Biotech Values

[DewDiligence]

It looks like we’re in Bubble II for selected cancer stocks.

Monday’s OSIP spike was as steep as it was because so many investors had written off Tarceva after the weak results in first-line lung cancer. This shows many investors weren’t paying attention, because OSIP’s CEO, Colin Goddard, had said all along that the chances of success were poor in the first-line trials but were quite good in the refractory lung-cancer trial that was the subject of Monday’s report.

However astonishing OSIP’s spike might be, it was not as irrational as the pop in DNA, which rose by an even larger amount when measured in incremental market capitalization. OSIP stands to make more money on Tarceva than DNA: OSIP gets 50% of the net U.S profits and a 20%+ royalty on international sales from Roche, while DNA gets 50% of the net U.S. profits and nothing on sales outside the U.S.

I rather doubt that Tarceva will become a bona fide blockbuster because the competition in NSCLC is intense. Iressa is approved in the exact same indication that Tarceva seeks, and several other drugs, including Erbitux, may be tried in this setting off-label.