Thursday, April 10, 2014

GILD by Association

Biotech stocks have suffered massive losses with the IBB biotech index down 20% over the last 1 ½ months.  This followed a sustained bull market with a 300% increase since the US Housing Bubble bottom.  RNAi Therapeutics stocks could not duck this trend and suffered similar, if not exaggerated losses: bellwether Alnylam down almost 50% since their $700M Genzyme deal, Arrowhead Resesarch down 40% since their all-time high, and even the most undervalued of them all, Tekmira, down a solid 30% off the pricing of their secondary barely a month ago.  Should investors worry?

The causes of the pullback in the biotech market can be attributed to at least three factors: 1) a general downturn in secular growth stocks that have done quite well recently; 2) worries that interest rates are on the upswing and could divert capital flow away from stocks with little or no current earnings; and finally 3) a sense that society will stop paying for expensive drugs. 

Although the era of ‘resource-constrained’ healthcare has long arrived in Europe, the fact that US lawmakers made an example out of HCV wonderdrug Sovaldi (sofosbuvir) as a wildly overpriced drug, sent shudders through the biotech investment community.  If a $84,000 price tag for a cure of HCV is deemed too much despite the fact that it will extend life by years for the average patient and save the healthcare system much more over the long-term in terms of reduced costs related to liver-related complications…then what about say orphan drug pricing for which $300-500k per patient every year has not become that uncommon?  To wit, orphan diseases represent a fertile ground for RNAi Therapeutics as illustrated by Alnylam’s phase III candidate for TTR amyloidosis, ALN-TTR02. 

‘Resource-constraint healthcare systems’ is certainly something that I occasionally hear here at the European Liver Meeting (EASL) which celebrates the very Sovaldi and general progress made in treating HCV, yet tries to deal with the problem of how to get it patients due to cost issues in light of the millions infected and that would be treated today if cost were not an issue.

Interestingly, nobody here criticizes the drug makers for overcharging.  I don’t think this is because they are paying for our lunches, but because the medical and long-term pharmacoeconomic and quality-of-life benefits of curing HCV are so obvious.  In general, I believe the Sovaldi issue will be short-lived and accelerate a transition to a value-based reimbursement system with the benefit of curtailing some of the drug pricing mis-behavior we have seen (you all know them).  However, beyond that, I expect that we will still be willing to spend much on our health and drug costs accounting for just ~10% of overall healthcare costs, the pharmaceutical industry should be able to make the case that innovative drugs that make a solid difference in patients' lives out to be rewarded financially.  Remember this when small, innovative biotechnology companies are undercapitalized to the point of becoming financially non-viable yet patients clamoring for new treatments.  RNAi Therapeutics was in that precarious position just 2 1/2 years ago and RNAi investors deserve every cent they raked in on the stock market when the sector recovered. Every cent.

If you look at the RNAi Therapeutics pipeline addressing the roots of and seeking cures for diseases ranging from the severe and orphan like TTR amyloidosis and solid cancers, to the chronic and debilitating like HBV and alcohol dependence, it will be RNAi companies that will stand first in line to benefit from the value-based cost model of healthcare.   The continued flow of clinical trial data (watch ARC520, TKM-PLK1, ALN-TTR02, and ALN-AT3 this year) should make that obvious and allow RNAi Therapeutics to break out from the biotech crowd and bounce back.  And even if the monetary policy makers increased interest rates, I don’t think it would be much in this deflationary environment, and a 1% short-term interest rate should not divert capital flow all that much.    

8 comments:

Anonymous said...

At this day, I am praying to God that you are 100% correct.

Anonymous said...

Well stated.
-bio

Anonymous said...

Its an interesting dilemma will drugs become a 2 tier model where the haves will get access and the have not's wont? Isnt that really what happens today with insurers of the have willing to pay for the care where the under insure simply die. The price issue has to do with the insures unwilling to pay these sum's and as Dirk has stated if the actuarial have their way the cost of the drug is less then the inevitable long term treatment cost they will pay for drug if it saves them a dime down the road.

Anonymous said...

Previous post highlights the core issue. Health of the population beholden to bean counters valuing life according to their spread sheet model.

So what to do about it?

Put a red line in the market and say all people are allowed to have this level of health care as a human right. Decree the provision of it to be a function of the state.

Then give it a title. Something like ObamaCare.

Not much different to education. Every child is entitled to go to school and become literate and numerate.

Anonymous said...

It's a market of people and they behave much like you did when greed is the predominant human characteristic on display.

Now you post implying that ARWR's 40% decline is uncalled for but look at your own prior utterances:

Dirk Haussecker had a price target for ARWR of $200 by next year which suddenly became "much better if that meant ARWR at $30 and TKMR at $120" (if ARWR $200, TKMR $1000?) after you sold and rolled it into the TKMR laggard. Currently we have your price target of $150 if evidence of immune reactivation shows up in the coming test result, after you loaded up of course.

The truth is it's people like yourself trading who create the volatility (market of people). The reasoning employed to drive it up and down is bogus much of the time just like your claim to have sold ARWR for TKMR because of certain recent results (you sold months before and used any news you could get your hands on much later to justify).

Reality, however, hasn't changed very much. And that is why Dirk Haussecker is back in ARWR loaded and ready for a $150 price target. Which, it must be emphasized, science has told us is the likely outcome ever since the Hep B Foundation and other who's who of the field broke the news on ARC-520 a year ago.

Let this be a lesson for the people who swing wildly according to their trade position, that it is they who are the market and get their own medicine when on the wrong side of the swing.

- investron

Anonymous said...

I forgot to mention.

Arrowhead is projecting half the cost of Sovaldi and not much of a premium over current ineffective treatments, as little as $20K in needy parts of the world.

That is a shockingly low cost to save the liver.

What more than makes up for it is a massive market numbering in the hundreds of million patients pool.

For Dirk Haussecker to have sold ARWR only to spend time pumping TKMR and ebola where a hundred of the poorest of the poor, if that, are affected each year, that should disqualify him from giving investment advice.

And please don't mention TKMR's me-too HBV candidate that hasn't seen the light of day.

So why buy ARWR then, keep your money in TKMR all the way till next year or whenever your supposed superior brew sees the light of day?

Chuckle. Chuckle.

- investron

Terry Chrisomalis said...

Woah don't go slamming Tekmira. Look everyone has their favorite RNAi company, some like ARWR more, some like TKMR, I like RXII the most. The main point is that I on the other hand like to keep it up front and honest. I think all the RNAi companies will do well. While I do like RXII the most I think all RNAi companies will have a bright future. I like to keep it real and be honest, because I'm not gonna sit here and tout that RXII is better than the other RNAi companies. They each provide a good delivery mechanism for RNAi and for treating people with unmet medical needs I hope they all do well in the future.

Anonymous said...


"Woah don't go slamming Tekmira. Look everyone has their favorite RNAi company, some like ARWR more, some like TKMR,..." - Terry Chrisomalis


Slamming Tekmira? Au contraire, slamming the blogger/trader who sold ARWR and bought TKMR then expended much effort trying to put down the former and boosting the latter, for a trade.

Guess what, RBC (Royal Bank of Canada) then came out with a near term price target for TKMR that is lower than for ARWR. And just about all other legitimate analysts similarly agree.

So who's the odd man out here?

Anybody who tries pathetically to hype ebola day in day out to the point of equating it with avian flu.

The comparative number of cases quickly dispels such desperation.

Dirk Haussecker revealed his hand that he was no investor but short term trader who misused his influence on the uninitiated biotech stock buyers.

The only saving grace in the character of the man is to allow open criticism of his person on his own blog.

At least he has not left the scientific world completely.

"The truth will set you free."

- investron

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