Post by miamianne67 on Mar 25, 2017 11:53:34 GMT
Marketplace Roundtable: Biotech Hanging In The Balance
Mar. 25, 2017 7:30 AM ET| About: iShares Nasdaq Biotechnology ETF (IBB), GILD, Includes: ACAD, AGN, ALXN, AZN, BBC, BBH, BBP, BMRN, DVAX, EDIT, ENDP, EXAS, EXEL, FBT, FOLD, HQL, INCY, KITE, LABD, LABS, LABU, NTLA, PBE, SGYP, TEVA, TGTX, UBIO, VRTX, VRX, VYGR, XBI, ZBIO
SA Marketplace
SA Marketplace
Newsletter provider
PREMIUMThe Biotech Forum
(1,218 followers)
Summary
As Capitol Hill swirls around the possibility of a new healthcare bill, biotech investors would do well to keep an eye on developments.
But there are other areas of the industry to focus on, whether M&A activity, oncology progress, CRISPR innovations, or plain old mean reversion.
Our panel also weighs in on the story du jour in biotech, Gilead Sciences. Frustration may be setting in, but is value still there?
We write this introduction early Friday, with the fate of the U.S. House of Representatives vote on the American Health Care Act (AHCA) yet to be determined. While any prediction we utter to the result will look stupid soon enough, we can say that this is surely not going to be the end of political discussions that affect the biotech space. Between the continuation of this legislative process, continued concerns over high drug prices, and more general effects like tax reform, it seems fair to say that biotech will continue to stay in the news.
With that in mind, we convened another biotech roundtable. Five Marketplace authors focusing on the sector shared their thoughts on the regulatory environment, the industry itself, and what they're watching for in the next few months. And since Gilead Sciences (GILD) has surpassed Valeant Pharmaceuticals (VRX) as the story in the sector, we asked about that as well.
Our panel:
Bret Jensen, author of The Biotech Forum
Bhavneesh Sharma, author of Vasuda Healthcare Analytics
Oneil Trader, author of Growth Stock Forum
Chris Lau, author of Value Stocks for DIY Investors
Slingshot Insights, author of Become the Smart Money
Seeking Alpha: We've had a few government level developments this year that could affect biotech: The House's mooted bill for healthcare reform, President Trump's talk about high drug prices, the appointment of a new FDA head. Does anything stand out for you as far as the current climate for the sector?
Bret Jensen, author of The Biotech Forum: Repeal & Replace of the Affordable Care Act is the critical item not only for the sector but the market. The new policies will not impact the pharma & biotech industries to much extent even as they will have significant impacts on hospital groups and healthcare insurers. However, if the repeal effort gets derailed, then the major efforts scheduled behind it, primarily tax & regulatory have much lower chances of being enacted. The hopes for these reforms have been a major driver since the election of not only the rally in the biotech sector but the overall market.
Bhavneesh Sharma, MBA, author of Vasuda Healthcare Analytics: The most serious risk to the US biotech/pharma sector is President Trump's renewed attack on drug prices. In fact, the large pullback in the sector on Tuesday appeared related to President Trump's renewed attack on drug prices at a rally on Monday and intention to introduce drug pricing legislation in the proposed healthcare reform bill.
On the other hand, Thursday's pullback was due and, long term, I think that Trump's Presidency will be bullish for the US stock market and the US healthcare sector. The appointment of a new FDA commissioner who wants to expedite the drug approval process is bullish. We may see a pullback this spring and summer but the corporate tax reforms are expected to provide big pharma with enough cash for small cap acquisitions.
Oneil Trader, author of Growth Stock Forum: Just as I thought that the political rhetoric may have reached a point of saturation, the biotech stocks plunged this week, though the general market was down sharply as well. Biotech investors need to learn to deal with this, but as I said before, I doubt there will be significant changes. I believe that innovative companies with differentiated products will do fine and retain their pricing power while I see the generic industry as the most threatened with potential changes – Medicare bidding, faster approval times.
And faster approval times by themselves should bring significantly increased competition for generics, while not as much for branded products, as it will still take time to conduct trials and prove that the drug is safe and effective. I don’t see the potential legislative changes as having a profoundly negative impact on the industry or hurting the long-term prospects of innovative biotech companies.
Chris Lau, author of Value Stocks For DIY Investors: The political risks for the biotech sector cannot be ignored. It is the single biggest factor that may keep the biotech sector, especially generic drug suppliers, from moving higher. Endo International (ENDP) is covered for my subscribers. Teva International (TEVA) is about to give up its recent gains. Valeant Pharmaceuticals (VRX), along with its business transition risks, may face more pricing pressures from generics. As an unpredictable factor in the valuation of stocks, investors should not fret if and when their holdings drop 25% or even 40-50 percent.
Why not worry? Revenues and profits will eventually recover once companies establish drug prices. No company wants to get in the cross-hairs of government. On the flip side, governments must recognize the high cost of healthcare is not due solely to high drug prices. Firms face high costs meeting FDA approval. Medicare administration has high costs, too.
Slingshot Insights, author of Become the Smart Money: Despite all the rhetoric coming out of Twitter and Washington, our recent interview with Biotech Reporter Adam Feuerstein cautioned against assuming too much would happen on how drugs are purchased. His conversations with buyside investors indicate a real structural change in pricing is unlikely.
Our conversations with investors continue to suggest that the sector is unlikely to draw significant generalist attention while it remains in the political spotlight.
SA: Gilead is a stock each of you have written about. It's also a popular stock on Seeking Alpha, and judging by its price, an unpopular stock in the market. We briefly touched upon the stock last time around, but what are your views or takeaways on the company's (and stock's) performance over recent months? Or, if you'd rather not address the stock itself, any broader lessons worth discussing?
Bret Jensen: Gilead has been a frustrating stock on two counts, both touching on the management of the company. First, the company guided its 2017 HCV revenue projections down in its last earnings call substantially. Not because of increasing competition in the field, but because as patients get cured, the future pipeline for the HCV population is shrinking more rapidly than anyone, including analysts, thought. Management could have done a better job telegraphing what they were seeing in the marketplace prior to that dramatic downside revenue projection.
More importantly, despite talking about making acquisitions for the last 6-8 quarters, the company has been very passive in the M&A market even as activity has perked up recently and prices of small and mid-cap concerns have rallied off bear market territory. The company certainly has the free cash flow and balance sheet to be a very active deal maker, but has failed to pull the trigger despite increasing pressure from analysts and major shareholders to do so.
This has frustrated holders of the stock. I hope this changes in the near future and still hold the stock. At these prices, the market is putting little value on its HCV business (which should still produce some $20 billion in revenues over the next three years) and its pipeline. The stock also pays a three percent yield.
Bhavneesh Sharma, MBA: Gilead seems to be under increased pressure to make acquisitions to boost its pipeline and create a new revenue driver. Barclay's analyst Geoff Meacham wrote an open letter to the management earlier this month and suggested 5 ways to boost the company's shareholder value. After the recent poor earnings and poor stock performance (despite a rally in the sector this year), the company's management could make a large acquisition over next 6-12 months.
My anticipation is that this acquisition could be in the NASH space where Gilead already has products under development. My second bet is oncology where Incyte (NASDAQ:INCY) is the most rumored candidate. Other companies in the oncology space that could be attractive acquisition candidates for Gilead are TG Therapeutics (NASDAQ:TGTX), Exelixis (NASDAQ:EXEL), Kite Pharma (NASDAQ:KITE), etc. The third bet is an entry in the rare/orphan disease space with an acquisition like BioMarin (NASDAQ:BMRN), Alexion (NASDAQ:ALXN), Vertex Pharmaceuticals (NASDAQ:VRTX), etc. I consider the stock at an attractive price level with limited downside risk and 3% dividend yield.
Oneil Trader: I haven’t really looked at Gilead much as my focus is on small and mid-cap companies. The company has been stubborn with the buyback strategy (which I am not a fan of) and the absence of M&A – it is simply not true that there are no valuable assets out there. Rather than buying back stock and seeing revenues and profits decline, I would take that cash and start acquiring products or companies.
Chris Lau: Of the 20 stocks on the top holdings, a few are biotech stocks. Gilead Sciences is one of them, although it does not receive constant attention. Gilead’s stock valuation is adjusting to the mean. After years of outperformance, the stock may underperform for a while. Until the company figures out how to accelerate growth, continue to expect disappointment holding this stock. Investors want Gilead to make an acquisition but it takes savvy management to buy a great company without overpaying. Was Pharmasset a one-hit wonder? That is a question shareholders are asking every day the stock falls.
Slingshot Insights: The market has turned on management for share repurchases over a bold deal. This theme of “What will Gilead buy?” has gotten old. The biggest challenge facing management is that prior success has left expectations sky high for a deal as good as the HCV purchase.
Management can’t force the existence of a blockbuster drug despite investor expectations. It isn’t about getting a good price, but rather scarcity. Investor focus on a deal in NASH remains challenging without a clear best in class drug in development.
Given the strength of the balance sheet, a strategy more in line with Allergan's (AGN) makes sense to us. Management has the capital to take high risk high reward shots and would be well served to take them.
SA: Is there an area in the industry that you've been spending a lot of time on recently, or a theme you're following closely? What's the story?
Bret Jensen: I have been watching the M&A activity across the sector. In the first five weeks of the year, we saw three major deals all with nice buyout premiums. This was a key driver of the 10% rally in the main biotech indices in February. However, since then, deal volume has dried up markedly. Lots of buyout speculation, but little action. This a key reason the sector has been unable to break through upward resistance levels that have been in place since the very end of 2015 and one reason biotech has drifted down some in March. I think we need to see a pickup in activity in this space to drive the next stage of the rally, if we get one.
Bhavneesh Sharma, MBA: Lately, I have been spending a lot of time following the CRISPR gene editing technology. I have covered Editas Medicine (NASDAQ:EDIT) and Intellia Therapeutics (NASDAQ:NTLA) on Seeking Alpha. I followed the patent dispute between these two companies and am happy with the result. CRISPR gene editing technology should be available to scientists and companies worldwide (like gene therapy) to fight with debilitating hereditary and genetic diseases.
Editas Medicine's patent on CRISPT/Cpf1 is exciting since this technology is potentially safer and more specific than CRISPR/Cas9. I am eagerly awaiting the first human trials of this technology, which are expected to start this year. I own Editas medicine and Crispr Therapeutics stock.
Oneil Trader: I am following the orphan segment very closely and have found several companies that I believe will deliver significant shareholder value in the following years. These companies have approved products or product candidates that are addressing or will address significant unmet needs. The therapeutic areas these companies are targeting generally lack meaningful competition and these products should retain their pricing power due to low patient populations and the mentioned lack of competition.
Chris Lau: The theme I am following closely is the reversion back to the mean for biotech, led by political uncertainties. To reduce political risks, stick to the companies having a promising drug or screening test approved for market, like Exelixis’s Cabometyx drug for treating kidney cancer. Exact Sciences’ (EXAS) Cologuard not only grew test volume to 244,000, up 135% from 2015, but it is developing a new lung cancer test.
ACADIA Pharmaceuticals (ACAD) is a compelling buyout story. It launched Nuplazid on May 31, 2016 for the treatment of Parkinson’s disease psychosis. The mode of action is very new, as it selectively targets SSIA (serotonin-inverse agonist) receptors. When the stock traded at above $6.00 a share, a few DIY members thought Synergy Pharmaceuticals (NASDAQ:SGYP) would bottom in the $4.50 range.
Slingshot Insights: Oncology has been an area of tremendous focus and breakthrough. Our expert calls have been more focused on Oncology products over any other indication. The first CART approval (immunoncology) and indication expansion are a huge theme this year for Oncology.
SA: What event are you watching over the next 3-6 months that will affect one of your positions or your portfolio? What's the background, and how are you preparing for it?
Bret Jensen: I think Dynavax Technologies (DVAX) will finally get approval for its hepatitis B vaccine “Heplisav-B” on the third try on August 10th. One could make an argument, based on trial results, this vaccine should have been approved several years ago. However, the FDA finally seems to have received all the data it needs to render a decision.
In a 14,000-person Phase III trial, this biologic showed clear protection superiority (~95% vs. 81%) to the current standard in the market. It also can be administered effectively in two dosages over a month instead of the current regime of three doses over six months. This is should dramatically improve current compliance rates (~55%), if and when approved.
I would imagine the company will have to come back to the debt or equity markets to raise funding to roll out Heplisav-B, provided it is finally green-lighted by the FDA on the third go around. However, with peak sales of easily $500 million or more for Heplisav-B and a market capitalization of just approximately $250 million, I think the company will have favorable funding options after approval. Dynavax also has an asthma candidate in Phase II development with its partner AstraZeneca (AZN) and a promising wholly owned oncology compound “SD-101” that should have more trial visibility in 2017 as well.
Bhavneesh Sharma, MBA: Most of my open positions have upcoming catalysts in the next 3-6 months. One of them, Voyager Therapeutics (VYGR) is a company that is developing gene therapy for Parkinson's disease and other neurological diseases like ALS. Results of a Phase Ib trial of its gene therapy in Parkinson's disease are expected in mid-2017. This data will include motor function, biomarker and safety data from cohort 3 of this Phase Ib study. I expect a run-up for the stock price going into the results. The stock could run-up about 50% from the current level into mid-2017. I expect successful results based on 43% putamen coverage for the cohort 3.
Oneil Trader: 2017 is a really important year for Amicus Therapeutics (FOLD). It fits the orphan profile that I just mentioned. The company has a product approved outside of the U.S. – Galafold, which treats Fabry disease (between 5,000 and 10,000 patients are diagnosed worldwide) and is looking to start a new Phase III trial in the U.S.
Continued commercial updates are a catalyst for the stock in the following quarters, but 2017 is really going to be about the two pipeline assets. The first is the ATB200/AT2221 combo for Pompe disease (a rare disease affecting 5,000 to 10,000 patients worldwide) and the Phase I/II data cascade in Q2 and Q3 should put this product on investors’ maps and significantly de-risk it ahead of the Phase III trial.
The second and most important catalyst for the company is the Phase III data readout for Zorblisa in Epidermolysis Bullosa (a skin disease affecting 30,000-40,000 patients in developed countries) in mid-2017. If all goes well, Amicus could have three approved products in early 2020s with all three targeting $1 billion+ markets.
Chris Lau: I am not changing my personal holdings or the biotech stocks on the top ideas. One of my biotech picks is up 73% in the year, while another, up 20% YTD, is still a paper loss for me. I look forward to breaking even on that holding. I will probably wind down coverage on Gilead Sciences.
Slingshot Insights: We don’t take specific positions on stocks. The resolution of the HC legislation in DC regardless of the outcome is the place where we would be more constructive on the sector as a whole.
***
Thanks to our panel for joining us! If you're interested in their work, you can click on the links below either to follow them for free or to consider their services:
Bret Jensen, author of The Biotech Forum
Bhavneesh Sharma, author of Vasuda Healthcare Analytics
Oneil Trader, author of Growth Stock Forum
Chris Lau, author of Value Stocks for DIY Investors
Slingshot Insights, author of Become the Smart Money
If you're interested in staying on top of the Marketplace, please follow our account above or below. We publish the weekly Marketplace Roundtable as well as occasional announcements on new services coming out - for example, our latest two announcements.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Bret Jensen is long DVAX and GILD. Bhavneesh Sharma is long INCY, VYGR, EDIT, CRSP, and KITE. Oneil Trader is long FOLD.
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Mar. 25, 2017 7:30 AM ET| About: iShares Nasdaq Biotechnology ETF (IBB), GILD, Includes: ACAD, AGN, ALXN, AZN, BBC, BBH, BBP, BMRN, DVAX, EDIT, ENDP, EXAS, EXEL, FBT, FOLD, HQL, INCY, KITE, LABD, LABS, LABU, NTLA, PBE, SGYP, TEVA, TGTX, UBIO, VRTX, VRX, VYGR, XBI, ZBIO
SA Marketplace
SA Marketplace
Newsletter provider
PREMIUMThe Biotech Forum
(1,218 followers)
Summary
As Capitol Hill swirls around the possibility of a new healthcare bill, biotech investors would do well to keep an eye on developments.
But there are other areas of the industry to focus on, whether M&A activity, oncology progress, CRISPR innovations, or plain old mean reversion.
Our panel also weighs in on the story du jour in biotech, Gilead Sciences. Frustration may be setting in, but is value still there?
We write this introduction early Friday, with the fate of the U.S. House of Representatives vote on the American Health Care Act (AHCA) yet to be determined. While any prediction we utter to the result will look stupid soon enough, we can say that this is surely not going to be the end of political discussions that affect the biotech space. Between the continuation of this legislative process, continued concerns over high drug prices, and more general effects like tax reform, it seems fair to say that biotech will continue to stay in the news.
With that in mind, we convened another biotech roundtable. Five Marketplace authors focusing on the sector shared their thoughts on the regulatory environment, the industry itself, and what they're watching for in the next few months. And since Gilead Sciences (GILD) has surpassed Valeant Pharmaceuticals (VRX) as the story in the sector, we asked about that as well.
Our panel:
Bret Jensen, author of The Biotech Forum
Bhavneesh Sharma, author of Vasuda Healthcare Analytics
Oneil Trader, author of Growth Stock Forum
Chris Lau, author of Value Stocks for DIY Investors
Slingshot Insights, author of Become the Smart Money
Seeking Alpha: We've had a few government level developments this year that could affect biotech: The House's mooted bill for healthcare reform, President Trump's talk about high drug prices, the appointment of a new FDA head. Does anything stand out for you as far as the current climate for the sector?
Bret Jensen, author of The Biotech Forum: Repeal & Replace of the Affordable Care Act is the critical item not only for the sector but the market. The new policies will not impact the pharma & biotech industries to much extent even as they will have significant impacts on hospital groups and healthcare insurers. However, if the repeal effort gets derailed, then the major efforts scheduled behind it, primarily tax & regulatory have much lower chances of being enacted. The hopes for these reforms have been a major driver since the election of not only the rally in the biotech sector but the overall market.
Bhavneesh Sharma, MBA, author of Vasuda Healthcare Analytics: The most serious risk to the US biotech/pharma sector is President Trump's renewed attack on drug prices. In fact, the large pullback in the sector on Tuesday appeared related to President Trump's renewed attack on drug prices at a rally on Monday and intention to introduce drug pricing legislation in the proposed healthcare reform bill.
On the other hand, Thursday's pullback was due and, long term, I think that Trump's Presidency will be bullish for the US stock market and the US healthcare sector. The appointment of a new FDA commissioner who wants to expedite the drug approval process is bullish. We may see a pullback this spring and summer but the corporate tax reforms are expected to provide big pharma with enough cash for small cap acquisitions.
Oneil Trader, author of Growth Stock Forum: Just as I thought that the political rhetoric may have reached a point of saturation, the biotech stocks plunged this week, though the general market was down sharply as well. Biotech investors need to learn to deal with this, but as I said before, I doubt there will be significant changes. I believe that innovative companies with differentiated products will do fine and retain their pricing power while I see the generic industry as the most threatened with potential changes – Medicare bidding, faster approval times.
And faster approval times by themselves should bring significantly increased competition for generics, while not as much for branded products, as it will still take time to conduct trials and prove that the drug is safe and effective. I don’t see the potential legislative changes as having a profoundly negative impact on the industry or hurting the long-term prospects of innovative biotech companies.
Chris Lau, author of Value Stocks For DIY Investors: The political risks for the biotech sector cannot be ignored. It is the single biggest factor that may keep the biotech sector, especially generic drug suppliers, from moving higher. Endo International (ENDP) is covered for my subscribers. Teva International (TEVA) is about to give up its recent gains. Valeant Pharmaceuticals (VRX), along with its business transition risks, may face more pricing pressures from generics. As an unpredictable factor in the valuation of stocks, investors should not fret if and when their holdings drop 25% or even 40-50 percent.
Why not worry? Revenues and profits will eventually recover once companies establish drug prices. No company wants to get in the cross-hairs of government. On the flip side, governments must recognize the high cost of healthcare is not due solely to high drug prices. Firms face high costs meeting FDA approval. Medicare administration has high costs, too.
Slingshot Insights, author of Become the Smart Money: Despite all the rhetoric coming out of Twitter and Washington, our recent interview with Biotech Reporter Adam Feuerstein cautioned against assuming too much would happen on how drugs are purchased. His conversations with buyside investors indicate a real structural change in pricing is unlikely.
Our conversations with investors continue to suggest that the sector is unlikely to draw significant generalist attention while it remains in the political spotlight.
SA: Gilead is a stock each of you have written about. It's also a popular stock on Seeking Alpha, and judging by its price, an unpopular stock in the market. We briefly touched upon the stock last time around, but what are your views or takeaways on the company's (and stock's) performance over recent months? Or, if you'd rather not address the stock itself, any broader lessons worth discussing?
Bret Jensen: Gilead has been a frustrating stock on two counts, both touching on the management of the company. First, the company guided its 2017 HCV revenue projections down in its last earnings call substantially. Not because of increasing competition in the field, but because as patients get cured, the future pipeline for the HCV population is shrinking more rapidly than anyone, including analysts, thought. Management could have done a better job telegraphing what they were seeing in the marketplace prior to that dramatic downside revenue projection.
More importantly, despite talking about making acquisitions for the last 6-8 quarters, the company has been very passive in the M&A market even as activity has perked up recently and prices of small and mid-cap concerns have rallied off bear market territory. The company certainly has the free cash flow and balance sheet to be a very active deal maker, but has failed to pull the trigger despite increasing pressure from analysts and major shareholders to do so.
This has frustrated holders of the stock. I hope this changes in the near future and still hold the stock. At these prices, the market is putting little value on its HCV business (which should still produce some $20 billion in revenues over the next three years) and its pipeline. The stock also pays a three percent yield.
Bhavneesh Sharma, MBA: Gilead seems to be under increased pressure to make acquisitions to boost its pipeline and create a new revenue driver. Barclay's analyst Geoff Meacham wrote an open letter to the management earlier this month and suggested 5 ways to boost the company's shareholder value. After the recent poor earnings and poor stock performance (despite a rally in the sector this year), the company's management could make a large acquisition over next 6-12 months.
My anticipation is that this acquisition could be in the NASH space where Gilead already has products under development. My second bet is oncology where Incyte (NASDAQ:INCY) is the most rumored candidate. Other companies in the oncology space that could be attractive acquisition candidates for Gilead are TG Therapeutics (NASDAQ:TGTX), Exelixis (NASDAQ:EXEL), Kite Pharma (NASDAQ:KITE), etc. The third bet is an entry in the rare/orphan disease space with an acquisition like BioMarin (NASDAQ:BMRN), Alexion (NASDAQ:ALXN), Vertex Pharmaceuticals (NASDAQ:VRTX), etc. I consider the stock at an attractive price level with limited downside risk and 3% dividend yield.
Oneil Trader: I haven’t really looked at Gilead much as my focus is on small and mid-cap companies. The company has been stubborn with the buyback strategy (which I am not a fan of) and the absence of M&A – it is simply not true that there are no valuable assets out there. Rather than buying back stock and seeing revenues and profits decline, I would take that cash and start acquiring products or companies.
Chris Lau: Of the 20 stocks on the top holdings, a few are biotech stocks. Gilead Sciences is one of them, although it does not receive constant attention. Gilead’s stock valuation is adjusting to the mean. After years of outperformance, the stock may underperform for a while. Until the company figures out how to accelerate growth, continue to expect disappointment holding this stock. Investors want Gilead to make an acquisition but it takes savvy management to buy a great company without overpaying. Was Pharmasset a one-hit wonder? That is a question shareholders are asking every day the stock falls.
Slingshot Insights: The market has turned on management for share repurchases over a bold deal. This theme of “What will Gilead buy?” has gotten old. The biggest challenge facing management is that prior success has left expectations sky high for a deal as good as the HCV purchase.
Management can’t force the existence of a blockbuster drug despite investor expectations. It isn’t about getting a good price, but rather scarcity. Investor focus on a deal in NASH remains challenging without a clear best in class drug in development.
Given the strength of the balance sheet, a strategy more in line with Allergan's (AGN) makes sense to us. Management has the capital to take high risk high reward shots and would be well served to take them.
SA: Is there an area in the industry that you've been spending a lot of time on recently, or a theme you're following closely? What's the story?
Bret Jensen: I have been watching the M&A activity across the sector. In the first five weeks of the year, we saw three major deals all with nice buyout premiums. This was a key driver of the 10% rally in the main biotech indices in February. However, since then, deal volume has dried up markedly. Lots of buyout speculation, but little action. This a key reason the sector has been unable to break through upward resistance levels that have been in place since the very end of 2015 and one reason biotech has drifted down some in March. I think we need to see a pickup in activity in this space to drive the next stage of the rally, if we get one.
Bhavneesh Sharma, MBA: Lately, I have been spending a lot of time following the CRISPR gene editing technology. I have covered Editas Medicine (NASDAQ:EDIT) and Intellia Therapeutics (NASDAQ:NTLA) on Seeking Alpha. I followed the patent dispute between these two companies and am happy with the result. CRISPR gene editing technology should be available to scientists and companies worldwide (like gene therapy) to fight with debilitating hereditary and genetic diseases.
Editas Medicine's patent on CRISPT/Cpf1 is exciting since this technology is potentially safer and more specific than CRISPR/Cas9. I am eagerly awaiting the first human trials of this technology, which are expected to start this year. I own Editas medicine and Crispr Therapeutics stock.
Oneil Trader: I am following the orphan segment very closely and have found several companies that I believe will deliver significant shareholder value in the following years. These companies have approved products or product candidates that are addressing or will address significant unmet needs. The therapeutic areas these companies are targeting generally lack meaningful competition and these products should retain their pricing power due to low patient populations and the mentioned lack of competition.
Chris Lau: The theme I am following closely is the reversion back to the mean for biotech, led by political uncertainties. To reduce political risks, stick to the companies having a promising drug or screening test approved for market, like Exelixis’s Cabometyx drug for treating kidney cancer. Exact Sciences’ (EXAS) Cologuard not only grew test volume to 244,000, up 135% from 2015, but it is developing a new lung cancer test.
ACADIA Pharmaceuticals (ACAD) is a compelling buyout story. It launched Nuplazid on May 31, 2016 for the treatment of Parkinson’s disease psychosis. The mode of action is very new, as it selectively targets SSIA (serotonin-inverse agonist) receptors. When the stock traded at above $6.00 a share, a few DIY members thought Synergy Pharmaceuticals (NASDAQ:SGYP) would bottom in the $4.50 range.
Slingshot Insights: Oncology has been an area of tremendous focus and breakthrough. Our expert calls have been more focused on Oncology products over any other indication. The first CART approval (immunoncology) and indication expansion are a huge theme this year for Oncology.
SA: What event are you watching over the next 3-6 months that will affect one of your positions or your portfolio? What's the background, and how are you preparing for it?
Bret Jensen: I think Dynavax Technologies (DVAX) will finally get approval for its hepatitis B vaccine “Heplisav-B” on the third try on August 10th. One could make an argument, based on trial results, this vaccine should have been approved several years ago. However, the FDA finally seems to have received all the data it needs to render a decision.
In a 14,000-person Phase III trial, this biologic showed clear protection superiority (~95% vs. 81%) to the current standard in the market. It also can be administered effectively in two dosages over a month instead of the current regime of three doses over six months. This is should dramatically improve current compliance rates (~55%), if and when approved.
I would imagine the company will have to come back to the debt or equity markets to raise funding to roll out Heplisav-B, provided it is finally green-lighted by the FDA on the third go around. However, with peak sales of easily $500 million or more for Heplisav-B and a market capitalization of just approximately $250 million, I think the company will have favorable funding options after approval. Dynavax also has an asthma candidate in Phase II development with its partner AstraZeneca (AZN) and a promising wholly owned oncology compound “SD-101” that should have more trial visibility in 2017 as well.
Bhavneesh Sharma, MBA: Most of my open positions have upcoming catalysts in the next 3-6 months. One of them, Voyager Therapeutics (VYGR) is a company that is developing gene therapy for Parkinson's disease and other neurological diseases like ALS. Results of a Phase Ib trial of its gene therapy in Parkinson's disease are expected in mid-2017. This data will include motor function, biomarker and safety data from cohort 3 of this Phase Ib study. I expect a run-up for the stock price going into the results. The stock could run-up about 50% from the current level into mid-2017. I expect successful results based on 43% putamen coverage for the cohort 3.
Oneil Trader: 2017 is a really important year for Amicus Therapeutics (FOLD). It fits the orphan profile that I just mentioned. The company has a product approved outside of the U.S. – Galafold, which treats Fabry disease (between 5,000 and 10,000 patients are diagnosed worldwide) and is looking to start a new Phase III trial in the U.S.
Continued commercial updates are a catalyst for the stock in the following quarters, but 2017 is really going to be about the two pipeline assets. The first is the ATB200/AT2221 combo for Pompe disease (a rare disease affecting 5,000 to 10,000 patients worldwide) and the Phase I/II data cascade in Q2 and Q3 should put this product on investors’ maps and significantly de-risk it ahead of the Phase III trial.
The second and most important catalyst for the company is the Phase III data readout for Zorblisa in Epidermolysis Bullosa (a skin disease affecting 30,000-40,000 patients in developed countries) in mid-2017. If all goes well, Amicus could have three approved products in early 2020s with all three targeting $1 billion+ markets.
Chris Lau: I am not changing my personal holdings or the biotech stocks on the top ideas. One of my biotech picks is up 73% in the year, while another, up 20% YTD, is still a paper loss for me. I look forward to breaking even on that holding. I will probably wind down coverage on Gilead Sciences.
Slingshot Insights: We don’t take specific positions on stocks. The resolution of the HC legislation in DC regardless of the outcome is the place where we would be more constructive on the sector as a whole.
***
Thanks to our panel for joining us! If you're interested in their work, you can click on the links below either to follow them for free or to consider their services:
Bret Jensen, author of The Biotech Forum
Bhavneesh Sharma, author of Vasuda Healthcare Analytics
Oneil Trader, author of Growth Stock Forum
Chris Lau, author of Value Stocks for DIY Investors
Slingshot Insights, author of Become the Smart Money
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Bret Jensen is long DVAX and GILD. Bhavneesh Sharma is long INCY, VYGR, EDIT, CRSP, and KITE. Oneil Trader is long FOLD.
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Bret JensenPREMIUMThe Biotech Forum
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