Volatility may hit Wall Street as Alphabet, Facebook leave tech sector group

Volatility could well be in the cards for Wall Street again early this fall, but not for the same reason stocks got rattled in February.

This time the culprit would be the largest-ever shakeup of the stock market’s broad business sectors, which will mean some of the hottest stocks, like Facebook and Google parent Alphabet, will shift from their traditional homes in the top-performing technology sector and into a deepened pool of telecommunications and media stocks.

The sweeping reorganization of the Global Industry Classification Standard, or GICS, means that funds tracking the telecom, tech and consumer discretionary sectors will be forced to trade billions of dollars of stock to realign their holdings by a Sept. 28 effective date.

While the choppiness many investors expect to see is unlikely to hit stocks in quite the same way that wave of the global uncertainty did in early 2018, the fact that so much money must be shifted among index funds in a short time will cause a stir.

In a bid to ensure a smooth transition, leading fund provider Vanguard Group has have already started adjusting its sector exchange-traded funds, or ETFs, while State Street Global Advisors is launching an entirely new fund.

Other investors predict price swings and commotion on trading desks if last-minute sales of Alphabet and Facebook shares by heavyweight technology index funds dwarf demand from a handful of telecom funds buying those stocks.

“There’s probably going to be net selling,” said Andrew Bodner, president of Double Diamond Investment Group in Parsippany, New Jersey. “That will be a temporary scenario, and it could be a good buying opportunity for a lot of those stocks.”

Maintained by S&P Dow Jones Indices and MSCI since 1999 and widely used by portfolio managers, the GICS classifies companies across 11 sectors. The newest, real estate, was split off from financials in 2016. The upcoming changes, which have yet to be finalized, are meant to reflect evolving industries.

Facebook and Alphabet will move from information technology and sit alongside AT&T Inc and Verizon Communications in a broadened telecommunication services sector that will be renamed communications services.

Consumer Discretionary heavyweights Walt Disney, Comcast, Netflix and others will also join the newly defined sector – major changes that will affect investors in sector-focused funds.

Communications services companies will account for one-tenth of the S&P 500, up from under 2 percent for the telecom sector.

U.S. science and technology ETFs have $78 billion in assets, and many will have to sell their shares of Alphabet and Facebook as the changes kick in, according to Thomson Reuters Lipper data. Telecom ETFs, with around $4 billion in assets, will have to buy shares of those companies, while selling some of their investments in AT&T, Verizon and other current constituents to make room for the entrants – trades that will certainly create a surge in volume as well as volatility if not choreographed.

“Stocks will be trading differently than the fundamentals just because of the buying and selling pressure that is going to take place,” said Todd Rosenbluth, director of ETF and Mutual Fund Research at CFRA in New York.

The reorganization may also make it difficult to analyze investments as statistics for each sector, like earnings growth and valuation multiples, will change drastically. The telecom sector’s dividend yield of over 5 percent will shrink to 1 percent.

“These changes have really upended the apple cart, and investors need to ensure they know all of the changes before they take effect,” said Matthew Bartolini, head of SPDR Americas research at State Street Global Advisors, of the upcoming restructure.

Wealth management firm Exchange Capital Management is reviewing client accounts that include sector ETFs to identify which will be most affected by the changes, said portfolio manager Andrew Stewart. The Ann Arbor, Michigan firm will weigh the benefits of rebalancing clients’ ETFs against the taxes that would have to be paid on capital gains resulting from their sale.

“The powers at GICS have made a very rational, academic decision to reclassify these sectors,” Stewart said. “But I don’t think their systems are built to pay attention to the needs of Jane Doe’s retirement plan.”

To avoid having to make large trades when the changes go into effect, Vanguard has pegged its technology, telecommunications and consumer discretionary sector ETFs to temporary benchmarks adjusting gradually over four months. Its recently relabeled Communications Services fund already includes tiny investments in Alphabet and Facebook.

Bank of America warned in a recent report that the changes will leave the new communications services sector more overbought than any other due to its high concentration of popular stocks Alphabet, Netflix, Facebook.

Ivan Cajic, head of index research at ITG in New York, said he expects most passively managed funds to wait until the changes go into effect to realign their portfolios in order to remain true to the indexes they track.

https://reut.rs/2M1sxm8

Cancer patients want immunotherapy even when evidence is lacking

Immunotherapy is a source of great hope in cancer care. It has rescuedsome patients from the brink, while giving others a reason to believe that they, too, could beat the long odds.

But these therapies are also creating a vexing dilemma for doctors: Their patients, citing television ads and media accounts of miraculous recoveries, are pushing hard to try them, even when there is little to no evidence the drugs will work for their particular cancer.

Doctors want to give their patients every shot at survival, but can they justify prescribing a drug when it hasn’t been tested for that patient’s type of cancer? Many of these treatments bring risks of painful — even life-threatening— side effects and carry total price tags pushing $1 million. In some cases, insurers won’t pay.

“Whether it works or not, the burden both financially and emotionally on families and patients is massive,” said Dr. Vicki Jackson, chief of Massachusetts General Hospital’s palliative care unit, which helps patients with their decision-making process. “If you try it and it doesn’t work, then you’ve used up all your life savings.”

There are few objective guideposts to determine which patients should get which treatments, or even undergo genetic testing to determine whether they are among the minority of patients who might benefit substantially from immuno-oncology medicines. The dividing line is often drawn by variations in age, tumor stage, and underlying health status — and the weight given to those measures still relies on physician discretion.

“Is it ethically and morally appropriate to not offer these potentially curative options on the basis of a very slight difference in kidney or liver function?” asked Dr. Ephraim Hochberg, a Mass. General oncologist who specializes in lymphoma.

Precision medicine, and the use of genetic markers to predict the success of treatments, promises to help answer these questions. Scientists at Stanford, for example, engineered a radioactive molecule, detectable by PET imaging, to track whether a patient’s T cells are activated and thus capable of fighting cancer if the patient is given immunotherapy.

The technique worked in lab mice but has not yet been tried in human patients, and other such approaches are further off. Meanwhile, patients and doctors are left to make life and death treatment decisions on uncertain terrain.

This struggle plays out on a near-daily basis at Mass. General, a Harvard-affiliated academic medical center with a deep well of resources and expertise. STAT interviews with specialists at the hospital reveal both the complexity of the variables at play, and the difficulty of establishing clear treatment protocols when data on real-world outcomes is still lacking.

The extent of these difficulties is only magnified for oncologists working with fewer resources in smaller community hospitals, where the vast majority of the nation’s cancer patients receive their care.

The uncertainty over treatment eligibility primarily pertains to a new class of treatments that harness the power of a patient’s immune system to attack cancer cells. These drugs have reached the market fairly recently, and have been tested in patients with a limited number of cancer types. And even in those types, the drugs work only some of the time.

These treatments include the checkpoint inhibitors Keytruda and Opdivo, CAR-T drugs such as Yescarta and Kymriah, and neo-antigen vaccines.

Hochberg often deals with patients who want to try CAR-T therapy, which re-engineers a patient’s T cells to recognize molecules on cancer cells and attack them. CAR-T drugs cost between $375,000 and $475,000, and the administration of treatment and follow-up care adds hundreds of thousands of thousands of dollars to the total bill.

In theory, CAR-T therapies can be tried on older patients whose bodies cannot withstand chemotherapy and radiation, but the National Comprehensive Cancer Network, which publishes treatment guidelines, has not established detailed eligibility criteria.

A similar struggle is playing out over the use of checkpoint inhibitors. It is not always clear which patients should get tested for a rare genetic condition, known as mismatch repair syndrome, that indicates receptivity to these drugs. While the testing is routinely conducted in treatment for patients with uterine and colon cancers, it is not always done for patients with other types of cancer.

“The fundamental problem is that it’s a costly test, so people are reluctant to make it automatic,” said Dr. David Ryan, clinical director of Mass. General’s Cancer Center. “Right now we’re relying on the oncologist to pick up those patients where there’s a reasonable chance of having mismatch repair deficiency, and ordering that test from pathology. Everybody’s having a hard time figuring out how to do this.”

Insurers play a key role in making sure that sky-high spending for these drugs is based on evidence of efficacy. But their involvement cuts both ways. In some cases, they deny coverage for treatments even when they are recommended by oncologists who believe there is a strong scientific basis to back up their decisions.

That scenario arose recently for Dr. Zosia Piotrowska, a medical oncologist at Mass. General who specializes in treating lung cancer. She recommended a combination of targeted therapies for a 50-year-old mother of four who has struggled with metastatic lung cancer for five years.

The patient’s cancer is exceedingly rare and marked by a gene mutation that indicates greater receptivity to targeted therapies. Piotrowska said various combinations of treatments had allowed the patient to live a normal life for several years, but her insurer recently denied coverage for the new round of treatment, which comes with a price of $16,000 a month.

Piotrowska appealed the decision, but the insurer still denied coverage, citing a lack of support for the treatment option in National Comprehensive Cancer Network guidelines. Though such guidelines set forth detailed protocols, they do not address the myriad nuances of each type of cancer and rapid changes in treatment options.

“The guidelines can’t keep up with the pace of research,” Piotrowska said. “As we learn more and more and develop better treatments, certain patients fall into these loopholes where we understand the biology of what’s going on, we have a treatment, but you can’t explain it to the insurer.”

That denial of coverage means the patient must decide whether to pay out of pocket and drain family savings for an uncertain benefit. Piotrowska said this patient has enough resources to continue with treatment, but for the vast majority of patients, the price would mean certain financial ruin.

The advent of immune-based therapies is only making the decisions harder. For a small percentage of patients, the treatments can be a savior, but without comprehensive insurance coverage, they are guaranteed to lead to financial distress. And because there is not yet much data on how the patients who initially benefit are faring in the long run, it is nearly impossible for new patients and their families to assess costs and benefits.

Doctors said the confusion over who should get immune-based treatments is bound to be exacerbated by the passage last month of the controversial “right-to-try” legislation, which aims to give patients with terminal illness a different pathway to try experimental medicines that haven’t yet been approved by the Food and Drug Administration. It will not be clear how the law will affect patients until regulations are clarified in the coming months.

In some ways, the pressures and uncertainties posed by new cancer treatments are good problems to have. Julie Guillot said she wishes she’d had the luxury of such challenges when her son was sick.

Zach was diagnosed with acute myeloid leukemia when he was 5. For a boy of that age, concerns about unclear clinical benefits of treatments and sky high costs do not apply in the same way they might for an older patient. All the calculations point to the same answer: Try everything you can.

Zach received heavy doses of chemotherapy and three bone marrow transplants during years of expensive treatment that left him suffering from uncontrollable fevers, nausea, and infections. He died in 2014.

Guillot now works as an advocate to help other patients get access to the best treatments and to ensure that experimentation in cancer care can continue to proceed on its inevitably hard and messy course toward cures.

“If we are avoidant of new therapies because of the risk, the lack of data, or the cost, breakthrough therapies like CAR-T and bone marrow transplant would never be developed,” she said. “When you are faced with this, people are willing to take risks for a chance to live.”

https://bit.ly/2kRLtrc

#BIO18: Oncology surplus could drive down values

• 2018 is shaping up to be the second strongest dealmaking year in the last decade based on M&A activity during the first quarter, reports Syneos Health in its Dealmakers’ Intentions Survey. Total deal values could reach between $200 billion to $250 billion this year, second to 2015’s mark of $425 billion.
• The share of large-cap pharmas participating in M&A deals is actually decreasing, from a high of 82% in 2009 to just about 57% in 2017. Deals are being driven by alternative sources now, like mid-sized and regional buyers, as well as an increase in financial alternatives.
• The report presented at the BIO International Convention surveyed 66 members of the biopharma community who participate on either or both sides of deals and who are involved in decision making to gauge expectations for deal activity over the next year.

Unless you’ve been living in a cave, you know that oncology is the hottest therapeutic area in the industry. But what you might not realize is that market forces suggest the market is overheating, says report author and Syneos Health Managing Director of Commercial Strategy & Planning Neel Patel.

“Supply of oncology assets has eclipsed demand; an early sign of an area, as an industry, that we may have over-invested in,” he said in an interview.

He noted the increase in supply is in part due to the number of “fast follow-ons” currently in development, like the checkpoint inhibitors that seem to be in every drug developer’s pipeline. The high valuations in the space and the rise of immuno-oncology has led many drug developers that weren’t traditionally oncology players pivoting to the space.

“This suggests that premiums in the oncology space could start seeing a potential decline in the coming year for products that are not highly differentiated,” said the report, which notes the spread between supply and demand has increased from 2% in 2017 to 15% in 2018.

Other areas seeing a supply surplus are central nervous system drugs and infectious disease drugs.

Meanwhile, there is a demand surplus for hematology, respiratory/pulmonology and renal drugs.

But the report points out that no clear preference for a development stage emerged this year, indicating buyers and sellers are concentrating most on how assets fit into their current portfolios.

https://bit.ly/2M3VduI

Arkay Trial to Evaluate Superiority of RK-01 Over Metformin in Type 2 Diabetes

ARKAY Therapeutics, LLC, a privately held biopharmaceutical company focused on developing innovative, orally-active combination products for the treatment of type 2 diabetes and related disorders, announced today that the U.S. FDA has approved its IND application and the clinical study “may proceed.” ARKAY Therapeutics plans to evaluate the safety, tolerability, and superiority of RK-01 over metformin in newly diagnosed drug-naïve as well as obese type 2 diabetes patients with inadequate glycemic control with metformin monotherapy. RK-01 is a proprietary formulation of valsartan plus celecoxib dual add-on to metformin-HCl XR. Metformin is the current first-line of therapy.   “The approval of the IND application is an important milestone for the company. We expect RK-01 to prevent metformin failure by maintaining a state of insulin sufficiency and reduce the risk of insulin dependence in type 2 diabetes patients” said Ravi Kumar, Ph.D., founder and CEO of ARKAY Therapeutics. “On behalf of the company, I would like to thank our scientific advisors for contributing to ARKAY’s responses to the FDA’s requests for additional information during the 30-day safety period. We are excited that this novel approach — which represents a new paradigm of treating type 2 diabetes in the context of comorbidities and coexisting conditions — has the potential to prevent or delay initiation of insulin therapy,” Dr. Kumar added.    ARKAY’s patent, 9,839,644, that protects the formulations and the method used for RK-01 was issued by the U.S. Patent and Trademark Office in December 2017. A continuation patent application, publication number US-2018-0042945-A1, that protects additional formulations and methods has also been filed.

https://bit.ly/2svA84f

Germany-Based Companies Open Lab Space in U.S.

There are several recent announcements of German companies opening laboratories in the U.S. It is probably not related to the recent news that the U.S. Justice Department gave Germany-based Bayer and U.S.-based Monsanto the go-ahead for their merger. Due to anti-trust issues, Monsanto has to sell about $9 billion in assets, and European regulators also required the sale of $2.54 billion in assets, which are being sold to BASF. The deal is expected to close by the end of June. After the various divestment, the combined agricultural supplies company will have sales of about 20 billion euros.

Reuters noted, “Bayer’s move to combine its crop chemicals business, the world’s second-largest after Syngenta AG, with Monsanto’s industry-leading seeds business, is the latest in a series of major agrochemicals tie-ups. U.S. chemicals giants Dow Chemical and DuPont merged in September 2017 and are now in the process of splitting into three units. In other consolidation in the sector, China’s state-owned ChemChina purchased Syngenta and two huge Canadian fertilizer produces merged to form a new company, now called Nutrien. Bayer committed to selling its entire cotton, canola, soybean and vegetable seeds businesses and digital farming business, as well as its Liberty herbicide, which competes with Monsanto’s Roundup.”

InflaRx NV, based in Jena, Germany, announced it has opened a new research laboratory in Ann Arbor, Michigan. It is part of InflaRx Pharmaceuticals, a wholly owned U.S. subsidiary of the InflaRx NV group. The company focuses on inflammatory diseases, specifically by targeting the complement system, a key aspect of the innate immune system.

The company launched an initial public offering on the Nasdaq in November 2017, and recently had a follow-on offering. The company expects to release data from its Phase IIb clinical trial for IFX-1 in the first half of 2019.

IFX-1 is a first-in-class monoclonal anti-complement factor C5a antibody being developed to treat hidradenitis suppurativa. This is a dermatological disease that typically beings as pimple-like bumps on the skin, but often occur on the underarms and groin.

“At InflaRx, our primary focus is to discover and develop complement-based therapeutics that can change the way inflammatory diseases are treated by providing innovative solutions for patients with currently unmet medical needs,” said Niels Riedemann, InflaRx’s chief executive officer, in a statement. “The opening of InflaRx’s new research site in Ann Arbor, the city where our co-founder and CSO, Renfeng Guo, and I met and conducted our post-graduate studies researching the complement system, highlights the company’s strong connection to cutting-edge science and dedication to innovation.”

Similarly, Centogene, headquartered in Rostock, Germany, announced it was opening its first U.S.-based rare disease laboratory in Cambridge, Massachusetts. The new facility will open on August 1 and will be the primary point of contact for the company’s collaboration partners.

The new space will include a state-of-the-art high-throughput genetic testing laboratory as well as biochemical, proteomic, metabolomics and genetic analysis capabilities.

“Centogene is one hundred percent focused on translating rare disease genetics into medical breakthroughs and we are thrilled to continue our global expansion into the preeminent biotech hub of Cambridge,” said Arndt Rolfs, chief executive officer and founder of Centogene, in a statement. “As a company that is at the nexus of elucidating rare hereditary diseases by combining proteomic, metabolomics and genomic solutions, we look forward to working even more closely with our pharmaceutical, academic and medical partners in the U.S.”

Centogene is one of the largest genetic testing companies in the world, offering the leading proprietary human genetic interpretation database, CentoMD.

https://bit.ly/2sJs4w9

Hain Celestial started at buy by Deutsche Bank

Deutsche Bank initiates coverage on Hain Celestial (NASDAQ: HAIN) with a Buy rating and a price target of $33.00.

Analyst Rob Dickerson commented, “We’re initiating coverage of Hain Celestial Group (HAIN), a global producer of natural and organic food and personal care products, with a Buy rating and $33 price target, or 22% upside potential over the next 12 months. Although the natural/organic food and personal care space has watched revenue growth decelerate in the U.S. since 2015 and competition continues to ramp for products with healthier attributes, we see such deceleration stabilizing, while still remaining materially ahead of traditional packaged food growth and a net positive for Hain. Our category, brand, SKU, and manufacturing facility optimization analysis points to margin upside potential at least in line with the company’s FY’20 $350mm gross savings target and a more concrete path to a stronger margin profile. Further reductions to complexity should increase management’s strategic optionality, with the decision to divest the protein business being an important first step. Our base case assumes $250mm in share repurchases with special dividend cash allocation potential, driven by the expected divestment of H.P.P., increased brand reinvestment, and modest margin improvement through FY’20. Additionally, given the company’s strategic optionality, we ran three different scenarios for potential further brand and asset divestments – all scenarios analyzed suggest higher potential shareholder returns than our base case. Overall, we find the risk/reward on the shares attractive given the company’s underlevered balance sheet, excess cash generation potential, strategic optionality, and current valuation.”

https://bit.ly/2xOsSWc

Kate Spade death reminder of prevalence of depression

First daughter Ivanka Trump tweeted advice to people facing depression and thinking about taking their own lives, in the wake of American fashion designer Kate Spade’s apparent suicide on Tuesday.

“Kate Spade’s tragic passing is a painful reminder that we never truly know another’s pain or the burden they carry,” Trump tweeted. “If you are struggling with depression and contemplating suicide, please, please seek help.”

Ivanka Trump

@IvankaTrump

Kate Spade’s tragic passing is a painful reminder that we never truly know another’s pain or the burden they carry. If you are struggling with depression and contemplating suicide, please, please seek help. https://twitter.com/800273talk/status/892129387017056256 …

1:22 PM – Jun 5, 2018

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Trump, who owns a fashion line in her namesake, quoted a post from The Lifeline, a national suicide prevention hotline, stating, “You are enough. If you find yourself struggling, remember that the Lifeline is here for you, 24/7, at 1-800-273-TALK (8255).”

Trump’s tweet came about eight months after she revealed in a television interview that she struggled with postnatal depression. The senior White House adviser said she went through a “very challenging emotional time” after the births of her three children.

“I felt like I was not living up to my potential as a parent or as an entrepreneur and executive,” Trump said. “I had such easy pregnancies that in some ways the juxtaposition hit me even harder.”

One in nine women face postnatal depression, according to the Centers for Disease Control and Prevention.

Spade, 55, was found hanged in her New York City apartment by her housekeeper on Tuesday morning. She became famous for her handbag designs, but Spade separated from her company in 2007, a year after Liz Claiborne Inc. acquired it from the Neiman Marcus Group.

U.S. Ambassador to the United Nations Nikki Haley tweeted a message similar to Trump’s.

“The passing of Kate Spade is a stark reminder that we never know the struggles of a person regardless of their outward persona. If you or anyone you love is struggling, there is help. You don’t have to be alone,” Haley tweeted. “The Natl Suicide Prevention Hotline is 1-800-273-8255 #RIPKateSpade.”

https://bit.ly/2Hob7MK