Nate Sadeghi's 2012 Biotech Stock Report Card

Likewise, Merck (MRK) remains unmoved since my mid-August recommendation, although the company's nearly 4% dividend boosts performance a bit. I would still be an owner of both Celgene and Merck. Lastly, it's too early to evaluate my late October recommendation that investors consider a smaller-sized position in Achillion Pharmaceuticals (ACHN).

The Shorts: B/B+

It's very hard to generate alpha -- market-adjusted performance -- on the short side in a year with a stiff beta tailwind. Even though the major healthcare indices are up substantially -- +15%, +42%, and +33% year-to-date for the S&P500 Health, AMEX Biotech, and NASDAQ Biotech Indices, respectively -- my short recommendations did reasonably well. My major mistakes were Amylin Pharmaceuticals (-81%) and Seattle Genetics (SGEN) (-41%), although I was right on the fundamentals for both. Since I discussed Seattle Genetics last week, let's focus instead on Amylin.

I was surprised by Bristol-Myers Squibb (BMY) and AstraZeneca's (AZN) (SYMBOL) mid-year, $7.0 billion acquisition of Amylin (this figure includes repayment of $1.7 billion in debt). Given Bydureon's commercial struggles, I didn't really consider it a particularly attractive asset. Admittedly, I hadn't considered a three-party transaction, which makes the economics somewhat more palatable. It will be interesting to see how Bydureon sales fare under new ownership. I'm still skeptical that the drug, which has been a disappointment thus far, will ever reach Wall Street expectations. Nonetheless, I was clearly wrong on the stock. My bad.

On a happier note, in late February I correctly predicted the collapse of Elan's (ELN) Phase III trial of the anti-amyloid antibody bapineuzumab in Alzheimer's disease (+16%). I'm still dumbfounded that anyone thinks Eli Lilly's (LLY) obviously failed Phase III trial of solanezumab, a similar anti-amyloid antibody for Alzheimer's disease, might be approvable. It should be clear to all but the most die-hard bulls that the amyloid hypothesis has fatal or, at the very least, near-fatal flaws. Our efforts at effectively treating Alzheimer's disease need a complete overhaul, and the FDA should reject solanezumab if Lilly decides to file for approval.

United Therapeutics (UTHR) plunged 18% after the FDA issued a Complete Response Letter for oral treprostinil, a re-formulation of the company's pulmonary arterial hypertension (PAH) drug Remodulin. The FDA's rejection, which surprised many investors and most likely dooms what had been United Therapeutics' key R&D asset, hinged on the drug's extremely modest clinical benefit.

Surprisingly, United Therapeutics shares have rebounded substantially in the weeks following the FDA news. I still see a rocky road ahead. Remodulin and an inhaled formulation of treprostinil called Tyvaso will go generic within the next few years; these two drugs comprise 85% of the company's sales. Given the impending approval of new branded and generic competitors in PAH, as well as the shift in physician practice towards oral combination therapy, United Therapeutics seems very poorly positioned. If shares rebound much more, it's probably worth revisiting as a long-term short.

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