The Right ‘Medicines’

09/07/2015 10:00 am EST

Focus: STOCKS

Jay Silverman

Analyst, Medical Technology Stock Letter

In several interviews over the past year, Jay Silverman highlighted this biotech as his favorite investment idea; with the shares now up over 40% year-to-date, the editor of the Medical Technology Stock Letter, outlines the reasons behind his continued bullishness.

Steven Halpern:  Our special guest today is biotechnology sector expert, Jay Silverman, of the Medical Technology Stock Letter.  How are you doing today, Jay?

Jay Silverman:  Very well, thank you, Steve.

Steven Halpern: Well, thank you for joining us.  Last January in our annual top stocks feature, you chose the Medicines Company (MDCO) as your favorite idea for 2015.  With the shares now up over 40%, it appears your long-term optimism on the company has been well rewarded.  First, can you discuss your original rationale for recommending the company and give our readers a little bit of background on the Medicines Company.

Jay Silverman: Certainly, Steve. Our original investment recommendation was back in 2013, and, at that time, Medicines Company was getting a transformation away from its dependence on a cardiovascular drug called Angiomax.

Angiomax helps dissolve blood clots before undergoing cath lab procedures and it has been a very successful drug, but there was some patent dispute underway and the consensus in the stock was that they were going to lose the patent. 

We thought that that negative outlook was already discounted in the shares, but at the same time, over the last few years, the management of Medicines Company has brought in—or developed—almost a dozen new compounds and products, and that over time, that would diversify away the long-term growth and revenue base from Angiomax from one product, to a variety of new products that also specialize in Medicine Company's franchises.  

Steven Halpern:  Now the stock's latest upward move was fueled by Phase 1 data regarding its cardiovascular drug.  Could you share your thoughts about this potential drug and the roll it may plan in the company's future.

Jay Silverman:  Sure. The trend in the drug industry right now is for targeted therapies both in cancer and other diseases. This target is called PCSK9.  It is a target that leads to elevated levels of LDL cholesterol, which is a major cause of potential heart attacks and strokes.  

With the statins going off patent, there is a next generation of drugs that have just been approved from both Amgen on one hand last week, and Regeneron and Sanofi on the other hand in July, that targets this particular protein and kocks down levels of LDL.  

The Medicines Company—with partner Alnylam (ALNY)—have developed a different approach to knocking down LDL using antisense.  Antisense actually prevents this target from being formed or elevated in the first place, while the antibody from Amgen (AMGN) and Regeneron (REGN) knock down this protein after it has been elevated.  

In our view—the Alnylam and Medicines Company compounded approach—is a better way to address the situation.  Their compound and the data that was presented this weekend in London showed that in a very small number of patients, only 69, but because we have the two drugs that were just approved and the data with those compounds, it's pretty easy to compare the two even at this stage of development.  

It shows that you can knock down LDL as effectively, and possibly more effectively as the antibody, but do it with a significantly fewer, less injections, in this case, these are injectable drugs.

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The Medicines Company's drug, ALN-PCS, you may only be able to give one injection every three months and possibly just twice a year versus every two weeks for the other drug, and in this case, that is a major convenience with dosing.  

Finally, when it comes to manufacturing costs and the cost of the system—as you know healthcare costs are always out of control, particularly with new drugs—the cost to make a drug like The Medicines Company drug is pennies compared to an antibody.  Not only do they offer up much more convenient and possibly safer route of administration with the same efficacy, but the cost of the system can be dramatically saved with this approach.

Steven Halpern:  As you alluded to earlier, the shares had been depressed over an ongoing patent dispute.  Has that issue now been fully resolved?

Jay Silverman:  The patent issue was just resolved in June and they did actually lose the patent, but as you could see by the stock back in June, well before this data was presented in late August, Medicines Company shares have actually performed quite nicely.

That, in our view, was because there was a number of investors waiting for this to be resolved one way or the other, because even if they had won the patent on Angiomax, the drug's true patent expiration was 2019. It wasn't that long from now.  

The amount of new products that were being introduced to the marketplace globally this year has at least been four and the data on this drug and other drugs that they have actually licensed in are being presented as well.  There's actually a lot more to come in the next few months of this year alone.  

Steven Halpern:  Could you highlight some of the other drugs in the firm's pipeline?

Jay Silverman:  Certainly. They received approval for a drug called Cangrelor back in July and Cangrelor is to help the platelet formation that also occurs during surgery in the cath lab. It's complementary to the Angiomax drug and one of The Medicine Company's greatest strengths is their hospital salesforce.  

They actually had a problem with the FDA in the early portion of 2014 when Medicines Company shares worth $41 back then.  

Subsequently, they resubmitted the data last year and got approval and the stock again was recently under $30.  That additional data will be presented at the American Heart Association in November and, of course, they are just launching that drug now.  

One other really exciting drug that I don't think investors have paid attention to is a drug for anesthesia during the surgical procedures, very similar to the Propofol drug that was attributed to the death of both Michael Jackson and Joan Rivers recently.  Propofol, as you know, you get during things such as colonoscopies and other very, very short-term even outpatient procedures.  

This one appears to be significantly more potent and has a very, very safer side effect profile.  They'll present additional Phase 1 results from that compound in October at the anesthesia meeting.  We have a number of events for the Medicines Company.  

One last one I forgot is their antibiotic franchise, which will be subject of the upcoming ICAAC meeting in the middle of September.  In addition to this weeks' PCSK9 data, they have a steady stream of late-stage presentations at major medical meetings in September, October, and November of this year.  

Steven Halpern:  Again, our guest is biotech expert, Jay Silverman, of the Medical Technology Stock Letter.  Thank you for sharing your insights today.

Jay Silverman: Thank you very much, Steve. Take care.  

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