Medical Stocks Technical Watchlist - December 2015

Here's my final watchlist for 2015.

Looking for a rally post interest rate announcement.

A tough 2015 for Marketocracy's Fund Managers

2015 has been a difficult investment year for Marketocracy's  Masters & Top Fund Managers according to performance data just released.

On average Marketocracy Managers under-performed the S&P500 index. Year to date, they returned -3.66% vs 1.04% for the S&P500.
27% of Managers (6/22) beat the return of the S&P500.

The best Marketocracy performers (ytd):
#1 Justin Uyehara with 19.86%    (@ a 10yr annual return of 20.9%)
#2 Wayne Himelsein with 19.60%   (@ a 10yr annual return of 13.1%)
#3 Bruce Pile with 5.32%   (@ a 10yr annual return of -4.0%) 


Below is a detailed look at all the Managers performances:

My Fund:
My Medicals focused fund is down 3.56% ytd (@ a 10-year annual return of 15.2%). It has dropped in ranking from #1 to #14 during the past 4 months.

My Fund's performance suffered heavily during the recent biotech sector sell-off. I primarily hold small-cap positions these unfortunately were the worst affected during the sector sell-off. 

My Fund along with the Biotech sector are now showing signs of a recovery which is encouraging. I remain optimistic for the long-term about investing in this space despite the recent turmoil and warnings we are in a "biotech bubble". I believe this sector has more prosperous years ahead of it. Our biggest near-term risk is a possible Reserve Bank interest rate raise later this month.

I feel my Fund is positioned for a strong finish to 2015. December holds several catalysts that could significantly boost my Fund's performance;
My largest holding, Northwest Biotherapeutics (NWBO) is due to make an announcement clarifying the state of its Phase 3 trial. And my 3rd largest holding, TG Therapeutics (TGTX) is presenting at ASH this week, they will present trial data with 4 abstracts.



Disclosure - Marketocracy Funds are available for investment through SMAs. Here is a link to my fund http://www.marketocracy.com/managers.php?manager=781
I do not short stocks.

Neuren Pharmaceuticals (NEU.AX) - my valuation says over 150% upside

Neuren Pharmaceuticals (NEU.AX) is a small Australian/NZ bio-pharmaceutical company with excellent upside potential.

Below is my valuation model with assumptions –

 

Up-coming catalysts:

·       Results expected for 3 x Phase2 clinical trials.

o   Fragile X Syndrome – December 2015

o   Traumatic Brain Injury (moderate to severe) – Q1 2016

o   Traumatic Brain Injury (mild - concussion) – Q1 2016

From 30th July 2015 -

NEU’s lead drug candidate is called Trofinetide - an analog of a molecule which is derived from IGF-1 and occurs naturally in the brain. According to NEU, IFG-1 in the brain is critical both for normal development and for responding to injury and disease. This drug candidate aims to treat patients with neurodevelopmental and neurodegenerative disorders as well as patients with brain injuries.

Trofinetide is in clinical testing for 4 separate disorders all at Phase2. They are Rett Syndrome, Fragile X Syndrome (FXS), Traumatic Brain Injury (TBI) - moderate to severe, and TBI – mild or concussion.

Currently there are no FDA approved drugs to treat these conditions. Some drugs that are approved for other indications are used to treat selected symptoms, but they are only modestly effective and none are disease-modifying. NEU will receive favorable FDA treatment because their drug is thought to be disease modifying for patients without other effective treatment options. NEU have already received Orphan Drug and Fast Track designations for Rett Syndrome and FXS. TBI (concussion) has also been given Fast Track designation. However the FDA denied a Breakthrough Therapy Designation for Rett Syndrome.

NEU presented positive Phase2 results for Rett Syndrome in late 2014. Trofinetide showed clinical benefit with excellent safety and tolerability attributes. At the higher dose of 70mg/kg, their drug showed significant clinical effectiveness compared to a placebo.

NEU believes their Phase2 trial also showed their drug’s effectiveness may be improved upon by increasing its dosage level and lengthening the treatment duration.

Just announced, NEU has agreed with the FDA to conduct a new small tolerability clinical trial in children and adolescents to test higher doses of Trofinetide in a younger population and to confirm dose levels for their up-coming Phase3 trial. This new small trial will de-risk Trofinetide in Rett Syndrome but unfortunately it will add time and cost money.

The positive Phase2 results of Trofinetide in Rett Syndrome bode well for its chances of success in FXS. These two diseases are similar in that they are both caused by a mutation of the X chromosome. FXS Phase2 results are expected in December 2015.

FXS is the more lucrative indication. Its potential patient population in the US and EU is around 160,000. Rett Syndrome has a smaller patient population of around 33,000. Should NEU get positive Phase2 results for FXS its share price could instantly double. Results are expected this December.

Other important catalysts for NEU this Q4 are expected results for their two TBI Phase2 trials. Positive results for these indications would be transformational for this small company.

I have not placed a value on NEU’s two TBI indications. It is too early to make a call about their efficiency. These TBI indications are very lucrative should NEU's drug prove to be effective here. The global TBI market is estimated at more than $4 billion.

I think Trofinetide will be priced around $15-$20k per year which would place it at the high end of the price range for single molecular drugs. But given their targeted indications do not have FDA approved treatments they should be justified charging the high premiums. NEU say on their website, they estimate current direct costs for medical services of Rett patients at more than $20k per year. Which leads me to think they intend pricing their drug near the $20k per year mark. For my valuation model I have used a lower price of $15k per year.

NEU’s share price fell sharply and suddenly in March this year on bad news. The FDA denied Trofinetide Breakthrough Therapy designation for Rett Syndrome. The FDA did not consider Trofinetide showed strong enough efficiency to grant the lucrative designation (NEU's efficiency was measured at p=0.023). NEU’s share price was trading near $AU0.18 before the fall now NEU is trading at much lower levels near $AU0.09. I consider the 50% price fall a market over-reaction. 

NEU has cash reserves of $17.7 million as of 30^th June 2015. This reserve should be enough to allow them to complete their on-going Phase2 trials. However they will require additional funds to progress their drug's development to Phase3. I suspect NEU will do a capital raising in December this year following their FXS Phase2 results. They may not need to take this action should they be successful in finding a partner to fund their Phase3 trials.

NEU’s drug candidate is showing promise in treating serious neuro disorders, an unmet need that affects people and their careers around the world. The market looks to have heavily under-valued this company. With important catalysts due later this year I expect NEU's valuation to increase to a fairer value around $0.22.

Disclosure – NEU.AX is a very small AU biopharma company that carries substantial risk. While its potential returns may be high its losses may also be high.
I am long NEU.AX.
I do not short stocks.    

Northwest Biotherapeutics (NWBO) - Set for Recovery after heavy sell-off

Northwest Biotherapeutics (NWBO) has lost over 60% of its market value over the past 3 months, down from $12 to $4. The sell-off has been sudden and heavy in large part due to increased perceived risks with this investment. The perceived risks come from several areas such as a drop in confidence in the entire biotechnology sector, doubts raised about the fate of NWBO’s lead Phase 3 clinical trial, and increasing short interest. I do not believe these perceived risks justify a 60% price fall. NWBO’s market value is now close to levels where a Phase 3 trial failure would be priced even though past clinical results suggest the trial will likely be a success. So at $4 I view NWBO as heavily oversold and an excellent opportunity for the risk-averse investors, the upside potential is huge with a limited downside risk.

NWBO is a small biotechnology company in the Immuno-Oncology space. They have two promising vaccine candidates for treating solid tumor cancers. DCVax-L is their lead candidate for treating newly diagnosed Glioblastoma (GBM) patients; this program is at an advanced Phase 3 stage. Their other candidate is DCVax-Direct for treating various inoperable cancers; this program is at an advanced Phase 1/2 stage.

NWBO’s approach to treating cancer is unique and exciting. They claim their dendritic cell vaccine platform can educate and direct the human immune system to identify, find, and destroy all cancer cells. The vaccines are also meant to leave behind an immune memory so cancer cells that return will also get destroyed. Theoretically the vaccines should work on all types of solid tumor cancers.

NWBO’s price drop began in mid-July around the time the entire biotech sector began dropping. The biotech sector is down around 23% from its July’s highs. NWBO price drop has been far more dramatic than its sector peers; it is down around 60%. The recent investor loss of confidence in the biotech sector can be in part attributed to Hillary Clinton’s public comment that the government is considering introducing tighter drug pricing measures. I do not expect lasting weakness in the biotech sector, NWBO will also benefit when we get the recovery.

In late August, a perceived problem surfaced in the media about NWBO’s lead DCVax-L Phase 3 trial. Misleading headlines stated the trial was halted and NWBO suffered a 20% drop that day. NWBO later released a statement clarifying that their trial was not halted and in fact it was on-going with patients continuing their treatments. The only change made to trial was that new patients screening had been temporarily suspended while they prepared certain trial information for regulatory review. The NWBO clarification did not help recover its share price losses.

NWBO has not stated why the suspension is in place and probably cannot comment since a regulatory review is taking place. Unfortunately this open question is a red flag for investors. NWBO’s trial is unlikely to have serious problems since regulators are reviewing it without placing it on halt. Regulators typically halt troubled trials while reviews take place. Instead NWBO’s trial continues to treat patients with over 300 of 348 patients already enrolled.

Media commentators like thestreet.com’s Adam Feuerstein, mislead investors when they state NWBO’s trial is suspended and its enrollment is halted because this implies the trial cannot continue enrolling patients when it fact it can. NWBO performs two screening steps before patients are enrolled in their trial. New patient screening is the first step in the enrollment process. After patients pass this step they then must pass a second screening step after their tumor gets removed and chemo/radiation treatments are completed. If patients then pass the second screening step they can enroll in the trial. The time between the two screenings can take around 12 weeks. So while the first step of new patient screening is suspended the trial can continue to enroll patients that have already moved past that first screening step.

NWBO’s DCVax-L vaccine has a high probability of clinical success. It has performed very strongly in past clinical studies. At Phase 1/2 of 20 patients, DCVax-L produced excellent safety and efficiency data; no chemo/radiation like side effects with 16 months better Progression Free Survival (PFS) than historical standard of care (SOC). To meet its Phase 3 primary endpoint in PFS DCVax-L has to better by 4 months SOC.

Some patient data is also available from DCVax-L ‘s Phase 3 trial and it is also very encouraging. NWBO is running a Phase 3 “Info Arm” for apparent progressive GBM patients who are not eligible for their main Phase 3 trial. Median Overall Survival (OS) of 25 “Indeterminate” progressive patients is 8 months better than the expected SOC survival.

The German FDA equivalent has already approved DCVax-L for compassionate use in its hospitals even before final Phase 3 results are known. The UK medical board is also considering early approval of DCVax-L. Recently, from GBM patient blogs, we have learned patients may have begun receiving DCVax-L treatments outside the Phase 3 trial in both Germany and England.

NWBO has attracted a large short interest now at 35% of float. This development is worrying for investors because small thinly traded biotech companies can be vulnerable to share price manipulation by unscrupulous short sellers. From its latest press release, NWBO says they believe there is already an orchestrated campaign to drive down its share price citing questionable short selling activity. On October 16th, its share price fell 30% on no fundamental news, and in mid-September after the company released promising patient data for both its clinical trials its share price has unusually continued to trade lower. NWBO is investigating both these suspicious events and warns they are gathering price manipulation evidence.

Short sellers are typically attracted to small companies with poor balance sheets. NWBO may have been targeted here because they were very low on cash and required new funding. Shorts can exploit such situations because often fund raising is accompanied with share price dilution. And should companies be unable to raise funds they face bankruptcy.

On the 21st of October, NWBO announced $30 million in new funding under favorable terms, at 17% above its share price. The funding comes from their large stakeholder UK Fund Manager, Neil Woodford. The new funding is a strong show of confidence from Woodford and will allow NWBO to continue their operations into 2016. Their future fund raising will come easier as their vaccines become further advanced and less uncertain.

NWBO has many potential catalysts in the coming months including an update on the status of its Phase 3 trial, Phase 3 full enrollment and IA review, financing, partnerships, DCVax-Direct Phase 2s update, HE reimbursement, UK approval, and patient data updates from both its trials. All these catalysts should help reduce NWBO’s short interest.

My price target for NWBO is $27 which gives it a huge 450% upside. In my pricing model I have only considered DCVax-L for GBM patients. I have given the vaccine a 75% chance of clinical success and with a 40% market penetration I estimate its peak sales potential near $800M in the USA and EU. Then using a price/sales multiple of 10 and discounting I get a market cap close to $3B which is in-line with valuations for its Immunotherapy peers like KITE $2.9B, BLUE $2.9B, & JUNO $4.8B.

At $360M, NWBO’s valuation is heavily over-sold. This is a company with a seemingly effective and very safe cancer vaccine platform that can potential treat all solid tumor patients. Its two vaccines are in advanced clinical testing with DCVax-L at late-stage Phase 3.

I have confidence NWBO’s share price will bounce back from this recent sell-off. I do not believe their DCVax-L Phase 3 trial is in danger and I expect the latest new financing and show of confidence from Woodford along with the many other positive catalyst in coming months to quieten the short interest.

Disclosure - NWBO is a core holding of my Marketocracy Fund. This Fund is available for investment.
I do not short stocks.

Anavex Lifesciences (AVXL) - discouraging new Phase 2b data

I have dramatically cut my price target of AVXL to $8 from $83 after reviewing their Barcelona presentation.

The new PH2b data at 12weeks is very discouraging. The treatment’s ADCS-ADL score is 64 vs 67.2 at baseline. Even though this is a +3.21 point score improvement it appears unlikely to eventually show statistical significant. Also concerning is the fact MMSE scores are not shown at 12weeks. Both these efficacy measures are likely primary endpoints for pivotal AD trials. (Given the new data is immature (n=14) and the trial is not powered for significance)

I have changed my estimate for probability of clinical success to 4.0%. Historically AD has proven very difficult to treat. Before this new data release I was much more optimistic about 2-73 estimating a 40% chance for clinical success.

I intend to follow AVXL’s trial progress. It is possible their trial data will improve as it matures or when we see separation between the dosages.

AVXL has tremendous upside potential but right now it chances of clinical success seem very low so it is a risky investment.

Disclosure: I have no position in AVXL but may initiate one in the coming weeks & I do not short stocks

Healthcare Watchlist (technical) - November 2015

Northwest Biotherapeutics (NWBO) - my valuation model says 250% upside for DCVax-L alone

*** Note - I have revised my price target to $27 per share as of Oct. 2015.
I added a 50% discount factor to my model (increasing short interest)
I also increased my estimate for EU patient numbers. ***

My price target for NWBO is $41 which presents around 250% upside  This valuation only considers DCVax-L for GBM. I will place a value on DCVax-Direct once more information is available about their planned Phase 2 trials.

I used the Times Revenue Multiple Valuation method to generate my share price target.
Below is my Model with assumptions:

I have discussed NWBO and its cancer vaccine platform twice this year with Forbes.com. Check my posts for the details here & here.

I continue to see NWBO as an excellent investment opportunity with over 250% upside potential.



Disclosure - NWBO is a core holding of my Marketocracy Fund. This Fund is available for investment at http://www.marketocracy.com/managers.php?manager=781
Follow the links.
I do not short stocks.

Anavex Life Sciences (AVXL AVXLD) - my valuation model shows over 700% upside potential

**Note - I have updated my valuation, cutting my price target to $8 after viewing initial PH2b data.


My price target for AVXLD is $83 which presents over 700% upside (7-bagger).
This investment idea has an excellent risk/reward profile.

My valuation only considers AVXLD's lead drug candidate Anavex 2-73 for treating Alzheimer's Disease.

I used the Times Revenue Multiple Valuation method.
Below is my Model with assumptions:

Disclosure - AVXLD is a holding of my Marketocracy Fund. This Fund is available for investment at http://www.marketocracy.com/managers.php?manager=781
Follow the links.
I do not short stocks.

Healthcare Watchlist - 2015 October (technical)

Healthcare stocks have sold-off heavily over the past 2 months. The IBB Biotech ETF is down 25% from its mid July highs.

This sector's sell-off began around the time of the Chinese market decline, then Hilary's tweet pushed it down further. I do not consider these good reasons for a sell-off and suspect this will be a short term event.  

I continue to be bullish about this sector even though its short-term prospects are uncertain right now.

Below is my latest technical Watchlist -

Mannkind Corp. (MNKD) - my model shows over 250% upside

My valuation model gives MNKD a target share price of $12.40 which gives it 258% upside.

Afrezza is an excellent new treatment for diabetes patients. Afrezza is mealtime rapid acting insulin that is taken through an inhaler removing the need for patients to receive insulin by injecting themselves with needles.

Sales of Afrezza have been slow so far but they will likely pick-up quickly as more patients become aware of this more convenient treatment option. ­Patients are also used to controlling their insulin levels with injections so they would be reluctant to quickly change over to a new treatment.

Mannkind/Sanofi are beginning a direct to consumer advertising campaign which will help raise awareness of Afrezza and boost its sales.  

Early Afrezza users have been very positive about the new treatment going by anecdotal twitter testaments. Their positive experiences should help others also change over to this needleless option.

MNKD is trading at $3.50 levels down from highs of $10.50 around 15 months ago. At this price level I find MNKD a very attractive long-term risk/reward play.

Below is my valuation model with assumptions, I used the Times Revenue Multiple Valuation method.

Disclosure - MNKD is a holding of my Marketocracy Fund. This Fund is available for investment at http://www.marketocracy.com/managers.php?manager=781
Follow the links.
I do not short stocks.