The Food and Drug Administration (FDA) made numerous drug approval decisions in the first quarter. These binary events can cause stock prices to skyrocket or plummet depending on the outcome.
Here we explore four companies that successfully attained FDA approval. It marked the first drug ever approved for three of these companies. With the FDA decision in the rearview mirror, should investors look to own these stocks?
1. Aimmune Therapeutics
Aimmune Therapeutics (AIMT) attained FDA approval on Jan. 31 for Palforzia, the first treatment ever approved for individuals with a peanut allergy. The most common of all food allergies, peanut allergy affects roughly 1.2% of the entire U.S. population and 2.5% of the pediatric population, according to the American Journal of Managed Care.
The commercial launch of Palforzia kicked off in mid-March and includes an FDA requirement for a Risk Evaluation and Mitigation Strategy (REMS). The purpose of the REMS is to provide additional safeguards for patients as they will be receiving a treatment that is potentially harmful. Palforzia's REMS requires prescribing physicians, patients, and dispensing pharmacies to be registered in the program. Additionally, the initial dosing of the treatment must be done in a certified healthcare setting. These requirements could slow down initial use of the drug as physicians and pharmacies begin to enroll.
On the back of Palforzia's approval, Aimmune raised $200 million through an investment from its strategic partner Nestle (NSRGY -1.08%). Aimmune first forged a collaboration with Nestle Health Science in 2016 to access regulatory and market access expertise. The Health Science unit focuses on developing food products to control food allergies. Nestle previously invested $145 million and $98 million into Aimmune in 2016 and 2018, respectively.Aimmune's stock now trades at around $16 per share, down nearly 50% since Palforzia. With Aimmune's approved drug and fresh financing, investor focus has shifted to the launch of Palforzia.
On Jan. 23, Epizyme (EPZM) received an accelerated approval from the FDA for Tazverik as a treatment for epithelioid sarcoma, a rare but aggressive form of cancer once it metastasizes. The commercial launch of the drug is underway. Importantly, the National Comprehensive Cancer Network added Tazverik to its treatment guidelines. This should both expand the use of the drug and its reimbursement.
The company awaits a June 18 PDUFA date for the FDA to make another approval decision. If approved, Tazverik will become a treatment option for the roughly 14,000 patients diagnosed every year in the U.S. with relapsed or refractory follicular lymphoma, a slow-growing cancer of white blood cells.
While year to date, Epizyme's stock has lost 28%, it remains up 30% from one year ago. Institutional investors once clamored to own the stock, but that was before COVID-19. We will see if the "smart money" still loves this stock when the end of first-quarter equity holdings get filed with the Securities and Exchange Commission by mid-May. Epizyme also raised $50 million following Tazverik's approval.
3. Esperion Therapeutics
Esperion Therapeutics (ESPR -2.05%) notched two drug approvals from the FDA in February. First, Esperion touts Nexletol as the first oral, once-daily, nonstatin drug to lower LDL cholesterol to be approved in over 20 years in the U.S. The company announced the drug would be available starting on March 30.
The second FDA approval came five days later. Nexlizet, which combines the active ingredient of Nexletol with the cholesterol-lowering drug ezetimibe, lowers LDL-cholesterol in adults with heterozygous familial hypercholesterolemia, a genetic condition that impairs the body to process cholesterol, and those with atherosclerosis, a disease where plaque builds up in the arteries. Esperion noted that the drug will not be commercially available until July.
While not ideal, Esperion has embarked on a virtual launch of Nexletol due to the COVID-19 pandemic. The company expects more than 1.8 million users for the drug at its peak, so it needs to get the ball rolling. Investors should note that the management team believes the company's current funds will carry it until it achieves profitability.
Esperion could not evade the recent market sell-off. Its stock trades around $35 per share, a 50% haircut from early February highs above $70. Investors can own the company for half of the price without enduring the binary risk of FDA approval. Making it even more attractive, European regulators approved both drugs on April 6. The lingering question now is how will the drugs perform in the market.
4. Horizon Therapeutics
Specialty pharma Horizon Therapeutics (HZNP -1.28%) garnered an FDA approval in January for Tepezza, the first and only treatment approved to treat thyroid eye disease. Since the company has 11 other drugs, investors can take comfort that this isn't their first rodeo.
Horizon hauled in $1.3 billion in sales in 2019 across its drug portfolio. The company expects Tepezza to deliver between $30 million to $40 million in sales in 2020. While it does not sound like much, the company also projects peak sales to exceed $1 billion. Tepezza, given as an IV infusion every three weeks, requires patients to receive the drug at a clinic or infusion center. The ongoing coronavirus outbreak could hinder the drug's launch because patients may be unwilling to venture out to an infusion center.
Horizon's stock lost 30% of its value this year but quickly recovered back to only a 15% decline year-to-date. Horizon's outperformance makes sense given its portfolio of marketed drugs and less reliance on any single drug compared with the others on this list. Horizon investors who bought shares one year ago have seen 19% growth.
What should investors do?
The drugs mentioned above are still in their first weeks of availability on the market. When the companies announce first-quarter results, investors will get our first glimmer of the commercial launch. However, these are not normal times with the stay-at-home orders which could mischaracterize the real market appetite for these medicines. This is the first drug launch for Aimmune, Epizyme, and Esperion which adds a level of risk to those companies.
Several factors make these interesting investment ideas. First, the approval eliminates the clinical and regulatory risks for these drugs. Second, these companies are well-capitalized. Aimmune and Epizyme even raised additional money following approval. Third, the companies lost between 15% and 52% in value this year making them more attractive. Biotech investors will want to keep these stocks on their watch list to see how the initial drug sales pan out.