US outperformance dominates small-cap drug stock gains

Surging valuations in the US are not only evident among the world’s biggest drug makers. A look at the progress of the industry’s smaller players on stock markets so far this year reveals the leaderboards are once again dominated by American companies.

Also evident is Japan’s own biotech bubble, with the government’s promise of support for advanced technologies like stem cells propelling many stocks to substantial gains this year. Meanwhile in negative territory, several smaller players have been carried off by commercial or clinical failure. Even the biotech bubble has not been able to insulate certain US companies from these common tripping points – step forward Affymax, Aveo and Resverlogix.

Small cap ($250m-2.5bn) pharma companies: top risers and fallers in 9M
Share price (local currency) Market capitalisation ($m)
Rank Top 5 risers YE 2012 9M 2013 Change YE 2012 9M 2013 EP Vantage comment and analysis
1 ACADIA Pharmaceuticals $4.65 $27.47 491% 413 2,439 Acadia taps market for cash again as FDA filing approaches
2 Celldex Therapeutics $6.71 $35.43 428% 543 2,869 Celldex rides the antibody-drug conjugate wave
3 Clovis Oncology $16.00 $60.80 280% 483 1,834 On a wing and a prayer, Clovis calls the top
4 Isis Pharmaceuticals $10.44 $37.54 260% 1,204 4,329 Biogen's grip on Isis and antisense tightens
5 Alnylam Pharmaceuticals $18.25 $64.01 251% 1,149 4,030 Alnylam’s subcutaneous success drives shares to record high 
Rank Top 5 fallers
1 Affymax $18.99 $1.36 (93%) 706 51 Affymax faces extinction after Omontys debacle 
2 Pharmaxis AUS$1.24 AUS$0.13 (90%) 394 37 Weekly Market Movers (to 1 Feb 2013)
3 Celsion $8.19 $1.15 (86%) 501 70 Daily Market Movers (31 Jan 2013)
4 AVEO Oncology $8.05 $2.06 (74%) 420 107 Aveo reveals fallout of tivozanib failure
5 Jubilant Life Sciences Rs223.95 Rs79.65 (64%) 672 212 Daily Market Movers (27 Feb 2013)

The spectacular surge in valuation of several US small-cap companies – classified by EvaluatePharma as those with a market value of $250-$2.5bn at the start of the year – will see them elevated to the ranks of the mid caps next year, assuming nothing catastrophic happens between now and Christmas.

Pipeline wins for Alnylam and Isis this year, as well as a string of deals from the latter, have built hopes that the companies have finally unlocked the therapeutic potential of their RNAi-based platforms. Both now boast $4bn-plus valuations, but late-stage clinical and regulatory wins need to follow.

The other small-cap contender for the mid-caps is Celldex, which has surged on hopes for its antibody-drug conjugate CDX-011, with investors also likely betting on a deal of some sort. Its valuation is certainly up there with the most frothy, where it is joined by Clovis which had also been riding high on takeout hopes after positive data for its lung cancer candidate CO-1686.

The top riser, Acadia, has made real progress with its Parkinson’s disease psychosis treatment pimavanserin – the FDA agreed to a quicker than expected submission process – but still has to get it to market and establish demand, and investors are no doubt hoping that a partner emerges.

However, Clovis's reported failure to find a buyer – an unjustifiable valuation must surely have played a part – should raise warning signs to investors hoping that similarly highly valued assets will persuade interested parties to part with cash at these levels.

On the flip side, the small-cap decliners include familiar tales of catastrophe: the withdrawal of Omontys for Affymax; the FDA's refusal to approve Pharmaxis’s cystic fibrosis treatment Bronchitol or Aveo’s kidney cancer treatment tivozanib; the failure of Celsion’s liver cancer treatment ThermoDox in a phase III trial; and, over in India, disappointing financial results from Jubilant and concern about its high debt levels.

Micro cap ($100-250m) pharma companies: top risers and fallers in 9M
Share price (local currency) Market capitalisation ($m)
Rank Top 5 risers YE 2012 9M 2013 Change YE 2012 9M 2013 EP Vantage comment and analysis
1 Japan Tissue Engineering (J-TEC) ¥72,500 ¥564,000 678% 168 1,039 When will Japanese biotech come off the boil?
2 Shin Nippon Biomedical Laboratories ¥313.00 ¥1,394 345% 136 480 When will Japanese biotech come off the boil?
3 Lannett Company $4.96 $21.82 340% 141 663
4 GNI ¥122.00 ¥503.00 312% 154 517 When will Japanese biotech come off the boil?
5 tella ¥850.00 ¥3,395 299% 141 447 When will Japanese biotech come off the boil?
Rank Top 5 fallers
1 Bioton PLN0.10 PLN0.02 (80%) 265 53
2 TiGenix €0.91 €0.24 (74%) 152 40 Weekly Market Movers (to 19 Jul 2013)
3 Pernix Therapeutics $7.75 $2.72 (65%) 288 101 Daily Market Movers (26 Jul 2013)
4 Prima BioMed AUS$0.11 AUS$0.04 (65%) 121 44 Daily Market Movers (19 Sep 2013)
5 Resverlogix C$1.60 C$0.59 (63%) 120 44 Resverlogix doomed by second failure

Outside of the small caps and into the territory of the tiny – those with market caps below $250m at the beginning of the year – signs of the Japanese bubble are evident, with companies continuing to benefit from the government’s pledge to support the industry’s efforts to back cutting-edge medical research.

The US generics firm Lannett is a notable entrant; a substantial leap in earnings has attracted investors possibly hoping to benefit from ongoing consolidation in the generics industry.

Among the nano caps, BioCryst has staged a remarkable turnaround on hopes of an oral hereditary angioedema treatment, while Opexa received a lifeline from Merck KGaA in the shape of an option over its multiple sclerosis immunotherapy Tcelna.

And Catalyst Pharmaceutical has staged a recovery after the failure of its cocaine addiction therapy last year, winning breakthrough therapy designation from the FDA for Firdapse, its treatment for the autoimmune disorder Lambert-Eaton myasthenic syndrome.

In negative territory are companies struggling to survive substantial setbacks. In particular, Resverlogix suffered a second failure of its good cholesterol-boosting therapy. For others like Pernix Therapeutics in the US and TiGenix in Europe, financial woes are responsible, as the companies struggle to keep their heads above water under the weight of weak demand for various product offerings.

Nano cap (<$100m) pharma companies: top risers and fallers in 9M
Share price (local currency)  Market capitalisation ($m) 
Rank Top 5 risers YE 2012 9M 2013 Change YE 2012 9M 2013 EP Vantage comment and analysis
1 D. Western Therapeutics Institute ¥129.00 ¥1,248 867% 30 284 When will Japanese biotech come off the boil?
2 Catalyst Pharmaceutical Partners $0.44 $3.05 601% 23 161 Weekly Market Movers (to 30 Aug 2013)
3 Champions Oncology $0.30 $1.75 483% 20 117
4 BioCryst Pharmaceuticals $1.42 $7.28 413% 77 395 BioCryst eyes HAE market as Viropharma struggles to innovate
5 Opexa Therapeutics $0.43 $2.19 409% 9 46 Merck KGaA deal only a stopgap solution for Opexa
Rank Top 5 fallers
1 Myrexis $2.83 $0.0951 (97%) 76 3
2 China Botanic Pharmaceutical $0.469 $0.02 (96%) 17 1
3 Select Vaccines AUS$0.20 AUS$0.01 (95%) 9 1
4 Accentia Biopharmaceuticals $0.07 $0.01 (93%) 6 0
5 IntelliCell BioSciences $0.18 $0.01 (92%) 25 2

To contact the writer of this story email Amy Brown at AmyB@epvantage.com or Joanne Fagg joannef@epvantage.com or follow @AmyEPVantage or @JoEPVantage on Twitter

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