Rough Days and Inovio

I continue to think that Inovio (INO) is one of the great biotechnology stories of our era. I have a new article out at Seeking Alpha on it:

Why Inovio Surged 26% on August 9

I just looked at my calendar and realize that should be August 10! Pretty funny!

Let me quote Dr. Kim: "We already have, and expect to soon show, many further accomplishments and advancements." When I interviewed him in July he made similar statements. The rules of biotech are that you have to announce that the data will be presented in a journal or at a medical conference. But the data is accumulating.

Like most of the stock market, Inovio sold off on August 11 and so far today. It's August, many of the big players are on vacation, and the Chinese have created uncertainty. Since most of the biotech companies sell most of their therapies in the U.S. and Europe, I am not worried. If the yuan were allowed to float, it would have floated down.

Of more concern is insurance companies, instead of doctors, deciding what drugs patients will be treated with. I know some doctors are greedy to the point of being con artists, but most try hard to get the specific drug to a specific patient with specific circumstances. It makes no long term sense to deny patients Hepatitis C therapies until they suffer detectable liver damage. It makes no sense for insurance clerks to decide what MS treatment is best for patients. Insurance companies have a legitimate right to monitor doctors to make sure they are not running up fraudulent bills, but denying patients the meds they need is criminal and should result in punitive measures by the courts.

On the other hand, some of the biotechs that I thought were too pricy just back in July have snapped back towards reality. My latest buy was Epizyme (EPZM), and while almost all my cash is at work, I am thinking of picking up some more small cap and mid cap biotechs during this fire sale.

Recent Trades: Gilead and Dot Hill

In the interest of transparency, since I am a financial journalist, I note that I made the following trades recently:

Dot Hill (HILL). I sold a small amount of HILL because it exceeded my usual 10% limit on share of portfolio. It sold for $4.57 on November 14, 2014. I had bought these particular shares on December 4, 2009 for $1.78 per share. I note that Dot Hill provided strong guidance for Q4 2014 and hinted that 2015 quarters should be closer to the Q4 run rate than was typical in the past. I am bullish on Dot Hill, but note it has missed guidance for various reasons in the past. See my Dot Hill Q3 Analyst Summary.

Gilead Sciences (GILD). Even though Gilead now takes up about 15% of my portfolio, I bought more this morning for $100.62 per share. I believe 2015 earnings will be in the vicinity of $10 per share. I believe the reason the price of the shares is so low is that institutional investors owned most of the shares, and as the price rose they had to start shedding shares to keep within their own portfolio limit rules. I believe competition for cures for Hepatitis C will be weak, and that public pressure will force insurers and the government to stop rationing Harvoni. Hepatitis C is infectious; it is bad health policy to not cure as many people as possible as early as possible in their disease course. See my Gilead Q3 analyst summary.

My buys and sells should not be construed as financial advise. I am just sharing my opinions with other writers and investors.

Inovio, Biogen Idec, and Gilead Sciences

Inovio got some good data, and you can read my interpretation at Seeking Alpha:

Is Inovio Undervalues after Positive HPV Therapy Results?

I've been listening to results conferences for the stocks I either own or would like to own. Two somewhat related, at least being biotechnology stocks with disease therapies, are:

Gilead Sciences (GILD) Q2 analyst conference

Gilead had outstanding results, largely based on Sovaldi, a cure for Hepatitis C. I believe Gilead should be heading to $180 or so a share. I'm not sure whose selling at $90, maybe people who bought way back when at $5 and have to reallocate, but probably people with some hope that some other drug will knock out Sovaldi, a hope that will be crushed as we move through the quarters. Gilead is generating so much cash it can use for buy backs, fighting that tide is the height of folly.

Biogen Idec (BIIB) Q2 analyst conference

Biogen has been performing great and raised guidance. In this case the stock did go up substantially following the report. It is not a cheap stock, but if you look down the road, it is highly likely to keep up a rapid pace of profit growth for years to come.

Bought More Gilead; Waiting on Regeneron

Just to follow up yesterday's post, this morning I added to my Gilead (GILD) holdings. Investors today are acting like it is a surprise that Gilead will have competition in the Hepatitis C market. Had they not been paying attention?

I believe Gilead can discount its Hep C therapies substantially if necessary to dominate the market, while still having high profit margins. In fact, I have believed all along that Gilead would have done better to price Sovaldi substantially lower and encourage larger numbers of patients to sign up quickly for the treatment. With hundreds of millions of potential patients in the world, they won't run out of patients any time soon, even though the cure rate is extremely high.

I think when Q1 results come out on April 22 we will see the tip of the iceberg for Sovaldi and the coming combination therapies. Gilead had just $139 million in Sovaldi revenue in Q4, and only $50 million made it to  patients, the rest being stocking.

I am still hoping to bag some Regeneron (REGN), but even though it is off today at $294, I think it has to be well below $285 now for me to prioritize it over buying more GILD. Of course those who own Regeneron would argue differently, and they could be right.

At $65.19, the price I paid today, Gilead had a trailing P/E of 36.3. With Solvadi and other new drugs coming online, my best guess is still that Gilead will go well over $100 per share by the end of the year. But as with all stocks, Gilead is limited to less than 10% of my portfolio holdings.

For all my background research and published articles on Gilead see: William Meyers on Gilead.

Xilinx Analysis and Gilead Call

I have a new article at Seeking Alpha:

Xilinx Has A Brighter Future Than Intel

I used Intel as a comparison because it is the best-known of the semiconductor companies.

I also posted my notes on the Gilead Sciences (GILD) Q4 2013 results and analyst call

I think the Gilead results were very good and the coming ramp of Sovaldi for curing hepatitis C infections (HCV) is going to more than justify the current price. However, that is hard to see given the Bear Hug the market is getting so far today.

I believe some stocks are overpriced, but if you are a long-term investor there is a lot of stuff that can be picked up at reasonable prices right now. I am at my portfolio limit for Gilead (near 10% of my holdings) or I would buy more. Because much of the pricing of Gilead is about profits in 2015 and beyond, and the stock has gone up so much in the last 2 years on anticipation of Sovaldi's success, short-term dips in the price should not be a big surprise.

Keep diversified!

Hansen Medical, Gilead Sciences, and Biogen Idec

Well I'm having a good day, with Hansen Medical (HNSN) up almost $0.22 to $1.45 at the moment, and Inovio (INO) up $0.21 to 2.08. These were minor positions for me given their risks, but large percentage moves can turn a minor position into a major one, which is why I am always looking for good micro-cap stocks, but never have more than 3 or 4 in my portfolio.

Hansen has actually been doing quite badly until today. I was going to write an article "Hansen still has a pulse" based on preliminary Q2 results in which they again sold only a couple of robotic surgery systems. But today they got a very large cash infusion, showing some powerful investors believe sales are just around the corner, or that Philips or Intuitive Surgical or someone might buy the company for its IP.

Overnight the editors at Seeking Alpha posted my Gilead Sciences Hepatitis C Approval May Be Factored In. I sound wishy-washy in giving a value to Gilead or dissing it or recommending it, but that is because no one knows where the price will be set for the new therapies. The execs at Gilead probably have some ideas, but they are not talking. And they should not, until they get FDA approval. When they announce prices to the medical community the stock price will adjust accordingly as all we analysts plug the therapy price into our spreadsheets. As a citizen I hope the price is low, because the government (we taxpayers) will be footing the bill. As an investor, not so much. In any case actually having a cure (for most patients) is going to cut down on the long-term costs from hepatitis C damage. Then again, if you don't die of liver failure you have to die of something, and whatever it is the doctors and pharmaceutical companies will want to get what they can out of that tragedy.

I still hope to get to Biogen Idec today. This afternoon Microchip (MCHP) will be reporting, so I'll be taking and posting notes on that conference.

Inovio Positive Vaccine Data Releases

Inovio (INO) is a micro-cap biotechnology company that is developing innovative vaccines and delivery systems. It has a market capitalization, today, of $71 million and the stock price closed at $0.51. (versus 52wk High/Low $0.90/$0.37; volatility is high)

Inovio's vaccines are aimed at difficult to treat viruses that typically exist in multiple strains. This means a specific traditional vaccine has to be developed to protect people from each strain. That takes times, and a new strain can emerge and infect a global population faster than a traditional vaccine can be developed. Inovio's SynCon vaccines are believed to provide cross-protection against multiple strains.

Results have been coming in on a regular basis from trials. In September Inovio announced an open-label Phase I study of its universal H1N1 influenza vaccine provoked immune responses "against some of the most prevalent strains of H1N! influenza from the past 100 years."

One veterinary subsidiary of Inovio reported its improved LifeTide DNA plasmid therapy for pigs to produces more piglets per litter, with higher birth weights, and at a lower dosage than the original version. A separate subsidiary in New Zealand received regulatory permission to market the therapy in October.

Also in October results from a VGX-3100 vaccine trial for HPV (human papillomavirus) showed 100% of 18 patients in the trial showed antigen-specific antibody response, while 78% showed T-cell responses. A phase II trial now underway will determine if the immune responses are able to reverse disease progression to cervical cancer.

In pre-clinical trials Inovio demonstrated that its electroporation technique for introducing its vaccines to skin using minimal invasion "induces robust cellular and humoral immune responses."

November was a busy month. First Inovio Hepatitis B (HPV) vaccine demonstrated the potential to clear HBV from the liver in mice in a pre-clinical trial. Another preclinical study showed T-cell immune response in Cytomegalovirus (CMV).

On December 6th positive Phase II interim results were reported in the leukemia trial. This could lead to treating CML (chronic myelogenous leukemia) with a vaccine. The results are from just 8 patients, with 14 patients currently enrolled and a total of 31 to be studied in the full trial. In addition to showing the vaccine to be safe. Patients received six does of two DNA vaccines at four week intervals. Tests showed T cells and leukemia antibodies were generated. Note, however, no data was released as to whether the patients responded to the therapy by delays in progression or the other usual indicators. In addition to CML, some of the patients to be enrolled will be suffering from AML (acute myeloid leukemia, a more common variety than CML).

Most recently, on December 10th interim Phase I results for H1N1 flu vaccine given to elderly patients were announced. 50 patients were in the trial, with two sets of 20 receiving the vaccine on differing schedules and 10 control subjects who received the traditional seasonal flu vaccine. Immune responses registered at 40% for the Inovio vaccine, double the rate of 20% responding to the traditional vaccine. It was previously known that elderly patients tend to not gain immunity from standard flu vaccines.

What is innovative about Inovio vaccines? They are DNA vaccines. Traditional vaccines consist of weakened or dead viruses or their protein coatings. DNA vaccines need to be inserted into cells (instead of into the bloodstream), but once there can trigger both antibody and T-cell immune responses. To insert the vaccines into cells Inovio uses an electroporation device it developed and has successfully tested. Inovio, in fact, resulted from the merger of a vaccine company and an electroporation developer.

It is important to note that all of the new data is from early-stage trials. To receive FDA approval for commercial sales of a therapy typically two successful Phase III trials are required. Inovio Pharmaceuticals is a developmental stage company with all the risks and uncertainties inherent in that status.

In addition to the recent news, Inovio has a Hepatitis C vaccine in a Phase II trial, and an HIV vaccine in Phase I. It has more cancer vaccine candidates: prostate in preclinical, and a breast/lung/prostate cancer trial in Phase I.

Despite the risk of failure common to all new biotechnology, I believe Inovio is more likely than not to be worth far more in a few years than it is now. Inovio has many shots on goal. Only one vaccine would need to be approved by the FDA to make Inovio a highly-valuable company.

Another risk for investors is that Inovio is likely to need to raise cash to complete its program of demonstrating the effectiveness of its vaccines, and to commercialize them. However, as of the end of Q3, Inovio had $15 million in cash, and some of the trials are being conducted, or paid for, by partners.

Disclaimer: I am long INO. I will not trade INO for 7 days following the publication of this article.

Keep diversified! You should also take a good close look at inovio.com and SEC documents before risking your capital.

Gilead Sciences Pipeline Value

Gilead Sciences (GILD), has had a good year so far. On January 3, 2012 it opened at $41.46. Today it closed at 74.61, fairly near its 52-week high of $76.28. So up 84% this year. I used to write about Gilead more often during the years 2007 to 2011, arguing that it was undervalued. After finally getting a solid run up, is it time to bail out, hold, or buy more?

The forward-looking story is now largely about curing Hepatitis C, but first the latest backward-looking numbers.

In Q3 revenue was $2.43 billion, up 1% sequentially from $2.41 billion and up 14% from $2.12 billion in the year-earlier quarter. GAAP net income was $675.5 million, down 5% sequentially from $711.6 million, and down 9% from $741.1 million year-earlier. GAAP earnings per share (EPS) were $0.85, down 7% sequentially from $0.91 and down 10% from $0.95 year-earlier. Non-GAAP net income was $788.9 million, up 3% sequentially $767.3 million, and down 1% from $795.2 million year-earlier.

Profits did not keep pace with revenue growth because of costs from the Pharmasset acquisition from earlier in the year and a significant increase in R&D expense. Gilead is currently rolling out its newest HIV drugs like Stribild, which is helping revenue, but the R&D is not so much for HIV. The new R&D research is focused on hepatitis and oncology.

Why the emphasis on hep c? While Gilead Sciences has branched out into treatments for cardiovascular diseases, its primary expertise in in anti-viral drugs, particularly for HIV infections. Because of the effectiveness of its single-tablet, multi-drug combinations, Gilead dominates that market. Gilead also markets Viread for Hepatitis B. The past generation of Hepatitis C therapies have limited effectiveness, have a number of side effects, and cannot be administered orally.

Before the Pharmasset acquisition Gilead had four hepatitis drugs in phase II trials, and three in phase I, and said they would likely be made into a successful combination therapy. Pharmasset added Phase III candidate PSI-7977 (now Sofosbuvir), Phase II candidate Mericitabine, and Phase II candidate PSI-938, all for hep C. Pharmasset also brought candidates for HIV and hepatitis B treatment.

The latest set of results is for Sofosbuvir. The Phase 3 POSITRON study showed a response rate of 78% for hepatitis C (HCV) genotypes 2 and 3 when Sofosbuvir was combined with Ribavirin. It is notable that this is an all-oral regimen which does not include the using old standard, interferon. In tracking HCV note that a drug combination that works well with a particular genotype may not work with others. After 12 weeks of therapy and then an addition twelve weeks to see if the virus returned, HCV was not detected in 78% of patients. For those who are keeping track, Sofosbuvir used to be GS-7977.

Better still were the results from Sofosbuvir combined with GS-5885 and Ribavirin for genotype 1 HCV patients. Following 12 weeks of therapy and then 4 weeks without therapy, the response rate was 100%. Used with just ribavirin, Sofosbuvir had mixed results ranging from 84% for genotype 1 patients with no prior treatment down to only 10% response for genotype 1 patients who had not responded to prior treatments. For genotype 2 and 3 mixes, the range of responses was 60% to 68%.

Note that 100% cure rate is not necessary for FDA approval. As long as a combination can be found that does well with previously-untreated patients or that helps patients who were not helped by current therapies that include interferon, with about a 40% cure rate, the drugs could fulfill an unmet medical need.

At the same time it is a race, since other companies are also trying to break into the all-oral hepatitis market. It is a huge market. An estimated 150 million people world-wide have chronic hepatitis C, with the U.S. figure likely somewhere between 3 and 6 million (many people have undiagnosed HCV). For a less positive spin on the overall competition in hepatitis, I try Lessons from the Liver Meeting at Seeking Alpha.

Using the standard trailing 12-month ratio, Gilead's current P/E is 23.3. That is up quite a bit from earlier in the year. Conservative investors may want to wait until Gilead has actual FDA approval for a hepatitis C before extrapolating their chickens. As usual, the problem is by that time the stock may be priced even higher.

I don't think the current market has even priced in the true future value of Gilead's current drugs, much less the potential of a Sofosbuvir cocktail. In my particular case I feel comfortable with looking to the continued appreciation of my current holdings. I might still buy if the hep C data keeps getting better without a corresponding rise in the stock price. I have portfolio rules that restrict any stock to a maximum percentage of the entire portfolio, and could be forced to sell some if the stock rises too rapidly in price, though that seems unlikely at present.

Even with a great growth potential Gilead has, there are the usual risks from competition, macroeconomics, failure to receive FDA approval, etc.

Keep Diversified!

Disclaimer: I am a long-term investor in Gilead Sciences. I will not trade in the stock for a week from today.

See also:

my Gilead Sciences Q3 2012 analyst call summary

www.gilead.com

Gilead Sciences Looks for Hepatitis C Cure

When I last wrote about Gilead Sciences (GILD), on July 26, 2011, I said "A convergence of factors is driving Gilead profits higher. This trend should accelerate in 2012 and continue through at least 2015." [See Gilead Sciences Readies Pipeline]. Gilead stock that day closed at $42.16. Last Friday April 27, GILD closed at $52.16, following the announcement of Q1 results after market close on Thursday.

The forward-looking story is now largely about curing Hepatitis C, but first the backward-looking numbers.

In Q1 revenue was $2.28 billion, up 4% sequentially from $2.20 billion and up 18% from $1.93 billion in the year-earlier quarter. GAAP net income was $442.0 million, down 34% sequentially from $665.1 million and down 32% from $651.1 million year-earlier. GAAP earnings per share (EPS) were $0.57, down 34% sequentially from $0.87 and down 29% from $0.80 year-earlier.

The poor GAAP profit showing relative to revenue was mainly related to the acquisition of Pharmasset, closing on January 17, for $11 billion. Pharmasset held important therapies for hepatitis C that Gilead wanted to add to its own hep C pipeline. Non-GAAP EPS was $0.91, up from $0.87 year-earlier.

Why the emphasis on hep c? While Gilead Sciences has branched out into treatments for cardiovascular diseases, its primary expertise in in anti-viral drugs, particularly for HIV infections, which lead to AIDS if untreated. Because of the effectiveness of its single-tablet, multi-drug combinations, Gilead dominates that market. Gilead also markets Viread for Hepatitis B. The past generation of Hepatitis C therapies have limited effectiveness, have a number of side effects, and cannot be administered orally.

Before the Pharmasset acquisition Gilead had four hepatitis drugs in phase II trials, and three in phase I, and said they would likely be made into a successful combination therapy. Pharmasset added Phase III candidate PSI-7977 (now GS7977), Phase II candidate Mericitabine, and Phase II candidate PSI-938, all for hep C. Pharmasset also brought candidates for HIV and hepatitis B treatment.

Thursday Gilead executives reviewed recent hep C data and clarified their strategy. The GS-7977 plus ribavirin hepatitis C (HCV) genotype 1 Phase 2 study showed no detectible virus after 12 weeks of treatment, but at end of treatment the majority of patients relapsed. GS-7977 plus BMS-790052 (owned by Bristol Myer) showed high hepatitis C cure rates: >90% for genotype 2/3 and 100% for genotype 1.

Based on those and other results, Gilead is designing Phase III studies that could be fully enrolled by the end of May. Several paths are available to get therapies to market, but they need to talk more to regulators before the final trials are initiated. They would clearly prefer an all-Gilead single tablet regimen that cures most hep C, so working with Bristol Myer would be a fall back position. Given the number of drugs Gilead owns and could combine with 7977, it is a good, but not certain, bet that something will work.

At the same time it is a race, since other companies are also trying to break into the all-oral hepatitis market. It is a huge market. An estimated 150 million people have chronic hepatitis C, with the U.S. figure likely somewhere between 3 and 6 million (many people have undiagnosed hep c).

It is too early, I think, to put a number on the value of a hep c cure, but note that Gilead paid $11 billion for Pharmasset. They went through most of their cash and borrowed some $5.5 billion to do it. Gilead annual cash flow runs around $2 billion.

The main risk here is that a competitor (or multiple competitors) will also create an all-oral hepatitis c therapy, and might even gain FDA approval first. Even so, it is a big market and I don't think Gilead's present price reflects much of this opportunity.

Even with a great growth and value combo like Gilead, there are the usual risks from competition, macroeconomics, failure to execute, etc. See SEC filings for a complete set of risks.

And Keep Diversified!

Disclaimer: I am a long-term investor in Gilead Sciences. I will not trade in the stock for a week from today.

See also:
my Gilead Sciences Q1 2012 analyst call summary
www.gilead.com