Winners outweigh losers as small caps enjoy Q1's bull market

One of the frightening aspects of the biotech bull market is the speed at which momentum trading has turned small, one-product companies into sizeable corporate entities. So it was with Intercept Pharmaceuticals, which saw its valuation explode in the first three months of 2014 with positive signs for its liver disease project obeticholic acid (OCA).

But the small cap world is full of higher-risk ventures, so plenty of shares saw declines over the first quarter. However, none of the losers saw the magnitude of losses to counterbalance Intercept’s incredible near-quintupling in value. And the world of microcap companies saw several triple-digit increases in valuation, although again this tends to be a relatively common occurrence in that category.

Small cap ($250m-5bn) pharma companies: top risers and fallers in Q1       
Share price (local currency) Market capitalisation ($m)
Rank Top 5 risers YE 2013 Q1 2014 Change YE 2013 Q1 2014 EP Vantage comment and analysis 
1 Intercept Pharmaceuticals $68.28 $329.79 383% 1,320 6,438 Boom! Trial halt turns Intercept into an improbable midcap company
2 Genfit € 8.92 € 28.34 218% 250 820 Daily Market Movers (18 Feb 2014)
3 InterMune $14.73 $33.47 127% 1,303 3,250 InterMune draws up battle lines for IPF space following strong Esbriet data
4 Endocyte $10.68 $23.81 123% 386 968 Endocyte’s good news double hits the target with investors
5 Furiex Pharmaceuticals $42.01 $87.00 107% 436 923 Therapeutic focus – Diarrhoea-predominant IBS market firms up
Rank Top 5 fallers
1 Active Biotech SKr69.50 SKr28.80  (59%) 812 333 With EU knockback laquinimod’s irrelevance is all but assured
2 Geron $4.74 $2.09  (56%) 611 328 FDA’s left-field shot crushes Geron
3 Galena Biopharma $4.96 $2.50  (50%) 522 295 Daily Market Movers (18 Mar 2014)
4 CytRx $6.27 $3.49  (44%) 263 194
5 Exelixis $6.13 $3.54  (42%) 1,129 689 Jittery markets punish Exelixis for missing moonshot

Intercept had a more memorable quarter than any other company in the pharma and biotech universe. News that a trial of obeticholic acid (OCA) in fatty liver disease – not even its lead indication – was halted for positive efficacy prompted the massive inflation to this recent entrant to the public markets.

It does not hurt the investment case that bullish analysts are seeing fatty liver disease, sometimes called non-alcoholic steatohepatitis (NASH), as a natural successor to the feverish hepatitis C scene of recent years.

The boil eased a bit when a trial of OCA in its main indication of primary biliary cirrhosis raised fears over the drug's cardiovascular safety, and the biotech carnage of late March did not help (Investors find it hard to see the good in Intercept as gloom triumphs, March 18, 2014). Still, the group’s shares ended 2013 at $68.28 and the first quarter of 2014 at $329.79, with some analysts setting price targets of $700.

Another NASH play, France-based Genfit, had a similarly spectacular rise over the quarter, its market valuation having risen 218% on positive news about its phase II project GFT505. InterMune, a company that has blown hot and cold with investors because of disappointing returns on its idiopathic pulmonary fibrosis project Esbriet, has an improved outlook thanks to positive mortality data. Endocyte benefited from positive news on targeted chemotherapy vintafolide in ovarian and lung cancers, and Furiex had good news on its irritable bowel syndrome treatment eluxadoline.

Business practices were the catalyst for losses in the cases of two of the big decliners. Galena Biopharma and CytRx suffered because of affiliation with the investor relations firm the Dream Team Group, which has resulted in shareholder lawsuits.

Clinical disappointments explained the falls of the remaining three: Active Biotech’s MS project laquinimod might never be launched, and if it does it has been largely overshadowed by treatment advances; Geron’s imetelstat has been put on hold for liver toxicity; and Exelixis was a case of expectations running ahead of reality, with news that Cometriq will not report prostate cancer data until later this year, disappointing investors.

<$250m pharma companies: top risers and fallers in Q1       
Share price (local currency) Market capitalisation ($m)
Rank Top 5 risers YE 2013 Q1 2014 Change YE 2013 Q1 2014 EP Vantage comment and analysis 
1 Pharming € 0.14 € 0.52 266% 65 266 Daily Market Movers (17 Jan 2014)
2 Elite Pharmaceuticals $0.12 $0.41 241% 61 216 Daily Market Movers (5 Mar 2014)
3 Nuvilex $0.10 $0.34 228% 61 214 Daily Market Movers (27 Feb 2014)
4 Retrophin $7.00 $21.2 203% 129 514 Retrophin moves a step closer to becoming the new Questcor
5 Cellectis € 2.30 € 6.57 186% 64 183 Cellectis banks on US support
Rank Top 5 fallers
1 Ventrus Biosciences $3.82 $1.28  (67%) 80 30 Daily Market Movers (12 Feb 2014)
2 Addex Therapeutics SFr3.72 SFr2.00  (46%) 42 23
3 Onconova Therapeutics $11.48 $6.34  (45%) 246 137 Onconova loses IPO shine with trial failure
4 CellSeed ¥1,840 ¥1,114  (39%) 149 93
5 KaloBios Pharmaceuticals $4.42 $2.71  (39%) 146 89 KaloBios takes its medicine and cuts losses in asthma

Gains in the triple digits were also required to top the table in the micro-cap world – although companies like Pharming, Nuvilex and Elite Pharmaceuticals ended 2013 with share values measured in cents, so the magnitude of the jump is a bit more understandable.

The Dutch company Pharming led the pack as hopes rose that its hereditary angioedema project Ruconest would get US approval. Retrophin, run by the hedge fund manager Martin Shkreli, got a boost when it acquired Manchester Pharmaceuticals for its rare disease product Chenodal. Cellectis benefited from a private placement and a collaboration with Servier on cancer immunotherapy.

On the losing side of the equation: Ventrus Biosciences missed its primary endpoint of pain reduction in a phase III trial of VEN 307 in anal fissures; Onconova Therapeutics failed to show that rigosertib helped myelodysplastic syndrome patients live longer than best supportive care; and KaloBios Pharmaceuticals suffered from disappointment for its asthma project KB003.

The small cap world has benefited from the biotech bull market as much as if not more than their bigger brethren, as evidenced by the imbalance in gainers versus losers in the high-flying first quarter of the year. With the hasty pullback of late March, it is not at all clear that the good times will last, and by the end of quarter two, the balance may have shifted.

To contact the writer of this story email Jonathan Gardner or Joanne Fagg in London at news@epvantage.com or follow @JonEPVantage or @JoEPVantage on Twitter

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