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Expert Financial Analysis and Reporting

SmithOnStocks Mailbox, January 31 Edition: My Take on News Events Relating to Companies I Follow


A number of subscribers have suggested that I write more on recent news events that relate to companies that I follow. This note is in response to these requests giving my take on some recent news releases. I would appreciate your feedback on whether this is of any value to you. I am considering doing this on a periodic basis in the future. This note has comments on Northwest Biotherapeutics, Chimerix, Repligen, Antares, Agenus and Celldex.

Takeaway from Valeant’s Bid for Provenge; Implications for Northwest Biotherapeutics

Terms of Deal

Valeant announced on January 30, 2015 that it has reached a deal to buy the dendritic cell vaccine Provenge from the now bankrupt Dendreon; Valeant will acquire Provenge for $296 million in cash. Provenge recorded sales of $224 million in the first nine months of 2014 and for 3Q, 2014 (period ending September) had sales of $73 million. If 4Q, 2014 sales were to match 3Q, 2014, Provenge would have 2014 sales of about $300 million.

Why is this significant? Critics of Northwest Biotherapeutics (in particular) and all companies using autologous cell therapies (in general) have maintained that such products are so expensive to make that they can never be profitable. This is a specious argument because the gross margins on Provenge are currently about 51% which results in gross profits of $150 million. This should be able to support a great deal of spending on S,G&A and R&D and still generate significant profits. Valeant which is known for its sharp penciled approach to M&A agrees with my analysis.

Dendreon went bankrupt because management built an infrastructure that was intended to support a $1 billion product. It then financed this expansion with $620 million of convertible debt which, of course, has now become straight debt. Dendreon could not service this massive amount of debt. Credit this bankruptcy to bad management, not a failed product.

Significance for Northwest and other Autologous Cell Therapy Companies

This has significance for Northwest Biotherapeutics. The coordinated short selling attack against the Company has used (as one of a never ending string) the negative argument that autologous cell based products can never be profitable. The height of the campaign against Northwest on this issue culminated with an article on Seeking Alpha on September 26, 2014 called Northwest Biotherapeutics Valuation = $0. The article concluded that “No reasonable expected sales price would make the business profitable.”

Seeking Alpha has been unquestioning in allowing and even encouraging bearish articles on its widely read site that have attacked Northwest and other small companies. This article was written by an anonymous author who used the pseudonym Biotech Hawk. This author has written just four articles on Seeking Alpha and each was a highly negative article about Northwest.It seems to me that Biotech Hawk is a shill for short sellers whose articles were unbalanced, misleading and obviously intended to drive the stock price down for the benefit of short sellers. One has to question why Seeking Alpha editors would allow this obviously slanted misleading article to be published by any author, let alone an anonymous author.

However, in all fairness there was one admirer of BioTech Hawk’s work. Adam Feuerstein in the comments section of that article said:

Nice work. You're probably under-estimating the manufacturing costs of DC Vax-L because it requires a tumor sample from each patient as part of the manufacturing process.

Provenge only requires each patient to undergo leukapheresis. DC-Vax-L requires a sample of the brain tumor plus leukapheresis. Logistical nightmare. Huge costs. Will never scale.

Even with decent volume, Dendreon's margins were meh. NWBO will never get DC-Vax-L approved, but even if the impossible happened, the business is doomed.

Dendreon is a champ compared to NWBO.

Again, nice work.

In a contradiction to his views on autologous cell therapy companies like Northwest, Feuerstein is a big fan of a small nanocap company called Brainstorm Cell Therapeutics which is an autologous stem cell therapy company. He has written two articles supportive of that Company whose CEO is a former hedge fund employee whom Feuerstein says that he has known for 10 years. These articles are: Brainstorm CEO Offers Investors a Frank Outlook for ALS Therapy and Brainstorm Stem-Cell Therapy Continues to Show Treatment Effect in ALS Patients

Chimerix Abandons Ebola Development

On January 30, Chimerix announced that it was abandoning its development efforts for brincidofovir in the treatment of Ebola on the basis that there is no commercial potential. This does not come as any surprise to me. In an article on December 19, 2014  I wrote:“The stock has done quite well following my recommendation on May 21 at $14.22. The news of the potential use of brincidofovir against Ebola triggered a sharp run-up in the stock. The stock closed on the day before the announcement on September 8 at $23.25. In the subsequent month or so with the great uproar over Ebola, the stock has soared to a recent high of $38.60. The Ebola scare has been a major factor in adding $400 million to Chimerix’s market value bringing it to about $1.4 billion. I am skeptical that use of brincidofovir in Ebola will produce any meaningful sales. I think that this is a very positive investment situation, but given the Ebola run-up, I am not recommending purchase of the stock at this price. This should not be construed as a sell recommendation.”

This abandonment of the Ebola effort may cause some weakness in the stock and perhaps enable me to reinstate my buy. I like the fundamental situation very much.

In an unrelated event, there was an interesting article in Business Week about how Ken Moch was forced out as CEO,

Repligen: Changing of the Guard

The Company has announced that Walter Herlihy will be stepping down as CEO and handing the reins to Tony Hunt. Mr. Herlihy has been the architect of the business model for this Company which I have labeled as one the best business models that I have seen in my career. Mr. Hunt has outstanding credentials and I am confident that the Company will not miss a beat. Mr. Herlihy has been as meticulous in planning his succession as in building the Company.

On January 26, 2015, Pfizer announced that it was terminating the agreement to develop compounds to treat spinal muscular atrophy (SMA). I had never been able to estimate the value of this agreement and had not assigned any value to it.

Antares: the Winter Has Not Been Kind But I Remain Undaunted

The Company announced that the FDA issued a complete response letter the sumatriptan ANDA. The CEO Eamonn Hobbs said the FDA has outlined steps necessary to support approval of the ANDA, and Agenus plans to work closely with the Agency on a response. A complete response letter often results in a one year delay.

The main drivers of the investment thesis for Antares are the Otrexup launch; the potential introduction of an AB rated generic competitor to Epi Pen and the clinical development of QST, its new testosterone product. In the scheme of things, this complete response letter is not a big deal. Still, it seems that this is another rough patch in a scheme of rough patches. I discussed this in a recent article.

Agenus: Concerned About Potential News Flow on Heat Shock Protein Based Products

Adam Feuerstein launched an attack on Agenus on January 23. He sees little value in the 4-Antibody transaction that gave Agenus a leading position in checkpoint modulators. Nor does he see the collaboration with Incyte as having any value. As I wrote in my article Agenus: The Collaboration with Incyte is Transformative and Creates Great Shareholder Value (AGEN, Buy, $4.99), Feuerstein and I are at opposite ends of the spectrum on this. See my article.

Feuerstein has vendettas against certain companies and Agenus is one of these. On Twitter Feuerstein describes his style  as attacking companies viciously and he certainly lives up this. The reason I bring this up is that as much as I am intrigued by the position that Agenus has established in checkpoint modulators (kudos to CEO Garo Armen whom Feuerstein despises), I am concerned about the older heat shock protein technology platform. The Company is trying to partner these assets and I think that this may be a problem.

I think that it is quite possible that Feuerstein will launch an attack on Agenus in coming months based on the heat shock products partnering issues and it could lead to considerable short selling as we have seen in the past. I was so concerned about this that I went to a hold earlier this year. However, the collaboration with Incyte swung me back to a buy. Be prepared, the Feuerstein assault is highly likely in coming months.

Celldex: News on Clinical Progress with Its Checkpoint Modulator Varilumab

The Company announced a collaboration with Bristol-Myers to begin a phase ½ trial of Celldex's varlilumab (a monoclonal antibody targeting CD27) in combination with Bristol-Myers’ Opdivo (antibody against PD-1 receptor or human programmed death receptor-1 blocking antibody). The companies intend to study the combination in adult patients suffering from advanced non-small cell lung cancer, metastatic melanoma, colorectal cancer, ovarian cancer and head and neck squamous cell carcinoma.

Both of these products are checkpoint modulators. Varilumab directly boosts the T-cell response to cancers. Opdivo interferes with the mechanisms used by some cancers that inhibit a T-cell response. Varilumab is said to put the foot on the immune system accelerator while Opdivo is said to take the brake off. It is a natural combination and I look forward to seeing the results.

Recent Reports You May Be Interested In

I published report called Immuno-Oncology Promises to be the Next “Big Thing” In Biotechnology. This provides a layman’s overview of immuno-oncology, which is the hottest area of cancer research and is critical to Northwest and many other companies. This report took me several months to research and is available only by subscription. It gives important perspective on companies such as Northwest, Kite, Juno, Agenus and Celldex that have important positions in the immuno-oncology landscape. It is worth the money.

I also published a note on Alimera’s unfolding Iluvien US launch and the investment implications for Alimera and pSivida called Alimera Sciences: Will The Launch of Iluvien Be Disappointing to Investors? (ALIM, Neutral, $5.53) which also requires a subscription. Finally, I wrote a piece on Advaxis called Advaxis: A Look at the Dizzying Trading Activity over the Past Month (ADXS, No opinion, $9.70) which is available without subscription.

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  1. Lawrence Braverman says:


    A round-up of recent developments and news articles on the companies you follow and your thoughts on their implications is an excellent idea.

    You wrote a couple of paragraphs with the heading: “Agenus: Concerned About Potential News Flow on Heat Shock Protein Based Products.”

    But then came several paragraphs solely devoted to AF and his possible coming attacks but for these intriguing two lines: “I am concerned about the older heat shock protein technology platform. The Company is trying to partner these assets and I think that this may be a problem.”

    Could you further develop these thoughts about Agenus and your concerns about their possible heat shock protein technology plans?


  2. Larry: I find articles like this giving your quick reaction to recent news items relating to companies you follow to be very, very helpful! Thank you.

  3. Larry,

    Thank you for your new idea “Mailbox” and for the time and effort you are putting into the continuing flow of news that cascades from the companies you (and we) follow…..Yes, please keep it up, if possible, on a monthly basis…..I find it really helpful and encouraging and am happy I signed up for another year of your insights and opinions through

    That said, I was hoping to see a small piece from you on your opinion of Linda’s latest 20 minutes at the Washington DC conference……She gave new information on the 55 Compassionate Patients, but I guess it was not clear enough to draw a conclusion….Do you talk to them??? Do you ask them to present reports that have the backing of scientific data??? This is an un-blinded study and I was hoping for some real solid information, not just, well, 24% are still living….Maybe I am being unfair, because I am a novice and really don’t know what is happening or when it should be happening or how it is to be reported…..That is why I do happily subscribe to you and your efforts to uncover the ins and outs of the quickly changing world of Immune Therapy….Lastly, is it legal for me, a subscriber, to print out and refer to your hard work??? I need to print out your complex and rather daunting article, “Immuno-Oncology”….Again, I always look forward to your articles and opinions and reasons for buying or holding or selling a company as it moves through the process of discovering, developing, testing, and manufacturing a winning treatment for cancer….I only hope, that we can see progress over the new and exciting year that lays before us….Stay well and dig out…Cheers

  4. I have two detailed pieces on NWBO in progress. One deals with Ms. Powers’ comments on how dendritic cell vaccines fit in with other immuno-oncology technologies such as checkpoint modulators, engineered T-cells, other cancer vaccines, tumor infiltrating lymphocytes, etc.

    A separate piece deals with the 51 patient information arm. I find the results encouraging but not conclusive. Stay tuned.

  5. Thank you kind sir…..Enjoy a close football game…..last of professional till Sept….I look with anticipation to your articles…Cheers

  6. Thanks for the write up, Larry. On the topic of the CRL to Antares for Sumatriptan, after speaking with the company, they did confirm that the issue had everything to do with the labeling. Specifically, minor labeling changes will be required to rectify this situation, but that’s all it will take to resolve the FDA’s concerns.

  7. Brainstorm’s results seem strange to me. If I recall correctly, MSCs, the cells Brainstorm use, will typically be cleared from body in just 2 weeks. So if cells would have an effect, the effect will happen soon after injection IMO. But looking at their phase I and phase IIa trials slide, I found that the slope of 6 months post surgery is better, or much better in the case of the phase I trial , than the slope of 3 months post injection.

    Also, how could lumbar injected cells which float in the cerebral fluids secret enough BDNF or similar neuron growth factors right into the grey matter to help motor neurons? I remember one of the Neuralstem pretrial studies showed BDNF level would be two logarithms lower just one or two inches away from the injection site.

    Then, there are manufacturing problems they will face. Not only the cells are autologous, but the company will probably have to make these cells 2-4 times a year for every patient. “Logistical nightmare. Huge costs. Will never scale.” Who the hell said that?

    I understand biology is too complex for a dilettante like me who only do skin deep analysis on paper. So I am open to their future results. I hope their approach could be a valuable addition to the cure of this terrible disease.

    Oh, I almost forget to say your new initiative is very helpful. I hope I could read this kind of blogs in the future.

    PS, a fun anecdote. One of the evilest men the human history had ever seen, Chairman Mao died of ALS according to his personal doctor who fled to US in the late eighties. If there were a silver lining for ALS, this could be it.

  8. The baseline for the ALS scores in the three months before treatment showed a decline of 1.41 points per month. In the placebo arms of the phase 2b tiraemtiv trial and phase 3 dexpramipexole trial the placebo group declined at 0.6 to 0.7 points per month. The rate of decline for patients before treatment began was twice what we would have expected and made for an easy comparison for the treatment group. In actual terms, the treatment group showed a 0.5 to 0.6 ponts per month decline which we would expect from placebo. My read is that this trial demonstrated no efficacy. Also, Brainstorm lumped all of the patients into one data point without showing individual patients. This is highly suspicious. I think that the data that we have seen gives no indication of efficacy. Perhaps when we see the results of individual patients it will be more encouraging. At this point, based on the available data management’s representation that the results were outstanding has no substance. Aside from all of the analysis, when have you ever seen a nanocap biotechnology company double when the company claimed before release of the results that the t results were going to be outstanding. I am extremely, extremely skeptical of the Company and the trading in the stock.

  9. Larry,

    This commentary on news on a multiple companies is actually very helpful. I only follow a couple of companies directly, and this helps me fill the gap and has your bigger perspective to pull things that interact together.

  10. Larry,

    Any thoughts about how the stocks you follow might be affected if the Supreme Court rules against subsidies in States that did not form an exchange. This will likely be the end of the Affordable Care Act. It seems this might cause a decline in revenues for some firms. Can you speculate on which stocks might be affected and how?

  11. For the small companies that I follow, I can’t think of a major direct effect.


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