Healthcare stocks are notorious for having stellar performances during the annual JPMorgan Healthcare Conference, and this year's conference didn't disappoint. With a number of stocks soaring on material news, here is a Fool's take on the three biggest winners last week.
Market is dazed and confused over Chelsea's Northera
Chelsea Therapeutics (NASDAQ: CHTP) led all health-care stocks last week by rising more than 90%. However, Chelsea shares were actually up 151% last Tuesday after a U.S. Food and Drug Administration, or FDA, Advisory Committee voted overwhelmingly to recommend the company's experimental orthostatic hypotension drug, Northera, for approval. Roughly two years ago, the same Advisory Committee essentially split the vote, leading the FDA to request more data prior to an approval.
In an odd turn of events, Northera looked like it was destined for yet another rejection last week, after the Briefing Documents for the meeting suggested that the FDA may request further clinical trials. So, Tuesday's 16-1 yes vote came as a bit of a surprise to the market.
What's my take? My view is that the market doesn't know what to make of Northera's prospects come Feb. 14, when the drug's final review is due to be handed down from the FDA. The market's confusion is evident by the alarming mismatch between the company's projected peak sales of $375 million per year for Northera, and Chelsea's current market cap of $336 million.
Put simply, companies in similar positions, more often than not, are trading at a minimum of three times projected peak sales, in my experience. So, I take this mismatch to mean that the market still isn't a believer in the drug's approval prospects. While the FDA doesn't have to follow the advice of its Advisory Committee, I believe Chelsea offers an intriguing risk to reward ratio after this surprise vote. So, investors with high risk tolerance may want to keep tabs on this story going forward.
Fourth time is the charm?
Alimera Sciences (ALIM -5.34%) also had a good week, shooting up more than 58%. Alimera has been on a rampage ever since the FDA relented on further clinical testing for the company's experimental eye-drug, lluvien. To recap, the drug has officially been rejected by the FDA three times, but the agency reversed course last December, informing Alimera that it would consider safety data from the drug's European launch in lieu of another costly clinical trial. Alimera is now in labeling discussions with the FDA, with a possible commercial launch later this year.
Is this story worth keeping tabs on? From a pure valuation perspective, I don't find Alimera's story particularly compelling. Because the bulk of any revenue in the U.S. would go to Alimera's partner pSivida, I believe a fair amount of a U.S. approval is already baked into the share price. Then again, this particular market is placing a hefty premium on earnings in the biotech sector, so that could be a good reason to keep track of Alimera this year.
Conference presentation boosts Stemline
Stemline Therapeutics (STML) rounds out the top three with a monstrous 44% jump last week. At the conference, Stemline updated investors on its brain and blood cancer clinical candidates, which are showing some impressive results so far. What got investors excited was the announcement that the company's brain cancer candidate is expected to progress into late-stage trials, after showing positive results in mid-stage trials.
Is Stemline looking like a winner? I think it's best to reserve judgment for the time being. The fact of the matter is that Stemline is going after some of the hardest to treat diseases out there, where numerous clinical candidates have previously failed. So, you may want to stay on the sidelines until Stemline is further into the clinical testing process.
