Investors were happy campers about the Dow rising 25% in 2017. But three biotech stocks just achieved significantly better gains than that -- in just a matter of days.
Geron Corporation (NASDAQ:GERN), Arena Pharmaceuticals (NASDAQ:ARNA), and Heron Therapeutics (NASDAQ:HRTX) skyrocketed more than 30% this week, with one of the stocks turning in an especially impressive performance. But are these biotech stocks smart picks for investors now? Here's what you need to know about Geron, Arena, and Heron.
Geron: Enjoying a double whammy
Geron was the week's biggest biotech winner, with its share price soaring nearly 71%. There were two interrelated factors that sent the biotech stock into the stratosphere.
First, and most important, Geron provided a pipeline update with its Q4 and full-year 2017 results announced after the market closed on March 16. The company held a conference call to discuss more details on the morning of Monday, March 19. The bottom line from this update was that Geron's lead candidate, imetelstat, appears to be on track, with the company's big partner Johnson & Johnson (NYSE:JNJ) completing a third internal data review of a phase 2 study of the drug in treating myelofibrosis.
This news would have been enough by itself to drive Geron stock higher. But the second reason the stock really took off was that short-sellers have been piling on in recent months. With an improved outlook for imetelstat, these traders were forced to cover their short positions, setting Geron up for a classic short squeeze scenario -- making the stock price go up even more.
Arena Pharmaceuticals: Second time's the charm?
Arena Pharmaceuticals stock jumped 33% this week, largely erasing a decline from prior weeks. The big catalyst for Arena was its announcement of results from a phase 2 study of etrasimod in treating ulcerative colitis.
It's been a roller-coaster ride for Arena investors over the last several years. The biotech stock prospered as it raced to launch weight loss drug Belviq, then plunged as the drug turned out to be a commercial disappointment. Now Arena has another promising drug that has the potential to put the company back on the path to success.
Etrasimod met primary and all secondary endpoints in the phase 2 study, with patients taking the S1P modulator experiencing significant improvement compared to those on placebo. Even better news was that the drug's safety profile holds the potential to be best in class. Other S1P modulators such as Novartis' Gilenya have had some safety issues.
Heron Therapeutics: Feeling no pain
Heron Therapeutics wasn't far behind Arena, with a gain of 31% over the last five days. On Monday, Heron announced positive results from two late-stage clinical studies evaluating HTX-011 in reducing pain for patients undergoing bunionectomy and hernia repair.
HTX-011 is a combination of local anesthetic bupivacaine and anti-inflammatory drug meloxicam administered using Heron's proprietary Biochronomer technology that delivers therapies over a period of days to weeks with a single subcutaneous injection. Not only did patients receiving HTX-011 in the two studies experience significant reduction in pain compared to patients receiving bupivacaine alone or those on placebo, but they required significantly less opioid medications to assist with pain relief.
Based on the great results, Heron now plans to submit HTX-011 for Food and Drug Administration approval in the second half of 2018. The drug has the potential to become a winner in the marketplace if approved. Pacira Pharmaceuticals' bupivacaine drug Exparel generated sales of nearly $283 million last year. HTX-011 should easily top that level, assuming it gains FDA approval.
Are they buys?
The big question mark hanging over Geron's head is whether Johnson & Johnson will continue development of imetelstat. Geron expects J&J to make its call by the end of the third quarter of 2018. At this point, the signs seem to point to a positive decision.
Even with this week's big run-up, Geron's market cap is around $900 million. If imetelstat eventually wins approval, it could realistically have blockbuster potential.
Despite things looking pretty good right now for imetelstat, Geron is certainly still a speculative stock. However, I like the biotech's chances. A small position in Geron could pay off in a big way. I could even see J&J opting to buy the small biotech if all goes well with imetelstat in its clinical studies.
As for Arena, I'm glad to see the small biotech basically rising from the ashes. The safety profile for etrasimod looked great. There's still a phase 3 study to be conducted, though. And Celgene has a head start in ulcerative colitis with its S1P inhibitor, ozanimod. If the big biotech reports a good safety profile for ozanimod in its late-stage ulcerative colitis study, that would be bad news for Arena. My view is to hold off for now on making a call in favor of Arena, but definitely keep your eyes on this resurgent biotech.
What about Heron? I think there's more room to run for the stock. Heron already has two approved products, Sustol and Cinvanti, both of which treat chemotherapy-induced nausea and vomiting. HTX-011 should have a good shot at becoming the biotech's third product on the market. And it could very well become its most successful product.
Development of non-opioid pain drugs is a hot area right now due to the opioid epidemic in the U.S. I suspect Heron could find itself on the radar screens of larger biopharmaceutical companies looking to add de-risked assets to their portfolios.