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Biotech Roundup: Judgment Day for Dendreon; Just Say No to Pfizer-Wyeth Combo


Recent JPMorgan conference clarifies grim outlook.


Large-cap biotech outperformed the market in 2008, performing slight better than half as bad as the rest of the market. The development-stage companies we cover fared much worse. Bio-Century noted in their year-end review of the space that the smaller-cap biotech companies were down around 60%. The performance of my own firm's model portfolio was not that bad, as it was more in line with the performance of the major market averages. I don't take comfort in that at all. There is no way around the idea it was a terrible year for biotech and we weren't immune.

I wanted to circle back to give some updates on companies I've written about previously and share some thoughts on what people in the sector are thinking about 2009.

Repros Therapeutics

At the end of September, I wrote about Repros Therapeutics (RPRX) and a recent financing deal. I was hopeful the deal would start a new trend in financing in the space. In the deal, the current investors decided to make a meaningful additional financing commitment to the company at a price that did not represent a significant discount to the stock price. This is unusual in the biotech space, where even current shareholders often like to extract a pound of flesh from companies they already own.

My hope that this might start a trend in the sector has not yet been borne out – though I've heard the performance of the stock since the deal was done (up over 58% from the deal to today) has turned some heads in the investment space. I've even read at least one fund manager suggesting this financing might be a model going forward. Let's hope so.

Repros itself is doing well. It released updated data on a successful Phase II trial in endometriosis, and is demonstrating good progress on enrollment for pivotal trials for their lead drug Proellex. Some folks who have fallen in love with a competitive drug from Neurocrine Biosciences (NBIX) called Elagolix are sniping about the Proellex data, but that's OK. That's what makes a market. Elagolix, essentially a reformulation of Lupron, is an improvement over current therapy in this disease. It will sell, but more like an improved buggy whip sold in the age of the automobile.


Over the last year or so I've been cautioning investors on MDRNA (MRNA), formerly known as Nastech. Word today from Luke Timmerman at Xconomy is that the company is about done. They've cut executive pay and frozen salaries. They're about to be delisted. When their nasal drug development effort predictably cratered, they didn't aggressively cut cash fast enough to give themselves enough run time to get their mRNA platform advanced.

I can't say enough how much management matters. About 5-10% of the time a company's product or technology can overcome management mistakes. The rest of the time investors get burned. It's a lesson all of us who invest in the space find ourselves relearning from time-to-time.

JPMorgan Conference

JPMorgan holds the most important healthcare investment conference of the year each January. This year was a good one. It was the first time since I started going that the conference was late enough for me to spend my birthday with family. Plus, it was in the upper 60s and sunny in San Francisco - a nice respite from the cold and damp in Seattle. Finally, the snarky side of me always enjoys the hangdog looks of my east coast friends after just a few days of dealing with tyranny of a 6:30 a.m. market open us west coasters are used to.

As far as the business at hand, the sentiment was one of wry realism. Nobody would give a plugged nickel for the sector's chances in 1H-2009, even though nearly everyone thought stocks were undervalued. Clearly, nobody wants to be the first one into the deep end of the pool in this market climate.

Opinions on a rebound varied from 2H-2009 to mid-2010. The number one metric for investing? Winning by a dozen lengths was cash on hand. Not science, not product, not regulatory prowess. Cash.

This, of course, sets up something of a vicious circle. The only companies who are likely to get cash from investors are those who already have it. That leaves the about 30% of the biotech space with less than six months cash in a world of hurt.

As we saw in the last down cycle in 2001-2002, expect to see mergers of convenience, bankruptcies, and a few buyouts at losses during the year. The lucky companies will be able to partner their drugs to offload development expense and/or gain new cash.

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Positions in RPRX, ZGEN, DNDN

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