Pfizer upon achievement of regulatory milestones.
NeuroDerm, which began trading on Nasdaq on November 14, saw its share price surge December 29 from $6 to $18 on enormous trading volume. The surge followed positive safety data for its ND0612H Parkinson’s disease treatment. Since then the share price has dropped; on Friday it closed at $9.83.
Protalix Biotherapeutics reported impressive interim data for its PRX102 for the treatment of Fabry disease. This rare genetic disorder causes a wide range of conditions and symptoms, many of them severely debilitating. Meanwhile, Bio Blast Pharma recently announced positive preliminary findings for its Phase II/III study of its Cabaletta in treating patients with Occulopharyngeal Muscular Dystrophy and received regulatory approval to continue the trials for an additional 12 months.
Kite Pharma and the U.S. biotech company Amgen this month announced a strategic research collaboration and license agreement worth up to $585 million to develop cancer treatments using both companies’ developments.
It is common for share prices to post double-digit gains. Success, even partial, in the course of a drug’s development can be worth hundreds of millions of dollars to a small pharma company. But such dreams always entail significant risk to investors. The failure rate for biomed firms is high. Even success takes a long time: It can take over 10 years to develop a new drug, and companies often find themselves strapped for cash at some stage.
During that five-to-10-year development period, the share price of a biomed company can fluctuate wildly.
Investors in biomed stocks are sometimes briefly gripped by intense excitement for the companies, followed by disappointment. Many have been burned before. News of a failed clinical trial or negotiations on a commercialization agreement that collapsed, for example, can send the share price down by as much as 90% in a single trading session.
Is there even a way to price biomed shares? Valuations usually consider such parameters such as revenue, growth rate and future growth potential, but these are irrelevant for biomed companies, most of which lose money during the long drug-development period. Until the first product hits the market, the usual pricing parameters tell you nothing. The main way left to value shares is by evaluating the drug’s chances for commercial success and the size of the potential market.
Infographic by Haaretz
Picking a winnner
Picking winning biomed stocks is therefore a complex challenge. Yet the research division of the U.S. investment bank Oppenheimer & Company recently issued a list of recommended Israeli biomed stocks.
One of Oppenheimer’s picks is Foamix, which develops skin treatments based on a unique technology that delivers active ingredients in the form of a foam. Its flagship product in development is FMX101 for the treatment of moderate to severe acne. It contains mincocyline, a broad-spectrum tetracycline antibiotic used in many treatments for skin conditions.
Oppenheimer’s researchers say FMX101 carries an attractive risk/reward ratio for investors, with the treatment reaching the market in as early as 2017. Oppenheimer gives Foamix stock a target price of $15, compared with a Friday closing price of $8.10 on the Nasdaq.
Another pick is Macrocure, which develops products to treat chronic and hard-to-heal wounds. Its lead product, CureXcell, is based on a cellular therapy in which white blood cells are injected into patients. Macrocure’s advance is in developing a way to directly inject the white blood cells into the wound, which stimulates the healing process. Macrocure’s technology is patented until 2030.
CureXcell has been approved for use in Israel as a medical device since 1997. In the U.S., it is undergoing Phase III trials, with results expected in the second half of this year. The company estimates the market for CureXcell at more than $5 billion a year.
Oppenheimer biotechnology analyst Steven Lichtman, who surveyed experts in the field and concluded that CureXcell looked promising, assigned Macrocure at a target price of $20 a share, more than double its Friday closing price of $9.59.
MediWound is a 64%-owned subsidiary of Clal Biotechnology, which is traded on the Tel Aviv Stock Exchange. Its main product, NexoBrid, is a wound-debriding gel applied to severe second- or third-degree burns and removed four hours later together with the dead tissue. Phase III trials are scheduled to being in the U.S. within a few months, with results expected in 2017–2018.
Nir Hatzav, an analyst at Oppenheimer Israel, thinks NexoBrid has real potential. “MediWound is well-situated to garner a significant market share and is a few years away from a potential launch of its leading products,” he said. Oppenheimer gives its stock an
NeuroDerm develops drug treatments for disorders of the central nervous system, in particular Parkinson’s disease. Its goal is to develop products that perform better than existing treatments on the market. Its flagship drug, ND0612, is a fluid that is administered subcutaneously through a pump, similar to the insulin pump used by diabetics.
NeuroDerm shares shot up in December after the release of preliminary positive safety data for its ND0612H Parkinson’s treatment. The market potential for Parkinson’s patients whose condition is defined as moderate to severe is very large, and Oppenheimer believes NeuroDerm is well-situated to obtain a significant share of this market.
Because of its pioneering technology, NeuroDerm is expected to undergo a nonstandard path of regulatory and clinical trials. But Oppenheimer believes the risks are reasonable in light of the large market potential. It sets NeuroDerm target price at $19 versus a Friday close of $9.83 in New York.
Bioblast develops drugs for very rare genetic diseases. Its major drug, Cabaletta, is based on a mutation of a stabilizing protein that is based on a disaccharide from the animal and plant world that is known for its ability to stabilize proteins.
Oppenheimer believes Cabaletta is the major catalyst for Bioblast’s float value over the short term. Cabaletta, which presents a proven positive safety profile, could benefit from a relatively low efficacy threshold because there are no drugs on the market for the diseases it is meant to treat. Oppenheimer gives Bioblast stock a target price of $32, three times its $8.12 Friday close.
VBL Therapeutics has two main products. The first is VB201, an orally administered treatment for moderate to severe cases of psoriasis that is about to go to Phase II clinical trials. The results are expected next quarter. The second is VB111, an injectable for the treatment of Recurrent Glioblastoma Multiforme, an aggressive form of brain cancer. The drug is expected to reach the market within two-and-a-half years.
Oppenheimer biotechnology analyst Yigal Nochomovitz estimates that the two drugs together could yield annual revenues of $360 million, but only in about 10 years’ time. Oppenheimer gives VBL Therapeutics an Outperform rating with a target price of $16, 32% over its Friday price of $13.55.