October 7, 2016
By Mark Terry, BioSpace.com Breaking News Staff
Biotech stocks are volatile for a reason—the trip from startup to approved product is an obstacle course of flaming ditches and electrically-charged water hazards. And as a result, many small biotech companies disappear along the way, either because they flamed out or because they got bought out by bigger companies. George Budwell, writing for The Motley Fool, takes a look at two biotech companies that he suspects are going to disappear, but for two very different reasons.
First up is Acadia Pharmaceuticals . The company just launched its sole product, Nuplazid (pimavansrin), to treat Parkinson’s psychosis. Its third-quarter earnings report in November will give investors the opportunity to see how its sales are doing.
Todd Campbell, recently writing for The Motley Fool, said, “If third quarter results show Nuplazid sales are ramping up quickly, then Acadia’s stock could enjoy tailwinds in Q4, but an even bigger market-moving event may be the company’s upcoming release of data from a trial evaluating Nuplazid in Alzheimer’s disease psychosis.”
However, the company’s has been dropping since at least September 20, when it traded for $35.98, to today’s $27.26.
Budwell writes, “The overarching concern seems to be Acadia’s lack of experience in terms of handling a commercial launch. Luplazid, after all, is the company’s maiden voyage into the complex world of pharmaceutical sales, and the biotech is up against a host of bigger competitors that sell a variety of products commonly used off-label to treat PDP.”
It’s a company with a good product in a fairly clearly defined market, but it doesn’t necessarily have the horsepower needed to make a go of it. Budwell, as a result, suspects the company is going to be swallowed up by someone with the clout and marketing machinery to exploit the drug, especially if it turns out to be useful for Alzheimer’s-related psychosis.
The second company, unfortunately, is a different story. MannKind Corp has an innovative product that on the surface would seem to have been an automatic win. In early 2014, the U.S. Food and Drug Administration (FDA) approved Afrezza, an inhaled form of insulin. As an alternative to injections, and with Sanofi-Aventis US LLC (SNY) as a marketing partner, the product should have taken off.
But right from the start, sales were soft, largely because of problems related to insurance reimbursement.
Typically, insurance companies classify drugs in four tiers, 1 through 4. Tier 1 drugs are generally low-priced generic drugs. Tier 2 is generally a preferred brand name prescription drug. Tiers 3 and 4 are usually higher-cost prescription medications, and drugs that are considered effective, but not necessarily the best choice for the majority of patients.
Most insurance companies placed Afrezza as Tier 3, even though MannKind and Sanofi worked to get it placed in Tier 2. For consumers, that meant that they usually pay a higher co-pay to get the drug, as well as there being possible restrictions on it.
In January 2016, Sanofi terminated the collaboration deal.
MannKind has been creative in marketing the product, but it’s running out of cash. The company also recently received a de-listing notice from the NASDAQ, which may require a reverse split, which is when a listed company cuts its share count in order to increase its price per share.
MannKind’s quarterly cash burn rate has been about $21 million, and that was even before it took over the commercialization aspects of Afrezza. Budwell writes, “MannKind probably has less than two quarters remaining in terms of a rock solid cash runway. Now, MannKind does have some additional financing options available to extend its runway, such as its $50 million or so in at-the-market (ATM) stock offerings, as well as a $30 million loan agreement with The Mann Group. But there’s no guarantee that the company will be able to access the entirety of these remaining funds. After all, it’s not exactly feasible to tap a $50 million ATM facility with a share price below a buck.”
Which means that, short of a company deciding to come in and buy them up—which frankly, seems unlikely unless something can be done about its insurance classification, bankruptcy may be in the cards.
MannKind is currently trading for $0.62.
