Short Squeeze & Speculation Could Push Onyx and Ligand Higher
(Thomson Reuters ONE) -
By Brian Wilson, Contributor
When I last covered Onyx Pharmaceuticals (NASDAQ:ONXX) on June 19(th), the
company was trading at a market capitalization of approximately $3 billion
dollars ahead of a review of Kyprolis (carfilzomib) by the FDA's Oncologic Drugs
Advisory Committee (ODAC). Anyone who read the article and was bold enough to
get long in anticipation of a favorable vote by ODAC was rewarded with a 43%
rally the next day based on the 11-0 vote in favor of approval. Onyx's business
partner for Kyprolis, Ligand Pharmaceuticals (NASDAQ:LGND), also saw a massive
rally (about 28%) over the next two trading days.
In the other article, I also mentioned the 11% of shorts that were likely
betting on an unfavorable ODAC decision. The short interest is now down to about
9.3% of float, which still allows for big short squeeze potential after the
recent FDA approval for carfilzomib in the treatment of multiple myeloma for
patients who had failed two previous therapies.
The FDA decision, which was issued on July 20(th), limits the downside of Onyx
(and partner Ligand) due to the lack of alternatives in the treatment of
multiple myeloma. There is also ever-present takeover speculation for Onyx,
which may grow now that Kyprolis has its approval in hand. We are expecting
Bayer to be the buyer (if it happens) due to the existing partnership for the
drug regorafenib between the companies. Regorafenib has also recently received
FDA priority review designation, which establishes the PDUFA action date four
months close (to October 2012 instead of February 2013).
Multiple myeloma, which is a particularly nasty and fatal plasma-cell cancer
that is very rare (with about 1-4 cases per 100,000) has historically been very
difficult (and unprofitable) to treat. This is why we are expecting Kyprolis to
have great drug penetration rates and bring Onyx (and Ligand) some better
financial figures when the drug gets brought into the market.
In addition to Kyprolis, Onyx has the ~$300,000/year oncology drug Nexavar which
has been approved for the treatment of liver and kidney cancer in the US and EU.
Onyx is working towards expansion of its clinical applications (with phase III
trials still underway in thyroid and breast cancer), which provides more
catalysts down the road for the company to grow in value.
Even after major jumps in ONXX and LGND following developments in Kyprolis,
there could be some additional upside left in the near term for traders who are
willing to wait for shorts to shake out of their positions (which seems quite
likely). These companies are both beginning to enter the "profitability" zone,
and the 5.9 million shares betting against ONXX and the 1.3 million short on
LGND are likely stuck in the red hoping something goes wrong.
Speaking of Ligand Pharmaceuticals, there was important news for the stock
during Wednesday's session. Ligand announced that its partner GlaxoSmithKline
(NYSE:GSK) has been granted priority review from the FDA for the supplemental
new drug application for Promacta® to treat thrombocytopenia caused by the
hepatitis C (HCV) virus. Thrombocytopenia is a shortage of platelet cells, which
help with blood clotting and as biotech investors know, stocks tried to the
treatment of hepatitis C have seen valuations increase dramatically during the
past year given that the hepatitis epidemic continues to spread.
The bullish Hepatitis space`s activity; including moves from Gilead Sciences,
Inc. (NASDAQ:GILD) paying $11 billion in cash for Pharmasset and Bristol Myers
Squibb (NYSE:BMY) snagging Inhibitex for $2.5 billion in cash. The strong
volatility seen for hepatitis c players Idenix Pharmaceuticals (NASDAQ:IDIX)
Achillion Pharmaceuticals (NASDAQ:ACHN), Abbott Laboratories (NYSE:ABT), Vertex
Pharmaceuticals (NASDAQ:VRTX) and Merck & Co. (NYSE:MRK) is understandable given
the suspected infection cases in more than 5 million people in the United
States, and perhaps as many as 200 million around the world.
This priority review designation is given to drugs that if approved, offer major
advances in treatment, or provide a treatment where no adequate therapy exists.
Under the Prescription Drugs User Fee Act, the goal for completing a Priority
Review is six months.
Recently, Cantor Fitzgerald reiterated a Buy rating on LGND and raised its price
target from $19 to $24. It will be interesting to see if that firm increases
their price target on the stock given the latest developments.
Earlier the same day, the firm had announced that it plans to report second
quarter 2012 financial results on Wednesday, August 8, 2012. We note that
recently, Ligand reaffirmed fiscal 2012 revenue guidance to be approximately $30
million and we know that one of Ligand's core goals is to produce a bottom line
that supports a sustainably profitable business.
Technically speaking LGND shares have an opportunity to break past some
resistance that has kept prices in check. As followers of the stock point out,
the stock appears poised to say goodbye to the teens, but the $18 to $18.15 mark
has proven tough to break through. It has withstood some positive news events,
but is worth watching because the stronger the resistance, the greater the
reaction when the resistance is crossed. In turn, that resistance usually
becomes strong support.
Each of these factors makes us particularly bullish about LGND in both the short
and long term.
The full report on ONXX and LGND is available at:
http://www.biomedreports.com/20120726100712/short-squeeze-a-speculation-could-
bring-onyx-and-ligand-higher.html
Healthcare investors and Biotech traders interested in accessing BioMedReports'
new complete database of clinical trials and upcoming FDA and world-wide
regulatory decisions which can be used to make more profitable trades and see
upcoming catalysts can go to: http://biomedreports.com/fdacal.html
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Datum: 26.07.2012 - 14:35 Uhr
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