BOSTON (TheStreet) -- Welcome back to another Biotech Stock Mailbag. Let's get to your emails and tweets.  


Sure, if FDA awards New Chemical Entity (NCE) status to Keryx Pharma's (KERX) kidney dialysis phosphate binder "We Can't Call It Zerenex," I will most certainly admit my error. I'm still in the camp of people who doubt FDA will grant NCE status to "We Can't Call It Zerenex" because the drug's active moiety, ferric citrate, is not new. Amarin (AMRN) ran into the same "No NCE" problem with Vascepa. Keryx is just like Amarin. 

The FDA is expected to next update the Orange Book a week from today. This will be our first opportunity to see if the agency has made an NCE decision on "We Can't Call It Zerenex." (The FDA updates the Orange Book at the end of the second full work week of each month.)

Keryx and its supporters downplay the importance of NCE status for "We Can't Call It Zerenex." They believe long-lived patents are more important. Keryx also believes its intellectual property will be further strengthened by a favorable FDA decision on a Patent Term Extension. Last week, Keryx said the active pharmaceutical ingredient (API) in "We Can't Call It Zerenex" was designated as tetraferric tricitrate decahydrate instead of ferric citrate. Patent term extensions are granted to drugs with unique APIs. Since tetraferric tricitrate decahydrate has never been approved before, Keryx believes this bodes well for the granting of a patent term extension. 

The jury's out on that question, but I'd point to the FDA's own announcement of "We Can't Call It Zerenex's" approval which describes the active ingredient as ferric citrate. 

The NCE and patent term extension questions are secondary to Keryx's ability to launch the drug successfully. The drug's label is less than optimal, as I've discussed already.  "We Can't Call It Zerenex" is also priced at a premium to other phosphate binders, which doesn't help.

 

I spoke this week with a health care hedge fund investor who is long Puma Biotechnology (PBYI - Get Report) . His fund's compliance rules do not allow him to speak on the record, but off the record, he was willing to walk me through his thesis on Puma, specifically how he justifies the company's $7 billion market value. His base-case projections, using fairly conservative assumptions, values Puma at $270 per share, although he did not buy the stock above $200 per share and won't in the future unless the thesis improves in a meaningful way.

Puma's only drug is neratinib, an oral inhibitor of the cancer-inducing protein HER2. Puma shares soared in July after the company announced positive results from a study of neratinib in "extended" adjuvant breast cancer. The study enrolled 2,821 women with HER2-positive breast cancer who underwent surgery and adjuvant treatment with Roche's (RHHBY) Herceptin. After completion of the Herceptin adjuvant therapy, the patients were randomized to receive an additional year of adjuvant treatment with neratinib or a placebo. The results of the study demonstrated neratinib adjuvant treatment reduced the risk of breast cancer recurrence by 33% compared to placebo. The result was highly statistically significant. 

With that background, here's my summary of one investor's argument in favor of Puma's $7 billion valuation:

Start with the neratinib market opportunity as an "extended" adjuvant breast cancer drug. Roche's Herceptin generates about $7 billion in total annual sales, of which almost $4.5 billion is derived from the adjuvant breast cancer setting. Herceptin is used for a single year of adjuvant therapy. Extending Herceptin into a second year of adjuvant treatment does not benefit patients, according to results from a large clinical study. If the Puma data stand up, neratinib will be approved and become a viable drug for doctors to extend adjuvant breast cancer therapy for a second year. 

If you assume Puma is able to capture 75% of Herceptin adjuvant patients at parity pricing, neratinib could deliver more than $3 billion in 2021 (six years from a 2015 launch). With a five-times sales multiple and a 15% discount rate, Puma is worth about $270 per share. (This valuation also includes another $500 million in present value for other neratinib indications such as in metastatic HER2 breast cancer where the drug could replace GlaxoSmithKline's Tykerb.)

There's upside to this valuation if neratinib is priced at a premium to Herceptin or if the drug grabs more market share. My investor source is also giving the company little credit in his model for expanding neratinib use into cancers other than breast. 

Risks? Of course. There have been some questions raised about the design of the neratinib extended adjuvant study, which if proven correct, may put approval of the drug at greater risk. Neratinib is also a very difficult drug to tolerate. High rates of diarrhea, some severe, require patients to pre-medicate with high doses of Immodium. Neratinib sales could suffer if the diarrhea issue proves to be worse in the real world. Puma also faces competition down the road from Perjeta, Roche's next-generation HER2 inhibitor. At a European cancer conference last week, Perjeta added to Herceptin and chemotherapy extended survival by an amazing 16 months in patients with metastatic HER2-positive breast cancer. These stunning Perjeta data were not in the adjuvant setting but Roche is conducting studies to move the drug in that direction. 

Arrowhead Research (ARWR - Get Report) had a terrible week. Investors hated preliminary data from an ongoing study of its hepatitis B drug ARC-520. Arrowhead's punishment was magnified because of management's inability to manage investors expectations. The jury's out on whether or not Arrowhead executives were just accidental idiots or purposefully obtuse. Either way, the Arrowhead implosion is my fault, says Manuel M. 


I was going to start by calling you MR. but you are nothing but a sewer rat. It is a shame that people like you have the ability to ruin lives like you did yesterday. Personally, my 401k almost disappear yesterday, and is yet to be seen if it will recover. Obviously you have no ethic nor morals as a writer and as an individual. One should be very careful before publishing an article such as yours, being fully conscious that it would have the adverse effect it had, and that it destroyed a lot of people's life's like it did. The least you should do is to offer an explanation or a rebuttal to the company's publication. Remaining quiet only reiterates how much of a scum and a worthless piece of thrash you are.

Manuel's 401k consisted mainly of shares of Arrowhead? Really? That seems reckless, if it's even possible. Manuel, my only advice for you is, buy one of Jim Cramer's books on investing. Better yet, perhaps you should not invest at all. 

Another email love note from Arrowhead fan Kevin A.: (Sent in all caps, of course)


AF'S ARTICLE ON ARWR WAS UNCALLED FOR AND IRRESPONSIBLE, WHAT IS WORSE HE TRIES TO BLAME THE COMPANY FOR HIS ARTICLE. IT HAS CREATED MASSIVE LOSS, AT THE END OF THE DAY THE MANAGEMENT IS IN A SITUATION THAT IT IS DAMN IF THEY DO AND DAMN IF THEY DO NOT. THIS IS NOT A FIRST TIME HE HAS DONE THIS A FEW WEEKS AGO HE CREATED THE SAME SITUATION WITH NPSP. DOOM AND GLOOM, AND ULTIMATELY NAPTRA WAS APPROVED BY FDA ADVISORY COMMITTEE.


And exhale... 

Shaffa S. writes, "Adam, I saw you tweeting about Gilead Sciences' (GILD - Get Report) new hepatitis C drug [Thursday] but couldn't see all of the conversation so didn't know if you had an opinion on whether or not it will be approved and when. Can you share your thoughts, please?"

Everyone -- I don't believe I'm exaggerating here -- believes FDA will approve Gilead's combination hepatitis C drug Harvoni today, on the expected approval date. Harvoni is a single, once-daily pill combining Sovaldi (sofosbuvir) and ledipasvir. Anything short of a full approval today would be a major "Whoa" moment for Gilead. Given high expectations for Harvoni's full approval, you're unlikely to see much movement in Gilead shares. Approval and significant sales are already baked into the stock. The only uncertainty around Harvoni's approval might be what FDA allows in the label. Gilead wants eight- and 12-week treatment regimens to be included in the label. Investors will be disappointed if an eight-week treatment is not included, so watch for it when the approval announcement is made. 

Gilead will also announce Harvoni pricing upon approval, which will get a lot of scrutiny given the attention paid to the $84,000 price tag for Sovaldi. The Street expects Harvoni to be priced at around $95,000 for 12 weeks of treatment, suggesting $63,000 for eight weeks. 

Coming up in December will be the approval decision for Abbvie's all-oral hepatitis C regimen. 

Let's close out with some more hate (love) mail. Dan M. and his wife want me to start smoking pot. 


My wife and I have noticed your fascination with instigating trouble by tweeting, blogging etc. In re: EBOLA, Tekmira, and  Chimerix. I have seen and taken a picture of your Tweet where you use the F word (Very Professional) to a twitter nut. I think it's time you moved on to Cannabinoids in Biotech. Step away from the crowd. You might also try some, it has been known to calm peoples nerves and relax them . From your recent " work " looks like the job has gotten into your head. I will pray for your sick mind.


I'm a beer and bourbon guy, sorry. Pot does nothing for me. 

Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.