Expert Financial Analysis and Reporting

Purpose of this Report

I last summarized my stock recommendations in a September 12, 2016 report. There has been little change in my thinking or my recommendations since then on most stocks in my universe, but I did issue a Buy on Bristol-Myers Squibb and a sell on Juno Therapeutics. You may want to revisit SmithOnStocks Investment Recommendations Summarized; September 12, 2016 that went into more detail on most individual companies than will be found in this report.

Current Buys 

I continue to recommend Antares, Agenus, Cytokinetics and Repligen. I am also recommending Northwest Biotherapeutics, but I caution that this is a highly speculative stock in which, if things break badly, the Company may not be able to raise capital to continue to fund its pipeline. Since September 12, I put out a new Buy recommendation on Bristol-Myers-Squibb and I recently went to a sell On Juno Therapeutics. My price targets for these stocks as well as a link to a more detailed report(s) are as below:

Agenus (AGEN, Buy, $4.16) The May 3, 2016 report, Agenus: Its Market Leading Position in Immuno-Oncology Makes it A Compelling Investment Story (AGEN, Buy, $3.69), explained why I believe that Agenus may be acquired within the next three years and potentially at a Medarex type of valuation. You may recall that Bristol-Myers acquired Medarex in 2009 for $2.1 billion in order to gain access to checkpoint modulators and other immuno-oncology assets. Agenus has an outstanding pipeline of checkpoint modulators and cancer vaccines that I believe many biopharma companies would covet and I believe that Agenus could command a “Medarex type” or $2.1 billion valuation in an acquisition.  In per share terms this would be $25

Antares (ATRS, Buy $2.36) My 2018 price target is $5.70 without an AB EpiPen launch and $6.60 with a launch. My best judgment is that AB EpiPen will be launched in 2017. I explained my reasoning in the April 22, 2016 report An Outstanding Product Pipeline Promises Dramatic Growth Through 2022 (ATRS, Buy, $0.92).

Cytokinetics (CYTK, Buy, $12.26) My November 4, 2016 report was entitled Cytokinetics: My Relative Market Value Analysis Suggests that the Stock Should be Selling at More Than $20 (CYTK, Buy, $8.95)  This is my judgment about  where the stock should be selling today, i.e. nearly twice the current price. With success in one or more of its three late stage pipeline products, the long term potential can be substantially more.

Repligen (RGEN, Buy, $30.80) Since I began coverage of this Company on December 4, 2012, see Repligen: Initiating Coverage with a Buy (RGEN, Buy, $6.13)  the stock has always seemed to be a little too expensive. However, as I have repeatedly stated this is one of the best (and perhaps) the best business model I have seen and I have never recommended taking profits in the last four years. Part of the problem in valuing the Company is that in addition to organic earnings growth of perhaps 15% to 20% per year, it also has significant opportunities to make small accretive acquisitions. Repligen is strongly cash flow positive which allows for most of these purchases to be done largely with cash.

As I was writing this note, the acquisition of TangenX Technology was announced with the guidance that it would be accretive to 2017 earnings. Because of the acquisition potential, the actual growth prospects of the Company consistently increase the growth rate over and above the organic 15% to 20% rate. Don’t expect me to recommend taking profits in this stock any time soon and from time to time (right now) the stock is more attractive than at other times. See my report of December 2, 2016 Repligen: A Detailed Update; Recent Price Drop Makes Me More Positive (RGEN, Buy, $28.50) 

Northwest Biotherapeutics (NWBO, Buy, $0.35) From a price performance standpoint this has been one of the worst recommendations in my career. I first recommended the stock in July 2012 at an adjusted price of $1.10; see Northwest Biotherapeutics’ DCVax Cancer Vaccines May Be a Game Changer In Cancer Therapy (NWBO, $1.10) While this entry price was not so bad, I also recommended the stock at much higher levels and have painfully watched the stock decline in the last year from $4.40 to the current price of $0.35.From the time of my initial recommendation, I have felt and continue to feel that the DCVax cancer vaccines can be a major advance in cancer therapy that potentially can be viewed in the same light as checkpoint modulators and which may have better prospects than CAR-T therapy.

What I did not appreciate at the time of my initial recommendation was the ability of a cartel of hedge funds (the wolfpack) to manipulate stock prices of small companies through the use of illegal naked shorting and high frequency trading in coordination with “fake news” blogs. The wolfpack has ferociously targeted NWBO and has been the major factor in the devastating stock price performance. It is my view that the promise of cancer vaccines is such that NWBO in a non-manipulated stock market could aspire to valuations like those of the CAR-T companies such as Kite and Juno which have market values of $2.3 billion and $2.0 billion. I hasten to add that I think that Kite is probably over-valued and I have a sell on Juno. Still, I think that NWBO on a level playing field (i.e. one without the wolfpack) would have a market valuation of perhaps $750 million. The current market valuation is about $110 million.

The moment of truth for the phase 3 DCVax-L trial is upon us as the Company has completed the trial and is awaiting the occurrence of the 248^th event (disease progression or death) at which point they will collect and scrub the data; I expect topline results in 1Q, 2017 or 2Q, 2017. Success in the trial would trigger an enormous rally. My latest thinking on the potential outcome of the DCVax-L trial cane be seen in the report Northwest Biotherapeutics: DCVax-L Viewed Through the Eyes of Dr. Linda Liau, Lead Investigator on the Phase 3 Trial of DCVax-L (NWBO, $0.35, Buy). I acknowledge that failure could potentially lead to the Company being unable to raise capital to continue in business so that we investors could lose all of our investment. On the other hand, there is now growing enthusiasm for the combination of cancer vaccines and checkpoint modulators. DCVax-L is now in phase 2 combination trials with BMY’s Opdivo and MRK’s Keytruda; these trials are potentially registrational and we might see results later this year. There is some reasonable possibility that even in the event of a complete failure in the DCVax-L phase 3 trial that NWBO could attract capital and keep going on the basis of these combination trials.

Bristol Myers Squibb (BMY, Buy, $59.37) Almost of my research is on small emerging companies because I feel the primary niche for a lone wolf analyst like me is in small stocks not well covered by Wall Street. On larger companies, brokerage firms employ enormous resources. Typically, there will be a lead analyst and three to five assistants covering a company like BMY and these assistants are usually MDs and PhDs. It is hard for me to add value. I initially recommended BMY in a May 9, 2011 report Initiating With Buy: Weighing an Excellent New Product Outlook Against the Pending Patent Cliff (BMY, $25)  and the stock has been a major holding since then. However, I decided in late 2012 to not write anymore on the Company in my blog.

I am now reversing my strategy on BMY. Based on a failure in one key phase 3 trial, there has been a massive sell off in the stock and BMY’s leadership position in immuno-oncology has been questioned, This has created a buying opportunity that I just can’t pass on. I see BMY as reaching about $80 in a year’s time. This is roughly where it was selling prior to the trial failure. Thereafter, I project a five year growth rate in EPS of 15% to 20% and I think the share price would grow in line. By the way, the dividend yield is about 2.7%. See my recent report  Immuno-Oncology is Probably The Most Explosive Commercial Opportunity in All of BioPharma; My Investment Picks are Bristol-Myers Squibb (BMY, Buy, $57.14) and Agenus (AGEN, Buy, $4.28)

Stocks That I Might Upgrade or Downgrade

Windtree Therapeutics (WINT, Neutral, $1.36) I have consistently written that I regard Aerosurf as one of the most promising products in all of biopharma. I pointed out that everything hedged on success in the phase 2b trial for which I had expected topline results in 1Q, 2017. On October 25, management announced that the topline results would be delayed until mid-2017. The delay was disappointing particularly in relation to a very strained balance sheet. Because of this I recommended taking a tax loss on the stock. See my report  Windtree Therapeutics (WINT, $2.50): Critical Aerosurf Phase 2b Trial Completion is Delayed; Can the Company Raise the Capital Needed to Complete the Trial?  My very positive view on the potential for Aerosurf remains unchanged and I intend to recommend the stock again at some point in coming months.

I could possibly either upgrade or downgrade Kite Pharma (KITE, $45.97), although a downgrade is more likely. I am awaiting a huge data point on the ZUMA-1 trial that should occur in 1Q, 2017. Management maintains that the complete response rate for the first 51 r/r DLBCL patients reported on in this trial will remain at 33% at six months as it was at three months. I am less confident that this will be the case and if there is a slippage to say 25% or less, the stock could take a hit. For my more complete thinking Please see Updating My Investment Thinking on Kite (KITE, Avoid, $47.63) and Juno (JUNO, Sell, 17.86) in the Aftermath of the ASH Meeting

In my report SmithOnStocks Investment Recommendations Summarized; September 12, 2016    I listed five stocks that I could potentially upgrade. These are AMAG Pharmaceuticals (AMAG, $35.45), Alimera (ALIM, $1.15), Caladrius (CLBS, $2.86)  Derma Sciences (DSCI, $5.10) and pSivida (PSDV, $1.74). At this time, I am still in a watch mode on each of these. My thinking on each of these companies was explained in the September 12, 2016 report in more detail.

Companies I AM Monitoring with No Plans to Upgrade

I think that Chimerix (CMRX, $4.62) and Celldex (CLDX, $3.53) lack catalysts for the next half year or longer. Both companies are well capitalized and funded until 2018, have good technology and good managements. I just see no reason to get involved. Again, I would refer you to my September 12, 2016 report for my thinking.

Archiving Coverage

I am archiving coverage of ImmunoCellular (IMUC, $1.99). I believe that signals of efficacy seen in the phase 2 trial of ICT-107 in newly diagnosed glioblastoma warranted a phase 3 trial and that the phase 3 trial which IMUC started was well designed. However, the Company reported that there is so much competition for patients in this space that they are having difficulty enrolling patients and given the weak financial position, they are not likely to be able to finish the trial. The CEO of the Company has recently resigned.