Today’s Top Biotech Stories: Prana, Actavis, Forest Labs, and Novartis

Prana Biotechnology, Actavis, Forest Labs, and Novartis could loom large in health care headlines this morning. Here’s why.

Feb 18, 2014 at 8:55AM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

Good morning, fellow Foolish investors! Let's take a look at four stocks that could loom large in health care headlines this morning -- Prana Biotechnology (NASDAQ:PRAN), Actavis (NYSE:AGN), Forest Labs (NYSE:FRX), and Novartis (NYSE:NVS).

Prana's "successful" phase 2 Huntington's results disappoint
First and foremost, Prana just announced its eagerly anticipated phase 2 results for its Reach2HD Huntington's disease trial.

The double-blind trial tested two doses (250 mg and 100 mg) of Prana's lead drug candidate PBT2 against a placebo. The trial consisted of 109 patients and was conducted over 26 weeks. PBT2 is a copper and zinc ionophore which was initially found to lower cerebrospinal levels of amyloid-beta ("brain plaques") and boost the function in a neuropsychological test battery (NTB) of mice.

Although Prana claimed that its phase 2 study was "successful" and that "primary endpoints of safety and tolerability were met", we need to address the differences between PBT2 and the placebo, which actually seem minimal.

Check the italicized mean scores in the following chart and compare the standard CAG (cytosine-adenine-guanine) repeat numbers, MoCA (Montreal Cognitive Assessment) score, and TFC (Total Functioning Capacity) score which are commonly used to gauge cognitive improvement in Huntington's disease:

 

Placebo

(35 patients)

PBT2 100mg

(38 patients)

PBT2 250mg

(36 patients)

Total

(109 patients)

Mean age:

Age range:

51.2

30-66

54.1

31-79

50.3

28-70

51.9

28–79

Mean CAG repeat no:

44.1

43.2

44.4

43.9

Mean MoCA score

22.5

23.5

22.9

23.0

Mean TFC score:

9.0

9.3

9.3

9.2

Source: Prana press release.

Not only were the cognitive differences from the placebo minimal in all three categories, Prana stated that in terms of motor function improvements: "No significant changes were seen in motor, functional, behavioral or global assessments in either PBT2 treatment group compared to placebo over the 26 week treatment period."

Considering the questionable efficacy of PBT2 over a placebo in improving both cognitive and motor functions, it's puzzling that Prana considers these phase 2 results "successful." Despite these concerns, Prana plans to move PBT2 ahead into a phase 3 trial for Huntington's.

In my opinion, Prana's murky Huntington's disease results don't bode well for its phase 2b clinical trial testing the drug as a potential treatment for Alzheimer's disease. The Huntington's and Alzheimer's indications for PBT2 are the company's best chances at winning a market approval, since its other treatments remain in preclinical trials or earlier. Despite these challenges, shares of Prana are surging in pre-market trading and poised to open much higher this morning. I'd advise investors to tread carefully.

Actavis nears a $25 billion deal to buy Forest Labs
This morning, Bloomberg and the Wall Street Journal reported that generics giant Actavis is close to a $25 billion deal to buy Forest Labs, the maker of the Alzheimer's drug Namenda and the blood pressure drug Bystolic.

Namenda is a blockbuster drug which generated $1.3 billion in sales in fiscal 2012 but will go off patent in April 2015. Sales of Bystolic climbed 31.6% year-over-year in 2012 to $347.8 million, suggesting that the drug still has room to grow. Bystolic's primary U.S patent will expire in 2021.

Acquiring Forest would continue Actavis' streak of big acquisitions, which started when the company, formerly known as Watson Pharmaceuticals, acquired Actavis in 2012. The "new" Actavis went on to acquire Warner Chilcott in 2013, which allowed it to relocate its headquarters to Ireland to take advantage of its lower corporate tax rates. Meanwhile, Forest Labs agreed to acquire Aptalis Pharma last month for $2.9 billion for its portfolio of gastrointestinal disorders and cystic fibrosis treatments.

If the deal completes, Forest Labs CEO Brent Saunders is expected to lead the newly combined company. A $25 billion deal would value Forest at 7.1 times this year's expected sales, and a considerable premium over its current market cap of $19.3 billion. Saunders, the former CEO of Bausch & Lomb (which was acquired by Valeant) was appointed with the support of activist investor Carl Icahn, Forest's board member and second largest shareholder.

Novartis adds PD-1 drugs to its oncology pipeline by acquiring CoStim Pharmaceuticals
Speaking of acquisitions, Novartis announced yesterday that it will acquire privately held CoStim Pharmaceuticals to increase its footprint in cancer immunotherapies. The market for immunotherapies, which are newer treatments which help a patient's immune system recognize and destroy cancerous cells, is expected to eventually hit annual sales of $35 billion. The terms of the acquisition were not disclosed.

Novartis' acquisition of CoStim notably adds a lucrative PD-1 program to its oncology pipeline. PD-1 is a major target in next-generation cancer treatments which is also being targeted by Merck's MK-3475 and Bristol-Myers Squibb's nivolumab.

This is a positive development for Novartis, which has been growing its oncology portfolio to offset expected losses from its blockbuster blood pressure drug Diovan, which lost patent exclusivity in the U.S. in 2012, and its top selling blood cancer drug Gleevec, which goes off patent in 2015. Sales of Diovan and Gleevec accounted for 14% of Novartis' top line in fiscal 2013.

One more stock to watch this morning
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Leo Sun has no position in any stocks mentioned. The Motley Fool recommends Valeant Pharmaceuticals. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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