Two weeks ago, I recommended a biotech concern named Trevena for the Biotech Forum portfolio, as the company had many attractive traits and possible catalysts.
These included multiple "shots on goals", large addressable markets, upcoming catalysts, and strong analyst support.
The stock is soaring Monday by over 60%, as its drug candidate that has many superior traits to morphine disclosed very positive Phase II trial results.
Even with the rally, the stock is right at its initial post-IPO prices, and these trial results could be just the first catalyst to spur further gains.
On August 16, Trevena (NASDAQ:TRVN) was added into the small-cap portion of the Biotech Forum portfolio which consists of 5 large-cap heavily-weighted "core" holdings along with 15 less heavily-weighted positions in small, promising but speculative concerns.
There are many reasons Trevena made the cut into the portfolio. Among these were that it had multiple "shots on goal", large addressable markets, upcoming catalysts, and strong analyst support.
The selection is looking prescient, as the stock is popping some 60% on Monday in a downmarket.
The catalyst for the rise is the company disclosing its main drug candidate for pain that has superior traits to widely-used morphine delivered impressive Phase II trial results and demonstrated a statistically significant reduction in pain over 24 hours compared to placebo in patients with moderate-to-severe pain following abdominoplasty surgery.
This is encouraging news for TRVN's shareholders. The company still needs to initiate a successful Phase III trial for this compound to be approved for this indication, but these results improved the likelihood that those trials could lead to eventual approval for the compound named TRV130.
Approval could unlock significant potential. In 2013, 20 million surgical procedures were performed that resulted in reimbursement claims for injectable opioids for pain management. If TRV130 is eventually approved and garners just a small percentage of this market, it could be a significant event for Trevena and its stock.
TRV130 is just one of several products the company has in development. In addition, even with today's rally, the shares are just back to the levels they achieved right after the company's IPO early in 2014. I believe these trial results could be the initial catalyst for significant capital appreciation for this stock over the next few years should things continue to fall into place for this small biotech concern. As such, I am making my original analysis available to the greater Seeking Alpha community for their consideration.
August 16th article:
Our next small-cap selection for the Biotech Forum portfolio is a company that came public early in 2014. I frequently find some of my best investments in the small-cap healthcare space come after a company has been public for at least a year, lock-ups have expired and some of the hype that usually precedes the IPO has long since faded. The company's prospects usually have not changed that much, but the stock price can be significantly lower once the IPO enthusiasm fades. I have been successful targeting numerous companies a year after their IPO such as the huge gains I achieved with the likes of Eagle Pharmaceuticals (NASDAQ:EGRX) and ZELTIQ Aesthetics (NASDAQ:ZLTQ).
Trevena, Inc. is a biopharmaceutical company that discovers and develops biased ligands for the purpose of delivering the next generation of medicines that target G protein-coupled receptors (GPCRs). "Ligand" comes from the Latin ligare, "to bind or tie." A ligand binds with a biomolecule, forming a complex that serves some biological purpose. A biased ligand displays functional selectivity, preferring some signal paths over others. TRVN's biased ligands target G protein-coupled receptors. Approximately 40% of all modern medicinal drugs target GPCRs. The company came public in January of 2014 and almost touched $10.00 a share right after its IPO. The shares currently trade hands at $6.50 a share as of Friday's close. The stock has a market capitalization of approximately $280 million.
Multiple Shots on Goal
As always, when we look for small-cap concerns to invest in, Trevena has multiple shots on goals within its evolving pipeline. The company's proprietary platform has helped it quickly identify several drug candidates. The company is currently developing three of these. A fourth is in preclinical development. All but one are wholly owned.
Here is a quick rundown of the company's current pipeline:
TRV027: Intravenous treatment for acute heart failure in combination with diuretic therapy in a Phase II trial. Allergan (NYSE:AGN) has an exclusive option on the license.
TRV130: Intravenous treatment for moderate-to-severe acute pain. In November 2014, TRVN released positive top-line results from a Phase IIa/b study showing that a 3-mg dose of TRV130 had better analgesic (painkilling) effect than 4 mg of morphine. However, patients taking
TRV130 also exhibited some side effects more often than patients taking morphine. On the other hand, the data shows that TRV130 results in reduced respiratory depression, less severe nausea and less frequent vomiting than morphine. Since more doctors value painkilling efficacy in a new analgesic over other attributes such as side effects (and presumably none values respiratory repression), the company expects it will be able to do a Phase III trial.
TRV734: Oral treatment for moderate-to-severe acute and chronic pain. It is a follow-on program to TRV130. Intended as a better alternative to oxycodone, TRV734 targets the mu-opioid receptor. Phase I trials have been completed.
TRV250: In preclinical development for the treatment of refractory migraines.
While it is too early to estimate prices for these treatments should they eventually garner approval, it is easy to see that the addressable markets are enormous. This is another attribute we look for within our small-cap selections. It is very hard to develop any new compound, so substantial existing demand is always a positive as success could mean a significant new drug.
TRV027: 20 million people in the US and Europe have acute heart failure.
TRV130: 20 million surgical procedures performed in 2013 resulted in reimbursement claims for injectable opioids for pain management.
TRV734: Opioid sales across the US, Europe and Japan amounted to $11 billion in 2013.
Trevena has a couple of upcoming milestones over the next six to nine months:
TRV130: Enrollment in Phase II trial in the treatment of post-operative pain has been completed. Top-line results are expected in September 2015.
TRV027: Phase IIb BLAST-AHF trial should report top-line data in the first half of 2016.
Analyst Comments & Outlook
In early July, Wedbush reiterated its Outperform rating and $15.00 a share price target, saying it expected positive Phase II results to pave the way for Phase III trials.
On August 11, both Brean Capital and Needham released reports maintaining Buy ratings and $14.00 a share price targets. The firms separately cited the readout of Phase II results in September as a likely near-term catalyst as well as Trevena's robust pipeline.
TRVN trades for $6.50 a share, well below the average price target of $14.00 a share as well as the highs reached soon after it came public a year and a half ago. The company has some $107 million of cash on its balance sheet as of its last completed quarter, which accounts for more than a third of its market capitalization. Raising additional capital is not an event that is on the horizon until at least 2017, as the company has sufficient funds to develop its evolving pipeline.
I like the risk/reward profile of this small-cap concern. Trevena has a diverse and interesting pipeline and a solid balance sheet. The stock could be buoyed by solid trial results or the announcement of a development partner for one or more of its current compounds in trials in the quarters ahead. TRVN also is getting increasingly nice mentions and support from analysts. Although like almost any small-cap biotech company, it is speculative, but it is promising enough to include in the Biotech Forum portfolio at Friday's close of $6.50 a share.