Stock Sagacity

Thoughts on stock investing from a former hedge fund analyst turned entrepreneur

[stocksagacity]

Thoughts on SP-333 catalyst timing

Synergy will release full Phase 2 data for plecanatide (top line released previously in a PR) at ACG Oct. 18/19/20.

Additionally, SP-333 will be reading out "in the 4th quarter". ClinicalTrials.gov has November as the date. Traditionally Clinical Trials.gov is frequently incorrect about completion dates. Also, I've discussed with management from AZN to TRGT that updating clinical trials isn't done prompt or required to be by sponsors.

For example: If you look at the SP-333 history of changes: http://1.usa.gov/1vuVj0m you cant see they only updated "active" to "active, not recruiting". Enrollment completion occurred July 17th, 2014: http://bit.ly/1uzq5XG but was only updated 6 weeks after the last patient visit.

The trial is 4 weeks of data collection.  That puts the last patient visit on about 8/14. So the question becomes how long will it take for the company to lock the database and release topline results? They need to go back and make sure every data field for every patient is filled in. This can vary pretty widely ($ADHD seems to think they can do it in 2 weeks. http://bit.ly/1wVobip) But, I think 6-8 weeks is more typical.

Personally I think the data is at the point of being "anyday" particularly with the completion of the 3q, where management will be correct that it is a 4q event.

9/25 -- 10/9 so 10/1 - 10/19 seems like the most likely range.

Slingshot Insight member's can see SGYP's catalysts here:

http://www.slingshotinsights.com/detailed_companies/5287

[stocksagacity]

Tolstoy famously opens "Anna Karenina" by observing: "All happy families are alike; each unhappy family is unhappy in its own way." Business is the opposite. All happy companies are different: Each one earns a monopoly by solving a unique problem. All failed companies are the same: They failed to escape competition.

http://m.us.wsj.com/articles/peter-thiel-competition-is-for-losers-1410535536?mobile=y&mod=WSJ_hpp_sections_tech

[stocksagacity]

Broader access last step needed in expert network industry clean up

    I recently had the privilege of being a guest on the Estimize podcast hosted by company founder and CEO Leigh Drogen.  You can listen to the podcast here: http://bit.ly/Wg0rIj   

   I wanted to follow-up regarding a point that I touched on during the podcast in longer form.  Leigh asked me about the state of the expert network industry and the degree to which people who utilize them in their expert research do so in order to gain an unfair edge.   His question was essentially “What % of people are using expert calls to fundamentally learn about stocks and educate themselves vs. looking for an unfair advantage or insider edge.”

   I understand his concern, and his question.  My background is at CR Intrinsic, a division of SAC capital, and that firm was no stranger to insider trading controversy and litigation due to abuse of expert networks.  However, I do feel strongly that the role of expert calls is absolutely essential to informed investment analysis, as well as doable in a completely legal and ethical manner.  The violations and abuses were carried out by a small % of institutional investors in general, and a very small % of them at even SAC.  The value of expert calls is the speed in which they enable an investor to become well versed in any topic.

   Here’s the quote from Robert Khuzami, Chief of the SEC’s enforcement unit between 2009 and 2012, I referenced on the podcast about the transformation of the industry. 

“I think this is an example where the spotlight of law enforcement helped to clean up an industry. As a result of these prosecutions, those expert networks that crossed the line and used their companies to engage in insider trading are no longer in business. And also, hedge funds have imposed controls that make sure that their research analysts and traders do not, willingly or unwillingly, obtain inside information through these networks. These funds are conducting due diligence on the expert networks before they use them, making sure that the source of the information, and the information itself, is legitimate. They are asking for certifications to ensure that the expert network employee will not provide them with material nonpublic information. They are chaperoning the calls with expert networks, and taking other steps to make sure these networks are not being abused. So, it is a good example where law enforcement focuses on certain activity and it triggers steps by the industry to make sure abuses do not occur.”

~ Robert Khuzami, Former Chief of the SEC’s enforcement unit between 2009 and 2012

   The cleaning up of an industry is excellent and encouraging to market participants that engage in that industry, but it doesn’t do enough if the benefits are restricted to a small number of players.  The point that I touch on with Leigh that I think is key, and fundamental to why Slingshot Insights was created, is one about access.     

   The analogy that I mention in the podcast, steroids in sports vs. healthy training, is a bit of a stretch, due to the fact that we all take access to some form of working out as universal.  By league officials, law enforcement, and player’s unions seeking to ensure that athletes do not take illegal performance enhancements, we begin to feel again that any talented child or athlete has the potentially to ethically compete if they have the talent and work ethic.  

   The sad reality of investing and investment research is that merely removing the use of “steroids” institutionalized insider trading, does not result in an equal playing field.  It would be like a world where only professional athletes and select minor league programs had access to strength and conditioning.

   As I’ve stated in previous posts and comments about the company, Slingshot Insights is about providing broad access to this useful, and now “cleaned up” industry.  Now that rules and focus have fixed the expert network industry, the last remaining hurdle is allowing broad access to its value.  By leveraging technology, collaboration, and crowdfunding Slingshot Insights will bring this valuable resource into the hands of all those who want to compete in single name stocks like a professional.

[stocksagacity]

Pretty rewarding and exciting to see a member spontaneously post this today!  Thank you!

[stocksagacity]

But the line between what’s insider trading and what isn’t is most definitely not the line between what information an average investor can access, and what information a hardworking hedge fund manager who can spend thousands of dollars and hundreds of hours on expert research can access. “I shudder to think how much of my alpha comes from failed individual investors,” one hedge fund manager tells me.

http://blogs.reuters.com/bethany-mclean/2013/07/25/the-folly-of-trying-to-level-the-investment-playing-field/

[stocksagacity]

Of the more than 4,000 drugs available to patients, only 66 will be excluded from our 2015 formulary, Express Scripts said. One of them is Zohydro...

http://finance.yahoo.com/news/express-scripts-drops-amgen-anemia-223244662.html

[stocksagacity]

A rough week for Impax (IPXL)

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In a surprise 8k July 29th, Impax disclosed the receipt of a form 483 from the FDA for their Taiwan facility.  The disclosure knocked more than 4 dollars (~15%) off the company’s stock immediately.  In a move that I wish more companies would emulate, the company appended the 483 form to the 8k disclosure here: http://1.usa.gov/1toKZrN.

Form 483s are frequently issued to pharma manufacturers and are not warning letters or indications the company will be prohibited from manufacturing or shipping product.  They vary widely in severity and frequently take a gCMP expert to understand just how tricky it will be to rectify them.  An overview of what a 483 really means can be found here: http://1.usa.gov/1o2HjJ8

The 483 received on July 29th specifically references RYTARY, which had recently been resubmitted to the FDA and received an October 9th 2014 PDUFA date.  The company said that the agency would want to re-inspect the manufacturing facility before approval.  Manufacturing issues have plagued Impax for years, and are part of the reason for the recent change of CEO at the company. However, it is difficult to understand the exact complexity of a given 483.

When I worked as an analyst I would usually file for a FOIA request on generic manufacturers looking for 483 filings.  These frequently were precursors to warning letters and more serious actions by the agency.  One only needs to look at KV Pharma to see the potential impact that a negligent cGMP culture can result in.  Once we found a 483, we would use a company like GLG or Medacorp to find an expert on cGMP to review the filings.  

Upon seeing the 483 appended to the recent 8k I posted this project on my company’s website Slingshot Insights.  My hunch is that this is a buying opportunity, but I’d love to get an expert’s view on the severity of things before jumping in.  Anyone else want to do the project this week and split the bill with me? Check it out here and feel free to contact me if you have any questions.

[stocksagacity]

How Zogenix Can Save Itself

On Friday Zogenix’s ($ZGNX) Chief Commercial Officer resigned from the company.  A move like this is never a good sign for a drug launch only about 5 months out of the gate.  I recently published an article on Seeking Alpha criticizing the launch here: http://bit.ly/1uY8hGw The article compared the launch to other pain killers, and showed that the curve was not inspiring.  Additionally, the cost structure of ZGNX made it clear things needed to change quickly if the company was going to stay solvent or at least avoid a major restructuring.

The removal of their CCO on Friday put the stock down another 6-8% after hours, but depending on where management goes I think this could finally be a buying opportunity.  My recommendation right now is to jettison Zohydro.

With the departure of the CCO, Zogenix has the chance to pivot and sell the asset in order to focus on Relday and the DosePro platform.  With a sale of Zohydro for a royalty or small upfront, they transform the cost structure of the company and add additional cash or future profit to the balance sheet.

Reasons to get out of Zohydro:

Expensive to launch and reps only have 1 drug in their bag

Undersized sales force relative to more established pain companies

“ANewPerspective” commented in reply to my claims of a “slow launch” on June 21st with this:

I agree with Aaron Mac! 590 reps launched Opana, and that was an era without as many generic options.  So why is Zohydro going to catch up with the Opana curve with upheaval at the top and <25% the # of people selling it?

DosePro and Delray aren’t pain products, what good is it to establish a small pain franchise only to bring forward a schizophrenia asset?

Competition is coming, from companies that own the pain market.  Purdue is a controversial company, but they know the pain space as well as anyone, and other big players aren’t far behind.  If they couldn’t get traction as the only game in town, it is unlikely to get easier.

  Zogenix with a 10-15% royalty on Zohydro would be an incredibly attractive asset.

Investors would get a company with 90-100 million of cash depending on Q2 burn and no debt.

Relday is a very interesting asset after Phase I PK profile confirmation. Risperidone works, the question is if a once monthly formulation is viable.

DosePro is a validated concept, the value of which can be seen in the ENDP deal.

If no one wants Zohydro for a small royalty, then what does that really say about its uniqueness and value?

The only caveat here is that they already have an Alkermes royalty so things might get messy/tough to partner again.

Conclusion:

My first reaction to the news on Friday was a feeling of validation to my criticism of the launch.  After reflecting on things over the weekend, it looks like this might be actually a gift to investors on Monday.  Provided management makes a pivot, Zogenix can: transform its cost structure, shore up its financial situation, and remove an unfair but very real firestorm of criticism on all fronts from the stock’s story.

What do you think of this strategic suggestion?

[stocksagacity]

Welcome

Thanks for checking out my blog.  My hope for it is to address a gap I felt communicating with other investors online while reacting to stock news and sharing investment ideas. Between Twitter and official posts on Seeking Alpha, I thought that a longer, less formal, channel of communicating was missing.  My goal here is to speak freely about my reaction to news in stocks and ideas for investment.  

My professional background has been in healthcare finance since graduating college.  I worked in the healthcare investment banking division at Deutsche Bank in the good old days of 2006 immediately out of college.  After 2 years, I moved to the hedge fund, CR Intrinsic, a division of SAC capital.  My first official month on the job at CR Intrinsic saw the collapse of Lehman and general destruction of the world’s financial infrastructure.  Pretty fun time to come into things!  During my time there, I worked on investing in predominantly pharmaceutical companies.  At first I was focused on generic and specialty pharma predominantly; however, as the sectors consolidated, I began to look more at biotech and large cap pharma as well.

Our strategy for investing in the space (my team consisted of myself, a portfolio manager, and execution trader) was one that I find challenging to do independent of a large institution.  Our analysis was very deep and fundamental in nature.  From a modeling standpoint, I would build product by product revenue builds looking at each product’s DCF value. (A DCF is an analysis that looks at the present values of the future cash flows of a stock)  This enabled quick analysis about how material any positive or negative news on a given product actually was for the stock.

In order to build these models and analyze peak sales, launch ramp rates, approval likelihoods, and other risks I relied on extensive interviews essentially.  Expert calls with key opinion leaders in a space gave great insights on risks to a drug’s side effect profile, potential issues for reimbursement or coverage, among countless other topics.  While each call was only the opinion of a doctor, after a number of calls patterns would emerge.  My background was in finance, so expert calls were essential in order to get up to speed on the science and disease before making investment decisions.  While extremely specific in understanding, frequently by the 3rd call a doctor would be impressed with our questions or think we were doctors ourselves.  It was a narrow facade, but that was all we were after. The ability to get up to speed in a day or two was always pretty neat.

The other thing that we did was then go back to the managements of companies we were looking at and push them on concerns raised by experts.  Many times the companies would have great responses to how they would mitigate any issues, resulting in us feeling much more confident about the situation.  Sometimes it became clear they were (to be kind) optimistic in their plans.  

This back and forth of fundamental analysis, ultimately being translated into spreadsheet numbers was immensely useful when it came to investing in companies.  We used this basis of understanding and confidence in a situation to then look for where other investors got things wrong.  Listening to market noise was the way to find opportunities, not viewpoints.

The problem with this style of investing is that it is expensive, and not always easy.  Managements have significant time constraints when it comes to meeting with investors.  In fact it always astounded me just how much time they spent in hotel conference rooms repeatedly explaining the same story to groups of 3 or 4 investors.  The same goes for doctors, lawyers, manufacturing experts, political lobbyists, and other experts as they field the exact same set of questions from countless hedge funds and mutual funds via GLG and other networks.

I’ve recently launched a company, Slingshot Insights, to address these issues I faced as a retail investor.  The company seeks to remove duplication of calls by recording them. It hopes to broaden access to all investors by letting them collaborate on questions to ask and share the cost of calls.  Hopefully, soon it will offer access to managements in a way that lets all investors ask 1x1 meeting style questions directly to the management.  The site would then post the conversations so all members can listen to them anytime.  The idea is to modernize the way investors get fundamental insights.

This blog isn’t about Slingshot Insights.  It is a place I hope to share my views and knowledge about investing, however, it will inevitably touch on my use of the company’s tools.  I do hope that readers learn how to incorporate this type of research into their own investment processes and begin to do it themselves.  I’m looking forward to having debates and conversations about my ideas on this blog and learning from all of you.

How do you go about cutting through market noise and decide what stocks to buy or short?