Use access key #2 to skip to page content.

UltraLong (100.00)

H1N1 R&D Biotechs, More Virulent Than The Flu Strain Itself?

Recs

24

July 30, 2009 – Comments (21) | RELATED TICKERS: BCRX , NVAX , HEB

If you haven't figured it out by now, I personally feel that the H1N1 research and development/vaccine companies are, without a doubt, the most vacuous money pits in the US. I am whole-heartedly convinced that these swine flu companies are more virulent than the swine flu itself is! Usually I would lather you with a little bit of sarcasm referencing the ineptness of the entire biotechnology sector, but since I've already done that in my pitches, I'm going to instead smother you in facts and figures regarding the H1N1 sector that will make your jaw drop.

For my sampling I chose the three most prolific H1N1 hopefuls, Biocryst Pharmaceuticals (BCRX), NovaVax (NVAX) and Hemispherx BioPharmaceuticals (HEB). Why did I ignore AstraZeneca, GlaxoSmithKline and the like? Well...mainly because they HAVE an actual drug pipeline with REAL drugs and cash on hand to advertise and develop new products. So let me get right into it....

A closer look at Biocryst Pharmaceuticals....

Since the companies inception, or at least based on public records that I can get a hold of this company has earned 177.5 million dollars in revenues from licensing fees, pacts and drug sales. At inception in 1991, Biocryst based its profit/loss figures on what was an oustanding share figure of close to 900,000. Today, Biocryst has increased its shares outstanding to 38.3 MILLION shares, a nearly 4000% increase in just over 17 years. Why such an increase.... I never thought you'd ask! How about a fun rundown, year by year of Biocryst's operating profit/losses.

2008: reported loss of 24.7M

2007: reported loss of 29.1M

2006: reported loss of 43.6M

2005: reported loss of 26.1M

2004: reported loss of 21.1M

2003: reported loss of 12.7M

2002: reported loss of 16.9M

2001: reported loss of 5.0M

2000: reported loss of 11.6M

1999: reported loss of 5.3M

1998: reported loss of 4.8M

1997: reported loss of 10.6M

1996: reported loss of 7.7M

1995: reported loss of 8.6M

1994: reported loss of 6.9M

1993: reported loss of 5.2M

1992: reported loss of 4.0M

1991: reported loss of 1.2M

For a grand total defecit since inception of..... drum roll please.... 245.1 MILLION Dollars!!!!

Now let's move onto a closer look at NovaVax.....

Yet another black hole that since records which I've obtained since 1994 has generated revenue and licensing fees of 73 million dollars...so 15 years...73 million dollars. In 1994, the earnings/loss estimate was measured against what was an existing 9.9 million outstanding shares which pales in comparison to the 86.5 million shares outstanding today. An over 800% increase over a decade and a half. I know you just can't wait to take a look at NVAX's profit/loss history can you? Well here's a spoiler... its all losses!

2008: reported loss of 36.0M

2007: reported loss of 34.8M

2006: reported loss of 23.1M

2005: reported loss of 11.2M

2004: reported loss of 25.9M

2003: reported loss of 17.3M

2002: reported loss of 22.7M

2001: reported loss of 9.8M

2000: reported loss of 12.2M

1999: reported loss of 4.5M

1998: reported loss of 4.8M

1997: reported loss of 4.5M

1996: reported loss of 5.5M

1995: reported loss of 8.5M

1994: reported loss of 5.7M

For a grand total defecit since inception of..... drum roll..... 226.5 MILLION dollars!!!!

Finally, we'll take a closer look at Hemispherx BioPharmaceuticals....

For Hemispherx I was able to obtain company records back as far as 1992 and its just enough to continue the laughter. Total revenues obtained through licensing and fees since 1992 is 11.8 million dollars. They have made... under 12 million dollars in revenues... in SEVENTEEN YEARS!!!! HEB's first record shows just under 7 million shares outstanding with now that total standing just under 85 MILLION, an almost 1200% increase! Did I mention they are trying to nearly double the amount of shares outstanding currently but shareholders seem to not be approving of it..hmmmm I wonder why??? Now for the fun part...

2008: reported loss of 12.2M

2007: reported loss of 18.1M

2006: reported loss of 19.4M

2005: reported loss of 12.5M

2004: reported loss of 16.9M

2003: reported loss of 14.8M

2002: reported loss of 7.4M

2001: reported loss of 9.1M

2000: reported loss of 8.6M

1999: reported loss of 12.3M

1998: reported loss of 7.3M

1997: reported loss of 6.1M

1996: reported loss of 4.6M

1995: reported loss of 1.8M

1994: reported loss of 5.1M

1993: reported loss of 7.7M

1992: reported loss of 7.9M

For a grand total defecit since inception of...... drum roll.... a staggering 171.8 million dollars!!!!

Three companies, same sector, same virulent disease (the flu), it rolls around every few years, and a mind-numbing combined loss of a STAGGERING 643.4 MILLION dollars! I can't think of a sector more virulent at killing wealth than the H1N1/H5N1 influenza research and development sector. Almost 2/3rds of 1 billion dollars thrown at what????

I can't wait to hear rebuttals to this because I KNOW there are plenty of you biophytes (lovers of biotech) out there. I think these figures speak for themselves.

UltraLong

 

21 Comments – Post Your Own

#1) On July 30, 2009 at 11:28 PM, portefeuille (99.97) wrote:

for some background on influenza vaccine production see this post.

Report this comment
#2) On July 30, 2009 at 11:34 PM, portefeuille (99.97) wrote:

Spanish Government Selects Novavax's VLP Technology for Comprehensive Flu Vaccine Solution in Spain

Report this comment
#3) On July 31, 2009 at 1:18 AM, JPG101 (91.72) wrote:

And your point is? Original investors will not do well? I think the biotech investment community has figured this out... Does this mean investing in these fields now is a bad idea? I don't know but am betting that past money already burnt on research has served a purpose and has value that can be bought pretty cheaplly right now. The real danger is that acceleration of knowledge and technology can leapfrog much of the R and D already done.

 I just hope that biotech doesn't turn out to be like the aviation industry: really useful but a lousy investment.

 As for the danger of H1N1... you seem more reassuring then the WHO and just about every specialist I know. Where do you get this certainty from?

 

JPG

Report this comment
#4) On July 31, 2009 at 1:37 AM, UltraLong (100.00) wrote:

I just hope that biotech doesn't turn out to be like the aviation industry: really useful but a lousy investment.

 As for the danger of H1N1... you seem more reassuring then the WHO and just about every specialist I know. Where do you get this certainty from?

Enter the biophyte, stage left. You hope biotech doesn't turn into a bad investment? Biotech has generally been your worst investment over time with the massive gain of 20 or so successful companies skewing the results amongst the 1000s of piss poor biotech failures out there.

Is the research worthwhile? I'm not arguing against it. In terms of finding cures and vaccines it needs to be done, but using these companies as wealth generation vehicles is the dumbest thing you can do. Your chance of losing money in the biotech sector has GOT to be close to 90% I'd speculate. As seen in the above, 643M dollars burned through and not a thing to show for it in 15-17 years.

As for H1N1... show me statistics that show it's considerably more virulent than a standard flu strain and I might just do a double-take. Its a genetic modification with no more or less virulance than a standard flu strain. We've seen numerous pandemic possibilities pop up every 3-7 years since 1918 without anything happening. The WHO has been blowing smoke over this whole deal and we are MORE than adequately stockpiled on "vaccine" for H1N1 from the 4 big boys in the industry.

Thats my point...

UltraLong

Report this comment
#5) On July 31, 2009 at 12:40 PM, portefeuille (99.97) wrote:

-----------------

Is the research worthwhile? I'm not arguing against it. In terms of finding cures and vaccines it needs to be done, but using these companies as wealth generation vehicles is the dumbest thing you can do. Your chance of losing money in the biotech sector has GOT to be close to 90% I'd speculate. As seen in the above, 643M dollars burned through and not a thing to show for it in 15-17 years.

----------------- 

 

(from here)

 

 

(from here)

 

 

Report this comment
#6) On July 31, 2009 at 1:35 PM, portefeuille (99.97) wrote:

----------------- 

Efficient market? Not in Biotech.

February 17, 2009 – Comments (6) | RELATED TICKERS: PGNX , LJPC

The central purpose of my concentration on the small-cap biotech sector is to disprove the hypothesis that the market cannot be beaten, i.e. that at any given moment the price of a stock closely reflects the weighted average of all possible outcomes for the company given all information publicly available. Needless to say, to accept this efficient market hypothesis is to render retail investing useless, as the laws of probability dictate an eventual zero sum game minus the costs of trading.
 
I know I won’t ever be able to prove or disprove this in CAPS, since my own performance may deviate from the probabilistic mean and also because CAPS scores my picks against the S&P, a completely artificial metric. However, after two years of following the sector I am confident that in occasional circumstances the collective intelligence of all investors displays a marked disparity to a reasonable appraisal of value that would be apparent to an intelligent investor who follows the company closely.
 
Probably the best example I have encountered of a stock being undervalued in this manner is Progenix in March of 2008. The share price dropped 60% to about 5 on news that a phase III trial of IV methylnaltrexone in post-operative ileus had negative results. Here is an excerpt from the pitch on my subsequent green thumb:
 
“Progenix stock has tanked on what seems to be a wild overreaction to bad news of limited short-term relevance. I reviewed this company fairly closely and I didn't even know there was a phase III trial of INTRAVENOUS methylnaltrexone for post-operative ileus in progress. The short-term story for this stock is SUBCUTANEOUS methynaltrexone for opioid-induced constipation, not post-operative ileus. The whole IV methylnaltrexone for POI thing was basically a side project, not the justification for the whole enterprise value of the stock. The company is now trading at cash value, possibly below. Zero valuation of subcutaneous methylnaltrexone, zero valuation of pro140 (now in phase II). If I suck wind on this outperform, I will suck it strongly and proudly.”
 
At that time, Progenix was already awaiting European and FDA approval for subcutaneous methylnaltrexone, a compound which had already achieved phase III success for opioid-induced constipation. Within a month both approvals were granted and the stock was over 14. My green thumb paid off 158 points, my best score to date. While those approvals were far from guaranteed, the drop in an already low-priced stock after negative phase III results in a virtually unrelated trial made no logical sense. The only conclusion I could come to was that retail investors and likely even institutions who did not understand the stock created a chain reaction of selling after somehow misinterpreting the trial results as having negative implications for FDA approval of subcutaneous methylnaltrexone.
 
A similar event recently happened in the opposite direction. One of my earliest CAPS picks was a red thumb on a company called La Jolla Pharmaceuticals, a small company with a pipeline consisting of a single drug, Riquent for lupus. La Jolla was flying high the first half of 2007 after reporting encouraging preliminary data in their ASPEN phase III trial of Riquent. Unfortunately, this wasn’t the first time Riquent went through phase III. Years earlier, a lower dose of Riquent failed a phase III trial yet the company proceeded with an NDA anyway, which the FDA predictably rejected. Furthermore, the encouraging preliminary data from the new phase III trial was not true interim data on clinical response, but related to analysis of a surrogate marker that was not well-correlated to outcome. I felt that the company was being disingenuous both in simply repeating the long phase III trial simply with a higher dose of a failed drug, and in exaggerating the importance of an early subclinical result. After researching the history of Riquent, I came to the following conclusion in July 2007 with LJPC at 4.45:
 
“The clock is ticking on Riquent which will fail this phase III as it did in previous trials. This is a classic example of a company clinging to a single doomed product in order to extend the careers of the board and top management. I expect "shock and disappointment" when the negative interim results are released in 2008.”
 
In October 2008 I gave up on the pick when the share price had dropped to 1.13, writing:
 
“Riquent and La Jolla will die in 2009, but I don't feel like waiting. If the market pops up by then I'll be leaving points on the table, but I think we could be looking at a long period of stagnation. I'm picking a nice up day, over 40 points on the red thumb. Point made.”
 
The falling S&P had degraded the value of my successful underperform, and frankly I was just sick of looking at it on my CAPS profile. But the economy and small cap malaise continued to weigh on the share price, which eventually bottomed at 0.44 in December 2008 without any significant negative catalysts. I still updated my database on the stock, but didn’t watch the company particularly closely.
 
In January of this year I was surprised to see news that the company had managed to license Riquent to Biomarin, a company I always thought of as being very sensibly managed. I was even more surprised to see La Jolla stock continue to spurt upward past the initial double after the partnership announcement, doubling a second time to reach a high of 2.8. Did well-informed investors really believe that the Biomarin pact changed the risk/reward ratio in the ASPEN trial so immensely as to justify a six-fold increase from recent lows? Or had an initial surge of excitement permitted a dam of pessimism to simply burst? I red thumbed as soon as I could given the 100 million market cap threshold for CAPS, stating as follows:
 
“La Jolla bounced back on a questionable decision by Biomarin to partner up on the Riquent program, a project that is by consensus almost certainly doomed to failure. Of course, at LJ's pitiful market cap is was enough for more than a double in share price. It's a nice opportunity to replant my red thumb and collect a decent chunk of CAPS points at the latest by the end of 2009, when the topline data for the phase III trial of Riquent will be released. And this time hopefully the S&P won't drop 50% to cut my score.”
 
I didn’t have to wait that long. The first true interim analysis of the ASPEN trial came back just a week later showing futility of trial continuation and the share price vaporized. La Jolla is finished, kaput, history. And it was the most predictable implosion I’ve seen so far. While I know this was devastating to the investors who bought at the peak at the beginning of this month, I have to wonder how many of them took advantage of the research tools easily available to them via the Internet. Clearly enough piled on for the sake of hype and momentum to degrade the collective intelligence far below that of a reasonable investor exerting due diligence. So much for efficient markets in the small cap biotech sector.
 
Interestingly, of all my red thumbs this was the one that the most highly ranked CAPS players chose to tag along with. It’s another way that I see how the top players are truly seeing stocks at a different level, using me to locate potential plays in an unfamiliar sector but evaluating them on their own terms and outperforming me at my own game.
 
Anyway, the point of all this post-hoc analysis is not to brag about my best calls, but to challenge myself to take advantage of those rare opportunities when a huge discrepancy between share price and true value presents itself. So far these occasions have come only about once a year, but I pledge that the next time I see one I’ll put my rep on the line for it. While plugging away at 55/45 percentages eventually wins in the long term, the only way to really beat the market is to keep some resources in reserve for those rare 90/10 opportunities and go in hard. Next time, no hesitation.

----------------- 

Report this comment
#7) On July 31, 2009 at 1:54 PM, portefeuille (99.97) wrote:

guess the company

 



enlarge

 

 

(AMZN, from here)

Report this comment
#8) On July 31, 2009 at 5:50 PM, madmoney151 (99.27) wrote:

I know this is off topic, but i just wanted to let you know that i fully endore the continued use of South Park quotes.

Report this comment
#9) On July 31, 2009 at 5:50 PM, madmoney151 (99.27) wrote:

endorse

Report this comment
#10) On July 31, 2009 at 11:02 PM, tradingfool1 (99.03) wrote:

These are all development stage companies.  Someone has to pay for the R&D.  Even big pharma capitalized on the biomed bubble about 20 years ago offering labs to the pulic.  Now they buy back the successful ones.  The presented costs and timeframes to develop new drugs make the case for patents and exclusivity for the fraction of drugs that do make it to market.  Admittedly some companies are more frugal with their funds than others.  My personal favorite speculative roller coaster is the yet CAPS unratable CVM.

P.S. There seems to be an approximately 50 year cycle where a flu develops into a pandemic.

Report this comment
#11) On August 03, 2009 at 4:28 PM, mgiv (99.74) wrote:

belated congratulations on being the top fool again.  and thankyou for posting original quotes.  I like your most recent one a lot.

I have a feeling you may be the longest running fool period. Perhaps even the last top fool.

Report this comment
#12) On August 05, 2009 at 7:56 AM, toopersent (< 20) wrote:

I can really only speak for NVAX because I own about 1000 shares.  I point out these headlines...

Novavax repays last of $22M debt - Yup, thats right...no more long term debt because they found a financial backer.

Novavax Announced Selection of a Respiratory Syncytial Virus Vaccine Candidate for Advanced Preclinical Studies - Oh look, a non H1N1 headline...YIPEE!

NOVAVAX Achieves Pandemic H1N1 Influenza Production Milestone - And just because you hate H1N1, it looks like NVAX has developed virus-like particle capable of fighting the swine flu, and it did it in olny 11 weeks after receiving the strain...without chicken eggs! 

Look, NVAX is a clincial stage biotech company...of course they are going to post loses until they hit something big.  The reason I bought NVAX around $2.80 is not only because of the swine flu, but because they are developing vaccines for a BROAD RANGE of diseases around the world. 

And so far, I've done quite well with them.  I'm not looking to hold for a really long term, but I'm going to keep riding the profits, whether they be from H1N1 or not.

 

 

Report this comment
#13) On August 05, 2009 at 9:59 AM, falcon2382 (35.52) wrote:

I've got to say: this is one of the most instructive posts I've read in a long time. I love all the information. I wish more posts would be like this. Thanks to all!!

Report this comment
#14) On August 06, 2009 at 12:58 AM, techperson (< 20) wrote:

See my comments on your pitch on BCRX.  If you buy and sell stocks based on historical earnings, good luck.

Report this comment
#15) On August 06, 2009 at 1:49 AM, UltraLong (100.00) wrote:

techperson,

Seems to work just fine for me =)

UltraLong

Report this comment
#16) On August 06, 2009 at 2:04 PM, PhillyDan (89.85) wrote:

Ultra Long's analysis on BCRX is all wet and outdated.  Most of your inaccurate facts are from a few years ago but a lot has changed since then including new management.  I could educate you here but I recommend you go up on the BCRX website and study it for a few days.  In addition, Peramivir is not a vaccine, it is an anti-viral used to treat patients by IV who do get the H1N1 virus.  Read about Shionogi PIII results along with Green Cross, partners of BRCX in Japan and Korea.  Read about the 110M contract that the NIH has given to BCRX.  We can debate till the cows come home about whether this is a pandemic but the WHO and CDC are doing their jobs.  Be prepared not surprised is their best course of action.

If your forecast for the severity of the flu turns out to be wrong, you would be the first one calling the Government out for not doing the responsible thing.   

Your best course of action is to learn more about the stocks you trashed with wrong information.  Anyone on this site that believes your BS is not a Motley Fool but just a plain fool. 

BCRX Strong BUY!!  Go do your own due diligence.  Don't be fooled by this fool's number 1 status. 

 

Report this comment
#17) On August 07, 2009 at 2:20 AM, ikkyu2 (94.77) wrote:

Check out FBT, a biotech equal-weight ETF.  Equal weight means you catch a lot of profit from the ones that pop, to offset all the losses from the failed stocks whose companies go out of business.

Stock picking in biotech is tough - so don't do it.  Pick the sector. 

Report this comment
#18) On August 08, 2009 at 8:58 PM, brianc410 (65.96) wrote:

Thats how biotech works.  Most fail.  Every once and a while a little company makes a $1B drug and poof everyone gets rich.

Report this comment
#19) On August 09, 2009 at 3:28 AM, UltraLong (100.00) wrote:

PhillyDan,

I'm just going to say this twice....

Scoreboard baby.... BCRX has 17 years of losses, more losses, continued losses, staggering losses, perpetuating losses, mounting losses, and eye-dropping losses. The only thing they have produced is pain for investors and they somehow keep dragging this out year after year and people stupidly keep giving them money! BCRX hasn't made money, will never make money. The government is getting their H1N1 vaccines from the big boys as it should be.

And....

Scoreboard Baby....I'm number 1....I'm also up on BCRX by red thumbing it...being "wrong" never felt so right!

UltraLong

Report this comment
#20) On August 09, 2009 at 3:32 AM, UltraLong (100.00) wrote:

Whenever there is trouble lurking in biotech-land...wherever a biotech shall be called naughty names and red thumbed...whenever there is a chance a perpetual money losing biotech mighty skyrocket, there will be.... techperson

Seriously...are you going to stand up for every single biotech I bash?

UltraLong

PS...If it makes you happy there are 1 or 2 out of 230 I think are ok....

Report this comment
#21) On August 10, 2009 at 6:57 PM, techperson (< 20) wrote:

Umm...have I posted positively on any of your other red-thumbed stocks?  I don't think so.  I did stand up for Dendreon when one of your peers was bashing it at $4.  BioCryst will turn out the same way.

How are all those out-of-code Tamiflu stockpiles doing against the Tamiflu-resistant mutation?  Especially in kids, who are preferentially hit by A/H1N1?  Got to replace all that Tamiflu with something.  More Tamiflu? Maybe not.....

You have a chance to green thumb BCRX before the Emergency Use Authorization and $394 million order are announced in the next three or four weeks.  Better take it!

Report this comment

Featured Broker Partners