Sunday, June 29, 2008

AMAG Pharmaceutical's Ferumoxytol meets Phase III clinical trial end point

On May 31st, AMAG Pharmaceutical announced results from a randomized phase III study of Ferumoxytol, an intravenous (IV) iron replacement therapy, in 31 patients with chronic kidney disease (CKD) stages 1-5 with functioning kidney transplants. The primary endpoint was the mean change in hemoglobin from baseline at Day 35.

The following results were obtained (copied from business wire press release at

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

Exanatide's convenience may not be enough in a tough Diabetes market place

Diabetes is a tough market to compete in for any company. Insulin is the standard therapy for most patients with severe Diabetes. It is a naturally occurring hormone and it exists as both short acting and long acting therapy. It requires close monitoring as it may have dangerous side effects. This is the hurdle that any product entering the market has to pass. The new product would have to be safer and more efficacious than insulin to get wide acceptance. One of the serious side effects of any potent therapy is the drop of blood sugar levels below safe levels or hypoglycemia. If a product is equally safe and efficacious, it will have a tough time beating Insulin unless it is more convenient. This is an over simplification of the many problems these patients face but it may be useful as a set of guiding principles when picking a stock.

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

Despite a slow start, strong fundamentals will supprt the Biotech Sector

Back in January, I wrote an article predicting a good year for the Biotechnology/Biopharma sector based on early performance vs. major indices. Here is a link to that article.

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.