Biotech Stock Mailbag: Do Investors Have an 'Aphinity' for Shorting Puma Into Trial Results?

Welcome back to another edition of the Biotech Stock Mailbag.

"Stu56" writes, "Adam, do you have a prediction to make about the results of the Aphinity study? And if you do, what happens to Puma Biotechnology (PBYI) ?"

I asked Sally Church, widely respected for her analysis of cancer drug data (she blogs and tweets, too) for her call on the outcome of Roche's (RHHBY) Aphinity study. As a reminder, the Aphinity study enrolls women undergoing adjuvant (post surgical) breast cancer therapy, with the aim of demonstrating the benefit, if any, of adding Perjeta to one year of Herceptin and chemotherapy, the current standard of care.

Me, to Sally: "Sally, will Aphinity be positive or negative? What's your call."

Sally, to me: "Positive! If Roche has the data in time for ASCO 2017, I think it will be the plenary."

I defer to Sally, so there you go.

A successful Aphinity study will deliver a significant boost in Perjeta sales, so obviously that's great for Roche.

On its quarterly conference call this week, Roche signaled an imminent release of Aphinity study results and a desire to have the data presented in full at the ASCO annual meeting in June.

O'Day: All Aphinity events are in. Data are in house, being cleaned. Signals are good $RHHBY $PBYI

— Jacob Plieth (@JacobPlieth) February 1, 2017

O'Day: we'd love to get Aphinity into #ASCO17 if the data are positive. NB late-breaker deadline is 16 March $RHHBY $PBYI

— Jacob Plieth (@JacobPlieth) February 1, 2017

Biotech investors are more interested in how the outcome of the Aphinity study will affect Puma's breast cancer drug neratinib.

Puma is seeking FDA approval for neratinib as an extended adjuvant breast cancer therapy. That means treating post-surgery breast cancer patients first with one year Herceptin/chemo (standard adjuvant therapy) and then switching them to one year of neratinib.

If Aphinity is positive, Puma is in trouble because Perjeta/Herceptin becomes the new standard of care for adjuvant breast cancer therapy. That squeezes out neratinib, in part because there are no data to support the use of neratinib after Perjeta/Herceptin. [Puma disagrees, insisting neratinib is still viable even with the addition of Perjeta to adjuvant breast cancer therapy.]

If Aphinity is a win, Roche shares go higher, Puma shares fall.

But...

If Aphinity fails, Roche shares fall and Puma shares soar. Bigly!

A quick canvas of biotech buyside sources in the past two days revealed reluctance to be short Puma going into the Aphinity study results.

A majority of the investors I spoke with are not Puma fans and believe, like Sally Church, Aphinity is likely to be positive. Some of them have been short Puma successfully, but believe the risk-reward of remaining short Puma (the stock is already down to $33) into Aphinity isn't great, so they're covering. Others Puma bears have been avoiding the stock altogether because they don't have a conviction read on how Aphinity turns out.

A small minority of the investors I spoke with this week are Puma bulls. They're long the stock, believing Aphinity disappoints. The potential upside in the stock exceeds what will happen if they're wrong and Aphinity works.

If Aphinity fails and Puma shares rise dramatically, I suspect many of the buyside investors I spoke with this week will look to get short the stock again on the bet neratinib fails to secure FDA approval later this year. That's a story for another day.

Frank W. writes, "I did not see you comment at all on the Leerink survey of insurance companies not covering Exondys. Do you have an opinion about how bad this is?"

The new normal, even for drugs aimed at helping kids suffering from fatal diseases, is for insurance companies to push back on reimbursement, particularly when drugs are first launched.

That Sarepta Therapeutics (SRPT) is having to work harder to obtain reimbursement coverage for Exondys 51 is not a surprise. Biogen (BIIB) is working through similar insurance roadblocks for Spinraza.

The Leerink survey is a scare report. All it really does is make Sarepta's stock price more volatile, which helps Leerink's hedge fund clients trade in and out of the stock. The firm's findings do not change the positive, long-term fundamental outlook for Sarepta and Exondys 51.

@daviesbj cc: @adamfeuerstein. Adam, what would you do as FDA commish?

— Meg Tirrell (@megtirrell) January 31, 2017

Hi, Meg!

The Food and Drug Administration is not broken so I wouldn't make any substantive changes to the way new drugs are reviewed. I would accelerate the generic drug approval process, including biosimilars.

The FDA is not a barrier to innovation or drug development. The FDA has been approving more drugs faster than ever before. Biology is the barrier to innovation. Figuring out how diseases work and developing drugs to treat them is a daunting scientific challenge.

Most drugs fail because they're ineffective or unsafe. Dumbing down the FDA won't change that. What will happen is drugs that don't work will be prescribed to vulnerable patients.

I'd also crack down on drug companies that lie or mislead investors about their dealings with the FDA. No longer would the FDA be required to remain silent as companies misrepresent the outcome of regulatory meetings or selectively disclose complete response letters. I'd have the SEC enforcement people on speed dial.

Endpts gathered perspectives from biotech executives on Trump and the FDA. It's worth reading.

My bet for the next FDA commissioner remains Scott Gottlieb.

Farewell, Repros Therapeutics (RPRX) CEO Joe Podolksi. He announced his exit from the company this week. I will always be grateful to Podolski for inspiring the best headline I ever wrote: Repros CEO: My Testosterone Drug Helped Gay Cubans Have Lots of Sex.

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.

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