Feuerstein's Biotech-Stock Mailbag

Of course, this news didn't stop intellectual giants like my regular email buddy John P. from sending me another missive, slamming me for being so negative on Encysive in the past. The fact that Pfizer is buying Encysive for what amounted to more than a 100% premium shows just how stupid I really am, says John. (Actually, he called me far worse, but I can't quote from his email directly because most it is misspelled; those words he manages to spell right are slurs, curses or X-rated.)

I am sure there are some speculative investors out there who bottom fished on Encysive and bought the stock when it was under $1, betting on a buyout, especially since the company had previously announced it was for sale. If you're in this group, congratulations.

But let's not forget those investors -- and I venture to guess it's a larger group -- who owned Encysive when it was $4-5 stock, or even higher. Their investment was blown to pieces when Encysive received its third approvable letter last summer, and it's been downhill ever since.

If any of these people still owned the stock this week (and I bet John is in this group), they're getting pennies on the dollar from the Pfizer buyout.

And no, I don't think Pfizer now controlling Thelin will have a negative impact on Gilead Sciences and its competing drug Letairis. That's true even in Europe, where Thelin is approved. Thelin is simply too little, too late.

Pfizer may have really bought Encysive to gain control of a second-generation Thelin that's still in early-stage development. Interesting, but again, not a near-term competitive threat.

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Along the Letairis lines, from Jerry G. came this email: "Why no comment of Gilead Sciences' Letairis getting a change in its [prescribing label] about fluid retention after being on the market for six months? What's wrong, you Gilead Sciences lackey? Not a good sign for any new drug at the end of its launch phase."

If being a Gilead Sciences' lackey means recommending investors own a big-cap biotech stock that was up 43% last year, well, I'll gladly wear that moniker on a T-shirt.

That said, I'm also on record saying that it will be tougher for Gilead to match that stock performance this year. So far, that's been borne out, with the stock amid the worst performers in the group. A downgrade to market perform from Sanford Bernstein Friday didn't help.

To Jerry's issue, I didn't comment this week because I don't think the Letairis label change is a big deal. Adding additional warnings about edema (swelling caused by fluid retention) is just acknowledging what everyone already knows about one of the main side effects of the drug. And so far, physician surveys I've seen indicate that this is not a big concern for doctors or patients.

So, I'm still a Gilead Sciences' lackey, I guess. That's fine by me. I've been called worse things (see John P. above.) Gilead should be a core holding in any biotech investor's portfolio, and significant weakness in the stock is a buying opportunity.

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Ron R. writes: "Adam, I've been following your posts for a while and have concluded you are a really good soul, as well as a rather astute biotech analyst. So tell me please, what has been going on with the bizarre fluctuations in Alexion Pharmaceuticals' stock price."

This is the first time anyone has commented on my soul, so thanks, Ron. With the caveat that I don't follow Alexion that closely, I'll say that the drop in the stock from mid $70s to the low $60s over the past week or so seems to coincide with a downgrade to market perform from Wachovia Securities. This was essentially a valuation call, prompted by what the analyst sees as flattening revenue growth for Soliris, Alexion's drug used to treat an ultra-rare blood disorder.

This week was also not very kind to mid-cap biotech stocks, with many, not just Alexion, coming under some heavy selling pressure. There was an unconfirmed rumor in the market that perhaps a large mutual fund was selling off all or parts of its biotech book.

Fundamentally, Alexion has been and continues to be a strong biotech story. Fourth-quarter results were very good, and 2008 guidance indicates the company is driving toward profitability. From a valuation perspective, there seems to be tug of war between those who see fair value in the low $70s versus somewhat higher, call it $80 plus.

The difference comes down to how many patients Alexion can identify and treat with Soliris both here and in Europe. But I'd also pay attention to the company's efforts to expand Soliris into other indications. If successful, that could be the really big growth driver for the company that is somewhat overlooked today.

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