Investing in biotechs is a risky business, something those backing Chemocentryx’ (CCXI) success know all too well following last week’s shenanigans.
The stock started the week trading at $48.49 per share. Heading off to the weekend, the shares were changing hands for a 78% discount – the result of two brutal sessions.
So, what happened? Tuesday saw the release of briefing documents from an advisory committee reviewing the application for avacopan, Chemocentryx’ autoimmune disease drug to treat anti-neutrophilic cytoplasmic autoantibody (ANCA)-vasculitis – a rare disorder which causes inflammation of small blood vessels. The documents showed there were reservations regarding the design of the main study. Following which, the shares tanked by 44%.
Then things got worse.
Following the advisory committee’s Thursday meeting, the shares nosedived by another 62%, after the committee voted 10-8 in favor of approval regarding the treatment’s key benefit/risk equation. There were other key questions for the panel to consider. One regarding whether the drug’s efficacy data was robust enough to support approval – here the panel was split 9 vs. 9. On the safety profile, the committee also voted 10-to-8 in favor.
With the way the market reacted, you would think the drug was wholeheartedly rejected. That said, while the overall reaction was slightly positive, the level of skepticism was enough to scare off investors who are evidently less confident the drug will cut the mustard when the decisive FDA review comes around. A PDUFA date is slated for July 7. The FDA is not required to follow the advisory committee’s recommendation, but it often does so.
Investors’ lack of confidence is mirrored by Raymond James’ Steven Seedhouse, who now has “reduced conviction” the drug will make the grade. That’s not to say all hope is lost, because Seedhouse actually thinks that if approved, avacopan is a “blockbuster drug and will be adopted as standard of care in ANCA vasculitis.” It’s just that now its chances of success are akin to a “pure coin flip.”
“Avacopan should be approved and we think certain AdCom panelists were unreasonable and unprepared (e.g., wanted larger safety database, more trials, unrealistic trial designs for this serious and rare disease),” the analyst said. “But a 10-8 vote favoring avacopan on the key risk/benefit question (with one yes qualifying her answer as meaning yes in context of a confirmatory trial) informs our new coin flip model.”
While Seedhouse doesn’t alter the drug’s projected peak unadjusted U.S. sales of $1.9 billion, the analyst gives avacopan a 50% probability of success now compared to 100% beforehand.
To this end, Seedhouse rates CCXI an Outperform (i.e. Buy) along with a $51 price target. Investors stand to pocket a 365% gain, should the target be met. (To watch Seedhouse’ track record, click here)
Going by the rest of the Street’s take, there’s plenty of upside projected too – at $44.29, the average price target suggests one-year gains of 304%. Overall, the stock has a Moderate Buy consensus rating based on 4 Buys, 2 Holds and 1 Sell. (See CCXI stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.