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Biotech Bets: Zika, Cancer, and Genetics

03/30/2016 10:00 am EST


John McCamant

Editor, Medical Technology Stock Letter

The Medical Technology Stock Letter—focused exclusively on biotech—is among the longest-running and most respected publications in the field. Here, editor John McCamant discusses the long-term promise of the sector and highlights a trio of current favorite biotech stocks.

Steve Halpern:  How are you doing today John?

John McCamant:  I’m doing great Steve, how are you?

Steve Halpern:  Very good.  Now, you’ve been following the biotech sector for so many years, you’re very familiar with the volatility of the sector. Before we talk about some individual stock ideas, could you just touch on the general outlook and optimism you have for the sector and perhaps give some guidance to the less experienced investors who get shaken out by these fallbacks.  

John McCamant:  When we’re looking at long-term growth investing here, Steve, in the biotech space, we’re basically been 30 years with some of these public companies, but you’re really investing in the future and current excitement going on in new drug development which goes right into a very nice demographic play as we have an aging wealthy population.

Drugs and pharmaceuticals are some of the real answers, but we’re looking at much better drugs, better cancer drugs, the hepatitis C is basically being cured now with pills as opposed to just being treated, and these are creating basically multibillion drugs with tremendous investment opportunities.

But of course, you have to navigate through the hundreds of different Biotech companies and that’s where we feel some experience, diversification, and a long-term outlook and we expect that to deliver very good long-term returns in this space, Steve.

Steve Halpern:  So from your prospective, when you've found a company where you’re confident in their long-term future, general market pullbacks that bring these prices down, I assume you view that as an opportunity — rather than a reason to be scared.  

John McCamant:  Great point.  Particularly if you’ve done your homework. Before we make the recommendations we will do a thorough check on the fundamentals, but it’s important to do that when you have price pullbacks also, Steve, to give you that additional confidence.

And that, I think, is one of the reasons we’re frustrated with some of the short-term action. It’s been a biotech bear for some time here, but we’ve seen this before.  

We know that the bowls and the better markets will come through and particularly with the companies underlying fundamental still in shape and the industry in probably the best shape it’s ever been, underlying fundamentals.  

Regulatory is better than it’s ever been.  We have plenty of capital so we think we’re in a very good position overall and just broader market and over time we expect them to have good returns in effect.

Steve Halpern:  Now, one of the biggest stories in the new lately has been the dangers of the Zika virus, and you’ve been closely following a company that’s working in this area.  Can you tell our listeners a little about Intrexon and its potential in this area?  

John McCamant:  Well, the company as Intrexon (XON), and they bought a company called Oxytec.  It’s one of the world’s leaders in genetically manipulating insects.  They were going after the specific subset of mosquitos already for some other very deadly viruses, Dengue and yellow fever.  

Now Zika virus is being spread by this exact same mosquito so they basically had a leg up already on this situation.  What they have is what’s called a self-limiting male mosquito.

So they genetically engineered the male so once it mates with a female, it’s farther along in the lifecycle before it reaches an adult, the mosquitos terminator, literally wiping out a generation.  We have had field tests in multiple places within the tropics including Brazil with 82% to 92% reduction of the mosquitos.

This compares as very favorably with 50%, which is the best you could get with powerful insecticides. And it’s probably even less than that as we get more and more resistance to the insecticides.  Zika scares us, Steve, because of the unknowns.

Steve Halpern:  Now, another one of your recommendations also happens to have a working relationship with Intrexon and that’s ZIOPHARM Oncology (ZIOP), if you would expand on that and outline your bullish case for this company.

John McCamant: They are 50% owned by Intrexon.  ZIOPHARM is what we would call a second generation immune oncology company.  They have accessed some very interesting technology exclusively from MD Anderson, one of the world’s leading cancer centers in Texas.  

The technology is called Sleeping Beauty.  This is a non-viral vector or a means to deliver cancer fighting genes into patients without using the viral vectors, less side effects but most importantly Steve, is we’re getting closer and closer to lower costs and potentially off-the-shelf therapies.

This would allow these really fancy CAR-T therapies that we hear about — personalized medicine cost upwards of a quarter to a half million dollars — and we could bring these other second-generation immune oncology cancer drugs down into the 10’s of thousands.

And we’re talking about extending cancer patients out significantly beyond the current survival rates we’re getting with current drugs Steve.

Steve Halpern:  As you were talking about earlier -- in terms of a long-term focus -- I assume the type of work that ZIOPHARM is doing is really something that will develop out over coming years.

John McCamant:  Yes.  The other key tool they have is called the Rio Switch, so this allows you to turn the genes off and on once they’ve been put in the body for the therapeutic effect but also to titrate so you can start off with just having a little bit of the genes released into the body.  

This is very important for safety and we believe also for efficacy, and is another way that we think they’re going to be able to get closer and closer to these off the shelf therapies.  They should have some data coming up at the upcoming conference called The American Association for Cancer Research (AACR) for its clinical research for cancer.  

It’s a very important conference, Steve.  It’s very technical and scientific and a lot of it is preclinical, but it also foreshadows and also has some real implications on what’s going on in human clinical trials.

So ZIOP, we expect to have some data there and also they will have brain cancer data, phase I, phase II, using the IL12 at the American Society of Clinical Oncology (ASCO) this year.  We think that could be also very interesting.

Steve Halpern:  Now, given your many years of experience in this market, one thing you are well known for is often uncovering hidden value in stocks that others just miss and one such company is Ionis Pharmaceuticals (IONS).  What do you see here that you think the market may be underestimating?

John McCamant:  Great question Steve.  As a quick reminder this is a company that was known as ISIS Pharmaceutical.  They’re one of the world’s leaders in antisense technology or the way of delivering different genetic information to create drugs.  

They’ve had a tremendous intellectual property or IP estate for many years and that came to light last week when a patent owned by them and Merck (MRK) was found to be infringed by Gilead (GILD) in their HCV franchise.

It looks like there’s going to be some royalties paid to IONS down the road. Those are kind of pennies from heaven but the company has done a very good job of creating value for their shareholders.  

They have 38 different drugs in development.  Some of them partnered with very key players, some of them un-partnered.  We think there’s a lot of hidden value within that pipeline in addition to the intellectual property we just mentioned.  

We expect it at a minimum of 4% royalty rate going from Gilead to Merck. ISIS – now called Ionis -- gets 20% of that.  That could translate into 100 to a couple hundred million dollar revenue streams, straight to the bottom line that wasn’t in any of the analysts’ projections.

Steve Halpern:  I can’t imagine a company having worse luck than having the name ISIS and having to live with that, so I guess it makes sense that they finally went ahead and changed that.

John McCamant:  You bet Steve.  It made sense.

Steve Halpern:  Again, our guest is John McCamant of The Medical Technology Stock Letter.  Thank you so much for your time.  It’s always fascinating to listen to your ideas.

John McCamant:  My pleasure Steve.

John McCamant, Editor of The Medical Technology Stock Letter

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