Wednesday, August 27, 2008

Byetta may not be the cause of recent deaths, stock reaction unjustified

On Tuesday August 26, Amylin (AMLN) and its partner Eli Lilly (LLY) announced that four patients had died while on diabetes treatment Byetta.

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

Performance of Biotechnology Stock Blog Portfolio

Analyzing the performance of my previous picks is by far my favorite part of writing this blog. It has on many occasions allowed be to learn from my mistakes.

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.

Another more general mistake is the lack of trades during obvious times of bottoms and tops. The remedy for this problem would require me to take time from other activities but I will try to make time to be more diligent on this.

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

Panic selling in Biogen-Idec and Elan represent great buying opportunity

In July, Biogen-Idec and Elan, who co-market the multiple sclerosis drug Tysabri, announced two new cases of PML a potentially deadly side effect. The stocks sold-off almost entirely. Biogen-Idec lost about 30% of its market share while Elan has lost over two thirds of its value.

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.