Replies to post #108672 on Biotech Values

[DewDiligence]

While 18424 competes with PFE's directly, I think for disease like RA with big and diverse market, no significant differentiation is not major burden, as you can see from antiTNF agents, which are all big sellers.

INCY claims non-inhibition of JAK3 affords differentiation relative to PFE, but it remains to be seen if this is a consequential distinction.

[mcbio]

Most of INCY valuation comes from 18424, partnered with NVS, could be on market next year in MF - market probably prices 100% chance of success in phase III.

But how many times in biotech have we seen great expectations dashed in Phase 3? I guess that's what bugs me about INCY and the $2B market cap valuation. If the market is truly pricing in 100% chance of success for the MF indication, there's probably not a ton of upside even if that pans out. On the other hand, if there is any kind of hiccup in the data, there's probably quite a bit of downside. I'm just thinking about this in terms of risk-reward.

I am uncomfortable with RIGL's drug safety profile, especially for RA long term use. The market doubts whether it can clear regulatory hurdle easily even if it maintains phase II efficacy.

I think we see those doubts more than priced into the stock, though, given the $400M market cap. There are some questions about the safety and I respect those though I think the drug will prove itself reasonably safe in Phase 3. I will say my biggest concern is that the Phase 3 trial design appears to follow the Phase 2 Taski3 design and that trial failed on the efficacy front. So I do think RIGL does have its share of risk. But I just tend to think those concerns tend to be more than priced in to the stock. Also, given that my investing timeframe is generally up to, but before, major binary events (e.g., Phase 3 results), I tend to think of the potential for a biotech to perform up to, but before, those major binary events. I just personally think RIGL at a $400M market cap, and a lot of negative expectations baked into the stock for the time being, may have better upside potential near-term than INCY at a $2B market cap, with the bulk of the valuation possibly tied to a drug that the market is pricing in 100% chance of success for. I.e., with INCY you may need to wait for the huge binary event, and the risk that entails, to get some upside whereas I could see RIGL appreciating nicely from the current $400M market cap level without having to incur the ultimately significant Phase 3 binary risk.

While 18424 competes with PFE's directly, I think for disease like RA with big and diverse market, no significant differentiation is not major burden, as you can see from antiTNF agents, which are all big sellers.

It's clearly a large market and I do agree that there will be room for two JAK inhibitors. I just think given that PFE is so far ahead they'll have first mover advantage and will presumably be able to capture and maintain a larger share of the market compared to LLY/INCY. I guess I'd feel more comfortable about LLY/INCY's share of the market if the market cap were a bit cheaper.

[mcbio]

I am uncomfortable with RIGL's drug safety profile, especially for RA long term use. The market doubts whether it can clear regulatory hurdle easily even if it maintains phase II efficacy.

I want to revisit these prior comments from you in light of what RIGL disclosed during its recent Piper presentation (#msg-58251171). I assume your safety profile concerns center around the slight blood pressure increase that occurs in some patients. Given that RIGL is clearly tracking cardiovascular events in FosD patients and has seen no trend at all to date in FosD arms, what specific concerns do you have? This doesn't guarantee of course that the trend won't diverge in the future but, to date, the slight blood pressure increase (and temporary if antihypertensive medication is adjusted) has not led to any difference in cardiovascular outcomes.

[mcbio]

I am uncomfortable with RIGL's drug safety profile, especially for RA long term use. The market doubts whether it can clear regulatory hurdle easily even if it maintains phase II efficacy.

Jq, just want to revisit RIGL again, even if we did discuss it ad nauseam before. ; ) You don't think the stock can pop a bit if Phase 3 efficacy results are positive? I respect some of the safety questions (even if I don't think they will be enough to de-rail fostamatinib) but, with respect to those, if I go long RIGL again, I would wait as long as I could to take a long position before Phase 3 results are released in ~mid-2012. That way, you wait as long as you can to avoid some serious safety issue that causes the trials to be stopped early. If the trials run to completion, and efficacy results are positive, I would expect a nice jump in share price if valuation remains around current levels at that time.