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I'm a value investor focused on buying companies trading below the intrinsic value. I've a back ground in engineering & finance. I'm also a Chartered Financial Analyst. I did my MBA from Emory University's Goizueta School of Business
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Oxford Chase Advisors LLC
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Econ Tracker
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  • Why Retrophin Is Justified In Hiking Thiola's Price

    Retrophin(OTC:RTRX), Inc. is a fully integrated biopharmaceutical company focused on the development, acquisition and commercialization of therapies for the treatment of serious, catastrophic or rare diseases. On May 30, 2014 Retrophin entered into a trademark license and supply agreement with Mission Pharmacal for Thiola (tiopronin). Thiola is a FDA approved drug used for treating Cystinuria. Cystinuria is a rare disease that affects 20,000 patients in US. Cystinuria is characterized by formation of cysteine stones in kidneys, ureter and bladder.

    Today Retrophin increased the price of Thiola 20 times, from $1.50 to $30 per pill. The detractors fail to understand the economics of rare and ultra-rare diseases. First let me walk you through this issue with an analogy. Let us take a coastal town of Miami that has a population of 400,000. If you had 1000 cops maintaining Law and Order with a total budget of $100 million, you average about $250/resident and $100,000/cop. Now assume Miami has coastal rescue team of 10 people with budget of $5 million. The rescue team uses a couple of helicopters and other equipment. In a rare event of a perfect storm that happens once or twice a year, the rescue team saves couple of lives. The cost of a rescue mission for a life saved will run into hundreds of thousands of dollars. If you compare this with $250/resident cost, it'll appear atrocious. Does society complain about the high costs of maintaining the coastal rescue team? Absolutely not! The reason is, any one of us could be in that situation in sea and need rescuing. The society is willing to absorb the cost.

    Thiola is not a drug that can be used by millions of Americans. Unlike a popular drug like Crestor, the costs of trials, FDA submission, marketing etc. cannot be spread over a large population. You need the rare disease population to absorb all the costs. Until the arrival of Questor & Retrophin, the small companies that catered to rare and ultra rare disease patients underpriced the drug and failed to recoup the costs. The economics of their underpricing has resulted in those companies stopping production and abandoning the patients at time of need. If you read any of the rare diseases forum, one recurrent complaint is the poor availability of drugs. If you are a Cystinuria patient, you need to take the drug every day. If you miss the dose even for a day, it results in painful kidney stones that need to be operated. Just imagine the high costs of operation, the pain and inconvenience.

    So, Why Retrophin is justified in hiking Thiola's price?

    They had made a commitment to ensure steady supply. They are pouring back substantial money to use it for new indications and create more awareness. Let us consider Retrophin's other orphan drug Chenodal. Chenodal is used for treating Cerebrotendinous Xanthomatosis, a lipid storage disorder. If you take a moment to watch this video, you'll notice that many doctors and patients are unaware of the disease. In some cases, it takes a decade to find the underlying issue. Companies like Retrophin need to spend substantial amount of money and effort to create awareness. In the end, it results in lowering the costs for unnecessary hospital visits and procedures. The price hike pays for itself in the long run. It also funds the R&D for Retrophin's pipeline.

    Tags: RTRX
    Sep 10 2:14 PM | Link | Comment!
  • Mannkind: Timing The PDUFA Run-up

    Is it possible to profit from a PDUFA run-up? Is it less risky compared to a long term buy and hold strategy? The answer is a resounding yes, if you look at the past history of Mannkind's two PDUFA's. There is a lot of speculative activity around a PDUFA date of any small biotech company. Just take a look at the run-up for Arena's (NASDAQ:ARNA) Belviq, Vivus's (NASDAQ:VVUS) Qsymia, Orexigen's (NASDAQ:OREX) Contrave prior to PDUFA date.

    First, a primer on Mannkind. Mannkind's lead product is called Afrezza. Afrezza is a device/ drug combination product. Afrezza delivers powder insulin from a proprietary inhaler. Afrezza was twice rejected by FDA. FDA has not cited any safety and efficacy issues. The odds are in favor of Mannkind to successfully complete the Phase 3 trials. If everything goes as planned, the FDA submission will be around mid to late 2013.

    The table given below captures the dates for the submissions.

    Afrezza

    Submission-1

    Submission-2

    Submission-3

    Submission date

    12-Mar-09

    29-Jun-10

    Around mid to late 2013

    PDUFA date

    16-Jan-10

    20-Dec-10

    Around late 2013 or early 2014

    Decision date

    12-Mar-10

    19-Jan-11

     

    I analyzed the past two run-ups prior to the PDUFA date. The X-axis is the "weeks before the decision date". The Y-axis shows the returns assuming that you sell on the decision date.

    The graph shows that buying shares 15-20 weeks before the PDUFA date yields great returns. The returns start diminishing as one starts buying near the PDUFA date. Of course, the past returns are no guarantee of future returns. But the run-up prior to the PDUFA date is unmistakable. The PDUFA trade avoids the dilution risk and Phase 3 trial issues. By selling near the PDUFA date, one avoids the FDA rejection risk.

    The long term buy and hold investor faces dilution risk from convertible debt, warrants & stock issuance and also FDA rejection risk. It is definitely a less risky option (with less upside) to trade around the PDUFA date.

    Disclosure: I am long MNKD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Additional disclosure: The closing prices of Mannkind stock was downloaded from Yahoo! finance.

    Tags: ARNA, OREX, VVUS
    Jan 08 11:25 AM | Link | 1 Comment
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