So much for Angelina Jolie's bump

Many articles have been written iabout Myriad Genetics (MYGN) – some bullish, some bearish.  This is a bearish article, looking the company from different angle.  In a nutshell, Myriad’s claim to fame and fortunes rests on tests for genetic mutations.  Most of Myriad’s revenues (85%) come from its BRCA test for breast cancer, each test costing about $4,000.  The results of this test convinced Angelina Jolie to get a double mastectomy in May.  And which popped Myriad shares to a 52 week high.

 

The Supreme Court Decision on June 13 put paid to the Jolie bump and the stock sank on massive volume.  In essence, the court ruled that Myriad could not patent the human genome, though it could patent plasmids and cDNA, allowing in competitors for those tests.  In response Ambry Genetics announced plans to introduce a test soon for $2,200 and Quest Diagnostics would by the end of the year.  Gene by Gene, based in Houston, plans to offer the test for $995.  Of course, Myriad sued Ambry and Gene by Gene, and the stock began to climb again, though not reaching its Jolie peak.  On Aug 13, the company reported earnings that beat expectations handily, yet the stock fell.   So the question is, is this a buying opportunity, or time to exit?  A few aspects that have not been covered by other authors are outlined below that an investor may want to cogitate over.

 

1.       It’s not the news that matters, it’s the reaction to the news.   This is one of the earliest lessons I learnt while investing.  I used to wonder why a stock fell on good news and rose on bad.  It was the realization that the news was baked into the stock and Mr. Market, being forward looking, had discounted that.  So the negative reaction of the street to the earnings beat of Aug 13 is worth noting.  Not only the earnings beat, but also the positive guidance.  It’s the market’s way of saying we don’t believe you, your best days are behind you.

2.       ACA acts up.  ACA being the Affordable Care Act.  Under this regulation, the health care provider has a “financial quota” for a patient.  Based on bean counters and astrological charts (the latter being more accurate), the Government decides how much the care for a disease should costs, and the provider will be given that money.  Go beyond that amount, and the physician is penalized financially.  Stay under the quota and the physician in rewarded, again financially. Naturally, tying to save money, the physician will stop ordering as many tests as before (this being the unstated intent), including tests such as that from Myriad.  Even if the physician in question does order the test, s/he will choose the cheaper option such as those by Gene by Gene or Ambry, again hurting Myriad.  Perhaps in response, Cigna announced on Aug 20 that anyone wanting the BRCA test would have to get genetic counseling.  And if the counselor did not consider it necessary, no test.   This is a double whammy for Myriad, with possibly fewer tests of BRCA, and possibly, in the future, of all its diagnostics.

3.      The long and short of it.  There is increasing short interest in Myriad.  As of Aug 15, even before the Cigna announcement, there was a 2,163,582 share increase in total short interest for Myriad Genetic, an increase of about 20% since the end of July.  While some may think increasing short interest makes for a lively short squeeze later on, I avoid stocks with increasing short ratio.  Shorts are not fools, and generally due their homework more carefully than longs, since there is a much greater financial risk being short than long.

4.      Technicals.  For those who think technical analysis belongs in a Harry Potter book in the class for Dark Arts, stop reading. For those willing to consider, take a look at the chart below (Courtesy Stockcharts.com). While every TA has his/her favorites, with advantages and disadvantages of each indicator, the one’s I focus on are below.

a.       Moving Average.  The stock has broken down below its 200 day moving average and the 13 day is about to cross the 200 day average on the downside.

b.      Volume.  The OBV (on balance volume) has been in a down slope since end of July.  OBV generally characterizes the volume of buying minus selling, and thus shows investor interest.  The selling days have had larger volumes than buying days.

c.       TRIX.  I use TRIX, a momentum oscillator that depicts the rate of change, because it is smoother than MACD, and it turned negative around the first of Aug, with the black line crossing the red. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Based on the above, I feel the chances of making money by being long Myriad is unlikely.  More gains could be had on the short side.

Uncle Sam's cocaine addiction

My Uncle Sam is addicted to cocaine.

The story started innocently enough in the 80s and 90s when things were going well for him, at least superficially. His business was expanding, much of it financed from others, but he deluded himself into believing that it was his business savvy and not deficit financing that was the secret sauce. Flush with other people's money, he got used to living the high life -expensive cars, vacations, Armani suits, Rolex watches and gold jewelry. In his deluded state, he did not notice the debts piling up. His financial consultant presented him with rosy outcomes that hid his worsening state till it all came down in 2001. Suddenly, his business just stopped - no one was buying his cool aid. He went into a deep depression and took to the bottle. If he had put down the bottle, sold his assets and learnt to live within his means, it would probably have ended well. But a tragedy occurred. In stepped his buddy, Fred.

Fred is a strange guy who, for some reason, liked to keep Uncle Sam living the high life. So Fred gave Uncle Sam money and introduced him to cocaine. Fred's rationale was that alcohol was a depressant whereas cocaine was a stimulant and in small doses, would perk Uncle Sam just enough to get his life back. So my Uncle Sam took to cocaine, in small doses.

And it seemed to work. After two years, in 2003, Uncle Sam seemed to be back in his feet. His business was expanding again, but with more borrowed money. With cocaine induced aggression, he also picked fights with people that cost him in lawsuits and restitution. The cocaine also worsened his false state of financial well being till it again came crashing down in 2009. He was again depressed, and the small doses of cocaine were not doing the trick anymore.

So Fred started giving him more and more cocaine. It has been three years now, and Uncle Sam is in deep trouble. He appears normal to an outsider, but we know what trouble his business is in. He is deep in debt and it is getting worse. His family won't intervene and give him the tough love that would lead to slow and but eventual recovery. They are happy with the cocaine that Fred gives him.

But there is a problem with that. The high doses of cocaine seem to be having a less and less effect. In science, we call this phenomenon tachyphylaxis where a receptor becomes used to the stimulus and thus, after a while, responds less and less with each stimulus. And every time Fred tries to take the cocaine away, Uncle Sam goes into a funk. Not surprising is that this phenomenon is not restricted to science but occurs in sociology and economics as well.

So there it is. My Uncle Sam and his cocaine addiction. I don't know where Fred gets his cocaine from or how he pays for it. But I know that cocaine dealers, like bond vigilantes, are not kindly old ladies and that one day Fred will have to pay the cocaine dealers or run out of cocaine. That day will be horrible, both for Fred and Uncle Sam. Fred thinks that sooner or later, Uncle Sam will get better and be able to pay off the cocaine dealers. I'm not holding my breath for that.

Global elections in 2012 and possible investment opportunities

Before the world ends on Dec 21, 2012, a record number of elections will be held globally. Of these, some may provide entertainment with son et lumiere, but few will have financial investment implications. Some of the more important elections this year include:

More at:
http://voices.yahoo.com/article/9310499/global-elections-2012-possible-investment-opportunities-10844829.html

Gandhi's influence on India's economy

Before we go somewhere, it is important to know where we came from. Otherwise, we could simply retrace our steps or go in circles. It is in that light that the book, Joseph Lelyveld's biography, Great Soul : Mahatma Gandhi and his struggle for India serves as an impetus to understanding the economics of modern India. As India gradually sheds it's socialist path, it is important to know why India ended up that way.

See the rest at:
http://voices.yahoo.com/gandhi-indias-economy-10668067.html

More trouble for OA treatments

Bad news for companies developing new treatments for osteoarthritis (OA) seemed to have little effect on the companies affected. The news came courtesy of the FDA, which stopped development of a class of compounds inhibiting the Nerve Growth Factor (NGF). Five companies were developing this class of compounds for treatment of pain associated with OA.

Pfizer (PFE) was the first to stop its drug, tanezumab, in June of 2010. At that time, it was speculated that the drug was in-fact so effective, that patients with OA forgot about their pain and started stressing their joints excessively. This lead to worsening cartilage degeneration or osteonecrosis of the femoral head. Amazingly enough, the trial was in subjects with OA of the knee, not hip.

Not much publicized was AstraZeneca’s (AZN) halting of MEDI-578 in July, right after the Pfizer announcement.

On Dec 28, the FDA placed Johnson and Johnson’s (JNJ) antibody to NGF, fulranumab, on clinical hold. That means no new patients can be recruited into the study. And Regeneron’s (REGN) REGN475/SAR164877, that was being developed jointly with Sanofi Aventis (SNY), was also placed on clinical hold.

That leaves only Abbott (ABT) in the game with ABT-110. It remains to be seen if this will become another COX2 story (with celebrex the only survivor). However, it is worth keeping in mind that the Abbott compound is also an antibody that it got last year from PanGenetics for $150 million. A hefty price to pay to play in the potential $11 billion market.

What NicOx's Naproxcinod tells us

Slightly more than a year ago, I got a call from a recruiter. She was looking for someone who could help a company file its NDA for a new anti-inflammatory compound. Having been involved in two phase III programs for osteoarthritis (OA), and having presented data to the FDA, I was pretty sure I could help the company, NicOx. However, I never heard from the company, and I moved on. So did the NicOx, but apparently not for the better. In September 2009, it filed an NDA for its lead compound, Naproxcinod, the indication being OA. And on May 15, it heard from the advisory committee that voted 14 to 1 (abstention) not to recommend approval of Naproxcinod for the treatment of OA. What happened, and what can we learn from it?

Science first. Naproxcinod is supposed to be a nitric oxide-donating anti-inflammatory compound and the first-in-class CINOD (Cyclooxygenase-Inhibiting Nitric Oxide Donator). The whole point of the nitric oxide donation is that nitric oxide causes vaso-dilatation, thereby decreasing the blood pressure and nullifying the cardiac side effects of non-steroidal anti-inflammatory compounds (NSAIDS) such as Naproxen which do their damage by their effect on prostaglandins. NicOx also wanted to show that Naproxcinod had better gastrointestinal tolerability and safety than Naproxen, thanks to the same nitric oxide. If this was to work out, NicOx would be have a truly competitive product.

In order to show just that, NicOx completed three clinical phase III studies – two for knee OA (301 and 302 studies) and one for hip (303 study), all for 13 weeks only. Cardiovascular outcomes data was collected till 52 weeks. The primary goal was the treatment of signs and symptoms of OA, but secondary goals included observing an effect on BP and endoscopic evaluation for ulcers and erosions. In study 301, two doses of Naproxcinod (750 mg bid and 375 mg bid) were superior to placebo but not to Naproxen (500 mg bid) in the WOMAC scores for OA. In study 302, Naproxcinod 750 mg bid was superior to placebo and Naproxen but the 375 mg dose was only superior to placebo. In study 303, Naproxcinod 750 mg bid was superior to placebo and essentially equivalent to Naproxen (the 375 mg bid dose was not studied). Since only the 750 mg bid dose was studied in two OA populations, it can be considered for filing. Looking at the FDA documents provides another look at the efficacy. I won’t go into the statistical mumbo jumbo, but there are several questions on the parameters the company chose to define efficacy. Total phase III exposure of the 750 mg bid dose was only, and I repeat only, 789 patients.

On the safety side, where the effect on BP and GI irritability comes in, the AE profile tells its own story. Among serious adverse events, or SAEs, Naproxcinod had an incidence of 0.3% (GI) and 0.2% (cardiac), worse than the 0.3% (GI) and less than 0.1% (cardiac) for Naproxen. Among all adverse events (not just serious), Naproxcinod 750 mg bid had an incidence of 56.4%, barely better (certainly not statistically better) than 58% for Naproxen.

This leads the FDA advisory committee to say “Based on findings from the two studies, there does not appear to be replicated evidence to support that naproxcinod has similar efficacy to naproxen” and conclude

1. Naproxcinod, at doses of 750 mg and 375 mg twice a day, is efficacious in the relief of signs and symptoms of osteoarthritis.
2. Naproxcinod has not been demonstrated to be non-inferior to naproxen.
3. The general safety profile of naproxcinod is consistent with that of the NSAID drug class.

In other words, maybe just as good as Naproxen for the treatment of OA, and then maybe not even as good. The cardiovascular division also had its say when it concluded:

1. The BP effect due to naproxcinod was not consistently less than baseline through the dosing interval. Naproxcinod is therefore not approvable as an antihypertensive agent.
2. Naproxen had a predominantly pressor effect through the dosing interval. Relative to equimolar doses of naproxen, with naproxcinod there appears to be a consistent lowering effect on SBP and DBP at peak (i.e. 1-4 hours post-dosing) but not at the end of the dosing interval.
3. More than two-fold changes in peak-trough effects were noted in some ABPM recordings suggesting that the proposed dosing regimen does not have a consistent effect throughout the dosing interval.

In other words, there was a short term beneficial effect on the blood pressure (1-4 hours after taking drug) but the benefit did not last through the day. Ironically, the committee was concerned about hypotension manifested as dizziness. Therefore, not only did they not approve a label claiming a cardiovascular benefit, but wanted a warning for hypotension, similar to that seen for nitroglycerin.

Finally, the division of gastroenterology commented on endoscopic studies 0002, 0005, and 0027 which were, at most, 6 weeks in length, comparing Naproxen, Naproxcinod, and placebo. Unfortunately, healthy volunteers were studied for two weeks in two studies, and erosions were the primary endpoint (the division likes six months in patients and ulcers, respectively). Only one study was in patients with ulcers as the primary endpoint and the study was for 6 weeks. In this study, the Naproxcinod 750 mg bid/Naproxen 500 mg bid ratio of ulcers was 0.7, with a p value of 0.07 (i.e. not statistically significant).

Compare the quality and quantity of data presented with that for Celecoxib, a drug that has the label the NicOx wanted. Specifically look at the duration of the studies, the primary endpoints and the patient numbers involved (source: Pfizer webpage)

Celecoxib Long-Term Arthritis Safety Study (CLASS) was a prospective long-term safety outcome study conducted in approximately 5,800 OA patients and 2,200 RA patients. Median exposures for Celexoxib (n = 3,987) and Diclofenac (n = 1,996) were 9 months while ibuprofen (n = 1,985) was 6 months. The primary endpoint of this outcome study was the incidence of complicated ulcers (gastrointestinal bleeding, perforation or obstruction).

Endoscopic Studies: A randomized, double-blind study in 430 RA patients was conducted in which an endoscopic examination was performed at 6 months. The incidence of endoscopic ulcers in patients taking Celecoxib 200 mg twice daily was 4% vs. 15% for patients taking Diclofenac SR 75 mg twice daily. The incidence of endoscopic ulcers was studied in two 12-week, placebo-controlled studies in 2157 OA and RA patients in whom baseline endoscopies revealed no ulcers.
What can we learn? Could things have been done differently? If NicOx had asked me a year ago, here is what I would have told them:

1. Naproxcinod would be approved if they went in purely as an NSAID since the data do support such a claim.
2. The endoscopic studies were too short, used the wrong kinds of subjects, and the wrong endpoints. There are enough studies showing the way (which is why I showed the Celecoxib data), and clear FDA guidelines, so I’m surprised that the company proceeded the way they did. It was clear that they were unlikely to get a claim for better GI tolerability. What they could have done was to get approval as an NSAID and to undertake these studies in phase IV. Better than getting an NDA rejected.
3. The cardiovascular effect was not sustained label was not likely. Once again, there are FDA guidelines, and precedence of other compounds, so I don’t see why the company chose the path it did. Especially with the data showing lack of sustained lowering of blood pressure.

A clinical look at Human Genome's lupus drug

On Tuesday, April 20, Human Genome Sciences (HGSI) released longer term data from its Bliss 76 Phase III study in Lupus, leading to a stock drop. First some back ground.

HGSI is developing Belimumab, an antibody to immature B cells, for the treatment of SLE by targeting the B Lymphocyte Stimulator (BLyS). Treatment with the antibody prevents B cells from maturing into auto-antibody secreting plasma cells. The Phase II data had been insipid, but data analysis by the company showed that patients who were sero-positive (i.e. HEp-2 ANA ≥ 1:80 and/or anti-dsDNA ≥ 30 IU/mL) were better responders than sero-negative patients. The Phase III studies were designed with that in mind. This is an important point that the reader should understand since not all SLE patients are sero-positive as defined in this trial - about 50% of patient in my practice are, and others report rates between 50 and 80% (which shows the heterogenous nature of the disease).

Two Phase III trials were conducted, one a 52 week trial (BLISS 52) in Asia, South America, and Eastern Europe, and the other a 76 week trial (BLISS 76) in North America and Western Europe. Doses looked at were 10 mg/kg and 1 mg/kg on a background of standard of care. At 52 weeks, both studies reported positive data with the 10 mg/kg dose. The response rates are below:

STUDY 10 MG/KG PLACEBO DIFF
BLISS 52 57.6 43.6 14
BLISS 76 43.2 33.8 9.4

Based on the above, it is clear that there is enough evidence to approve the drug. This was truly great news for us who have had no new treatment for our lupus patients in the past 50 years.

Now to the news from April 20. The 76 week data from BLISS 76 was released, and the company said 38.5% of patients responded to the 10 mg/kg dose (down from 43.2% at 52 weeks, a drop of 4.7%) compared to 32.4% of patients treated with a placebo (down from 33.8% at 52 weeks, a drop of 1.4%). The difference between the 10 mg/kg dose and placebo was not statistically significant. More curiously, the previously less appealing dose of 1 mg/kg was in many measures better than the 10 mg/kg dose. So, what is going on? And what are its implications?

It is unclear why the response rates dropped with time. Was it due to antibodies to the antibodies? After all, lupus patients are very adept at making antibodies. Or was it due to tachyphylaxis? Or some other reason?

The implications of this phenomenon are significant. Lets do the maths. Of my 20 patients who can be treated with Belimumab, lets say I put them all on it at (speculatively) $20,000 a year. That nets the company $400,000. After a year, I have to stop treating them, and can only use Belimumab on new patients (lets say about 4). Now the company is netting only $80,000, down from $400,000. But there is another, more important point. This relates to the question of why the effect wears off - does the effect, in fact, go into reverse? In other words, will there be a rebound? Will the disease, once the Belimumab is stopped, become worse than it was originally? Some may argue that no such rebound was seen in the clinical studies, but one must keep in mind that patients are not followed beyond a week or so after their last visit, so a rebound would not be captured by the study. So while the PI (principal investigator at the site) would know about it (assuming s/he knew the randomization), the companies would not.

Compare that to the anti-TNF story - one of the great advantages of anti-TNFs such as Enbrel (Pfizer and Amgen) and Humira (Abbott) used in the treatment of RA is that their efficay does not wane with time. No wonder they have 8 - 10 year safety and efficacy data. Similar long term safety and efficacy data would be very useful for Benlysta.