Upcoming Catalysts Provides Opportunity For These Biotechs

Today, we highlight several biotechs with catalysts coming up in the near future. These price driving catalysts may include FDA approval decisions, FDA Advisory Committee (ADCOM) recommendations, product launches, and clinical data releases.

These catalysts usually gain a lot of investor and trader attention as each company's February 10, 2014 , the company released an 8-K about the compensation for directors. The 8-K states:

Target bonuses for named executive officers of AcelRx Pharmaceuticals, Inc. (the "Company") under the 2014 Cash Bonus Plan (the "Plan") will range from 35% to 50% of such executive's 2014 base salary. The amount of cash bonus, if any, for each named executive officer will be based on both the named executive officer achieving his or her individual performance goals and on the Company meeting the 2014 corporate objectives approved by the Board. The 2014 corporate objectives are primarily related to product development, including regulatory approval of Zalviso and related commercial preparation and financial objectives. The target bonuses for the Company's named executive officers for 2014 are as follows:
 
Named Executive Officer
 
Target Bonus
(as a percentage of
FY 2014 Base Salary)
 
Richard A. King (CEO)

50
%
James H. Welch
 
 
37.5
%
Pamela P. Palmer
 
 
37.5
%
David H. Chung
 
 
37.5
%
Lawrence G. Hamel
 
 
35
%
Badri Dasu 

Mr. King's cash bonus under the Plan shall be based 100% on the achievement of the 2014 corporate objectives. The cash bonus for all other named executive officers shall be based 40% on the achievement of his or her individual performance goals, as determined by the Board, and 60% on the achievement of the 2014 corporate objectives. The named executive officers' actual bonuses may exceed 100% of target in the event performance exceeds the predetermined goals.

We can see from above that the CEO's bonus is based on achieving 100% of this year's corporate objectives, and represents half of his pay. Additionally, other top company executives stand to gain substantially from meeting corporate objectives.

Basically stated, the CEO and other executives will receive no cash bonus whatsoever unless all of the company's set objectives are met, which includes the FDA approval of Zalviso.

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We like when management believes in their products and "puts their money where their mouths are." Their collective self-interest lines up with stockholder's self-interest, something we love but don't see a lot of in developmental biotechs.

Insiders and institutions hold a large portion of AcelRx stock, indicating that they are bullish on Zalviso approval -- so are we.
We believe AcelRx is currently undervalued and could appreciate in price to a range of $15-$17 before the PDUFA date in July.

MannKind Corporation (MNKD): FDA Advisory Committee (ADCOM)
Mannkind Corporation is a biopharmaceutical company that focuses on the development of Afrezza. Afrezza is an inhaled powder used to treat type one and type two diabetes. The diabetes market is quite large and growing at a fast pace. On August 14, 2013 MannKind presented positive Phase III data in patients with type one diabetes. According to the highlighted results, Afrezza showed non-inferior decreases in A1c levels, significantly less hypoglycemia, significant decreases in fasting blood glucose levels, and significant weight advantage.

On January 10, 2014 the company announced :
The Endocrinologic and Metabolic Drugs Advisory Committee of the U.S. Food and Drug Administration (FDA) is tentatively scheduled on April 1, 2014 to review MannKind's New Drug Application (NDA) for AFREZZA® (insulin human [rDNA origin]) Inhalation Powder. The date and details of the meeting are subject to confirmation by the FDA in a Federal Register notice. MannKind resubmitted the NDA on October 13, 2013 seeking approval to market AFREZZA in the United States with an indication to improve glycemic control in adults with type 1 or type 2 diabetes. The target date for the FDA to complete its review of the AFREZZA NDA is April 15, 2014.

From above we can see that MannKind has an Advisory Committee meeting on April 1, 2014 and a PDUFA on April 15, 2014. We believe these two dates will serve as a great trading opportunity. As we get closer to the dates, we believe the stock will again test the highs it saw before its prior Phase III data release. However, we do view holding through this catalyst event as very risky based on two prior complete response letters (CRL) from the FDA, and the continued questionable guidance offered by CEO Alfred Mann over the last few years.

One such example of failed guidance is his constant talk of the company gaining a major pharma as a partner for AFREZZA. From a 2011 10Q :

We have held extensive discussions with a number of pharmaceutical companies concerning a potential strategic business collaboration for AFREZZA.

As of February 1st, 2014, the ever continuing talk of AFREZZA gaining a marketing partner continues with still no partnership secured. Big pharma was not interested in AFREZZA back in 2011, and none have shown any real interest in partnering to date. What we mean by "real interest" is a deal that involves something more than a standard 5% to 10% royalty deal for a lower tiered drug.

We believe this is because big pharma doubts AFREZZA's ability to have any real commercial success. Better said, big pharma can't justify giving Mannkind a substantial upfront payment and high royalty percentage.

With two prior CRL's and the clear current lack of legitimate big pharma interest, we think that Mr. Mann and Mannkind shareholders are over estimating AFREZZA's market potential.

Regardless, we see MannKind as a company that presents a great trading opportunity as many traders are likely to bet up the stock believing AFREZZA will be a huge success. If by some chance the drug is approved (we do not think it will be), we think this will provide an excellent opportunity to sell shares short at the likely inflated prices an FDA approval will temporarily cause.

Organovo Holdings (ONVO): Product Launch
Organovo Holdings is a three-dimensional bio-printing company that focuses on creating human tissues. The company was in the spotlight last year as 3D technology began to catch on as a trend. Organovo has caught particular media attention because of the announcements the company made concerning its liver tissue program.

Amazingly enough, the company has been able to generate a liver that is able to survive for about 40 days -- a significant improvement over its last effort. In a recent article Disclaimer: This article is intended for informational and entertainment use only, and should not be construed as professional investment advice. They are my opinions only. Trading stocks is risky -- always be sure to know and understand your risk tolerance. You can incur substantial financial losses in any trade or investment. Always do your own due diligence before buying and selling any stock, and/or consult with a licensed financial adviser.
 

Written By: Scott Matusow