40% Return In ~4 Months With Our IP Selected Healthcare Companies Since SA Publication

|
Includes: ACUR, CORI, HAE, IBB, ICPT, INSM, JAZZ, RDHL, RNN, SAGE, SESN, SGYP, SPNC, TNXP, XBI
by: Innovalpha

Summary

Portfolio consisting of 17 healthcare companies would have returned nearly 40% from February 10th 2015 (date of article publication on SA) to June 18th 2015.

Outperformance exclusively obtained with Patent Dynamics/Patterns (IP models) with XBI, FBT and IBB as benchmarks.

Expert and/or financial analysis may be combined with such IP models for even better returns.

Tickers covered: JAZZ, SAGE, TNXP, SGYP, ASPX, XNPT, INSM, RNN, NVDQ, ZSPH, ACUR, ICPT, RDHL, CORI, SPNC, EBIO and HAE.

We wanted to know how the "17 Healthcare Companies To Consider Based On Patent Dynamics And IP/Patent Indexes" performed since SA publication on February 10th 2015, namely JAZZ, SAGE, TNXP, SGYP, ASPX, XNPT, INSM, RNN, NVDQ, ZSPH, ACUR, ICPT, RDHL, CORI, SPNC, EBIO and HAE.

Results below are impressive taking into account that these companies were only selected using Patent Dynamics/Patterns within these companies. This represents another evidence of the utility to take into account Patent Dynamics/Patterns in any investment selection process. Moreover, complementing or combining such patent filtering criteria with a financial/expert analysis and/or active management would have probably resulted in an even higher return on investment.

Results:

I. Performance of the 17 companies from February 10th 2015 to June 18th 2015

COMPANY

TICKER

EXCHANGE

PERF%

Synergy Pharmaceuticals

SGYP

NDQ

211.90

Corium International

CORI

NDQ

109.67

Sage Therapeutics

SAGE

NDQ

97.65

Acura Pharmaceuticals

ACUR

NDQ

83.33

Tonix Pharmaceuticals

TNXP

NDQ

77.55

Auspex Pharmaceuticals Inc

ASPX

NDQ

65.48

Redhill Biopharma Ltd

RDHL

NDQ

55.19

Insmed, Inc.

INSM

NDQ

51.36

Intercept Pharmaceuticals

ICPT

NDQ

32.01

ZS Pharma, Inc.

ZSPH

NDQ

24.15

Jazz Pharmaceuticals

JAZZ

NDQ

7.55

Haemonetics Corp

HAE

NYS

0.21

XenoPort, Inc.

XNPT

NDQ

-3.34

Rexahn Pharmaceuticals, Inc.

RNN

NYS

-9.33

Novadaq Technologies

NVDQ

NDQ

-15.91

The Spectranetics Company

SPNC

NDQ

-19.17

Eleven Biotherapeutics

EBIO

NDQ

-74.21

70% of the companies have positive performance (30% negative). To note that ASPX was acquired by Teva Pharmaceuticals (announcement on March 2015).

II. What would have been the return of a portfolio composed of these 17 companies?

A portfolio consisting of these 17 healthcare companies would have returned nearly 40% from February 10th 2015 to June 18th 2015 (in a bit more than four months). This is to be compared with biotech ETFs like XBI, FBT or IBB returning respectively 26.66%, 15.67% and 18.73%. Hence, this represents a strong outperformance by applying Patent Dynamics/Patterns only versus benchmarks.

Return is based on an equally weighted portfolio rebalanced each month.

Cumulative performance of the 17 healthcare companies versus benchmarks (XBI, FBT and IBB)

Table: Monthly performance and cumulative return of the 17 healthcare companies versus benchmarks (XBI, FBT and IBB)

DATE

MONTHLY PERF

17 Healthcare

XBI-MONTH

XBI

FBT-MONTH

FBT

IBB-MONTH

IBB

10.02.2015

N/A

100.00

N/A

100.00

N/A

100.00

N/A

100.00

10.03.2015

11.05

111.05

13.60

113.60

9.97

109.97

7.28

107.28

10.04.2015

7.75

119.66

1.77

115.61

2.02

112.19

4.69

112.31

11.05.2015

-1.32

118.08

-1.70

113.65

-2.18

109.75

-1.44

110.69

10.06.2015

8.26

127.84

7.38

122.03

3.17

113.22

3.84

114.95

18.06.2015

9.40

139.86

3.79

126.66

2.16

115.67

3.29

118.73

Focusing only on the Rating provided by the IP model (see article), we might have done even better in terms of performance by changing the weight of each company as the worst performer EBIO (-74.2%) had a Rating of D (worst form Ratings from A to D), whereas the two best performers SGYP (+211.9%) and CORI (+109.67%) had A Ratings.

As mentioned, financial analysis and/or active management might have contributed as well to improve the performance. If we take for example the worst performer EBIO, disappointing results were released. Taking into account financial and/or expert analysis, one would have probably sold or reduced the weight of EBIO, see for example financial analysis indicated that caution was warranted, precursor sell signal or the comment from SA user businessofbiotech:

"Eleven Bio's lead product candidate fails in Phase 3 study; shares plunge 78% [View news story]

Anyone with the slightest knowledge of dry eye and bit more attention to the press release of Phase 2 results would have never invested in this company. In their press release they mentioned they achieved statistical significance from baseline to end of tx, but not between the groups. They gave the false impression that their drug worked by showing decrease in the frequency of artificial tears (not an FDA approvable endpoint). The CEO knew the drug was a bust and she still took the company public on the false hope of their technology platform. Now she is trying to sell the hope that this drug will work in allergic conjunctivitis....One word- RUNNNN!!!"

What to do next?

The IP models provide some indications on what to do with those companies at the present time as their Grade, Score or Patent Index might have changed since the February publication (some slight modifications have been made to the models so the grade as published in February 2015 might not always correspond to the ones in the table below). The following recommendations are therefore only based on the IP models (with the exception of recent run up). It is recommended to combine the present IP approach with a financial and/or expert analysis.

For JAZZ, Grade has changed from A to C, with a Score declining from 2 to 1, and with a present Patent Index (PI=3) smaller than the maximum Patent Index (PIMax=4). A PI<PIMax for a given company is an indication that the innovation phase for such company is likely over (the investor might therefore want to reduce the weight of the company or maintain similar weight), whereas a PI=PIMax is an indication that innovation phase is on-going (the investor might therefore want to increase the weight of the company or maintain similar weight). Overall, the IP Models therefore suggest reducing the weight of JAZZ in the portfolio.

For ACUR, Grade has changed from A to D, with a Score declining from 2 to 0, and with a present Patent Index (PI=1) smaller than the maximum Patent Index (PIMax=4). The IP Models therefore suggest selling or reducing the weight of ACUR in the portfolio.

For CORI, the only modification is that the present Patent Index (PI=7) is smaller than the maximum Patent Index (PIMax=8). The IP Models therefore suggest maintaining or slightly reducing the weight of CORI in the portfolio. In view of the recent run up, it is recommended to reduce the weight of CORI.

For EBIO, Grade has remained unchanged (NYSE:C), with a Score declining from 2 to 1, and with a present Patent Index (PI=5) smaller than the maximum Patent Index (PIMax=7). The IP Models therefore suggest reducing the weight of EBIO in the portfolio.

For HAE, Grade has changed from C to E, with a Score declining from 0 to minus 2, and with a present Patent Index (PI=3) smaller than the maximum Patent Index (PIMax=6). The IP Models therefore suggest selling HAE.

For INSM, Grade has changed from A to D, with a Score declining from 3 to 2, and with a present Patent Index (PI=2) smaller than the maximum Patent Index (PIMax=6). The IP Models therefore suggest selling or reducing the weight of INSM.

For ICPT, Grade has changed from A to D, with a Score declining from 3 to 0, and with a present Patent Index (PI=0) smaller than the maximum Patent Index (PIMax=4). The IP Models therefore suggest selling or reducing the weight of ICPT.

For NVDQ, there are no changes. The IP Models therefore suggest maintaining the current weight of NVDQ.

For RDHL, there are no changes. The IP Models therefore suggest maintaining the current weight of RDHL. However, in view of the recent run up, it is recommended to reduce the weight of RDHL.

For SAGE, there are no changes. The IP Models therefore suggest maintaining the current weight of SAGE. However, in view of the recent run up, it is recommended to reduce the weight of SAGE.

For SGYP, Grade has changed from C to B, with a Score increasing from 1 to 2, and with a present Patent Index (PI=6) identical to the maximum Patent Index (PIMax=6). The IP Models therefore suggest increasing the weight of SGYP. However, in view of the extraordinary recent run up, it is recommended to maintain or preferably reduce the weight of SGYP.

For SPNC, Grade remains unchanged (NYSE:A), with a Score declining from 6 to 4, and with a present Patent Index (PI=7) smaller than the maximum Patent Index (PIMax=10). The IP Models therefore suggest reducing the weight of SPNC.

For TNXP, there are no changes. The IP Models therefore suggest maintaining the current weight of TNXP. However, in view of the recent run up, it is recommended to reduce the weight of TNXP.

For XNPT, the only change is in the Patent Index (8) which is smaller than the maximum Patent Index (PIMax=12). The IP Models therefore suggest maintaining or reducing the weight of XNPT.

For ZSPH, Grade has changed from D to B, with a Score increasing from 2 to 3, and with a present Patent Index (PI=4) identical to the maximum Patent Index (PIMax=4). The IP Models therefore suggest increasing the weight of ZSPH.

For RNN, there are no changes. The IP Models therefore suggest maintaining the current weight of RNN.

Finally, as ASPX has been acquired, it is no longer part of the virtual portfolio.

Table: Summary of changes from date of February publication till present publication

   

2015_25 (date of present publication)

2015_05 (date of Feb publication)

COMPANY

TICKER

GRADE

PI

PIMAX

WTREND

SCORE

GRADE

PI

PIMAX

WTREND

SCORE

JAZZ PHARMACEUTICALS

JAZZ

C

3

4

SAME

1

A

4

4

SAME

2

ACURA PHARMACEUTICALS

ACUR

D

1

4

SAME

0

A

3

4

DOWN

2

CORIUM

CORI

A

7

8

DOWN

3

A

7

7

SAME

3

ELEVEN BIOTHERAPEUTICS

EBIO

C

5

7

SAME

1

C

6

6

SAME

2

HAEMONETICS

HAE

E

3

6

SAME

-2

C

6

6

SAME

0

INSMED

INSM

D

2

6

SAME

2

A

5

5

SAME

3

INTERCEPT PHARMACEUTICALS

ICPT

D

0

4

SAME

0

A

3

4

SAME

3

NOVADAQ TECHNOLOGIES

NVDQ

A

5

5

SAME

3

A

5

5

SAME

3

REDHILL BIOPHARMA

RDHL

D

2

3

SAME

2

D

2

3

SAME

2

SAGE THERAPEUTICS

SAGE

A

8

8

SAME

4

A

8

8

SAME

4

SYNERGY PHARMACEUTICALS

SGYP

B

6

6

SAME

2

C

4

4

SAME

1

THE SPECTRANETICS

SPNC

A

7

10

SAME

4

A

10

10

SAME

6

TONIX PHARMACEUTICALS

TNXP

C

3

4

SAME

1

C

3

4

SAME

1

XENOPORT

XNPT

B

8

12

SAME

5

B

12

12

UP

5

ZS PHARMA

ZSPH

B

4

4

SAME

3

D

2

4

SAME

2

REXAHN PHARMACEUTICALS

RNN

A

3

3

SAME

2

A

3

3

SAME

2

In conclusion, present results provide further evidence of outperformance of models based on Patent Dynamics/Patterns. A part from a few companies (NVDQ, RNN, XNPT and ZSPH), it is recommended to reduce weight or sell JAZZ, ACUR, CORI, EBIO, TNXP, HAE, INSM, ICPT, RDHL, SAGE, SGYP and SPNC. The importance of patent activity over time shall not be neglected by the investment professional. Further expert and/or financial analysis is recommended in order to fine-tune the selection process.

Note: Evidently, one should not expect that IP models will deliver 40% over 4 months on a constant basis. Average outperformance may be deduced from the real-track performance already provided. Some sectors like Healthcare generate better results as evidenced from backtestings.

Disclaimer: The information provided in this document is given for indicative purposes only. Innovalpha Sàrl. provides no assurance as to its completeness or accuracy nor the reasonableness of the conclusions based upon such information. This document is not intended to constitute an offer or solicitation for the purchase or sale of an investment program or of any one or more of the models mentioned in the document. There is no assurance that the models investment objectives will be achieved and investment results may vary significantly over time. Past performance should not be construed as a guide to future performance. The content of this document is subject to change without prior notification. All information and data presented in this document is for informational purpose only and should not be reproduced, distributed nor used without prior written authorization of Innovalpha Sàrl.

Disclosure: I am/we are long SAGE, RNN, SPNC.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.