Published: Monday, 18 August 2014 23:08Written by Doctor Hung V. Tran, MD, MS
Disclosure: We are long on MNKD and we do not have any financial relationship with any companies we cover.
360 Catalyst Key
- 360 Biotech's contrarian thesis on the weight-loss drug developers published in 2013 was not well received but turned out valid.
- Stock promoters who were overly exuberant on Arena, Orexigen, and/or VIVUS misled investors. However, they now spin the facts to bash on these same companies despite share price having dropped substantially.
- The drastic share price declines widen the margin of safety for Arena and VIVUS making them safer investments than in 2013. Nonetheless, it is impossible to forecast when share prices could stabilize (at least for 360 and Warren Buffett)
- Investors who believe in the vast obesity market are right, as the potential is still there … but the easier and proven way to capture obesity is via the prediabetes and diabetes markets.
- Lantus (the top selling basal insulin for treating diabetes) is facing patent expiration soon. Most other diabetes drugs makers are either too big (little growth potential) or too little (precarious investments).
- MannKind is the most prudent choice for investing in diabetes and obesity because the company is medium-sized. Now that MannKind has command of the vast armies of Sanofi sales/marketing reps to deliver Afrezza, a revolutionary diabetes treatment the world has yet to see, the potential for MannKind is limitless.
Since 2013 when we published our first short thesis on three obesity drugs makers (Orexigen, Arena, and VIVUS) they panned out as forecasted and did not perform even in the full swing of the bull market - when most stocks earned substantial rewards for shareholders. We were disappointed that our contrarian research on Orexigen and the obesity-drug makers were unwelcome in 2013 due to the market's exuberant expectation during the time. Nonetheless, we remained convicted in our thesis despite market noises.
Investors who bought into the grandeur promises while neglecting the data paid dearly with their own cash. VIVUS shed 66 percent in shares price; Orexigen lost 18 percent; and likewise, Arena is down 36 percent since last year. Some market broadcasters disappeared while other promoters like EnhydrisPECorp attempted to spin facts and taken the imprudent position to bash Arena, VIVUS, and/or Orexigen.
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