Steven Breazzano

Long/short equity, deep value, contrarian
Steven Breazzano
Long/short equity, deep value, contrarian
Contributor since: 2010
Crudely considered, value is created when ROIC > Cost of Capital. This is why the share price hasn't moved much despite huge increases in the balance sheet.
FYI - Long PSEC...
Does anyone here believe that Gazprom is operated for the benefit of shareholders? (This is particularly true for Russia - but also true of other state-controlled / state-owned oil companies...)
Indeed David it is very preliminary and a very high risk proposition. However, based on a biomarker response there is reason to believe the drug is indeed exerting an effect. This is of course to be confirmed in the higher dose, longer duration, placebo-controlled setting of course. However, beyond normal phase 1 trials this is promising.
About the safety benefit - you bring up valid points. However, the disease is quite serious so the risk/reward balance shifts as well.
This is a very good point that I don't think has been touched on in the comments. It is probably being used in GT1a where the all-oral isn't approved yet (I think...)
I can envision a scenario in which the Gates Foundation organizes the purchase of pharmaceutical products similar to what they have done for vaccines via the GAVI Alliance. Very effective.
(FYI - I am Long - and added to my position today)
This is a good article from a generalist investing point of view. One major issue I want to comment on:
"The competition is growing so pricing is sure to come down. Merck (MRK) and AbbVie (ABBV) both have new drugs to treat the disease and are being well received. However, even if we give a big haircut to the cost of the drug and earnings, the stock is now cheap and is trading at 17x 2014 consensus and 11x 2015."
This doesn't happen in the pharmaceutical industry. It is unlikely in my opinion that AbbVie or Merck or BMY (another real player) come in at a discount. Pharma companies with efficacious regimens don't compete on price. They will price similar. It hasn't happened in other indications - see Multiple Sclerosis, Autoimmune (RA/Crohns, etc.). These examples come to mind immediately.
The reason for this is simply no incentive to do so. Market share will likely be the same, and revenue will be lower. As long as insurance reimburses, doctor's wont factor in price into the prescribing decisions. AbbVie and Merck will devise a marketing campaign that tries to differentiate on points other than cost. Although, there is the potential for insurers to say, "ok, you've all been using Sovaldi now, let's go use AbbVie and Merck drugs because we[insurer] get 30% off". I think this scenario which is what express scripts is trying to create will fail. It has never succeeded. Imagine the *&*#!-storm in the public backlash if that happened.
Furthermore, congress has no authority to regulate drug pricing. Other articles have written on this.
Just saw a press release today saying England is paying $31 M to treat 500 patients with Sovaldi. Comes out to ~60k a year. For those of you who aren't familiar with European drug pricing, suffice to say England doesn't pay much for drugs, if at all. This is a big deal and speaks to the cost effectiveness of the product.
Let's see how the story shakes out. As you've seen, Biotech has been clobbered, and underfollowed biotech stocks are going to get hit worse than most. But, the company has raised additional funds, and has approximately ~90 M in cash with a 127 M market cap. EV is 40 M or so. This is a long term play.
"I calculate $16 per share in value from CDX-011 on the basis of a 50% chance of approval and $900 million in revenue in 2021. While 50% is below the average success rate of Phase III clinical studies, Phase III success rates in oncology are well below average."
This is probably a good assumption and is supported by some market data.
"From 2004 to 2011, the overall rate of transitioning from phase I to FDA approval was 6.7% for oncology, while it was 12.1% for all other therapeutic areas.9 The big drop in phase III success for oncology trials is the primary driver of this two-fold difference. As little as 45% of oncology therapeutics progress from phase III to NDA/ BLA versus 64% for all other areas" - See more at:
For some more color on the approval, unless CLDX drops more than half again, the market cap implies we have a respectable shot at success (feuerstein-ratain)
Good article and comments. Any comment from anyone on what the stand-alone value of all the components may be? (And how does it compare to the current price of 15$ for ACAS...)
WIN has over $8.8 B in debt outstanding. Paying off $200 M is what, 2%? Let's not get too excited. Why not cut the dividend and start really putting a dent into the debt, move up to become investment grade and then save even more with better interest rate and less interest payments.
I'm a WIN shareholder - and I must confess I don't see the point of maintaining a $1 dividend. The yield is >12%, clearly the market is anticipating a cut. Why not give it to them? What is to be gained by straining the cash flow?
I"m not sure the dividend at this point is a prudent use of capital. Cut the dividend in half (6% yield - enough to entice new shareholders), initiate a buyback with 25% of the dividend savings, pay down debt with the excess capital flow + 25% of the dividend savings, become investment grade (if you don't think WIN's dividend policy hurts their credit rating - you're nuts). In another 2 or 3 years we will absolutely be trading higher as the fundamentals of WIN improve and the debt burden is lower.
My impression was QCOR pre-released prescription numbers at JPMorgan. Something like 2500? Flat over Q4 (this is a good thing - Q4 is usually weak seasonally). They also talked about a "tax inversion" strategy.
Long QCOR.
This is a very interesting article. I agree with the authors contention that historical comparisons are a bit like comparing apples and oranges due to new companies, new economic times, new countries in the index, etc.
However, looking at the chart, ~11 P/E does seem like a low. Maybe it goes down to 9 or 10x earnings, that's a real possibility. But averaging in at these values may prove prescient in the long run.
Stock price appreciation comes from 2 sources: P/E remaining stable with growing "E", which is not really addressed in the article. There will still be growth in E. It's clearly not as much as it has been, and there are real structural problems. I think fed tapering is of less concern relative to the real structural problems in key emerging markets that really has the potential to slow down economic growth. The situation is grim, but it doesn't have the contagion feeling just yet IMHO.
The 2nd, improvement in PE ratio is the focus of this article. If this is indeed a bottom, there will be a very nice 5 year return on the investment class.
Overall, I think averaging into emerging markets is not a bad long term move here, but it may not be the bottom.
I've also added to Emerging Markets...I fear we may be too early, but as a whole I do not believe there will be a full-blown emerging market meltdown. We'll see!
Any reason there is no discussion of share buybacks? A lot of companies have chosen to initiate massive buyback programs instead of increase dividends. Suggests the continuation of a structural shift in corporate strategy, making the implications from a 1 factor (i.e. dividend yield) for market valuation less meaningful...
Although it's not dialysis, Logical thought raises an important issue - payer pushback. Let's also keep in mind that Sovaldi (Gilead's HCV drug) is simply fantastic and represents clear benefits for patients above and beyond the current standard of care yet there is sticker shock. While Zerenex won't be priced at 84k, the same issues remain. Non-inferiority does not equal premium pricing...
Ah the memories!
As you can see, my due diligence approach is the same for all companies: ask the tough questions. I was actually bullish on Trius at the time (clearly believed the drug would reach the finish line soon), and simply seeking additional information around key questions. I recognized the positive points of differentiation of Trius' drug, and still wonder about its market penetration (It hasn't been launched yet in the US) However, note that it was acquired prior to marketing. For what it's worth, I liked Optimer and was long the stock prior to approval of their drug. They were also acquired by Cubist at the same time.
PhosLo is a calcium based binder. The Fresenius example is apples and oranges. Velphoro and Zerenex will compete against each other.
Thanks for the additional information. It has already been delayed quite a while, and I would not expect this to continue.
Thanks for the detailed response.
Your list of company launches supports my argument. As you can see, all these successful drug launches are big biotechs or big pharma, or companies with the resources and ability to launch. Regeneron is the only example of a company going it-alone US, but even they partnered it (great deal terms too, I should add). Regeneron's drug has clear meaningful benefits, hence the lucrative deal with Bayer.
My comments are in parantheses:
Regeneron, Eyelea (Very good drug - CLEAR dosing improvements that fit into physician practice. Note: this drug is injected by the physician)
Biogen, Tecfidera; (big biotech launch, and Biogen wrote the book on the MS space)
Gilead, Stribilid (big biotech launch, Gilead knows this area like the back of its hand)
Medivation and Astellas, Xtandi; (Big pharma marketing power)
Vertex, Kalydeco (orphan, and 2nd drug launch)
Novartis, Afinitor; (Big Pharma)
Genetech, Kadcyla; (Big Pharma - well positioned already with Herceptin)
Amgen, Xgeva; (Big biotech launch)
Novo Nordisk, Victoza; (Big pharma / big biotech - pretty much a diabetes company...)
J&J, Stelara; (big pharma launch)
Novartis, Gilenya; (big pharma launch)
Onyx, Kyprolis; (2nd drug - first oncology drug was co-promotion)
J&J, Zytigia; (big pharma)
Bayer, Xarelto; (big pharma)
BMS, Yervoy. (big pharma)
Thanks for the insight.
"He writes a presciption and I get it filled through my pharmacy insurance benefit provider" - This assumes your insurance covers it. As I've shown, this is unlikely.
Any incremental cost savings in iron, EPO, etc, will be more than offset by generic phosphate binders. Why isn't DaVita partnered? Why did Fresenius choose Velphoro?
For the non-dialysis CKD patients, there is no guarantee for approval and the drug will likely not have succeeded by this point.
Adam Feuerstein has indeed made many of the same arguments against KERX. As readers of my articles know, we do not always agree! This time we do.
Sure, Docs can prescribe whatever they want. No argument there. But who will pay? The new reality of medicine, especially in dialysis centers, is reimbursement. If the dialysis centers and insurance won't reimburse, then the patient won't have access to Zerenex. With cheap, effective generics, Zerenex will not be a preferred drug. Fresenius has its own preferred drug, and I'm sure that they will make it very difficult for a competitor drug to penetrate their significant market share! Their substantial size and vertical integration gives them a lot of power.
This is becoming broadly true of many indications in healthcare now, CKD markedly so.
Yes it is possible that management is "selling" the direct sales force but hoping for a partnership. But, with each passing day, the likelihood of Plan B diminishes...
Re: Ferric Citrate, I may be wrong on this, but composition of matter and to a slightly less degree method of use patents are key to IP. Surface area, absorption, and manufacturing patents are unlikely to provide the degree of certainty KERX claims, given Ferric citrate's simplicity.
Re: Bundling, this will not be good for Keryx. They will get hammered on price, relegated to last line, or not used at all. Why do you think the industry lobbied so hard to delay bundling of oral drugs? Epo costs are already going down and will continue to do so with biosimilars.
That is correct. I do not write for PropThink and have not written about Intercept.
We are starting to get very close to the PDUFA date. As each day passes, the likelihood of a partnership diminishes. This large capital raise combined with the language in the PR and a key commercial hire simply reinforces this. Yes, the ability to raise capital and go it alone theoretically allows Keryx to negotiate from a position of strength, but this is not the correct conclusion from recent actions.
Thanks for the article. This is probably the most thought-provoking article I've read in a while on SA. It also follows nicely from the youtube video put together by Ray Dalio. The investment implications are indeed intriguing. A lot depends on the timeframe of the shift.
I do believe though extrapolating the historical trend line is actually the only way to make money in the absence of clear, definitive information to the contrary. While some people have lost money doing this, many more have made a lot of money because those big time events aren't the norm!
Hope the short position was closed out before today...
This is a great article Jeff and I enjoy reading your weekly pieces. It's something I look forward to on Sunday mornings.
I like how you think about asset allocation and risk, but I'm very curious, what do you think about emerging markets in this context?
The best article highlighting the bear case is linked below:
It correctly predicted the failure to receive accelerated approval, and it will correctly predict phase 3 clinical failure as well. Time for investors to move on.
I assume everyone saw the news this morning. Need to run a phase 3 trial, placebo controlled, as predicted.
So they are not going to run a large, placebo controlled, multi-center clinical trial? We'll see what the FDA says to that plan.