Sunday, October 21, 2007

Vertex's sell off is a great buying opportunity

Vertex Pharmaceutical's stock (VRTX)dropped about $5 or 14% to $30 on the news release that Schering Plough's Protease inhibitor Boceprivir, which had performed poorly in previous trials, showed that about 79% of patients achieved early response. As soon as this news came out( with no trial result detail) , an analyst from Cowen and Co. downgraded Vertex due to concerns from competition.

First of all, the size of this market (up to $4 billion annual estimated sales) makes competition less of a factor. Second, being first to market increases the probability of success of any product but it does not guarantee it. Third, the details of the Schering trial will make us realize that Telaprevir is still argubly the best product with most clinical data. For example, in the Boceprivir trial, patients were primed with Peg-interferon and ribavirin before the start of triple drug therapy. Also, no long term sustainability of response rates are available beyond the original 12 week data mentioned in the abstract. Finally, the drop out rates due to side effects, the unknown methodology for calculation of percent responders as well the higher minimum detection limit of the PCR assay used to determine virus levels makes me question the strength of these results.

I still believe Telaprevir is the front runner to hit the market before any other new HCV medications and will capture a good percentage of the world wide market thanks to its partnership with J&J.

VRTX stock is a great buy at these levels as I believe a blockbuster product in a multi-billion dollar market should value the company between $6-10 billion market cap once Telaprevir is in Phase III. Days like these, I am glad that the efficient market theory, which is taught at every fiance school, is somewhat flawed for smaller companies and individual investors can take advantage of under-priced securities. As retail investors, we should recognize and plan for these events.

I had previously owned stocks and leaps in VRTX. Given this recent movement, I have added some medium term calls 2-6 months, to take advantage of a possible run after the earnings report and the release of more clinical trial results in November. However, given the difference of opinion by analysts and other shareholders who have sold their shares recently, I am holding on to some puts as a hedge.

Bottom Line: Buy VRTX at these levels and hold for a long term for a possible 2-5 times returns in the next few years.

Disclosure: The author owns shares and options in VRTX.

Tuesday, October 16, 2007

Take profits in Biogen-Idec (BIIB)

The rumors of a buy out sent Biogen-Idec (BIIB) shares up about $13 dollars to over $82 per share. I first recommended BIIB last year at $44.6 based on the potential success of Tysabri in treating MS (link to that article). As of today's price, the stock is up 84% and I am recommending to sell and to take any profits as I believe a buyout is far from certain and any changes to these speculations will send the stock back down to $70.

Buying at these levels is definitely not recommended since the price is way too expensive based on fundamentals.

Disclosure: The author does not have a position in BIIB at this time.

Friday, October 05, 2007

Genzyme (GENZ) stock breaks out on good news

Genzyme (GENZ) saw its shares break out last week from $62.5 to over $68 on higher than average volume. The weekly chart below demonstrates this movement and its significance as it broke a long term trend of lower highs that started in 2005.

This move was catalyzed by the October 4th vote by Bioenvision shareholders to decide the fate of the sale of the company to Genzyme.

In addition, on Friday, Genzyme announced approval of Elaprase, its enzyme replacement therapy to treat Hunter syndrome. The company is seeking approval in other countries as well.

I believe this latest strong should be considered a great buying opportunity. The stock has had a strong move this week and may move sideways for some time but the charts signal a break out and the stock should move towards new highs. I have previously mentioned the low historical valuation of GENZ which was trading at 15.9 times 2008 earnings (click here to see that article). I anticipate $80 price per share within 3-6 months.

Bottom line: Buy GENZ for the short and long term potential.

Disclosure: The author has a long position in this stock

Wednesday, October 03, 2007

Promising Future for Pharmasset's (VRUS) Hepatitis C Drug Candidate

Pharmasset (VRUS) is a clinical stage pharmaceutical company focused on developing antiviral medicines. Their research is focused on development of class of compounds known as nucleoside analogs. Nucleosides are the building blocks of DNA and RNA and used by virus proteins during replication and growth. The analog drug is a small chemical variation of the natural nucleoside which inhibits the activity of the enzyme leading to disruption in replication. This approach has the advantage of a high rate of success as the the natural nucleoside gives a great starting point for developing a drug in addition to a potentially low side effect profile and resistance to mutation. The disadvantages include limited potency and slow metabolism. Pharmasset has programs for treating Hepatitis B and HIV, but intrigues me the most is its Hepatitis C program. R7128 is a prodrug ( meaning it gets metabolized into the active drug after it enters the body) is an oral cytidine analog polymerase inhibitor of Hepatitis C virus. Last month, the company released positive preliminary of a phase I clinical trial which showed a 2.7 log reduction of viral load after 14 days in patients that have failed to respond to standard therapy. These results were strong enough for Pharmasset and its partner Roche to aggressively advance the product into further clinical trials to look into longer duration of therapy along with standard of care. There are other companies with polymerase inhibitors in the clinic for treatment of HCV including Gilead, Idenix and Viropharma. This class of drugs has shown to have toxicities in long term dosing. I believe HCV will eventually be treated with a combination of protease ( VRTX Telaprivir being the leading candidate), polymerase inhibitors as well as interferon with or without Ribavirin.

Another reason why I like this company is its small size. The company has a market cap of nearly 300 million and any good data will make the stock move significantly. The company has 65 million in cash and Roche as a big pharma partner to take on the clinical costs. The stock had its IPO in April and has had almost a 50% rise.

I would recommend VRUS only as a buy with a long-term outlook. It will be very volatile but with patience and luck this stock could have significant returns in a few years.

Disclosure: At this time the author does not have a position in VRUS. The author has a long position in VRTX.