Year after year, the greatest winners in healthcare have almost always been the companies that receive the elusive FDA approval. FDA approvals tend to have the magic effect of minting multi-hundred- or billion-dollar companies seemingly overnight. This makes sense, it takes years of expensive clinical work and great data to receive approval.
That being said, the best returns are always found in the companies that have yet to receive their first FDA approval. These companies are typically small-cap, and although they’re not as closely followed as the pharma giants that drive biotech headlines, they represent a massive opportunity for appreciation once investors start looking after a catalyst such as FDA approval.
FDA approvals also get companies on big pharma’s radar. When big pharma looks to acquire companies, they’re not looking to buy assets that still need to go through the clinical trial process, instead- they would much rather pay a hefty premium to snatch up a company with a market ready product.
Here are three companies that are potentially the biggest potential breakout stocks in healthcare today, based on respective FDA approval readouts: Biohaven Pharmaceutical Holding Co Ltd, Karyopharm Therapeutics Inc., NeuroOne Medical Technologies Corporation.
- Biohaven Pharmaceutical (BHVN)
While shares of Biohaven Pharmaceutical have sold off since raising $300 million mid-June, the share price has remained healthy driven by positive results from its Phase 3 trial of rimegepant. The results published in the New England Journal of Medicine revealed that patients dosed with their small molecule migraine drug experience improved pain freedom and freedom from migraine-associated symptoms compared to placebo.
Investors may be forgetting about the 505(b)(2) NDA application that the FDA accepted in November of last year for BHV-0223 for Amyotrophic lateral schlerosis (ALS). Although the company has remained relatively quiet about the status of its ALS drug, the application last year contained data that showed bioequivalence with riluzole, a commonly used treatment for ALS, while showing acceptable safety and tolerability profile.
While the PDUFA date was not supplied, it’s likely that FDA will provide a response within the coming weeks, and approval should allow for a meaningful bump in valuation for the company.
- Karyopharm Therapeutics (KPTI)
Shareholders of Karyopharm Therapeutics were met with an unexpected pleasant surprise last week when the company announced FDA approval of its therapeutic, Xpovio, for the treatment of penta-refractory multiple myeloma. This comes off the back of a drastic selloff in February after an FDA advisory committee vote of 8-5 recommending that approval of Xpovio be delayed until additional Phase 3 data was disclosed.
Approval for Xpovio arrived earlier than expected and was primarily driven by data from the Phase 2b ‘STORM’ trial on 123 patients with refractory multiple myeloma with at least three prior treatments. The overall response rate of 25.3%, including 23 patients with partial response, was promising enough to merit approval for this highly underserved patient population.
While shares have almost fully retraced to its pre-sale share price of $9/share, appreciating from $5.63 to 8.05/share. Further appreciation potential may be capped at $10.25/share or the peak share price in 2019, when investors expected imminent FDA approval.
- NeuroOne Medical Technologies (NMTC)
The final healthcare company with FDA approval readout expected in the coming weeks is NeuroOne Medical Technologies Corporation, a neurotechnology company focused on changing the standard of care for patients suffering from severe neurological disorders. NeuroOne focuses on the development of next-generation cortical electrodes, which are used by neurologists to diagnose and potentially treat complex neurological conditions such as epilepsy and Parkinson’s disease.
Currently used cortical electrodes suffer from a number of problems, such as elevated infection risk, poor-resolution, and elevated risk of brain tissue damage. These problems are believed to be a key limitation in the surgical treatment of epilepsy. Vastly improved cortical electrodes could revolutionize the diagnosis and standard of care for epilepsy and Parkinson’s and would gain access to an immediately addressable market of $6 Billion for cortical electrodes.
Similarly to BioHaven, NeuroOne quietly submitted a 510(k) application for their first product, a thin-film cortical electrode, for approval to the FDA in January 2019. Given the relatively faster assessment and approval cycles for 510(k) submissions, the company could potentially receive FDA clearance within the coming weeks.
While the data released from the studies performed with NeuroOne’s cortical electrodes appear promising, the greatest sign of confidence can be found in the company’s investors. Attesting to the value seen in the technology, world-famous Mayo Clinic took a 10% position in the company’s public stock. This bodes well not only for the validity of the company’s claims, but also the commercialization of the product upon approval.
Approval would expose NeuroOne to a tremendous market opportunity in neurological conditions. There are over 10 million people worldwide suffering from Parkinson’s disease, and epilepsy has stated to affect 3.4 million people in the U.S. alone. Adoption of the company’s product could be driven by the impression background of the members of the company’s advisory boards. This includes Mayo Clinic’s Greg Worrell MD, PhD and Gregory Esper MD,MBA of Emory University, Dr. Kip Ludwig, former Program Director for Neural Engineering at the NIH, and Dr. Doug Weber, Program Manager in the Biological Technologies Office at DARPA.
If NeuroOne is able to receive FDA clearance within the coming weeks, increased trading activity could quickly allow NeuroOne to uplist to the NASDAQ. NMTC is currently valued at $3.30/share at a valuation of $44 Million. In consideration of the lack of liquidity, it may be fair to say that the FDA clearance has not been priced into the share price yet. This represents a tremendous opportunity rarely found in healthcare, unpriced imminent catalysts.
Although small-cap healthcare stocks are known to be volatile, they also represent some of the best sources of significant growth for the savvy investor looking to add some reward-adjusted risk to their holdings.
Small Cap Disclosure
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