In The Pink

23

It was the year of the biotech bonanza in Los Angeles.

Of this year’s top five share-price gainers on the LABJ Stock Index, three were from that sector, led by Westwood’s Puma Biotechnology Inc. That company’s stock soared 431 percent, making it the top gainer. Arrowhead Research Corp. was No. 2 at 327 percent and CytRx Corp. was No. 5 at 178 percent.

Of the 15 companies whose share price more than doubled this year, five were from the biotech-biomed sector.

Local biotech companies benefited as investors rushed into one of the few sectors with promise of hefty future earnings growth. The Nasdaq Biotechnology Index has risen 55 percent year to date, roughly twice the rate of the broader indices.

The LABJ Stock Index, comprising 160 local companies, posted a 28 percent increase so far this year, compared with the Dow Jones index, which rose 21 percent, and the S&P 500, up 25 percent.

But L.A.’s biotech companies have mostly outpaced the Nasdaq biotech index as many companies reported successful milestones in their clinical trials, leading investors to believe that the companies are moving toward bringing their products to market.

“It’s a pleasant confluence of events,” said Ahmed Enani, executive director of industry group Southern California Biomedical Council. “We have a large number of companies coming through now with clinical trials that are successful, meaning their market phase is near.”

Puma, led by Chief Executive Alan Auerbach, is the premier example. On Dec. 4, the company reported that stage two trials of its sole product, cancer-fighting drug Neratinib, produced better results than analysts had expected and outperformed a leading cancer drug called Herceptin. The company’s stock shot up 90 percent over the next three trading days to $88.68. The enthusiasm continued: It closed at $99.55 on Dec. 18.

“Earlier this year, most considered Neratinib a fairly niche therapy for late-stage breast cancer patients,” said Eric Schmidt, an analyst who follows Puma at Cowen Group in New York. “But it increasingly appears that the drug has potential in earlier-stage patients, which is a far larger market opportunity.”

In October, Pasadena’s Arrowhead announced progress in a clinical trial of its hepatitis B treatment, causing its shares to jump 38 percent; as of Dec. 18, its stock had soared 327 percent since the beginning of the year to close at $9.14.

Another example is West L.A. cancer drug developer CytRx, whose shares spiked in July after the company announced positive results from a trial for one of its drugs, Aldoxorubicin, used to treat brain tumors. On Dec. 18, its shares closed at $5.20, up 178 percent year to date.

The Biomedical Council’s Enani said that he hasn’t seen such a large collection of public biotech companies in Los Angeles reporting such positive results in the 30 years he’s been tracking the local industry.

Some companies stayed in line with the broader markets, including Amgen Inc. of Thousand Oaks and Kythera Biopharmaceuticals Inc. Each was up 31 percent year to date.

In contrast, the share price of two local biotech-biomed companies lost ground during the year: Response Genetics Inc.’s shares were down 15 percent to close at $1.18 on Dec. 18. Yet just three months ago, shares of the Boyle Heights cancer testing company were up 200 percent compared with 52 weeks earlier; a disappointing third quarter earnings report sent the stock falling.

The other loser was Immunocellular Therapeutics Inc. in Woodland Hills. Shares closed at 74 cents on Dec. 18, down 62 percent year to date. The company’s test results fell short of expectations.

Outside the biotech industry, Entravision Communications Corp., a Santa Monica Spanish-language TV station owner headed by Chief Executive Walter Ulloa, came in No. 3 among local gainers, with its stock rising 251 percent to close at $5.72 on Dec. 18.

Entravision has benefited from its ties to Spanish language network Univision, which for the first time this summer beat the four major broadcast networks for viewership among the 18-49 demographic.

Rounding out the top five, shares of Camarillo oil producer BNK Petroleum Inc. shot up 192 percent, putting it at No. 4; earlier this year, investors reacted enthusiastically to the sale of a shale field in Oklahoma. The company used the money to pay down debt and invest in more exploration.

Big losers

The biggest price loser this year among companies with shares over $1 was Ceres Inc., a Thousand Oaks company that sells genetically modified seeds for biofuel crops. Ceres shares plunged 67 percent this year as it failed to meet expectations for planting of sweet sorghum.

“Quite simply, the company’s Brazilian sweet sorghum business has been disappointing,” said Pavel Molchanov, an analyst in the Houston office of Raymond James of St. Petersburg, Fla.

Another big share-price loser was Santa Monica web company Demand Media Inc., which saw its stock plummet 42 percent. Co-founder Richard Rosenblatt left the chief executive post as Demand’s traffic to its websites via Internet searches fell when Google Inc. altered its algorithms; the company is spinning off its other business of domain names.

Overall, though, it was a year for gainers as shares of 120 companies rose and only 37 fell.

After a buoyant year for L.A. public company stocks and the broader markets, will investors continue to reap huge gains next year? That will likely turn on reaction to the long-expected pullback of the Federal Reserve from its massive bond-buying program.

“Recent Fed policy has forced people into the equities markets and that’s helped the markets,” said Bryant Riley, chairman of West L.A. investment bank B. Riley & Co. “To the extent that rates go up and spreads narrow, money could flow out of equities and into bonds.”

Riley said investors might be looking for slower growth next year.

“After this huge run-up, there are now companies that are overvalued, especially in the growth category,” he said. “But plenty of companies remain undervalued – these tend to be the more boring, less growth-oriented types.”

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Howard Fine
Howard Fine is a 23-year veteran of the Los Angeles Business Journal. He covers stories pertaining to healthcare, biomedicine, energy, engineering, construction, and infrastructure. He has won several awards, including Best Body of Work for a single reporter from the Alliance of Area Business Publishers and Distinguished Journalist of the Year from the Society of Professional Journalists.