Biotech Blitz

The Bipolar Biotech Market

Mon, 07 Jul 2008 08:38:23 -0500

I typically write about smallish, unknown or misunderstood products and companies. It's a category of biotech and life sciences investment that appears to have been whacked harder than most in the current bear market.

That being said, I did a half-year performance analysis for subscribers to my ChangeWave Biotech Investor service and learned the following -- and I'm not touting here -- just illustrating what investors are doing based on the performance of the 34 companies I have "open" since the market peak in October of last year.

With the market in bear territory -- down 20% from previous highs on Oct. 9 -- the two major biotech indices have outperformed the general indices. The Amex Biotechnology Index (BTK) is down 11.2% and the Nasdaq Biotechnology Index (NBI) is down 9.7%. Their blended performance is 10% so they are outperforming the market by about 10 points.

The average recommendation in my biotech service -- which includes a different mix of stocks than these measures, and also included some device and diagnostic companies -- is down 4.19% since the beginning of the slide to the bear market.

The average "mature" company I've recommended -- companies with profits and positive cashflow -- was up 35%. This is sort of an anomaly is due to the 425% rise in one microcap which wasn't added to our stock list until March 2008. It now prints cash and I've written about here -- Questcor (QCOR). Without QCOR, this group was still UP, on average, more than 6%. All these companies also enjoy at least double-digit growth in revenues.

The big-cap PPH, the idex representing big pharma, was down 15.5% during this period, meaning it is not just size and profits, it is growth.

The average "emerging company" was hurt the worst. They are companies in late-stage trials or are generating revenues (at times considerable revenues) but are still losing money and have negative cashflow. These outfits were down, on average, a whopping 53%.

Speculative companies with revenues -- but two more years out and with lots of regulatory hurdles -- were down 43%.

What I call "bleeding edge" outfits -- many years away from revenues with unproven science, not to mention regulatory hurdles -- were down 11%.

It's a bipolar market. The big guys, such as Gilead (GILD) or Biogen Idec (BIIB), are moving up, the guys in the middle are getting creamed, and the "hope and dream" companies held their own, given the steepness of the falloff in this market. The PPH -- was down 15.5% during this falloff.

I see this trend continuing. High-growth, cashflow-positive, profitable companies will survive and in many cases outperform this bear.

No Barriers for Barrier (BTRX)

Wed, 28 May 2008 08:47:08 -0500

Maybe you can teach an old dog new tricks.

Barrier Therapeutics (BTRX) has broken Wall Street hearts for most of the millennium. It's now selling at $2.50, down from an all-time high of roughly $20.

This specialty pharmaceutical firm specializes in dermatology treatments for both mainstream and relatively niche ailments, with three products on the market and three in mid- or late-stage trials.

In the past few days, the company cut a deal with Proctor & Gamble (PG) to bundle Head & Shoulders shampoo with a prescription treatment for dermatitis, Xolegel. BTRX will do the package assembly and selling of the product. This deal is emblematic of a turnaround in the company that has yet to show up in profits -- but has certainly jump-started revenue.

If BTRX can outlast their cash burn and/or raise some capital, they will be a nice, undervalued company. Revenue in Q1 2007 was $2.1 million; in Q1 of this year sales hit $9.7 million and the company's products are nowhere near market saturation. Forecast for 2008 is $40 million to $46 million in revenues -- and they better be that good as Barrier is burning a lot of cash on sales and marketing and overhead.

To get the company to profitability it has suspended work on two of their products in development -- both in mid-stage trials -- until partners can be found to help with the trials and/or marketing.

Q1 numbers included near $3 million in severance payments for terminated employees and the company's burn rate should be in the $6 million to $7 million range, or less, in coming quarters.

Why am I writing about this now? There is an increasing bias on Wall Street among life sciences investors toward companies with approved products, and revenues, if not products.

There is a possibility that if the company can keep the momentum going, find some partners, hit their forecasts and project breakeven on a cashflow basis in 2009, some conservative money will decide to head toward the stock. I am not recommending it, I do not own it, but take a look.

CitiGroup Conference -- Healthcare Losers

Thu, 22 May 2008 09:23:54 -0500

Please accept my regrets about being "dark" for a time, there was a death in the family and I had to clear up a backlog at work. But here I am, so let's start with my current work.

I'm attending an excruciatingly boring healthcare conference in New York. I normally don't go to these fests -- I prefer more specialized biotech confabs -- but I'm actually looking for short opportunities for my Shorts newsletter: ChangeWave Shorts.

I am also checking the mood of the analysts in the meetings, and how they feel about some of my large cap biotech positions. These meetings are boring because the analysts and investors are, for the most part, generalists into financials not breakthroughs.

What have I learned?

• On the short side, dental companies are not talking about their U.S. business. Dentsply International (XRAY) had the temerity to devote much of its opening to emerging markets, and I fell asleep during the American Dental Partners (ADPI) presentation.

Feedback from the breakout sessions was clear -- business is slow and still slowing in the United States due to the recession, and I believe the same could happen in Europe.

• Traditional big pharma analysts -- the ones with million-dollar salaries, a third grade knowledge of anything that matters (except for the stocks they tout), no sell recommendations -- are much more concerned about the change in administration than the upcoming patent expirations.

They were told -- wrongly -- by two political analysts, who may or may not have many big pharma clients, that even though Obama and McCain want the Feds to directly negotiate Medicare prices, it will not happen.

It will happen. It could be the first thing Congress passes -- even if it is in the form of just saying Medicare will be entitled to "best price" for any drugs it buys. Many states already insist on this for their Medicaid formularies.

• At the conference there is a big-time ostrich mentality about the upcoming patent expirations -- $65 billion to $100 billion through 2012 -- and I remember the quote from a Bank of America (BAC) analyst I spoke with a few weeks before Schering Plough (SGP) lost patent protection for Claritin. ChangeWave surveys showed sales would fall off a cliff.

When I asked about Schering Plough's ability to respond, he said "they will figure it out." They did. They figured they could lose 85% share in a heartbeat and did.

That is the attitude now. If you model Pfizer (PFE) three years out -- through Q2 2011 -- you will see a $5 billion to $7 billion drop off in Lipitor sales. This somehow has escaped the attention of earnings estimates from analysts. At least they have reasonable table manners.

Any winners?

When I tell people I follow biotech they hand me their business cards -- first time it's ever happened in seven years of going to these things. When these guys wake up to the reality of big pharma, money will flow to big and emerging, revenue, but not yet profit-producing, biotech.

Avant Immunotherapeutics (AVAN) -- What Gives?

Tue, 22 Apr 2008 11:35:05 -0500

Things in the biotech world continue to get more and more curious. How about a company cutting a major development deal and getting cash twice its market cap -- and the stock doesn't move!

The professional money managers I speak with who focus on this area believe we are at a bottom in pricing for the little guys -- the microcaps and small-cap biotechs that capture the imagination and hope of many investors. That being said, they also think they are not moving with news and positive catalysts as they have in the past.

A great example is Avant Immunotherapeutics (AVAN). I do not follow the company closely in my ChangeWave Biotech Investor service, but I do keep a close eye on other immunotherapy companies, namely Dendreon (DNDN) and Cell Genesys (CEGE), which I have written about here.

Last week, AVAN cut a deal with Pfizer (PFE) that seemed like a great one:

• PFE will pay $40 million up front and invest another $10 million in return for the worldwide license to a brain-cancer vaccine candidate.

• AVAN can earn another $390 million and double-digit royalties if its drug, CDX-110, (and related treatments) eventually gets through the regulatory process and makes it to market. The drug is currently in mid-stage or Phase II trials.

• A big upside for the company is PFE's statement saying that they want to develop CDX-110 for other cancers, such as ovarian, prostate, breast and colorectal. The deal gives PFE an exclusive for these other indications.

The stock roared with approval of this news and then blew up -- from $10 and change to north of $14 and back to $10 where it is now.

I am not an advocate of AVAN -- I know too little about the company right now -- but, come on! The stock doesn't move?

Antigenics (AGEN) moved when it said it got approval for its immunotherapy in Russia (is Putin not feeling well?), although it has come back down.

Cell Genesys did not initially move much after it cut a deal a few weeks ago with Takeda, but is now up more than 50%.

Dendreon, the traders' great hope, has a much higher valuation, even though it has not been able to secure a partner and has a management team that, well, the aforementioned Putin could like based on their sensitivity to the common shareholder.

Am I recommending AVAN? No. But I wanted to bring this to your attention: It is a pretty good deal when you get an upfront payment twice your market cap and the stock does not move. Is this a rejection of PFE -- the company with one blown trial and sales effort after anther -- or simply investors shunning Phase II companies?

Think about it.

To Antigenics or Not to Antigenics?

Thu, 10 Apr 2008 09:56:17 -0500

Antigenics (AGEN) got a Russian approval for its cancer immunotherapy -- a cancer "vaccine" is the sexy, headline grabbing term. This also created a few seconds of buzz around two other immunotherapy companies, Dendreon (DNDN) and Cell Genesys (CEGE). I mention these two other companies because (for purposes of full disclosure) I own CEGE stock and recommend it in my newsletter service. I also own a full hedged position of DNDN that I can't wait to liquidate when my hedge expires.

In the United States, AGEN has failed to get approvals from the FDA for good reason: Its treatment, Oncophage, didn't work in Phase III trials and didn't even come close -- which is at least a sort of argument DNDN could and did make.

Oncophage targets kidney cancer and was shown to work within a sub-group of patients with "lower-stage tumors," and therefore a better shot at survival. 45% of these patients responded to Oncophage, hence the approval in a Russia looking to build new industries.

A couple of things are going on that are of critical interest to dying patients and some interest to investors:

• I started my career as a biotech wise-guy and sage, and I was a fan of the FDA under Dr. Mark McClellan. I now believe the agency kills far more people in a month than Rumsfeld and successors have done in Iraq. How? The FDA, despite what it says, does not really change its view of trial results for drugs for dying patients who have no hope.

Its statisticians hide behind numbers, insisting trial data be used only based on the original protocol for the trial -- subset analyses not in the original plan are verboten. And this is true even for patients with absolutely no alternative other than a very painful death.

• Medicine is moving worldwide and if Antigenics can treat a cancer patient in Russia, people with money in the United States and Europe will go there for treatment -- treatment that will be a lot cheaper than in the United States, even if Oncophage is approved in the U.S.

Immunotherapies from Antigenics and Dendreon are capital and labor intensive -- treatments are literally customized and prepared in a factory for each patient -- and Russia is a lot cheaper place to do that than other places.

• Professional investors are so disgusted with the FDA and so aware of the vibrant new international medicine market that they are willing to financially support the Antigenics business model. The proof is a new private offering by Antigenics to the tune of $21 million.

Where does this leave investors?

• AGEN is now an interesting play because it may now be able to generate revenue AND prove out its therapy in a distinctive sub-group of patients without needing huge additional infusions of capital.

• DNDN now has a fallback. I believe their interim trial results will not get them an approval due to the way the trial is structured and their final results may not be strong enough under the current regime of statistical fascism at the FDA. So, Dendreon could go to Russia, but probably would go the China or India route if necessary.

• Cell Genesys (CEGE) has by far the best-structured trials -- it provide for patients with and without the current standard of late-stage care, have embedded metrics using immune system biomarkers and are huge. In my opinion CEGE stands the best chance of an FDA approval, but the Russia, India, China option helps CEGE too, as it now has a fallback if needed.

The bottom line here is that this was not a minor announcement by Antigenics. It has far-reaching ramifications and you can expect other companies with good sub-group analysis and life-saving treatments -- but no FDA approval -- to look to Russia, China and India for quick trials, drug approvals and an international base to build out their product.

And this reduces the risk in many companies.

A Biotech Turnaround?

Thu, 03 Apr 2008 08:07:54 -0500

Are biotech's turning around? They are certainly beating the market and, frankly, worrying about FDA decisions is easier now than worrying about how much toxic waste is hidden on a bank's balance sheet.

I have a good feel for the odds of whether Cell Genesys (CEGE) will get an approval in a couple of years GVAX, its prostate cancer treatment. I don't know the odds of Citigroup (C) writing down another $50 billion, rather than the $12 billion to $20 billion analysts are talking about this quarter.

Think of it this way: If Citigroup is as bad off as I believe it is (and as Meredith Whitney of Oppenheimer thinks it is -- she was the first analyst to say it would blow up and cut its dividend, and for her insightfulness received death threats), then the stock is going from $24 to $11.

If Cell Genesys doesn't get an approval in 2010, the stock is going from $3 to $1. The upside for Citigroup could be $40 in three years -- about a 60% gain. The upside for Cell Genesys is $80, a 25-fold increase.

Both stocks carry the same risk, i.e., we just don't know what is going to happen. So which one has a better risk/reward ratio -- a highly speculative biotech or Citigroup? Maybe, for the first time in the history of mankind the winner is the molecules, and not the money-center banks.

This kind of thinking may finally be occurring to speculators and traders. Why?

Many itty bitty biotech's are trading at historic lows, based on their available cash and the proximity of binary events that could catalyze the stock. The market is so down on these guys it is amazing!

A couple of weeks ago Spectrum (SPPI) got its first approval ever for a cancer drug, and the stock went essentially nowhere.

Cell Genesys cut a great deal with Takeda, eliminated the need to raise capital, got funding to finish its Phase III trials for GVAX and the stock popped a little bit, but a small move compared to what wold have happened three years ago.

Prana (PRAN) had very-strong Phase II results (my interpretation) for an Alzheimer's drug and the stock moved -- but not as much as it would have three years ago.

This indifference could be ending, and if it is there is huge upside in many smallish biotechs. So, if you have some extra cash from shorting the banks -- and you are thinking about your next speculative play, and I mean speculative -- get some coffee or some other biotech-based brewed liquids, and take a look at some very cheap smallish biotech's.

Drugs: Penny Wise, But a Pound Foolish

Tue, 25 Mar 2008 11:09:21 -0500

I typically write about stocks of interest to investors, but today I am just hacked off. Bear with me and pardon the pun.

Not all drugs and biotech companies are created equal -- and the belief that a drug may cost too much because of its price, is representative of the simplicity and shallowness of the current debate in politics and in press about healthcare costs in the United States.

We live and, for the most part, benefit from a capitalist healthcare system built into a capitalist economy -- with all the commensurate risks and rewards. High-priced drugs with large profit margins are part of this system, and the numbers kicked around by politicians and the press obscure the central reality of our system: A high price for a drug is not necessarily a high cost to society when a drug saves or extends a life and when profits spur the development of treatments that (over time) reduce costs by saving or improving the lives of patients.

Two recent editorials complained about the price of cancer treatment Avastin, made by biotech giant Genentech (DNA), and Genzyme's (GENZ) treatment, Cerezyme, for Gaucher disease.

Avastin fights various forms of cancer and costs upward of $110,000 per annum or more, while Genzeyme's product can top more than $400,000 per annum. The Times's editorialists believe this is way too expensive. Tell that to a patient with Gaucher's disease or a cancer patient who lived, on average, the five and a half months predicted by the median survival of patients in the Avastin clinical trial that led to the drug's approval. In a country that rewards creativity and success, don't you want to reward companies for saving patients so they can reinvest the money to save more patients in the future?

I am no apologist for an industry holding many companies that currently make far too much money for what they return in improvements in public health -- Amgen and its anemia drugs come to mind -- but this specific complaint is misplaced and depressingly similar to the hollow campaign rhetoric dominating the air waves.

While the editorial reflected public frustration with medical costs it also is a mirror of the poverty of the healthcare debate which is increasingly dominated by the inability of patients and the general media to separate prices from costs. In reality, a seemingly high-priced drug may actually save money in the short or long run, not to mention the life of a patient.

I do not deny that patient, public and political frustration is well grounded - too many things cost too much, from allergy shots to fifteen dollar boxes of sterile tissues -- but price should and cannot be confused with cost. In this instance, the clarity of the target (a $100,000 a year drug) and the vast size of the company led the debate.

If the company were a start up that had never made a penny, tried for 10 years to develop the drug and finally succeeded, would there have been criticism? Of course not, and the focus would have been on the happiness felt by surviving patients and the money saved when they left the hospital and went home to live, and not to die in a hospice.

A new report that came out today made this point all too well.

Genentech's cancer drug Rituxan, in combination with chemotherapy, has helped younger patients with non-Hodgkin's lymphoma live two-thirds of the time for five years or more, compared to 50% of the time in the early 1990s. Call it longer living through high-profit chemistry. Genzyme has a robust pipeline paid for with profits from Cerezyme.

This does not seem to faze politicians, patients and pundits who fail to discriminate among the products and the companies that supply them. Avastin is not a "me-too" product; it is not the umpteenth variation of the same pain killer; it is not a treatment for a brand new disease like restless toe syndrome. Avastin, along with many other high-priced drugs, extend and, sometimes, save lives. That is Genentech's mission. Reducing the price of Avastin, and the flow of dollars available to develop new products at a company like Genentech will materially affect the development of new products and eventually lead to the premature death of many patients.

Do I exaggerate?

The drugs in question took more than a decade to develop and are (or were) unique when approved. Avastin is a first and best-in-class anti-angiogenesis cancer drug that reflects billions of dollars in past, current and future development costs. I follow many companies in the life sciences industry and can say without hesitation the drug's parent and creator is considered by many (including me) to be the world's finest cancer company. Genentech has more than 100 clinical trials underway, and is always pushing the envelope and looking for new ways to save lives. The funds for the trials and "envelope pushing" come from high-priced drugs already on the market.

Some surveys also find Genentech to be the finest place to work in the United States -- and it would be difficult to find a company with a better track record for working with, and listening to, the FDA. You won't see pictures of Genentech scientists on yachts with Congressional lobbyists and call girls -- instead they spent their money on R&D last year -- more than they declared as a net profit.

The laws of economics are simple -- a reduction in price of current drugs will reduce Genentech's ability to improve Avastin, develop new treatments and serve patients. Ultimately, a lower price for Avastin may actually mean a higher cost to society.

Genentech and Avastin are easy targets for politicians, the media and complaining patients. The harder (and real) targets are avoided by too many people.

What are the real drivers of runaway costs? People, not patients.

According to Dr. Mark McClellan -- former FDA and Medicare chief now at the Brookings Institution -- the key to cost control is keeping people healthy. The current system rewards the treatment for illness and its reimbursement and often does not pay for routine physicals and other measures to improve health, like managed exercise and diet programs.

Of course, no one ever sold a newspaper or got a vote by saying "Hey, fatso, you may need help, but the first place to start is by getting the potato chips out of your mouth."

But sticking it to a company that has improved or saved 10s of thousands of lives (but is an easy target because of a $100,000-a-year drug) is sexy.

It would be better if the politicos, the public and the media took a look at the real cost and value of a drug, not the price -- and that's something we currently don't do.

A good example is the recent demise of drug BiDil and NitroMed.

BiDil was the first drug ever approved by the FDA for one ethnic group: African Americans. This heart medication was so successful in trial that the patients on placebo were put on BiDil midway through the trial for ethical reasons -- the patients receiving the drug saw a 43% reduction in deaths from heart attacks.

No matter -- BiDil failed in the marketplace because payers (insurers and Medicare) would not pay. Medicare and private insurers asked for too high of a co-payment from patients who could not afford the drug. These payers did not, and would not, factor in a 43% reduction in deaths, and all the costs associated with a sick and dying patient, when demanding these co-payments. And this narrow view of the costs won the day! Since the drug has been approved it is probable that more patients have died unnecessarily of heart problems who could have been managed with BiDil, than the number of soldiers who have died in Iraq.

Narrow-but-headline-grabbing analyses of high-priced drugs undermine the truth: It is the value of a drug relative to its price that matters. Narrow, artificial price limits on life-saving, unique drugs can kill -- and, are likely, already doing so.

Amgen (AMGN) -- Whither Thou Goest?

Wed, 19 Mar 2008 22:55:52 -0500

I have disliked Amgen (AMGN) for a very long time and have the good fortune of having two publishing platforms to discuss the company: my ChangeWave Biotech Investor service and my short service, ChangeWave Shorts.

I write about it whenever I hear "value" investors who know nothing about biotech or life sciences telling investors to buy the stock because it "must come back" or it's "cheap."

My background is the computer industry -- when it had 49 personal computer companies, eight major mini-computer makes and the "bunch" of mainframe companies -- the five major competitors to IBM.

All but one of those original 49 are gone, all eight minicomputer makers are gone, all of the IBM mainframe competitors are gone from that business and just three are in business, at all, doing something else.

And over and over I heard and read analysts and pundits telling people to buy these dying companies because they were "cheap" and "must come back." Don't you believe it!

Amgen has not created an original blockbuster drug since the breakup of the Soviet Union and has a terrible pipeline. Two-thirds of the company's profits are from anemia drugs getting slammed by the FDA, Medicare and private insurers -- with falling sales due to safety concerns revealed during the runup to a recent FDA panel meeting. The company now seems to rely more on lobbyists than scientists for its success.

I know, this sounds like a non-quantitative polemic. So let's talk numbers.

At least $1.35-$1.55 of their anticipated $4 in 2008 profits are from anemia drugs for dialysis patients with declining sales due to declining reimbursement rates, new dosage guidelines, anticipated competition from Micera from Roche (which I believe will eventually be allowed in the U.S. by the courts and/or the ITC) and an eventual crackdown on rebates.

Some serious percentage of this is going away - and the best case for Amgen is 40 cents to 60 cents per share in profits. I see another 40 cents to 50 cents at risk in the cancer market due to an FDA panel ruling (and, eventually, an agency ruling) that will restrict the use of these drugs for an annoying reason -- data shows they may accelerate death in some patients.

Oh, and cut out the rebates, someone is gong to say. Shocking! Rebates! Shocking!

So, the best case is $3 a share in profits, and at current multiples that means a $30 stock price -- and this dog is being valued on profits, not growth, since there ain't no growth.

Oh, and AMGN has announced the stock buyback.

And did I mention Moody's may knock Amgen's credit rating down depending on the final FDA decision on anemia drugs?

My subscribers have saved a lot of money by avoiding Amgen and some have made a lot of money buying puts on the company. Whatever you do, anytime you give consideration to this company, hear a little voice in your head saying: "value trap, value trap."

If you don't believe me, think Digital Equipment Corporation; or Burroughs; or how about the Osborne computer? Remember them?

Cepheid (CPHD): A False Hit Based on a False Claim

Tue, 11 Mar 2008 22:17:02 -0500

Before you read this post, please know that I do not own this stock, although I do recommend it in my service. I'm exposing this because it's a hatchet job done on a product category that can save tens-of-thousands of lives -- and because a company's stock took a hit for no reason.

That company, Cepheid (CPHD), took a major hit yesterday after the close, due to an article in the Journal of the American Medical Association -- an article that should never have been published.

If it was vetted, then the people who agreed to its publication should check into a hospital that doesn't do any MRSA testing the next time they aren't well.

The article claimed that MRSA testing did not help reduce MRSA infections -- which of course is not only illogical but utter nonsense if you live in the real world.

The study at the core of the article was based in Switzerland (University of Geneva) and I have been told by sources that this hospital used home-brewed, home-built tests -- not a standard test from Cepheid or competitor Becton Dickinson.

There is a detailed criticism published by Betsy McCaughey, founder and chairman of the Committee to Reduce Infection Deaths, a not for profit with an obvious goal -- saving lives. Her critique is found below, verbatim. The organization's website is www.hospitalinfection.org.

Let's cut to the chase. The AMA article is quasi-science that is a short seller's dream.

For of you interested in the truth and the potential that MRSA testing has to save lives (and help companies succeed) look at the the Veterans Administration. The VA has arguably has one of the the toughest potential MRSA problems in the country, due to the nature of their patient population. It reduced MRSA infections by more than 70% with a pilot program that had MRSA testing at its core, and is now pushing that program nationwide. Cepheid has captured the vast majority of the testing business at the VA.

Last point -- some unsolicited, non-stock advice: Don't go to any hospital for any procedure that doesn't first include comprehensive MRSA testing. No one in my family will. Am I paranoid? No. A teacher in the school situated next door to my son's high school died a few months back. She was diagnosed with a malady other than MRSA and was sent home. Then she died of MRSA. MRSA is real and it's deadly.

Enough said, read the letter from Betsy McCaughey.

This is the rebuttal letter -- verbatim -- by Ms. McCaughey. I hope she doesn't mind my posting it here. If you do Ms. McCaughey, contact me and I will pull it down.

March 11, 2008
New York, New York

JAMA Article Provides False Support for CDC's Do-Nothing Position on MRSA

A new study in the Journal of the American Medical Association (JAMA) purports to show that screening for MRSA (methicillin-resistant Staphylococus aureus), a simple skin or nasal swab, is not effective in reducing MRSA hospital infections ("Universal Screening for Methicillin-Resistant Staphylococcus aureus at Hospital Admission and Nosocomial Infection in Surgical Patients," JAMA vol. 299, no. 10, March 12, 2008).

The findings of the authors will be seized upon by the Centers for Disease Control and Prevention (CDC) and advocates of the do-nothing status quo. But the study is seriously flawed - rendering is findings meaningless.

1. Researchers used a 'rapid test,' but many patients were not tested until they had already been in the hospital for twelve hours. Furthermore, the results of the MRSA tests were not acted upon for another 22½ hours on average. Most patients had completed more than half of their hospital stay before their results were known. Therefore, the precautions they needed - isolation, proper antibiotics, chlorhexidine baths - were taken late or not at all.

2. Unbelievably, almost a third of surgical patients (31%) who tested positive didn't get their test results until after their surgery. Therefore they too didn't receive any of the precautions they needed. Some people carry MRSA germs in their noses or on their skin without realizing it. The bacteria do not cause infection unless they get inside the body - usually via a catheter, a ventilator, or an incision or other open wound.

3. No weekly MRSA testing was conducted, which is de rigueur when conducting universal screening to prevent patients colonized with MRSA from passing it on to other patients in the hospital.

4. A previous study by the same lead author at the same location, The University of Geneva Hospital, found that universal screening on admission with preemptive contact precautions (the way it's supposed to be done) decreased MRSA infections in the medical intensive care unit.

The study released today, says Betsy McCaughey, Chairman of the Committee to Reduce Infection Deaths, "doesn't prove that MRSA screening is ineffective. The study omits the precautions that are supposed to follow a MRSA positive test result. It's like testing a recipe, but omitting half the ingredients or test-driving a car without the tires."

Today's JAMA article provides false support for the CDC's persistent do-nothing position on the dire problem of M.R.S.A. The CDC's lax guidelines continue to give hospitals an excuse to do too little.

Chairman and founder of the Committee to Reduce Infection Deaths and former Lieutenant Governor of New York State, Betsy McCaughey is available for interview immediately at:
917-748-0227 or 212-534-3047
www.hospitalinfection.org

Phase III Trials for PRAN

Wed, 27 Feb 2008 09:45:35 -0500

If and when PRAN goes to Phase III trials, what will they cost? Depends on the size, construction, length and location. Based on the mixed results of Phase II, they will need large trials with identifiable sub-groups to help get an approval from the FDA. At least $50 million, probably double that if they do them right -- and I am talking about a 1,200-2,500 person trial. Currerntly, Medivation (MDVN) is doinga 525 person Phase III trial for their AD drug and I think they are taking a risk. They believe it is large enough given what they call the strength in their Phase II data -- I would like to see them do a larger trial. Neurochem (NRMX) did a thousand person trial but they messed up the data presentation and subgroup data and did not have proper controls separating out patients using other meds. Elan (ELAN) and Wyeth (WYE) are doing trials with more than 4,000 patients and using a new primary endpoint that is an amalgam of tests and metrics nver bfore used with the FDA. Stay tuned.

Prana Biotechnology (PRAN): A Challenge for the FDA

Tue, 26 Feb 2008 15:38:41 -0500

Prana Biotechnology, a tiny Australian company working for many years on a treatment for Alzheimer's disease (AD), announced Phase II trial results yesterday that the company characterized as successful -- and the stock popped 40%-50% today.

The trial results, for those who care about these things, raise many future questions that will have to be answered by the FDA and about the future of AD drug development. That may happen when the company approaches the agency to move forward into Phase III trials.

What this company does withthe FDA has enormous implications way beyond its own drug efforts.

Prana has a different approach towards Alzheimer's which is how I found them five years ago. A good deal of big pharma has aimed at reducing the secretion of amyloid proteins and failed.

Simply put, humans need these proteins and to limit their presence in the brain would require a drug that could cross the brain barrier -- and that's a non-starter. Instead, Prana aims to reduce the plaque, not the protein, by stopping the reaction between these proteins and the naturally occurring copper and zinc in the brain.

The heart of Prana's research is to commercialize what are called Metal Protein Attenuating Compounds (MPACs) to reduce or eliminate the interaction of naturally occurring metals in the body (such as copper) with amyloid proteins -- and in the process reduce or eliminate beta-amyloid creation and plaque buildup.

MPACs may also be a technology useful for the treatment of other brain disorders (i.e., Parkinson's) that could also be occurring, in part, due to the interaction of metals and amyloid proteins. Prana's research approach believes oxidation releases the key proteins, these proteins interact with a metal (naturally occurring copper in the brain being the main culprit), and this then leads to both the buildup of plaques and the release of hydrogen peroxide causing brain-cell death and reduced brain function.

In the Phase II trials, the drug (PBT-2) was safe and, as measured by two of four standard measurements (by the FDA and the industry) for the progression of Alzheimer's disease, it showed statistically significant results. The drug did not have any impact as measured by the most important test, the ADAS-cog for overall cognitive impairment. The company also reported its own measurement result showing significant reductions in a biomarker for certain amyloid beta proteins (Abeta 42) associated with AD.

It is this result that could attract a partner of some sort.

These markers are not accepted by everyone and have never been used to get a drug approval from the FDA. And that is the rub. There are vocal minority of researchers who believe these proteins and their plaques are a symptom and not a cause of AD.

If and when the company puts forward a request to go to a Phase III trial, I can only assume it will include these markers as a secondary endpoint, perhaps a primary endpoint, of the trial.

The FDA will have to decide if this is an appropriate surrogate for efficacy. This is important because it is hard to measure the mild-to-moderate patient group that is typical in many AD, trials and everyone agrees a biological marker and measurement would be of great value to drug development and for early, pre-symptomatic diagnosis.

If Prana can get a partner, then the question is whether that partner will endorse these biomarkers as a valid endpoint and use their big pharma skills to get the FDA to accept this point of view.

There is a lot riding on the FDA in this process -- many companies are working on AD treatments and FDA acceptance of this kind of biomarker as a primary endpoint would be revolutionary! Even acceptance as a secondary endpoint for a Phase III trial would be ground breaking.

Stay tuned. This is very interesting. I have recommended PRAN in my service for many years and I own the stock.

YM BioSciences (YMI)

Thu, 21 Feb 2008 08:49:47 -0500

YM BioSciences (YMI)

Speaking of busted biotech's ... a subscriber to my paid service asked me to look at YM Biosciences (YMI), a Canadian cancer company trading for its cash -- it is down from $6 to a buck and change.

Is this a buy signal?

Reflexively, many traders and speculators (as opposed to investors) are attracted to busted biotech's with lots of cash. At its current burn rate YMI can last four years without new money, and needs just one catalyst -- an approval, new trial data, something -- to make the stock double.

If you go to YM BioSciences' Web site, it (along with its partners) has more trials underway than a tort attorney in Mississippi, but a couple of big ones, if successful, could move the stock. Watch these deveopments:

A Phase II, 50 patient trial for their own drug, nimotuzumab, in combination with irinotecan for the treatment of colorectal cancer. This drug is a humanized monoclonal antibody targeting something called and their claim is equal or slightly better efficacy but much better side effects. Data could be available in Q2 2008, maybe. Nimotuzumab has been designated an Orphan Drug by the US FDA and by the EMEA for a form of cancer called glioma.
The FDA is reviewing an application and has asked for more data for AeroLEF, a pain medication for cancer patients that is inhaled and enables patients to treat themselves.
The company has trials underway for nimotuzumab for adult and pediatric glioma. The pediatric trial in Europe will only suffice for a potential European drug application and the company has just begun a trial for pediatric brain cancer in the United States.

Why am I writing about this company? It looks good on paper, doesn't it?

Well, there's no proof their approach works; YMI has second- and third-tier partners and no meaningful U.S. partner; it has a very scattered development approach and if nimotuzumab does not work, it is, in my opinion, out of luck.

That's why the stock is trading for a buck.

But a biotech with lots of trials, three to four years of cash on hand, lots of potential catalysts in 2008 and an enterprise value of zero, may be worth a look for some of you -- especially the traders and speculators. I typically invest in and recommend more solid speculative bets, if there's such a thing. I do not own or recommend YMI -- but it is now on my radar.

BioMS Medical (MS.TO)

Wed, 20 Feb 2008 14:35:49 -0500

BioMS -- Time to Take a Look?

A couple of weeks back Eli Lilly (LLY) cut what seemed to be a very good deal with a Canadian company, BioMS (MS.TO) for rights to its multiple sclerosis (MS) drug in trial, MBP8298. Catchy name, eh? The stock did a Rodney Dangerfield and did not react. Should you?

On Dec. 17 LLY and BioMS announced a partnership where BioMS would complete development of an MS drug in two Phase III, late-stage trials, and one mid-stage, Phase II trial.

Lilly would get exclusive worldwide rights in return for an upfront payment of $87 million and milestones of $410 million, plus escalating royalties. The stock ran up a buck -- more than a third -- from $2.70 to $3.72, but the cash added to the company was worth a buck, so the enterprise value of the stock did not move. I know markets act strangely when stressed (as they are now) but it was still a weird market reaction.

The stock has begun to creep up -- it is trading around $4 -- but the validation provided by this sort of agreement and the late stage of the drug did not seem to affect investors. The agreement was approved by the Federal Trade Commission in late January

Should it have an affect you? I do not recommend or own the stock, but I thought it was worth a look -- and if the drug gets approved, the stock is a five-bagger, right out of the gate.

Accuray (ARAY)

Sun, 10 Feb 2008 22:13:35 -0500

If enough people ask you a question, you should go out and find the answer.
A few days ago I finished giving seminars at the Money Show in Orlando and four people asked me about a company I do not follow or recommend, Accuray (ARAY). After reading some and talking to others, I am still not recommending it in my service but thought you might want to take a look, in part because it was recently crushed when it reduced revenue estimates for 2008.

Accuray makes several products but its leader and growth engine is CyberKnife Robotic Radiosurgery System, used to directly target cancer tumors with narrow and powerful doses of radiation. Sales doubled in Q4, year over year, for the company but a few days ago the company reduced sales estimates for 2008 to $210 million -$230 million from $250 million-$270 million. ARAY blamed tightened credit conditions, specifically as they apply to cancer and radiation treatment centers, for slowing growth. It also earned about four cents a share.

There are two ways to look at this explanation:

First, if true, then these centers are overextended, which means there are too many of them and sales were going to slow to this segment sooner rather than later.

Reimbursement rates are too low -- probably driven by traditional radiation treatment, creating margins too low to generate the profits needed to keep credit ratings up. This situation, however, can be fixed with new reimbursement rates based on clinical data showing the treatments are more effective -- which they are for many.

The stock was crushed on the pullback in forecasts, lemming analysts reduced their ratings, and the stock, although it sports a very high P/E, (more than 50) has a modest P/S (less than 3) given the sector -- medical devices.

Bottom line: at a minimum, this is a company to watch -- despite competition from industry heavyweight Varian Medical Systems, a terrific outfit. I am waiting -- I am going to ask the ChangeWave survey group to put together a survey on what is going on inside treatment and surgical centers and we may find out more about Accuray. I do not currently own any stock in this company.

A quick note: I have been unusually busy and the market unusually ugly, prompting me to reduce the frequency of articles. They will pick up again this week. Send me an e-mail at mshulman@changewave.com if something interests you.

BioCryst (BCRX): Fugheddaboudit!

Mon, 04 Feb 2008 08:45:08 -0500

I rarely if ever write about stocks I recommend in my service. This is a point-and-shoot blog -- I point, you shoot -- but today I want to discuss a company I had recommended and just closed, BioCryst.

Many people may look at the stock, and its chart, and its cash position, and say maybe. I say no. BCRX is a cancer and pandemic flu company. The cancer treatment, Fodosine, and the flu drug, peramivir, have serious promise, but management is the problem.

The president of BioCryst, Jon Stonehouse, came onboard about a year ago, inherited some ridiculous problems not of his making and brought in seasoned big-pharma vets to rectify the situation -- but so far is behind the curve in running a publicly held company.

This past summer peramivir failed to reach its primary endpoint in a Phase II trial because the morons designing the trial before his arrival chose the wrong size needle. If airlines are using larger seats, using needles too small to get through the typical modern-day big butt is an absurd mistake.

After this fiasco, Stonehouse and company were cool and calm and said the there were strong enough results within the trial patients they determined actually received the drug that they would proceed to Phase III. And then a couple of weeks ago they (BCRX) said nope, not ready to go to Phase III this flu season. Instead we're going to burn investors money for another year.

That information should have been provided earlier and the comments stating the company was going forward to Phase III should never have been made.

This shows a lack of familiarity with running a publicly held company, and what is best called accidental arrogance -- a disease of many, perhaps most, big-pharma execs who are almost totally internally focused.

Do I exaggerate? A few weeks back I gave the closing keynote at a strategic planning conference for 150 big pharma execs. These were big-time, serious execs at the most senior levels of management of product development. After my remarks I was asked questions about Wall Street and shareholders my sons could have easily answered when they were first investing their own money in the market when they were 14. Letting these kind of execs loose to manage a development stage, publicly held startup such as BCRX is not a good idea.

Bottom line: BioCryst management is not a group you want to trust with your money. To date, BCRX execs have not shown enough respect for investors to earn that trust.