2018 was a difficult year for The Medicines Company (MDCO) with the stock languishing as biotech investors looked elsewhere; in our view, 2019 will be a turnaround year, making this our top speculative pick, asserts biotech specialist John McCamant, editor of The Medical Technology Stock Letter.
Our confidence is boosted by the company’s activist Board of Directors led by M&A specialist Alex Denner who recently pressed long-time CEO Clive Meanwell to step aside.
Meanwell is staying with MDCO, for he was both the architect and the founder of the company. His many accomplishments include acquiring inclisiran from Alnylam Pharmaceuticals (ALNY) on the cheap and orchestrating the design of the ORION clinical program.
With the trials on auto-pilot and expecting to begin releasing Phase III data by Q3:19, the Board is taking the steps to remove anything that investors might perceive as an obstacle to delivering the value of this extremely attractive compound, a potential inexpensive virtual “high cholesterol vaccine.”
Over the years, Meanwell developed a love-hate relationship with the Street. Hence, the announcement to replace him was not entirely surprising to us — someone has to take the blame for the consistently weak stock price, even though it is hardly Meanwell’s fault. The new CEO Mark Timney is a healthcare leader with over 25 years of industry experience in multi-national Big Pharma companies.
The other overhang in investors’ eyes was the need for additional financing before the first of the ORION registration studies comes due. Hence, right after the CEO change, the Company announced that it is raising $150 million via a convertible debt offering.
In our view, the two major overhangs for the stock have been removed and The Medicines Co. still remains an incredibly undervalued risk-reward, setting the stage for a rebound in 2019.
Lastly, the company remains a prime takeover candidate with a fully owned late-stage asset, inclisiran, which is a second generation RNAI-based PCSK9 inhibitor that has demonstrated 50+% reductions in LDL which has the potential to significantly undercut the first generation monoclonal antibodies that have been selling poorly due to their high price.
In addition to providing a significant price advantage that should open up the market, inclisiran will have very high patient compliance as it could be administered as infrequently as once every six months making it a virtual “high cholesterol vaccine”.
Denner’s strong Board presence significantly increases the odds of a takeout as he has been very successful at biotech acquisitions in the recent past. The Medicines Co. is a buy under $40 with a target price of $65.
