Chardan is divided when it comes to forecasts moving forward for biotech stocks Novavax, Inc. (NASDAQ:NVAX) and Arrowhead Pharmaceuticals Inc (NASDAQ:ARWR). Whereas one analyst remains cautious after NVAX’s third-quarter on back of diminished investor sentiment from a failed Phase 3 Resolve trial and questions as to resolutions for raging cash burn, the second analyst remains bullish on ARWR despite a recent clinical hold placed on its Heparc-2004 study. Let’s dive in:
Yesterday, Novavax released its third-quarter report and in reaction, Chardan analyst Keay Nakae remains sidelined on the biotech firm, reiterating a Neutral rating on shares of NVAX with a $1.50 price target, which represents a nearly 13% increase from current levels.
Nakae notes, “The company is at a pre-commercialization stage, although it does recognize revenue from research and development collaborations, including government contracts.”
“Management has now articulated the tactical changes they intend to implement, including the next step in the clinical development of their RSV vaccine in elderly patients, and how they are going to reduce their high cash burn. However, with the failure of the Phase 3 Resolve study, investor confidence in the company’s vaccine technology has decreased. We will need to see new efficacy data from either the Phase 2 study of RSV in elderly patients, or a possible interim analysis of the Phase 3 Prepare study, which aren’t expected until Q3 2017,” Nakae concludes.
For the third quarter, NVAX brought in $3.2MM in revenue, which came up short in the context of the Street’s expectation of $4.2MM. The firm’s operating expenses hit a high of $67MM, a $27MM rise from one year prior, which the analyst attributes to $53MM in R&D expenses, a $22MM surge on account of ongoing Phase 3 and Phase 2 trials. NVAX posted a resulting net loss of -$66.3MM, or a GAAP EPS of ($0.24), just two cents over the Street’s ($0.26).
At the close of the quarter, the biotech firm had $300MM in cash, which the analyst juxtaposes against the $231MM in cash NVAX had at the close of 2015.
For the financial year of 2016, Nakae has reduced his revenue projection by $3.3MM down to $18.9MM as a reflection of lower BMGF grant revenue for the firm’s Prepare trial. Taking restructuring into account, the analyst has raised his net loss estimate by $14MM to -$284MM, which subsequently lifts his GAAP EPS forecast by $0.05 to ($1.05). For 2017, Nakae has cut his revenue estimate by $7MM to $32.5MM while simultaneously increasing his GAAP EPS estimate by $0.13 to ($0.62), a reflection of restructuring and its resultant impact.
As usual, we recommend taking analyst notes with a grain of salt. According to TipRanks, analyst Keay Nakae is ranked #4,047 out of 4,205 analysts. Nakae has a 26% success rate and faces a loss of 28.6% in his annual returns. When recommending NVAX, Nakae earns 0.0% in average profits on the stock.
TipRanks analytics indicate NVAX as a Buy. Based on 8 analysts polled in the last 3 months, 2 rate a Buy on NVAX, while 6 maintain a Hold. The 12-month price target stands at $7.17, marking a 435% upside from where the shares last closed.
Arrowhead Pharmaceuticals Inc
On November 8th, Arrowhead announced that the FDA has placed its Heparc-2004 clinical trial of ARC-520, an RNAi drug for the treatment of hepatitis B virus (HBV) on a clinical hold. The agency verbally gave notice to the biotech firm that this hold is a response to deaths in an ongoing non-human primate (NHP) toxicology study of the ARWR’s EX1-RNAi platform, which is the firm’s liver-targeting intravenous delivery method. Presently, the cause of mortalities in the firm’s NHP study remains unknown.
Nonetheless, Chardan analyst Madhu Kumar reiterates a Buy rating on ARWR while pulling back on the price target from $10 to $8, which represents a 90% increase from where the shares last closed.
Kumar makes a bullish case for the stock’s prospects, explaining, “The hold affects just one of nine ARWR clinical trials, the toxicity is observed at doses beyond the clinical range, and over 300 human subjects have received EX1-RNAi without similar toxicities.” Furthermore, the analyst defends, “The preclinical toxicity occurred at super-clinical doses,” adding, “Over 300 human subjects have received EX1-RNAi without similar toxicities.”
However, the analyst does acknowledge the bearish standpoint, noting, “The hold increases the regulatory burden moving forward, other regulators could impose similar holds, and EX1 safety concerns could pose a platform risk.” Meanwhile, there remains a risk that “other regulators could impose similar clinical holds” on the firm’s additional studies. Lastly, the analyst is aware that in general, safety risks for EX1-RNAi “represent a potential platform risk.”
Overall, “To our understanding, Arrowhead expects written notice of the clinical hold from the FDA within 30 days. We now embed a risk discount into our Arrowhead valuation to account for the clinical hold,” but for now, Kumar chooses to remain positive overall on the firm’s pipeline moving forward.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Madhu Kumar is ranked #3,870 out of 4,205 analysts. Kumar has a 39% success rate and confronts a loss of 12.8% in his yearly returns. When suggesting ARWR, Kumar loses 33.3% in average profits on the stock.
TipRanks analytics demonstrate ARWR as a Strong Buy. Out of 5 analysts polled in the last 3 months, 4 are bullish on Arrowhead stock, while 1 remains sidelined. With a return potential of 138%, the stock’s consensus target price stands at $10.00.