For whatever reason, Janet Yellen does not like cheerful biotech investors and between her first policy speech as new chairwoman of the
Fed in April and comments last week decrying biotech and social
media stocks as inflated she caused two major sell-offs in RNA Therapeutics
stocks. As a result, industry
bellwethers ISIS Pharmaceuticals and Alnylam are trading at less than half
their 52-week highs, though better than ‘second-tier’ RNA Therapeutics
companies such as Tekmira and Arrowhead Research which are trading down even
more than that.
When the technology has matured to the point that it can
bring significant value to patients, pipelines rapidly progress and
expand, and with companies flush in cash by historical standards, this sell-off offers
in my opinion great risk:rewards. Here
is a run-down of my five favorite plays.
1.
$ISIS. ISIS Pharmaceuticals is my
current RNA Therapeutics core holding that I would not want to be out of. With ligand-targeted technologies offering
much lower tissue exposures and therefore much better safety margins, multiple
mechanisms of actions and a pipeline that rivals any in the industry, this
company is on track to become the most valuable in the industry- if not economy
(subject to the vagaries of the healthcare policy directions).
At a $3B market cap, no foreseeable financing
needs, and a healthy newsflow (especially regarding partnerships), the downside
should be relatively limited, and I will sleep tight even knowing that Yellen (who seems
to confuse the Dow and large cap biotechs with the broad biotech industry) might
open her mouth again to talk about something she obviously understands very
little about.
Best
long-term risk/reward.
2.
$TKMR.
Tekmira is the most beaten-up stock of the bunch that gets credit for almost
nothing. This is mainly the result of
the Ebola trial results which were a disappointment- little doubt about that. However, translating these results from the
unthankful ‘Haertetest’ to the rest of the pipeline is unwarranted. This is because a highly most potent knockdown
technology for the liver, should be able to carve out some market for itself. And if
the HBV product won’t require transient immune suppression and/or if its use is deemed acceptable in HBV with its expected finite treatment period, there is an
enormous opportunity for which the favorable newsflow is only about to heat up with the presentation of the preclinical dataset..
It is the newsflow from new product
candidates (esp. HBV)), clinical trial starts (liver cancer, HBV, alcohol
dependency), clinical trial results (ALN-TTR02 OLE, TKM-PLK1 interim phase II
with little to no expectations by the markets), and business development (mRNA), that makes TKMR an attractive buy at these severely depressed levels ($31 in April, now trading at $9). And with
the Ebola Haertetest on
Clinical Hold, TKM-EBOLA does not scare me anymore as an investor. It even offers a potential near-term catalyst
should the Hold be lifted.
Best
6-12 month risk/reward (until release of phase IIa HBV knockdown results).
3. $RGLS.
I’ve never liked Regulus much as a stock, mainly because of its anemic
pipeline that its own management does not even seem to be excited about given
that it now calls the potent GalNAc-targeted anti-miR122 product candidate for HCV merely a proof-of-concept for the company.
However, given that the HCV market emerges as one with a long-tail, not
all is lost for this pan-genotypic, potentially one or two-shot treatment when
used in conjunction with other HCV drugs.
When HCV-competitor Achillion recently surged on the back of the Merck takeout of HCV play Idenix as it reminded
investors of the long-tail nature of the market, Regulus was forgotten. It may reach investors’ consciousness when
they report phase I results possibly early next year. Solid financials with more than $100M in cash
and a reasonable $300M market cap given its prominent position in the microRNA
Therapeutics industry.
Speculative
buy with regard to single catalyst.
4. $ARWR. All eyes are on the outcome of the ARC520 phase
IIa study in HBV-infected patients which could be announced any day now. My prediction is a ~80% HBsAg knockdown at
the 2mg/kg dose. My problem is that I
have little idea about how the market will respond to that given that the trial
is not designed to achieve the ultimate goal for this therapeutic candidate: a
functional cure.
Most investors seem to expect an easy
double (or more) from current levels, an notion that I do not want to necessarily reject
for an 80% knockdown. It all seems to
depend on how the results will be framed by the analysts and how successful the
dueling hedge funds are in painting the tape to their advantage.
With more than 10% of the float short and
given ARWR's historical trading pattern, great volatility is a given.
Highly
speculative buy, so much so that options may actually be the best way to
play it.
5. $SRPT. No matter the negative market
reception to the recent release of the 144-week study results, Sarepta and patients will get
their accelerated approval for eteplirsen.
The debate has reached a point that the drug development clock for Duchenne
Muscular Dystrophy cannot be set back another 5-10 years by rejecting the current class of
candidates of which Sarepta’s looks to be the most promising- despite the highly
anecdotal nature of the results. This is
because eteplirsen seems amazingly safe, so the potential harm from giving a
potentially non-effective medicine is limited.
This is clearly not the case for Prosensa’s exon skipping drug candidate,
and don’t even get me started about PTC Therapeutics …
Solid 12-month
risk:reward juiced by the large short position (>30%).
