Biotech Stock On The Radar: FDA Verdict Ahead For Pfenex's Osteoporosis Biosimilar

Pfenex Inc PFNX has a key binary event coming up: mark your calendar for Oct. 7, when the FDA is scheduled to issue its verdict on the company's lead drug candidate.

Through its production platform Pfenex Expression Technology, the biotech Pfenex engages in the development of high-value protein-based therapeutics and vaccines.

This thinly traded micro-cap biotech has more than doubled year-to-date. Has the rally run out of steam, or is there further upside ahead?

Clinical Pipeline

The most advanced product candidate in Pfenex' pipeline, PF708, is inching closer to commercialization.

The lead candidate is a therapeutic equivalent of Eli Lilly And Co LLY's Forteo, which was approved in 2002 to treat osteoporosis in men and menopausal women who are at high risk of fractures.

Forteo's global sales stood at $1.6 billion in 2019.

Following the midcycle review of Pfenex's NDA for PF708 in May, the FDA did not identify any issues requiring an Adcom meeting, the company said in its second-quarter earnings release.

The company is gearing for a commercial launch in the U.S. as early as the fourth quarter of 2019, subject to FDA approval.

Pfenex is also striving to get an "A" therapeutic equivalence designation for PF708 to Forteo, which will allow PF708 to be automatically substituted for Forteo.

The company's development and licensing partner Alvogen has assumed the responsibility to manufacture and commercialize PF708 in the U.S. at its own expense.

Alvogen has also been granted exclusive rights to market PF708 in the EU, certain countries in the Middle East and North Africa and the rest of the world, excluding those Asian countries for which China NT Pharma has secured the licensing rights.

Pfenex is eligible to receive a gross profit split of up to 60% on product sales from Alvogen, depending on the geography and cost of goods sold.

The company is eligible for double-digit royalties on net sales from NT Pharma.

Alvogen has submitted a Marketing Authorization Application to the European Medicines Agency. Initial comments on the application are expected in the third quarter of 2019.

The Pipeline

Pfenex's other wholly owned investigational compounds include:

-PF582 (randibizumab), a biosimilar candidate to Lucentis marketed by Roche Holdings AG Basel ADR RHHBY and Novartis AG NVS, indicated to treat retinal diseases.

-PF529, a biosimilar candidate to Amgen, Inc. AMGN's Neulasta for treating chemotherapy-induced neutropenia.

-PF690, a biosimilar product to Oncaspar, a drug indicated to treat acute lymphoblastic leukemia that's marketed by Shire, which has been acquired by Takeda Pharmaceutical Co Ltd TAK.

-Anthrax vaccine candidates Px563L/RPA563.

-Under partnered programs, Pfenex has PF743, a recombinant crisantaspase and PF745, a recombinant crisantaspase with a half-life extension technology, both produced using its PET platform under an agreement with Jazz Pharmaceuticals PLC JAZZ.

It has commercial agreements in place with Merck & Co., Inc. MRK and the Serum Institute of India, or SII.

Merck is using CRM197 in 12 Phase 3 studies for its V114, an investigational 15-valence conjugate vaccine for the prevention of pneumococcal disease.

SII has a 10-valence pneumococcal conjugate vaccine, Pneumosil, which utilizes CRM197. SII has initiated the process of World Health Organization prequalification for Pneumosil in the first quarter of 2019, with the process likely taking upto a year.

Competition

Apart from the $1.6 billion in sales netted by Eli Lilly, Radius Health Inc RDUS's Tymlos, another approved osteoporosis drug, posted sales of $100 million, taking the total sales of osteoporosis drugs to $1.7 billion last year.

Pfenex may also have to brace for additional competition, as Evenity developed by Amgen, Inc. AMGN and Belgian biotech UCB has been given the nod in the U.S. for treating osteoporosis in menopausal women at a high risk of fracture, although the EU has yet to approve the drug.

Osteoporosis product sales are expected to reach $6.7 billion in the U.S., Japan and the five major European markets by 2025. About 53 million Americans either have osteoporosis or are at increased risk, Pfenex said, citing NIH estimates.

Financials

Revenue recognized by Pfenex is through collaboration agreements, licensing agreement, government contracts and sales of reagent protein products.

For the three months ended June 30, 2019, the company reported revenue of $2.81 million, down from $4.19 million year-over-year.

The loss per share narrowed from 41 cents to 24 cents, as R&D expenses declined about 55%. Cash and cash equivalents stood at $41.62 million as of June 30.

Upcoming Catalysts

Oct. 3: Presentation at the Cantor Healthcare Conference.
Oct. 7: PDUFA Date For PF708.
Commercial launch of PF708: as early as the fourth quarter of 2019 (contingent on FDA approval). Licensee Jazz to initiate Phase 2/3 study of PF743 (JZP-458): later this year.
Potential sales royalty payments for the Serum Institute of India's Pneumosal: as early as the first quarter of 2020, when the WHO prequalification process is complete.

Stock Take

Pfenex, which went public in July 2014 through an 8.33-million-share IPO priced at $6 per share, rose to a post-IPO high of $24.41 in a year.

The stock then went downhill, troughing at $2.07 in December 2017 before attempting a modest recovery that took it to a peak of $8.42 in mid-2018.

Thereafter, it has been more of a consolidation move. The stock has traded in a 52-week range of $3.13-$10.20.

Source: Y Charts

From an near-term intraday low of $5.65 on Aug. 5, Pfenex shares rallied to a high of $10.20 on Sept. 17, a peak-trough gain of roughly 81%.

The catalyst for the recent rally has been the kickoff of a $17-million development milestone payment from Jazz for PF745.

The 50-day SMA has not been violated to the downside by the stock since early August, with the measure currently at $7.448.

Buying could emerge if the stock drops back to this level. The $7.20-$7.30 region served as resistance for the stock since the middle of May before buying pushed the stock past this resistance in early September.

If this resistance-turned support level breaks down, the next support could be around $5.40-$5.50, a low from which the stock has bounced a few times in recent months.

On the contrary, the stock could revisit its recent highs around $9.70-$10.20 on a potentially favorable reaction to the PDUFA catalyst.

Pfenex's pipeline optionality and a steady stream of milestone payments from partnered programs and collaborations could cushion the stock even in the wake of an adverse outcome.

In early September, JMP Securities analyst Jason Butler upgraded shares of Pfenex from Market Perform to Outperform and raised the price target from $13 to $17, suggesting over 100% upside potential.

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