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  • Epigenomics AG Vs. Exact Sciences: Who Wins The CRC Early Detection Fight? [View article]
    Gilbert - any thoughts on the FDA materials released Monday morning for Wednesday's meeting here: ?

    Looks quite negative to me. I realize you're long 10x average daily volume, so no worries if you'd prefer to wait. Thanks very much.
    Mar 25 05:36 AM | Likes Like |Link to Comment
  • Ascent Capital Is Unmonitored Even With A 20% Free Cash Flow Yield [View article]
    Great article. I recently looked into ADT because it screened as a 22% FCF yield. I then realized that the appropriate metric isn't FCF (EBITDA-capex-interest... but rather the industry-standard SSCF = steady state cash flow, which deducts just enough customer acquisition cost to offset churn. There's an excellent piece by Stifel dated 1/30/2014 which explains why the metrics P/E, EV/EBITDA and FCF don't work for the industry but rather SSCF and RMR multiple. After reading that, I realized ADT's 22% FCF yield was actually an 8% SSFCF yield which is certainly good but not stellar. You've addressed that in your article and with the comment above, so I'm just echoing it because I literally went through the process yesterday.
    Mar 6 10:28 AM | 3 Likes Like |Link to Comment
  • Epigenomics AG Vs. Exact Sciences: Who Wins The CRC Early Detection Fight? [View article]
    FYI, my take on Epigenomics. While it initially looked attractive for an illiquid stock, the picture got decidedly worse as I dug into it. Since it isn't realistically shortable, my conclusion is to avoid or sell if you’re holding it. I have no position in ECX, nor any intention to make one. Many thanks to the excellent posters on articles for ECX and EXAS, I've paraphrased several of their points below.

    Background: The vast majority of ECX's value lies in its blood test for colorectal cancer (CRC) screening, Epi proColon. It was introduced in Europe in 2/2012, but sales hinge on pre-market approval (PMA) by the FDA with a Medical Devices Advisory Committee meeting on 3/26/2014 (competitor EXAS meets the following day). The ECX test would be the first FDA-approved blood test for CRC

    Cap Structure: 13.5m diluted shares x EUR6.80 x 1.38 USD/EUR = $125m equity cap and enterprise value (no debt excluding in-the-money converts, and enough cash to last through anticipated FDA approval mid-2014).

    Valuation: The sell-side values ECX at roughly EUR8.00 / share using a DCF which assumes annual ECX patient testing, a $135 test price point, and peak market shares of 20% in the US and 10% in Europe. As shown below, all of those assumptions are wildly optimistic. I don't believe sales will be sufficient to generate any eventual cash returns to shareholders, or to attract a takeover anywhere close to the current stock price.


    Huge US Market Opportunity: CRC screening is recommended for everyone over 50 - either a stool test every year, a colonoscopy every 10 years or a sigmoidoscopy every 5-10 years. Of the 100m Americans over 50, 10m are tested via stool (1/3 FIT, 2/3 FOBT), 50m are tested via colonoscopy / sigmoidoscopy, and 40m aren't tested at all. Obamacare's near-universal coverage and free preventative testing is likely to shrink that 40m substantially.

    Convenience: Other than insurance and education, the major reason for lack of testing is inconvenience. Colonoscopies require an uncomfortable flushing of the bowels the evening prior, sedation during the procedure and a 4-foot flexible endoscope. Stool tests are self-administered at home, requiring the patient to collect, scrape and sample their own feces before mailing it to the lab. The ECX test can instead be done along with a patient's regular blood work. Blood tests generally have an 80+% compliance rate while stool tests are less than 50% (the patient gets the test and never mails it back).

    Valuation: Strictly on numbers, ECX looks incredibly cheap to competitor EXAS. Enterprise values are $125m for ECX vs. $760m for EXAS, yet both are heavily tied to a single new CRC testing project up for FDA review on consecutive days next month. Using sell-side 2016 projections, ECX trades at 2x revenues and 5x EPS while EXAS trades at 5x revenues and 44x EPS. EXAS looks to have a far more effective product, but ECX seems better positioned to take share of the 40m untested population.


    FDA Risk: ECX has worked closely with the FDA through its 4-part PMA submission, and probably wouldn't have earned an advisory committee evaluation with any gaping holes. That said, it has yet to release full results for any of its critical trials to a peer-reviewed journal and has had "issues" with previous trials - large differences in results between control and prospective trials, PRESEPT trial lab spoiling samples and a questionable withdrawal from a small head-to-head ("H2H") Mayo clinic study vs. EXAS. The FDA-pivotal H2H FIT test claims non-inferiority to FIT overall, but is likely decidedly inferior to FIT for pre-cancer and stage 1 sensitivity and did not prove non-inferiority in specificity. The FDA is likely wary of ineffective blood tests after the PSA testing debacle and its recent denial of MS drug Lemtrada highlights their lack of tolerance for statistical game-playing.

    Weak Early Detection: Five-year survival rates get much worse as CRC progresses (stage 1 - 93%, stage 2 - 77%, stage 3 - 48%, stage 4 - 6%). Treatment costs also get much worse (stage 1 and some stage 2 are treated with surgery alone). The ECX test does not detect pre-cancer and has a horrific 41% sensitivity (ability to detect) with stage 1 CRC. FIT and EXAS do detect pre-cancer (20% and 42% sensitivity respectively) and are far better at detecting stage 1. ECX cites success at finding "early stage" cancer which excludes pre-cancer and lumps stages 1 and 2 results together. The poor ECX performance is likely due to inherent limitations with blood testing vs. stool - less direct contact, more dilution and greater exposure to extraneous marker sources. Several well-funded attempts at CRC blood tests have already failed.

    Weak Overall Detection: Excluding pre-cancer, ECX has an overall CRC sensitivity of 68% vs. 66% for the weakest FIT test (OC FIT-CHEK, not the far better InSure Fit) and 92% for EXAS. Specificity (basically = 100% - % of false positives, higher is better) is 80% ECX, 95% FIT and 87% EXAS. Sensitivity matters most to the FDA and patients, but specificity matters a lot to payors because false positives mean unnecessary and expensive follow-up tests. So roughly 20% of ECX patients will be falsely diagnosed with CRC every year and quickly given a pricey colonoscopy.

    Looming Competiton: There are several competing blood tests in various stages of development that look more promising than the ECX test (although I give very little weight to early small control study results) - Baylor University, GeneNews, Volition RX, etc. Unlike other diseases, it does not take long to complete CRC trials. And if the ECX test does get FDA approved, the entire CRC blood test approval process may move from Class 3 to the much easier Class 2.

    Terrible Cost Benefit: This is the biggest strike against ECX. If you hold or are considering ECX you absolutely must read the entire Ladabaum cost-benefit study published June 24, 2013 (linked below). Highlights:

    - The FIT test is cost-saving and "dominated" the ECX test (aka "Sept9"). ECX is not remotely cost-saving at the assumed $150 price, and that assumes ECX testing every 2 years (testing every year had a cost per QALY of $49.2k vs. $16.4k if done every other year).

    - Assuming the best-case of confidence intervals for ECX sensitivities and specificities, the ECX test would have to cost <$10 to approximate (but still not match) FIT. At the lower-bounds it would have to cost <$5. If ECX were only given to patients that would otherwise not be tested, it would only be cost-saving if given every 2 years at a cost of $50. The sell-side assumes annual ECX testing at a price of $135 per test.

    - ECX generally makes economic sense only for patients that would otherwise not be tested. The problem is that its convenience would pull patients from the far more cost-effective alternatives. The study estimates that for every 10 patients switching from current alternatives, the payor would need to pull 13 patients from the untested group in order to not exceed the benchmark <$50,000/QALY gained (which is nowhere close to being cost-saving).

    - My personal opinion from the above is that payors will tackle the untested population with the cost-saving FIT test alone. They have zero motivation to push the ECX test at a price over $50 and very little incentive to push ECX at a price over $10 (due to cheaper alternative substitution).

    - Study:

    - Study Supplement (excellent data):

    Just one guy's opinion, i hope it saves someone a bit of work whether they agree or not. Please note that I won't respond to any comments as I've already spent far too much time on an idea that I think is worthless. Much better opportunities elsewhere. Good luck to all.
    Feb 28 03:17 AM | 1 Like Like |Link to Comment
  • GCVRZ Forum [View instapost]
    Apologies Sumikuboanr, I misunderstood. So you're talking about a scenario where it's nearing the end of 2015. The Major Market 1SMM period has already ended at 3/31/2015 and totaled maybe $250m. At 10/29/2015 we get the GCVRZ sales report for 9/30/2015 and realize that non-major-market sales (with the applicable 1SMM period of 4/1/2015-3/31/206) are only running at $30m/quarter so it looks like total sales for the 1SM will be $370m. We need another $30m of sales in Non-Major-Markets over the next 5 months to get the $2 payment.

    The $30m charity contribution would be a breakeven prospect for anyone holding 15m shares. It would likely take you at least 2 months to buy that many shares (at 25% of 1.4m ADV), and of course you'd want to do that before moving ahead with a charity project that the market would know about instantly. So you'd be sitting at 1/1/2016 trying to start a charity and get 500 new patients treated in non-major markets before 3/31/2016. It would of course be easier for the three funds that already own more than 15m shares, but for those funds GCVRZ is a very small part of AUM and likely not worth the headache / risk to execute.

    So, the charity idea works in the unlikely scenario that you've got sales just close enough but not over the 1SM target, can buy at least 15m shares at a price that assumes no chance of the $2 payment, can get the requisite patients treated in 3 months, don't get stalled by Sanofi for a couple of months after the charity is announced, don't get sued by Sanofi, don't break insider trading laws, etc.

    In summary, I agree with you that it is possible. Worth considering if we get to that stage in sales. I appreciate you bringing up the possibility, certainly interesting and worth some analysis. I'll drop the subject henceforth though.
    Feb 16 01:41 PM | Likes Like |Link to Comment
  • GCVRZ Forum [View instapost]
    Excellent points, let’s run a few numbers on it.
    - GCVRZ has 250m shares o/s at $0.40/share = $100m equity cap.
    - BofA has the only sell-side Lemtrada sales projection post-FDA denial (2/4/14 report, converted to USD): $102m in 2014, $204m in 2015 and $340m in 2016.
    - For Germany, the 1st sales milestone measurement period ("1SMM period") is 1/1/14-12/31/14. For the US, the latest 1SMM period is 1/1/16-12/31/16 which will very likely be zero given that more trials will be likely be required. For the other Major Markets (UK/F/S/I) we'll assume the first sale happens this quarter and the 1SMM period is 4/1/14-3/31/15. The Non-Major Market sales will be 4/1/15-3/31/16 (+1 year from UK/F/S/I).
    - Based on that, let's assume that aggregate 1SMM period sales WITHOUT charity would be $150m (50% of 2014 + 50% of 2015).
    - To meet the $400m 1SM target, you'd need $250m of sales, or a $250m charity donation. You'd probably get a tax deduction for that at say a 40% marginal rate, so net cost of the donation would be $150m.
    - You'd thus need a $150m profit on your shares to breakeven. If your cost per share is $0.40 and you get $2.00/share for the 1SM, profit is $1.60. At a 40% marginal rate, profit is $0.96/share.
    - You'd therefore have to own $150m / $0.96 = 156m shares (at a cost of $0.40), or 63% of the total outstanding.
    - The largest holder (Whitebox) has 18m shares, and thus would need to buy 138m shares, or 55% of o/s shares.
    - Average daily volume is 1.4m shares, so even if they did 100% of the volume it would take 99 days. If the price ran up such that their average cost on the new shares purchased was $1.04, they would need to buy the entire 250m shares to breakeven. Any price above that and they’d lose money.
    - Lets say you somehow got the 5 largest holders (total 64m shares) to agree to participate. It's an absurdly aggressive assumption as the smart play is to not join and let everyone else bear the cost and legal risk. Starting with 64m shares at $0.40 cost, you'd lose money buying the additional shares at an average cost above $1.20 (and in that case you'd need to buy up the entire 250m).
    - Seems virtually impossible. But my math was quick so feel free to check it.
    Feb 14 04:08 PM | Likes Like |Link to Comment
  • GCVRZ Forum [View instapost]
    Hi Sumikuboanr - I hope my response did not come across as negative, it certainly wasn't meant to be, and it's a very interesting idea.

    You said "Can I simultaneously buy up most of the GCVRZ rights in order to profit from the fact that I am adding to Lemtrada sales". That sounds like the purchase of a security with material nonpublic information to me. I'd feel defrauded if I sold GCVRZ shares to you. The difference with Ackman and Icahn is that their information about the company (its revenues, earnings, etc) is public. I'd want the advice of a really, really good securities lawyer before starting down the path you are suggesting, and I'd wager the opinion would be "too risky". However, if you already owned the stock and THEN started a foundation without the intent of manipulating the earnout it MIGHT be another kettle of fish (as you wouldn't be buying a security with that knowledge).

    Insider trading aside, I gotta think that if a foundation funded by GCVRZ holders bought enough Lemtrada to meet a milestone Sanofi would take it to court before paying. If the reverse occurred and Sanofi dragged their feet to avoid paying the milestone I'm sure the GCVRZ holders would sue. In the reverse case, we'd have the "Diligent Efforts to achieve the Approval Milestone" clause in our favor whereas there doesn't appear to be any language in the CVR agreement explicitly forbidding GCVRZ holders purchasing Lemtrada.

    My point is this: If you're going to start a Lemtrada foundation, do it strictly for charity. I wouldn't take a bunch of litigation risk by saying that you're gathering up a bunch of holders to work collectively to meet the milestone payment. The entire thing is going to end up in court regardless, with full discovery by Sanofi's attorneys (and possibly securities regulators) of all public and private communications on the matter (including this board for sure).

    I don't own GCVRZ, but might buy it in the future. I would NOT do so if I had non-public information about any foundation efforts. At this stage, I don't believe I do. If Chris replied to your post I might. Just 2 cents from a guy who isn't a lawyer but has had several securities regulation classes.
    Feb 13 04:15 PM | 1 Like Like |Link to Comment
  • GCVRZ Forum [View instapost]
    Sumikuboanr: I'm not entirely sure what you are suggesting, but am certain that no large holders of GCVRZ would consider manipulating sales to meet milestone payments. While not specifically addressed in the CVR agreement, it would very likely not pass a judicial "sniff test" in the inevitable litigation. It would also quite possibly be a violation of securities laws (specifically the Securities Exchange Act of 1934). So let's please not create a series of public or private communications on the matter.

    Separately, it might be the case that certain GCVRZ investors believe strongly in the value of Lemtrada and have witnessed first-hand the plight of MS sufferers denied a revolutionary treatment. A foundation to assist those sufferers in obtaining treatment would certainly be a laudable endeavor. I would imagine any such discussions would take place privately with due consideration.
    Feb 13 01:19 AM | Likes Like |Link to Comment
  • Best Ideas For 2014: Long GCVRZ [View article]
    Steve Mc - I've written a poem for you and here it is.

    You're the guy. You're the guy who does no research on his own. You're the guy that can't be bothered to even read the information others have painstakingly posted. You're the guy who thinks the world owes him free advice, who offers absolutely no work in return. You're the guy with an absurdly inflated ego who blames others when the risky stock he didn't understand goes against him. You're the guy who has no business picking stocks, yet does so solely on the advice of others. You're the leech on the capable. And it's a joy to see you get exactly what you deserve.

    What do you think?

    PS - for the 4 that "liked" Steve's incredibly ignorant and morally offensive comment. There's a special rung in Hell for those who spit in the face of the brilliant and generous. I wish you nothing but misery when you get there.
    Dec 30 11:17 PM | 9 Likes Like |Link to Comment
  • GCVRZ Litigation Forum [View instapost]
    FDA just denied Lemtrada:
    Dec 30 01:22 AM | 1 Like Like |Link to Comment
  • GCVRZ Forum [View instapost]
    News finally out, Complete Response Letter.

    "FDA has taken the position that Genzyme has not submitted evidence from adequate and well-controlled studies that demonstrate the benefits of Lemtrada outweigh its serious adverse effects. Genzyme understands that the conclusion is related to the design of the completed Phase 3 active comparator studies of Lemtrada in relapsing-remitting MS patients. FDA has also taken the position that one or more additional active comparator clinical trials of different design and execution are needed prior to the approval of Lemtrada"

    "Genzyme strongly disagrees with the FDA’s conclusions and plans to appeal the agency’s decision."

    "Sanofi does not anticipate that the CVR milestone of U.S. approval of Lemtrada by March 31, 2014 will be met."
    Dec 30 01:06 AM | 2 Likes Like |Link to Comment
  • GCVRZ Forum [View instapost]
    Trading is indeed halted. Per bloomy help desk, as best they can tell, Sanofi sent a message requesting the halt to the Nasdaq exchange specifically for GCVRZ. My guess is that means we'll get the news sometime before market open Monday, and it's almost definitely the FDA decision.
    Dec 27 10:31 PM | 2 Likes Like |Link to Comment
  • GCVRZ Litigation Forum [View instapost]
    Brower Piven notice out, defining the "class" as those who purchased GCVRZ on or after 3/6/2012 and held through at least 11/8/2013. Says deadline for lead plantiffs to apply is 2/10/2014 (confirming the 60-day clock I noted above).

    As mentioned above, I contacted what I surmised to be the 7 largest / best law firms for shareholder class action lawsuits. Three of them got back to me immediately, were very helpful and very interested in the case. I would support any of those three, but if I had to rank them (on responsiveness, interest, relevant experience, etc.) it would be: 1) Grant & Eisenhofer, 2) Labaton Sucharow and 3) Milberg.

    My understanding of the process going forward is that all interested law firms will now compete to become the "lead law firm" in the case by getting the largest shareholders behind them. The winner will most likely be whomever has the largest shares in total among their top 5 plaintiffs, although there are apparently other factors for the class action judge to consider when choosing the lead law firm. Once the lead law firm is chosen, all GCVRZ shareholders during the aforementioned period will then be able to sign up with that firm and become part of the "class". So, I'm guessing that small shareholders aren't really part of the equation until the lead law firm is chosen. But the big shareholders can help a LOT by siding with one of the big law firms (preferably one of the top 3 I mentioned above) before the 2/10/2014 deadline.

    Again, I am not a lawyer and am not giving anyone advice. Do your own homework and make your own decisions.
    Dec 18 05:34 PM | 1 Like Like |Link to Comment
  • GCVRZ Forum [View instapost]
    Rangeley Buyers Club!
    Dec 13 02:09 PM | 1 Like Like |Link to Comment
  • GCVRZ Litigation Forum [View instapost]
    Ryan & Maniskas just filed a securities class action lawsuit. Details here: Note that the previous lawsuit announcements (Glancy Binkow and Bronstein Gewirtz) were merely investigations. I believe that the Ryan & Maniskas filing starts a 60-day clock within which any other law firm interested in joining the class action suit must file. I suspect we will see several more filings before then, hopefully by one of the largest firms I listed above.
    Dec 13 02:46 AM | 1 Like Like |Link to Comment
  • GCVRZ Litigation Forum [View instapost]
    Sources for additional information:

    1) PCNS Advisory Committee Meeting materials: See 11/13/2013 section. Aside from FDA's briefing memo and Sanofi's briefing response, there are slides presented from each side. There will eventually be a transcript of the meeting posted. Of note especially are pages 61-95 of the Genzyme slide deck (especially the last 5 pages) where the company addresses the FDA's statistical concerns. The video presentation can be viewed as below (it is a part of Video #1), or when the transcript comes out.

    2) Bloomberg archived video of 11/13/2013 Adcom meeting: From Bloomberg terminal, type BBTV <GO>, check the dot for "Archived Live Events", then type "Lemtrada" into the upper left yellow search box. The meeting footage is spit into 2 parts - #1 is "FDA Panel Discusses Sanofi's Lemtrada" and #2 is FDA Panel Says Sanofi MS Drug Doesn't Ease Disability". The #2 video starts after the lunch break, but misses a few minutes of the meeting including the 1st vote. The #2 video is of particular interest because of the commentary around the voting, which gives an entirely different impression of the Adcom's opinions than was initially reported in the media.

    In my opinion, it did not at all seem like the panel members knew what they were voting on exactly. They all voted that the trials weren't "adequate and well controlled", and some took that vote the way the FDA intended - if you vote not adequate, then you can't vote yes on the next two questions (is the drug effective against MS and disability). Others seemed to think that while the trials weren't adequate, they still thought the drug was effective based on "gut-feel" / personal experience / whatever else (although not necessarily better than Rebif). The trickiest one was the fourth question which has been completely misunderstood "IN THE CONTEXT OF THE PURPORTED BENEFITS of alemtuzumab, do the safety concerns preclude approval?". After the confusion and discussion from the previous 3 votes, the FDA made it abundantly clear (and several panel members re-confirmed) that for purposes of this question the panelists should take the trial results at face value (ignoring the trial adequacy issues). So a lot of people seem to think the panel voted for approval from that question, that is not at all what they were voting for.

    3) Lancet Article: Page 324 of the FDA briefing (page 83 of the clinical review) quotes a Lancet article from 11/24/2012:
    "“The real magnitude of the effect is difficult to assess. The only rater-blinded design might have been a source of bias in assessments of clinical outcomes, especially in the context of the high expectations created with the phase 2 study [223]."

    4) You can read past advisory reports for approved drugs by searching for the drug name here: and clicking on the "approval history" link. For drugs that went before the PCNS advisory committee, you can use the link listed in #1 above to view documents from past meetings.

    5) The list of institutional holders of GCVRZ at 9/30/2013 can be found by using a Bloomberg terminal. Type GCVRZ <equity> HDS <GO>. Note that <equity> is one of the buttons along the top. You can then find contacts at the firms by typing the firm's name followed by the F-1 (aka "help") button.

    6) I didn't search for any news stories, filings, etc. before 12/20/2010 (first use of word "Lemtrada"), but it might be useful to search further back for "alemtuzumab" as an MS drug (not as Campath the B-CLL drug).

    7) Dr. Coles was heavily involved with Lemtrada. In an MS forum here: he states "several years ago, we discussed the design of the alemtuzumab trials with the FDA at a face-to-face meeting. The FDA approved the trial design then." Also from the same link, there's a patient who had his thyroid destroyed by Lemtrada who is clearly disturbed by the FDA findings.
    Nov 28 02:36 PM | Likes Like |Link to Comment