Tucked into its second quarter earnings report, Regeneron Pharmaceuticals said had plans to role out a direct-to-consumer campaign for its top-selling product Eylea (aflibercept) in the back half of this year.
The campaign, which has since launched, may seem unnecessary at the surface level, given how Eylea is a dominant brand in multiple eye disease markets. Regeneron recorded global sales of the drug were $1.66 billion from April through June — 13% higher than the same period a year prior and 3% higher than analysts’ consensus estimates.
Noteworthy, though, is where Eylea’s sales are coming from. Regulators first approved the drug for wet age-related macular degeneration (AMD), and later expanded its label to include diabetic macular edema (DME) as well as diabetic retinopathy in DME patients. Executives noted during their recent earnings report that just 25% of Eylea sales come from DME, and the company has only broken into less than 25% of that market thus far.
Ergo, Regeneron is focusing on those patients with its DTC campaign, which includes television, print and online consumer advertisements, a web-based chatbot named “Lea” that will answer questions on wet-AMD and DME on the Eylea brand website, and an Eylea YouTube channel that will also provide information about the two diseases and their treatment.
“When developing our Eylea consumer advertisements, we found that there was a strong desire among this community to learn more about their disease and how they could better help manage it — and television and print was a key way to reach them,” Regeneron wrote in an emailed statement to BioPharma Dive. “As a result, we decided to focus our first television and print advertising efforts on this [DME] population.”
A worthwhile campaign?
Regeneron declined to give financial details about its new campaign, but it wouldn’t be surprising to see the company spending a pretty penny.
While pharmas spent less on DTC last year than in 2016, the investment still totals in the billions. Consultancy Kantar Media estimated the spend on just DTC campaigns for cancer drugs at more than $500 million in 2017. Also in that vein, television analytics firm iSpot.tv recently estimated that Novo Norisk had splashed nearly $1 million on a new DTC campaign for Ozempic (semaglutide) by Aug. 1 — just two days after the Danish drugmaker launched a television commercial for the diabetes medicine.
Cartoon characters walk their dog in the new Eylea commercial.
Whatever Regeneron’s investment, the return will likely be larger. One 2014 study suggests at least 750,000 people in the U.S. aged 40 or over have DME, offering an enormous base of potential Eylea patients.
“Certainly from a marketer cost perspective, campaigns with a larger patient population are going to, on the surface, offer a more immediate and obvious R.O.I.,” Erin Byrne, CEO of healthcare marketing firm greyhealth group, told BioPharma Dive in an interview.
Indication is key
Targeting a new or harder-to-break into indication with DTC has also become a more prominent play for pharmaceutical marketers.
“The label expansion is a great use of DTC,” Byrne added. “We’re starting to see that increasingly it’s consumer advertising, but doctors are people too and clearly their strategy there is to maintain their market leadership in an increasingly competitive market by leveraging DTC to drive quick uptake on the indication expansion. That makes perfect sense to me.”
It’s a strategy Regeneron has adopted across the Eylea franchise, not just in marketing.
*Note: Roche reports U.S. sales of Lucentis, which were converted from Swiss francs to USD
Credit: Ned Pagliarulo / BioPharma Dive, data from companies
For instance, the Food and Drug Administration should have an approval decision any day now for a once every 12 weeks dosing schedule for Eylea in wet-AMD. Regeneron has also submitted supplemental Biologics Licensing Applications for the drug in the non-proliferative diabetic retinopathy setting and in a pre-filled syringe formulation.
If approved, the label updates would make Eylea that much more difficult to compete with for rival therapies like Roche’s Lucentis (ranibizumab) and Avastin (bevacizumab).
“Though Eylea is the oldest product for Regeneron, the company has finally recognized the value and importance of line extensions to the durability and overall value of such a franchise,” Leerink analyst Geoffrey Porges wrote in an Aug. 3 investor note. “The company now has multiple significant enhancements underway for 2018 and 2019 that should raise the bar for entry and commercialization of any of the rotating array of two-year-away competitors.”
“By comparison, the forthcoming competitors had less than stellar data in Q2, with … unacceptable 15-16% rates of ocular inflammation in Allergan’s abicipar … and Roche disclosing dose-dependent safety risks of gastrointestinal disorders, procedural complications, and nervous system disorders for its Lucentis Port Delivery System that were up to [10 times] the adverse event rates of injectable Lucentis,” Porges added.
BMO Capital analyst Gary Nachman raised his price target on Endo to $16 after a “very solid beat and raise” Q2 report, saying he also anticipates potential upside to the company’s guidance for ROY. Nachman notes he was most impressed with the performance of the company’s key growth drivers while its legacy generics stabilized. The analyst keeps his Market Perform rating on Endo given its valuation, high leverage, and modest growth outlook.
Real average hourly earnings for all employees were unchanged from June to July, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This result stems from a 0.3-percent increase in average hourly earnings combined with a 0.2-percent increase in the Consumer Price Index for All Urban Consumers (CPI-U).
Real average weekly earnings decreased 0.2 percent over the month due to no change in real average hourly earnings combined with a 0.3-percent decrease in the average workweek.
Real Hourly Earnings All Employees, Month-Over-Month Change
Production and Nonsupervisory Employees
Real average hourly earnings for production and nonsupervisory employees decreased 0.1 percent from June to July, seasonally adjusted. This result stems from a 0.1-percent increase in average hourly earnings combined with a 0.1-percent increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
After combining the change in real average hourly earnings with no change in average weekly hours, real average weekly earnings were unchanged over the month.
Real Hourly Earnings Production and Nonsupervisory Workers, Month-Over-Month Change
Year-Over Year
All Workers: From July 2017 to July 2018, Real average hourly earnings decreased 0.2 percent, seasonally adjusted. Combining the change in real average hourly earnings with the 0.3-percent increase in the average workweek resulted in a 0.1-percent increase in real average weekly earnings over this period.
Production and Nonsupervisory: From July 2017 to July 2018, real average hourly earnings decreased 0.4 percent, seasonally adjusted. Combining the change in real average hourly earnings with a 0.3-percent increase in the average workweek resulted in a 0.1-percent decrease in real average weekly earnings over this period.
Congratulations Not in Order
Production and supervisory workers are working longer hours and taking home less pay in real terms.
Bear in mind these are averages. Pay raises are skewed to the top employees. The median worker is even worse off.
The Privatization of Tesla: Stray Tweet or Game Changing News
After my last two posts in Tesla, I was planning to take a break from the company, since I had said everything that I had to say about the company. In short, I argued that Tesla, notwithstanding its growth potential, was over valued and that to deliver on this potential, it would need to raise significant amounts of capital in the next few years. In an even earlier post, I described Tesla as the ultimate story stock, both blessed and cursed by having Elon Musk as a CEO, a visionary with a self destructive streak. Even by Musk’s own standards, his tweet on August 7 that Tesla would be going private, adding both a price ($420) and a postscript (that funding had been secured), was a blockbuster, pushung the stock price up more than 10% for the day. The questions that have followed have been wide ranging, from whether Tesla is a good candidate for “going private” to the mechanics of how it will do so (about funding and structure) to the legality of conveying a market-moving news story in a tweet.
1. Public to Private – The Why
When we talk about transitions between private and public market places, we generally tend to focus on private companies going public. That is because it is natural and common for a small, privately owned business, as it grows larger, to move to public markets, with an initial public offering. That said, there are publicly traded companies that seem to move in reverse and go back to being privately run businesses, as Tesla may be proposing to do.
The Trade Off
To understand both transitions, the more-common private to public and the less-frequent pubic to private, let us consider the trade off between being a private business and a publicly traded company, from the perspective of the business:
Private versus Public: Business Perspective
The simple summary is that as a private company’s need to access capital increases, it will accept more information disclosure and a more outsider-driven corporate governance structure, and make the transition to being a public company. In recent years, the market for private equity has broadened and become deeper, allowing companies to stay private for far longer; Uber, for instance, is worth tens of billions of dollars and is still a private company. To fully understand the transitions, though, we also have to look at the choice from the perspective of investors:
Private versus Public: Investor Perspective
In the classic structure of going public, private firms raise money from venture capitalists who accept less liquidity, but structure their equity investments to often get more protection and a bigger say in how the company is run. It is the desire for liquidity that makes venture capitalists push private companies to go public, so that they can cash out their investments. To be able to negotiate better disclosure and control, private company investors have to be investing larger amounts, and it is one reason that regulatory authorities have been wary of allowing small investors to invest in private companies, since they may end up with the worst of all worlds: illiquid investments in businesses, where they have no say in how the company is run, and no information about how well or badly it is doing.
The Public to Private Transition
With this trade off in mind, why would a public company choose to go back to being a private business? This transition makes sense if a company feels that the easier access to capital and a continuously set market price (which delivers liquidity), two features of public markets, no longer provide it with sufficient benefits, and/or the costs of disclosure and outsider intervention (from activist investors), that also come with being a public company, increase. In short, it has to be a company:
that does not need access to large amounts of new capital to continue operating,
where the market is under pricing the company, relative to its intrinsic value ,
that feels the actions that it needs to take in its best long term interests will either create public backlash (layoffs and plant closures) or adverse market reactions (because of the effect that they will have on metrics that investors are focused upon).
It should come as no surprise that most companies that have gone through the public-to-private transition have been aging companies (no growth, no capital needed), trading at prices that are below their peer group (lower multiples of earnings or cash flows) and that need to shrink or slim down to keep operating.
The Tesla Case
As I look at the list of criteria for a good buyout company, I see nothing that would bring Tesla onto my radar as a potential candidate:
It is a growing company and it needs new capital to not only deliver on its growth promisebut to survive for the next few years. If you are more optimistic than I am about Tesla, you may disagree with how much cash the company will have to raise to keep going, but I challenge even the most hardened optimist to tell me how the company will be able to increase production to a million cars or more without investing mind blowing amounts in new capacity.
If markets are punishing Tesla by under pricing the company, they are doing so in a very strange manner, giving it a higher market capitalization than much larger, more profitable automobile companies, ignoring large losses and generally tolerant of Elon Musk’s errant behavior. In fact, if the critique of markets is that they are short term and focused on profits, Tesla would be the perfect counter example.
It is true that there was substantial drama and market volatility around the 5000 cars/week production target, and there may be some in the company who have the drawn the lesson that since there will be more production targets to come in the future, the company needs to operate out of market scrutiny. That would be the wrong lesson, since almost all of the drama in this episode, from setting the target (5000 cars/week) to the constant tweets about whether the targets would be met, was generated by Elon Musk, not the market. In fact, a cynic would argue that by focusing the market’s attention on this short term target, Tesla has been able to avoid answering much bigger questions about its operations.
There are, of course, the short sellers in Tesla and Musk’s frustration with them was clearly a driver of his “going private” tweet. His argument, which many of his supporters buy into, is that short sellers in public markets make money from seeing stock prices go down, and that some of them may do real damage to companies, because of this incentive. I will not dismiss this complaint, but I will come back to it later in this post, since I do think it is playing an outsized role in this process.
Public to Private – The Funding
When you decide to take a publicly traded company into the privately owned space, you have to replace the public capital (public equity and debt) with new capital that can be either private equity or new debt.
The key questions then become what mix of debt and equity to use, how to raise the private equity needed to get the deal done and what the ultimate end game is in the transaction. Specifically, you may take a company private, because you want to control its destiny fully, and keep tit a private business in perpetuity. More often, though, the end game is to make the changes that you think will make the company more attractive to investors, and either take it back public or sell it to another public company.
The Analysis
If the company in question fits the buyout mold, i.e., it is an aging company with a lower market capitalization, relative to earnings and cash flows, than its peers, the going private transaction can be funded with a high proportion of debt, explaining why so many buyouts have leverage attached to them, making them leveraged buyouts.
Given that the equity investors in the transactions have to give up public market governance tools, it should come as no surprise that in many of these deals, the private equity comes from a single firm, like KKR or Blackstone, with top managers holding some of the private equity, to align interests, after the deal goes through. Success in these deals comes from taking the reconfigured company public again, at a much higher value, leaving equity investors with outsized gains.
The Tesla Case
Tesla is a money-losing company, burning through significant amounts of cash. Not only is the company in no position to borrow more, I have argued before that it should not even carry the debt that it does. If this deal is to make sense, it has to be predominantly equity funded, but that does create some challenges.
1. The No-pain solution: Musk, in his Tuesday tweets, seems to offer a solution, which, if feasible, would be relatively painless. In his set up, existing shareholders will be allowed to exchange their shares in Tesla, the public company, for shares in Tesla, the private business, and those shareholders who are unwilling to take this offer will sell their shares back to the company at $420/share. In the extreme case, where every existing shareholder takes this offer and if existing debt holders are willing to continue to lend to the new private enterprise, Tesla will need no new funding:
This would be magical, if you can pull it off, but there are two significant impediments. The first is that the deal may not pass legal muster, since the SEC restricts private companies to having less than 2000 shareholders, and Tesla has far more than that number. It is true that you might be able to create a fund that has individual shareholders, which then holds equity in the private company, like Uber has, but that fund is restricted to very wealthy, big investors, and the SEC may be unwilling to go along with a structure where there are thousands of small stockholders in the fund. The second is that even if Tesla manages to get regulatory approval for this unconventional set up, many shareholders may choose to cash out at $420, if the company goes private, even if they think that the shares are worth more, because they value liquidity.
2. A Deep-pocketed Outsider: The announcement that the Saudi Sovereign fund had invested $2 billion in Tesla shares came just before Musk’s “going private” tweet, setting up a second possibility, which is the a large private equity investor (or several) would step in to fund the deal. Here, Tesla’s large market capitalization and cash burning status work against it, reducing the number of potential players in the game. At the limit, if all existing shareholders, other than Musk, cash out at $420/share, you would need about $55-$60 billion in funding. No sovereign fund or passive investment vehicle can afford to have that much money tied up in one company, and especially one that is illiquid and will need more capital infusions in the future. Even the biggest private equity and venture capital investors, generally more willing to hold concentrated positions, will be hard pressed to put this much capital, for the same reasons. In fact, the only name that you can come up with that has even the possibility of pulling this off is Softbank, for three reasons:
They may be big enough to make the investment. As a publicly traded company with a market capitalization of $103 billion, making a $55-60 billion additional investment in Tesla would be a reach, but Softbank is capable of drawing other investors of its ilk into the funding.
They have and are invested in young, growth companies: Unlike traditional PE investors whose focus has been on doing leveraged deals of cash-rich companies, Softbank has invested successfully in growth companies, many of whom continue to burn through cash.
That said, I am not sure that Elon Musk and Masayoshi Son (Softbank’s CEO) can co-exist in the same company. Both value control, and both are unpredictable, and I have to confess that watching the two tango would make for great entertainment. 3. A Corporate Investor: There is one final possibility that I considered and it is that a corporation with deep pockets would provide the money needed to take Tesla private. Given how much money is needed, the list of potential buyers is small and perhaps restricted to the large tech companies – Apple and Google. While they have the cash and perhaps may even have the interest, Musk’s follow up that he would continue to run the company and hold on to his ownership stake strikes me as a poison pill that no corporation will want to swallow.
It is at this point that the “secured funding” claim that Musk made in his initial tweet comes into question. If the statement is true, he has either found an inept bank that will lend tens of billions to a money losing company with an undisciplined CEO, or a private equity investor who is willing to make the largest PE investment in history, while allowing Musk to continue running the company, with no checks and balances. If the statement is false, we will be seeing lawyers debating the meaning of the words “secured” and “funding” for a while.
Occam’s Razor: A simpler explanation
This entire post has been premised on the notion that Elon Musk had done his homework and that he intended to send a serious signal to markets about a future buyout. Given Musk’s history of impetuous and personal tweets, that premise might be completely wrong, in which case the explanation for this episode may be far simpler and rooted in the war with short sellers that Musk has been fighting for a while. Musk is convinced, rightly or wrongly, that short sellers in Tesla are conspiring to bring not just the stock price, but the entire company, down. While there are short sellers in every publicly traded company, including the most successful in market capitalization (Apple, Facebook, Google, Amazon), Tesla is an outlier in terms of the short selling on two fronts:
It has a CEO who is obsessed with short selling and spends a disproportionate amount of his time and attention on bringing them down. So, it is true that short sellers are a distraction to the company, but only because Elon Musk has made it so.
On the other side, many of the short sellers in Tesla seem to be just as obsessed with Musk and are convinced that he is a scam artist. I have a sneaking feeling that for many of them, winning will mean not just making money on their Tesla positions, but seeing the company cease to exist (and taking Musk down with it). On my Tesla valuation from a few weeks ago, it is telling that the most heated responses that I got were not from Tesla bulls, accusing me of being too pessimistic, but from Tesla short sellers, arguing that I was being over valuing the company, even though my assessed value per share was half the prevailing price.
Investing is a difficult game, to begin with, but it becomes doubly so, when it becomes personal. Just as it is dangerous to fall in love with a company that you have invested in, it is just as dangerous to bet against a company because you hate its management and want it to fail. I think both sides of the Tesla short selling game are so infected with personal bias that they may do or say things that are not in their best long term investing interests. That is why I hope, for Tesla’s sake, that Musk’s personal dislike of short sellers did not lead him to tweet out that Tesla would go private. with both the price ($420) and the “secured funding” being spur of the moment inventions. In his zeal to make short sellers pay, he may have handed them the weapon they need to bring him down. I know that Tesla’s board has backed Musk, saying that he had opened a discussion about going private with the board, but since no mention is made of a price or funding, and given how ineffective and craven this board has been over the last few years, I cannot attach much weight to this backing.
Bottom Line
There are publicly traded companies where going private is not only an option, but a value-increasing one, but Tesla is not one of them. As with so much else that the company has done over its history, from its acquisition of Solar City to borrowing billions of dollars to this talk of going private, it is not the action per se that is inexplicable, it is that Tesla is not the company that should be taking the action. The drama will undoubtedly continue, and in a world where we get much our entertainment from reality shows, the Elon Musk show is on top of my list of must-watch shows.
Shares of large-cap biotech Biogen(NASDAQ:BIIB) gained a healthy 15.2% in July, according to data from S&P Global Market Intelligence. What triggered this breakout?
Biogen’s double-digit move higher last month stemmed from two material events:
Biogen and partner Eisai reported encouraging midstage results for the experimental Alzheimer’s disease drug BAN2401. Specifically, the two companies reported that patients receiving the highest dose of the drug showed a slower rate of decline than those on placebo after 18 months.
Biogen reported that sales of the spinal muscular atrophy drug Spinraza — co-owned by Ionis Pharmaceuticals(NASDAQ:IONS) — jumped by a staggering 108% in the second quarter from the same period a year ago.
Biogen has been searching for new growth drivers lately, thanks to the continued declines in its flagship multiple sclerosis franchise resulting from increasing levels of competition. While Spinraza’s strong commercial momentum certainly helps on this front, investors are undoubtedly looking toward Biogen’s high-value Alzheimer’s disease pipeline as the key to future growth. The Alzheimer’s disease market, after all, represents a monstrous and largely untapped drug market right now. As such, it’s not surprising that investors cheered this fairly unprecedented clinical trial result for BAN2401 last month.
The promising results from the preliminary peak of BAN2041’s midstage data didn’t hold upon further inspection. Later in the month, Biogen and Eisai released additional details on the drug’s midstage trial revealing that this putative clinical benefit might be due to little more than an imbalance in the study’s design. In short, we’ll need to wait until a larger, more comprehensive trial is conduced before being able to draw any solid conclusions.
Meanwhile, Biogen and Ionis’ burgeoning SMA franchise could face stiff competition from newer and more potent therapies in the not-so-distant future. That’s why investors might want to take a wait-and-see approach with this particular biotech for the moment.
The past decade has seen a proliferation in the number of stand-alone emergency departments. In Texas, where growth has been unprecedented, there weren’t any stand-alone EDs before 2010. After the state starting issuing licenses, the number shot to 191 by 2016. But in some markets, the saturation is too much to handle. Neighbors Health System recently closed a free-standing facility in El Paso. And Complete Emergency Care is curtailing plans to expand services in a crowded El Paso market. Download the PDF.
