Biotech Bets: Cardio, Cancer, Vaccines, and Ebola

11/03/2014 10:00 am EST

Focus: STOCKS

Jay Silverman

Analyst, Medical Technology Stock Letter

Jay Silverman is a biotechnology stock analyst and an editor at the industry leading biotech newsletter, The Medical Technology Stock Letter. Here, he offers an in-depth look at three of his favorite biotech stocks.

Steven Halpern:  Our guest today is Jay Silverman, a biotech stock analyst with Medical Technology Stock Letter.  How are you doing today, Jay?

Jay Silverman:  Very well, Steve.  Thank you very much.

Steven Halpern:  Well, thank you for joining us.  We have seen a lot of volatility in the biotech sector.  Could you share your general long-term outlook for biotech stocks and, perhaps, highlight some of the catalysts that you foresee impacting the sector?

Jay Silverman:  Well, we have been in what we call the golden age of biotech. We have had an accommodative FDA.  We have had a bunch of new drug launches that have been highly successful.  

We have discovered, and are developing new drugs every day, in a new paradigm for drug discovery, and the big-cap biotech stocks have delivered both in the laboratory and in the earnings front like most people couldn't imagine just six months ago or a year ago.  

Steven Halpern:  In the latest issue of the Medical Technology Stock Letter, you state that the market has given investors a tremendous opportunity in one particular company called The Medicines Company (MDCO).  In fact, you call it shockingly undervalued.  Could you expand on that?

Jay Silverman:  Sure, well, The Medicines Company has evolved into an acute care company in the hospital in a number of areas; cardiovascular, infectious disease, and soon to be a pain franchise.  

Their main drug, Angiomax, is about to go off patent around 2019, although they have had some generic companies challenge the patent.  

Yesterday, Mylan, one of the generic companies that was doing the patent suit against The Medicines Company lost all of their arguments that The Medicines Company patents were invalid and that they weren't infringing, and, in fact, they were all claimed to be valid and Mylan was claimed to infringe on all of them.  

That was a very big announcement because Angiomax is about 90% of the company today, but they have about ten products at various stages of development both mid-term and long-term that, to me, is one of the best lineups in the industry.  The investor focus has been on this Angiomax patent, so the settlement of this Mylan suit was a big relief of an overhang.

There is one more key patent dispute with Hospira that, hopefully, now that this Mylan deal has been settled in Medicines' favor, that will give them more ammunition to settle with Hospira and, again, keep Angiomax on the market until 2019.  

The key is that Angiomax is not a growth product anymore but it is about $600 million a year in revenues and those revenues and cash flows are expected to help fund these ten new products over the next five years, so it's very important and most people were worried and, in fact, quite negative on the outcome.  

So that event that just happened yesterday after the close is, to me, just the beginning of the rebound in this stock which has been one of the few stocks that was at a 52-week low over the last few days in biotechs.  

Steven Halpern:  Now, another favorite of yours, which has been a favorite for quite a while, is Pharmacyclics (PCYC) and you say the situation there couldn't be better.  Could you give our listeners some background on this stock and explain the reasons for your optimism?

Jay Silverman:  Sure, well,I met one-on-one with the Pharmacyclics management team in New York last week and they have had several important announcements just in the last couple of weeks.  One is a deal with Bristol-Myers (BMY) in immuno-oncology, one of the other hot spaces in the biotech field and cancer development.  

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Previously Imbruvica-which, I believe, is their blockbuster for CLL, and B cell, and blood cancers-has been launched this year to great success.  No one had ever imagined this compound, which is a once a day pill, and that it is very safe, would be used in solid tumors.  

The deal with Bristol-Myers about a week-and-a-half ago was the first, what I call, foray for Imbruvica in solid tumors via immuno-oncology and they are likely to have several other collaborations with immuno-oncology players, so I mentioned that being one of the next chapters in PCYC.  

Second, their inflammation program, which Johnson & Johnson-who is their partner on Imbruvica-has no rights to, they are all proprietary to PCYC, will begin to show some data this year or early next year in inflammatory models in humans in a rheumatoid arthritis trial.

And if the data is anything as the early Imbruvica related anti-inflammatory results are, then this could be another drug that changes the paradigm in the shift to oral drugs for inflammatory diseases such as arthritis and Crohn's disease.  

Steven Halpern:  Finally, let's turn to another long-term favorite of yours, Novavax (NVAX), and the company is involved in what is known as RSV vaccines and it also just released some positive preclinical data on a potential Ebola vaccine.  Could you update us on this situation?

Jay Silverman:  Sure.  The reason we have been Novavax fans for several years now is because of the RSV program, which continues to do extremely well in the clinic, and they just started the second of three new trials this fall, or this flu season.  RSV is similar to the flu in its incidence as annual seasonal virus.  

More recently, actually, as of yesterday, they presented data on an Ebola virus vaccine that until then, until yesterday, they had not been part of the biotech stocks developing Ebola products.  

What Novavax does very well is they are not just an RSV vaccine company, they are a respiratory virus vaccine company, so they have flu vaccines, RSV vaccines, pandemic virus vaccines from the bird flus and H7N9 of last yea and they even have the MERS vaccine under development, so Ebola is just sort of a natural extension of their core technology.  

What they do before they make an announcement is they use legitimate work. They have actually developed a vaccine by using the DNA sequence that was available in June for Ebola, so they have actually tested it on the most recent strain of Ebola that has caused all of the horrible situations in Africa and here with a lot of Americans recently.  

Their data was in the guinea pig model using again that strain that was an earlier strain that was an outbreak in 1976.  

They are also able-with their technology-to manufacture it very quickly, so they can deliver 1,000,000 doses of drug in the very near future and they are about to start a human study by the end of this year and there is a very good chance in our mind that they get government funding for that because they have that for their flu and pandemic programs.  

The whole platform and the big picture of Novavax just continues to improve and by next spring or summer, we're going to have very important data on the RSV vaccine, which we think will be akin to the smaller Phase III trial outcome and really move them to the upper levels of biotech valuations.  

Steven Halpern:  Well, it's always fascinating to hear your updates on the companies you follow.  Thank you so much for taking the time, today.

Jay Silverman:  Thank you very much, Steve.  Have a great day.  

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