Baird analyst Brian Skorney weighed in on Sarepta Therapeutics (NASDAQ: SRPT), noting a pivotal design gets posted to clinicaltrials.gov.
Sunday, December 9, 2018
Opportunity in Therapeutics MD (TXMD) As Women’s Meds Grow in Popularity
Cantor’s analyst Louise Chen assumes coverage on pharmaceutical company TherapeuticsMD (TXMD) with an Overweight rating and price target of $27, showing an upside of about 457% from where the stock is currently trading. Chen believes the company’s three vaginal health medications are underappreciated and peak sales could exceed modest expectations as the three drugs are targeting unmet needs women have. Moreover, Chen expects upwards earnings revisions to drive the stock higher once reimbursement is solidly in place for the products.
Imvexxy, the company’s bio-identical vaginal estrogen product is already on the market for the treatment of moderate-to-severe dyspareunia, which is difficult or painful intercourse. The drug is getting about 2.2 fills per patient, which is higher than the average 1.7 fills other competing drugs get. “Based on our diligence we think reimbursement for Imvexxy could exceed expectations, and that sales will pick up sooner than expected in 2019+,” Chen said.
Bijuva is another TXMD drug and is the first and only FDA approved hormone therapy of bio-identical estradiol in combination with bio-identical progesterone for the treatment of moderate-to-severe vasomotor symptoms (or hot flashes) that come from menopause. “This drug addresses a market of 15MM-20MM annual Rxs (compounded bio-identical hormones and the separate estradiol and progesterone hormones). Also, we think Bijuva should significantly improve the net margin per script, for compounding pharmacies, with third party reimbursements and lower their legal and regulatory costs/risks. The solubilization of estradiol and progesterone has led to significant improvements in the number of secondary endpoints seen with Bijuva. These are normally only seen with transdermal estradiol products and oral progesterone products. These features suggest that Bijuva could obviate the need for using separate products or compounded products,” Chen added.
Lastly is Annovera, the first long-acting prescription birth control that is controlled by the patient, without a need for a procedure and is also reversible. The pregnancy-protection lasts for one year and the Affordable Care Act should make it so that there’s no out-of-pocket cost to the patient. “According to TXMD, there is interest to study this product as first-line therapy for both endometriosis and fibroids. If TXMD can launch this drug by 2Q19/3Q19, the pick up in sales could exceed modest expectations,” Chen remarked.
Pharma prioritized in Brexit contingency plans
A no-deal Brexit could cause up to six months of disruption at some ports, a British minister warned on Friday, vowing to prioritise pharmaceuticals as the UK develops contingency plans less than four months before it is due to leave the EU.
Members of parliament look set to vote down Prime Minister Theresa May’s Brexit deal next week, hurtling the world’s fifth-largest economy into even deeper uncertainty and leaving open a number of possible outcomes including a disorderly Brexit.
Health minister Matt Hancock wrote to drugs companies in August to ensure they had at least six weeks’ worth of medicines in Britain but on Friday he suggested any potential disruption could last longer.
Hancock identified southern English crossings at the ports of Dover and Folkestone as areas which could be particularly affected.
“Revised cross-government planning assumptions show that there will be significantly reduced access across the short straits, for up to six months. This is very much a worst-case scenario,” he said in a letter to healthcare providers on Friday.
Firms in many sectors have been buying warehousing space and stockpiling to ensure they can meet demand and keep manufacturing going in the event that the frictionless movement of goods to and from the continent is lost.
Britain is planning to use aeroplanes and fast-track trucks to ensure the continued supply of medicines if it leaves the European Union without a deal, Hancock said, and will give preference to medicines in the face of competing pressures.
“The government has also agreed that medicines and medical products will be prioritised on these alternative routes to ensure that the flow of all these products will continue unimpeded after 29 March 2019,” he wrote.
Cronos CEO: $1.8 billion from Big Tobacco is just a beginning for cannabis industry
Marijuana companies and legacy businesses are playing a proverbial game of speed dating right now, according to a top cannabis executive who managed to land an attractive partner.
Cronos Group Inc. CRON, +21.72% CRON, +22.03% Chief Executive Mike Gorenstein said in a telephone interview Friday that the $1.8 billion deal announced earlier in the day with Philip Morris parent company Altria Group Inc. MO, -0.40% is just the start for his company, as well as for the industry.
“I’m still running on adrenaline,” Gorenstein said, explaining he had not slept much the night before the announcement. “We just got a new partner and now resources — but beyond that the network and support [Altria] can offer — being able to have that experience. It’s an alignment and a partnership but it’s not like the deal is over. We’re all very, very excited about the beginning, and we can now go and do the things we want to do.”
Gorenstein has good reason to lose sleep over the deal, as it was for big money. Altria promised a $1.8 billion investment in Cronos, which translates to a 45% stake that Altria has the option to increase to full ownership if it so chooses down the road. It is the second deal of its type, after Cronos rival Canopy Growth Inc.CGC, +3.49% WEED, +3.47% made a pact with Corona maker Constellation Brands Inc. STZ, -1.11% to invest $4 billion in the growing pot company.
The Cronos-Altria agreement has granted further legitimacy, according to analysts, to an industry that has up until the 21st century was the purview of motorcycle clubs, smugglers and drug dealers. At the moment in the Canadian cannabis industry, most if not all major pot producers are talking with potential partners with deeper pockets and expertise outside of cannabis and evaluating the benefits and costs of a partnership or an outright sale, according to several sources within the industry.
Gorenstein acknowledged that meetings are happening across the industry, but said Cronos was systematic in evaluating its options for partnerships, going through meeting after meeting with other potential “strategic partners.” He found that Altria’s executives and his team said the words “we agree” and “we feel the same way” when discussing the future of the growing industry and how a partnership might look.
“The feel we had for each other was very important,” Gorenstein said.
Crucially, Altria is not looking for a hedge because it is in a business that Gorenstein says is “adjacent” to cannabis, not in direct competition. In its news release announcing the deal Cronos said that it sees opportunities to work with Altria on vaporization technology, as well as pre-rolled cannabis products and working with regulatory bodies, an area in which the Marlboro maker has significant experience.
Gorenstein says that Altria can help with the final step in Cronos’s process of turning marijuana into a standard consumer product. If Cronos can design a product in terms of its use-case and psychoactive effects, Altria has the expertise to transform the design into a product that can deliver consistent results, he said. In short, it can make every joint of a specific product line feel and taste the same.
One aspect of the deal that could be a problem for cannabis consumers, especially of the medical variety, is Altria’s history as a tobacco company that has produced massive public health consequences through decades of producing and selling cigarettes. Cronos has a significant number of assets in medical marijuana both in Canada and the rest of the world, and the image it is trying to project as a purveyor of medicine could be hurt by a tie-up with a tobacco company.
Gornstein says that Altria is reducing risk and “increasing choice” and is moving away from combustible cigarettes.
“That’s something I think is pretty important,” he said. “I think it’s also a key point that [Altria] is encouraging about the medical business, they do have a lot of experience with the [Food and Drug Administration] and research.”
Whether consumers will turn away from a cannabis company because of a big stake from a tobacco company is difficult to gauge at this point, said Rebecca Brown, founder of Crowns Consulting, an advertising agency that is focused on cannabis.
“It’s inherently tension-filled for a tobacco company to have close to a majority stake in a medical cannabis entity,” Brown said over the phone. “It’s going to be interesting to see how they position and package that in a world where we have a certain amount of empathy for brands that admit to failure and mistakes.”
Brown says that there might be a way to leverage a narrative that marketing professionals describe as “flawsome” — good because of its flaws — but she doubts it would be possible to leave behind cigarettes with just talk and not some actual sacrifice.
“I don’t think the way forward here is to ignore that smoking cigarettes is anything but what it is,” she said. “If Altria’s play is to sort of disavow that heritage, and instead to organize and rally around a better future and try and help people, could we feel empathy for a tobacco company leaning in to public health as a form of penance? I don’t know — but there is for sure a potential to win over consumers.”
That is the kind of expertise cannabis companies need, analysts said, while describing Friday’s deal as a boon for the industry as a whole.
In a note to clients Friday PI Financial analyst Jason Zandberg said that the investment is a “significant vote of confidence” for Cronos executives and that it should have a positive and wide impact on the sector has a whole. Zandberg raised his Cronos price target to C$24 from C$15 and has a buy on the name.
“We believe Altria provides many benefits to Cronos Group including their experience in regulatory, compliance and government relations as well as their expertise in device technology, supply chain management and marketing,” Zandberg wrote. “We also believe the Altria benefits from Cronos’ expertise in cannabinoid-based products and is an immediate channel for product development in the Canadian marketplace.”
Canaccord Genuity analyst Matt Bottomley also said in a note to clients Friday that the Altria investment would be a boon to the entire sector and will push valuations higher. He called the C$16.25 per share Altria agreed to pay for the investment “a lofty” valuation based on his team’s estimates of future performance. Bottomley rates Cronos a hold with a C$13.98 price target.
Cronos stock rampaged Friday, gaining 22% to $12.74 after the company announced the Altria transaction. ETFMG Alternative Harvest ETF MJ, +4.97% rose 4.9% Friday as the S&P 500 SPX, -2.33% declined 2.2%.
A signal in the noise? Yield Curves, Economic Growth and Stock Prices!
The title of this post is not original and draws from Nate Silver’s book on why so many predictions in politics, sports and economics fail. It reflects the skepticism with which I view many ‘can’t fail” predictors of economic growth or stock markets, since they tend to have horrendous track records. Over the last few weeks, as markets have gyrated, market commentators have been hard pressed to explain day-to-day swings, but that has not stopped them from trying. The explanations have shifted and morphed, often in contradictory ways, but few of them have had staying power. On Tuesday (December 4), as the Dow dropped 800 points, following a 300-point up day on Monday, the experts found a new reason for the market drop, in the yield curve, with an “inverted yield curve”, or at least a portion of one, predicting an imminent recession. As with all market rules of thumb, there is some basis for the rule, but there are shades of gray that can be seen only by looking at all of the data.
Yield Curves over time
The yield curve is a simple device, plotting yields across bonds with different maturities for a given issuing entity. US treasuries, historically viewed as close to default free, provide the cleanest measure of the yield curve, and the graph below compares the US treasury yield curve at the start of every year from 2009 to 2018, i.e., the post-crisis years:
The yield curve has been upward sloping, with yields on longer term maturities higher than yields on short term maturities, every year, but it has flattened out the last two years. On December 4, 2018, the yields on treasuries of different maturities were as follows:
The market freak out is in the highlighted portion, with 5-year rates being lower (by 0.01-0.02%) than 2-year or 3-year rates, creating an inverted portion of the yield curve.
Yield Curves and Economic Growth: Intuition
To understand yield curves, let’s start with a simple economic proposition. Embedded in every treasury rate are expectations of expected inflation and expected real real interest rates, and the latter
Interest Rate = Expected Inflation Rate + Expected Real Interest Rate
Over much of the last century, the US treasury yield curve has been upward sloping, and the standard economic rationalization for it is a simple one. In a market where expectations of inflation are similar for the short term and the long term, investors will demand a “maturity premium” (or a higher real interest rate) for buying longer term bonds, thus causing the upward tilt in the yield curve. That said, there have been periods where the yield curve slopes downwards, and to understand why this may have a link with future economic growth, let’s focus on the mechanics of yield curve inversions. Almost every single yield curve inversion historically, in the US, has come from the short end of the curve rising significantly, not a big drop in long term rates. Digging deeper, in almost every single instance of this occurring, short term rates have risen because central banks have hit the brakes on money, either in response to higher inflation or an overheated economy. You can see this in the chart below, where the Fed Funds rate (the Fed’s primary mechanism for signaling tight or loose money) is graphed with the 3 month, 2 year and 10 year rates:
 |
| Interest Rate Raw Data |
As you can see in this graph, the rises in short term rates that give rise to each of the inverted yield curve episodes are accompanied by increases in the Fed Funds rate. To the extent that the Fed’s monetary policy action (of raising the Fed funds rate) accomplishes its objective of slowing down growth, the yield slope metric becomes a stand-in for the Fed effect on the economy, with a more positive slope associated with easier monetary policy. You may or may not find any of these hypotheses to be convincing, but the proof is in the pudding, and the graph below, excerpted from a recent Fed study, seems to indicate that there has been a Fed effect in the US economy, and that the slope of the yield curve has operated as proxy for that effect:
 |
| Federal Reserve of San Francisco |
The track record of the inverted yield curve as a predictor of recessions is impressive, since it has preceded the last eight recessions, with only only one false signal in the mid-sixties. If this graph holds, and December 4 was the opening salvo in a full fledged yield curve invasion, the US economy is headed into rough waters in the next year.
Yield Curves and Economic Growth: The Data
The fact that every inversion in the last few decades has been followed by a recession will strike fear into the hearts of investors, but is it that fool proof a predictor? Perhaps, but given that the yield curve slope metrics and economic growth are continuous, not discrete, variables, a more complete assessment of the yield curve’s predictive power for the economy would require that we look at the strength of the link between the slope of the yield curve (and not just whether it is inverted or not) and the level of economic growth (and not just whether it is positive or negative).
To begin this assessment, I looked at the rates on three-month and one-year T.Bills and the two, five and ten-year treasury bonds at the end of every quarter from 1962 through the third quarter of 2018:
Following up, I look at five yield curve metrics (1 year versus 3 month, 2 year versus 3 month, 5 year versus 2 year, 10 year versus 2 year and 10 year versus 3 month), on a quarterly basis from 1962 through 2018, with an updated number for December 4, 2018.
For the most part, the yield curve metrics move together, albeit at different rates. I picked four measures of the spread, one short term (1 year versus 3 month), one medium term (5 year versus 2 year) and two long term (10 year versus 2 year, 10 year versus 3 month) and plotted them against GDP growth in the next quarter and the year after.
 |
| Interest Rate Raw Data |
The graph does back up what the earlier Fed study showed, i.e., that negatively sloped yield curves have preceded recessions, but even a cursory glance indicates that the relationship is weak. Not only does there seem to be no relationship between how downwardly sloped the yield curve is and the depth of the recessions that follow, but in periods where the yield curve is flat or mildly positive, subsequent economic growth is unpredictable. To get a little more precision into the analysis, I computed the correlations between the different yield curve slope metrics and GDP growth:
Taking a closer look at the data, here is what I see;
- It is the short end that has predictive power for the economy: Over the entire time period (1962-2018), the slope of the short end of the yield curve is positively related with economic growth, with more upward sloping yield curves connected to higher economic growth in subsequent time periods. The slope at the long end of the yield curve, including the widely used differential between the 10-year and 2-year rate not only is close to uncorrelated with economic growth (the correlation is very mildly negative).
- Even that predictive power is muted: Over the entire time period, even for the most strongly linked metric (which is the 2 year versus 1 year), the correlation is only 29%, for GDP growth over the next year, suggesting that there is significant noise in the prediction.
- And 2008 may have been a structural break: Looking only at the last ten years, the relationship seems to have reversed sign, with flatter yield curves, even at the short end, associated with higher real growth. This may be a hangover from the slow economic growth in the years after the crisis, but it does raise red flags about using this indicator today.
How do you reconcile these findings with both the conventional wisdom that inverted yield curves are negative indicators of future growth and the empirical evidence that almost every inversion is followed by a recession? It is possible that it is the moment of inversion that is significant, perhaps as a sign of the Fed’s conviction, and that while the slope of the yield curve itself may not be predictive, that moment that the yield curve inverts remains a strong indicator.
Yield Curves and Stock Returns
As investors, your focus is often less on the economy, and more on stock prices. After all, strong economies don’t always deliver superior stock returns, and weak ones can often be accompanied by strong market performance. From that perspective, the question becomes what the slope of the yield curve and inverted yield curves tell you about future stock returns, not economic growth. I begin the analysis by looking at yield curve metrics over time, graphed against return on US stocks in the next quarter and the next year:
If you see a pattern here, you are a much better chart reader than I am. I therefore followed up the analysis by replicating the correlation table that I reported in the economic growth section, but looking at stock returns in subsequent periods, rather than real GDP growth:
As with the economic growth numbers, if there is any predictive power in the yield curve slope, it is at the short end of the curve and not the long end. And as with the growth numbers, the post-2008 time period is a clear break from the overall numbers.
What does all of this mean for investors today? I think that we may be making two mistakes. One is to take a blip on a day (the inversion in the 2 and 5 year bonds on December 4) and read too much into it, as we are apt to do when we are confused or scared. It is true that a portion of the yield curve inverted, but if history is any guide, its predictive power for the economy is weak and for the market, even weaker. The other is that we are taking rules of thumb developed in the US in the last century and assuming that they still work in a vastly different economic environment.
Bottom Line
There is information in the stope of the US treasury yield curve, but I think that we need to use it with caution. In my view, the flattening of the yield curve in the last two years has been more good news than bad, an indication that we are coming out of the low growth mindset of the post-2008 crisis years. However, I also think that the stalling of the US 10-year treasury bond rate at 3% or less is sobering, a warning that investors are scaling back growth expectations for both the global and US economies, going into 2019. The key tests for stocks lie in whether they can not only sustain earnings growth, in the face of slower economic growth and without the tailwind of a tax cut (like they did last year), but also in whether they can continue to return cash at the rates that they have for the last few years.
YouTube Video
Data
Data
IPOs: Blank check company formed by Chardan to acquire a healthcare business
Chardan Healthcare Acquisition: We are a blank check company formed under the laws of the State of Delaware on November 1, 2017. We were formed for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination, which we refer to throughout this prospectus as our initial business combination, with one or more businesses or entities, which we refer to throughout this prospectus as a target business. To date, our efforts have been limited to organizational activities as well as activities related to this offering. Our efforts to identify a prospective target business will not be limited to any particular industry or geographic region, although we intend to focus our search on target businesses operating in North America in the healthcare industry. We have not identified any acquisition targets. From the date of our incorporation through the date of this prospectus, there have been no communications, evaluations or discussions between any of our officers or directors and any of their contacts or relationships regarding a potential initial business combination with our company. Additionally, we have not engaged or retained any agent or other representative to identify or locate any suitable acquisition candidate.
| IPO File Date | 11/26/2018 |
| Price Range$10.00 – $10.00 | |
| Offer Shares (mm) | 7.0 |
| Deal Size ($mm) | $70 |
Camurus Aims to Treat 10% of U.S. Opioid Addicts, CEO Says
The chief executive officer of Camurus AB says he expects to grab a tenth of the market for treating victims of the U.S. opioid epidemic and to reach $1.4 billion in sales with partner Braeburn Pharmaceuticals.
Camurus’s CAM2038 is an injectable solution that slowly releases buprenorphine — the most common drug used to treat opioid addiction — into the body, eliminating the need for daily dosages as well as the risk of the substance making its way onto the black market.
After gaining approval in the European Union last month, Camurus CEO Fredrik Tiberg expects the U.S. Food and Drug Administration to follow shortly. The FDA has scheduled a decision for Dec. 26.
“I am positive and optimistic,” Tiberg said in a phone interview. “We have just received approvals in the EU and Australia, and the prospects for U.S. approval should be even better.”
The company is currently preparing to launch the drug in the first European markets as early as January, and expects “substantial” sales of the treatment during 2019, though it will take three to six months to ramp up.
In the long term, a U.S. market share of 10 percent of the number of patients treated, or about $1.4 billion in annual sales, is a realistic goal, Tiberg said. With those sales prospects, Camurus should be able to generate positive results by 2020, which will enable it to finance the development of its other medicines.
Camurus has a distribution agreement with Braeburn for the U.S. market, and can expect a $35 million milestone payment if the FDA approves CAM2038. Braeburn will also give the company a “mid-teen” percent of product sales in royalties.
Normal Life
The U.S. market for treatment of opioid addiction is currently dominated by Indivior PLC’s Suboxone, a film placed under the tongue once a day. The advantage of treatments such as CAM2038 is that the patient gets continuous treatment without running the risk of missing doses and without having to visit clinics between injections.
“That gives the patient more freedom and enables him or her to lead a normal life instead of focusing on medication,” Tiberg said. “The combined consequences are huge.”
Opioid addiction has surged in the U.S. since the 1990s, when prescription drugs such as OxyContin and Vicodin became a common remedy for a number of conditions. Last year, more than 47,600 Americans died from overdosing on opioids. About 2.5 million people have been diagnosed with opioid dependence in the U.S., and almost one million are receiving treatment.
While most treatments today are taken in daily doses, the use of long-acting injections are expected to increase in coming years. Compared with a similar treatment marketed by Indivior, Tiberg said that CAM2038, which will be sold as Buvidal in Europe, has advantages in flexibility. Injection volumes are lower, it can be taken weekly as well as monthly and can be administered in different parts of the body.
Subscribe to:
Posts (Atom)