Why biotechs like CombinatoRx (CRXX) make the best penny share speculations
Today's Financial News - Posted November 20, 2009
Biotech penny stocks like CombinatoRx, Inc. (NASDAQ:CRXX) perfect for speculation: They have a predictable set of triggers built in with the FDA approval process. And each of these triggers has a 50/50 chance of making you money!
by J. Christoph Amberger
Baltimore, MD TFN: CombinatoRx, Inc. (NASDAQ:CRXX) is an inoffensive biotech company that boasts a novel approach to designing drugs. They call it “developing synergistic combination pharmaceuticals”. To lay people, this means their drugs aim at treating multiple symptoms or diseases.
They’re also great for penny share speculation!
As a company, they’re good at what they’re doing: CRXX has a portfolio of four product candidates that have either completed Phase IIa clinical trials or are in preclinical development. These drugs target multiple diseases including immuno-inflammatory diseases, metabolic disease, chronic pain and topical dermatoses.
They’ve also made such a name for them that they’re about to merger with a very successful, privately held company called Neuromed. That’s where it gets interesting.
You see, the CRXX stock price fell off a cliff at $1.63 this past Monday, after the company received FDA feedback on a New Drug Application (NDA) for Exalgo Extended-Release Tablets.
(The drug treats moderate to severe pain in opioid-tolerant patients requiring continuous opioid analgesia for extended period of time.)
The FDA indicated that the NDA in its current form wouldn’t be sufficient under Section 505(b)(1) of the Food, Drug and Cosmetic Act of 1938.
Here’s some back story why this is important:
On June 30, CombinatoRx agreed to merge with privately-held Neuromed Pharmaceuticals Inc. in an all-stock transaction worth about $30 million. CRXX is expected to issue approximately 36 million new shares of its common stock to Neuromed stockholders, with each party owning approximately 50% of the voting power of the merged organization upon closing. Relative ownership of CombinatoRx will be adjusted based upon the outcome of the above-mentioned FDA review of the NDA for Exalgo:
If Exalgo approval is received by December 31, 2009, pre-merger CombinatoRx stockholders will own 30% of the combined company. If approval is received between January 1, 2010 and September 30, 2010, pre-merger CombinatoRx stockholders will own 40%. And if approval is received between October 1, 2010 and December 31, 2010, they’ll own 60% .
Exalgo looks like a potential cash cow: The rights to Exalgo were recently acquired by Mallinckrodt Inc., a subsidiary of Covidien plc, for $15 million in up-front payments, additional development funding of up to $16 million to cover internal and external costs associated with Exalgo, an approval milestone of $30 million, which could potentially increase up to $40 million, and tiered royalties on Exalgo net sales after approval.
What does that mean?
Neuromed’s under the gun: It filed the NDA for Exalgo with the FDA, which has a November 22, 2009 PDUFA review date. Neuromed is now working with Mallinckrodt to amending the existing NDA, or potentially resubmitting the NDA under Section 505(b)(2) of the FDCA, which uses different criteria to determine the basis for approval of a new drug candidate.
There’s revenues at stake… but more so, control of the combined company.
Shares of CRXX have risen since the merger deal was announced and were boosted further after Sanofi-Aventis SA (NYSE:SNY) acquired eye specialist Fovea Pharmaceuticals SA for €370 million ($541 million). CombinatoRx and Fovea are co-developing yet another drug candidate, slated for Phase 2b clinical trials later this year.
That indiactes that CRXX is a good company. And it’s not as if Exalgo didn’t meet primary endpoint in a trial. There were no efficacy issues. The NDA was filed under the wrong Section (505(b)(1)of the FDCA. This week’s action provided a window to buy CRXX at penny share prices.
That’s why we recommended our risk-happy VIP members at Penny Stock Confidential take a speculative position in CRXX yesterday. We recorded an entry price of 88 cents… that was available pretty much all day yesterday.
Yesterday’s new addition to our stable of Grand Slam hopefuls soared today on news that the FDA extended its New Drug Application NDA review for Exalgo extended-release tablets. The extension has been set for February 22, 2010.
In view of the Exalgo-triggered boost in the share price, I consider this neutral news. The company has a lot of revenues riding on this, so I don’t believe they’ll be dragging their feet until February. From a longer-term perspective, this is good news for CRXX share holders: By missing the first deadline, existing shareholders will end up owning a larger percentage of the combined company once the merger with Neuromed is final. Hang in there and don’t sweat the fluctuations.
PSC members were instructed to keep their entry price below 95 cents this morning. Since then, the stock has crossed $1 multiple times on substantial volume and is currently registering gains of 16%-plus in our PSC open positions portfolio.
Had this been a TFN or even Hot Stock Confidential recommendation, I’d have been happy taking this kind of gain off the table in a day. But with penny stocks, you’re in for larger gains… and willing to bear higher risk in exchange.
I expect this stock to regain the price level it had a week ago as the FDA process progresses. After all, that’s what makes biotech penny stocks perfect for speculation: They have a predictable set of triggers built in with the FDA approval process. And each of these triggers has a 50/50 chance of making you money!
I like those odds!
Since we were able to squeeze in at what could be fire-sale lows, that could mean a cool double for PSC members.
This is exactly the situation we’re seeking out at Penny Stock Confidential. In just 10 days, we’ve taken gains of 43% and 68% on two of our first dozen positions. We saw one of our stocks double in a day just yesterday, and two more are up by double-digit percentage gains.
If you have the stomach for more involved trading along these lines… why dont you check out what PSC is all about?
Next Article: TFN eNews: 11/20/2009: When bureaucratic red tape actually creates money for investors!
Posted by J. Christoph Amberger · Filed Under Featuring..., Investment Strategies
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One Response to “Why biotechs like CombinatoRx (CRXX) make the best penny share speculations”
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November 20th, 2009 at 9:17 am
Great article!
“There’s revenues at stake… but more so, control of the combined company.”
This is EXACTLY why Neuromed and CombinatoRx won’t be dropping the ball on Exalgo approval. This whole fiasco with the NDA is only a good thing for current CRXX shareholders.