WHITEFISH, MT / June 16, 2014 / When it comes to biotechnology stocks, investors can chose to play the blue chip fundamental plays, such as Pfizer (NYSE:PFE) or Novartis (NYSE:NVS), that are typically the subject of investment discussions by high-profile analysts such Jim Cramer and the like. As a matter of a fact, when Merck (MRK) recently announced it was paying $3.85 billion (a 240% premium to the prior day’s valuation) to acquire Idenix Pharmaceuticals (IDIX), Cramer sat there on CNBC virtually speechless, as he just can’t seem to wrap his brain around developmental biotechs and the value that they can command. There’s nothing wrong with that, as some traders only see value in P/E ratios, revenues and other fundamental analysis. Most biotechs, however, cannot be gauged by these metrics, rather only through the understanding of the drugs in development and potential market share that the therapeutics one day could capture. Let’s not forget that many, many analysts scoffed at Gilead dishing out $11 billion for Pharmasset, mostly for its experimental hepatitis C portfolio that wasn’t even yet in phase 3 trials. Gilead proved that their foresight was better than its critics, as the lead drug, now dubbed Sovaldi, generated more than $2 billion in the January to March quarter, its first full quarter on the market.
Market overreactions to clinical trial news are common in biotech, with momentum traders piling on to run stocks too high on good news and, conversely, people getting scared out of positions and selling like the wind on disappointing clinical data, often driving the stock price unfairly low. Generally speaking, the optimistic reaction is usually followed by a retrace as the overzealousness wears thin. In the case of negative news, unless the company developing the drug candidate was a one-trick-pony, the knee-jerk reaction is generally followed by a slow and steady recovery. The fact is, that it takes some time for an overall analysis of each companies’ pipeline and a true deciphering of the clinical data before any fair assessment can take hold and re-align the company where it should be.
Several articles have been authored in recent weeks about the sharp drop in shares of Athersys, Inc. (ATHX) now that the dust has settled following data from a phase 2 trial conducted by Pfizer evaluating a single dose of Athersys’ off-the-shelf allogeneic stem cell product MultiStem in patients with refractory ulcerative colitis. Jason Kolbert of the Maxim Group recently told The Life Sciences Report that his contention is that the trial failed, not the MultiStem product. Kolbert notes the incredibly high watermark that the trial set to try and treat this very difficult patient population and how the design (which was established five years ago) was attempting to set a landmark precedent in delivering a meaningful therapeutic response with one dose of MultiStem.
Wall Street Titan, another Athersys long, posted an article on Seeking Alpha, which included a lengthy interview with Athersys CEO Gil Van Bokkelen, asking tough questions about the trial, the ATHX clinical pipeline and milestones, insider buying, the company’s initiatives in Japan and more. Equities.com contributor Andrew Klips also took a succinct look at understanding the impact of clinical trials on shareholder value, briefly discussing movements – in both up and down directions – following the release of clinical data, with a particularly insightful opinion on the reaction to Athersys.
All three authors remain bullish on the long-term value of Athersys, given the strength of its pipeline, financial position and leadership. Interested parties are encouraged to perform their due diligence by reading these articles to gain a broader knowledge about the intricacies of stock movement following clinical results, as well as understanding of a more comprehensive approach in determining the value of a developmental company and how much impact a single trial actually should have.
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SOURCE: Emerging Growth LLC