Three Hot BioPharma Investment Plays: ARNA, JAZZ, and PRAN

Image representing Jazz Pharmaceuticals as dep...

 I have a few investment plays in the BioPharma field that I would like to share with everyone. These plays include Arena Pharmacueticals, Jazz Pharmaceuticals, and Prana Biotechnology. The first play is Arena Pharmaceuticals NASDAQ:ARNA. JP Morgan recently downgraded the stock Monday August 2 to Neutral, however Jim Cramer recommended the stock as a buy last Friday on his show MadMoney. Today's afterhours earnings estimate for Q2 was a better than expected loss and I see the stock rising heavily in the next month with the highly anticipated FDA panel review September 16th. ---I have since changed my outlook on all these stocks and actually recommend shorting them lately.

There is plenty of time for profit to be made with Arena's obesity weight loss drug Lorcaserin. I recommend riding the wave until the 16th and selling 75% of your shares for a safe play based on Vivus' recent FDA review panel's disapproval for their weight loss medication Qnexa. Even though Arena is the safer of the 3 weight loss drugs between Vivus (NASDAQ:VVUS), Orexigen (NASDAQ:OREX), and Arena NASDAQ:ARNA, I see the FDA giving these drug stocks a very hard sell based on either safety concerns or efficacy of the weight loss drugs.

However, Arena's drug has been proven in clinical trials to be the safer but less effective of the drugs. A nice comparison of the three company's chances can be found here, FDA to review first of 3 new weight loss drugs, however Qnexa has already hit a wall with last month's negative review. If you can take a chance hold onto ARNA and wait for approval, which seems quite possible, as side effects were essentially no worse than the placebo. My only concern is its efficacy. Most analysts seemed to think lorcaserin's efficacy data, though not stellar, are sufficient for approval.

Arena reported a lower net loss in the second quarter of 2010 of $28.8 million, or $0.28 per share, compared to a net loss in the second quarter of 2009 of $38.0 million, or $0.48 per share, and a lower net loss in the first half of 2010 of $60.0 million, or $0.60 per share, compared to a net loss in the first half of 2009 of $88.6 million, or $1.16 per share. Here is today's 2Q report from PR Newswire:
Arena Pharmaceuticals Announces Second Quarter 2010 Financial Results and Recent Developments

"We have recently achieved a number of important milestones, including the establishment of an agreement with Eisai for the commercialization of lorcaserin in the US, the successful completion of the FDA's pre-approval inspection of our Swiss manufacturing facility and the publication of our BLOOM trial results in the New England Journal of Medicine," stated Jack Lief, Arena's President and Chief Executive Officer. "We are continuing to execute on our plans for lorcaserin as we prepare for the September FDA advisory committee meeting and potential regulatory approval."

My second play is Jazz Pharmaceuticals (NASDAQ:JAZZ). I have been following Jazz for over a year now and the stock has been disappointing this year. It has fallen sharply from this year's high of 13.47 in March 2010. After missing Q1 EPS estimates as highlighted in the following article by SmarTrend, Jazz Pharmaceuticals Earnings Review: 23 Days After Announcement Shares Down 16.84% (JAZZ), the stock has been on a rise due to an August 20th FDA review of the drug JZP-6 for Fibromyalgia.

If you follow The Street, Adam Feuerstein has written the following article that explains everything you need to know about the upcoming FDA review. Here is Adam's article titled Jazz Pharma - FDA Panel Prep. Again my take on this stock is actually to buy and hold onto this stock based on a probable approval and the fact that the drug is already approved for other conditions. Jazz already sells JZP-6 under the brand name Xyrem for the treatment of narcolepsy and to reduce cataplexy. The FDA approved Xyrem in 2002. Although there are abuse concerns for the GHB related drug, Jazz has improved safety by only selling this drug through one approved pharmacy which has improved safety checks on the drug's distribution.

My thrid play is Prana Biotechnology (NASDAQ:PRAN). Marketwach recently highlighted Prana's play on Alzheimer's Disease with the following article, Prana Biotechnology Is Cited in New Scientist Magazine Article Titled "Alzheimer's Unlocked: New Keys to a Cure". More can be learned about their research here: Prana's Research Was Presented at International Conference on Alzheimer's Disease on July 14. Marketwatch then discusses the Alzheimer's drug PBT2 data here: New PBT2 Data in 2010 Hot Topics Session.

Their stock is currently priced at 1.28 and I see huge potential for this stock in the future as a very low priced stock. Total equity is at 7.65M while Liabilities and Shareholders equity at 8.61M Australian Dollars. They have zero long term debt as of 12-31-09 and have a Market Cap of 29.95M. April 19th, 2010 saw a huge spike in the stock price up to 2.41. The sky is the limit for Prana Biotechnology.
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