Shares in biotechnology companies can make breathtaking moves higher and lower on whims and whispers and June was no exception. Following a rollicking ride higher last year and dramatic sell-off in the first quarter, investors are right to be cautious.
Although biotech bargain hunters helped the biotech industry ETF (NASDAQ:IBB) return over 7% in June (5% better than the S&P 500), not all biotech stocks went higher.
Puma Biotechnology (NYSE:PBYI), Clovis Oncology (NASDAQ:CLVS), and Hyperion Therapeutics (NASDAQ:HPTX) all tumbled by double digit percentages this month, so lets take a closer look at why shares dropped.
Hurdles in duplicating success
Puma was one of last year's best performing biotechs as investors hoped that CEO Alan Auerbach could catch lightning in the bottle twice. Auerbach is the former founder of Cougar Biotechnology, the company that developed Johnson & Johnson's blockbuster prostate cancer drug Zytiga.
This time around, Auerbach is betting Puma's fortune on neratinib, a breast cancer treatment Auerbach licensed from Pfizer in 2011 that's just posted phase 2 trial results.
Unfortunately, neratinib's mid stage success was a bit disappointing. In April, Puma reported that a large number of patients in its trial of neratinib plus paclitaxel had moderate to severe cases of diarrhea. That news blunted any enthusiasm that may have stemmed from the combination therapy potentially outperforming Herceptin plus paclitaxel, a common standard therapy.
In June, Puma also presented data from a 40-person mid stage trial in breast cancer patients whose cancer has spread to the brain. Those results showed that while four patients had stable disease for six or more months, moderate or severe diarrhea was similarly a challenge.
The side-effect may prove manageable, but we'll have to wait for later stage trials to see if that's the case. As a result, investors hoping for slam-dunk results are right to be disappointed, but that doesn't mean neratinib is heading for the dustbin (yet). In that 40 person trial, 85% had been previously treated with Tykerb and failed, so there remains a lot of interest in new treatment options for this deadly disease.
Disappointing side effect
Puma wasn't the only cancer drug company to tumble following trial results in June. Clovis also presented data that sent shares reeling.
Clovis reported that 22% of patients who had received treatment with its lung cancer drug CO-1686 in phase 1/2 trials were now taking medication to lower their blood sugar.
Those concerns trumped the fact that 58% of patients that are resistant to current EGFR inhibitors used to treat the disease responded to the drug.
Whether Clovis shares can get on track will depend in part on whether AstraZeneca's competing AZN9291 does better than CO-1686 in trials. The two have both shown efficacy, but have endured questions over adverse events. Assuming no further setbacks, Clovis intends to file for approval of its drug next year.
Taking some off the table
Hyperion shares have been yawing all year. Shares were trading at just $20 last fall before peaking above $30 in February. In June, investors took some profit, knocking shares down 11%.
Hyperion is developing a treatment that seeks to improve brain function in patients whose function is falling due to liver failure.
In February, the company reported that its GPB therapy reduced the number of occurrences of neurological symptoms tied to the disease, clearing the way for the company to advance the drug into phase 3 trials either later this year or next year. If approved, Hyperion estimates that the drug's potential market could be roughly 140,000 patients.
Hyperion could also offer investors good news next year for DiaPep277. DiaPep277, which the company acquired as part of its buyout of Andromeda Biotech earlier this month, is being studied as a treatment that may delay progression of type 1 diabetes in newly diagnosed patients. The company's phase 3 trial of the drug in 474 type 1 diabetics is expected to report out in early 2015.
Fool-worthy final thoughts
Developing new cancer drugs is especially difficult. Roughly 93% of cancer drugs fail during trials and never reach the market, and investors are obviously concerned that previous expectations for Puma and Clovis' drugs might have been too optimistic.
Puma is evaluating whether adding an anti-diarrhea medication to its trial will allow it to overcome potential FDA concerns. If so, investors may find that the drug performs better in late stage trials. For its part, Clovis appears undaunted by the hyperglycemia worries tied to CO-1686 given that the company still plans to file for approval next year.
Of the three Hyperion has the important advantage of already marketing two drugs that combined to produce sales of almost $20 million in the first quarter. That helps offset some of its pipeline risk; however, for Hyperion shares to head to new highs next year, I think it will need to report positive results for its type 1 diabetes drug too.
Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. Todd owns Gundalow Advisors, LLC. Gundalow's clients do not have positions in the companies mentioned. The Motley Fool owns and recommends shares of Johnson & Johnson. 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.