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Quick hits from an absentee professor

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Where's my weary face?

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I apologize for my absence, but the schedule at the ASCO Prostate Cancer Symposium in Orlando was taxing and apparently I'm not getting any younger. I wanted to provide a few thoughts, some of which I promise will be expanded upon over the next week or so.

Pharma - This sector got a bit of a reprieve last week as a surprisingly rational FDA didn't ban the COX-2 class. I don't buy the idea Merck (MRK) will reintroduce Vioxx, but the sector will at least remain on the market. Sales will be a shadow of their former selves as the risk to the "prescribe now, ask questions later" primary care physicians means they will quit prescribing the drugs. I said a couple of weeks ago the pharma short play had played itself out. This rise makes that more interesting, but we have to respect repatriation of funds and perceptions in the market place.

Lester Crawford as Commissioner - This is not positive for the sector and I think you can see the result in the graph of the NASDAQ Biotech Index (NBI). That news was confirmed and the index broke the trendline. He gave a nice-sounding speech about continuing Dr. Mark McClellan's work when he was re-appointed to the interim post, but he hasn't followed through. Some people argue he hasn't the power since he's not Senate-confirmed, but I find that a specious argument.

Richard Pazdur as Oncology Division head - I'll side with the WSJ on this one. I have no idea what ASCO and a few patient groups are thinking when they endorse Dr. Pazdur for this important post. I think he gets the job and I think that is not good for biotech.

Biotech watershed event 1 - Astra-Zeneca's (AZN) Iressa is likely to be pulled from the market. This is an egregious error. Since Dr. Pazdur didn't want to approve it in the first place, holding an ODAC meeting to pull it is redundant. If pulled, this will represent the first time any drug approved under Subpart H/accelerated approval rules has been withdrawn from the market due to an inability to complete confirmatory trials. If the ODAC panel votes to keep Iressa on the market and Dr. Pazdur agrees, it would be wildly positive for the sector.

Biotech watershed event 2 - Also in March, the ODAC panel takes up the discussion on surrogate endpoints for prostate cancer. If the FDA agrees to extend surrogate endpoints across all three stages of the disease, this will be very positive. After spending time at the ASCO Prostate Cancer symposium and talking to a FDA representative, I believe we will only see surrogates for Stage One disease - those patients who are responding to initial treatment. This will be positive in its own way, but not as obviously positive as a broad allowance for surrogate markers. I believe the surrogate that will be chosen, if any, is PSA doubling time plus some other objective measure of disease progression.

Contrarianism in biotech - In the last three weeks, I have heard from three funds that are closing their long-side funds to new investors and opening up new short side funds. There are 159 stocks in the NBI. At the last reporting date, short interest in these stocks was equal to 11.87% of the total NASDAQ short interest. That's not the highest it has been in the last 12 months of trailing data, but it is getting there.

Repatriation check - Companies are working quickly on the repatriation plan for funds required by the Treasury department. The effect of pharma's $80-90B in repatriated funds is unlikely to be felt in the biotech sector earlier than Q2. We suspect the end of this year will be interesting.

Surrogates part two - Surrogate markers are tricky. Surrogates are used when you need a mechanism to predict an event before that event happens. In cancer, it is thought that shrinking a tumor is a good surrogate market for eventual survival. What we are learning this year is that while shrinking tumors might predict a survival benefit, you can get a survival benefit without shrinking tumors. Surrogate markers for the stock market are similarly tricky. Look at the track record of the surrogates you choose. I've looked and Brian's track record with corporate bonds and their effect on equities is good enough that I'll continue to devour every word he writes on the subject.

Chocolate Lucky Charms - I'll not vouch for their appearance, but anyone who depends on sugar instead of caffeine for that pick-me-up in the morning absolutely needs to check this new cereal out. Buzzzzzzzzzzzzzz!

Go, Gottlieb, go! - Scott has some minor facts wrong (which, in his defense, is likely only noticed by someone like me who has been covering the company for over five years), but I'm one with his sentiment.

MIM2? - Count me there, bro!

Money - I acknowledge this business is all about making money. I mean, that's what we are paid to do. But I have to believe in my heart-of-hearts it makes a difference how you make that money. I'm not sure that's ever been clearer for me than in the last five days.
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