Monday, December 30, 2013

Innovation is king, copycats be damned

Alright the title is a bit harsh, but it's true. Regulators and payers have had it up to here with incremental advances. I fully understand that what seems like "me too" drugs aren't as devious and underhanded as they seem. Innovation really pays big for companies like Biogen Idec (NASDAQ: BIIB). Here's a snip:
The financial risks associated with getting a drug out of the lab and into the market are astronomical. It's easy to understand the tendency for the Drug Majors to play it safe and funnel their limited resources toward programs likely to win approval. Sadly, with the string of big expiring patents over the past few years, this has been happening far too often.
Consider sodium glucose co-transporter 2 (SGLT2) inhibitors for treatment of type 2 diabetes. There are at least half-a-dozen late stage programs all trying to fit in this space. During the latest annual meeting of the American Diabetes Association,Boehringer Ingelheim clinical development director, Dr. Maximilian von Eynatten, said "I think probably from a clinical perspective, there is no big difference between the SGLT2 compounds so far, at least from everything we have seen." His employer is partnered with Eli Lilly to develop these compounds, and even he admits the program isn't accomplishing anything significant.
Government and private payers are getting fed up with the lack of innovation coming out of Big Pharma. During Q3 2013, Express Scripts Holding Company implemented a far more aggressive design of its National Preferred Formulary. Government payers in the Eurozone have long been austere, but are increasingly flexing their muscles. Demanding heavy discounts for non-breakthrough therapies in return for reimbursement approvals is on the rise.

Read the whole piece only at The Motley Fool.

Saturday, December 28, 2013

A Heartwarming Tale of a Medtech Company Turning Itself Around

Here's a Boston Scientific article recently published at the Motley Fool. Read it here.
The past couple of years have been tough on medtech companies. Few of the industry leaders that derive their revenue solely from medtech sales have had a rougher time than Boston Scientific Corporation (NYSE: BSX) . While industry stalwart Medtronic, Inc. (NYSE: MDT) has posted steady gains, Boston Scientific has been losing ground over the past 5 years.
Losing heart
The cardiovascular segment remains the company's largest, but sales during the third quarter of 2013 were a paltry $667 million; that would be $2.67 billion on an annualized basis. In 2007, that figure was $6.56 billion. That is a slight improvement over 2012's dismal performance, however, when the company's share price nearly fell through the $5 dollar range.
The intensely competitive fields, cardiac rhythm management (CRM) and interventional cardiology, still represent the majority of the company's sales. The bleeding has stopped from the CRM segment, but growth is currently flat. Bringing those numbers up will be a difficult task going forward. Over the past several years, Medtronic also had difficulty achieving growth in its CRM segment. Its sales in the most recent quarter were up 4% year over year at $1.27 billion, however. Odds are that Boston Scientific will continue to operate in its shadow.
Pounce on the weak
Although Boston Scientific might not be stealing Medtronic's piece of the CRM market, St. Jude Medical Inc.'s (NYSE: STJ) grip has been slipping.
Read the full article only at the Motley Fool.

Tuesday, December 24, 2013

A Spiteful New Twist In The Questcor Drama

Here's a perfect example of how the greed of a few, can cast dark clouds over an entire industry. The Questcor (QCOR) drama so far has been well covered except for a fun, unexpected twist at the end.

Illegal? Not necessarily. Morally reprehensible? Definitely.
I'll spare you a rehash of every sordid detail, but here's the tale in a nutshell. Questcor found a way to increase the price of Highly Purified Acthar Gel from $50 to $28,000, and get us all to pay for it.

The best part isn't the aggressive marketing, but the charity. Questcor has been donating heavily to the Chronic Disease Fund (CDF), a charity that helps patients meet the co-pay amount. In effect, Questcor has found a way to buy dollars with nickels. If you're wondering how many nickels, here's a quote from the company's latest 10-Q: "For the three and nine months ended September 30, 2013, we contributed approximately $3.1 million and $9.0 million, respectively, to the Chronic Disease Fund in support of its co-pay assistance programs."

A deeper discussion of the Questcor/CDF shenanigans can be found here, and more recently here.

The Drug
Adrenocorticotropic hormone (ACTH) is typically secreted by the anterior pituitary gland in response to biological stress. It is involved in a number of processes, but mainly its job is to signal the adrenal gland to release corticosteroids.

One reason for Acthar Gel's success is the wide variety of physiological processes that involve corticosteroids. Currently, Questcor's H.P. Acthar Gel is approved by the FDA for the treatment of 19 indications. I won't list them all, but the most popular include infantile spasms, multiple sclerosis, and rheumatology related conditions.

If you can't beat 'em, buy 'em.
Despite an admitted lack of contract manufacturing experience, Questcor acquired Biovectra, a contract manufacturer in January 2013. The CMO is Questcor's manufacturing partner for the API in H. P. Acthar Gel. Although this acquisition was arguably a smart vertical integration move, its next was a bit shady.

Tetracosactide (Synacthen) is a synthetic analogue of ACTH marketed in Europe by Novartis (NVS). Prices and overall volume requirements vary, but in the EU Novartis generally charges less than 1% the cost of H.P. Acthar Gel in the US.

In June 2013, Questcor acquired a license to develop, market, manufacture, distribute, sell and commercialize Synacthen and Synacthen Depot for all uses in humans in the US. Questcor paid Novartis $60 million upfront, and three years of annual cash payments of $25 million. The annual payments will continue until Questcor wins FDA approval for the drug, or the total reaches $300.

I smell something. Do you smell something?
Questcor wasn't the only bidder for Synacthen. New York troublemaker Retrophin (RTRX), a biotech currently traded over-the-counter, offered Novartis $40 million and a 20% royalty on US sales. Less than a year ago, leading up to the Retrophin bid, Questcor management was fairly dismissive of Synacthen, citing the negative effects of benzyl alcohol present in the formula. Now, it's spending hundreds of millions developing it for sale in the US.

Retrophin's new ticker symbol (NASDAQ: SPITE)?
Retrophin isn't finished with its assault on Questcor. It has been making some noise lately about filing an initial public offering to raise around $40 million. Apparently, it intends to use that capital to continue annoying Questcor. On Monday, December 16, Retrophin withdrew an offer for Transcept Pharmaceuticals (TSPT). The following day it announced its intentions for the development of RE-034, another synthetic ACTH analog similar to Synacthen. The only difference, as far as I can tell, is that RE-034 lacks benzyl alcohol.

Wait. It might get even better.
Retrophin was founded and run by former biotechnology hedge fund manager Martin Shkreli. The former parent MSMB Capital Management LLC, spun Retrophin off in 2009.
There has been rumor, I repeat rumor, that MSMB Capital admits to shorting Questcor in its newsletter. Trouble is I can’t find any newsletter. MSMB has allowed its website domain to expire and I can’t find any insider activity relating MSMB to Questcor. Speculator @HedgeyeAC claims it was in "a private letter to clients."

Sunday, December 22, 2013

Baxter International Is An Undervalued Dividend Growth Machine

Best of all it appears severely undervalued for a firm this size. It seems the short term minded market isn't at all concerned with long term growth. Here's a snip, read the entire report only at Seeking Alpha here.
For a company expecting long-term earnings to grow at 8% to 10%, Baxter International (BAX) is looking mighty cheap today. Using the low end of the company's topline growth projections with recent operating margins improving at 25 basis points annually gives the company a fair value north of $85, using a DCF model. Even after the recent pop from winning both an FDA approval and a CE mark on Dec. 19 and 20 respectively, Baxter appears undervalued by more than 20%.
Diverse, not sprawling
Baxter's operations are split nearly evenly between its BioScience and Medical Product segments. As a medtech firm, Baxter doesn't command a share of the market anywhere near that of Johnson & Johnson (JNJ) or Medtronic (MDT), but it has carved out a nice sized corner.
Its $3.9 billion acquisition of Swedish dialysis competitor Gambro should quickly be giving the company a large share of the European dialysis market. Analyst consensus provided by the Evaluate Group puts growth of the company's medtech segment at around 9% just below management estimates of 10%.
 See the complete report here.

Friday, December 20, 2013

What's Going To Drive Growth At Medtronic Going Forward

This piece on Medtronic is intended to be the first of a two part series. Here are the first two paragraphs. Read the complete post here.
Medtronic (MDT) is a global leader in medical device technology from concept to sale. Although it is dwarfed by Johnson & Johnson (JNJ), General Electric (GE), and Siemens AG (SI), it is the world's largest medical device focused company. It has produced steady top line growth for over a decade.
Overall the medtech industry should experience a CAGR of about 4.5% over the next five years. Although in-vitro diagnostics is likely to be the fastest growing segment in the coming years, this is a thriving industry expected to grow across the board.
In this post, I would like to outline the factors likely to allow Medtronic to grow at a modest, but steady rate over the next five years and beyond. In the near future, once the market produces more data on recent product launches, I'll cover the negatives. More specifically, the US excise tax on medical devices, pricing issues in Asia, CoreValve litigation, diabetes, and transcatheter valve competition.
Continuing, but tapering growth
Over the past decade Medtronic has managed to grow its top line by a CAGR of 8.76%. Per share earnings have also steadily increased at a slightly higher rate. I've included a chart below with quarterly periods to illustrate the company's rock steady earnings.
Again, you can only read the complete post at Seeking Alpha. Here's the link.

Alexion Pharmaceuticals, cPMP and the FDA's Breakthrough Designation

This post is really more about the new accelerated pathway that drugs like Sofosbuvir and Abbvie's HCV combination therapy are or were developed through. Here are the first two paragraphs. Read the complete post only at Seeking Alpha here.
What it takes to be a winner
Along with Alexion Pharmaceuticals' (ALXN) ALXN1101, more than 30 "Breakthrough Therapy" designations have been granted since the new accelerated approval pathway's inception. As of December 6, 2013, just three (PDF) have resulted in an accelerated approval. They are Genentech's Obinutuzumab, Pharmacyclics' (PCYC) Ibrutinib, and Gilead Science's (GILD) Sofosbuvir. As a potential Alexion investor, I'd like to take a closer look at the winners and the designation's criteria in order to assess the likelihood of ALXN1101's accelerated approval.
Reasons for another expedited pathway
Expedited pathways for life-threatening illnesses lacking available, effective treatments are hardly a recent development at the FDA. However, for patients clearly willing to trade certainty for speed, clinical development requirements were still viewed as far beyond what should be necessary. When a targeted therapy achieves its intended effect on its intended human subjects during early stage clinical trials, traditional late phase trials that last several years seems criminally excessive. The trouble was that prior to the passage of the FDA Safety and Innovation Act of 2012 ((FDASIA)), the requirements for expediting development of clearly effective drugs wasn't as clearly defined as it needed to be.
Again, you can read the complete post here.

The Thin Ice Enanta Was Standing On Has Cracked

Just two days after I posted this Gilead released some positive data. The thin ice Enanta was standing on cracked as I expected and the stock has lost 25%. You'll notice some very negative comments, you'll also notice things got very quiet very fast! I'll paste a snip from the conclusion. See the complete post here.
The risk-to-reward profile of its current partnerships, make Enanta just the sort of well managed biotechnology company I would recommend owning for the long haul, but I wouldn't start a position now at $37 per share. Given the lack of late stage candidates beyond ABT-450, the recent price is too dependent on a blended percentage of royalties from a not-yet-approved therapy for an increasingly competitive indication.
Enanta is certainly worth a spot in a watch list. It doesn't need Abbvie's combination to succeed, or even win approval, to remain buoyant. The risk is entirely on Abbvie. Enanta has no debts and is producing positive net income on a trailing twelve month basis. With four of the six Phase 3 trials associated with the Abbvie NDA to be completed by March 2014, an entry opportunity may present itself fairly soon. In the mean time I recommend keeping a close eye on this promising upstart.
Again the complete post is only available at Seeking Alpha here.

Friday, December 13, 2013

MacroGenics A Biotech Stock For Investors That Like A Floor Well Above Zero

Looking for a chance to reap huge rewards with a promising biotechnology company, but would like some sort of safety net high enough off the ground that you won't get bruised on the slightest hint of bad news. The Monoclonal Antibody (MAB) discovery machine that is MacroGenics $MGNX has enough steady milestone payments to keep afloat even if the worst happens to its wholly owned programs. Here's a snip from a report I published recently at Seeking Alpha (Full analysis here).
Big Pharma's hunger for access to monoclonal antibody development and production technology hasn't grown much over the past few years, but it isn't slowing either. Five of last year's top 20 drugs by sales contained antibodies. Although there has been a disconcerting amount Big Pharma dollars funding university based discovery, innovative biotechs are still getting plenty of attention.
Rookie deal maker of the decade
Fresh off its October IPO, MacroGenics (MGNX) has been getting a great deal of attention from deep pocketed deal seekers both in the US and abroad. The 13-year-old Rockville, Maryland company discovers and develops monoclonal antibody-based therapeutics for the treatment of cancer, autoimmune, and infectious diseases. Its candidates are generated via a suite of proprietary platforms that the drug industry values quite highly. The Company has entered into deals with titans like Gilead Sciences (GILD), Pfizer (PFE), France's Servier, and Germany's Boehringer Ingelheim.
Failure of a lead program during Phase 3 trials is the sort of news you would expect to cripple a budding biotech. MacroGenics suffered just this calamity, and promptly entered something of a golden age. The company quickly peeled itself off the lab floor after teplizumab, the diabetes treatment in-licensed by Eli Lilly (LLY), failed in October 2010. Less than a week after the disappointing announcement, the company announced deals with Pfizer and Boehringer Ingelheim potentially worth billions.
Read the complete analysis here.