Throughout the spring, analysts at Lazard Capital and Leerink Swan kept pounding the table for little-known Insmed (Nasdaq: INSM).
The analysts kept telling clients that Insmed's Arikace, which is an inhalable antiobiotic used in serious lung infections, was poised to be given a "breakthrough therapy" designation by the FDA. They even suggested such an event would come in June. Their clients should have listened. If they did, they would have scored quick gains when that scenario played out as planned.
As far as these analysts were concerned, an investment in Insmed was almost a sure thing. The clinical data in support of Arikace were just that good. (For more on Insmed, read this profile from last year.)
Of course, most other biotechs can never be considered a sure thing. Even when armed with robust efficacy and safety data, a key drug can still get the kibosh from the mercurial FDA.
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Still, as the Insmed example shows, biotechs that are approaching major clinical milestones, or will soon come before the FDA for final drug approval, can make for very profitable and timely trades. Even once a company has FDA approval for a key drug or medical test, further catalysts can still exist.
Here are three biotech and medtech firms that could see major upside in 2014.
|1. Genomic Health (Nasdaq: GHDX)|
This company offers a test for breast cancer, known as Oncotype-DX, which already generates nearly $300 million in annual sales.
In July, Medicare will be reviewing the test and is expected to provide it with a unique CPT (current procedural technology) code, as opposed to its current miscellaneous code. That could lead to even more doctors authorizing the test, according to Merrill Lynch.
Genomic Health has also developed -- but not yet received Medicare reimbursement -- for a new prostate cancer test. If Medicare gives the nod for this test, GHDX will no longer be seen as a one-trick pony. In the interim, the company also aims to provide more extensive data regarding the tests' accuracy. "In the past, clinical studies have served as positive catalysts for GHDX shares," note Merrill's analysts.
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|2. Kindred Biosciences (Nasdaq: KIN)|
This is an unusual biotech firm. It is developing drugs that improve the health of pets, not people. That may seem like a silly niche, but we all know people who have spent hundreds or even thousands of dollars at the vet to help alleviate any suffering their pets may be experiencing.
Kindred's lead product is CereKin, which treats arthritic inflammation in dogs. A major study is under way, and Kindred may release test results within the next month, which could give shares a lift. Kindred also has many other animal-focused drugs in earlier stages of testing. Another reason to know about this stock: Seth Klarman, who has delivered stellar returns for clients thus far in 2014, owns more than 400,000 shares of Kindred Biosciences. He has a strong track record with biotechs (most recently with a very profitable investment in Idenix Pharma (Nasdaq: IDIX), and he presumably sees Kindred as another potential big gainer.
|3. Threshold Pharmaceuticals (Nasdaq: THLD)|
I have been following this biotech firm for several years, acknowledging all the while that investors would need to show patience during the long and arduous phases of clinical trial testing.
Well, the wait is almost over.
Threshold's TH-302, which focuses on oxygen-deprived tumors that are hard to treat with traditional chemotherapy drugs. Though the company is testing a wide range of tumors in Phase I and II clinical trials, it is also conducting Phase III trials for soft tissue sarcoma and pancreatic cancer.
The primary data collection phase for the soft tissue sarcoma trial nearing completion (ClinicalTrials.gov says it was scheduled to be completed in June). Although Threshold won't provide a complete set of analysis to the FDA until next winter, it is expected to release a preliminary look at the data in coming months.
Positive results could send this stock far higher, in part because it would serve as an endorsement for all of the TH-302 earlier-stage trials.
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Risks to Consider: Even armed with solid clinical trial data, some drugs just don't pass muster with the FDA, so no drug is a sure thing, until it is approved.
Action to Take --> Biotech and medtech catalysts often stare investors right in the face, yet still get ignored. I greatly prefer focusing on companies with drugs or devices in Phase II or Phase III trials, simply because earlier-stage trials often end up yielding poor results. These three stocks are poised to deliver solid catalysts in 2014, making this a good time to listen to their imminent quarterly conference calls.