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Over 30 years of investing in individual stocks. Extensive business experience with small to mid-size companies, including as CEO. Many hundreds of blog posts on financial and economic matters since 2008. Focus on value with catalysts for upside price action. Background as a physician and... More
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  • Comments On Biotech Selloff

    As the S&P 500 (NYSEARCA:SPY) flirts with its 150 day ema, now less than 1% above it, the biotech sector (NASDAQ:IBB) is seeing some significant profit-taking. IBB is 4% off from its recent all-time high. The small-cap-oriented biotech ETF (NYSEARCA:XBI) is down more than IBB, and Gilead (NASDAQ:GILD) is up marginally as I write this. My guess, and of course I have no advance or inside knowledge of the future of how matters will trade, is that this is one of many false alarms, though my further guess is that some more downside action is entirely normal.

    Whether today's FDA Advisory meeting on Praluent, from Regeneron (NASDAQ:REGN) and Sanofi (NYSE:SNY) is causing any jitters that are affecting the sector is impossible to say.

    We have more than six years of a bull market in biotechs, and down moves are normal. One of these days, a true bear market in the sector will occur, and this could be the start of it. Amgen (NASDAQ:AMGN) is trading at about 15X non-GAAP forward EPS, and GILD is at perhaps 9-10X non-GAAP forward EPS. Given that they are leaders in secular growth areas, it would be unusual, though not impossible, for a major bear market in the broad biotech sector to begin here.

    Yet the watchword of these stocks is that they are more volatile than the average stock. I'm keeping my eye on the intermediate-term, which looks bright, as I don't think I'm bright enough to guess successfully at the month-to-month movement of IBB or XBI.

    Tags: IBB, XBI, GILD, REGN, SNY, AMGN, Biotech
    Jun 09 10:45 AM | Link | 3 Comments
  • NEJM Publishes Article On Vertex's Cystic Fibrosis Combo Treatment

    A lot of the FUD (or hype) ends when the New England Journal of Medicine publishes the results of a Phase 3 drug study. There has now been an e-publication of the Vertex (NASDAQ:VRTX) combination of ivacaftor (Kalydeco, currently marketed) plus lumacaftor, a new chemical entity. Last week, an advisory committee to the FDA voted 12-1 that the combination regimen was approvable (for the largest sub-type of CF patients). The NEJM article supports this as I have quickly read it this morning. The major endpoint and the secondary endpoints were both met. This is the article's conclusion, with the phrases I think are most important to investors bolded:

    In conclusion, in the TRAFFIC and TRANSPORT studies, lumacaftor in combination with ivacaftor improved FEV1 and reduced the rate of pulmonary exacerbations in patients with cystic fibrosis who were homozygous for the Phe508del CFTR mutation. Lumacaftor-ivacaftor therapy generally had an acceptable side-effect profile, with more than 93% of patients completing the assigned therapy regimen. These data show that the combination of a CFTR corrector and potentiator, designed to address the underlying cause of cystic fibrosis by targeting CFTR, can benefit patients who are homozygous for the Phe508del CFTR mutation and represents a treatment milestone for the 45% of patients with cystic fibrosis who are homozygous for this mutation.

    Based on this finding from the investigators, I anticipate that the FDA and the EU authorities will approve the ivacaftor-lumacaftor combo for sale. Serious issues of payment exist. However, this is a "save the children" situation and I'll bet that ultimately, payor resistance will crumble. I also think that Vertex belongs under the wing of a Big Pharma multinational company and that its takeover value substantially exceeds its value as a stand-alone company. Thus, when the stock sold off after the advisory committee vote, I bought the dip, thus re-establishing a long position in VRTX that I had last year, and now am long VRTX with a basis in the low $120s.

    It's important to note that this combo therapy is not a perfect treatment; it does not correct all the defects of this genetically-determined form of the disease. But it's a good start and assuming regulatory approval, puts VRTX in a strong competitive position for many years in my opinion.

    May 18 9:21 AM | Link | 1 Comment
  • Gilead Makes A Small Acquisition

    Gilead Sciences (NASDAQ:GILD) has announced the friendly acquisition of a Danish company, EpiTherapeutics. From the joint press release:

    EpiTherapeutics has generated a library of first-in-class, selective small molecule inhibitors of epigenetic regulation of gene transcription, in particular histone demethylases. The company's lead pre-clinical compounds are being studied for the treatment of certain cancers.

    "Epigenetics is a promising area of research and the EpiTherapeutics team is a recognized scientific leader in this field," said Norbert Bischofberger, PhD, Gilead's Executive Vice President, Research and Development and Chief Scientific Officer. "This therapeutic class represents a strategic fit with our existing research portfolio, including the potential for novel combination approaches...

    EpiTherapeutics has done groundbreaking work in a new therapeutic class of small molecule inhibitors with broad implications across various disease states," said Martin Bonde, PhD, EpiTherapeutics' Chief Executive Officer.

    The focus here is clearly on cancer, though my guess is that allied areas such as immunology may be under study at EpiTherapeutics.

    The next two paragraphs are for non-technical readers.

    The underlying technology is on how genes that may get turned on (or off) to let a cancer grow can be re-regulated to control or reverse the cancer. Gene transcription is the term for the creation of messenger RNA from DNA. mRNA then takes the "message" coded for by DNA to a cell structure called a ribosome, where a protein is formed as per the instructions from DNA.

    The key term in the above press release is "small molecule." This term signals that the drug candidates being developed by EpiTherapeutics are able to get into the body orally.

    Epigenetics is one of Celgene's (NASDAQ:CELG) three Thematic Centers of Excellence. Gilead is attempting to join Celgene as a leader in the hoped-for future of treating cancer orally.

    This small acquisition is the sort of bolt-on action by Gilead that I have been expecting. I think that A) the company is stretched with its expanded R&D program, B) wants to wait to see some clinical trial results, and C) thinks that acquisition prices are high to extreme right now. So while anything is possible, I'm not expecting a very large acquisition by Gilead unless the price it would pay comes way down (or unless its own stock price soars and it can use equity for the acquisition).

    Tags: GILD, Biotech
    May 06 9:13 AM | Link | 6 Comments
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