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A majority of the new capital flowing into biotech today is from investors that were blind-sided by the sharp decline in biotech stock prices when the bubble popped. They are attempting to institute their own version of quantitative easing to rescue the industry.

The cross-over investors that have seen their own or other participant's portfolio values plunge due to biotech bets are keeping away and will continue to do so for a while. So will sector specialists that know fully well that without a biotech bull market they are ill-positioned to benefit from the greed and ignorance of non-specialist biotech investors.

Lacking the cross-over capital that buoyed the sector to stratospheric heights, the biotech index is likely to continue its descent and then remain range bound for years. Based on our fundamental and technical analysis of the NBI, the IBB is fairly valued at 179 and 150 respectively.

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August 1, 2016

IBB: Significantly Overbought - Sharp Declines Imminent
There has been a lot of speculation on the true value of the IBB. We’ve seen the ETF trade range bound, moving between 240 and 280 three times. The typical chatter on social and alternate media is that the correction is going to be short lived. That the downturn presents a good opportunity to double down on shares on cheaper valuations. So, I decided to do a deep dive on the industry and its current state – paying close attention to fundamentals. Based on what I found, I valued the NBI and by proxy the IBB. I also looked ahead to what to expect over the next few years and how to best be positioned to generate out sized returns. Read More

December 17, 2015

Short Puma Biotechnology: Follow-Up Data Solidifies Unapprovable Thesis For Neratinib As Extended Adjuvant Treatment
Neratinib 2-year DFS benefit likely overestimated on informative censoring and asymmetry in censoring rates. Sensitivity analysis around primary efficacy analysis likely to reduce 2.3% (or updated 2.5%) DFS differential. FB-7 results favoring Neratinib in the HER2+/HR- sub-group confound outcomes from ExteNET favoring Neratinib in the HER2+/HR+ sub-group. Regulatory agencies unlikely to grant approval to Neratinib in HER2+/HR+ population based on a single sub-group analysis. Potential dilution of outstanding shares imminent as company’s cash reserves dwindle. Read More

September 29, 2015

Epizyme: First In Class Risk Remains Amongst Improving Odds
Tazemetostat (EPZ-6438) continues to demonstrate significant efficacy in Phase I clinical trials. Pinometostat (EPZ-5676) adult study in MLL-r suspended by Epizyme. Company reacquires rights to Tazemetostat for significant upfront payment, milestones, and royalties. Celgene downsizes collaboration to three preclinical assets and Pinometostat. Removing adult MLL-r and MLL-PTD revenues related to Pinometostat from models to arrive at a Price Target of $22.77/share for Epizyme. Reiterate Buy rating. Read More

June 2, 2015

Puma Biotechnology: Extended Adjuvant Approval Remains Unlikely On Disappointing Data
Puma Biotechnology presented lackluster 2 years follow-up results from the ExteNET study at ASCO 2015. Data showed that ~92% of patients that receive 1 year of adjuvant Herceptin will likely lead normal disease free lives without additional therapy. In addition, 40% of patients on Neratinib will suffer from Grade 3 diarrhea but an additional ~2% (over placebo) will likely survive disease free. Aside from the weak data read-outs from ExteNET, extended adjuvant Neratinib approval appears unlikely due to lack of adequate follow-up data. Need at least 5 years follow-up data in the extended adjuvant HER2+/HR+ breast cancer setting to determine if the indication is a genuine market opportunity for Neratinib. Read More

December 30, 2014

Epizyme: Shares Oversold on Mixed Data From Early Clinical Studies
EPZM reported strong Phase I results from EPZ-6438 being developed as treatment for NHL and INI-deficient tumors. Outcomes from the Phase I study testing EPZ-5676 in adult MLL-r were underwhelming. Price action on the stock disconnected from valuation. Shares clearly undervalued at current levels. Updating Price Target to $33.61/share to reflect recent data readouts from EPZ-6438 and EPZ-5676. Read More

September 24, 2014

Puma Biotechnology: Legacy Wyeth Study Provides the Back Story on Neratinib – Adjuvant Approval Appears Unlikely
In a 5-8 years follow-up of Neratinib in adjuvant disease, difference in disease free survival between patients on Neratinib and patients on placebo unlikely to be statistically significant. Based on data from a legacy Phase II study run by Wyeth in Herceptin pre-treated patients, Neratinib unlikely to see approval in adjuvant HER2+ breast cancer. In the study, ~80% and 100% of Herceptin failures, including adjuvant stage patients, had progressed on Neratinib at 48 weeks and 96 weeks, raising doubts on Neratinib’s efficacy over the long-term in adjuvant disease. In a 5 years to 8 years follow-up of Neratinib in adjuvant disease, difference in disease free survival between patients on Neratinib and patients on placebo unlikely to be statistically significant Neratinib needs to be re-tested as 2nd year therapy following 1 year of Perjeta + Herceptin in order to be relevant in the 2nd year adjuvant therapy setting. Updating Price Target to $49.22/share to account for greater uncertainty associated with adjuvant Neratinib and to incorporate multiple expansion due to rally in biotech stocks. Reiterate Sell Rating. Read More

August 23, 2014

Epizyme: Strong Early Data But Reserving Judgment Until Final Results
Early data read outs from EPZ-6438 were robust. Results open up potential to dose at higher levels and for more cycles which could potentially lead to more and stronger tumor responses. EPZ-6438 more likely to be part of combination therapy than used as monotherapy. Data on WT EZH2 activity in NHL opens up new market for EPZ-6438. Updating Price Target to $35.32/share. Reiterate Buy rating. Read More

July 26, 2014

Puma Biotechnology: Shares Overbought at Current Levels
ExteNET data is too limited to derive any definitive conclusions on strength of results. 1 year of Neratinib after 1 year of Herceptin regimen is moot as year 1 adjuvant treatment shifting to other more potent drugs. FDA likely to consider short term and long term HERA data on 1 year versus 2 years treatment with Herceptin to reach regulatory approval decision on Neratinib. Significant diarrhea issue yet to be resolved. Updating Price Target to $74.70/share to account for ExteNET data. Reiterate Sell rating on valuation. Read More

June 19, 2014

Epizyme: Undervalued Rare Asset With Outsized Potential
Lead drugs EPZ-5676 and EPZ-6438 are first-in-class HMT inhibitors that are backed by significant scientific literature and strong preclinical data. Potential for significant near term gains as investors buy shares ahead of clinical trial data expected in 2H14. Stock is expected to run up in the interim. The bar for FDA approval of the company’s drugs is set really low as the agents are being developed to treat patients with ultra rare conditions that are relapsed and refractory to available therapy. Story is significantly derisked as Celgene, Glaxo Smith Kline, and Eisai are funding most of the company’s drug development pipeline. I derive a sum-of-the-parts based Price Target of $33.28/share with considerable opportunity for upside over the next few months and years. Read More

June 11, 2014

Puma Biotechnology: Risk Reward Imbalance
No impact of interim results of the Phase II study evaluating Neratinib in HER2+ breast cancer with brain metastases on the drug's revenue generation capacity in the disorder. Pathological Complete Response (pCR) rates associated with neo adjuvant breast cancer studies will remain an approvable end point at least until the APHINITY trial data are reported. Key impact on Neratinib from the ALTTO study was the outstanding performance of Herceptin. Reducing Price Target to $61.88/share based on greater risk of Neratinib failing in the adjuvant setting and lower market penetration in neo adjuvant disease due to continued high diarrhea rates. Read More

April 14, 2014

Puma Biotechnology: ISPY2 Data Added Little to the Neratinib Conversation
Bayesian probabilities confound pCR results. Diarrhea results inconclusive. Upcoming data from NSABP study has the answers. Price Target goes to $60.25/share to reflect lower post sell-off market multiples. Read More

March 13, 2014

Puma Biotechnologies: Short Thesis for Investors
Lead asset Neratinib is not best in class or first in class. Significant Grade 3 or 4 diarrhea is a major side-effect. The drug carries the risk of class effect given it’s similarity to Tykerb that doctors use sparingly due to toxicities. Given that Neratinib in most indications it is being tested in will be 3rd or 4th to market, PBYI will find it challenging to market the drug in a space dominated by Roche. Although, Neratinib is being studied as treatment for various types of HER2+ breast cancer, the clinical and regulatory pathway for most indications is unclear. I believe the class effect and toxicity risk associated with Neratinib are being overlooked in the stock’s current valuation. My PT of $86.27/share reflects an appropriate risk rate. Read More

February 5, 2013

Ariad Pharmaceuticals: Shares Overvalued On Fundamentals
Initially, Ponatinib will be used heavily to treat CML patients who present with or progress to the AP-CML and BP-CML/Ph+ ALL phases, those who are diagnosed with the T315I mutation, and those that have few options. If on further follow-up of the PACE study, the drug demonstrates durable response as well as a comparable or superior efficacy and safety/tolerability profile to Dasatinib and Nilotinib, it will see improved utilization in 2nd line CP-CML. Remarkable outcomes from the Phase II study currently underway evaluating Ponatinib in patients that have failed Imatinib will also help. The drug's use in newly diagnosed CP-CML will likely be limited. Combining a Ponatinib value of $11.40/share with a value of $3.50/share for AP26113, I arrive at a 1-year Price Target of $15/share for ARIA. Read More