Thomas Barnard's Instablog Thomas Barnard approaches stock investment through a risk management approach, which he formulated through his firm, Business Risk Management, Inc., primarily for insurance risks, but taking those principles, he has mapped a strategy for avoiding risk in the stock market. Jeff Hawkins, in his book On Intelligence, suggests that the brain is principally a forward-looking instrument. Along those lines, one method of reducing risk is by figuring out where a business stands within the major trends of its industry. Thomas Barnard, as a writer, was mentored and published by Nobel Laureate, Saul Bellow. Thomas Barnard http://seekingalpha.com Big Pharma: Where's the Risk Management? http://seekingalpha.com/instablog/400122-thomas-barnard/11941-big-pharma-where-s-the-risk-management?source=feed 11941  

Big Pharma: Where’s the Risk Management?
 
 
Novo Nordisk (NOVO) wrote down $280 million for its investment in inhaled insulin in January of 2008, but this is dwarfed by Pfizer’s (PFE) write off in November of 2007 of $2.8 billion for its investment in Exubera, its entry into the inhaled insulin market. By March of 2008, Lilly (LLY) also gave up the ghost, and wrote down its efforts in the area. 
 
Interestingly, in 2000 Lilly had taken shown an interest in insulin taken in through the buccal tissues inside the cheek with a $1 million investment in Generex (GNBT). More about this delivery system later.
 
Somebody Didn’t Do Their Market Research
 
It ended up that patients were not comfortable inhaling insulin. You would think that this is something that these companies would seriously look into before embarking on billions in research and FDA approvals. And of course they must have done some market research, but their market researchers let them down. Or maybe diabetes patients thought they would like it, but when it came down to cases, they had second thoughts about putting that stuff in their lungs. Apparently insulin patients don’t like to snort.
 
The Attraction
 
The market for insulin is estimated to be a billion dollars a year, but for Big Pharma the real attraction is that this is another chronic condition requiring a lifetime of drug-taking, like the cholesterol drugs, the statins, which have been so popular.
 
For patients who have to stick themselves with a needle, and sometimes more than once a day, the appeal of something you just spray on the inside of your check has to be a boon, a vast improvement in quality of life.
 
Big Pharma Not Even Good at Their Own Game
 
Maybe it was a lot to expect Pfizer to come up with a new big drug on their own, maybe this is not their job no matter how much they spend on research. Their game is buying the start up companies that come up with the drugs. Pfizer bought Lipitor by buying Warner Lambert, and now, playing defense, it is making a gargantuan purchase of Wyeth for $68 billion to protect against the fall off in sales of Lipitor when it comes off patent in 2010.
 
Odds Are Good Drug Delivery Through the Cheek Will Work
 
Meanwhile, tiny little Generex has been plodding along on its Phase III trial of its insulin product Ora-Lyn, which gets sprayed inside the cheek, which Lilly put a million into some years back. Phase III is going okay per their announcement in April, and they may not even need quite so many patients because of how well things are going. But it’s not a new drug they are trying out, insulin has been around since the 1920s. It’s a new method of drug delivery. That other methods of delivery could work for insulin delivery has been established by Pfizer and Novo in the lung. And Generex has preliminarily tested their in-the-cheek drug delivery method on 150 drugs and it appears to get stuff in the blood stream.
 
Pfizer, Novo Nordisk, and Lilly have all spied the opportunity in insulin, but are letting Generex go along without buying the company, or at a minimum, making a licensing deal.
 
It is not likely that Generex will now make the same deal they would have made three years ago, or two years ago, or even two months ago. Things are moving along swimmingly. And not only is this going well, but their Phase I test of a prostate cancer vaccine went well (and we know what a good Phase III did for Dendreon, DNDN). And beyond that, their stock popped on the swine flu news, because Generex works in that area, too.
 
My take is that Big Pharma is stumbling around. Even if Pfizer had to spend a few billion for Generex, it looks like it would be a good defensive move, considering how much money they spent on Exubera, and especially when you consider how much they are spending for Wyeth. At the very least, one or another of these companies should be spending whatever millions it takes to get a licensing deal done.
 
So, it is not only the banks that have ignored risk management, the big drug companies look like they are also remiss. For investors, Generex appears to be a once in a lifetime bargain. Many are trading this stock, witness the millions of shares trading hands, but the traders may be no smarter than big pharma management, in and out of a company that may take its place among big pharma. It is hard to recommend purchase of stocks for the long term in what can only be a bear market rally, Generex may do well even in this horrific environment, especially when Phase III of its insulin test is completed.
 
Disclosure: Long GNBT

 

]]> Mon, 06 Jul 2009 22:06:27 -0400  

Big Pharma: Where’s the Risk Management?
 
 
Novo Nordisk (NOVO) wrote down $280 million for its investment in inhaled insulin in January of 2008, but this is dwarfed by Pfizer’s (PFE) write off in November of 2007 of $2.8 billion for its investment in Exubera, its entry into the inhaled insulin market. By March of 2008, Lilly (LLY) also gave up the ghost, and wrote down its efforts in the area. 
 
Interestingly, in 2000 Lilly had taken shown an interest in insulin taken in through the buccal tissues inside the cheek with a $1 million investment in Generex (GNBT). More about this delivery system later.
 
Somebody Didn’t Do Their Market Research
 
It ended up that patients were not comfortable inhaling insulin. You would think that this is something that these companies would seriously look into before embarking on billions in research and FDA approvals. And of course they must have done some market research, but their market researchers let them down. Or maybe diabetes patients thought they would like it, but when it came down to cases, they had second thoughts about putting that stuff in their lungs. Apparently insulin patients don’t like to snort.
 
The Attraction
 
The market for insulin is estimated to be a billion dollars a year, but for Big Pharma the real attraction is that this is another chronic condition requiring a lifetime of drug-taking, like the cholesterol drugs, the statins, which have been so popular.
 
For patients who have to stick themselves with a needle, and sometimes more than once a day, the appeal of something you just spray on the inside of your check has to be a boon, a vast improvement in quality of life.
 
Big Pharma Not Even Good at Their Own Game
 
Maybe it was a lot to expect Pfizer to come up with a new big drug on their own, maybe this is not their job no matter how much they spend on research. Their game is buying the start up companies that come up with the drugs. Pfizer bought Lipitor by buying Warner Lambert, and now, playing defense, it is making a gargantuan purchase of Wyeth for $68 billion to protect against the fall off in sales of Lipitor when it comes off patent in 2010.
 
Odds Are Good Drug Delivery Through the Cheek Will Work
 
Meanwhile, tiny little Generex has been plodding along on its Phase III trial of its insulin product Ora-Lyn, which gets sprayed inside the cheek, which Lilly put a million into some years back. Phase III is going okay per their announcement in April, and they may not even need quite so many patients because of how well things are going. But it’s not a new drug they are trying out, insulin has been around since the 1920s. It’s a new method of drug delivery. That other methods of delivery could work for insulin delivery has been established by Pfizer and Novo in the lung. And Generex has preliminarily tested their in-the-cheek drug delivery method on 150 drugs and it appears to get stuff in the blood stream.
 
Pfizer, Novo Nordisk, and Lilly have all spied the opportunity in insulin, but are letting Generex go along without buying the company, or at a minimum, making a licensing deal.
 
It is not likely that Generex will now make the same deal they would have made three years ago, or two years ago, or even two months ago. Things are moving along swimmingly. And not only is this going well, but their Phase I test of a prostate cancer vaccine went well (and we know what a good Phase III did for Dendreon, DNDN). And beyond that, their stock popped on the swine flu news, because Generex works in that area, too.
 
My take is that Big Pharma is stumbling around. Even if Pfizer had to spend a few billion for Generex, it looks like it would be a good defensive move, considering how much money they spent on Exubera, and especially when you consider how much they are spending for Wyeth. At the very least, one or another of these companies should be spending whatever millions it takes to get a licensing deal done.
 
So, it is not only the banks that have ignored risk management, the big drug companies look like they are also remiss. For investors, Generex appears to be a once in a lifetime bargain. Many are trading this stock, witness the millions of shares trading hands, but the traders may be no smarter than big pharma management, in and out of a company that may take its place among big pharma. It is hard to recommend purchase of stocks for the long term in what can only be a bear market rally, Generex may do well even in this horrific environment, especially when Phase III of its insulin test is completed.
 
Disclosure: Long GNBT

 

]]> gnbt pfe lly nvo This is Where Sisyphus Starts Huffing and Puffing http://seekingalpha.com/instablog/400122-thomas-barnard/6441-this-is-where-sisyphus-starts-huffing-and-puffing?source=feed 6441  

Using data from Robert Schiller’s spreadsheet (http://www.econ.yale.e...), it looks like the S&P 500 has a current PE of 15.  The average PE for the 128 years Schiller has records is on the order of 16.   So, for the momentum players we are below average, and that’s bullish.

Here’s my problem: it’s been 25 years since the PE for the S&P 500 has been in the single digits, and the important thing to remember about an average is sometimes the PE will go above the average and sometimes below, but usually there is regression to the mean.  Anyone looking at Schiller’s spreadsheet knows that the PE for the past 15 years has been well above 20, much less 16.  And it hit an all time high in the 40’s in 1999.  Yet when the buzz ended in 2002, the hangover was not so horrible with the S&P500 sporting a PE above 21, with the PE above 25 for most of the rest of the decade.

There was another 25 year span where the PE stayed in single digits, from 1949 until 1974.  I’m not saying that we can’t stay in the double digits longer, maybe we can.  After all, from the point where Schiller starts computing the S&P’s PE in 1881, it stayed in double digits until 1917-- 36 years.  And that includes the Great Depression of 1893, and the Panic of 1907.  But let’s review when the S&P fell into single digits:

1917-25, World War I and on into the twenties (8 years)

1932, the bottom of the Great Depression

1942, U.S. enters World War II

1949, U.S. enters Korean War

1974, the great recession

1977-84, the great inflation (7 years)

I don’t know what they will label the period we are living through, but GDP is falling, unemployment is rising, and housing starts are falling.  GM and Chrysler are nearly out of business.  It feels like a depression to me. 

By the way, Sisyphus sounds like he would fit in with the CEO, trader crowd.  Avaricious and deceitful, he was famous as the craftiest of men.  He seduced his niece, stole his brother’s throne, and betrayed Zeus’s secrets.  He felt he was a peer of the gods.  When Zeus had had enough, he forced Sisyphus to roll a boulder up a steep hill, but before he could reach the top, it rolled down again.  And to do this without end.

I’m thinking that the overhead resistance is going to get heavier and heavier the higher the averages take us.

I own shares in SDS.

 

]]> Sun, 31 May 2009 22:01:00 -0400  

Using data from Robert Schiller’s spreadsheet (http://www.econ.yale.e...), it looks like the S&P 500 has a current PE of 15.  The average PE for the 128 years Schiller has records is on the order of 16.   So, for the momentum players we are below average, and that’s bullish.

Here’s my problem: it’s been 25 years since the PE for the S&P 500 has been in the single digits, and the important thing to remember about an average is sometimes the PE will go above the average and sometimes below, but usually there is regression to the mean.  Anyone looking at Schiller’s spreadsheet knows that the PE for the past 15 years has been well above 20, much less 16.  And it hit an all time high in the 40’s in 1999.  Yet when the buzz ended in 2002, the hangover was not so horrible with the S&P500 sporting a PE above 21, with the PE above 25 for most of the rest of the decade.

There was another 25 year span where the PE stayed in single digits, from 1949 until 1974.  I’m not saying that we can’t stay in the double digits longer, maybe we can.  After all, from the point where Schiller starts computing the S&P’s PE in 1881, it stayed in double digits until 1917-- 36 years.  And that includes the Great Depression of 1893, and the Panic of 1907.  But let’s review when the S&P fell into single digits:

1917-25, World War I and on into the twenties (8 years)

1932, the bottom of the Great Depression

1942, U.S. enters World War II

1949, U.S. enters Korean War

1974, the great recession

1977-84, the great inflation (7 years)

I don’t know what they will label the period we are living through, but GDP is falling, unemployment is rising, and housing starts are falling.  GM and Chrysler are nearly out of business.  It feels like a depression to me. 

By the way, Sisyphus sounds like he would fit in with the CEO, trader crowd.  Avaricious and deceitful, he was famous as the craftiest of men.  He seduced his niece, stole his brother’s throne, and betrayed Zeus’s secrets.  He felt he was a peer of the gods.  When Zeus had had enough, he forced Sisyphus to roll a boulder up a steep hill, but before he could reach the top, it rolled down again.  And to do this without end.

I’m thinking that the overhead resistance is going to get heavier and heavier the higher the averages take us.

I own shares in SDS.

 

]]> spx sds sso aoa aok aom aor PE