- Corrected - Allergan CEO not Amgen.$AGN on drug pricing: If industry doesn't solve issue ourselves, there will be day of reckoning. Populism gripping country hates drug prices
— Adam Feuerstein (@adamfeuerstein) January 9, 2017
Monday, January 9, 2017
Populism May Defeat Drug Prices
Adam Feuerstein shares a tidbit from the Allergan CEO, Brenton L. Saunders, while at the 2017 JP Morgan Healthcare conference. It appears that big pharma is sensing that drug price hikes are a problem.
Thursday, January 5, 2017
Biotech Performance, NASH & the Competition
Today's Biotech Trade
Today's, January 5th, 2017, biotech trading ended on a rather flat note - at least when compared to the previous day's trading. However, biotech, again, managed to outperform the rest of the market. With big pharma earnings reports slated to begin next week, risk averse investors may begin to feel a slight itch for bigger returns.
However, one must be wary before jumping into big pharma. There will likely be a very large and very swift correction coming some time down the road. The US cannot afford to keep tripling specialty pharmaceutical costs every 6 years. Although I don't see a short-term solution coming any time soon, my long-term view is that pharma will eventually get congressional attention that goes beyond subpoenas and testimony. This is not a can that can continue to be kicked down the road - not when Mr. Trump has his Twitter rifle ready to fire at anyone that dares to oppose him. The eventual down-turn that may come may not be as large as some suspect. This is because pharma is now pursuing a more streamlined approach to drug development. Instead of acquiring companies, big pharma has largely shifted development risk to small biotechs to bring value to the big-pharma bottom line. The recent acquisitions and partnerships in NASH highlight such a point. There are a number of pharma giants (This was a new company for me) that have recently take the plunge into NASH. With such a large competitive field, pharma has the opportunity to shop around for the best deals.
NASH Competitive Environment
For the past year I have studied NASH and immuno-therapy companies. I often see investors make irrational decisions on biotech investments (as evidenced by StockTwit's comments) without following the science. Over the past few days I thought it wise to revisit a table that I began to develop over a year ago. The original table was meant to be a comprehensive table that outlined everything about NASH. However, when I first presented the table to my business partner and biotech mentor I discovered that it was full of information, but was completely uninformative to the end user, biotech (specifically NASH) investors. Thus, I took my time to rethink and reformulate the table architecture into something that can be interpreted quickly. The table below is what I came up with - an actionable list that identifies upcoming/or past actionable dates and also takes into account what the clinical data in-vitro/in-vivo is telling us. Mind you, the interpretation of the recent data are my own. You should make your own interpretation of the significance of any and all events. Also, this table is much more comprehensive than what you see here. If you would like additional data, I can provide it upon request.
(CLICK IMAGE TO ENLARGE)
Full Disclosure:
I hold long-Term positions on $APHB, $GLMD, $DNAI, $ITEK, $ESPR, $CAPR, $CFRX, $KMPH, $GALT, $CNAT.
Today's, January 5th, 2017, biotech trading ended on a rather flat note - at least when compared to the previous day's trading. However, biotech, again, managed to outperform the rest of the market. With big pharma earnings reports slated to begin next week, risk averse investors may begin to feel a slight itch for bigger returns.
| Time Horizon | S&P500 Performance | NASDAQ Performance | NASDAQ Biotech | iShares Nasdaq Biotech ETF | S&P Biotech Select Industry Index | Cumulative Biotech Performance |
| Today Delta | -0.08% | 0.20% | 0.26% | 0.31% | 0.15% | 0.34% |
However, one must be wary before jumping into big pharma. There will likely be a very large and very swift correction coming some time down the road. The US cannot afford to keep tripling specialty pharmaceutical costs every 6 years. Although I don't see a short-term solution coming any time soon, my long-term view is that pharma will eventually get congressional attention that goes beyond subpoenas and testimony. This is not a can that can continue to be kicked down the road - not when Mr. Trump has his Twitter rifle ready to fire at anyone that dares to oppose him. The eventual down-turn that may come may not be as large as some suspect. This is because pharma is now pursuing a more streamlined approach to drug development. Instead of acquiring companies, big pharma has largely shifted development risk to small biotechs to bring value to the big-pharma bottom line. The recent acquisitions and partnerships in NASH highlight such a point. There are a number of pharma giants (This was a new company for me) that have recently take the plunge into NASH. With such a large competitive field, pharma has the opportunity to shop around for the best deals.
NASH Competitive Environment
For the past year I have studied NASH and immuno-therapy companies. I often see investors make irrational decisions on biotech investments (as evidenced by StockTwit's comments) without following the science. Over the past few days I thought it wise to revisit a table that I began to develop over a year ago. The original table was meant to be a comprehensive table that outlined everything about NASH. However, when I first presented the table to my business partner and biotech mentor I discovered that it was full of information, but was completely uninformative to the end user, biotech (specifically NASH) investors. Thus, I took my time to rethink and reformulate the table architecture into something that can be interpreted quickly. The table below is what I came up with - an actionable list that identifies upcoming/or past actionable dates and also takes into account what the clinical data in-vitro/in-vivo is telling us. Mind you, the interpretation of the recent data are my own. You should make your own interpretation of the significance of any and all events. Also, this table is much more comprehensive than what you see here. If you would like additional data, I can provide it upon request.
(CLICK IMAGE TO ENLARGE)
Full Disclosure:
I hold long-Term positions on $APHB, $GLMD, $DNAI, $ITEK, $ESPR, $CAPR, $CFRX, $KMPH, $GALT, $CNAT.
Wednesday, January 4, 2017
Biotech had a Booming Day
On January 2nd, 2017, we wrote an article predicting that January 4th, 2017, would be the day to define biotech for January. Our prediction was merely based on prior behavior of biotech stocks during the same period in prior years. Biotech stocks seem to have started off 2017 with a whimper (1/3/17 - anticipated) then a bang (1/4/17 - the day of change). How long this upward momentum will go is anyone's guess, but the potential for upward momentum in January is there. A review of prior year's performances show that biotech stocks tend to perform similar for the month of January (generally speaking) as their first week trades. Thus, it is my expectation that if we see biotech stocks continue to rise through the week, we will end January on an up note.
There are many biotech stocks that remain undervalued following the 2016 biotech correction. It still remains unclear if 2017 will be the year of the bear. There are, however, some positive signals for a bull market. The Federal Reserve decision to raise rates at a (likely) faster pace will likely make risk a more palatable investment option. There are general concerns about the market though. Will the DOW 20,000 benchmark be breached? If so, then what happens? Will the Trump trade (a trade on the basis that a Donald Trump presidency will be good for business) continue up to and post the president-elects inauguration? These are all questions that are currently unanswerable due to the high number of variables at work.
| Time Horizon | S&P500 Performance | NASDAQ Performance | NASDAQ Biotech | iShares Nasdaq Biotech ETF | S&P Biotech Select Industry Index | Cumulative Biotech Performance |
| Today Delta | 0.57% | 0.88% | 2.63% | 2.59% | 4.69% | 3.60% |
There are many biotech stocks that remain undervalued following the 2016 biotech correction. It still remains unclear if 2017 will be the year of the bear. There are, however, some positive signals for a bull market. The Federal Reserve decision to raise rates at a (likely) faster pace will likely make risk a more palatable investment option. There are general concerns about the market though. Will the DOW 20,000 benchmark be breached? If so, then what happens? Will the Trump trade (a trade on the basis that a Donald Trump presidency will be good for business) continue up to and post the president-elects inauguration? These are all questions that are currently unanswerable due to the high number of variables at work.
Monday, January 2, 2017
Cempra NASH drug or antibiotic?
I first got wind of Cempra ($CEMP) early last year when I was doing my annual review of all companies that had a nonalcoholic steatohepatitis (NASH) trial underway. I recently started diving into these companies to see if there were any gems that popped out - many had data due in Q4-2016. Yesterday, I hit my head as I saw that Cempra had recently gotten an adcomm recommendation and had failed to satisfy the FDA requirements for approval. A venture over to StockTwits had me in fits as the bulls and the bears discussed the potential of the drug. The comments were much more joyful to read than the press release given by the company. That being said, many missed what management was saying in both the press release and the investor phone call.
Cempra has been held back by this result by at least a year. Cempra will now have to show that Solithromycin does not in fact cause long-term liver damage. The thing that I found to be ironic about the new FDA requirement is that Solithromycin previously showed promising clinical data in 6 NASH patients. Solithromycin reduced the NAS score by more than 1 point for the small sample. Considering that NASH can lead to liver damage and that exposure to Solithromycin helped improve liver function (as measured by liver enzymes) contradicts an important point made by the FDA. I began to wonder, how can all six patients of a NASH trial respond positively, only to have the FDA use that same exact NASH trial as evidence against approval.
In a press release dated, September 29th, 2016, Cempra management stated, "Compared with baseline values, after 90 days of solithromycin treatment, all six NASH patients had a reduction in their nonalcoholic fatty liver disease (NAFLD) activity score (NAS) (mean reduction, 1.3) and their alanine aminotransferase (ALT) (mean reduction, 17.8 U/L). Five of six patients had a reduction in their aspartate aminotransferase (AST), and the sixth patient had an AST that was unchanged and normal (mean reduction for the six patients, 10.1 U/L)." An FDA slide shown below contradicted that statement and showed that one patient had elevated ALT levels.
Obviously we don't know for sure why the contradiction is there, but it is concerning considering that investors were led to believe that all patients responded well to Solithromycin when used as a NASH therapy. My prediction for the discrepancy is that the ALT elevation in the NASH patient was presented or became evident at a later date following the press release. Because of the concerns regarding liver toxicity we will keep Cempra on the back-burner for the treatment of NASH until we see more promising results.
The Future of Solithromycin
Management has made it clear that Solithromycin will likely not be approved before 2018. The FDA has mandated a further safety study in 9000+ Solithromycin treated patients. Considering the patient population is rather large, it could be that the FDA will require the safety data prior to marketing approval. We anticipate that Cempra will issue further FDA guidance when it becomes available. In the meantime, we can expect further updates from Cempra regarding its NASH study enrollment to occur in 1Q-2017. The update may come with its 2016 Earnings Call.
2016 and Biotech - A Recap
Many will agree that 2016 was a year of ups and downs. From the highly contested 2016 US presidential election, to the many deaths of our esteemed celebrities, to the Syrian Civil War, to the Chinese repositioning of the South China Sea, to the Iran Nuclear deal, the ever expanding Black Lives Matter protests, and the spread of the Zika Virus, the increasing ISIS attacks across Europe, and Britain's exit from the European Union (BREXIT). These events mark a tumultuous political and economic climate that pervaded 2016. As populist sentiment began to take hold, many throughout the world expressed fear and indignation at the populist movement that saw many countries government's move to the right. The aim was clear - this rightward movement signaled a repudiation to globalism and trade deals that stripped the wealth from the middle class of a number of countries. 2016 saw populations across the globe begin to push back against establishment politicians. This push has enabled fringe groups to once again become relevant and to engage in political discourse. That's not to say that these fringe groups are all negative or regressive in their politics - many present alternatives to the status quo and thus create fear in their political opponents. People fear change.
What does all this have to do with the biotech sector?
2016 Biotech Performance
Many look to the IBB or to the NBI to see how biotech stocks are performing in relation to the market. Although these are great to gauge the sectors performance, they are limited in their components. NBI only has 164 components while the IBB only measures the performance of 166 companies. An analysis for all biotech stocks found that the general performance of biotech was under-stated, but not by much. As you can see in the table below, the 2016 was a dismal year for biotech. 2016 saw biotech stocks get battered by a storm of controversy. Firstly, they began 2016 in a free fall decline as an overall market correction wiped out biotech stocks. The first week of 2016 saw the IBB drop by ~10%. By May, the IBB had taken a cumulative loss of 25%. By October, some recovery was underway as the YTD loss retraced to 21%. In early November, following the election results, the NBI jumped 9% as the rhetoric for price controls coming from the Hillary camp faded into the abyss. Other price control measures coming from the states were reigned in by voters that disagreed with the measures. However, the populist rhetoric wasn't done yet. In December, 2016, biotech stocks were again battered when President-Elect Trump stated (in the Times Person of the Year article) that he would bring down drug prices because he doesn't like what has happened with them. The market reacted and biotech stocks, as measured by the IBB, fell by ~4%. 2016 biotech stocks ended down more than 20%. 2017 may provide some relief for investors, but the potential for unforeseen turbulence remains.
Blood in the Streets (potentially)
It is no secret that there are pharmaceutical companies that seek to pad their earnings by increasing the price of their respective drugs. It is not illegal to do so, but is seen as immoral because it is forcing larger costs on the end-user, a sick patient that is already down on their luck. Because of this outlandish behavior 2016 saw biotech stocks take a well deserved whipping from Wall Street as fears that regulations would crimp biotech earning potential ran rampant. It seems that biotech CEO's still haven't gotten the message as pharmaceutical costs are expected to increase by 11.6% in 2017 - a pace far greater than projected increases in wages and the cost of living. According to consumer reports, roughly one in three Americans felt the pharmaceutical pinch in 2016 as they were hit with higher drug prices. We have yet to see any substantial plan from President-Elect Trump regarding drug pricing, but his rhetoric suggests that it is a real possibility. Last time a political figure voiced concerns on pricing over Twitter, the IBB took a -5% bath when Hillary Clinton tweeted about reigning in pharma pricing. President-Elect Trump communicates with the his millions of followers through his Twitter account and now has the power of the presidency to pursue regulations against what is perceived to be an immoral practice. It is entirely possible that a similar tweet from the President-Elect would send biotech prices tumbling downward far more than the 5% seen when Mrs. Clinton voiced her concern. This hypothetical scenario seems rather unlikely considering that such legislation would have to be ratified and passed by Congress. Should the middle class begin to feel the pinch with increasing premiums and unrealistically high co-pays for medicine, this scenario might eventually lead to more than just a slap on the wrist for all pharmas.
2017 - Fundamentals
2016 will be remembered as the year of the bear, at least for the biotech sector. Many still don't believe we are in a bear market, but when a sector remains down and pessimism persists (as insinuated by the annual decline of >20%) in the overall sector, it is safe to assume that the bears run the show. There is still plenty of pessimism to go around. However, there are plenty of great deals in biotech stocks. There are several that are trading under cash and there are many that are great products (with significant preclinical and clinical evidence), but have little to no investor confidence. Finding value is what investors should aim for in this market of uncertainty. Just be aware that if you become too bullish, the bears will take you for a ride. I am confident that biotech will rise from the 2016 ashes. There are number of major datasets due for a number of drugs in 2017. January 4th, 2017, should be an indicator for first month performance.
What does all this have to do with the biotech sector?
2016 Biotech Performance
Many look to the IBB or to the NBI to see how biotech stocks are performing in relation to the market. Although these are great to gauge the sectors performance, they are limited in their components. NBI only has 164 components while the IBB only measures the performance of 166 companies. An analysis for all biotech stocks found that the general performance of biotech was under-stated, but not by much. As you can see in the table below, the 2016 was a dismal year for biotech. 2016 saw biotech stocks get battered by a storm of controversy. Firstly, they began 2016 in a free fall decline as an overall market correction wiped out biotech stocks. The first week of 2016 saw the IBB drop by ~10%. By May, the IBB had taken a cumulative loss of 25%. By October, some recovery was underway as the YTD loss retraced to 21%. In early November, following the election results, the NBI jumped 9% as the rhetoric for price controls coming from the Hillary camp faded into the abyss. Other price control measures coming from the states were reigned in by voters that disagreed with the measures. However, the populist rhetoric wasn't done yet. In December, 2016, biotech stocks were again battered when President-Elect Trump stated (in the Times Person of the Year article) that he would bring down drug prices because he doesn't like what has happened with them. The market reacted and biotech stocks, as measured by the IBB, fell by ~4%. 2016 biotech stocks ended down more than 20%. 2017 may provide some relief for investors, but the potential for unforeseen turbulence remains.
| Time Horizon | S&P500 Performance | NASDAQ Performance | NBI | IBB | SPSIBI | Cumulative Biotech Performance |
| 366 Day Performance | 8.50% | 6.26% | -22.24% | -22.14% | -16.42% | -24.97% |
Blood in the Streets (potentially)
It is no secret that there are pharmaceutical companies that seek to pad their earnings by increasing the price of their respective drugs. It is not illegal to do so, but is seen as immoral because it is forcing larger costs on the end-user, a sick patient that is already down on their luck. Because of this outlandish behavior 2016 saw biotech stocks take a well deserved whipping from Wall Street as fears that regulations would crimp biotech earning potential ran rampant. It seems that biotech CEO's still haven't gotten the message as pharmaceutical costs are expected to increase by 11.6% in 2017 - a pace far greater than projected increases in wages and the cost of living. According to consumer reports, roughly one in three Americans felt the pharmaceutical pinch in 2016 as they were hit with higher drug prices. We have yet to see any substantial plan from President-Elect Trump regarding drug pricing, but his rhetoric suggests that it is a real possibility. Last time a political figure voiced concerns on pricing over Twitter, the IBB took a -5% bath when Hillary Clinton tweeted about reigning in pharma pricing. President-Elect Trump communicates with the his millions of followers through his Twitter account and now has the power of the presidency to pursue regulations against what is perceived to be an immoral practice. It is entirely possible that a similar tweet from the President-Elect would send biotech prices tumbling downward far more than the 5% seen when Mrs. Clinton voiced her concern. This hypothetical scenario seems rather unlikely considering that such legislation would have to be ratified and passed by Congress. Should the middle class begin to feel the pinch with increasing premiums and unrealistically high co-pays for medicine, this scenario might eventually lead to more than just a slap on the wrist for all pharmas.
2017 - Fundamentals
2016 will be remembered as the year of the bear, at least for the biotech sector. Many still don't believe we are in a bear market, but when a sector remains down and pessimism persists (as insinuated by the annual decline of >20%) in the overall sector, it is safe to assume that the bears run the show. There is still plenty of pessimism to go around. However, there are plenty of great deals in biotech stocks. There are several that are trading under cash and there are many that are great products (with significant preclinical and clinical evidence), but have little to no investor confidence. Finding value is what investors should aim for in this market of uncertainty. Just be aware that if you become too bullish, the bears will take you for a ride. I am confident that biotech will rise from the 2016 ashes. There are number of major datasets due for a number of drugs in 2017. January 4th, 2017, should be an indicator for first month performance.
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