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WEEK ENDING DEC 22, 2006
I’ve cashed out for the year.
Watch AV for hot stuff…
Indevus Pharmaceuticals
(IDEV) just announced it was purchasing Valera Pharmaceuticals (VLRX). News of
the $120M acquisition sent IDEV down 7%, and pushed VLRX up 60%. VLRX is a much
smaller company, with a float of only 4.8M shares.
Indevus’
business model focuses on acquiring and marketing products from other companies, in particular urology products. In essence, this is the model Pfizer and other so-called big-pharma companies are adopting to an increasing
extent.
Indevus receives
royalties from Lilly for Sarafem, prescribed to treat symptoms associated with pre-mentrual syndrome, and copromotes (with
Espirit) Sanctura to treat overactive bladder. In addition, on December 13 they
filed a New Drug Application (NDA) for an extended release form of Sanctura. They
expect to file early in 2007 a NDA for Nebido to treat male hypogonadism, and have a Phase 2/3 study underway for an agent
to prevent STDs, including HIV.
Valera is working on a cool polymer based drug delivery system called
Hydron. Basically, Hydron is a flexible polymer that is implanted directly into
the body and allows the drug to diffuse out. In theory, it’s possible to
design such a device to continuously deliver a drug for years.
Valera also sells
Vantas, a 30 X 3.5 mm polymer cylinder that slowly leaches Histrelin acetate, a luteinizing hormone releasing hormone (LHRH),
as a treatment for prostrate cancer. The implant is put in non-surgically, and
can stay in for up to a year. In July 2006 they submitted a NDA for Supprelin
to treat precocious puberty based on the same technology. They also have clinical
programs underway to treat drug dependence. Like Indevus, Valera has sales but not profit.
Now, urology
doesn’t have the same cachet as does treating cancer or heart disease, but it is medically important. While this may not afford them as much visibility as the Amgen’s of the world, I really like Valera’s
drug delivery technology, and think both Valera’s and Indevus’ earnings are set to grow over the next couple of
years as more products come online.
On a portfolio
note, I’m still holding companies as last mentioned two weeks ago except NPSP.
NPSP has now gone down 13% so I sold and took the loss. I picked up AMLN
Jan 08 40 calls (@$6.80) as I think this stock has gone down too far.
WEEK END DEC 15, 2006
The King of Biotech, Andrew Vaino, is the one to draw for stock picking
inspiration these days in this newsletter. I’m just sitting in cash until
the New Year, partly because I’m bearish but partly because most of my time is now spent marketing my China
book so I don’t have the proper time to devote to my portfolio. When you
are in such circumstances, don’t be afraid to move to cash.
Vaino’s Biotech Corner: Hedge
for Halozyme
There’s
pretty much no way I can top the performance of my pick Halozyme (HTI, up > 130% since first mention) last week, so I’ll
just mention that I think the same magnitude jump will occur with Novadel (NVD, up ~30% since mention) within a year.
Anika
Therapeutics (ANIK) is a company that sells the biopolymer hyaluronic acid. In
some ways, it could be considered the opposite of Halozyme---whose main focus is enzymes to degrade hyaluronic acid. If the idea of hedging existed in chemistry, this would be it. Anika recently took a 25% flyer on news their application to sell a “treatment” for wrinkles
had been given conditional approval by the FDA. Anika expects to have the product
on the market by mid-2007. The product is pretty cool. It’s an injectable form of hyaluronic acid that essentially fills in the tissue underneath the wrinkle
leading to a smoother appearance.
Now,
this isn’t a Dexy’s Midnight Runners type of company, though I’m
certain Dexy’s is set for a new hit any day now. Anika sells a variety of other forms of hyaluronic acid, for example, Othovisc for treatment of knee pain
in osteoarthritis patients, and Hyvisc for treatment of joint dysfunction. They
also sell ophthalmic products based on hyaluronic acid. Sales for these products
aren’t stellar, but the company is profitable.
In
a demographically aging society that worships youth, being able to actually “treat” wrinkles is a fantastic market. Once Anika starts selling their “wrinkle cure”, earnings, the stock price,
will jump. Other possible applications include enhancing lip size.
One
of the major competitors of Anika’s product will be botox. Recall, there
were some recent toxicity problems in certain Botox products: it’s worth
bearing in mind that the “tox” of botox stands for “toxin”.
Chemically, hyaluronic acid is a carbohydrate polymer. That is, it’s
(literally!) sugar. I believe most people would rather inject sugar to get rid
of their wrinkles than, well…poison!
Now,
the day of the conditional approval announcement (November 28th) the stock jumped from $11.62 to above $15. The stock is now trading at just under $13. Technical traders won’t like this
stock at all. Right now the stock is stochastically oversold. Short term MACD is bullish, and a couple of days of price increase will turn long term MACD bullish. To be fair, neither, MFI, OBV, or RSI look appealing right now, and, given the disparity
in the volume on the stock’s rise compared to its recent decline, there will be substantial resistance around $14.50--15;
this still leaves some comfortable profit, however.
So,
while I don’t think ANIK is necessarily a great buy right now, I would definitely keep an eye on the chart.
Week Ending Dec. 8
As noted last week, cash is king for the risk averse. If you want to try to pick a top, short the Spiders (SPY). As
likewise noted last week, follow Andrew Vaino for specific biotech stock picks at this point.
He’s knocking the cover off the ball and biotech is a good space to be in at this juncture in that it is less
susceptible to the business cycle.
Vaino’s Biotech Corner: Test
Day
I’ve been
writing about biotech stocks since March. So, given I just gave a test to evaluate
the performance of my sophomore organic chemistry students, I thought this might be an opportune time to look back on how
these stock picks performed. Note, this is in no way procrastinating from marking
90 plus exams.
In retrospect
I see that a major shortcoming has been not mentioning when I felt stocks should be sold.
I’m certain everyone reading this Newsletter recognizes that selling is as important as buying in making money
from stocks.
In all I’ve
recommended about 40 stocks. In a couple of cases I’ve suggested stocks
more than once. For example, Diversa (DVSA) has been a very nice stock, opening
at $8.55 the Monday after I recommended it, and going as high as $11.60 two months later.
I recommended DVSA again at $9.11 the week of August 20th, and DVSA is now nicely above $11. To be fair, the stock dipped as low as $6.50 in September.
Some of my initial
picks didn’t perform too well. In fact, of the first six stocks I recommended
(ELN, TRCA, INSM, VRX, DVSA, and SPEX) four lost money within the next two weeks, two of them more than 10%! I’m not one to keep poorly performing stocks around. I
think IBD’s advice about selling stocks after a loss of 8% is a pretty good suggestion.
Finally, beginning
in July things started to look good. I’m sure some of this is luck and
some of this is my having learned a bit about more technical analysis. Of the 15 stocks I’ve recommended in the newsletter
since the first week of July (pick was CRME, up 60% two months after my recommendation) all but four are in the black (I’ve
dumped EXEL, now down 16%, but am holding my short position on ENCY, off 3%, my short on IMCL, and will keep NPSP a bit longer,
even though it’s down almost 10%).
Of the remaining
eleven picks (note, conditional picks or picks involving options were disregarded) three afforded profits of greater than
50% (CRME, INSM, and AVNR short), three afforded profits of greater than 25% (MBRX short, SRA, and NVD), and five (AXCA, DVSA,
HTI, HEPH short, and CRDN) provided profits of greater than 10%. Average return
for these positions since July is 19%. If any hedge funds are looking for a biotech
analyst, please contact me. Now that’s pretty shameless!
My short positions
in MBRX, AVNR, and HEPH have all been covered. I have also taken profits from
AXCA, CRDN, CRME, DVSA, and SRA. I’m holding my IMCL short (@ $28.38, but
may reconsider if the stock doesn’t begin to drop soon) and my ENCY short (though this will be gone one way or the other
next week). On the long side I’m holding INSM (I have a stop order in at
$1.50), NVD, HTI, NPSP (for now), and ELN.
In the next week
I’ll be looking at two of my favorite stocks, Amylin (AMLN) and Celgene (CELG).
Amylin’s been taking a beating lately but the fundamental value of their diabetes treatment, I believe, will
see it turn around soon. Celgene has been flying like Icarus, but, I think, the
stock may just have gotten too high, and may consider a short position in CELG (note, this will be Market dependent). Don’t get me wrong, I think Celgene is a fantastic company, but they’re
really going to have to keep posting some unbelievable numbers to justify a P/E ratio of 400, P/S of 25, and P/B of 23—Benjamin
Graham would be apoplectic!
WEEK ENDING DEC 1
Cash is king for the risk averse.
If you want to try to pick a top, short the Spiders (SPY). Follow Andrew
Vaino for specific stock picks at this point. He’s knocking the cover off
the ball and biotech is a good space to be in at this juncture in that it is less susceptible to the business cycle.
Vaino’s Biotech Corner: Does
Momenta Have Momentum?
NPS Pharmaceuticals
(NPSP), which was trading as high as $15 earlier this year, has taken two major hits recently.
In March the stock dropped a third when they announced a delay in getting their Preos osteoporosis drug on the market.
The stock then dropped by almost a half, to $5, in May when they announced that
the FDA had recommended a new clinical trial. They have submitted to the FDA
a clinical protocol for a 12 month NDA enabling study to meet this requirement.
Now, a new clinical
trial is a major setback, but I don’t think it’s anywhere near a death knell.
The company’s net current assets will see it through a couple of years.
It is worth noting that Preos was approved for sale in Europe in April. With an aging population,
demand for osteoporosis drugs is only going to increase.
In addition to
Preos, NPS licensed Cinacelcet HCl from Amgen. This drug is marketed in Europe and the US for hyperparathyroidism in patients requiring dialysis, and for patients with
parathyroid carcinoma. While revenue from Cinacelet isn’t great, it does
demonstrate they know how to sell drugs.
NPS also has
a Phase 3 study underway on Teduglutide, a treatment for patients with short bowel syndrome (the drug acts to make absorption
through the smaller length of intestine more effective). Results of this study
could be available early next year. This drug has also shown potential in Crohn’s
disease, and a Phase 2a study in support of this has been completed. If NPS is
able to gain marketing approval for Teduglutide there will be nothing to prevent physicians from prescribing it to patients
with Crohn’s disease. While this “off-label” prescribing is
not encouraged (and companies can’t market the drug for off-label use) it does occur frequently.
NPS has been
dealt a couple of setbacks. There will always be uncertainty in any clinical
trial. My take is a stock trading in the $5 range, with two late stage clinical candidates and an enterprise value $200M more
than its market cap seems like a pretty good deal.
WEEK ENDING NOV. 24, 2006
In this space, I’m reprising an entry by Andrew Vaino in the Daily blog that needs some highlighting. His INSM bet seems to be an interesting one.
“I wrote a few months ago about Insmed
(INSM) and Tercica (TRCA), each of whom has a drug to treat children with growth hormone deficiency who don't respond to administration
of human growth hormone. As I mentioned, this is a small market (~6,000 cases in US), but both are small companies.
Tercica sued Insmed for patent infringement.
The case is underway and is scheduled to wrap up on November 27th. The winning stock is certain to get a big boost.
I read some of the motions filed by both sides, and think Insmed has a pretty good chance of winning. Of course, my
legal knowledge doesn't extend past reruns of "LA Law" and this is a complex case. I think the jury will have a difficult
time deciding the verdict.
The Markets, at least, seem to be favoring Insmed.
INSM is showing strong technical signs while TRCA's technicals look bad---the case has been ongoing since November 6th.
So, if Markets are truly efficient (i.e. all information is known) then INSM should win. I'll leave quotes about "knowns"
and "unknowns" to Donald Rumsfeld. We should know the verdict in a couple of weeks.
In a worst case I think even a complete
loss for Insmed will just result in them paying royalties to Tercica, and Insmed definitely has the better product.
While this is speculative, I think INSM trading near $1.40 looks pretty good right now.”
Vaino’s Biotech Corner: Does
Momenta Have Momentum?
I like technical
stock analysis, I really do. I spend money every month subscribing to a website
that provides, what I think is, excellent advice on technical analysis. I’ve
been pretty happy with it, all in all. But, just as I mistrust theoretical calculations
in chemistry in the absence of experimental data I also mistrust technical analysis of stocks in the absence of fundamental
value.
Case in point. Yesterday the technical stock service to which I subscribe suggested that, technically,
Momenta Pharmaceuticals (MNTA) was a buy. This particular stock seems to have
the technical analysts bedeviled. To wit, on October 3rd the stock,
trading at $13.05, was downgraded to neutral from long. After climbing to $14.30
on October 5th it was downgraded all the way to avoid and promptly continued rising to $15.56 on October 19th
when it was upgraded to neutral from avoid. With this upgrade the stock then
fell back down to $13.59 on November 3rd before starting to move up again.
It closed at $16.47 yesterday and has been upgraded to long.
Momenta’s
financials look pretty good. Current assets have been increasing steadily for
the past few quarters, and they are as secure as any biotech company. They recently
signed a major collaboration with Novartis (NVS) that gave the stock a spike.
I think Novartis
has some great scientists working for them (in case my buddy Andreas is reading), but I’m not so sure about their acumen
at making deals with biotech companies. Idenix (IDIX) was purchased by Novartis
and was working on developing hepatitis drugs. Their stock plummeted 60% in March
after a clinical failure. Novartis also signed a deal with Anadys (ANDS), also
for hepatitis. Anadys plunged 70% in June of this year on a clinical failure.
After Novartis inked a deal with SGX Pharmaceuticals (SGXP) to develop some kinase inhibitors the stock fell 60%, again on
a clinical failure.
To be clear,
Momenta is a different company. Their technology involves identification of sugars
in complex carbohydrate drugs. Their most advanced drug candidate is M-Enoxaparin,
a generic version of the anticoagulant heparin derivative Lovenox. Using their
technology Momenta was able to identify the structure and produce a generic version of Lovenox.
Momenta has filed
an Abbreviated New Drug Application, where an ANDA is equivalent to a NDA for a new drug with the FDA. If the application is accepted they will be able to sell the drug.
Trouble here is it’s a generic. Now annual sales for Lovenox are close to $3B, which is appealing. But, as a generic competitive, threats are almost assured. An
inviting aspect of pharmaceutical research is the patent protection that provides twenty years of monopoly. This doesn’t exist in the generic market. Viropharm
(VPHM) found that out earlier this year when their stock plummeted on rumor another
company was going to introduce a generic version of their drug Vancocin.
But it gets worse. Not only is their sole near-term product likely to be subject to competition (they
just started a Phase 1 clinical trial on another drug), but there is some uncertainty as to whether they will have the right
to sell it at all. Rights to low molecular weight heparin are the subject of
a patent dispute between Sanofi-Aventis and both Amphastar Pharmaceuticals and Teva Pharmaceuticals, both of whom have submitted
ANDAs on similar generics. In June 2005 a District Court ruled that Sanofi-Aventis’
patent was unenforceable. An appeal is set to begin in December. If the Appeal Court overturns the district courts ruling, commercialization of M-Enoxaparin
would be further delayed even with FDA approval. Given that the basis for the
ANDA is cutting edge technology this could present difficulties with an organization as conservative as the FDA. Worse yet for Momenta, it means there are other generic drug makers out there with whom they will likely
have to compete. Competition is great for a lot of things, but a profit margin
is not one of them.
I think the science
behind Momenta is excellent, and carbohydrates will be the drugs of the future. But,
aside from a single generic drug, whose prospects are far from certain, I don’t see any possibility of a product for
years. Once the market stops booming, I think this will be a good short candidate
I like cash again this week. Short sellers
will be trying to time the top. As last week demonstrated, that’s always
a risky business…
Vaino’s Biotech Corner: Breathing
in the Relief
Novadel Pharma
(NVD) got some good news on November 3rd when the FDA approved their version of inhaled nitroglycerine (Nitromist)
to treat angina. Rights to this product have been licensed to Par Pharmaceuticals
(PRX). Novadel will receive a milestone payment as well as royalties.
Novadel’s
business model is to apply their inhalation technology to deliver existing drugs. The
two main benefits of inhaled drug delivery are avoiding the metabolic destruction of the digestive system and faster absorption
into the body. That is, an inhaled drug starts to work faster than a pill.
Novadel’s
pipeline is surprisingly robust, particularly for a company whose stock trades at less than half the price of a Big Mac and
has a market cap of only $65M. In addition to the recently approved Nitromist,
they have submitted a New Drug Application (NDA) to the FDA for an inhaled version of Glaxo’s anti-nausea drug Zofran. Also, they are on track to submit NDAs in 2007 for inhaled versions of the popular
sleeping pill Ambien and of migraine treatment Imitrex.
Novadel has already
licensed rights to inhaled Zofran to Hana Biosciences (HNAB) and will receive royalties if the drug is approved. While licensing to other companies means they share revenue, it also gives them a ready-made sales force. This is critical for such a tiny company, with fewer than 25 employees.
The Market either
didn’t notice or was little impressed by Nitromist’s approval. To
be clear, Novadel is a penny stock. It trades a bit over $1.25 with average
daily volume just over 100,000.
Nitromist is
bound to be substantially more expensive than nitroglycerine tablets, so it’s hard to say if sales will be substantial. I think the important point is that Nitromist’s approval bodes well for the
rest of their pipeline in that it proves they can get their technology (and they’re
not selling new drugs, they are selling a technology) through the FDA.
In particular,
I really like the inhaled form of Zofran. Glaxo reported 2005 sales for Zofran
of about $1.6 billion. Now, as I see it, one of the problems with administration
of Zofran is that it’s done orally. Think about it: A patient is having
difficulty keeping anything in their stomach and you want to treat them by putting a drug in said organ? I’m not a real doctor, but that just doesn’t make sense to me.
The inhaled form not only gets the nausea medication into the body faster, but it doesn’t further upset the stomach. That’s just smart. Getting relief
faster from migraine headaches (which often cause nausea as well) and falling asleep faster also sound like good ideas.
Penny stocks
are always risky but the more I learn about
NVD, the more shares I’m buying. It is illiquid and may be subject to drastic
price swings. While FDA approval of inhaled Zofran is not assured, I think their recent approval for Nitromist strongly improves
the odds. If they can get the second approval next year and file another NDA
this stock could easily be trading above $10 in a year or two.
Week Ending Nov. 10
I like cash again this week. Short sellers
will be trying to time the top – always a risky business…
Vaino’s Biotech Corner: Pardon Me While I Change My Mind
A couple of times
in the past few months I’ve been asked about Dendreon Pharmaceuticals (DNDN).
Each time I’ve demurred from suggesting it was a good investment. Over
the past month, the stock has taken a nice jump from $4.40 to as high as $5.50.
Dendreon recently
completed a Phase 3 study on Sipuleucel-T, a treatment for hormone refractory prostate cancer (HRPC). HRPC is prostate cancer than doesn’t respond to standard therapy.
The drug works by enhancing the immune system. Currently, Taxotere is
the only approved treatment for HRPC. Dendreon’s drug gives rise to fewer
side effects that does Taxotere.
I initially didn’t
like Dendreon based on results of a Phase 3 study published in The Journal of Clinical
Oncology in July. In the Phase 3 study, the difference in time to progression
of the disease was statistically the same as a placebo.
Now, any biotech
stock trading at less that $10 is risky, and this is no exception. I was
not overly impressed that the Phase 3 study missed its endpoint, and I’m also a bit concerned with the status of Dendreon’s
FDA filing, in this case a biologics license application (BLA, similar to a NDA except for biologics). According to an August press release, only two of three parts of the BLA have been submitted. They haven’t yet submitted the chemistry and manufacturing controls (CMC) part. The CMC section deals with assuring the FDA that they can safely and reproducibly manufacture the drug. Discovery Labs (DSCO) got into some trouble a few months ago due to CMC issues.
The stock’s
technicals are now strong, so maybe this is worth a second thought. While the
Phase 3 study did not meet its clinical endpoint, it did increase survival. Patients
on their drug lived, a statistically significant 20% longer (3-5 months) than those receiving the placebo. While this doesn’t sound like a long time, given the alternative it’s—quite literally—a
lifetime.
Dendreon’s
balance sheet is strong enough to see them through at least the next year and a half.
My take is this stock will jump ten to twenty percent when they submit the last third of their BLA. What the FDA does, however, is a tough call. Treatment options
for HRPC are limited, and this drug does extend life. My guess is either the
drug will be approved or they will get an approvable letter.
WEEK ENDING NOV 3
I don’t see this next week as a good week for entry into stocks on the long side. Let me simply note that there is an inordinate amount of oil and energy stocks that
have firmed up technically in the last week or so.
Vaino’s Biotech Corner: A Break From Organic Chemistry!
Medicinal chemistry (on which the Biotech/Pharma
industries are based) is just a subset of organic chemistry. Organic chemicals
are derived from living organisms. One of my pet peeves is the misuse of the term
“organic food”. ALL food, except for salt and water, is organic.
So, needing a break from marking dozens of
sophomore organic chemistry midterms, I thought I would write about a company based on inorganic
chemistry. Ceradyne (CRDN) sells composite materials for an array of applications.
Ceradyne’s best-known product is bulletproof
armor made of boron carbides. This material is the lightest, strongest material
known, and, as CEO Joel Moskovitz is fond of saying: “it stops bullets too”. Ceradyne
also sell ceramics for industrial, dental, and automotive applications. Last year 66% of their revenue was from the sale of
armor.
But Ceradyne has another product I think will
be even bigger. One of the cool properties of boron is it stops neutrons too! Nuclear waste is radioactive due to decomposition of uranium into other transuranic
elements, a process which emits a neutron, or a beta particle. In this country
20% of electricity is generated by nuclear power each year. A total of 50,000
tons of nuclear waste are being stored in temporary facilities across the US in anticipation of the US Department of Energy opening a permanent
facility at Yukka Mountain in Nevada in 2017.
Ceradyne announced in June that they were
collaborating with Alcan to build a facility to manufacture a boron carbide aluminum metal matrix composite for nuclear storage. The plant will be located in Quebec
to take advantage of cheap electricity. Last month they announced they had received
their first order for this, and expect to ship in Q2 of 2007. My take is this
will be even bigger that their body armor.
While simply storing nuclear waste isn’t
an ideal solution, storing it in armor that also absorbs neutrons is pretty smart. Ceradyne
has already demonstrated an ability to obtain government contracts, so dealing with DOE shouldn’t present a problem.
Now, Ceradyne has had some “issues”
with option backdating. With this sort of accounting tomfoolery is not meritorious,
it’s also, unfortunately, not uncommon. Ceradyne announced on Oct 23rd
they had completed their backdating investigation and, with the appropriate mea culpas,
filed their Q2 10-Q to become compliant with NASDAQ regulations.
I think is this is a good company whose stock
has taken a hit, and is now set for growth. Once the true potential for their
nuclear fuels protection system is realized the stock will skyrocket.
Ceradyne’s quarter over quarter profit
has been increasing for the past six quarters. They will announce Q3 earnings
on November 1.
WEEK ENDING OCT. 27, 2006
Here’s a penny pick for the week: the Zix Corporation (ZIXI). It’s half as cheap as two buck chuck. It “provides e-communication services that protect, manage, and deliver sensitive information to enterprises and consumers
in healthcare, finance, insurance, and government industries in the United States.” Technicals are strong and the float is pretty good.
Vaino’s Biotech Corner: Vical and a Cardiome Update
My focus this
week is on a company called Vical (VICL). It has developed a very interesting
way to deliver DNA into muscle tissue. Their focus is on so-called DNA vaccines.
A vaccine acts
by exposing the immune system to low levels of pathogens, to which are generated antibodies that remove the interloper. Even after all the protein is gone, the antibodies persist, sometimes for decades. This means that subsequent exposure to the pathogen will be harmless (or less harmful)
as antibodies are already present to remove it.
In DNA vaccine
therapy, a modified form of pathogenic DNA is injected, typically into muscle tissue, where it begins forming the pathogen’s
proteins in small doses. The immune system does the same job of creating antibodies
against the pathogenic proteins. A particular advantage of DNA vaccines is they
are much cheaper to produce, are easier to store, and may last longer.
Two weeks ago
Pfizer announced it had agreed to purchase PowderMed, a private company, for an undisclosed sum. PowderMed has figured out a way to deliver DNA by precipitating it onto gold particles and, literally,
blasting it through the skin. It’s pretty cool. It’s also broadly similar to what Vical does.
Vical has a pretty
decent pipeline of clinical trials. Its most advanced product is a Phase 3 study
on a DNA construct (not strictly a vaccine, but same idea) to generate angiogenic growth factors that should have application
in the treatment of arterial disease. In addition, they have three other Phase
2 studies and nine Phase 1 studies underway. This is a less than mature pipeline,
but the stock is trading in the low single digit range.
Vical announced
on Friday (October 20) that it had demonstrated the efficacy of a DNA vaccine to treat avian flu in ferrets. This prompted a lemming-like surge of buying that pushed the stock price up as high as 22%: the price retraced, but still closed up almost 10% on the day.
I’m not
usually overly impressed with preclinical studies, but this caught my eye—and it’s not that I’m a big rodent
fan. I like the simplicity of the technology, and I like the breadth of Vical’s
pipeline. To be fair, revenue from any of Vical’s products is years away, but my guess is they’ll be able to generate
enough interest that they’ll be bought out or will enter into a substantial partnership within the next year.
While the company
is risky, I do think Vical’s drugs show promise. The share price will wind back down in the next week or so, and when
it gets back to $5.50 I think it will be a good buy.
Canadian Cardiome Carries On
I mentioned Cardiome Pharma (CRME) in celebration of Canada Day in July. The
stock took a nicer flyer after that, jumping from the high $8s to just above $14 in early September. The stock had tanked due to the FDA rejecting their NDA filing for an IV form of their drug RSD1235, which
treats atrial fibrillation. A paper in 2004 published
in the Journal of the American College of Cardiology on a Phase 2 study on this drug was very encouraging. The rejection had nothing to do with the science but merely
with careless paperwork. While this is a stupid mistake, it’s easier to
fix than a drug that doesn’t work.
Cardiome announced positive Phase 2a data for an orally available form of RSD1235 on September
13th. The markets response after “buying the rumor” was
to “sell the story” and the stock dropped almost 25%. The stock is
also off a bit more on announcement of a shelf-registration to sell up to $150M of stock.
My take is this makes for a good entry point. This stock will get a bump
when they refile the NDA for IV RSD1235, and when they initiate a larger Phase 2b study for oral RSD1235. I think this is
a good buy, eh.
Week Ending October 20, 2006
Navarro’s Portfolio Shorts and Longs
I continue to keep my eye on one of Andrew
Vaino’s original picks, Diversa, the biofuels play. DVSA has made a strong
comeback from the sixes and is approaching $10. My sense is that this could
be a stock that once it breaks the $10 barrier might have a pretty good run. The
big caution would be a collapse in oil prices. Otherwise Bon chance!
Vaino’s Biotech Corner: It’s
All About the Pipeline
Look at the performance
of the biotech exchange traded fund BBH – its underperforming the S&P by about 10% in the past year – and
you might wonder if investing in biotech is even worth it. Fortunately, the past
few weeks have demonstrated why investing in biotech can be exciting. On September
25th Acorda Therapeutics (ACOR) announced positive results of a Phase 3 study, one of two studies the company is
completing in advance of filing a new drug application on an multiple sclerosis drug called Fampridine-SR. The stock closed at $2.22
on September 22nd, and was trading as high as $17.50 on October 13th.
Not bad.
In a similar vein, New
River Pharmaceuticals (NRPH) closed at $26.21 on October 6 and closed just under $46 on October 13th, also an OK
return. In this case the jump was on the announcement that the FDA had granted
conditional approval for a drug to treat ADHD.
Now, to be fair, there
have been some pretty good free falls the other way in the past few months: Neurocrine
(NBIX) went from a high of $63 in mid-April to as low as $9 and Anadys (ANDS)
dropped from over $16 in April to the $3 mark. Of course, these would have been
good short plays.
The trick to
biotech investing is finding companies with good pipelines. There, that should clear things up!
More broadly,
there will always be a substantial element of risk in biotech investing. Clinical
trials can be difficult to predict, making stock prices volatile. I usually prefer
investing in companies with the bulk of their pipeline in Phase 3, but sometimes there are companies with good pipelines that
are mostly Phase 2 candidates. I think Exelixis (EXEL) is one of those companies.
Exelixis is a
San Francisco-based biotech that has amassed a pretty good pipeline. The stock
took a, predictable, beating over the summer as they announced a follow-on offering of stock.
While they have a Phase 3 clinical trial underway, on a drug to treat bile duct tumors, I think their most exciting
product is XL999. XL999 works by inhibiting kinase enzymes: it’s mode of
action is similar to Novartis’ successful Gleevec. The past few years inhibiting
kinases has been all the rage, similar to the situation a decade ago when everyone was inhibiting proteases.
Results of a
Phase 1 study, presented at a November 2005 conference of the American Association for Cancer Research were very encouraging. Currently XL999 is being evaluated in six different Phase 2 studies to treat colon, ovarian, non-small cell lung cancers, renal cell carcinoma, AML, and multiple myeloma. In addition to the clinical studies for XL999, Exelixis also has Phase 2 clinical
trials underway with other, similar, molecules to treat diabetic kidney disease and papillary renal cell carcinoma. They also have three Phase 1 studies underway.
Exelixis is technically
strong, though the stock is stochasitically (and by MFI) overbought. Positive
results on just one of the Phase 2 studies will give the stock a nice boost.
Week Ending October 14, 2006
My stock of the week is FortuNet (FNET).
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