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BostonMatty
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35+ years as a private investor, college finance/economics adjunct lecturer, corporate project engineer and business development strategist, individual and small business tax preparation. Corporate experience in communications and energy BS Mechanical Engineering - Carnegie Mellon University MBA... More
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  • Stock Splits Are Out Of Favor

    There seems to be a trend in the market for companies not to split their common stock any more. Warren Buffet has never split his stock, now selling for some $173,000 per share. But he is and was a maverick. If you look at the pricing of stocks over the long term you will see that most companies employed stock splits to keep their common stock between $40 and $70 so that the average retail stockholder could afford to buy a block of their shares.

    Not so these days. Google, Apple, IBM, CELG, REGN, BIIB and a host of others are letting their stock prices ride without interruption. Treasurers do not have to issue more paper and accountants do not have to adjust all the ratios and financial reports they publish due to splits and stock dividends.. That is not to say their jobs have become any easier since "pay for performance" demands from shareholders increasingly call for executives and employees to receive stock and stock options as part of their compensation packages.

    Why is this happening? Institutions do not have to be concerned with stock prices in the absolute sense. They have the resources to acquire shares at almost any price, even Berkshire Hathaway's. The retail investor, though, with limited investment dollars has to resort to buying odd lots when prices get to the rich triple digits. Fortunately, most transactions now are computer based and in decimals, not fractions, as they once were.

    It is also easier for the options markets where splits could reek havoc with different issues of striking prices before and after splits.

    Commissions on stock transactions at some firms were once based on shares traded but, with the advent of real time pricing and trading via the internet, those brokerage fees have disappeared. Discount or more aptly, flat rate trading has forced most brokers to dispense with trades based on transaction value but some of the wealth advisers still maintain those fees as well as fees based on percentage of account value or market capitalization.

    A most recent effect of stock pricing surfaced last week when VISA, NIKE and Goldman Sachs were chosen by Dow Jones to replace much lower priced Hewlett Packard, Bank of America and Alcoa Aluminum in the Industrial Average. V and GS are both triple digit stocks and since the Dow Jones Industrials are price weighted, the replacements will have much larger effects on the DJIA than their predecessors. AAPL and GOOG were likely passed over for the same reason, because their nosebleed like stock levels might become too dominant compared to the rest of the Dow Jones 30 Industrials.

    Stock splits were once viewed as celebrations of stock performance, signaling recent rapid growth of a high flying company's earnings and revenues. The presumption was the acceleration would continue, even though fundamentally the owner's two halves were still equivalent to one whole share of market cap.

    For now anyway the BOD's have shelved those trophies of achievement, letting the numbers speak for themselves.

    Disclosure: I am long CELG.

    Sep 17 6:30 PM | Link | Comment!
  • Management Makes A Difference: A Case Study

    Amylin Pharmaceuticals developed a drug named Byetta (exenatide), a Type 2 diabetes drug, which was an analog based upon gila monster saliva. Gila monsters eat only twice a year so their digestive systems work extremely slowly. Amylin bought the rights to the analog but needed clinical trials funding from a partner to proceed. They received that assistance from E. I. Lilly for 50% of the earnings in the US and worldwide rights to market the drug outside the United States. Exenatide, a twice a day injectable from a pen which automatically dispenses the right dosage with a simple twist of the cartridge, was approved by the FDA in April, 2005. It was confirmed as a second-line therapy, only after first line treatments, such as metformin, had failed.

    Amylin was the first to market this GLP-1 (glucagon-like peptide-1 receptor agonists 1) drug, despite Lilly's interference (they have a large insulin franchise and were developing their own GLP-1) and the typical slow approval process by the FDA during the Bush Administration. Yet Amylin lost its lead when it failed to have enough pens available early, let LLY assist in the sales in the US while trying to develop its own sales organization and was slow to get to the internists who handle most of the diabetic patients (versus endocrinologists).

    Amylin also faced a pancreatitis scare campaign initiated by Lehman's research team at that time, now Barclay's. Amylin's management had the data to rebuke the scare but took several years, including new studies, to get it to the FDA, meanwhile losing market share and potential new customers.

    Merck's Januvia, a pill, came to market and, because of a very large needle-phobic patient population, stole quite a bit of the non insulin market.

    The turbulent Amylin-Lilly partnership came to an end when Lilly struck a deal to market Boehringer Ingelheim's DPP-4 inhibitor (en.wikipedia.org/wiki/Dipeptidyl_peptida...), violating the Byetta marketing agreement and precipitating an Amylin law suit. The suit was settled and Amylin regained all the rights to Byetta.

    Now there are multiple GLP-1 and DPP-4 inhibitor competitors and only recently did the approval of a once a week version of Byetta, Bydureon, induce Bristol Myers to purchase Amylin at a fraction of what it could have commanded with even good management execution. Carl Icahn got involved a few years prior to the buyout and that alway spells problems for management.

    I used Byetta for 5 years; it had minor side effects, nausea in getting started which faded after a few weeks. It kept my A1c in check until recently when I have been able to control it with diet and exercise and no longer use any type 2 drug. Insulin can kill and it adds weight, not a good side effect for a diabetic. Byetta reduces weight and can never induce hypoglycemia by itself.

    This was a transformational drug, yet never realized its potential as the blockbuster it should have. That was due to losing its "first to market advantage" and drug efficacy superiority to ineffective management, who let a devious partner in, failed multiple times at the FDA (not receiving first line approval and not overcoming a black box requirement for pancreatitis) , and missed a potentially great launch with insufficient sales, marketing and product.

    Great science can be nullified by inept management. Fair to good science (Januvia) can become blockbusters+++ with superior management strategy, execution and promotion..

    1 - GLP-1 is an essential incretin hormone.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Jul 07 12:26 PM | Link | Comment!
  • Another Celgene Partner Files For Its IPO

    Following on the heels of the successful IPO's of Bluebird Bio and Epizyme over the last several weeks, another CELG partner has filed with the SEC to go public.

    Agios Pharmaceuticals, Inc. a cellular metabolic biotech, based in Cambridge, MA, has recently filed for an IPO with the SEC. The S-1 can be found at:

    //sec.gov/Archives/edgar/data/1439222/0001...#toc538215_12

    According to the red herring, CELG, which already owns a little over 17% of AGIOS, will enter into a concurrent private placement for more of AGIO's common stock at the IPO price.

    The nature of the relationship thus far between CELG AND AGIOS is referred to in the prospectus:

    "In April 2010, we entered into a collaboration agreement with Celgene focused on cancer metabolism. Under the collaboration, we are leading discovery, preclinical and early clinical development for all cancer metabolism programs. The discovery phase of the collaboration expires in April 2014, subject to Celgene's option to extend the discovery phase for up to two additional years. Celgene has the option to obtain exclusive rights for the further development and commercialization of certain of these programs, and we will retain rights to the others. For the programs that Celgene chooses to license, we may elect to participate in a portion of the sales activities for the medicines from such programs in the United States. In addition, for certain of these programs, we may elect to retain full rights to develop and commercialize medicines from these programs in the United States. Through March 31, 2013, we have received approximately $141.2 million in payments from Celgene and $37.5 million in equity investments. We are also eligible to receive extension payments, payments upon the successful achievement of specified milestones, reimbursements for certain development expenses and royalties on any product sales. We have retained the option for exclusive rights to develop and commercialize AG-120 in the United States."

    Agios targets certain cancers and inborn errors of metabolism, or IEMs, a subset of orphan genetic metabolic diseases with its drug development. Its cancer drug development candidates seek out the mutated forms of IDH1 and IDH2 (www.ncbi.nlm.nih.gov/pmc/articles/PMC2820383/) found in cancer cells versus the normal forms of IDH1 and IDH2 found in all other cells. It plans to commence clinical trials in patients with IDH2-mutation positive cancers with AG-221, its lead candidate in its IDH2 program, by mid-2013. In the IDH1 program, clinical trials should begin by early 2014 in patients with IDH1-mutation positive cancers, using AGIOS's lead development candidate, AG-120, mentioned above.

    Although clinical trials have not yet been initiated and likely depend on the funds raised from the IPO and private placement, AGIOS research and development bear close scrutiny, given CELG 's commitment to AGIO's drug candidates.

    Disclosure: I am long CELG.

    Additional disclosure: I have no positions in AGIOS, Epizyme and Bluebird other than through CELG's stake or partnership in the companies.

    Tags: AGIO, BLUE, CELG, EPZM
    Jun 27 11:01 AM | Link | Comment!
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