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zzlangerhans (99.77)

Fresh bottoms for the grabbing

Recs

21

May 25, 2010 – Comments (5) | RELATED TICKERS: IDRA , MYRX

2% down in the S&P means 5% down in the average speculative biotech. One has to be philosophical about these temporary paper losses (as long as one isn't way out on margin or long calls) and simply look for more buying opportunities. Claiming to have identified bottoms in a seeming bottomless market may seem like the height of overconfidence, but I wish I had suffered from more overconfidence in March 2009. For those unfamiliar with my trading strategy for 2010, you may find it here. So here are a couple more beaten down biotechs which may provide substantial returns when the market rebounds.

Idera Pharmaceuticals (IDRA) - market cap 99M, share price 4.2. Cash 38M, debt 0, burn 0. I've made myself score leader in Idera over the course of about ten winning picks and I don't think I'm going to start losing now. Other biotechs have a more impressive discrepancy between cash and market cap but the nice thing about Idera is that they make their cash go a long way. One of the more painful events after a GBMB buy is a dilutive financing, which I think is a very low probability in the near term considering the burn rate that hovers close to zero. The share price hasn't seen these levels since November 2006, having only dropped as low as 4.66 in March 2009. The most likely short-term positive catalyst is more early phase data from IMO-2125 in hepatitis C. Although results from the Toll-like receptor program haven't been strong to date, the disappointments have been baked into the share price and then some. Numerous early trials are now in progress and I still believe the company remains a strong buyout candidate due to their technology. In CAPS world, Aracer just joined me in the green which is nice. GBMB buy under 4.

Myriad Pharmaceuticals (MYRX) - market cap 99M, share price 4.01. Cash 144M, debt 0, burn 11-13M. Speaking of discrepancies between cash and market cap, wow. Myriad's pipeline is valued at negative 45M, not including the 13M that the company will receive from Javelin for the termination of their planned merger. And after Javelin's recent troubles, bonus to Myriad for being out of that questionable deal. Admittedly, the pipeline is shaky. There's a reason why Myriad Genetics spun off their developmental pharmaceutical division as MYRX last year to focus on profitable genetic testing. I have to wonder about the wisdom of spending resources to resuscitate beviramat, the HIV drug that killed Panacos. And Azixa hasn't impressed anyone with interim data in glioblastoma and melanoma leading into ASCO. Nevertheless, benefit seems to be the clear winner in the wrestling match with risk here. In CAPS, Portefeuille is the main booster with six of his profiles bleeding on the stub. Several other top players have weighed in green and virtually no one has tossed in a red thumb. My fingers are twitching when I look at this share price, but I'm waiting to see the whites of its eyes. GBMB buy under 4.

 

 

 

 

 

5 Comments – Post Your Own

#1) On May 25, 2010 at 4:49 PM, nilesgold (20.02) wrote:

your GBMB blog's are always fun to read.  I was wondering if you have ever looked at INSM and had any thoughts on it as a potential GBMB selection.

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#2) On May 25, 2010 at 9:48 PM, zzlangerhans (99.77) wrote:

I've watched Insmed for a few years and I believe I was not the only one to be shocked when Merck bought their entire follow-on biologics program for 130M in early 2009. Kudos if you bought Insmed after this development and the company still traded far below cash, because the share price tripled again in the months after the sale was announced. After maxing out at 2.5, the share price was creamed by the failure of Iplex in the phase II trial for myotonic muscular dystrophy.

After falling off a recent surge, the market cap is now 103M and cash is 123M. Great. But here lies the problem: there appears to be no pipeline. Look on the company's website to see what is going on with Iplex. The company has made noise about initiating a new phase II trial of Iplex in MMD patients with severe insulin resistance, based on post-hoc subgroup analysis from the failed trial. Bad! I have never known this type of effort to result in anything but wasted resources.

Furthermore, it appears the company has sold the manufacturing facility they used to make Iplex along with the FOB program. They admit on their website that they are winding down their program to make Iplex available to ALS patients, and will no longer be manufacturing Iplex. So how is this compatible with initiating a new study of Iplex in MMD?

Read between the lines of the last paragraph for the answer.

In July 2009, we announced that Insmed would cease the supply of IPLEX™ to any new patients and that the company would not initiate further clinical trials with IPLEX™ in the near term. As of this announcement, the company intends to conserve its limited inventory for the treatment of existing patients. The company intends to analyze the ongoing data collected for various indications, including myotonic muscular dystrophy and ALS, and assess the overall IPLEX™ development program, including possible IPLEX™ manufacturing options with third parties and possible future clinical trials. Initiation of the Phase II clinical trial for ALS patients in the U.S. has been postponed while the Company performs this assessment.

It would appear that the future of Iplex is in doubt, which leaves the company with a bunch of cash and no pipeline. Usually this situation leads to a merger with a company that has a pipeline and no cash, or a purchase of a new compound to build a pipeline around. Either way the future of Insmed is way unpredictable and that's not what GBMB is all about.

That's my read on a company that I can afford to spend about 1% of my biotech research time on. Hopefully you've looked into it as well. What's your take?

 


 

 

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#3) On May 26, 2010 at 7:16 AM, nilesgold (20.02) wrote:

I bought INSM at $.80 about 9 months ago and then sold when it spiked to $1.25 and was thinking about establishing another position now that it's back to $.80

When I bought in I did so based on the fact the company had no cash burn and was trading below it's cash on hand.  I was really interested in getting your take on Iplex and if there was any potential value in it (sounds like the answer is no).

It does look like this isn't a fit for GBMB, however I am still intrigued based on how it is trading about 20% below cash value.

Thanks for taking the time to look into this and post your thoughts.

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#4) On May 26, 2010 at 9:20 AM, zzlangerhans (99.77) wrote:

You could certainly do a lot worse with a biotech investment as the cash and low burn may protect you from a significant downturn. I have it on my watchlist to re-evaluate below 0.7. The danger here is that the company will make an acquisition that the street doesn't like, vaporizing most of their cash and driving away the cash hounds. As always, time will tell.

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#5) On June 23, 2010 at 11:29 AM, nilesgold (20.02) wrote:

I bought some INSM at $.75 last week and more at $.70 today.

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