The biotechnology sector is generally considered the most volatile and riskiest sector within all of healthcare. Some companies have created massive wealth in this sector. And some companies have produced the beloved $1 billion in annual sales for a blockbuster category or other highly successful drugs. Still, for every success of that sort, there are dozens of similar companies that sounded quite promising at one time that have died and since gone to the graveyard.
The firm Janney, or Janney Montgomery Scott, covers many of the more speculative and riskiest stocks in the biotech sector. Other firms focus on the emerging biotech field of micro-cap and small-cap names as well. Some of these companies are so speculative that the price targets may imply that the shares could double, triple, or rise even further exponentially if the targets they seek come to fruition.
That said, these companies come with huge risks. Janney’s Yun Zhong has issued coverage on very speculative cognitive plays. These companies could hold the next treatment for the elusive Alzheimer’s Disease, dementia, and other targets if successful. And even making a small contribution to help doctors and patients in the fight against Alzheimer’s and other dementia-related curses could stand to make billions of dollars.
Investors should note that companies and analyst calls of this kind tend to be viewed as all-or-none, or at least a winner-take-all. The companies will either be very successful with potential blockbuster drugs in the years ahead, or they will disappear on the biotech trash heap with nothing but losses to show for their efforts.
Anavex Life Science Corp. (NASDAQ: AVXL) was started as Buy and was assigned a $10 price target at Janney. This was versus a $3.14 prior close, but the market cap here is just $160 million.
Janney noted that its Sigma-1 receptor could become a master regulator in neurological disorders. The lead product candidate ANAVEX 2-73 is in four clinical studies for three indications (Alzheimer’s, Parkinson’s disease dementia, and Rett syndrome) The firm thinks it could represent a differentiated approach in a space that has seen repeated failures in clinical development.
Yun Zhong of Janney noted on Anavex that efficacy data from a Phase IIa study in Alzheimer’s patients is encouraging and that even a modest penetration into the market could generate the $1 billion in blockbuster sales. His report said:
ANAVEX 2-73 modulates muscarinic acetylcholine receptors (mAChRs) in addition to S1R. Activation of both receptors produces synergistic effects and leads to further enhanced neuroprotection. A high concentration demonstrated statistically significant separation in clinical benefit from a low concentration in a Phase IIa study after only five weeks of treatment. The treatment period was extended upon patient request and efficacy was maintained after 148 weeks of treatment… We project ANAVEX 2-73 use only in patients with mild AD and forecast peak U.S. market penetration to be below 10%. We reach U.S. sales of over $1.5 billion in 2032, which we believe should be conservative when compared to historical sales of FDA-approved treatments for AD.
Anavex comes with a relatively high short interest as well, implying that investors are betting that the company will not produce positive outcomes. Anavex had a short interest of almost 4.2 million shares on last look.
Neurotrope, Inc. (NASDAQ: NTRP) was started as Buy with a $14 price target (versus $6.36 prior close) at Janney. The firm noted that its Bryostatin could hold promise in Alzheimers Disease and noted that Neurotrope’s bryostatin-1 is currently the only candidate in clinical development for patients with moderate to severe AD.
Data from two Phase II studies and an expanded access program are said to suggest encouraging efficacy, including a statistically significant improvement in cognition in a subgroup of patients who are not taking concomitant memantine treatment. Phase II complementary data is expected to be reported in the second half of 2019 and should lead to strong stock movement if the data is positive.
Janney’s Yun Zhong also noted here that even a modest penetration in the Alzheimer’s Disease market can produce a blockbuster ($1 billion in annual sales). He said:
In a 147-patients Phase II dose finding study, statistical improvement in cognition was achieved in patients who completed the entire study (p=0.029) and the largest improvement was detected in a subgroup of patients who were not receiving concomitant memantine treatment (p=0.012). The interaction between PKC and the NMDA receptor (memantine is a NMDA receptor antagonist) may have been the reason and the ongoing confirmatory study is enrolling patients who are not taking memantine so should have an enhanced likelihood of success… We project bryostatin use only in patients with moderate to severe AD but are not taking memantine,
following the patient population enrolled in the confirmatory Phase II study. We apply a 20% probability of success to the program and forecast peak U.S. market penetration to be below 10%. We reach U.S. sales of over $1.2B in 2032, which we believe should be conservative when compared to historical sales of FDA-approved therapeutics for AD.
Shares of Neurotrope were last seen up over 4% at $6.66, but investors should make note that the market cap is just $86 million. The shares also have a 52-week range of $3.33 to $11.93 to prove how volatile and speculative the company is.
Again, these are all-or-none calls. It should also be considered that even the biggest and best of pharmaceutical and biotech companies have so far failed to even break the surface in really offering a serious treatment for Alzheimer’s Disease and dementia-related disease that plague society. In short, these companies face a very uphill battle and their predecessors have so far failed to even reach a truce (let alone win).