By The Swiss Trader
According to the Centers for Disease Control and Prevention (CDC), approximately 599,413 deaths occurred in 2011 as a result of heart disease. Once again, this remains the number one leading cause of death, beating cancer by more than 30,000 events. Over the last decade, scientists have made exciting medical advancements to improve the treatment of medications/therapies for heart disease, and there are some exciting potentially multi-billion dollar drugs in the pipeline of biotechnology.
If you take a look at the best performing biotechnology stocks and those that have the greatest outlook, most are for the treatment of various cancers. Cancer is a diverse disease that has many layers and theories to its treatment. Yet it remains less relevant in terms of deaths compared to heart disease, although both are obviously serious issues.
My point is that companies developing novel therapeutics to increase a patient’s life before, during, or after a cardiovascular episode, or heart disease, has just as much upside as the high- profile companies in oncology. In fact, it is estimated that in 2010 alone, total global pharmaceutical sales in the cardiovascular segment were approximately $116.3 billion. In this article I am looking at the select few that are leading the charge to take a large chunk of this market. I will be focusing on companies that are breaking through barriers, presenting tremendous upside potential, and could report billions in annual sales while saving thousands of lives.
A Market for Preventing Heart Disease
Let’s start with one of the more controversial, high-profile, companies in the space, Amarin Corporation plc (NASDAQ:AMRN). Amarin’s FDA-approved drug, Vascepa, has faced a number of dilemmas including patent concerns, potential competition, and concerns regarding a difference of direction among management. But as of now, all of these concerns are irrelevant. I am simply looking at the drug itself, its benefit, and potential market.
Amarin’s Vascepa is derived from fish oil, and is intended to treat patients with high triglycerides, which indicate that a person is at high risk for heart disease and/or stroke. According to Amarin, it is estimated that 40 million Americans have elevated triglycerides, with 4 million having a severe case. In regards to market potential and trends, the averages and numbers for this condition have steadily increased over the last 35 years, as obesity and type 2 diabetes have become more widespread. As a result, there is a great market potential for Amarin to report significant sales and, furthermore, lower the rates of heart attacks in the U.S.
The company is now preparing for its launch, and the stock has performed with a 68% gain YTD in anticipation of this launch. The potential for sales of this drug is great, as the likelihood for global expansion and additional indications remain great. However, the best and more aggressive estimates say that sales could reach up to $2 billion within 5 years. The company is currently trading with a market cap of $1.90 billion, or almost one times peak sales.
Of course we don’t know the indications that may arise for this drug. If we assume $400 million in sales during its first full year after launch, then Amarin is trading at five times sales. Therefore, considering its blockbuster potential, and the valuations placed on other promising companies such as BioMarin Pharmaceuticals (NASDQ:BMRN) and Regeneron Pharmaceuticals Inc. (NASDAQ:REGN), I’d say that Amarin is undervalued, and could see a market cap of $4 billion towards the end of 2013.
A Potential Innovation to Prevent Further Myocardial Infarctions
Although not Arena Pharmaceuticals’ (NASDAQ:ARNA) first priority, the company has a very promising, innovative product in early development for the prevention of cardiovascular disease, Temanogrel. The product works to lower the risk of arterial thrombosis and related conditions by reducing the amplification of platelet aggregation, arterial constriction, and intimal hyperplasia or thickening of the vessel wall mediated by serotonin. Hence, to reduce future myocardial infarction events, many patients will take anti-thrombotic therapies such as Temanogrel.
Arena’s Temanogrel is interesting because elevated serotonin levels have been associated with greater cardiovascular risk; so by blocking the activation of the serotonin 2A receptor, the risk is averted or lowered. Of course the study is still in its infancy, and Arena is more focused on its weight loss product. However, the therapy is promising enough to already attract the interest of a partner. On Monday the company announced that it had entered into a licensing agreement with Ildong Pharmaceutical Company (KRX:000230) to commercialize the product in South Korea, which will give Arena both royalties and an upfront payment for its use.
As I mentioned, it is still early, but the sales potential for this product is huge. According to Arena, The American Heart Association estimates that 14.9 million people in 2008 had survived either a heart attack or a stroke, which are two indications directly targeted by this product. This gives Arena a golden opportunity, and an advantage over other products because of the serotonin-blocking process of the product. It will be a product to watch in the coming years and one that will become the company’s next major catalyst, outside sales for its weight loss drug.
The First of a New Kind
One trend that we’ve seen in 2012 is a growing interest in cell therapy. Most of the companies with late-stage cell therapy products are in the clinical phase, but Baxter International Inc. (NYSE:BAX) has elected to explore this space and is on pace to a very successful launch.
In the last 12 months Baxter has reported $14 billion in revenue, and if its Phase 3 cardiovascular cell therapy continues to be effective, it could add up to $1 billion to its top line. The company is using CD34+ stem cells to treat patients suffering from chronic myocardial ischemia (CMI). This disease is one of the most severe forms of coronary artery disease that causes long-term damage to heart muscles. Baxter is hoping that with the use of its CD34+ stem cells that it can repair these muscles and improve the quality of life for patients.
Baxter is undertaking a large Phase 3 study to determine if Phase 2 results can be duplicated. In its Phase 2 trial Baxter made history by achieving endpoints that were never before reached, according to Baxter’s VP of new therapeutic development, Dr. Douglas Losordo. The therapy not only strengthened muscles, but increased exercise capacity while reducing reports of angina for patients suffering with this horrible disease. These were patients who were limited to sitting on a couch and watching TV. But after this therapy, many were able to ride a bicycle and enjoy other activities due to an overall improvement in their quality of life.
With Baxter leading the charge in cell therapy and producing a very effective cardiovascular therapy, there is a significant amount of upside that could present itself in the coming years. This (cell therapy) is an untapped, potentially high margin space and, if Baxter can earn an FDA approval for this therapy, then it might elect to develop additional therapies. Either way, the sales potential of over $1 billion should add significant value to shares of Baxter as the company’s 400 patient trial comes to an end.
A Billion-Dollar Blockbuster in the Works
One of the reasons that Baxter has chosen to develop a cell therapy product for the treatment of CMI is because there is an overwhelming amount of data that shows a strong connection between certain cells and the restoration of cardiovascular conditions. NeoStem Inc. (NYSEAMEX:NBS), a clinical-phase company, is developing a similar product, in fact, a product that almost mirrors that of Baxter’s cell therapy.
In the last year there have been a lot of comparisons drawn between NeoStem’s and Baxter’s cell therapy products. Both use CD34+ stem cells and treat conditions of the heart. However, they differ because NeoStem’s AMR-001 is used to repair the heart while Baxter’s product is used to strengthen it. AMR-001 also additionally utilizes CXR4+ stem cells, which is the additional component to rescue damaged tissue surrounding the heart. Also, NeoStem’s therapy is not injected directly into the heart.
NeoStem’s AMR-001 is currently enrolled in a large Phase 2 study to target patients following a heart attack, to strengthen damaged muscles and prevent future myocardial infarctions. The company will release interim data in 2013 and, if successful, it presents the likelihood of seeing very large gains because of its massive market opportunity.
The expectations or potential sales for AMR-001 vary and are widely dependent upon future indications. Most analysts’ expectations range anywhere from $700 million to $1 billion. However, the company has provided its own expectations, sales potential of more than $1.2 billion. When you consider its market cap of $105 million, you can see that large upside exists in shares of NeoStem. In fact, if you consider the pre-approval valuation of a company such as Amarin (among others), and if interim data are strong, then it’s possible for NeoStem to see a market cap around 25% of peak sales, or $300 million.
Of course, like all of these companies, the key to reaching this potential and targeting this large market is an FDA approval and a successful study. The company still has a ways to go, but did recently present data in an article that was published by the International Scholarly Research Network. In the release it showed that 30-40% of patients who received less than 10 million cells saw a deterioration of heart muscle function. However, of those patients receiving more than 10 million cells, none saw deterioration. This speaks volumes to the potential and the theory of using CD34+ cells, and might indicate a future FDA approval.
Each of the companies on this list has a great product that could save lives and generate billions in sales. The pure size of this market makes these companies attractive. However, all are at different stages in the development process. Amarin is preparing to launch, Arena is in early-stage testing, and both Baxter and NeoStem could see a launch in the coming years. Therefore, all companies could see gains from the outlook of these products; and looking ahead into the future, each product will be a major catalyst of gains (or loss) for the companies listed above.
Disclosure: Long BAX and NBS