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The founding members of Chimera Research Group have over 50 years of combined experience in the biotech and pharmaceutical sector. Their experience includes work at Investment Banks, Hedge Funds, Pharmaceutical Companies, top-tier Universities, and the U.S. Food and Drug Administration (FDA).... More
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  • Calistoga and Plexxikon: Gone in The Blink Of An Eye 19 comments
    Mar 4, 2011 2:53 PM
    I discussed the merits of these company’s in a short post back in June last year (Calistoga Pharmaceuticals and Plexxikon- Two Biotechs to Keep an Eye On). I had hoped to see them become public companies because I saw promise in their technologies and wanted to participate in their upside.
     
    Too late. Both have recently been acquired. Plexxikon by Daiichi Sankyo on February 28 for a lofty $805 million up front with another $130 million in milestones, and Calistoga only a week earlier by Gilead for $375 million down and $225 million in future milestones. As for the price difference, Plexxikon has a compound close to approval while Calistoga’s promising candidate is only in Phase II.
     
    How I would have savored the opportunity to invest in these companies.
     
    Investing in public biotechs is now generally a choice of two dichotomies- either go the path of relatively safe mid-cap stocks, or take your chance with a slew of micro caps. There is little in between.  
     
    A return of IPOs are needed to bring back quality small cap investment opportunities.
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Comments (19)
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  • JPG101
    , contributor
    Comments (170) | Send Message
     
    The problem is biotech IPOs are not fashionable and there is a lot of private smart money that nows how to sell these hot biotechs to starved big pharma.
    Not good for us...
    What safe (and relatively cheap) mid caps are you thinking about?

     

    JPG
    Long Novartis Roche Abbott (large), Incyte (kind of small mid?) and a bunch of small cap but nothing mid? Help!
    11 May 2011, 01:36 AM Reply Like
  • Chimera Research Group
    , contributor
    Comments (388) | Send Message
     
    Author’s reply » I thought Incyte WAS a midcap! If larger than that, there are few biotechs to be found. I like Alexion and Pharmasset, but they've had pretty decent runs already. I'm keeping them for the long term.
    Not a personal fan of Vertex, Dendreon, HGSI, or REGN.
    I may very well be wrong on all four.
    What did you have in mind?
    11 May 2011, 03:52 PM Reply Like
  • JPG101
    , contributor
    Comments (170) | Send Message
     
    I don't know!

     

    My favorite 'mid cap' was Crucell and they hovered at around 1 billion. They got bought out 2-3 years to early and cheaply IMO. Bruce wanted to cash in and become a bigshot from J&J.

     

    My only mid cap is Incyte (which I bought significantly cheaper) but although I still see a lot of value in them I can't bring myself to buying any more considering I could have 4 times more Micromet for the same price.

     

    Immunogen (ok by far a mid cap yet!) but soon to be a baby mid cap IMO. Seattle Genetics?

     

    I see (maybe wrongly) mid caps as buyout targets for CEOs who are 'scared to get it wrong' with more junior, earlier and smaller plays. These CEOs need drugs to hit the market quickly and are willing to pay to de-risk their bets and show balance sheet results quickly. I just can't think like a big pharma CEO though... I just think how many baby biotechs Sanofi could have bought with the kind of cash they recently put down for Genzyme.

     

    Alexion (and Dendreon) is a good example of what scares me in mid cap. A business model based on charging huge amounts of money for therapy to very few patients. If it works (and it seems to be working...). They have one 'solid' product and a few pipeline possibilities. I thought they were expensive at a third of their current market cap: missed that one!

     

    For Vertex and Pharmasset: I sadly don't do HIV and hep C viruses! To much competition for me.

     

    Maybe my biggest weakness (there is an active competition of weaknesses to get to be my biggest one...) is being unable to put a value on mid caps as seen through the eyes of a CEO? Are you keeping Alexion and Pharmasset for a buyout or because you think they will make money?

     

    Long Micromet, Immunogen, Thinking of Seattle Genetics (but will never buy!), MAnnkind (I know, I know!) and a bunch of other 'future mid caps' I hope.

     

    JPG

     

    PS: I'd love to be convinced of the value of a midcap or 2!
    11 May 2011, 10:08 PM Reply Like
  • Chimera Research Group
    , contributor
    Comments (388) | Send Message
     
    Author’s reply » Curious, by Mannkind? Seems you're not the only one though...
    Why not SGEN, guess a bit pricey now, but at its stage, I think its valued similarly to IMGN

     

    Why I holding VRUS and ALXN? Sure HepC is crowded, but I see it shaking out like the HIV field where a few companies will take most of the market and one (GILD) owns most of it. VRUS to me, will be GILD. Sure, Vertex, Merck got there first, and they will change standard of care, adding direct adding drugs to interferon, etc. But they also add another layer of tox. HepC is best cured at the early stage, but drug usually isn't given then because something like 40% patients will cure themselves- why deal with interferon?
    An interferon free treatment will be a real advance, I believe it will enable docs to treat early, cure more, faster, less side effects.
    VRUS has cash, a drug in collaboration with Roche in late stage, works in the most interesting class of compounds, and has the potential for the best combo treatment.

     

    Alexion is already a 10 billion stock, but room to grow. Its single drug likely to generate greater than 2 billion in sales and it owns the whole thing. Pricey, yes, but highly efficacious in multiple indications. Test it in 10 people and you have good confidence if it works, move on to larger studies. Not like cancer, never know what will happen.
    Company is well managed, great execution. Think Celgene in earlier years. Also like its recent acquisition of competing/complementary orphan drug company.

     

    I personally feel a lot of bios are pretty high right now. I'm not buying any midcaps, looking more at smallcaps.
    12 May 2011, 05:10 PM Reply Like
  • JPG101
    , contributor
    Comments (170) | Send Message
     
    Your take on Vertex makes sense and was a bit what I thought when they were significantly cheaper (but still didn't buy!). Very foolishly didn't buy retrospectively...

     

    Like I said I have difficulty with the 100000$ per years orphan drug thing. There is a significant risk this business model will get killed by regulators world wide?

     

    Mannkind suffers from or suffered from an over confident very smart CEO who put a big chunk of change (1 billion) into the most revolutionary product in diabetic (type II) management since insulin came on the market IMO. Being shot down by the FDA twice will hopefully make Mr Mann a bit more realistic on how he deals with FDA requests... They have a paradigm modifier in Afrezza IMO. The market seems to think there is no market for Afrezza and look at Exubera as their gold standard for failure. Afrezza is not Exubera and by very far. The kinetics alone would make it a game changer regardless of route of administration. Inhaling it obviously permits this kind of kinetics and is a much easier and convenient route. A much better product. Broken Lada vs fuel efficient Prius to use a car analogy... Their inhaler is actually kind of sexy! A bit like an ipod if inhalers to use another analogy I've seen used. Skepticism of the market is key to get this company cheaply.
    Negatives of Mannkind:
    Out of cash in early 2012
    Two phase 3 studies that could go badly but if they are well designed they are 'low risk'. I obviously don't need to tell you that low risk is a relative concept in biotech!
    An overconfident 83ish(85?) year old CEO who as far as I know has pulmonary issues (my diagnosis based on me looking at him on video!). I'm not sure how much money he has left to fund Mannkind but I think he is running low on capital. I think he needs a big pharma partner sooner rather then latter. I think big pharma will see more value in Afrezza then the street is seeing? Then again I don't get most big pharma CEOs deal making...

     

    I have quite a few shares (at a modest loss so far) and have been in for a few years. I'm not buying anymore and 'hoping' for a market crash... that will really punish all baby biotech.

     

    I agree with Seattle Genetics being relatively the same price 'timeline adjusted' Immunogen but still haven't bought any. No good reason but investors (me) are illogically logical: if that makes any sense...

     

    Also looking at baby bios hoping to get a few at the next market crash which might be sooner then most are betting on in my very humble opinion... Maybe I should stop reading Zerohedge.com and see life in a more rosy way through MSNBC or something!

     

    JPG
    13 May 2011, 02:55 PM Reply Like
  • JPG101
    , contributor
    Comments (170) | Send Message
     
    Which would be your top picks as far as baby bios go if we got a significant market correction?

     

    I have a list that I would love to pick up cheaply.
    My list (starting with those I would pick up first) if there was a 30-50% correction in baby biotechs:

     

    Momenta (picked up more after last scary Teva press release)
    Sinovac
    Micromet
    Mannkind (funding/dilution issues could be problematic if crash)
    Curis
    Immunogen
    Cardiome
    Cadence

     

    I would be very interested on your opinion of any of them or any of your picks.

     

    JPG
    14 May 2011, 12:22 PM Reply Like
  • Chimera Research Group
    , contributor
    Comments (388) | Send Message
     
    Author’s reply » Yeah, if there was a huge correction, I'd pick up a bunch of these.

     

    You know I like Micromet.
    I'd probably buy some Momenta, Immunogen, and possibly Curis.

     

    Not too familiar with Sinovac , Cardiome, and Cadance- maybe you can fill me in.

     

    Jason
    14 May 2011, 02:24 PM Reply Like
  • JPG101
    , contributor
    Comments (170) | Send Message
     
    Sinovac:
    A Chinese vaccine play which is very cheap but no really making any money. The not making any money thing is actually a strong point... At least they aren't playing fast and loose with finances! They had a few accounting issues a few years back but that seems to be a thing of the past hopefully.
    How will China improve the health of 1.2 billion people in a cost effective way? Vaccines have got to be part of the picture? Sinovac is innovative and well positioned IMO. They are a very low cost producer and could also be a supplier for other developing countries. They came out with a H1N1 vaccine faster then any big pharma and were the first to show one dose was protective. The 'big pharma' vaccine makers laughed at their claims but had to eat humble pie when the WHO certified Sinovacs' claims.
    I've been a shareholder for a long time and have done very well so far.

     

    Cardiome:
    A novel IV atrial fibrillation drug that will significantly change they way we treat A fib in the acute setting. Approved in Europe but struggling to get anywhere with a painfully slow FDA. An oral formulation would be a major hit and is in the pipeline but several years away. The underperformance of other anti atrial fibrillation drugs (Sanofi) is clouding the value of this companies drug.
    I'm a relatively new shareholder and am down a bit on this one but have been following them for years (always thought they were to expensive until they started going up significantly and bought in only to see them come back down...)

     

    Cadence:
    IV acetaminophen recently approved in the US. An old very popular drug in Europe. They have another 7 years to cash in on this drug. The Street seems to lump them in with a recent IV NSAID launch which totally bombed. This is not an NSAID obviously and IV acetaminophen will do very well IMO. I would prescribe it at least 4 or 5 times a day and so would many other MDs I know. There are cheap generic IV NSAIDs but Ofirmev (strange name I guess?) will be given with IV NSAIDs to synergically decrease narcotic use in hospital. Anthing that decreases use of narcotics is usually very cost effective. It gets patients moving faster and probably decreases compications significantly. The US market (if it follows UK and European patterns) would make this a 1 billion dollar a year drug... The Street is also shorting this puppy big time. The shorters are predicting a total failure of prescriptions. We will soon see. Their next 2 quarterlies well tell if there is meaningful uptake. Management seems to be doing all the right thinks to get this into hospitals quickly.
    I have a very small position at a bit cheaper then now. The shorts are kind of in the way for this company to get cheaper though...

     

    What would be your 3 or 4 top buys in a biotech crash?

     

    Jean Pierre
    14 May 2011, 10:50 PM Reply Like
  • Chimera Research Group
    , contributor
    Comments (388) | Send Message
     
    Author’s reply » Jean Pierre,

     

    A biotech crash? That's easy, I'd go all in!

     

    Not the most exciting list, but I'd go for Incyte, Seattle Genetics, and Pharmasset. The fourth is not as decisive, split between Cubist, Micromet, Pharmacyclics, Trius, others.
    15 May 2011, 01:49 PM Reply Like
  • JPG101
    , contributor
    Comments (170) | Send Message
     
    Jason,

     

    Thanks for your list. I will look harder at Pharmasset. Will find out about Pharmacyclics. Don't get Cubist though.

     

    If my 'macro play' is right I wouldn't be surprised to see a very major swing out of baby biotech in the next few weeks or months as risk off becomes the new truth...
    From Grantham
    www.scribd.com/doc/551...
    This would be very bad for baby biotechs IMO.

     

    On a more biotech front...
    sg.news.yahoo.com/chin...
    Basically says Sanofi will try being big in China through amongst other things vaccines. Ties in to my Sinovac play.
    HAven't liked or owned Sanofi especially after Genzyme but they are a truly geographically diversified. They may be expensive right now? What do you think of Sanofi?

     

    Jean Pierre
    15 May 2011, 10:48 PM Reply Like
  • Chimera Research Group
    , contributor
    Comments (388) | Send Message
     
    Author’s reply » I'm not worried about a market correction. Trying to pick names that will be major players multiple years out- trying.
    Loved the last correction a couple years ago, yeah, maybe bios getting ahead of themselves, but also, more than at any time before, lots are close to real products.

     

    I don't like Sanofi- one of the LEAST productive pharmas out there. With Genzyme, get into orphans (hey, though you didn't like high priced drugs). Genzyme pretty productive, if they leave it alone as promised, could add some revenue.
    When you can't innovate, say "developing markets!"
    16 May 2011, 12:30 PM Reply Like
  • JPG101
    , contributor
    Comments (170) | Send Message
     
    I am very worried but prepared (I hope...) for a significant market correction in high risk assets.
    Biotech is as a whole coming through a stagnant phase into a productive phase and I don't know if the rise in biotech valuation is caused by this or simply a reflex 'risk on' QE 2 type of reaction. Possibly a bit of both. The end of QE 2 and a return to 'reality' could be hard for profitless baby biotechs.
    I think you are right about Sanofi and yes I didn't think Genzyme made much sense. I do have a soft spot for anyone taking vaccines in emerging economies though!

     

    Jean Pierre
    17 May 2011, 12:04 AM Reply Like
  • Chimera Research Group
    , contributor
    Comments (388) | Send Message
     
    Author’s reply » Read ZeroHedge, great blog. Can see why you're so pessimistic...
    Yeah, am a bit worried about a correction in biotechs. Hopefully quality names will hold up a bit better but microcaps will definitely take it on the chin with the market.
    Pharma been pulling out of deals left and right. Wonder what happens when funding dries up.

     

    Jason
    17 May 2011, 01:09 PM Reply Like
  • JPG101
    , contributor
    Comments (170) | Send Message
     
    I think zerohedge (amongst many other blogs of that type) gives us a real spectrum of counter opinion to American MS financial media. The British papers are a bit more nuanced IMO? The WSJ, Forbes, Bloomberg, MSNBC etc are often bought or clueless (don't know which is worst...), or both? Still like Barrons.

     

    It easy to loss real big money in baby bio while buying the best of the best but the tide is going out big time. The reverse is also true hopefully... I've done it with a few: my best in biotech so far was Sinovac.

     

    I think what we are seeing now or will see shortly is a risk off rotation into quality pharma (Abbott, Novrtis, Roche etc.) and away from baby bio.

     

    Then again when leverage stops and starts to unwind everything gets sold across the risk spectrum for different reasons. Quality liquid stocks get hammered for no other reason then that they are the ones who have willing buyers and can be sold without completely destroying capital.

     

    I'm at 35% cash and this is probably not enough IMO. I would like to be 40-45% cash but would have to sell a lot of very promising baby bio to get there. Who knows what to do! The only thing I am pretty certain of is that individual investors are complacent and nothing can seem to derail this bull market. BTFD... Cash seems to be trash (for now). Will cash still be trash at the end of QE2? Very scary...

     

    I am trying to set up my list of strong buys and at which prices. For the Novartis et al. it's pretty easy to do. For the baby bios a lot harder for me to figure out value in this crazy 'up is down' world.

     

    My feeling for this is basically that if a 'Novartis type of company' goes down 30% and 'Incyte type of company' also 30%: jump on Novartis! Novartis down 30% and Incyte down how much before I buy the Incytes of the world?

     

    Jean Pierre
    17 May 2011, 05:16 PM Reply Like
  • JPG101
    , contributor
    Comments (170) | Send Message
     
    What do you mean by:

     

    Pharma been pulling out of deals left and right.

     

    ???
    18 May 2011, 03:18 AM Reply Like
  • Chimera Research Group
    , contributor
    Comments (388) | Send Message
     
    Author’s reply » www.bioworld.com/servl...

     

    Hey, the world isn't crashing yet- and QE2's starting to end...

     

    But if NVS and incyte do go down 30%, I'd go incyte- the "crappy" ones come back faster. Besides, if the investment thesis still stands, should still be a good bet.
    18 May 2011, 02:41 PM Reply Like
  • JPG101
    , contributor
    Comments (170) | Send Message
     
    Everything was 'fine' before Lehman... until it wasn't!

     

    I've been selling for 2 months now: still wrong.
    Sold some more in the last few days. Almost 40% cash.

     

    0.2% for my US cash and 1.4% for my Canadian cash: I will be rich!

     

    Foolish or wise will be determined retrospectively!

     

    I just see Linkin IPO follies all around. Reminds me of 1999 and the housing bubble. I guess we don't learn.

     

    Time will (shortly?) tell.
    19 May 2011, 04:03 PM Reply Like
  • Chimera Research Group
    , contributor
    Comments (388) | Send Message
     
    Author’s reply » Still think Fed's gonna be super conservative with ending QE2

     

    But looks like bios getting high, everyone's doing offerings.

     

    Linkedin, what a piece of crap- 10B? ha ha
    19 May 2011, 05:01 PM Reply Like
  • jonsjon1223
    , contributor
    Comments (225) | Send Message
     
    So should we buy Daichi Sankyo (it doesn't trade?) or Gilead Sciences?
    20 May 2011, 05:31 PM Reply Like
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