Biotech Values

[DewDiligence]

Why I added ENTA today at $20.03 (#msg-117918952):

Today’s V-Pak label change affects only patients with Child Pugh B cirrhosis, for whom V-Pak is now explicitly contraindicated instead of being “not recommended” in the old label (#msg-117923678). This is a relatively small patient population, and most of these patients weren’t receiving V-Pak in the first place.

Perhaps more important, today’s news does not in any way affect ABBV/ENTA’s second-generation HCV regimen (ABT-493/ABT-530), where there is no ribavirin, no ritonavir, and both DAAs (PI and NS5A) were designed from the ground up. Some investors who sold today may have thought the second-generation regimen is somehow tainted, but that’s illogical.

Moreover, I don’t think the V-Pak label change will materially alter ABBV’s exclusive contract with ESRX. ABBV would have a strong legal case, IMO, if ESRX tried to change the terms of the contract other than to ensure that V-Pak isn’t given to patients where it’s now contraindicated.

The most tangible effect of today’s news is that it will probably dent 4Q15 V-Pak sales to some degree. It may also cause ABBV to lower V-Pak sales guidance for 2016, but this is not a given, IMO.

All told, ENTA’s enterprise value now ascribes zero—or even negative—value for V-Pak. That’s a market inefficiency screaming to be exploited.