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I follow quite a lot of companies, so the usefulness of a watchlist to me cannot be overstated. Without my watchlist, I'd be unable to keep up on my favorite sectors and see what's really moving the market. Even worse, I'd be lost when the time came to choose which stock I'm buying or shorting next.
Today is Watchlist Wednesday, so I'm discussing three companies that have crossed my radar in the past week -- and at what point I may consider taking action on these calls with my own money. Keep in mind that these aren't concrete buy or sell recommendations, nor do I guarantee I'll take action on the companies being discussed. What I can promise is that you can follow my real-life transactions through my profile and that I, like everyone else here at The Motley Fool, will continue to hold the integrity of our disclosure policy in the highest regard.
This week I thought it'd be fun to be a bit health-care-centric!
Merck (NYSE: MRK )
Merck may be a gigantic, low-beta pharmaceutical company that you usually glance right over when scanning for income and value plays, but chances are you haven't kept up on two exciting developments that could help reignite its growth engine.
To begin with, the annual American Society of Clinical Oncology meeting in Chicago this past week shed light on a new class of immunotherapy drugs known as PD-1 inhibitors that suppress a protein suspected to be crucial to tumor growth. Heading into this meeting all eyes were on Bristol-Myers Squibb's (NYSE: BMY ) Nivolumab -- and for good reason. In early-stage trials, the combination of Bristol's FDA-approved Yervoy and Nivolumab produced an overall response rate of 40% in advanced melanoma. The real surprise, though, came from Merck with its anti-PD-1 drug Lambrolizumab, which delivered an equally impressive overall response rate of 38% in advanced melanoma. There are still a lot of trials left to be run, but these ORRs are phenomenal. Having already received the designation of "breakthrough therapy" from the Food and Drug Administration, Lambrolizumab should be enough to get Merck investors excited.
However, Merck shareholders don't have to wait years before a potential blockbuster drug reaches the market. Investigational osteoporosis drug odanacatib is currently under safety and efficacy review by Merck with a new drug application expected to be filed by 2014. Odanacatib was so effective at reducing fracturing in late-stage trails that outside monitors stopped the trial early. With peak sales potential of $3 billion, according to Leerink Swann, Merck could be basking in a big sales boost sooner than later. To sum up, get Merck on your watchlist now!
Clovis Oncology (NASDAQ: CLVS )
Welcome to fantasyland; population: Clovis shareholders! As my Foolish colleague and health care analyst David Williamson pointed out this week, shareholders enjoyed the best possible perk of biotech ownership Monday based on ASCO data -- a daily double. Clovis shares exploded higher as both its Rucaparib study of solid tumors, and CO-1686 for EGFR-mutant non-small-cell lung cancer, demonstrated strong early-stage results.
For Rucaparib, the effect was most notable in ovarian cancer, where there was an 89% clinical benefit to patients. In early studies of CO-1686, three of the four patients with the T790M resistance mutation demonstrated a partial response.
While certainly exciting, to believe that Clovis is worth anywhere near $2 billion is downright absurdity! This is a company whose most advanced drug, CO-101, failed to provide a statistical benefit in mid-stage metastatic pancreatic cancer trials in November and had to essentially start from scratch. Realistically, we're probably looking at two or three more years of losses and cash burn from Clovis before Rucaparib, assuming that all the stars align and the data continues to impress, has a shot of adding sales to Clovis' top line.
As of its most recent quarter, Clovis had nearly $130 million in cash, but I anticipate that it could burn through this entire amount over the next 18 months. This means that share dilution could be on the way unless Clovis finds a four-leaf clover in the form of an early-stage licensing partner. Following this week's run, I wouldn't be shocked to see a secondary offering filed later this week or early next week. Needless to say, this is prime short-sale material.
Regulus Therapeutics (NASDAQ: RGLS )
Since presenting at the Deutsche Bank Healthcare Conference two weeks ago, shares of Regulus Therapeutics have been absolutely on fire. A mixture of ASCO and IPO fever have revived the love for newer issues, and having big name pharmaceutical companies gobbling up a majority of its IPO'd shares certainly helps its cause.
On paper, Regulus' microRNA technology and oligonucleotide database are intriguing and border on some very cool research possibilities. As an investment, however, where "cool" doesn't come into play, Regulus is a vampire company bound to suck the blood right out of investors if they dare invest at these levels.
The concern I have with Regulus is that its entire pipeline is purely based on preclinical studies with no interest in filing for an investigational new drug application until at least next year. This means that regardless of how many preclinical studies are under way, Regulus is going to be burning cash at an extraordinary rate for the foreseeable future.
Another head-scratcher is the company's preclinical hepatitis-C treatment known as miR-122. It's an intravenous treatment, partnered with GlaxoSmithKline, that's only now in preclinical trials. Perhaps someone should alert Regulus that it shouldn't waste its time as Gilead Sciences' (NASDAQ: GILD ) oral Sofosbuvir cleaned up in all four of its late-stage hep-C trials with a favorable safety profile, and is currently under review by the FDA. With oral medications under development for years, what incentive do patients have to go back to an intravenous treatment?
It's questions like these that have me worried about Regulus' long-term viability as a publicly traded company. While I wouldn't write it off just yet, I also don't feel its recent run is anywhere near warranted and would suggest a possible short sale of the company.
Is my bullishness or bearishness misplaced? Share your thoughts in the comments section below, and consider following my cue by using these links to add these companies to your free, personalized watchlist to keep up on the latest news with each company:
- Add Merck to My Watchlist.
- Add Clovis Oncology to My Watchlist.
- Add Regulus Therapeutics to My Watchlist.
Can Merck beat the patent cliff?
This titan of the pharmaceutical industry stumbled into 2013 and continues to battle patent expirations and pipeline problems. Is Merck still a solid dividend play, or should investors be looking elsewhere? In a new premium research report on Merck, The Fool tackles all of the company's moving parts, its major market opportunities, and reasons to both buy and sell. To find out more click here to claim your copy today.