Healthcare Stocks Watchlist (technical) - Sept 2015

TG Therapeutics (TGTX) - my valuation model shows 120% upside

My price target for TGTX is $32 which presents around 120% upside.

This valuation only considers TGTX's lead program, the Genuine Trial (TG1101 & Ibrutinib combo) for treating high risk CLL.

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

I have discussed TGTX and their blood cancer treatments earlier this year with Forbes.com. You can check that interview at my post here.

I continue to see TGTX as an excellent long-term investment opportunity with over 120% upside potential.



Disclosure - TGTX 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.




* slide from TGTX presentation -

Avita Medical (AVH.AX) - my valuation shows +230% upside

Avita Medical (AVH.AX & AVMXY) is a small Australian company developing a spray-on skin product called ReCell, for treating wounds and various skin defects such as burns, ulcers, scars, and skin depigmentation.

ReCell is their lead product; it is in Phase 3 clinical testing for treating severe burns. Trials to date show ReCell as an effective and safe treatment. In fact it is already approved and being used outside the US. ReCell is patented, CE-marked for Europe, TGA-registered in Australia and CFDA-cleared in China.

The ReCell treatment harnesses a patients’ own skin regenerative properties. The treatment involves grafting a small healthy skin sample from a patient and then placing it into the ReCell device where a suspension of skin cells is created. The skin suspension is then sprayed over the damaged skin area. The skin suspension can be created quickly in about 30 minutes and the suspension can cover an area up to 80 times larger than the grafted skin area. Trials to date have shown many benefits to ReCell including faster healing, less patient pain, reduced donor site harvesting, reduced scarring, lower cost, and improved appearance.

Two Australian women created ReCell in the 1990s, surgeon Fiona Wood and scientist Marie Stoner. Dr. Wood was awarded Australian-of-the-year after ReCell was successfully used to treat victims of the 2002 Bali bombing. This year again ReCell was used in an emergency response at Taiwan’s waterpark explosion where hundreds of people received severe burns. The US government is now interested in ReCell for their own disaster preparedness.

Unfortunately ReCell has been slow to commercialize, to date only around 6,000 units have been used worldwide. The lack of a US FDA approval is probably the main reason for its problems. AVH is now actively working to gain FDA approval which will help to validate their product and improve their worldwide commercialization efforts. A US FDA approval is considered the gold-standard for new medical treatments.

Another significant issue holding back ReCell’s commercialization efforts was its unit’s limited ability to only treat small wounds (covering 320sqcms). AVH has now developed a new next generation ReCell unit that can treat an area six times larger than the previous model (1920sqcms). The new model will improve commercial prospects because now more patients can be treated and with much larger skin disfigurements.

ReCell is about half-way through enrolling patients in their Phase 3 trial. Recruitment completion is expected near the end of 2015 and initial results are expected in 4Q2016. If the trial is successful, which I expect, FDA approval will be granted around 3Q2017.

AVH is heavily undervalued at its current market cap of $31.9M. My model estimates peak sales for severe burns alone around $60M in 2020. Using a price/sales multiple of 3 that gives AVH a projected market cap of $180M which is much higher than its current valuation of $60M. AVH at today’s levels has a least a 230% upside. 

For my valuation modelling I have assigned ReCell a unit price of $4,000. The new next generation ReCell unit can treat a wound area six times larger than the old unit so its price should be nearly 6 times higher. Since the old ReCell unit is priced around $1,000, I am conservatively pricing the new unit 4 times higher at $4,000.

My model uses a China severe burn patient population figure of 160,000. This is a very conservative number because it is only 2 times larger than the USA patient population. China is likely to have a patient population more than 4 times larger than the USA.

To reach peak sales AVH will likely require partnering with a manufacturing/distribution company so I have included a 50% royalty rate.

AVH is seeking FDA approvals in two other more lucrative indications Chronic Wounds and Aesthetics & Repigmentation. I have not assigned a value for either of these indications because they are much further behind in clinical development.

AVH has $3.0M cash on hand with a burn rate of $1.9M per quarter so they will require a capital raise by this year’s end unless they can partner-up before then.

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

My Fund's performance amongst Marketocracy's Masters

Marketocracy just released the performance results of their best-regarded model Fund Managers, the Marketocracy Masters.

On average the Masters did better than the S&P500. They returned 3.01% vs 2.18% year-to-date.
The majority of Masters beat the return of the S&P500; 12 of 21 managers.

The best Marketocracy Masters performers (ytd):
#1 Branko Krstevski with 36.55%    (@ a 10yr annual return of 18.4%)
#2 Wayne Himelsein with 22.69%   (@ a 10yr annual return of 14.2%)
#3 Justin Uyehara with 22.23%   (@ a 10yr annual return of 23.1%) 


Below is a detailed look at the Master's performances:

My Fund:
I am very pleased with my Fund's performance so far this year. I am invested in the Medical sector which continues to perform strongly. The Nasdaq Biotechnology ETF (IBB) is up 21.65% ytd vs 2.18% for the S&P500.
I remain optimistic about investing in this space despite many people warning we are experiencing a "biotech bubble". I believe we have more prosperous years ahead of us in biotech space. The biggest dangers we face are from raising interest rates and the possibility of a general market fall.

I will be making several changes to my fund over the next days. The changes will be in the technically-based portion of my fund. There are several companies set-up nicely that can add value to my fund and I am likely to change several positions.
I am leaving unchanged my fundamentally-based core-holdings, my core-holdings include Acadia Pharmaceuticals, Northwest Biotherapeutics, & TG Therapeutics.


Below is a list of my fund's Top15 holdings:

Next is a table of my August Watchlist;

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

My Marketocracy Fund was up 23% in first half of 2015

2015 to date, has been good for my model fund. I am up 23% vs 0% for the S&P500 and vs 20% for the IBB biotech index.
My long-term performance also remains strong - I have returned 385% over the past 10 years vs 76% for the S&P500. 

I anticipate the second half of 2015 will also be good for my fund. My core holdings have several upcoming catalysts that will likely be positive events.

July brings us increased market risk thanks to the Greece stand-off. We will likely see higher market volatility which may present buying and selling opportunities.
However I do not anticipate this Greece issue will have a long term negative effect on our market.

I have adjusted my fund to deal with this today's conditions. I have increased my cash position without reducing my core holdings. Later this month I plan to be fully invested.

   

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

My Biotech & Medical Watchlist - June 2015

Disclosure - I do not short stocks

Northwest Biotherapeutics - promising vaccines for all solid cancers

Here is the link to my interview on Forbes.com


Below are my responses in an article format -

On the 30^th of May at ASCO, Northwest Biotherapeutics (NWBO) presented new positive results from their Phase1 clinical trial of DCVax-Direct for treating various inoperable solid tumor cancers. DCVax-Direct is NWBO’s second immunotherapy vaccine candidate. 

The Phase 1 trial has so far easily met its primary endpoints of safety and tolerability, the trial is on going. The vaccine continues to show an excellent safety profile without chemo/radiation like side effects. The vaccine also shows promising signs of effectiveness across a broad range of cancers. NWBO are now preparing to move to Phase2 to test its effectiveness. 

The Phase1 study enrolled 40 patients with late stage4 cancers, the patients had 3 inoperable tumors on average and a poor prognosis. The trial covered 13 different cancers included lung, sarcoma, pancreatic, breast and melanoma. 

The purpose of the Phase 1 trial is mainly to test the vaccine’s safety and tolerability. The safety findings are excellent. Patients injected with DCVAX-Direct mainly experience minor side-effects usually mild fevers after their injection. 2 grade3/4 Adverse Events were reported, one for dehydration and one for systemic inflammatory response syndrome. A maximum tolerable vaccine dose was not reached. 

The trial also looked at patient survival and tumor response. The findings are encouraging. The vaccine appears to invoke an immune response at the tumors and in many cases stabilizes the disease across the broad range of cancers tested. 

27 of 39 patients (69%) are still alive at up to 18 months after their first injection. While these are impressive survival figures they are from a very small patient population. The next Phase2 trials will specifically test the vaccine’s effectiveness.

Two different versions of the DCVax-Direct vaccine were tested.  A group of 21 patients were injected with the Method B version of the vaccine. 18 of those patients (86%) are still alive at up to 18 months after their first injection, another impressive survival response.

The other version of the vaccine, Method A, was considered inactive, 9 of 18 (50%) patients are still alive.

Considering these are survival results from very sick stage4 cancer patients from a range of different cancers NWBO’s vaccine shows positive enough results to move onto Phase2 clinical testing.  

NWBO is planning to now run three separate Phase2 trials. Two trials will test separate cancer indications, one for non-small cell Lung Cancer and the other for Sarcoma. The third trial will test various solid cancers like their Phase1 study did. 

NWBO will be making several trial treatment changes for Phase2 to improve their vaccine’s performance. Their next trials will only use one vaccine version (Method B), more tumors will be injected (up to three per patient), and the frequency of injections and the duration of treatment will be increased. These changes should improve patient responses.

NWBO will do a final Phase1 report-out after patients pass 24 months survival.

NWBO’s approach to treating cancer is unique and exciting. They claim their dendritic cell based cancer vaccine is able to educate and direct the human immune system to attack all cancer cell antigens. Cancers are known to each carry thousands of different antigens so it makes sense that attacking all of them is your best approach at defeating the cancer. 

There are other companies also developing promising dendritic cell based vaccines but their treatments are designed to attack a single or several cancer antigens so their approaches are likely to have more limited successes with the fight against cancer. Examples of other companies developing dendritic cell based cancer vaccines include Immunocellular Therapeutics (IMUC), Argos Therapeutics (ARGS), Prima Biomed (PBMD), and the former Dendreon (DNDNQ). 

Since March, NWBO’s share price has moved up from $7 to near $9. I think the share price will continue trending up this year. Without surprises, I think the share price will climb near the $13 level by the end of 2015.

There are several upcoming catalysts to support this positive share price trend. One imminent catalyst is a full enrollment announcement for NWBO’s lead vaccine candidate, DCVax-L at Phase3 for Glioblastoma (GBM). DCVax-L’s first interim efficiency analysis will closely follow. Also an announcement is likely in the coming months on commercial negotiations with German hospitals (HE) for early compassionate use of DCVax-L. Final Phase3 DCVax-L data is expected near summer in 2016. 

The market valuation for NWBO is around $660M, still significantly lower than many small biotech companies developing immunotherapy treatments. I think a Market Cap (MC) around the $2.0B mark would be a fairer value. $2.0B would place NWBO amongst the leaders of its peers (KITE, JUNO). The market does not consider NWBO a leader in immunotherapy. I do, I see them as having an exciting vaccine platform with a superior mechanism of action (attacks all cancer antigens) that can theoretically be used to treat all solid cancers, and their vaccines are also showing superior safety profiles. When the market realizes NWBO’s full potential its MC will quickly reach the levels of its peers.  

Short interest remains high in this stock at 23%. More positive patient data will eventually soften and sway many of these cancer vaccine and NWBO skeptics. 

NWBO’s financial position is improving. Recently, UK’s famous investor Neil Woodford backed NWBO with investments over $65M. NWBO should have enough funds to run operations into late 2015. Their future financing will come easier now that their vaccines are further advanced and less uncertain.