The Biotech Mailbag is open.
My column on
and the looming release of phase III data on it's
obesity drug lorcaserin
seemed to hit a nerve with some die-hard Arena fans. Several people emailed to say I was too bearish and that I should not have quoted Canaccord Adams' analyst Adam Cutler, who downgraded the stock recently.
The flurry of Arena-focused email included (naturally) the tired claim that I was trying to drive down the Arena's stock price purposely at the bidding of my hedge fund overlords.
I stand by the column. It was a realistic look at the challenges Arena faces. Obesity drug development is fraught with risk, and the current drugs in development -- Arena's lorcaserin or the competing drugs from
-- haven't exactly inspired much confidence yet.
Yes, Arena has engineered lorcaserin to avoid the cardiovascular toxicities seen with its chemical cousin fenfluramine, but at the same time, potential central nervous system side effects remain an under-appreciated risk.
Also under-appreciated by a lot of investors is how skittish regulators at the FDA and their counterparts in Europe are about the risk-benefit of any weight-loss drug. The bar for approval in this indication is going to be very high given all the safety missteps of the past.
Fat Americans are screaming for a pill that will help make muffin tops and beer guts disappear, but the FDA -- and ultimately the insurance companies who will be asked to pay for the drugs -- may not be as eager to deliver.
A reader who goes by the moniker "Big Bill" emails a comment about my story on
. He believes the company is going to have tough time turning the
into a commercial success.
"Concerning your article about Zevalin, the product will never move unless the oncology clinics are going to make a profit on reimbursement. They can continue to use other chemo agents over and over on these patients and make money. If they use Zevalin or Bexxar, they make no money no matter how good the data appears to be. No company will ever move these products unless the clinics/hospitals make money on them. Sad but true."
Big Bill gets it right, with the caveat that Spectrum could benefit from an expanded Zevalin label and a Medicare reimbursement change that's more friendly to doctors' bottom line. I say "could" because much has to go right before either of those things happen.
I don't see the need to jump into Spectrum now. The stock is on my watch list, pending the outcome of the FDA decision on the new Zevalin label in July and evidence that Spectrum can accelerate Zevalin's sales growth.
Chris emailed to get my thoughts on
Human Genome Sciences
in the wake of the stock's collapse following release of mixed data from a
phase III study of albuferon
, a long-acting interferon for the treatment of hepatitis C.
Unlike many on the Street, Chris is not writing off Albuferon and thinks the company's lupus drug, LymphoStat-B, has a decent chance of success when data from a phase III study are released this summer.
"I just think that someone in the media needs to bring to light the positive things this company has going on right now in relation to the ridiculous share price," he writes.
Chris has a valid point about Human Genome's stock price, which was oversold when it fell to 45 cents or so following the Albuferon data released earlier this month. (Does anyone remember the heady days of the 2000 "genomics revolution" when Human Genome's stock price traded near $100?)
Since then, the stock has rebounded to around 90 cents, or about 50% off from where the stock traded before the Albuferon data came out. That seems about right if you believe, like I do, that Albuferon is a critically wounded drug. The convenience of fewer injections with Albuferon is a plus, but the drug does not compare well to the currently marketed interferons like
Pegasys from an efficacy and side effect perspective.
Albuferon might be approved (although that's not a slam dunk), but even so, the drug is not going to do well commercially. That's my opinion but one that I think is shared by a lot of investors.
Lupus is proving to be a hard case when it comes to phase III studies, so I wouldn't put too much faith in
. Recall that LymphoStat's phase II data produced mixed results, including a miss on the primary endpoint.
Human Genome has more going on than just these two drugs, including an anthrax vaccine, a couple of cancer drugs in mid-stage testing and a partnership with
. But the company also has looming debt and financing issues that will grow more serious if drugs like Albuferon and LymphoStat-B turn out to be failures.
I'm sympathetic to Chris' point of view on Human Genome, but it's not an attractive stock to me from a fundamental basis, even with at a sub-$1 price.
Harry A. can't seem to let
die a quiet, peaceful death.
"If in your opinion Cell Genesys is done, then explain why Leroy Kopp
Kopp Investment Advisors increased his position by buying 600,000 shares in February? Do you think they are doing this to throw money away? You seem to know so much, just like Cramer does. To me, you and him are alike, you both pump and bash for your hedge fund buddies."
I don't know why Kopp is buying more Cell Genesys, if indeed the firm is buying. (I'll take Harry at his word.) But here is what I do know about Cell Genesys: I first raised serious questions about the company's
in February 2004 when the stock traded in the teens. I continued to warn readers off the stock throughout 2007 before the company's prostate cancer vaccine blew up spectacularly. You can read the highlights
Today, Cell Genesys is an empty shell of a company with a stock that trades for around 20 cents. Drug development is on hold, the employee count is down to 21, and the company is looking for a buyer.
So, I wish Kopp and Harry good luck with Cell Genesys. I think my bearish call performed exceedingly well.
"HepDude" emails to comment on my story about
and the recently released
for the upcoming European hepatitis C meeting:
"In the community of patients with Hepatitis C, the other big aspect of interferon-style treatments is side effects. The patient is made far more ill for months at a time, in order to clear the virus. Of course, it is even worse when you go through that hellish period and do not clear the virus, so certainly greater effectiveness is important.
But the real treatment will be one that does not destroy six months of your life. In the future, please include this factor in your discussion of Hepatitis C treatments, even if the investing community does not."
HepDude raises an excellent point and one that is not lost on investors. One reason for the optimism around Vertex's hepatitis C drug telaprevir is that it promises higher cure rates with a six-month course of treatment, half as long as today's standard of care.
"Gumby" asks, "I wonder whether there will be some biotechs that will remain independent indefinitely for decades to come? I favor biotechs that will remain biotechs and that can merge with similar biotechs but not Big Pharma. What do you say?"
Gumby asks a timely question given Roche's successful tender offer for
, which means the old "DNA" ticker symbol we've all come to know and love these many years is vanishing. How strange and sad.
Much is made of Big Pharma's need to buy up biotech companies to replenish their depleted pipelines, but don't forget that nothing stops the larger and more successful biotechs from gobbling up their smaller sector cousins, too.
tender offer for
is a recent example.
has traditionally been a fairly active dealmaker;
If fund-raising problems for the biotech sector persist, I think you'll see more small, cash-strapped biotech fall into the arms of larger, cash-generating biotechs that will use this opportunity to pick up good assets cheaply.
But let me emphasize the "good assets" part. Junk will always be junk, so invest in companies with promising drugs, not just because you think a company is a cheap pickup.
At the time of publication, Feuerstein's Biotech Select model portfolio was long Gilead Sciences and Vertex.
Adam Feuerstein writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback;
to send him an email.