Alnylam lands a deal with Genzyme, Amarin delayed again, Tekmira teams up with Monsanto, Pain Therapeutics drops on Teva Patent News, Biotech's Burning Man. Let's go over the stories we've been watching, commenting on and, in some cases, trading this week.
Alnylam Pharmaceuticals (NASDAQ:ALNY)
Last Sunday Alnylam announced an expanded collaboration with Sanofi's (NYSE:SNY) subsidiary Genzyme. In essence Genzyme is gaining broad rights to Alnylam's clinical and pre-clinical pipeline worldwide except for North America and Europe. Recall that ALYN and Genzyme already had a collaboration to develop patisiran, ALNY's lead compound for treatment of transthyretin (TTR)-familial amyloid polyneuropathy.
In the new deal, Genzyme gets rights to patisiran worldwide except for North America and Western Europe (previously they only had rights in Japan and certain Asian countries). Genzymen also gets ex-us and EU rights to ALN-TTRsc (for familial amyloid cardiomyopathy) as well as two other compounds in ALNY's pipeline. Genzyme will have the option until 2020, to develop and commercialize outside of North America and Western Europe all products being developed to treat rare genetic diseases from Alnylam's pipeline. Finally, Genzyme became a major shareholder of ALYN by acquirign 12% of the company's stock at $80 per share, which represented a 27% premium to the previous day's closing price.
Naturally, the purchase of 12% of ALNY stock at $80 forces a revision of the company's valuation. As soon as we heard this news, we knew that not only would ALNY shoot up in price, but other RNAi related companies would experience some spill over effect. Here is what we wrote to beta testers on Sunday as soon as we landed in San Francisco for the JP Morgan conference:
Alnylam announced today an expanded partnership with Genzyme.
There are several components to the deal - but most salient is that Genzyme is buying a 12% stake in ALNY at $80 per share. This is a 27% premium to Friday's closing price.Expect the entire RNAi space to be on fire tomorrow. Other names to watch for sympathy trades include ISIS (to some extent) and ARWR and TKMR -> both of which are undervalued compared to ALNY and ISIS.
We have no positions in any of these companies but plan to trade them tomorrow.
Well, after a full day of travel, some late meetings with fellow analysts and some companies, and finishing up last week's Weekly Review, we didn't end firing up our trading platform early enough to catch the action early Monday morning. But TKMR shot up as much as $2 both because of the ALNY news and because of some news of their own (read below).
ALNY closed the week at $87.36 after trading as high as $91.82 mid-day on Monday. The move by Genzyme to become a major holder of ALNY sets up the natural speculation that there will eventually be a buyout at an even higher price. If just 1 or 2 of ALNY's pipeline compounds turn out to be highly effective and approvable, it is natural that SNY would want full worldwide rights to the compounds and future pipeline candidates. 2014 may very well be the year for RNAi.
We have no position in ALNY.
Amarin Corporation PL/C (NASDAQ:AMRN)
This Wednesday investors were eagerly awaiting news from AMRN regarding the FDA's review of AMRN's ANCHOR Special Protocol Assessment reinstatement request. AMRN's stock price hit $2.75 intra-day Wednesday. Recall that back on December 20th we suggested that this exact price would be fair-value for AMRN ahead of the decision, (we did not expect the stock to be sustained at this level). Naturally, as the day wore on, traders took profits and exited the stock, not wanting to risk exposure to an after-market decision that could go either way. Instead, the company announced that the decision would be delayed. No new date was given for the SPA reinstatement request, but according to the company:
Based on dialogue with DMEP, Amarin does not expect the delay to be for a significant period of time.
Bulls took this news as a positive sign while bears took it as a negative sign, the upshot being that AMRN's stock closed the week at $2.27 which is essentially where it began the week. If the reinstatement request is going AMRN's way, the delay is attributable to getting final sign offs from the chain of command before issuing the decision. On the other hand, if the decision is not going AMRN's way, the delay likely involves finalizing both the reinstatement request review as well as the eventual complete response letter for the ANCHOR indication.
Downside to AMRN remains to the $1 level or slightly lower, while upside is well in excess of $4. However, without updated information regarding the timing of a decision, traders are unlikely to inject as much momentum into the stock while the decision is still pending. AMRN should generally trade sideways until the fate if the Vascepa ANCHOR sNDA is known.
We have no position in AMRN
Tekmira Pharmaceuticals (NASDAQ:TKMR)
On Monday Tekmira announced an option agreement with Monsanto. Under the agreement, Monsanto has the rights to license TKMR's drug delivery technology for use in agriculture. The agreement could potentially be valued up to $86.2 million with near-term milestones of $16.5 million. Monsanto will have the option to license TKMR drug delivery technologies for up to 4 years for use in agriculture, while TKMR retains rights to use the same technologies for human therapeutics. This is a smart way for TKMR to monetize their drug delivery intellectual property without restricting the company's own future pipeline in the field of RNAi therapeutics.
On Tuesday TKMR announced the dosing of the first patient in a phase 1 safety trial of TKM-Ebola, the company's LNP formulation of a vaccine therapy for Ebola virus. Data from this trial will be available in the second half of 2014 according to the company. The trial is a single-blind placebo controlled single ascending dose and multiple ascending dose trial. 16 patients in the single does portion of the trial will each be given a single does of the drug in 4 separate cohorts of 4 patients each. In the multiple dose portion of the trial 12 patients will receive multiple doses of TKM-ebola in 3 separate cohorts. Each cohort will have 3 patients treated with the drug and one patient treated with placebo.
While the Monsanto news sent TKMR briefly as high at $14, the stock settled back down and closed the week at $12.73. Relative to ALNY, TKMR, remains highly undervalued. Part of this undervaluation is attributed to a difference in technologies and pipeline candidates. ALYN appears to be further along and have more compounds in its pipeline. However, given that both companies are in the RNAi space, TKMR's fully diluted market cap of $280 million is extremely low compared to the $5.5 billion market cap. of Alnylam. Since Genzyme has effectively set a floor in ALNY's valuation (unless some new negative information comes out), the only way that this difference in valuations can be corrected is for TKMR's market cap to increase. This will be a story to watch in 2014.
We have no position in TKMR
Pain Therapeutics (NASDAQ:PTIE)
On Wednesday morning, Pain Therapeutics dropped 12% on what we initially thought was no news. The stock kept dropping and at one point was down close to 17%. We eventually found the cause of the dip. A U.S. Judge in New York decided in a non-jury trial that generic drug maker TEVA pharmaceuticals did not infringe any of Purdue's valid patents in making a generic version of oxycontin. In the ruling, the judge stated that, while Purdue showed clear evidence that TEVA violated at lest 4 of the 5 patents involved in the suit, that TEVA had showed clear and convincing evidence that those patents were obvious and therefore invalid. Recall, one key requirement for being granted a patent is that the invention be non-obvious to "a practitioner skilled in the art". In other words, someone qualified to work in the field the invention covers.
If this decision stands, the potential negative read-through for PTIE is that Pfizer may have second thoughts about Remoxy. But our view is that this was an over-reaction and an opportunity to add to a long term PTIE position. First, this ruling is not necessarily the end of the story. Purdue has already stated that it will appeal this decision. Without looking at the particulars of the case, it is impossible to know who will prevail in an appeal, but the story is far from over. Second, even if Teva succeeds and eventually brings a generic tamper-resistant oxycontin to market, pricing pressure may not be as large as in other, non-tamper proof drugs. While a 30% reduction in price may ensue, we do not expect that TEVA would be entering the market with a view to severely undercut the price of oxycontin. Even if the $2.81 billion in oxycontin sales were to decrease by 30% and then be split 3 ways, this still represents over $650 million per year in potential revenue to Pfizer. Given the low cost of running the remain studies to get to market for Remoxy, it is hard to see Pfizer dropping the program this late into the game.
We added to our PTIE position on this dip and were immediately rewarded as the stock recovered to end the week at $4.71. We are long PTIE.
Biotech's Burning Man
The annual JP Morgan global healthcare investor conference has become Biotech's version of Burning Man. Each year thousands of investors, analysts and company professionals from around the globe trek to San Francisco for a week of company presentations, 1 on 1 meetings, big announcements and tons of receptions and parties. Companies that are too small or too unloved to get a presentation slot at J.P. Morgan get a chance to present at other conferences that run concurrently with the main event. This year I spent little time sitting though company presentations, opting to focus on 1 on 1 meetings with company management teams as well as other analysts and traders.
The Red Acre Team met with management from Synergy Pharmaceuticals, Durect corporation, Northwest Biotheraputics, and many other companies. We've got a bunch of trade ideas to research and we are looking forward to sharing these ideas with subscribers before the stocks make their moves. Let's face it, unless you have a time machine, the only way to profit from the kind of news we share with you each week is to Get Ahead of the CurveTM. We look forward to sharing our very best ideas with our subscribers once we launch our product Tuesday (shameless plug). Do yourself a favor and become a subscriber from day one.
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