Biotechs Target Pain and Flu

08/26/2013 11:00 am EST


Jay Silverman

Analyst, Medical Technology Stock Letter

Jay Silverman, biotech analyst at The Medical Technology Stock Letter, looks at some favorite biotech stocks that are addressing potentially large, new markets.

Steve Halpern: We're here today with Jay Silverman of Medical Technology Stock Letter. How are you doing Jay?

Jay Silverman: Hey Steve, thank you.

Steve Halpern: Could you tell us a little about your background and your interest in biotechnology?

Jay Silverman: Certainly. I actually began my career in 1987 with Nomura Securities, the largest broker in the world at that time, a Japanese firm.

They were very big investors in Genentech and over those last 27 years I have been an institutional analyst for three major investment banks, the last one being Robertson Stephens in the beginning of 2000.

Steve Halpern: What brought you over to the Medical Technology Stock Letter?

Jay Silverman: Both John McCamant and I have been friends since I started. I knew his dad quite well. Our philosophies are similar. We want to work with people who are smart, who we trust, and who will also work hard.

We also love the independence of the newsletter. We make our own decisions, we're not motivated by financial payments from investment banks or corporate finance and that gives us the freedom.

Actually John is in San Francisco and I'm in New York, which gives us coverage on both coasts and it seems to be working very, very well.

Steve Halpern: Well, biotech has been among the markets' best performers and, in fact, they've had a great summer. Do you think it's time for a setback in the sector now, or do you see even better times ahead?

Jay Silverman: Well, the biotech stocks have had a great summer and a majority of that has been driving by the takeover speculation between Onyx (ONXX) and Amgen (AMGN), but there have been just a number of new drug approvals that have resulted in very, very strong launches and very much better than expected sales.

The market for biotech stock has actually been behaving in a rather manner, taking what I call two steps forward and one step back, and more recently, in the last week or two, the group took a step back because there was some concern that the Amgen and Onyx deal may not get done.

(Editor's note: Following this interview, Amgen did in fact announce that it was moving ahead with the takeover of Onyx.)

In fact, we believe the next step heading into the very busy fall season is a step forward.

Steve Halpern: One of your long-standing recommendations is Incyte (INCY), which recently reported some positive news and saw a huge jump in the price-up close to 30% in one day. What happened there and what's your outlook for the stock?

Jay Silverman: Incyte is a long time recommendation of MTSL (Medical Technology Stock Letter) and the other day they announced that Jakafi, which is their lead drug, a JAK inhibitor, improved overall survival in patients with metastatic refractory pancreatic cancer.

This is the first time a blood cell drug has worked in a solid tumor and many people, including us, had relatively low expectations of a favorable outcome.

It's a relatively small study, about 125 patients, and they still might have to do another trial, but that opens up the flood gates here. I actually believe Incyte, as a result, ironically, might be a better buy here at 34 or 35 than it was in the 20s.

And what you need to realize is that, over the last couple of years, Incyte has been a terrible laggard in the group, which surprised us and kept us very aggressive, because the company continued to make a significant progress with Jakafi and the pipeline.

Now people are starting to understand that and it's just beginning to participate in a rally, so I think Incyte is in wonderful shape.

Steve Halpern: Another stock you follow closely is Nektar (NKTR). What do you see happening there?

Jay Silverman: Yes, Nektar is another platform company at the MTSL and they are about to release data on one of their compounds that is a pain reliever-unlike the very severe side effects of OxyContin, the opioid pain relievers that are out there, which have caused severe health and addictive concerns, leading to very, very troublesome side effects and death in some cases.

The Nektar 181 has shown early data that shows the same amount of pain relief in pain control, but none of the addictive or hang over effects that the opioids have shown. This is a multi-billion dollar market that is in dire need of a safer alternative.

Within this summer-that's the quote from management-they should be releasing phase two results in alleviating pain in patients with osteoarthritis of the knees.

I think the data could come as soon as Monday, because, as you know, the summer is about to end, but it should happen in the next several weeks at the most, and the rest of the year is filled with a number of pipeline compounds from the Nektar platform, so it definitely is a name that should have some exciting news pretty soon.

Steve Halpern: One lower price biotech stock to follow is called Novavax (NVAX). What's the attraction with that company?

Jay Silverman: Novavax has very innovative vaccine technology, and historically, they've been a company that's developed flu vaccines and even pandemic flu vaccines, such as the bird flu that's been in the news over the summer in China.

The real attraction there, while the vaccine technology is very sexy for the flu market, is that they have been successful in two studies for what's called the RSV, which is the respiratory syncytial virus.

It occurs in premature infants, as well as in the elderly, and it's flu related, so the two illnesses, flu and RSV, are seasonal illnesses and the only drug today that treats RSV is MedImmune Synagus, which does about a billion dollars a year in sales.

I covered MedImmune as an analyst in the 1990s and what is intriguing here is that MedImmune, which was acquired by AstraZeneca in 2003, is located five miles up the road from Novavax.

No one has been able to make a vaccine for RSV, not even the Big Pharma and there are many, many companies who have tried and are trying.

Novavax has done two successful studies this year and the number of people who come from MedImmune in the last two years, including their chairman Kim Young, from the Synagis team, now make up about 30% of Novavax. Therefore, we believe that people will start to take note of the potential for the RSV vaccine.

Novavax is an incredibly exciting and even undervalued company. The first analyst meeting they're going to have ever for their research program is coming up on September 24, and we think that will be a very, very important event for the visibility of Novavax stock.

Steve Halpern: Well, we really appreciate you taking the time and sharing your insights, thank you.

Jay Silverman: My pleasure, thanks Steve.

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