Inovio Pharmaceuticals (INO) released Q2 results on August 9, 2013, and you can read my notes here: Inovio Results Q2 2013.
Because Inovio had been an under $1 stock until a few months ago, and then spiked to $3.03 on August 6, and because I had already invested in INO over a year ago, I thought it would be a good time to write an article for Seeking Alpha explaining my understanding of the company.
Here it is: Inovio's Price Spike and the Future of DNA Vaccines
The funny thing is, the article got quite long, and in the end I did not reference the Q2 results. That is okay, because the Q2 results don't tell you whether any vaccine in the INO pipeline is going to eventually get data good enough for FDA approval. Which is the crucial issue for start-up biotechnology companies like Inovio.
I tried to show what I think if the proper way for investors to think about startups and therapies that are in clinical trials, or even preclinical. Most analysts want to reduce everything to a "buy, hold, or sell" paradigm. But with healthcare pipelines no one really knows what the result of a clinical trial will be. IF we knew, why conduct the trial? And since nobody knows (including Wall Street sell-side analysts and hedge fund managers), the sensible approach is probability based and statistical. Bets should be spread out over a variety of companies that have a good probability of a high return on investment, with the expectation that some will have failed therapies. You have to make up for your losses with your gains.
If you have not learned basic probability and statistics (that's all you need), stay away from biotech therapy pipelines (or let someone manage your money who does. I do not manage other people's money, and I don't trust anyone to manage mine. Call me quirky.)
In particular, avoid stocks where the investment community, usually driven by sell-side analysts at major banks, has fully priced in victory. If FDA approval is priced into market capitalization, there is no reason to buy a stock (but your broker will suggest you do it anyway). What those of us who manage our own accounts want is companies where the market cap does not take into account the probable outcome. My usual examples of this for the past 5 years were BIIB, GILD, CELG, and ONXX, all of which had pipelines that were undervalued by the street. I continue to own all 4 of these stocks because while I think their current prices do predict a healthy 2014 in each case, I think the rest of the decade is not priced in.
But what I want to continue to search for, when I have time, is stocks like INO that still have a long way to go.
Keep Diversified!
Showing posts with label pipeline. Show all posts
Showing posts with label pipeline. Show all posts
Saturday, August 17, 2013
Tuesday, April 30, 2013
Biogen Idec Too High Too Fast?
Biogen Idec (BIIB) is now off its 52-week high of $226.18 (reached earlier today) but up from a 52 week low of $126.39 (of June 4, 2012). At $218.84 it has risen 73% off the low.
I began following BIIB in the first quarter of 2006, but did not acquire stock until February 2008, when I picked it up at $61.57 per share. In the short run I overpaid, but I picked up more later that year at $46.97. I person with perfect timing could have picked up shares at $40.27 on November 28, 2008. Biogen then rose to $67.05 by the end of 2010, and looks like it invented an anti-gravity machine this January.
Biogen did so well that it became too large a percentage of my portfolio (according to my portfolio rules) so I sold half of my position on May 16, 2012 for $137.19. Now of course I wish I had violated my portfolio rules and kept the stock longer, but I had other situations where those same rules kept me out of major trouble (they were the main reason I sold most of my Dendreon stake before the price collapsed).
Even though my remaining Biogen stake is well within my portfolio rules I have to ask: is BIIB overpriced? Should I sell it and look for a better value proposition?
There were reasons Biogen was priced where it was in 2008 through 2010, the big one being a disease called PML (progressive multifocal leukoencephalopathy) caused by the JVC virus. Biogen's specialty is multiple sclerosis MS therapies. Its Avonex was the most prescribed MS therapy, but the new wonder drug was supposed to be Tysabri. MS is an autoimmune disease; MS therapies work by selectively suppressing the immune system. Turned out, the JVC virus lurks in the brains of about 1/2 the population, generally doing no harm except when the immune system collapses, when it causes PML, and often results in death.
Tysabri use led to some PML cases, and in a few instances to death. Not knowing what the rate was, nor what treatment could be given for PML, the FDA revoked Tysabri's marketing license. The immediate solution turned out to be to monitor for PML and stop giving Tysabri if there were symptoms. The FDA re-approved Tysabri provided a monitoring program was in place. While Tysabri was so effective that sales ramped back up substantially, naturally there was concern by doctors, patients, and investors that we might see more PML deaths and a permanent ban on Tysabri.
Nevertheless in Q1 2008 Tysabri sales were $115 million, total Biogen revenue was $942 million, and GAAP EPS was $0.54. It being the recession, investors were risk-adverse, and it seemed no amount of good news on Tysabri, revenue, or profit could do much for the stock until late 2010.
So much of the run up in the price was just investors catching up to the new reality: a highly-profitable biotechnology company with a strong pipeline of potential future blockbusters. But in the same way investors lagged reality before 2011, perhaps so many momentum players have jumped on the BIIB bandwagon that the stock has gotten ahead of its fair valuation.
By the beginning of 2013 we had pre-screening for JVC and better treatments for PML, reducing the risk of PML mortality to statistically close to zero. We have substantial Fampyra revenues, though that therapy had also had its issues.
Plegridy (peginterferon beta-1a) for relapsing MS pivotal Phase III data has met all primary and secondary endpoints after 1 year cutoff of a two-year study. Biogen expects to file with FDA and EMA (Europe) by mid-2013
Daclizumab-HYP Phase III data readout expected in 2014. It is also for relapsing forms of MS.
Biogen also filed for approval with FDA for Hemophilia Factor 8 for A and 9 for B, based on significant Phase III trial results.
A number of other therapies are in Phase I, II, or III trials. See the Biogen-Idec product pipeline for more details.
So we can figure that the most likely scenario is that Biogen Idec will see substantial revenue and profit growth over the next few years and new therapies come to market. It is unlikely that everything in the pipeline will get good results and FDA approval, but Biogen has a lot of shots on goal.
You can build spreadsheets (and I have, and sell-side analysts certainly do) guessing at revenue and profits from future therapies based on patient populations, competing therapies, and guesses about pricing. But experienced pharmacology and biotechnology investors know that promising therapies often fail, and unexpected side effects can show up even after FDA approval. Picking winners of competitive races is also more guesswork than science.
So a good hard look at the latest quarter should keep us anchored in reality, and then some P/E ratio points can be added to reflect optimism about profit growth in the next few years; add as many points as you are comfortable with.
Biogen reported on the first quarter of 2013 last Thursday. Revenue of $1.415 billion was up 9.5% from Q1 2012, which is quite good and means a fair P/E ratio should be above the market average. GAAP EPS was $1.79, up 43% y/y; now that should be worth some a P/E ratio well above market. Ballpark it at 30 to 1.
Guidance is for 2013 GAAP EPS of $6.69 to $6.90. Given that non-GAAP guidance is $7.80 to $7.90, let's use $7.00 and multiply by 30. That gives us $210 per share, not much off today's auction price.
So my ballpark estimation is that even at this price BIIB is still a good value. Included in the price are estimated 2013 profits. The pipeline of new drugs revenue and profits won't kick in substantially until 2014. I would expect BIIB to end 2014 in a higher price band, depending on the details of new product ramps.
I am inclined to hold my BIIB and, if I need to sell stock because I spot another opportunity as good as Biogen was in 2008, I could probably find something else to sell. Most likely I will leave BIIB off the leash until it again becomes a risk management problem from being too large a percentage of my portfolio. If I am wrong and it falls in the short run, or becomes a smaller percentage of my portfolio again because something else runs up, I might even buy more.
Keep diversified!
Disclaimer: I own share of BIIB and reserve the right to sell them or buy more at any time, even though I currently have no plans to change my position.
See also:
My Biogen Idec main analyst conferences page.
My BIIB Q1 2013 conference notes
www.biogenidec.com
I began following BIIB in the first quarter of 2006, but did not acquire stock until February 2008, when I picked it up at $61.57 per share. In the short run I overpaid, but I picked up more later that year at $46.97. I person with perfect timing could have picked up shares at $40.27 on November 28, 2008. Biogen then rose to $67.05 by the end of 2010, and looks like it invented an anti-gravity machine this January.
Biogen did so well that it became too large a percentage of my portfolio (according to my portfolio rules) so I sold half of my position on May 16, 2012 for $137.19. Now of course I wish I had violated my portfolio rules and kept the stock longer, but I had other situations where those same rules kept me out of major trouble (they were the main reason I sold most of my Dendreon stake before the price collapsed).
Even though my remaining Biogen stake is well within my portfolio rules I have to ask: is BIIB overpriced? Should I sell it and look for a better value proposition?
There were reasons Biogen was priced where it was in 2008 through 2010, the big one being a disease called PML (progressive multifocal leukoencephalopathy) caused by the JVC virus. Biogen's specialty is multiple sclerosis MS therapies. Its Avonex was the most prescribed MS therapy, but the new wonder drug was supposed to be Tysabri. MS is an autoimmune disease; MS therapies work by selectively suppressing the immune system. Turned out, the JVC virus lurks in the brains of about 1/2 the population, generally doing no harm except when the immune system collapses, when it causes PML, and often results in death.
Tysabri use led to some PML cases, and in a few instances to death. Not knowing what the rate was, nor what treatment could be given for PML, the FDA revoked Tysabri's marketing license. The immediate solution turned out to be to monitor for PML and stop giving Tysabri if there were symptoms. The FDA re-approved Tysabri provided a monitoring program was in place. While Tysabri was so effective that sales ramped back up substantially, naturally there was concern by doctors, patients, and investors that we might see more PML deaths and a permanent ban on Tysabri.
Nevertheless in Q1 2008 Tysabri sales were $115 million, total Biogen revenue was $942 million, and GAAP EPS was $0.54. It being the recession, investors were risk-adverse, and it seemed no amount of good news on Tysabri, revenue, or profit could do much for the stock until late 2010.
So much of the run up in the price was just investors catching up to the new reality: a highly-profitable biotechnology company with a strong pipeline of potential future blockbusters. But in the same way investors lagged reality before 2011, perhaps so many momentum players have jumped on the BIIB bandwagon that the stock has gotten ahead of its fair valuation.
By the beginning of 2013 we had pre-screening for JVC and better treatments for PML, reducing the risk of PML mortality to statistically close to zero. We have substantial Fampyra revenues, though that therapy had also had its issues.
Plegridy (peginterferon beta-1a) for relapsing MS pivotal Phase III data has met all primary and secondary endpoints after 1 year cutoff of a two-year study. Biogen expects to file with FDA and EMA (Europe) by mid-2013
Daclizumab-HYP Phase III data readout expected in 2014. It is also for relapsing forms of MS.
Biogen also filed for approval with FDA for Hemophilia Factor 8 for A and 9 for B, based on significant Phase III trial results.
A number of other therapies are in Phase I, II, or III trials. See the Biogen-Idec product pipeline for more details.
So we can figure that the most likely scenario is that Biogen Idec will see substantial revenue and profit growth over the next few years and new therapies come to market. It is unlikely that everything in the pipeline will get good results and FDA approval, but Biogen has a lot of shots on goal.
You can build spreadsheets (and I have, and sell-side analysts certainly do) guessing at revenue and profits from future therapies based on patient populations, competing therapies, and guesses about pricing. But experienced pharmacology and biotechnology investors know that promising therapies often fail, and unexpected side effects can show up even after FDA approval. Picking winners of competitive races is also more guesswork than science.
So a good hard look at the latest quarter should keep us anchored in reality, and then some P/E ratio points can be added to reflect optimism about profit growth in the next few years; add as many points as you are comfortable with.
Biogen reported on the first quarter of 2013 last Thursday. Revenue of $1.415 billion was up 9.5% from Q1 2012, which is quite good and means a fair P/E ratio should be above the market average. GAAP EPS was $1.79, up 43% y/y; now that should be worth some a P/E ratio well above market. Ballpark it at 30 to 1.
Guidance is for 2013 GAAP EPS of $6.69 to $6.90. Given that non-GAAP guidance is $7.80 to $7.90, let's use $7.00 and multiply by 30. That gives us $210 per share, not much off today's auction price.
So my ballpark estimation is that even at this price BIIB is still a good value. Included in the price are estimated 2013 profits. The pipeline of new drugs revenue and profits won't kick in substantially until 2014. I would expect BIIB to end 2014 in a higher price band, depending on the details of new product ramps.
I am inclined to hold my BIIB and, if I need to sell stock because I spot another opportunity as good as Biogen was in 2008, I could probably find something else to sell. Most likely I will leave BIIB off the leash until it again becomes a risk management problem from being too large a percentage of my portfolio. If I am wrong and it falls in the short run, or becomes a smaller percentage of my portfolio again because something else runs up, I might even buy more.
Keep diversified!
Disclaimer: I own share of BIIB and reserve the right to sell them or buy more at any time, even though I currently have no plans to change my position.
See also:
My Biogen Idec main analyst conferences page.
My BIIB Q1 2013 conference notes
www.biogenidec.com
Monday, November 7, 2011
Celgene Q3 shows model strength
Celgene provides a double dose of growth potential: further growth of its currently approved therapies and a rich pipeline with some therapies closing in on FDA approval and commercialization. Since I last wrote about Celgene on August 2, its stock price has risen from $57.29 to today's close of $64.29. Celgene's 52 week high is $68.25 reached on October 24th.
Consider Celgene's Q3 earnings reported last week. Revenue was $1.22 billion, up 3% sequentially from $1.18 billion and up 41% from $886 million in the year-earlier quarter. GAAP net income was $373.0 million, up 34% sequentially from $279.2 million and up 33% from $281.2 million year-earlier. GAAP EPS were $0.81, 37% sequentially from $0.59 and up 35% from $0.60 year-earlier. Non-GAAP EPS was EPS $1.02.
Most of this rapid growth was based on a single therapy, Revlimid for multiple myeloma (MM) and myelodysplastic syndromes (MDS). Revlimid revenues grew 28% from a year earlier. Expansion is largely international now, with Russia, China and Brazil still ahead. In addition various clinical trials have indicated Revlimid will be beneficial in other types of cancer. Revlimid is in Phase III trials for CLL (chronic lymphocytic leukemia), NHL (non-Hodgkin lymphoma) and prostate cancer.
Thalomid is ancient and had revenues $83 million, down 12% y/y.
VIDAZA for multiple myeloma revenues were $191 million, up 35% y/y. This is despite losing exclusivity in the United States.
The bit new revenue generator is ABRAXANE for breast cancer. Abraxane is also in clinical trials for treating lung, pancreatic, bladder, skin, and ovarian cancers. ABRAXANE revenues were $114 million, up 20% sequentially, that is quarter over quarter; Celgene did not market it a year ago. A Phase III trial comparing it to decarbazine for metastatic melanoma is expecting to read out data in mid 2012. Phase III Pancreatic cancer trial should complete enrollment in Q1 2012. International revenue continues to ramp. For instance, in the quarter Celgene received reimbursement permission for Abraxane in in Greece and the Czech Republic.
Earlier in the pipeline Celgene displays depth-of-field. Of course most pre-clinical drugs don't make it through all the clinical phases and FDA approval; there are likely to be some losers. Celgene's pipeline is so broad and important you could write a book about it.
In Oncology/Hematology we have pomalidomide in Phase III trials for myelofibrosis and nearing the end of Phase II for multiple myeloma. There is Amrubicin, in Phase III for small cell lung cancer. In Phase II we also have ACE-011 for CIA and ABI-008 for prostate cancer. In Phase I we have Tork Inhibitor and ABI-009, both for solid tumors. There are two additional pre-clinical ABI variants for solid tumors.
Apremilast completed enrollment of patients in Phase III trials for psoriasis and psoriatic arthritis, with three more Phase III trials to complete enrollment by year-end. Phase II trial data for ankylosing spondylitis will be presented in November. In inflammation and immunology we also have JNK CC-930, CC-11050 and PDA-001 in Phase II.
Pomalidomide Phase II data for relapsed and refractory myeloma will be presented at ASH in December. The company is conducting a broad clinical program to support global registrations for pomalidomide.
Beyond that Celgene lists over a dozen agents in discovery and pre-clinical phases.
Of course, what will affect Celgene's stock price soonest are the late stage candidates. The first big movers is likely to be expanding the label for Revlimid to first-line (initial) treatment of multiple myeloma. The second would be Abraxane for non-small cell lung cancer, with FDA submission in second half of 2011 and a decision likely in the first half of 2012.
In general it is a very good time to invest in biotechnology, even given the known risks. Celgene is a cash cow that also has unrealized value in its pipeline. Small, risky biotechs aren't commanding the high premiums they used to, which is good because many of their drug candidates don't work out. With the larger biotechs like Celgene if a drug candidate fails it is disappointing and the stock can lose some momentum, but cash flow can be used to buy and develop more candidates. Celgene's cash and equivalents balance ended at $2.58 billion. Cash flow from operations was $602 million. $885 million was spent on share repurchases in the quarter.
Hopefully some time soon Celgene will start paying out a dividend, which is the true gold standard for today's investors.
Keep diversified!
Disclaimer: I am long Celgene. I have no plans to buy or sell Celgene in the next two weeks.
Consider Celgene's Q3 earnings reported last week. Revenue was $1.22 billion, up 3% sequentially from $1.18 billion and up 41% from $886 million in the year-earlier quarter. GAAP net income was $373.0 million, up 34% sequentially from $279.2 million and up 33% from $281.2 million year-earlier. GAAP EPS were $0.81, 37% sequentially from $0.59 and up 35% from $0.60 year-earlier. Non-GAAP EPS was EPS $1.02.
Most of this rapid growth was based on a single therapy, Revlimid for multiple myeloma (MM) and myelodysplastic syndromes (MDS). Revlimid revenues grew 28% from a year earlier. Expansion is largely international now, with Russia, China and Brazil still ahead. In addition various clinical trials have indicated Revlimid will be beneficial in other types of cancer. Revlimid is in Phase III trials for CLL (chronic lymphocytic leukemia), NHL (non-Hodgkin lymphoma) and prostate cancer.
Thalomid is ancient and had revenues $83 million, down 12% y/y.
VIDAZA for multiple myeloma revenues were $191 million, up 35% y/y. This is despite losing exclusivity in the United States.
The bit new revenue generator is ABRAXANE for breast cancer. Abraxane is also in clinical trials for treating lung, pancreatic, bladder, skin, and ovarian cancers. ABRAXANE revenues were $114 million, up 20% sequentially, that is quarter over quarter; Celgene did not market it a year ago. A Phase III trial comparing it to decarbazine for metastatic melanoma is expecting to read out data in mid 2012. Phase III Pancreatic cancer trial should complete enrollment in Q1 2012. International revenue continues to ramp. For instance, in the quarter Celgene received reimbursement permission for Abraxane in in Greece and the Czech Republic.
Earlier in the pipeline Celgene displays depth-of-field. Of course most pre-clinical drugs don't make it through all the clinical phases and FDA approval; there are likely to be some losers. Celgene's pipeline is so broad and important you could write a book about it.
In Oncology/Hematology we have pomalidomide in Phase III trials for myelofibrosis and nearing the end of Phase II for multiple myeloma. There is Amrubicin, in Phase III for small cell lung cancer. In Phase II we also have ACE-011 for CIA and ABI-008 for prostate cancer. In Phase I we have Tork Inhibitor and ABI-009, both for solid tumors. There are two additional pre-clinical ABI variants for solid tumors.
Apremilast completed enrollment of patients in Phase III trials for psoriasis and psoriatic arthritis, with three more Phase III trials to complete enrollment by year-end. Phase II trial data for ankylosing spondylitis will be presented in November. In inflammation and immunology we also have JNK CC-930, CC-11050 and PDA-001 in Phase II.
Pomalidomide Phase II data for relapsed and refractory myeloma will be presented at ASH in December. The company is conducting a broad clinical program to support global registrations for pomalidomide.
Beyond that Celgene lists over a dozen agents in discovery and pre-clinical phases.
Of course, what will affect Celgene's stock price soonest are the late stage candidates. The first big movers is likely to be expanding the label for Revlimid to first-line (initial) treatment of multiple myeloma. The second would be Abraxane for non-small cell lung cancer, with FDA submission in second half of 2011 and a decision likely in the first half of 2012.
In general it is a very good time to invest in biotechnology, even given the known risks. Celgene is a cash cow that also has unrealized value in its pipeline. Small, risky biotechs aren't commanding the high premiums they used to, which is good because many of their drug candidates don't work out. With the larger biotechs like Celgene if a drug candidate fails it is disappointing and the stock can lose some momentum, but cash flow can be used to buy and develop more candidates. Celgene's cash and equivalents balance ended at $2.58 billion. Cash flow from operations was $602 million. $885 million was spent on share repurchases in the quarter.
Hopefully some time soon Celgene will start paying out a dividend, which is the true gold standard for today's investors.
Keep diversified!
Disclaimer: I am long Celgene. I have no plans to buy or sell Celgene in the next two weeks.
Wednesday, July 27, 2011
Gilead Sciences Readies Pipeline Value
Gilead Sciences (GILD) is an enourmously profitable company with a cheap stock price, as measured by its Price to Earnings (P/E) ratio. Yesterday Gilead released in second quarter (Q2) 2011 results and held its analyst conference.
A convergence of factors is driving Gilead profits higher. This trend should accelerate in 2012 and continue through at least 2015.
Gilead dominates the anti-retroviral, HIV drugs market in the U.S, where its market share has grown to 70.4%. Its global market share is not as high, but continues to ramp. Gilead AIDS drugs (Atripla, Truvada and Viread) brought in $1.76 billion in the quarter, up 11% y/y. Gilead's therapies are popular because they combine several drugs in a single pill, which makes for good patient compliance.
You might think that in a highly competitive field, with over 70% market share, there would be little upside left. A couple of factors show that thinking is wrong. Recent trials have shown the benefit of starting those infected with HIV much earlier than is currently the case, and that therapy reduces the risk of infection for partners by 96%. The percentage of Americans who are infected and who are already taking Gilead anti-retroviral drugs is estimated to be only 42%. Globally, as nations modernize and become wealthier, the demand for the best HIV therapies is also expanding.
In addition, in 2012 Gilead should be bringing to new combination pills to market, pending FDA approval. Endurant for HIV single tablet regimen of Truvada plus Rilpivirine is likely to get FDA approval in August. The Quad regimen data from two Phase III trials will be released in Q3 2011. In the likely case the data is positive, we should see Quad for sale in the second half of 2012. While some patients may shift from one Gilead pill to another, most the likely course is that Quad and Atripla will continue to take share away from older, non-Gilead therapies.
Branching out from anti-virals, Gilead has made progress with Letairis for pulmonary arterial hypertension, which generated $74 million in revenue. Ranexa for chronic angina hit $86 million in the quarter.
The coming pipeline of Gilead non-HIV drugs is so large that I can only give an overview here and refer you to the conference slide show (see link below). There are even more HIV therapies at stages of the pipeline, including two stand parts of the Quad, Elvitegravir and Cobicistat. There are four hepatitis drugs in phase II, and three in phase I, which will likely be made into a combination therapy for hepatitis C. There are six drugs, mostly in Phase II, with cardiovascular, respiratory and oncology targets.
Gilead had an astonishing free cash flow in the quarter of $943 million. I'd like to see a dividend, but I agree that at this point the stock is so undervalued that buy-backs make a lot of sense. Gilead spent $724 million in buy backs in the quarter. Yet it ended with a cash balance of $5.5 billion. Gilead is in a great position to acquire and develop more drug candidates.
Short of a Black Swan type disaster, I see Gilead as being a much, much larger company by 2020. That is why I own Gilead stock and may continue to acquire it (in a balanced fashion).
But even with a great growth and value combo like Gilead Sciences, there are the usual risks from competition, macroeconomics, failure to execute, etc. See SEC filings for a complete set of risks.
And Keep Diversified!
See also:
my Gilead Sciences Q2 2011 analyst call summary
Gilead Q2 2011 slide show
Monday, July 11, 2011
Biogen Idec (BIIB) Valuation Thoughts
When I wrote "Biogen Idec PML Test Approved in Europe, Changing Tysabri Outlook" on March 15, 2011, the price per share of BIIB was $69.56. Today it closed at $105.53, having backed off its recent 52 week high of $109.63. Quite a run. So, the eternal investor questions: did something change? Does the run up reflect value that was already there back in March? Could this be another momentum run unjustified by fundamentals? Could there be even more value in the stock?
Biogen Idec's two multiple sclerosis (MS) blockbuster drugs are Avonex, with revenues in Q4 2010 of $654 million, and Tysabri, with revenues of $242 million. Also Rituxan generated $258 million. As I wrote earlier, most investors and analysts expect Tysabri revenues to rise now that patients can be pre-tested for JCV. Trailing earnings are $4.35 per share, so the current price/earnings (PE) ratio, while not real high, does anticipate solid earnings growth. This is despite competition from new MS therapies, notably Gilenya by Novartis, which is the first oral treatment for the disease, but which was not as effective as Tysabri in clinical trials.
I have always argued that there is undiscovered value in the earlier stages of the Biogen Idec pipeline, but that situation is little changed since March. With 8 indications in Phase III trials, chances are that several new therapies will be approved over the next couple of years. However, Biogen does plan to narrow the scope of its development program, eliminating oncology and cardiovascular candidates to focus on immunology. This should reduce costs in the short run.
On June 7 Biogen announced the EU had approved its Avonex PEN, which is a single-use injection device which will make taking the drug more convenient for MS patients. Nice, but not responsible for a $40 stock run-up.
On June 22 Biogen announced the EU approved including JCV status as a risk factor for Tysabri, which we presumed would happen in March.
On July 3, after the run-up, Biogen announced some nice science research on the role of death receptor-6 (DR6) in MS. Nice, but probably ten years away from adding to revenues, if it should work out.
It is fair to conclude that the price of BIIB had been low because of fears about Tysabri revenue being permanently stalled by the JCV complication. Those fears stopped being justified as we learned more about JCV and its detection. It is remarkable how a rising stock price can make fear evaporate.
So are we at a just-right stock price? Of course next year's price will depend on how revenues and profits ramp (or don't) in 2011, and what the outlook looks like for 2013.
During 2010, when Tysabri was still under suspicion, Biogen grew total revenues grew to $4.72 billion from $4.38 billion in 2009. That is just 7.7% annual growth. But earnings per share grew 17.6%. In the latest reported quarter, Q1, revenue grew 9% y/y.
I will be surprised if Tysabri revenue growth does not accelerate. I am fine holding the stock in the current price band, but I would want to see actual revenue and profit acceleration before feeling a higher band is a safe bet.
At this point Biogen pays no dividend, but is certainly a profitable enough company that it could. It would also show management's confidence in the company's future.
See also http://www.biogenidec.com/
Tuesday, November 23, 2010
Onyx Pharmaceuticals (ONXX) Jumps on Carfilzomib Revenue
As I have discussed several times, most recently in Onyx Pharmaceuticals Jumps on Carfilzomib Data [August 8, 2010], Onyx Pharmaceuticals (ONXX) could have shown a nice profit in 2009 with revenues from its liver and kidney cancer drug Nexavar. Instead it has spent its potential profits on research and development, seeking proof that Nexavar is effective in more kinds of cancer, and acquiring other potential therapies, notably Carfilzomib.
The payoff from that strategy was seen in the Onyx report on Q3 2010, which included a $59.2 million payment from Ono Pharmaceutical of Japan for the rights to develop and sell Carfilzomib in Japan. Carfilzomib was acquired with Proteolix. Its first indication is for multiple myeloma. It is in a class of drugs known as proteasome inhibitors. It causes cell death by preventing protein degradation, essentially poisoning the cell with its own products. The hope is that it kills cancer cells with minimal harm to other cell types.
A Phase II trial of Carfilzomib has been completed, with full data to be reported at the ASH (American Society of Hematology) meeting beginning December 7th. This trial data may support FDA approval; it has to be very good data to get approval from a phase II trial, because of the small number of patients enrolled. A full Phase III trial is also already being enrolled.
The payment from Ono is not indicative of regular quarterly revenues. Most revenue in 2011 will be from Nexavar sales through Bayer. This means net income may be positive or negative on a quarterly basis. So expect volatility in the stock price. Good news on Carfilzomib will drive the stock higher; there should be a floor under bad news because of Nexavar sales.
Nexavar itself is being tested for further indications: adjuvant liver and kidney cancers; non-small cell lung cancer; thyroid, breast, and ovarian cancer. These trials are mostly in Phase II or early in Phase III.
Onyx currently has 6 additional compounds in preclinical or in clinical trials. In biotechnology it is a good idea to have a wide pipeline, because most promising therapies bomb out at some point. Having six compounds in addition to Nexavar and Carfilzomib is reasonable for a company with Onyx's resources.
Onyx Pharmaceuticals is also sitting on a good pile of cash, $588 million. That is a good cushion for the dicey game of drug development and sales.
On the negative end, while liver cancer sales for Nexavar are still ramping as it gains approval in more countries, kidney cancer sales are about flat, due to increased competition.
I think the chances of Onyx fizzling are reasonably low, and the upside potential is very good. The price ($29.65 as I write) strikes me as still not taking into account its full future profit making potential if Carfilzomib is approved, but it isn't in the bargain basement the way it was earlier this year (52 week low $19.54).
See also:
Onyx Pharmaceuticals site
My Onyx Pharmaceuticals main page
The payoff from that strategy was seen in the Onyx report on Q3 2010, which included a $59.2 million payment from Ono Pharmaceutical of Japan for the rights to develop and sell Carfilzomib in Japan. Carfilzomib was acquired with Proteolix. Its first indication is for multiple myeloma. It is in a class of drugs known as proteasome inhibitors. It causes cell death by preventing protein degradation, essentially poisoning the cell with its own products. The hope is that it kills cancer cells with minimal harm to other cell types.
A Phase II trial of Carfilzomib has been completed, with full data to be reported at the ASH (American Society of Hematology) meeting beginning December 7th. This trial data may support FDA approval; it has to be very good data to get approval from a phase II trial, because of the small number of patients enrolled. A full Phase III trial is also already being enrolled.
The payment from Ono is not indicative of regular quarterly revenues. Most revenue in 2011 will be from Nexavar sales through Bayer. This means net income may be positive or negative on a quarterly basis. So expect volatility in the stock price. Good news on Carfilzomib will drive the stock higher; there should be a floor under bad news because of Nexavar sales.
Nexavar itself is being tested for further indications: adjuvant liver and kidney cancers; non-small cell lung cancer; thyroid, breast, and ovarian cancer. These trials are mostly in Phase II or early in Phase III.
Onyx currently has 6 additional compounds in preclinical or in clinical trials. In biotechnology it is a good idea to have a wide pipeline, because most promising therapies bomb out at some point. Having six compounds in addition to Nexavar and Carfilzomib is reasonable for a company with Onyx's resources.
Onyx Pharmaceuticals is also sitting on a good pile of cash, $588 million. That is a good cushion for the dicey game of drug development and sales.
On the negative end, while liver cancer sales for Nexavar are still ramping as it gains approval in more countries, kidney cancer sales are about flat, due to increased competition.
I think the chances of Onyx fizzling are reasonably low, and the upside potential is very good. The price ($29.65 as I write) strikes me as still not taking into account its full future profit making potential if Carfilzomib is approved, but it isn't in the bargain basement the way it was earlier this year (52 week low $19.54).
See also:
Onyx Pharmaceuticals site
My Onyx Pharmaceuticals main page
Monday, November 1, 2010
Celgene (CELG) Gathers Momentum
Celgene reported third quarter (Q3) 2010 results on October 28th that showed impressive strength in sales of its current drugs, Revlimid and Vidaza. Just as important to future profit growth are a variety of new therapies in the pipeline at various stages of clinical trials.
Revenue was $910 million, up 7% sequentially from $852.7 million and up 31% from $695.1 in the year-earlier quarter.
GAAP Net income was $281.2 million, up 81% sequentially from $155.4 and up 30% from $216.8 million year-earlier. That equates to EPS (earnings per share) of $0.60, up 82% sequentially from $0.33 and up 30% from $0.46 year-earlier.
Revlimid, used to treat MDS (myelodysplastic syndrome) and multiple myeloma, saw revenues increase 44% from Q3 2009. Vidaza, also used to treat MDS, had revenue up 37% y/y. Thalidomid and ritalin revenues continued to decline.
What is exciting about Celgene, besides its stock price being very reasonable in this risk-averse environment, is that Revlimid and Vidaza are both likely to be approved by the FDA (and international equivalents) for more indications. Throw in known sales of Abraxane for breast cancer, obtained from the recent purchase of Abraxis Bioscience, with good Phase III data for non-small cell lung cancer and Phase II data for other cancers. Otherwise in oncology (cancer) besides Revlimid there is Amrubicin, Tork Inhibitor, ACE-011, and a whole series of ABI compounds. In hematology there are istodax and pomalidomide.
In Immunology Celgene has apremilast, JNK-930, CC-11050, pomalidomide, and PDA-001.
There are also a 15 compounds that have not made it to Phase I trials yet.
To see diseases targetted and how far each therapy is along in the clinical process, see the Celgene product pipeline.
Celgene, at the close today at $61.90, was selling at 23 times trailing non-GAAP earnings. That is very cautious investing, typical of the climate we are in today. Of course many compounds never get FDA approval, and so their R&D dollars go down the drain. There will be some of that with Celgene. With the very solid Revlimid and Vidaza profits, Celgene has undertaken an expensive but well-targetted research and development effort. In the biotechnology industry you can't stand still: you need to keep discovering better medicines. Celgene is doing just that, and that is what, as a long-term investor, I like to see.
See also:
http://www.celgene.com/
My Celgene Analyst Conference Call summary for Q3 2011
Revenue was $910 million, up 7% sequentially from $852.7 million and up 31% from $695.1 in the year-earlier quarter.
GAAP Net income was $281.2 million, up 81% sequentially from $155.4 and up 30% from $216.8 million year-earlier. That equates to EPS (earnings per share) of $0.60, up 82% sequentially from $0.33 and up 30% from $0.46 year-earlier.
Revlimid, used to treat MDS (myelodysplastic syndrome) and multiple myeloma, saw revenues increase 44% from Q3 2009. Vidaza, also used to treat MDS, had revenue up 37% y/y. Thalidomid and ritalin revenues continued to decline.
What is exciting about Celgene, besides its stock price being very reasonable in this risk-averse environment, is that Revlimid and Vidaza are both likely to be approved by the FDA (and international equivalents) for more indications. Throw in known sales of Abraxane for breast cancer, obtained from the recent purchase of Abraxis Bioscience, with good Phase III data for non-small cell lung cancer and Phase II data for other cancers. Otherwise in oncology (cancer) besides Revlimid there is Amrubicin, Tork Inhibitor, ACE-011, and a whole series of ABI compounds. In hematology there are istodax and pomalidomide.
In Immunology Celgene has apremilast, JNK-930, CC-11050, pomalidomide, and PDA-001.
There are also a 15 compounds that have not made it to Phase I trials yet.
To see diseases targetted and how far each therapy is along in the clinical process, see the Celgene product pipeline.
Celgene, at the close today at $61.90, was selling at 23 times trailing non-GAAP earnings. That is very cautious investing, typical of the climate we are in today. Of course many compounds never get FDA approval, and so their R&D dollars go down the drain. There will be some of that with Celgene. With the very solid Revlimid and Vidaza profits, Celgene has undertaken an expensive but well-targetted research and development effort. In the biotechnology industry you can't stand still: you need to keep discovering better medicines. Celgene is doing just that, and that is what, as a long-term investor, I like to see.
See also:
http://www.celgene.com/
My Celgene Analyst Conference Call summary for Q3 2011
Wednesday, October 27, 2010
Biogen Idec (BIIB) Deals with JCV
Biogen Idec (BIIB) reported Q3 numbers and held its analyst conference call Tuesday, October 26, 2010. Despite some headwinds revenues rose 5% from Q3 2009. A lot of the value in Biogen lies in the future, in the big, fat Biogen therapy pipeline.
Biogen Idec is my favorite type of stock: a growth and value proposition, with just enough danger to keep me on my toes and keep the risk-adverse (apparently just about everyone right now) away. I own Biogen stock.
Right now Biogen has three big money makers: Avonex, Tysabri, and Rituxan. Avonex and Tysabri are both for multiple sclerosis (MS). In total they generated $847 million in revenue in the quarter. They face twin dangers: the JC virus (JCV), which causes PML, and newer therapies, most notably Gilenya. Can Biogen continue to grow profits while waiting for its future therapies to bear fruit? If so, it is vastly undervalued, because it has a trailing P/E ratio today of about 13. Seen as a growth stock it should climb not just because of climbing earnings per share (EPS), but because the P/E ratio should climb to closer to 25 to 30.
A cure for JCV is not on the horizon, but for its MS patients, what Biogen needs is to be able to screen for the presense of the virus. Tysabri sales have been impacted by JCV, which is usually harmless unless the immune system is compromised. Since MS is a disease in which the immune system attacks the nervous system, cures for it involve suppressing the immune system. In (very approximately) about 1 in 1000 patients receiving Tysabri, JCV gets out of control, which can lead to PML and death. After withdrawing Tysabri from the market when this was originally discovered, it is now back on the market and patients must be monitored for symptoms of PML.
Trials have now showed that about half of MS patients do not harbor JCV, so they should be able to take Tysabri with minimal danger. As to the half that do harbor JCV, it would appear that they now have a 2 in 1000 chance of developing PML. Given how effective Tysabri is for MS, the likely scenario is that after the FDA approves Biogen's screening test for JCV, they will lose some JCV positive patients, but gain a lot more JCV negative patients. That could happen in 2011, but timing is up to the FDA and its equivalent international bodies.
The other threat is oral MS therapies, which are far more convenient for patients and doctors than the current infused therapies like Avonex and Tysabri. The first approved is Gilenya. Biogen claims data shows Tysabri is more effective than Gilenya, so the new drug will go mostly to patients with early, mild MS. But you never no what will happen in the marketplace. Biogen management did not say so, but sadly in the marketplace physicians can charge more for infusions than they can for writing prescriptions for oral therapies.
What I think is going to happen is that Gilenya will cut into the MS pie, but Avonex and Tysabri will continue to be widely prescribed. Patients often rotate therapies, changing them as their disease progresses. Also note that Avonex and Tysabri are still being introduced in many nations, so international sales increases should more than make up for any erosion in the U.S. market.
So for the next few years Biogen's cash from operations, $420 million in Q3 alone, is reasonably assured. Not every therapy in the Biogen pipeline will win FDA approval or become a blockbuster. But so many therapies are in the pipeline that already have good Phase I or Phase II data, I am reasonably confident that in 5 years Biogen will be a much larger company. Risks there are, as I have indicated; don't ignore them, spread them out.
See also:
Q3 2010 Biogen Idec analyst call summary including questions from analysts
Biogen Idec Hemophilia Therapies
Gilenya, Biogen Idec, and MS
Keep diversified!
Biogen Idec is my favorite type of stock: a growth and value proposition, with just enough danger to keep me on my toes and keep the risk-adverse (apparently just about everyone right now) away. I own Biogen stock.
Right now Biogen has three big money makers: Avonex, Tysabri, and Rituxan. Avonex and Tysabri are both for multiple sclerosis (MS). In total they generated $847 million in revenue in the quarter. They face twin dangers: the JC virus (JCV), which causes PML, and newer therapies, most notably Gilenya. Can Biogen continue to grow profits while waiting for its future therapies to bear fruit? If so, it is vastly undervalued, because it has a trailing P/E ratio today of about 13. Seen as a growth stock it should climb not just because of climbing earnings per share (EPS), but because the P/E ratio should climb to closer to 25 to 30.
A cure for JCV is not on the horizon, but for its MS patients, what Biogen needs is to be able to screen for the presense of the virus. Tysabri sales have been impacted by JCV, which is usually harmless unless the immune system is compromised. Since MS is a disease in which the immune system attacks the nervous system, cures for it involve suppressing the immune system. In (very approximately) about 1 in 1000 patients receiving Tysabri, JCV gets out of control, which can lead to PML and death. After withdrawing Tysabri from the market when this was originally discovered, it is now back on the market and patients must be monitored for symptoms of PML.
Trials have now showed that about half of MS patients do not harbor JCV, so they should be able to take Tysabri with minimal danger. As to the half that do harbor JCV, it would appear that they now have a 2 in 1000 chance of developing PML. Given how effective Tysabri is for MS, the likely scenario is that after the FDA approves Biogen's screening test for JCV, they will lose some JCV positive patients, but gain a lot more JCV negative patients. That could happen in 2011, but timing is up to the FDA and its equivalent international bodies.
The other threat is oral MS therapies, which are far more convenient for patients and doctors than the current infused therapies like Avonex and Tysabri. The first approved is Gilenya. Biogen claims data shows Tysabri is more effective than Gilenya, so the new drug will go mostly to patients with early, mild MS. But you never no what will happen in the marketplace. Biogen management did not say so, but sadly in the marketplace physicians can charge more for infusions than they can for writing prescriptions for oral therapies.
What I think is going to happen is that Gilenya will cut into the MS pie, but Avonex and Tysabri will continue to be widely prescribed. Patients often rotate therapies, changing them as their disease progresses. Also note that Avonex and Tysabri are still being introduced in many nations, so international sales increases should more than make up for any erosion in the U.S. market.
So for the next few years Biogen's cash from operations, $420 million in Q3 alone, is reasonably assured. Not every therapy in the Biogen pipeline will win FDA approval or become a blockbuster. But so many therapies are in the pipeline that already have good Phase I or Phase II data, I am reasonably confident that in 5 years Biogen will be a much larger company. Risks there are, as I have indicated; don't ignore them, spread them out.
See also:
Q3 2010 Biogen Idec analyst call summary including questions from analysts
Biogen Idec Hemophilia Therapies
Gilenya, Biogen Idec, and MS
Keep diversified!
Thursday, September 30, 2010
Biogen Idec (BIIB) Hemophilia Therapies
Biogen Idec is known for its multiple sclerosis therapies Tysabri, Avonex, and Rituxan. It also has an extensive pipeline of potential therapies in immunology, oncology, cardio and hemophilia. Yesterday Biogen (BIIB) held a three hour conference on its hemophilia therapies. Here I'll summarize some of the key points that were made. You can listen to the entire conference from a link at the Biogen Idec Investor Events page.
Hemophilia (alt spelling: haemophilia), the chronic inability of the blood to clot, is a rare, but no extremely rare, disease: under 20,000 people have it in the United States. It is typically caused by a defect in one of two blood clotting proteins: coagulation factor VIII in hemophilia A or factor IX in hemophilia B.
Managing hemophilia usually involves infusing the clotting factor into the blood. This can be done when there is an incident that would cause bleeding, or it can be done on a regular basis as a prophylactic. Over time most U.S. patients have moved towards prophylactic use of either natural or recombinant factors. However, the clotting factors have a lifetime of only a few days in the blood. So for hemophilia A, the most common type, infusions are typically done three times a week or every other day. For hemophilia B, two to three times a week is typical.
A variety of pharmaceutical and biotechnology players have sought to extend the life of coagulation factors in the blood. Biogen appears to be on track to be the first company to deliver such a therapy. The initial development was done by Syntonix, which Biogen acquired in 2007. The long-acting factors were created by fusing a recombinant factor of each type with Fc antibody fragments. The rFactor binds to cells that line the blood vessels, but can be re-released back into circulation without being degraded.
Long Acting rFactor IX for hemophilia B is has started a Phase 3 trial after having been shown to be safe and effective in Phase 2. As always, Phase 3 trials involve far more patients than Phase 2 trials, so issues can arise that are unforeseen. That said, given that other Fc-fusion therapies have been safe and recombinant factors are safe, the prospects are pretty good.
Long Acting rFactor VIII for hemophilia A, the more common type, has completed a Phase 2 trial. While the data has not been released, it is good enough that management is preparing for a Phase 3 trial.
If the Phase III trials are successful, it is likely patients can be treated just once a week or so. That would be a tremendous benefit to patients who must being infused as babies and continue the process for their entire lives. It would likely encourage more patients to use therapy prophylacticly.
Current therapy is rather expensive (see hemophilia financial issues), another reason some patients do not dose regularly. I don't know how Biogen will initially price their version, but costs could be reduced in the long run because of the less frequent dosing needed.
For investors, gaining FDA approval for long-acting hemophilia therapy would be an obvious plus and might help overcome doubts due to possible upcoming MS competition from Novartis's Gilenya (fingolimod).
Keep diversified!
See also:
my Biogen Idec Medical Analyst Conference Call summaries
Biogen Idec Hemophilia site
Hemophilia (alt spelling: haemophilia), the chronic inability of the blood to clot, is a rare, but no extremely rare, disease: under 20,000 people have it in the United States. It is typically caused by a defect in one of two blood clotting proteins: coagulation factor VIII in hemophilia A or factor IX in hemophilia B.
Managing hemophilia usually involves infusing the clotting factor into the blood. This can be done when there is an incident that would cause bleeding, or it can be done on a regular basis as a prophylactic. Over time most U.S. patients have moved towards prophylactic use of either natural or recombinant factors. However, the clotting factors have a lifetime of only a few days in the blood. So for hemophilia A, the most common type, infusions are typically done three times a week or every other day. For hemophilia B, two to three times a week is typical.
A variety of pharmaceutical and biotechnology players have sought to extend the life of coagulation factors in the blood. Biogen appears to be on track to be the first company to deliver such a therapy. The initial development was done by Syntonix, which Biogen acquired in 2007. The long-acting factors were created by fusing a recombinant factor of each type with Fc antibody fragments. The rFactor binds to cells that line the blood vessels, but can be re-released back into circulation without being degraded.
Long Acting rFactor IX for hemophilia B is has started a Phase 3 trial after having been shown to be safe and effective in Phase 2. As always, Phase 3 trials involve far more patients than Phase 2 trials, so issues can arise that are unforeseen. That said, given that other Fc-fusion therapies have been safe and recombinant factors are safe, the prospects are pretty good.
Long Acting rFactor VIII for hemophilia A, the more common type, has completed a Phase 2 trial. While the data has not been released, it is good enough that management is preparing for a Phase 3 trial.
If the Phase III trials are successful, it is likely patients can be treated just once a week or so. That would be a tremendous benefit to patients who must being infused as babies and continue the process for their entire lives. It would likely encourage more patients to use therapy prophylacticly.
Current therapy is rather expensive (see hemophilia financial issues), another reason some patients do not dose regularly. I don't know how Biogen will initially price their version, but costs could be reduced in the long run because of the less frequent dosing needed.
For investors, gaining FDA approval for long-acting hemophilia therapy would be an obvious plus and might help overcome doubts due to possible upcoming MS competition from Novartis's Gilenya (fingolimod).
Keep diversified!
See also:
my Biogen Idec Medical Analyst Conference Call summaries
Biogen Idec Hemophilia site
Wednesday, June 24, 2009
Dendreon, The Glory and the Dream
A moment ago Dendreon's (DNDN) had a stock price of $24.70 and a market capitalization of $2.85 billion. At this moment Dendreon does not have a product approved for sale by the FDA. I would never buy such a company. Yet I own the stock, which I bought years ago when almost every other biotechnology analyst thought Dendreon's Provenge (sipuleucel-T) therapy would be summarilly rejected by the FDA.
At my Dendreon analyst conferences page you can find all of my past articles about the positives and negatives of DNDN's prospects. Before the latest data came in I recommended it only as a stock for risk-takers who know how to hedge risk. I have not written anything new since the latest data was announced. Good data has lowered the risk while increasing the stock price, which increases potential down side if something goes wrong. So a different class of investors are probably buying it recently.
Here, as implied by the title, I want to look at the best-case scenario, where in a few years investors might wish they had gotten in when the market cap was only in the low billions. In this scenario we go beyond the approval of Provenge for late-state metastatic, androgen-independent prostate cancer by the FDA some time in 2010. I believe approval by the FDA has already been fully-factored into the current price, at least by conservative, rational investors.
Provenge is an immunotherapy. There is no reason to think that its use cannot be extended to any prostate cancer that has antigen presenting cells (APCs) that can be activated with PAP (prostatic acid phosphatase). Or some similar method of stimulating a T cell response against prostate cancer cells, which is what Provenge does.
So while selling Provenge after FDA approval, the short term strategy for Dendreon is most likely to conduct more clinical trials that, if successful, will allow label extensions. Given Provenge's safety profile so far, and its ease-of-use (it requires just 3 infusions), it may become a blockbuster if it proves effective with earlier stages of prostate cancer.
Meanwhile, there is the pipeline Dendreon has already established. This includes Lapuleucel-T for breast, ovarian, and colon cancer. CEA for breast, lung, and colon cancer. And CA-9 for kidney, colon and cervical cancer. All three are immunotherapies, and only Lauleucel-T has started clinical trials. CEA and CA-9 are joined by Trp-p8 in being preclinical (lab/animal testing stage). The later is a small-molecule prostate therapy. I suppose they know a lot about prostate cancer now, and wanted a small-molecule as a hedge against the limitations of immunotherapy.
Developing a pipeline is a very long term process. It will probably take years to get any of the drugs already in the pipeline through FDA approval, and that is assuming the data is good. Figure 5 years for another approval, maybe 3 years under the most accelerated scenario. I know; most investors can't think that long term.
But look at the best case scenario ten years out. Dendreon could, by then, have brought out immunotherapies for all the major cancer types.
And therein lies the glory and the dream. Given the complexity of the human body, the immune system, and cancers, it is highly unlikely that immunotherapy will replace other cancer therapies. But given its safety (if it proves to be safe long-term), there is no reason not to try it on any and every cancer patient.
Just a hint of that scenario breaths life into Dendreon's stock price. We are talking truly big money. Others will accelerate their immunotherapy efforts, but Dendreon has a lead and will be generating revenues from Provenge that can be used to bring new immunotherapies to market.
What Dendreon owns is not just Provenge. It owns, and has protected with patents, a new type of technology. If the technology really works, Dendreon is not just a company. It is an industry in the making.
Keep diversified!
At my Dendreon analyst conferences page you can find all of my past articles about the positives and negatives of DNDN's prospects. Before the latest data came in I recommended it only as a stock for risk-takers who know how to hedge risk. I have not written anything new since the latest data was announced. Good data has lowered the risk while increasing the stock price, which increases potential down side if something goes wrong. So a different class of investors are probably buying it recently.
Here, as implied by the title, I want to look at the best-case scenario, where in a few years investors might wish they had gotten in when the market cap was only in the low billions. In this scenario we go beyond the approval of Provenge for late-state metastatic, androgen-independent prostate cancer by the FDA some time in 2010. I believe approval by the FDA has already been fully-factored into the current price, at least by conservative, rational investors.
Provenge is an immunotherapy. There is no reason to think that its use cannot be extended to any prostate cancer that has antigen presenting cells (APCs) that can be activated with PAP (prostatic acid phosphatase). Or some similar method of stimulating a T cell response against prostate cancer cells, which is what Provenge does.
So while selling Provenge after FDA approval, the short term strategy for Dendreon is most likely to conduct more clinical trials that, if successful, will allow label extensions. Given Provenge's safety profile so far, and its ease-of-use (it requires just 3 infusions), it may become a blockbuster if it proves effective with earlier stages of prostate cancer.
Meanwhile, there is the pipeline Dendreon has already established. This includes Lapuleucel-T for breast, ovarian, and colon cancer. CEA for breast, lung, and colon cancer. And CA-9 for kidney, colon and cervical cancer. All three are immunotherapies, and only Lauleucel-T has started clinical trials. CEA and CA-9 are joined by Trp-p8 in being preclinical (lab/animal testing stage). The later is a small-molecule prostate therapy. I suppose they know a lot about prostate cancer now, and wanted a small-molecule as a hedge against the limitations of immunotherapy.
Developing a pipeline is a very long term process. It will probably take years to get any of the drugs already in the pipeline through FDA approval, and that is assuming the data is good. Figure 5 years for another approval, maybe 3 years under the most accelerated scenario. I know; most investors can't think that long term.
But look at the best case scenario ten years out. Dendreon could, by then, have brought out immunotherapies for all the major cancer types.
And therein lies the glory and the dream. Given the complexity of the human body, the immune system, and cancers, it is highly unlikely that immunotherapy will replace other cancer therapies. But given its safety (if it proves to be safe long-term), there is no reason not to try it on any and every cancer patient.
Just a hint of that scenario breaths life into Dendreon's stock price. We are talking truly big money. Others will accelerate their immunotherapy efforts, but Dendreon has a lead and will be generating revenues from Provenge that can be used to bring new immunotherapies to market.
What Dendreon owns is not just Provenge. It owns, and has protected with patents, a new type of technology. If the technology really works, Dendreon is not just a company. It is an industry in the making.
Keep diversified!
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