There's nothing like good results from a clinical study to light a fire beneath a biotech stock. That's what has happened with several biotechs over the last few days.
Madrigal Pharmaceuticals (NASDAQ:MDGL), Spectrum Pharmaceuticals (NASDAQ:SPPI), and Zogenix (NASDAQ:ZGNX) reaped the rewards from recent announcements of clinical results for their respective products, with all three biotech stocks soaring this week. Here are the catalysts driving each stock higher -- and more important, a look at whether or not the biotech stocks are smart picks for investors.
Madrigal Pharmaceuticals stock jumped nearly 30% higher this week. However, the company didn't report any positive results. So why did Madrigal's share price move so much? There's a bit of a mystery.
The company announced good news from a phase 2 study last week. On September 19, Madrigal reported that its independent Data Safety Monitoring Board (DSMB) completed a review of two phase 2 studies of experimental drug MGL-3196. One of those studies targeted treatment of heterozygous familial hypercholesterolemia (HeFH), with the other focusing on treatment of non-alcoholic steatohepatitis (NASH). The DSMB recommended that both studies continue without any changes.
While the DSMB recommendation was certainly encouraging, Madrigal stock didn't respond immediately. Instead, it was a few days later before shares skyrocketed by nearly 70%. That momentum has carried over into this week. My hunch is that shares are being driven up in anticipation of a potential acquisition of Madrigal. There are quite a few major players especially interested in the NASH indication. For now, though, that's just a hunch.
Spectrum Pharmaceuticals stock jumped more than 40% this week. On Thursday, the biopharmaceutical company announced promising results from pre-clinical testing of experimental drug poziotinib in treating non-small-cell lung cancer (NSCLC).
Encouraging pre-clinical results sometimes boost small biotech stocks with no approved products, but Spectrum has six products already on the market. No one would have been surprised if late-stage results served as a nice catalyst for Spectrum. However, it's practically unheard of for a stock like Spectrum to soar on pre-clinical data.
Keep in mind, though, that poziotinib is also in a couple of phase 2 studies targeting NSCLC and breast cancer. The pre-clinical results showed that in vitro responses for the drug in NSCLC could be much more effective than AstraZeneca's Tagrisso and Boehringer Ingelheim's Gilotrif. If these results are also demonstrated in Spectrum's phase 2 study for NSCLC, the company could have a huge winner on its hands.
I wrote in August that Zogenix was a biotech stock that could soar in September. And it did. Zogenix stock more than doubled on Friday after announcing very good results from a late-stage study of experimental drug ZX008 in treating Dravet syndrome, a rare form of epilepsy.
Patients taking ZX008 experienced significant improvement in seizure convulsions than did those on placebo in Zogenix's study. In addition, the drug led to meaningful reductions in seizure frequency and longest seizure-free interval.
These results could bode well for Zogenix's second late-stage study for ZX008 in treating Dravet syndrome. Results from that study are expected in the first half of 2018. If all goes well, Zogenix hopes to submit the drug for Food and Drug Administration (FDA) approval in the second half of next year.
Can they go higher?
All three of these biotech stocks could absolutely go higher from here. Of course, it depends on future clinical results.
Madrigal anticipates providing an update on results from its phase 2 NASH study by the end of 2017 and for its HeFH study in early 2018. I could be totally wrong, but positive news from these studies could lead to the company being scooped up by a bigger player.
My first reaction to Spectrum's big jump is that it's somewhat premature. However, more data from the pre-clinical study, as well as Spectrum's phase 2 lung-cancer study of poziotinib, will be presented in a few weeks at the International Association for the Study of Lung Cancer (IASLC) World Conference on Lung Cancer in Japan. The presentation could justify continued momentum for Spectrum. The company also has several other promising pipeline candidates that could be catalysts.
Zogenix appears to be headed for a battle with GW Pharmaceuticals (NASDAQ:GWPH), which will soon submit Epidiolex for approval in treating both Dravet syndrome and Lennox-Gastault syndrome (LGS). Although GW Pharma stock dropped after Zogenix's announcement on Friday, I wouldn't necessarily give the advantage to ZX008 just yet because of potential safety issues with the drug.
Don't be surprised if Zogenix takes advantage of its nice jump this week and issues more shares to generate cash. That would probably cause the stock to fall. Over the long run, however, I think Zogenix stock could go significantly higher.