Market Panic Presents Huge Discounts on Development Stage Biotechs

CORAL GABLES, FL / ACCESSWIRE / September 30, 2015 / Every guru has his own code for distinguishing between legitimate bear markets based on deteriorating fundamentals and all out irrational panic selling. A good sense for differentiating the two can be the difference between catching the proverbial falling knife and picking up great value. Rather than go into complicated chartistry and technical signals, there is a very simple way to tell the difference between a real bear and irrational panic from one sector in particular, and that is development stage biotech stocks. What moves these stocks is news, good or bad. If these stocks are tanking on bad or lukewarm news, then the selling makes sense and investors should stay away rather than try to catch the falling knife. But if they’re selling off on specifically good news, panic selling is taking place, the result of beta market conditions likely triggered by margin calls in other positions.

This kind of situation lends itself to finding great buys and truly great opportunities. This situation is happening now across the development biotech spectrum with several different companies that have all reported positive clinical trial news, in some cases within the week.

VBL Therapeutics (VBLT) – Selling Off on Strong Phase 2 Data

VBL Therapeutics’ Vascular Targeting System is the company’s gene therapy approach to attacking solid tumor cancers. Among other applications, the system introduces new genes into the vasculature of solid tumors through a viral vector. The genes then destroy the tumor vasculature, cutting off blood flow.

The company just announced positive phase 2 results for the oncology application of the system, called VB-111, and the results were not just lukewarm. They were clearly positive. Shares went up briefly when the news was released, but after a few minutes shares began selling off with the rest of the tech sector and have since collapsed 30%, overshadowed and perhaps triggered by near panic selling in the broader Nasdaq. It’s not like the good news can be easily twisted or read in a negative light. Overall survival in the continuous VB-111 arm of the trial was significantly higher than control, 15 months to 8 months (p=0.048). The overall response rate was nearly 30% with two complete responders in the continuous VB-111 arm. Response rate was only 9% control, and no complete responders.

Under normal conditions, these data would have resulted in a sustained move up for the stock for more than just a few minutes as happened on September 28. Overall market conditions ruined what could have been sustainable gains, but the bad timing does allow potential buyers to buy the good news at a discount of around 30%.

CytRx (CYTR) Sells Off For No Apparent Reason

Last week, CytRx announced the publication of its positive phase 2 trial results for Aldoxorubicin in the Journal of the American Medical Association. Aldoxorubucin mimics the chemotherapy Doxorubicin but with higher efficacy and less side effects. The publication highlighted Aldoxorubicin’s significantly more potent efficacy and progression free survival in sarcoma patients. Progression free survival increased by 106% over the Doxorubicin arm with much less severe adverse events, a win across the board.

But that did not stop CytRx from selling off this week, for no apparent reason other than going along with the tidal wave of liquidation this week. CYTR shares have dropped nearly 20% in two days. Aldoxorubucin is a potential $200M market, and could completely replace Doxorubicin because it is demonstrating both better efficacy and decreased side effects. This is an opportunity to pick up exposure at a 20% discount so far, because the selling makes no fundamental sense.

GenSpera’s (GNSZ) Mipsagargin Shows Even More Promise, And Shares Sell Off

GenSpera has been an undervalued enigma for quite some time, and its mispricing has only gotten even more pronounced. GenSpera is already significantly undervalued relative to its development stage peers with similar drug candidates in the same clinical stages and with even smaller market potentials. The discrepancy was exacerbated earlier in September when GenSpera reported positive results for Mipsagargin on glioblastoma tumors.

Mipsagargin targets a protein found in the vasculature of many tumors called prostate specific membrane antigen, or PSMA. Once it finds that protein, the drug become active and releases a toxin that kills tumor blood vessels, but only where PSMA is present. This is what makes it targeted with minimal side effects.

GenSpera has already released positive phase 2 data for Mipsagargin on liver cancer, but shares sold off even more on positive phase 2 data on glioblastoma brain cancer. On September 9, the company presented data that showed Mipsagargin effectiveness against brain tumors exhibiting PSMA, just as it should. Reduction in tumor size as shown by MRI revealed that effectiveness was almost immediate after a single dosing, with a side effect profile minimal, and very similar to what was seen in the liver cancer trials.

The only way to spin the results negatively is to say that Mipsagargin was not effective against tumors with a low PSMA staining profile. But then again, it is not supposed to be. Now that the data is recorded in actual cases, the company can tailor its phase 3 to only patients exhibit high PSMA in their tumors. Still, despite demonstrating its main candidate’s effectiveness on more than one type of tumor, and therefore potentially on all PSMA solid tumors, the stock sold off a remarkable 58% since the news broke.

Conclusion

Biotech stocks have seen rough days this week along with the rest of the tech sector and the broader Nasdaq. It is always difficult to tell if any given down week makes sense in context or not. The right call can be a very valuable one indeed. But there are tells when massive selling just doesn’t make any sense at all and attractive discounts are low hanging fruit. It’s one thing if fundamentals break down, but development stage biotechs often have few fundamentals to speak of in terms of revenues beyond a cash clock.

It’s another thing if these stocks are selling off on specifically good news. In that case, it’s just irrational panic selling, which happens from time to time. Further, if it were just one company, then maybe it’s just a fluke. But this is happening across many trial stage biotechs. The selloffs in BLT Therapeutics, CytRx, and GenSpera on specifically good news say a lot more about fear in the markets in general than they do about any of these companies’ true value.

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