Thursday, September 18, 2008
This has created a great buying opportunity in names such as Amgen (AMGN), Genentech (DNA), Genzyme (GENZ) and Celgene (CELG) to name a few.
Celgene recently reported great earnings report highlighted by a higher than expected sales from its Multiple Myeloma drug, Revlamid. Sales were up 80% from a year ago and translated to a very nice 26 cents per share earnings or double last year's numbers. This was slightly unexpected as analysts were widely expecting to see some signs of weakening of sales due to competition from Velcade from Takeda Pharmaceuticals ( acquired through purchase of Millenium Pharmaceuticals). The company also raised its full year guidance to $1.5 /share from $1.45.
More recently, Celgene announced that its Small Cell Lung Cancer drug, Amrubicin was given fast track status by the FDA. Amrubicin is being currently tested against GSK's Hycamtin in patients with refractory SCLC.
But, the news have not all been positive for Celgene. The FDA recently published a report that Revlimid may have an association with Stevens Johnson. Stevens Johnson has been on the label of Thalidomide as a potential issue and since the two drugs are of the same class, having that warning added to the label should not cause drop in sales specially considering that Multiple Myeloma is a deadly disease.
Celgene is trading at $64.3 with a market cap of about $29 Billion. It recently hit a high of $76 in August. The recent sell off due to the FDA warning and the financial crisis has created a great buying opportunity for a stock that can trade into the $80's next year.
Disclosure: The author has no positions in CELG stock or options.
Wednesday, August 27, 2008
Both Amylin (down 12%) and Lilly (down 1%) sold off in after hours following repeated headlines saying Byetta responsible for death.
The truth is no one knows what caused the death. The information released mentioned severe pancreatitis as a cause. Needless to say it is possible that pancreatitis, which happens with higher frequency on diabetic patients, was not caused by Byetta. Over a million patients have taken Byetta since it has been launched and the product has a good safety profile.
One patient was morbidly obese while other patients had major other complications such as surgeries.
I had previously recommended not to buy Amylin due to the lackluster uptake of Byetta and the inability of the management to manage expectations and earnings.
This is yet another case of a panic driven sell-off with incomplete set of facts. Once the dust clears, there is a very good chance that Byetta will be cleared.
I am recommending a short term long position in shares of Amylin (AMLN) which could be trading 10-20% higher in the weeks to come.
Disclosure: The author does not have any positions in AMLN of LLY.
Tuesday, August 12, 2008
I have moved the numbers to Google docs so that they are easier to read. Here is a link to that spreadsheet.
The bottom line return for this portfolio of picks is 14%. This is the average of all the picks assuming one would have invested equal amounts. This is not the greatest return over almost two years but here is how I plan to improve on that:
The biggest mistake I made in the past two years was not being in two "HOT" stocks , Celgene (CELG) and Alnylam(ALNY). My reasoning for Celgene was valuation, which was true for some time but I failed to realize the latest recovery to M&A activity.
ALNY was a tougher call to make as I was waiting to see more proof that their technology was going to work. Their recent successful partnerships have shown that other companies are interested in their antisense technology and the stock has seen a significant increase.
In the buy-high-sell-low category, Amylin (AMLN) was a big disappointment. I have learned my lesson about calling winner products before the game is over.
Finally, I have learned that small cap biotechs kill returns. Therefor, in real life, it is best to allocate a smaller investment size to small caps and pick more than one or two of them in case most fail to create any returns. My model portfolio gets hurt due to the equal weighting of all of the stocks.
For the remainder of the year, I am continuing to be bullish on biotechnology and pharmaceutical sectors. I am adding Alnylam (ALNY), Amgen (AMGN), Seattle Genetics (SGEN) and Rigel (RIGL) to my model portfolio and I will write more about them in the future.
Saturday, August 09, 2008
I had previously recommended shares of Biogen-Idec right after the buy-out rumors vanished and the stock was trading around 54. I had based that recommendation of the potential success of Tysabri.
In August, both biotech companies announced no plans to take Tysabri off the market and I don't anticipate that FDA will force them to do so. Tysabri was voluntarily taken off the market in 2006, when the first case of death from PML became public. This resulted in an investigation and a strong warning label in addition to physician training to look for signs of PML.
Today, more than 30,000 patients are being treated with Tysabri with no better options. This however may change in the future as other companies, including Genzyme have MS products in the pipeline.
Until then, both Elan and Biogen-Idec will continue to profit from Tysabri and their shares are undervalued at this time.
Disclosure: The author does not have any positions in either Biogen-Idec or Elan.
Tuesday, July 08, 2008
As the list below shows, both the BTK and NBI indices both had about a 3.8% increase in volume with convincing volume in the big biotech names. If a 3% down day is conisdered a crash, a 3.8% up day could qualify as an explosion! Some of these stocks went up even much higher thatn the average for the sector!
BTK, NBI, BBH, DNA, AMGN, GENZ, GILD, BIIB, AMLN, CEPH
In addition, there was quite a nice move in a lot of small and mid cap biotechs as well. The list below shows some of the names that I follow. I would be a little more careful about some of these smaller cap names as they could easily and quickly give back the gains they made today and more.
VRTX, HGSI, GNBT, IMCL, ALNY, PTIE, SGEN, VPHM, VRUS, RIGL.
Of course, one day does not make a trend. I am puzzled at the cause of this rather massive one day move in this sector. A short squeeze move is unlikely because the sector has not been down relative to other sectors. It is more likely that a sector rotation among big institutions has made investors realize the fundamental value that existed in the Biotech sector which I pointed out in my previous articles that can be found here.
Either way, this move could easily reverse itself unless we see more conviction via a sustained upward move over a longer period.
Bottom Line: Despite a potential profit taking sell-off in the next few days, this rally could have some potential to get the biotech sector to new highs.
Disclosure: The author has a long position in the biotech sector and therefor some of the stocks mentioned in this article.
Sunday, June 29, 2008
The following results were obtained (copied from business wire press release at Yahoo.com)
For the primary endpoint, the mean change in hemoglobin from baseline at Day 35, there was a statistically significant greater mean (± standard deviation) increase in hemoglobin in patients receiving ferumoxytol compared with patients receiving oral iron (ferumoxytol 1.45 ± 1.27 g/dl vs. oral iron -0.09 ± 1.47 g/dl, p=0.035). There was also a statistically significantly greater mean increase in hemoglobin from baseline at Day 21 in patients receiving ferumoxytol compared with patients receiving oral iron (ferumoxytol 1.04 ± 0.97 g/dl vs. oral iron 0.23 ± 0.52 g/dl; p=0.035). A higher proportion of ferumoxytol-treated patients compared with oral iron-treated patients achieved a 1.0 g/dL or greater rise in hemoglobin at Day 21 (47.8% vs. 12.5%; p=0.108) and Day 35 (60.9% vs. 25.0%; p=0.113).
These results may look good at first glance but there may be some analysts argue that the limited number of patients as well as lack of long term follow-up data and overall trial not representing actual clinical use patterns may cause FDA to ask for more data before approving the drug.
Nevertheless, the company has signed a development and commercialization agreement ganting 3Sbio the rights to the Chinese market for $1 Million upfront payment and double digit royalties, tiered up to 25%.
Interstingly, two analysts have "Buy" ratings and price targets of $99 and $80 on shares of AMAG. There is definitely a large world wide potential market for Ferumoxytol, however had the company designed the pivotal trial differently, it would have increased its chances of approval. Right now It is prudent to consider a higher chance for the FDA to ask for more data.
Financially, the company is in decent shape with over $200 million in cash. It is noteworthy to mention that the company has had significant losses in its auction rate security portfolio that may or may nto continue to hurt its liquid assets.
Shares of AMAG have been trading as low as $34.10 or a little over twice the amount of cash on hand.
Disclosure: The author has no positions in AMAG
Monday, June 23, 2008
In 2006 I suggested buying shares of Amylin Pharmaceuticals (AMLN) because I thought Byetta with its unique mechanism of action would result in a good alternative to insulin. Here is a link to that recommendation. The price then was around $40 a share. After three years on the market, the product has not helped the share price and the stock is trading today around $26. Some of this lack of performance could be the management's inability to turn a profit.
In June, Amylin announced widely anticipated results of its long acting version of Byetta called Exanatide. After one year of treatment, patients saw a significant drop in blood sugar levels and in weights. Analysts are applauding this result and despite heavy competition from Roche are recommending investing in Amylin at these levels.
When I began writing this article, I was tempted to recommend shares of Amylin at these levels based on the potential of Exanatide to be a multi billion dollar product. Also. the recent failures of inhaled version of insulin removed some potential competitive factors. However, given the risks of competition from other similar products and regulatory hurdles involved, I will hold off on recommending investing in AMLN unless it is done with speculative money. I have learned over the last few years that large institutional money flows into Biotechnology stocks only after uncertainties and risks are removed. Just because a stock is cheap does not mean it will move higher any time soon.
Another reason I am holding off on AMLN is the management factor. At some point, you just have to consider that great products are necessary but not sufficient in producing profits and therefore stock price gains. The promise of Byetta (whether imagined or real) never came to fruition. It is hard to identify the factor or factors that lead to these results, maybe the recommendations where made too early and could be filed under irrational exuberance. It is OK to try to hit home runs with stock picking if you realize that you will strike out a lot. Therefor, I recommend waiting until a winner emerges in this battle. By then, the results may be a single or a double but the higher probability of success would make it an investment grade decision instead of speculation,
Diabetes is a tough market!
Disclosure: Author does not have any long positions in AMLN.
Wednesday, June 11, 2008
Five months have passed since that post was published and I have written very few articles since. The markets have had a roller coaster ride. An ugly February-March period was rescued by Fed intervention and a short term rally that followed proved short lived.
But enough with pointing out the obvious. It took a lot of discipline not to trade the short lived rally and I hope those who bought this rally locked in their gains before the sell-off. Desite this correction, I do not see any reasons to jump into this market with both oil prices and unemployment increasing.
I still remain optimistic that Biotechnology and Pharmaceutical stocks will have good returns in 2008. The ASCO Cancer conference came and went with no major surprises. Both AMGN and DNA showed some good results. On valuation basis, I still Like GENZ as their diverse pipeline and solid track record puts fair value above $70. On the product side, I like VRTX's chances of turning Telepravir into a blockbuster drug in the near future. I expect Q2 earnings from most biotech companies to come in at or higher than expected due to solid sales and help from weak dollar.
My view is still very negative on the broader market. I expect the CPI numbers in July to be near or higher than 4%. With short term interest rates below 3%, it does not give investors any reasons to invest in US markets while they can get real returns in Europe where interest rates are higher than inflation. This lack of capital flow into US may partially explain the poor performance of the Biotech sector despite decent earnings. If the Fed starts to acknowledge the real inflation problem in US (which I believe started sometime around 2003 with real estate prices!) and raise the interest rates from their current "bank bail-out "levels, it should strengthen the dollar, stabilize commodities and restore investor confidence in US markets.
Again, it seems like I am just pointing out the obvious.
Bottom line: The biotechnology sector is fundamentally strong and may be temporarily under valued due to overall investor pessimism in US. The BBH is a great way to safely invest in the Biotech sector through an ETF.
Tuesday, April 01, 2008
The release of these results have prompted analysts who disliked the company and the stock last week to all of a sudden change their minds. I was surprised at the timing of this news as I was expecting some results released in second half of this year.
If you read through some of my past articles, you will find that I have violated almost every rule of investing when it comes to Vertex Pharmaceutical's stock (VRTX). In fact, I have even called my behavior stubborn, which always guarantees significant losses when trading or investing.
But my fascination has always been with Telaprevir not the stock or the company. I have always believed that this drug had the best potency, efficacy and side effect profile which would make it a standard therapy for Hepatitis C, a disease with poor standard of care therapy. I won't get into the biochemical details but this is not something easily reproducible by other pharmaceutical companies. This partially explains why other similar products have failed or have had major set backs in the clinic.
Some people have blamed the recent volatility in the stock price on the management over promising results. In fact there has been some class action law suits filed. I am not a legal expert but I doubt they will serve any purpose besides costing the tax payers some money and making some lawyers rich. The law suits will end up getting thrown out of court andI wish someday the laws will change to stop these ridiculous and destructive behaviour!
The stock may fluctuate 50-60% in a year but the story remains the same. Telaprevir is the first Hepatitis C Protease inhibitor in Phase III clinical trials. It is the only drug to show significant improvement to standard of care in both treatment naive and non-responding patients and it will be the first one on the market as early as late 2009 (maybe!). It has the potential to becoming a multi-billion dollar drug, and for that VRTX should be valued no less than 5 billion dollars or about 50% higher than current price of $25.4. I am basing this on other blockbuster phase III products such as Celgene's Revlimid.
Bottom line: Buy Vertex for the long term for a once in a lifetime return!
Disclosure: The author has a long position in this company.
Wednesday, March 26, 2008
These results should also pave the way for a potentially lucrative partnership for Arena. The product is at least two years away from the market but it has blockbuster written all over it. Given the current challenges of product development at big pharmaceutical companies, I believe finding a partner and good terms may be easy. There is also a good chance that the company may get bought out because its valuations make the purchase more appealing to a big pharma partner.
I had originally recommended this stock at $17.39 in 2006. I had assumed Lorcaserin, then in phase II, would have a quicker path to market. Today at $6.94, and with successful safety results, ARNA is a great value. I anticipate a deal announced sometime this year (I also said the same thing in 2006, so this advice may not be worth much!). However, I resisted recommending to average down on this stock until safety data was out. Now that a lot of the risk is out, I recommend to average down or open a new position at these levels.
But don't expect a quick return on this investment. The biotech index has been getting hammered recently. I don't think this is due to fundamentals of biotech stocks. In fact DNA, GENZ, BIIB and a host of other stocks have reported decent earnings reports and good guidance for 2008. My guess is that this is a byproduct of hedge fund managers chasing commodities such as oil, wheat and gold for a quick return and selling all other assets to raise cash for their gambles. These are the same guys who were betting on the real estate bubble and the dot.com bubble in the past. Do you see a trend yet? Once the commodity bubble bursts money should return to fundamentally sound sectors such as the biotech.
Disclosure: The author does not have a position in ARNA at the time of publication of this article.
Sunday, January 20, 2008
The table below includes a list of my historical picks.
ARNA and ALTU stand out as worst performing picks. Interestingly they are both small cap picks, so this drop is not so unexpected. I am removing ALTU from my picks due to current conflicts of interest. ARNA ( link to original post) has suffered because they have not announced a partner yet for its weight loss drug Lorcaserin. This is probably because the pharmaceutical industry thinks that weight loss drugs have litigation liability and are waiting for more safety data. I still believe Lorcaserin has a great chance to be successful because of its specific mechanism of action.
On the upside, Pharmasset (VRUS) has been a huge gainer. I did not expect it to do so well but their HepC trial drug is moving well in the clinic. Again, this is expected of small biotech companies.
In 2007 I stayed away from Onyx (ONXX) and Alnylam(ALNY). I missed an opportunity in ALNY which has had a good performance ($17-$30.5) while ONXX has been moving sideways ($52-$50).
I was first wrong about getting out of Celgene (CELG) at $51 based on valuations just watch the stock to go up to $70. However, poor european sales and a tactical purchase of its partner has brought the price down to a more reasonable price of $54. I like CELG at these levels but I believe 2008 will be a disappointing year for CELG stock as wall street will anticipate benefits from its buy-out and the level of competition for Revlimid.
I am putting Rigel Pharmaceuticals (RIGL), Advanced Magnetics (AMAG) and Regerneron (REGN) on my watch list and I will write about them shortly.
Finally, I have been a bit stubborn while holding on to Vertex (VRTX). I still believe Telaprivir is superior to other HepC products in the clinic and will be a blockbuster. I am recommending another long position here at $22 as I believe the start of phase III trials in first half of 2008 will drive the stock price much higher. Interestingly, Vertex has recently announced they will start clinical trials for a combination therapy with an existing investigational compound from another company. I speculate this will be Pharmasset's (VRUS) polymerase inhibitor as their mechanisms of action may have a synergistic effect in weakening Hepatitis C virus.
Disclosure: The author has long positions in some of the stocks mentioned above.
Tuesday, January 08, 2008
One source of domestic safe haven has always been health care. It is a well known recession proof play that has benefited from economic cycles. The Nasdaq Biotech Index is flat for the year, outpacing the Nasdaq, and may signal a good year for Pharmaceutical and Biotech names. I had posed a Poll question on this blog asking the readers opinion on this sector in 2008. Interestingly, the overwhelming majority said that 2008 would be a great year for pharma and biotech stocks (look in the side bar for the poll results). 92% of the 14 responders predict a greater than 10% return for the sector in 2008 ( I know the sample size is tiny!). One obvious risk to this theory becomes the 2008 elections and whether a president from the democratic party would push for lower drug prices which would hurt the bottom line for the industry.
The much publicized JP morgan health care conference has been a catalyst for a lot of stock movement in the past week. Merck (MCK) is up 3% , Eli Lilly (LLY) is up 5% and Glaxo Smith Kline (GSK) is up 6% for the year. These three stocks have momentum based on good product stories. Merck is continuing with its successful Gardasil for prevention of cervical cancer, Lilly just got approval for once a day Cialis for erectile dysfunction and GSK is set to report some better news for its diabetes treatment Avandia.
For Biotech names, my favorite name Genzyme (GENZ) had a solid 07 and just signed a deal to co-develop a cholesterol treatment with ISIS pharmaceuticals, Biogen-Idec (BIIB) increased its earning projections. Celgene (CELG) beat estimates and reiterated earnings in 2008.
Even Amgen (AMGN) and Genentech (DNA) are participating in a strong first week of 2008 while coming off of their multi-year lows.
This is the year that we may see the first Phase III clinical trial for a Hepatitis C protease inhibitor, Vertex's (VRTX) Telepravir. Others, such as Pharmasset (VRUS) and Intermune (ITMN) also have HCV products in the clinic which will make for an interesting race for this multi-billion dollar market.
A safe way to invest in the Biotech sector would be to buy Merrill Lynch's Biotech Holders ETF(BBH) which is trading at $160, the lowest level since 2005.
Bottom line: Positive headline news for the pharmaceutical industry will make it a great investment opportunity in 2008. Look for more deals including mergers and acquisitions and licensing to mark a good year for health care stocks in 2008.
Disclosure: The author has long option and stock positions in some of the above mentioned companies.