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>>If anything, seasonality should have helped, not hurt, the comparison from 3Q08 to 4Q08 inasmuch as 3Q08 includes the summer vacation season in the northern hemisphere. By the same token, seasonality renders the 15% procedure growth from 3Q08 to 4Q08 somewhat less than the stellar achievement you imply.<<
The 3Q08 to 4Q08 increase in procedures of 15% can be compared to the 3Q07 to 4Q07 increase of ~13%. (For 2007 I am using I&A revenue as a proxy because the I&A revenue per procedure was pretty much constant at that time.) There isn't much of a seasonal effect in *procedures*, except maybe in Europe which is only 20-25% of the business.
>>Your rationale for being bullish seems to be grounded in the premise that the 4Q08 flatlining is temporary, but what if it turns out not to be?<<
4Q08 did not flatline. (See above.) Nevertheless, I expect system sales will probably go down a bit in 2009 - thanks to the capital markets and hospital environment - and procedure *growth* will certainly slow from 2008. If I am bullish it is from looking 5 years ahead, not 5 months. There are multiple procedures in which da Vinci share is growing at above 100%, including hysterectomies, of which 650,000 are performed each year in the U.S. alone. (Compare to the total 2008 da Vinci procedure number of 136,000 ...) Sure, the short-sighted investment community may be impatient and ISRG could go down another 20% during the next year. But I will be very surprised if it does not at least triple in the next 3 years. The long-term growth story is still quite intact.
micro
da Vinci
>>Maybe you could enlighten me as to what you think auto suturing is <<
You used the term but want me to define it for you?
>>I will give you a hint the Davinci cannot fire a linear stapler because it has limitations.<<
If you meant stapling, you should have said stapling. I thought you were referring to something like the Cardica C-Port systems that are used with da Vinci in CABG surgery.
Anyway, you are obviously coming back to the Power Medical collaboration - which I have said nothing against. Keep in mind however, that one of the advantages of da Vinci is it makes sewing a lot easier, allowing for tighter anastomosis. It has been argued that this provides an advantage in, for example, bariatric surgery.
I think we should show some mercy to the other board members and discontinue this discussion. I wanted to mainly correct a mistatement involving da Vinci procedure/adoption growth, but your real interest appears to be Power Medical. I will happily concede that you and your "unbelievable contacts" know more about Power Medical than I do.
micro
>>What do you think of Power Medical at .60?<<
xrymd,
I don't follow that company closely enough to begin to know what it is worth. But a cursory look at their financials suggests the possibility of their running out of cash around the end of this quarter (1Q09).
micro
>>Mainstream use of auto suturing is quite new?????
I am now speechless.<<
I think we're making progress ...
micro
>>What about auto suturing? The limits are not IP problems but more to do with the robot itself and it is limited. The deal with Power medical could work out very well Power medical's technology could solve the main issues and bares watching.<<
Is this what your contact told you? Mainstream use of auto suturing is quite new, and Intuitive (yes, through the deal with Power Medical), did not get left behind. There is no limitation of the system associated with auto suturing.
>>I think ISRG is a good company don't get me wrong but not undervalued IMVHO.<<
If procedures and I&A revenue was trending down as you claimed, I'd probably agree with you.
micro
>>ISRG – bridgeofsighs was correct when he said in #msg-34952515 that the sequential growth numbers were unimpressive. In accounting parlance, sequential refers to quarter-over-quarter (rather than year-over-year) results, and ISRG’s QoQ results in 4Q08 were not great.
Relative to 3Q08, 4Q08 saw a decline in the number of da Vinci systems sold (from 91 to 88), a decline in the average revenue per installed system (from $1.37M to $1.32M), and a decline in total revenue (from $236M to $232M).<<
Dew,
As I'm sure you know, year over year comparisons correct for seasonal issues and are generally more reliable. But if you insist on a literal reply to bridge's post, I shall oblige.
>>I would keep an eye on sequential instrumentation growth numbers which are not impressive.<< (bridgeofsighs)
Instrument & accessories revenue (these are not broken out separately, and this is almost all instruments revenue anyway) increased from $75.941M in 3Q08 to $81.575M in 4Q08, an incease of 7.4% over a single quarter. And it should not be lost on anyone that 4Q08 was not the best quarter for many companies to compare to.
So I repeat that bridge's post was absolutely wrong. Sequential instrumentation growth was quite impressive.
>>Relative to 3Q08, 4Q08 saw a decline in the number of da Vinci systems sold (from 91 to 88), a decline in the average revenue per installed system (from $1.37M to $1.32M), and a decline in total revenue (from $236M to $232M).<<
Now you are broadening the discussion, which is fine. Correcting for trade-ins, systems sold actually went from 91 in Q3 to 85 in Q4. Obviously that is due to the capital spending hit that many companies have seen. And it will continue in 2009; I am modelling a ~10% dip in systems sold in 2009 compared to 2008. But - and this is a crucially important point that a lot of people following Intuitive miss - adoption of the technology and therefore long-term growth of the company is NOT measured by systems sold. It is measured by procedures carried out, and that was up a whopping 15% from Q3 to Q4.
The tiny decrease in system ASP that you refer to (which is actually not the revenue per installed system) is a meaningless quarterly fluctuation. It has to do with product mix - how many systems were sold through distributors in the quarter, how many trade-ins there were in the quarter, how many were purchased with HD vision, etc. It fluctuates from quarter to quarter and has *nothing* to do with the growth of the company.
The small sequential decline in total revenue was due to the above factors, but has nothing to do with the long-term growth of the company - which (*again*) is driven by procedures.
Procedures increased by 15% sequentially and 60% year over year. And the company, which has a history of being very conservative in its guidance, is guiding to 35-40% growth in 2009.
That's how fast the company is growing from a long-term perspective. 60% last year. Probably about 40% next year.
I should mention that system revenues dipped below 50% of total revenues for the first time in Q4 and that percentage will continue to decrease over time as the systems are more and more heavily used, generating more and more instruments & accessories revenue per system.
>>By the way, I know for a fact that bridgeofsighs has an unimpeachable contact in the medical-device arena. If I were you, I would not be so quick to dismiss what he says.<<
Well that's great. I know several of the engineers that designed built the da Vinci and some of the surgeons who use it. I have attended surgical conferences and workshops and viewed many dozens of robotic surgery lectures and demonstrations. I have spent thousands of hours following and modelling the company for close to a decade.
The simple fact is that Bridgeofsighs posted some nonsense about Intuitive and I called it out. I don't think you would have reacted any differently if someone posted nonsense about one of the companies you've been following meticulously for years.
Feel free to put a sticky on this post ...
micro
da Vinci/ISRG
>>I have done my homework on Davinci and the instrumentation available.<<
I'm sorry, but this statement of yours makes me differ.
>>I would keep an eye on sequential instrumentation growth numbers which are not impressive.<<
Again, procedure growth of 60% and instrument and accessory revenue growth of 53% in 2008 are what I would call impressive.
>>The reason ISRG made the deal with Power medical was because of the limitations of the instrumentation.<<
Intuitive has partnered with many companies for their instruments because of IP issues and because they don't want to make all of them in house. It is part of the reason they have such a *wide variety* of instruments.
http://www.intuitivesurgical.com/products/endowrist_instruments/Intuitive_Surgical_ins_cat_.pdf
>>The 136 thousand procedures sounds and looks impressive at first glance now lets do some homework. How many robots in the field?<<
You don't know? 1,111 as of the end of 2008.
>>How many times are the robots being utilized per week?<<
Three on average. This number has been increasing every year for close to a decade. At ~5/week many hospitals buy a 2nd da Vinci, and almost all do by 10/week.
>>One thing I do have is unbelievable contacts in the medical device field.<<
Sorry to hear that. I prefer contacts which can be believed.
micro
>>re:ISRG dirt cheap at $100.
I have seen touched and played with the robot no doubt really cool technology. The bottom line is they are not being used enough and the instrumentation is very limited. I would keep an eye on sequential instrumentation growth numbers which are not impressive.<<
Looks like you haven't done your homework, bridgeofsighs. The number of da Vinci procedures increased by 60% (to 136,000) in 2008! Management's conservative guidance is another 35-40% growth for 2009. That's quite an adoption curve for a company as well-established as Intuitive - approaching $1B/year in sales.
Instruments and accessories *revenue* grew a bit slower than procedures in 2008, but there are other years when it grew faster. Long term the two should track each other (i.e. be linearly proportional).
There are very many instruments available for the da Vinci. I don't know which instruments you feel are lacking.
micro
>>Are the PK calculations you posted for genotype-2/3 patients, specifically? The numbers for genotype-2/3 might be different from genotype-1, and this could explain why NVS/HGSI are pursuing monthly dosing for genotype-2/3 only.<<
I was assuming the in vivo half life was independent of genotype, but as you point out, that might be an incorrect assumption.
micro
>>interferon and HCV<<
Helpful post - thanks.
micro
>>"ISRG shares @ $100 dirt cheap"
based on what? Earnings PPS? etc?<<
DCF and my model.
I've been following ISRG closely since their IPO.
micro
IFN use in HCV
>>Quote:
--------------------------------------------------------------------------------
Are there any expectations that the new small-molecule treatments for HCV will entirely replace interferon in the future?
--------------------------------------------------------------------------------
The question is when, not if. Virtually everyone in the field thinks this will happen in due course. <<
This reminds me of the adage that a trillion flies can't be wrong; eat shit.
;o)
I would break up this question into two bite-sized pieces.
1. Is there any small-molecule treatment known which is likely to NOT have its efficacy (i.e. SVR) increased by co-administration with IFN alpha?
Although I don't follow this field very closely, I suspect that the answer is 'no'.
2. If the answer to #1 is 'no', is there a dose of co-administered IFN which increases efficacy by more than it increases AEs?
This is obviously an ill-defined question, yet I think the idea is clear. The well-known side effects associated with IFN increase with dose. So #2 basically asks if there a dose of IFN which can be co-administered with small molecule HCV treatment such that the SVR is significantly increased by the IFN w/o incapacitating treated HCV patients for 4, 2 or 1 weekends a month?
I don't know the answer to #2, but if the answer is 'yes', perhaps everyone in the field will turn out to be wrong!
micro
HGSI/Albuferon
>>microcapfun et al re HGSI: Surprise! Monthly dosing of Albuferon is alive and kicking, but only for genotype-2/3 patients . The new phase-2b trial tests 900, 1200, and 1500mcg q4w doses; these are 50%, 67%, and 83%, respectively, of the 900mcg q2w dose that resulted in a successful phase-3 trial in this patient pool.<<
I still think the chance of success with q4w dosing is miniscule. The half life of Albuferon is ~150 hours, or 6.25 days. So the ratio of the trough concentration at 1500 mcg with q4w dosing to the trough concentration of 900 mcg with q2w dosing is
~(1500/900)*exp(-28/6.25)/exp(-14/6.25) = 0.18.
I.e. the trough concentration with the highest q4w dose being tested (which has peak concentration 25% higher than the q2w dose which caused too many severe pulmonary AEs!), is only 18% of the trough concentration of 900 mcg with q2w dosing - and the latter only *barely* passed the non-inferiority comparison to pegylated IFN.
Therefore 1500 mcg q4w has a good chance of failing on the basis of both safety and efficacy. If it fails on efficacy, obviously the lower q4w doses will fail worse.
micro
>>Re: Suggestions for improving this board
I’m all ears.<<
Alright - please don't twist my arm any further behind my back. Here goes nothing ...
We all know this is the best biotech investment board anywhere, ever, period. Still, I bet most of us want to get 'in and out' efficiently and productively rather than get all our entertainment, social commentary, laughs, etc. here. With that in mind here are my personal suggestions.
1. First few words of post should indicate clearly what the post is about.
2. Keep quizzes and polls down to an ‘absolute minimum’. (Like 0.)
3. One or two really good opinion pieces/editorials per day is plenty, even if they come from the Wall Street Journal, and especially if they aren’t directly related to biotech investing.
4. Vacuous stock-pumping posts and posts about technical chart patterns should be BANNED.
5. Posts like the following should be IGNORED: “Dew, what companies do you think will be bought up, have blockbuster drug approvals or otherwise at least double in value during the next 10 days?”
If nobody agrees with me within 48 hours, please delete this post ...
micro
>>At most investor conferences, you have to be a client of the sponsoring firm to attend; however, there are ways to get around this restriction for those who really want to.<<
Please continue ...
micro
ISRG
Barrons' pieces on Intuitive Surgical have been laughable and this one is no exception.
>>Demand must have changed abruptly. The company says it sold just 55 robots domestically in the normally strong December quarter, after selling 71 in the September quarter.<< (Barrons)
Actually ...
>>Intuitive sold 85 da Vinci ® Surgical Systems during the fourth quarter of 2008, bringing the total number of Systems sold for the year to 335. 55 of the total 85 Systems sold in the fourth quarter of 2008 were in the United States, while 30 Systems were sold internationally.<<
http://media.corporate-ir.net/media_files/irol/12/122359/Q408PreAnnouncement.pdf
Procedures measure adoption, and Q4 procedures were up 60% year over year, which is pretty incredible for a company as far along in its adoption curve as Intuitive Surgical (revenues approaching $1B/year), particularly during these touch economic times when many elective surgeries are being postponed. I wouldn't buy or hold any ISRG above $300/share last year, but at $100/share the stock is dirt cheap IMO.
micro
suggestions for improving this board
>>This board is terrific and the moderation is good (I have never said otherwise). I have no desire, time or need to set up my own board. Honestly, if you can't take a very small helping of what you frequently dish out then ban me... but enough already with the take your bat and ball and go elsewhere routine.<<
Actually I think a thread called 'suggestions for improving this board' might be useful - if Dew agrees. I have a few, but will let somebody else start ...
micro
Telaprevir pricing ...
I like this version better. However ...
>>In the treatment-naïve genotype-1 setting (which is generally the default setting for discussions about HCV), Telaprevir has not been shown to double the effectiveness of SoC therapy; using the SVR rate on an ITT basis, the Telaprevir/SoC ratio is closer to 1.5. Hence, the “m” parameter in your model ought to be about 0.67 (rather than 1.0).
48 weeks of SoC @$600/wk comes to $28.8K, and multiplying this by 0.67 gives $19.2K. Dividing this by 12 weeks (assuming a 12-week course of Telaprevir) yields a weekly price of $1,600, which is 2.67x the weekly price of SoC (rather than the 2x ratio in my simpleminded model).<<
Based on SVR alone, I would say that the weekly price of Telaprevir should be x, where x satisfies the following:
1.5 time cost of SoC = cost of SoC combined with Telaprevir
i.e. 1.5 * (48 * 600) = 24 * 600 + 12x
assuming 24 weeks of SoC and 12 weeks of Telaprevir.
This gives x = $2400.
However basing cost on SVR alone probably underestimates x by quite a bit, because it ignores the reduced side effects and missed work days of patients who are treated for a shorter time and it ignores all the subsequent medical, morbidity and mortality costs associated with patients who would continue to be HCV infected with SoC but not with SoC + Telaprevir.
[How much does it cost to get a liver transplant or be treated for liver cancer? What is the monetary value of not dying 25 years earlier? (~$1M!)]
So I think $2400/week for Telaprevir would be a lower bound and the real 'fair value' could be a lot higher. Maybe $6,250 is not so crazy.
>>It will not, IMO, be priced at the $6,250/wk figure that Geoffrey Porges threw out in order to make a splash.<<
micro
Telaprevir pricing ...
I think the post I'm replying to addresses my previous post somewhat.
micro
Telaprevir pricing ...
>>One way to approach this question is to examine the price of Telaprevir relative to the rest of the HCV treatment cocktail. For the sake of discussion, let’s make the simpleminded assumption that Telaprevir offers twice as much medical value as the SoC alone (peg-ifn plus ribavirin) and therefore ought to be priced twice as high per unit of time.
A week of SoC treatment costs roughly $600 ($500 for the peg-ifn and $100 for the ribavirin) on internet pharmacies. Hence, the simpleminded assumption above implies that Telaprevir ought to sell for about $1,200 per week and a 12-week course of treatment ought to sell for $14,400.<<
Why is the per week cost being compared? Why not assume a course of Telaprevir therapy is worth some multiple, m, of a course of SoC treatment, period. If double (m = 2), then double the entire cost of SoC treatment and divide by 12 for the weekly cost.
Of course if you think combining Telaprevir with SoC doubles the 'effectiveness' of treatment over SoC alone, it might make more sense to take m = 1.
micro
>>With only 30 stocks, how would you match the sector weightings in the S&P500 (thereby taking sector allocation out of the equation) while still having enough open slots to fill with your best old-fashioned stock picking ideas?<<
http://www.investopedia.com/ask/answers/05/optimalportfoliosize.asp
>>In other words, while investors must accept greater systematic risk for potentially higher returns (known as the risk-return tradeoff), they generally do not enjoy increased return potential for bearing unsystematic risk. The more equities you hold in your portfolio, the lower your unsystematic risk exposure. A portfolio of 10 stock, particularly those of various sectors or industries, is much less risky than a portfolio of two. Of course, the transaction costs of holding more stocks can add up, so it is generally optimal to hold the minimum number of stocks necessary to effectively remove their unsystematic risk exposure. What is this number? There is no consensus answer, but there is a reasonably certain range.
For investors in the U.S., where stocks move around on their own more (are less correlated to the overall market) than elsewhere, the number is about 20 to 30 stocks.<<
Now I would argue that all those 20-30 stocks are "open slots" in the following sense. Let's say you want one of them to be a small cap, military contractor. Well you probably have several hundred to choose from. And if you don't like any of those, you can pick a mid cap military contractor and change the mid cap biotech category to small cap biotech ...
You pick the categories for diversification and then you are free to use old-fashioned stock picking within each category.
>>If you can do this, you should start a fund and sign me up as a charter investor :- )<<
Sure, Dew. Send me all your money and I promise to mail you statements every year showing 10% return no matter how the market does.
Just don't ask too many questions ...
micromadoff
>>As noted in my prior post, managers of active funds who weight each sector the same or nearly the same as the weighting in the S&P 500 have little if any chance to beat the index consistently.<<
I vaguely recall a rule of thumb which I think was motivated by some study or studies ...
1/3 of the gain (or loss) of a stock is due to the overall market trend, 1/3 is due to the sector in which the stock sits, and 1/3 is due to company-specific performance relative to the sector.
The first you either ignore or play market timing games with, the second you can either diversify away or place bets on (Miller did the latter), and the third is called old-fashioned stock picking.
It is the old-fashioned stock picking which you are ignoring in your statement above.
micro
>>Bill Miller did not claim to be well diversified, nor did he intend to be.
Actively-managed, well-diversified mutual funds that invest in S&P 500 stocks have no upside for shareholders—such funds will inevitably end up tracking the S&P 500 with the drain of high fees for active management; one might as well own an S&P 500 index fund.
Miller’s aim was to beat the S&P 500 by not being diversified.<<
With all respect due, Dew, being diversified should not be equated with tracking the market. Diversification means balancing your investments -- owning small and large companies, companies that do well in war and others that do well in peace, companies that soar when the economy is growing and a few that thrive in recessions, companies that like to buy their commodities cheaply, and others which prefer to sell them at inflated prices, etc. Studies have shown that you can do a pretty good job of such diversification with a portfolio as small as 20 companies. Combining diversification with good old-fashioned stock picking can (at least in principle) allow you to have your cake and eat it too, i.e. be diversified and beat the market over the long term.
Personally I find it too difficult to follow enough companies to be diversified. I follow 14 and invest in about half at any one time. I also find tech and biotech a lot more interesting and fun to follow than any other sectors, and it isn't easy to diversify with such a narrow focus.
On the other hand, I don't run a $16.5B fund with lots of assistants, like Miller used to. If I did, I would probably focus a bit more on diversification so as not to end up at $2.5B like him.
http://finance.yahoo.com/q?s=LMVTX
As I understand it, Miller's fund was free to invest in any sector.
http://finance.yahoo.com/q/pr?s=LMVTX
However at the time of his demise, his fund owned banks, banks and more banks. I believe his downfall wasn't solely due to his buying the wrong banks at the wrong time based on too-gullible belief in their balance sheets. It was also due to having a portfolio much too heavily weighted in financial institutions.
It's the gambler's ruin problem. Even if you are the best gambler in the world, you don't bet your life savings on a card which hasn't been turned over yet ...
micro
Board ettiquette
>>Separately, I just want to be clear on the etiquette here regarding posts/replies. If we're replying to someone, we don't need a formal heading but should just add arrows and italicize as I did in this post and you did in yours before. Is that correct?<<
Dew sets the ettiquette, because he's the only one with the capability to enforce it. But I think the first few words of any post should make it clear what the subject is so that readers can decide whether to skip, skim or read.
Do I always remember to follow my own advice? Of course not ...
micro
>>I really don't recall all the parameters but my point is that we just fluff off another $50 billion?<<
I guess trillion is the new billion these days ...
micro
CEGE
>>For that reason I don't think CEGE is going to liquidate, but I sure wish it would. (I bought a half million shares in the teens for a trade and now it is at $0.29.)<<
I hadn't realized the ambiguity when I wrote that. By "teens" I did not mean $13-20/share ...
micro
Companies with large accumulated deficits
To add to the list: INCY ~$1.15B.
Of course most of that was under another one of the worst all time CEOs, Roy Whitfield.
Funny how some of the worst CEO's are also some of the best talkers? Or perhaps I should say 'cheerleaders' ...
micro
Bill Miller
>>Let’s take the S&P 500 because this is the index Miller’s fund aimed to beat. The index consists of 500 stocks. If a large-cap fund holds 200 or more of these stocks, as many such funds do, what is the probability that the performance of the fund will differ widely from the index?
The answer is: low.
It’s no wonder that most of these funds underperform the index. They are essentially quasi index funds with a high fee and high transaction costs. A given fund of this sort can get lucky and beat the index in a given year, but it’s mathematically impossible for such a quasi index fund to beat the index consistently.
Miller’s fund was a different story, of course. He held about 30 stocks instead of hundreds. With only 30 names, the chance of outperforming an index of 500 names is very doable, and he did it for a long time.<<
You can hold only 30 names and still be diversified. Apparently Miller wasn't.
micro
>>I would pick Lonnie M. Smith, although a medical device company, I have to be impressed with someone that can take a company from obscurity to a 5 billion-market cap.
Hoping ISRG was close enough to the general field of biotech / pharma.<<
I have been lucky enough to have gotten to know several of the very early engineers at Intuitive who built da Vinci essentially from scratch.
One of them said to me something close to this a few years ago: "After what we came up with, any Harvard MBA could have made a success out of Intuitive." (Lonnie has a Harvard MBA.)
That guy was peeved because he felt that after the first commercial version, Smith didn't support the R&D team sufficiently and supported some outsiders who didn't know what they were doing. As a result, improvements were less ambitious than first anticipated, and they took many more years than necessary to be realized.
That was his view.
I think his comments are probably way over the top and I am very impressed with the Intuitive management team. (I have followed the company closely since the IPO.) But I think there is a valid point here. CEO's get a lot of the credit when a tech or biotech company succeeds, but often the lion's share of that credit (or blame - as the case may be) should belong to the scientists and/or engineers in the background.
Investors are often not in a position to distinguish.
micro
>>Thus, the observed outcome in which Albuferon was 5% worse than Pegasys was a squeaker, not an easy success.<<
Ah! Sorry I am a few days behind and therefore occasionally replying to stale posts ...
micro
Olive oil
>>One of the Mediterranean-diet groups was given 1 liter (33.8 ounces) a week of virgin olive oil. <<
WOW! That's a lot of olive oil!
1 liter = 67.6280454 tablespoons.
~8,018 calories!
I put a tablespoon of olive oil on a large bowl of popcorn I make at home from time to time. You can really taste it. As rich as buttered popcorn. Much more than 1 tablespoon would probably make me ill.
How in the world do you get people to ingest 67.6 tablespoons a week??
micro
>>Albuferon achieved an SVR of 80% vs 85% for
the Pegasys arm; the 5% difference was less than the 12%
non-inferiority margin in the SPA and hence the trial is
considered a success. The Albuferon and Pegasys arms
were similar in safety and tolerability.<<
I guess I'm confused, Dew - probably because I haven't gotten around to listening to the 12/8/08 cc yet. I thought HGS just made it by the skin of their teeth because the 12% non-inferiority range actually translated to the measured difference between Albuferon's SVR24 and Pegasys' SVR24 being less than ~5% in either direction. Read this from Stump and see if you agree or not.
(2/27/07 4Q06 cc)
>>DAVID STUMP: The key aspects of the Phase III trial are the noninferiority boundary, which is agreed at 12%. The overall power for the noninferiority hypothesis is well above 90%, conventional 90% power. And that includes accounting for the multiple testing that we're doing with two doses in the study. If we achieve our non inferiority hypothesis, there is an allowed comparison for superiority between a dose that is already deemed to be noninferior. The power will be less, I would say will be closer to 80%, which would be nice conventional Phase II power for a superiority hypothesis, but certainly enough to make the test interesting if we get far enough to be allowed to do it.
We hear from treating physicians that in fact their boundary of interest is a 5% absolute difference in point estimate and we will probably not be adequately powered to see that difference, but this field actually responds more to observed point estimates that actual statistics in the end. It is important to remember that in our noninferiority test, if we are more than 5% absolute worse for Albuferon, we will not achieve our non-inferiority boundary. The two come together nicely despite the testing approach. Is that clear?
MEG MALLOY: I want to clarify that. When you talk about 12%, that's plus or minus 5%?
DAVID STUMP: Yeah. That's the boundary, your noninferiority boundary. Your confidence interval can't drift beyond that. Your starting assumption is in a non-inferiority trial is that your point estimates will actually be observed to be the same.
MEG MALLOY: Okay. So plus or minus, say 6% in terms of SVR-24?
DAVID STUMP: Yes.
MEG MALLOY: Percent?
DAVID STUMP: So if we're within 5% on SVR -- final SVR, we'll meet our noninferiority hypothesis. Now obviously, if you're going to have point estimate drift, you would prefer to drift in a favorable direction.<<
(7/30/08, 2Q08 cc)
>>DAVID STUMP: This was a point of very specific discussion in our end-of-Phase II discussion with FDA where we set the boundary to be excluded of 12%. That roughly would translate in to the statistical outcome being met if Albuferon was no more than 5% worse – observed worse than Pegasys.<<
If HGS did make it only by the skin of their teeth with Achieve 2/3, then it is still very unclear what the result will be after Achieve 1, and that could be why the HGSI stock price gyrated wildly after the results came out, as you noted. A quick read of the PR indicates the trial was successful; upon closer examination, the Albuferon results were inferior - in a statistically meaningless way, but in a way which could easily become statistically meaningful after Achieve 1.
micro
>>When I buy a biotech, it's normally for a very specific reason and I will hold until certain specific events pass, whether that's an FDA decision on a drug, Phase II or III trial results, etc. If those events don't transpire the way I expect, the stock tanks, and therefore the story/outlook has changed, I have no problem selling and moving on at a loss.<<
You are leaving out one important reason to sell - even if a company is hitting all its targets, doing everything you hoped and more, racking up one success after another.
It may simply be overvalued.
Of course that's not so likely to be the situation these days ...
micro
Hypothetical buyout situation
>>Say you've found a little biotech that you feel has enormous long-term potential but the company gets bought out by a larger biotech/big pharma for a significant premium. So, the stock maybe doubles in one day but then you miss out on all that long-term upside.<<
I agree with Dew's response and feel the above comment is rather ridiculous. Of the few companies I follow closely, it is rare that the most undervalued one is more than twice as undervalued as the next most undervalued on my list. (Read that two more times and it will make perfect sense ...) So if the most undervalued one was bought out at a 100% premium, I could simply use the cash to buy more of the next most undervalued one on my list and be in a much better position than before in every sense except perhaps diversification.
The only real negative in such a case is that I have to spend the time and effort to add a new company to my list and study it to death. Still - I will have been more than adequately compensated for the effort ...
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>>The only other voluntary biotech liquidations I recall are NTEC (still pending) and CABG Medical, which shut down in 2006.<<
I suspect a rather necessary criteria for going the liquidation route is a BOD with significant skin in the game - i.e. sufficient shares and options which are not far underwater to make it more worth their while to reward shareholders (including themselves) rather than to sell out or keep playing the game until the clock runs out.
In other words, self-interest rules.
For that reason I don't think CEGE is going to liquidate, but I sure wish it would. (I bought a half million shares in the teens for a trade and now it is at $0.29.)
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Modified Dutch auctions (re: CTIC debt repurchase):
>>I am not curious enough to look at the original terms but this seems a little ridiculous .05-.08 on the dollar?<<
>>>>Any but the most senior credits are apt to end up with nothing in due course; hence, accepting five cents on the dollar might actually be attractive to some holders.<<<<
CEGE is also doing one of these modified Dutch auctions - which I had not even heard of until recently. Dew: Would you agree that although some of the Noteholders may be happy to get out at 5 cents on the dollar, the last ones standing are likely to hold out for something much closer to face value for their Notes as long as there is sufficient cash to pay them that much and leave something left?
For example, imagine that after paying off most of the Noteholders there is $10M in face value Notes remaining and $30M in cash. Under those circumstances, wouldn't you expect those last Noteholders to demand something close to $10M before they would melt away into the night?
Anyone have experience on how these things typically turn out?
CEGE has $118.7M in convertible debt (that will never convert) and a bit more in cash. Obviously they'd like to buy back all the Notes on the cheap and be left with a no-debt company and significant cash. But how feasible is that??
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>>Biotech rule of thumb: If it's a piece of information that bodes well for the trial, then 90% of small biotechs will make sure it is stated clearly and advantageously in the PR.
Conversely, if there are ambiguities, they are there because the specifics themselves may add a negative hue to the results.<<
Consider your post 'recommended', pgs!
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INGN goes belly up ...
How in the world can declaring bankruptcy be good for shareholders who will lose whatever they have left of their investment!?
>>“In light of our current financial state and recent market conditions, the company believes today’s actions represent the wisest alternative for our shareholders, creditors and other stakeholders,” said David Enloe, Introgen’s president and CEO.<<
Hang on ... I think I've got it! Anyone still holding INGN shares, after all that's gone down, is obviously a clear and present danger to themselves and their family's financial well being (not to mention a complete nincompoop). By declaring bankruptcy, the company is putting such people out of their own misery - by preventing them from continuing to average down in the future!
Sort of like mercy killing, I guess.
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>>Look at what Combinatorx did the other day. It was worse. Laid off half their company, had their 5th drug fail, restructured to conserve cash AND gave top management cash bonus incentives to retain them.<<
Is that the converse of "No good dead goes unpunished"?
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>>Takeda will return all commercial rights to GVAX immunotherapy for prostate cancer to Cell Genesys and make certain wind-down payments to Cell Genesys in connection with the phasing out of the remaining clinical development activities.<<
The wind-down payments could actually be significant.
Interestingly, Takeda isn't the first company to back out of a GVAX deal with Cell Genesys ...
>>Cell Genesys, Inc. (Nasdaq: CEGE) today announced that it has reached an agreement with the pharmaceutical division of Japan Tobacco Inc. (JT) regarding approximately $16.8 million in clinical and patent-related milestone and wind down payments arising from a former collaboration agreement with JT for GVAX(R) cancer vaccines which was terminated in October 2002.<<
http://phx.corporate-ir.net/phoenix.zhtml?c=98399&p=irol-newsArticle&ID=552475&highlight=
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