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Ladies and Gentlemen, hobos and tramps,
Cross-eyed mosquitoes, and Bow-legged ants,
I come before you, To stand behind you,
To tell you something, I know nothing about.
And so the circus begins in Union Square, San Francisco for this weeks JP Morgan Healthcare Conference. Will the momentum from 2013, which carried the S&P Spider Biotech ETF to all time highs, carry on in 2014? The Biotech ETF beat the S&P by better than 3 points.
As I noted in my previous post, Biotechs Galore – IPOs and More, biotechs were rushing to IPOs so that venture capitalists could unwind their holdings (funds are usually 5-7 years), as well as take advantage of the opportune moment when the reward is all about risk. In our current low interest rates environment, investors are starved for better returns, and the perfect place for those gains are high risk/reward biotechs. A total of 46 companies went public in 2013 (16 more after my initial write-up), and 80% of them were ABOVE their IPO pricing! The entire IPO 2013 class was up 48%! 48%! I know that cutting edge science is exciting, BUT when a company is valued for a potential treatment that still have a long way to go for final approval, I want to sell you a wing and a prayer for an idea I have that cures something I cannot tell you about….
Science is an exciting area to be apart of, and it is our hopes in this field to make an impact on a patient's life (for the better of course), but the gradiosity of the market sentiment for these biotechs makes me want to give everyone a Valium! There is some very good science in the companies that went public, and those were covered in my previous post. Now, a few more of those fledglings will be discussed.
Entana Pharmaceuticals (ENTA) – is riding the hepititis C wave that has engrossed the pharmaceutical industry the past few years. Vertex (VRTX), Bristol (BMY), Merck (MRK), Gilead (GILD), JnJ (JNJ), and Abbvie (ABBV) are all in the space. Even so, a few biotechs and lead candidates blew up in this space as well (BMY's purchase of Inhibitex to name one). ENTA is riding on ABBV's trials in this space, because in 2006, ENTA licensed ABT-450 to ABBV for HCV. ENTA has 7 clinical trials ongoing for HCV, four that contain ABT-450, and three of those trials have come out positive. Their other area is in the antibiotic area for MRSA, and it is in pre-clinical development, so it will not be discussed. With the purchase of Inhibitex by Bristol for $2.5B, and GILD's purchase of Pharmasset for $10B, ENTA has more upside ahead ($0.58B market cap), barring any adverse events in its trials. We will be looking at entry points in chat on them.
INSYS Therapeutics (INSY) – now that is a chart. Up 450% and a $920M market cap! INSY is actually an old company named NeoPharm, that has used the current market craze to rebrand its rebranded drugs, ugh!!!!
The company makes supportive pain medications for cancer. Their flagship product is Subsys, or fentanyl sublingual spray. Fentynyl is an opioid, like morphine, just 100X more potent. The drug is typically used for breakthrough pain and in pre-operative surgeries along with a benzodiazepine. The drug's reimbursement is considered a Tier 3 drug, as it is a last line of resort, as insurance will not pay for it until the generic versions are tried. But, Subsys revenues are growing, and it has made this company profitable, as 2013 projected revenues for Subsys are in the $100M range (current P/E is about 9).
Its other drug Dronabinol, come in two forms, sublingual and oral. Dronabinol is (−)-trans-Δ9-tetrahydrocannabinol…or a version of the active ingredient in the cannabis plant. Dronabino SG is marketed for the treatment of nausea in cancer and AIDs, but it competes with ABBV's Marinol. Total revenues through 3Q was <$1M, so this product is not aiding the bottom line. The oral solution is in the hands of the FDA, but the DEA is chewing on this formulation. From the company's most recent conference call, it does not look like the oral form is going on the market anytime soon. Time will tell.
GW Pharmaceuticals (GWPH) – is not a new biotech company, as it has been around for >15 years and on the British market. They recently raised an additional $87M in a financing round. GWPH is also in the medical cannabinoid space, as it has Sativex (nabiximol) for the treatment of MS patients who experience overactive bladder, muscle spasms, and neuropathic pain. Sativex is a mixture of several compounds from cannabis delivered via a oromucosal mouth spray, and it is sold in 21 countries around the world (in Phase 3 trials for FDA approval). Sativex sales were about $44M for FY 2013.
The companies other clinical trials are in Type 2 diabetes, CNS, and cancer – and all the compounds being tested are cannabinoid derivatives. See a theme here? Not a cup of tea that is drinkable IMHO.
There is more ground to cover on all these IPOs, so stick around and watch daily chat in Phil's posts for entries and exits on biotech positions. Our current and past portfolio is here, and all of these were noted in chat during the past year. The portfolio was up nicely in 2013 (what wasn't), but 2014 could prove to be more challenging that the prior.
– Pharm
