8/12/18

Biopharma/Investing
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Interview questions for an incoming pharma/biotech BD/M&A analyst follow. No one can do this job effectively by themselves, so hiring the right people is essential. The list isn’t exhaustive but reflective of my own interview style. Answers or reasoning for questions are at the bottom.

1. Describe the cell cycle in as much detail as you can.
2. If you were to receive $1 annually on 1/1/xxxx from a reliable party, what could you sell this income stream for?
3. Company A generates $10 million in stable, recuring income/cash flow from $100 million in revenue. Company B is the same as company A, except you are told that Company B has a $10 million annual party (still $10m profit on $100m in revs). What would you buy company A and company B for?
4. What is the most surprising clinical trial result you’ve seen?
5. What drug in clinical trials today do you believe will fail?
6. What disease state offers the largest business opportunity for a new medicine and what approach would you take?
7. Name 3 undervalued public biopharma companies.
8. Describe a large scale protein production process in as much detail as you can.
9. Describe the prototypical (perhaps stereotypical) physiochemical properties of a psychiatric medicine in as much detail as you can.
10. What element are you? Why?
11. What medicine do you most admire? Why?
12. Two companies, Pfizer and a small biotech company, are vying to bring a new class of medicines to the market. Pfizer is one year to two years ahead of the small biotech company. Hypothetically assume Pfizer has a change of heart unrelated to the programs’ prospects and you can acquire either program for $50 million. Assume the separate programs have an identical likelihood of technical/regulatory success. What questions do you need to ask to inform your choice?
13. In what circumstances has a method of use patent been upheld?
14. Give some examples of revenue size by country of a pharmaceutical. Be as detailed as possible (revenue in Germany, Japan, China, France, etc).
15. What type of return in achieved by: venture capital funds, internally derived R&D, acquisitions, healthcare private equity and healthcare hedge funds. Is there an optimal capital allocation process for a pharmaceutical investor?
16. What went wrong for Valeant?
17. A paper appears in Nature detailing what appears to be a tremendous advance in a therapeutic area by means of a preclinical experiment. The university team is willing to license the work to you for $5 million. What do you do to ensure your maximize of success?
18. A drug candidate has a 50% reduction in symptoms from baseline with a within-group p-value of 0.0001. In this placebo-controlled study the across-group comparison p-value is >0.05. What is your interpretation of this result?

Book Review: The Acquirer’s Multiple by Tobias Carlisle
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One of you philistines sent me this, unsolicited. An appropriate subtitle would have been: Sophistries from a Confused “Value” Investor.

I have no idea who Tobias E. Carlisle is. Does anyone? Don’t write books about things you haven’t done. I’m not going to write a book called “How to Win the NBA Finals: Secrets of the Hook Shot”. It’s hard to write a book about investing if you haven’t done it and done it really well. What brings someone to the point where they feel they have to regurgitate the limited knowledge they’ve acquired in a field? Is it their tremendous writing skill? Carlisle provides zero evidence of creativity or aptitude in English language word selection and ordering. So, it must be that what he has to say is so important and learned that we should ignore his inability to articulate it!?

No. The actual content of the book is laughable. I was astonished at many points during reading that someone, even the author, thought this template of inanity was worthy of reproduction. The book begins by introducing a few concepts and platitudes which annoyingly recur. Carlisle’s writing strategy is to repeat his maddeningly ambiguous “point” so frequently and without variation, it borders on absurd. Mean reversion is the most powerful force in investing, the author would have us believe. I assume Mr. Carlisle is long Sears, Radio Shack, Toys R Us, Gap, American Eagle, Pacific Sun and is short Amazon and still waiting on that mean reversion. Me? I have a long list of biotech stocks that failed Phase 3 trials and went bankrupt, I’m long those, and short Gilead, Roche and Novartis as what goes up must come down. Gravity just doesn’t have the same sway Newton predicted in the strange universe of equities pricing.

Carlisle keeps talking about how one has to defy the “crowd” to be a successful investor. But what is the “crowd”? Or even the “market” for that matter? Carlisle doesn’t realize these are silly adages bereft of logic. “To beat the market you have to do something different from the market”. Really? So to outperform the S&P I have to not be long every single stock in a size-weighted approach? Tautologies abound for the forsaken person who has received this book as a twisted joke of a gift.

Carlisle insists mean reversion is the force that pushes up undervalued stocks. No. I define that force as “alpha” or “arbitrage” (it is also the size of the delta between market price and our derived price). In my framework, over time, alpha approaches 1. Mean reversion has nothing to do with it. For instance, a drug company worth $1 billion announces a breakthrough. The stock goes to $5 billion and stays there for 5 years. They plan another breakthrough, it seems like it will work, but the market doesn’t notice it. You go long. They announce the breakthrough and the stock goes to $15 billion market cap. The gap closed because of alpha realization, not mean reversion.

Another absurd tautology: Undervalued stocks tend to beat the market. A child could tell you that ONLY undervalued stocks beat the market. Of course, as we’ll painfully learn, Carlisle thinks that undervalued stocks are those with low earnings ratios. Yes, the key message of this book is to buy stocks with low P/E, EV/E, and finally, the eureka moment that rivals Einstein, EV/EBIT. Buy low. Sort a list of stocks and buy the low ones and you get rich. That’s what the book says.

Empiricism should never trump logic in investing. The greatest human folly of logic is ‘it happened before so it will happen again’. The amount of money lost, lives lost and destroyed productivity that groundless but intrinsically attractive repetition of prior processes to achieve future results has cost our species is immeasurable. Carlisle doesn’t provide any data or serious methods to allow the examination of his claims. He excludes a large number of stocks, and only US stocks for only short periods of time, where the market did extremely well. One obvious hidden bias to his approach is cyclicality. When the economy is doing well, and the US has done very well, and booms are longer than busts, cyclical stocks do better than the market because of the surprising economic resiliency. Recessions are shorter than investors thought, so stocks do better. Without shorting corresponding stocks, its hard to really know what alpha this system generates. We can see it generates a terrible drawdown and a Sharpe Ratio no better than the market. No serious quantitative investor would ever employ this “algorithm”.

It takes a lot of audacity to write a book that says “buying stocks that meet this secret criteria will make you rich!”. Okay what’s the criteria!? “Low earnings ratio!”. I wanted to throw “TAM” across the room when I realized the writer’s core message. Most of the book is similar to “The Dhando Investor” in that it parrots Buffett, but also includes genuflection to more recent investors like Icahn & Loeb. Like a child nervously glancing at his parents at a piano recital, Carlisle hopes that the conjuring the authority of Buffett will lend credence to his system. Coincidences in Buffett’s approach lend no credence to Carlisle’s system any more than my own obsession with Cherry Coke has made me a great investor. What the author doesn’t realize is that the investors he tries to demonstrate his system emulates have their best days behind them and new methods replace old. Prior world record holders would not qualify for today’s Olympics. We laugh at chess games from the early 1900s and know a moderately-ranked master would likely be the World Champion of 1912. Virtually any competitive sport or activity has the same dynamic: chess, poker, running, surgery, and definitely investing. You can’t look to the past. The people who we are to emulate and admire according to Carlisle were mavericks and innovators. You’re not being an innovator by copying what someone did in 1955, or even in 2000. To beat the market, maybe you have to do something new.

Amazingly, Carlisle advertises his stock screener (only 9.99!) in the book. Anytime someone promises you the fountain of youth, or in this case, the fountain of money, in a “little book” that does something that is very hard to do, but only is asking for your patronage somewhere else, run away. There is one page of marginal interest on overthinking that cannot excavate the reader from the intellectual cave this book builds. Nevertheless, I would recommend “TAM” to a small child (age 6 to 11) curious about the markets. It is simple, short and sets the reader up for more serious thinking later.

Papers I’ve Read
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Combined Analysis of Asthma Safety Trials of Long-Acting Beta2-agonists. Busset et al. NEJM 2018;378:2497-2505.
I wonder how many publications gave the “all clear” signal after writing some scary article about LABAs. I really want to campaign that science writers actually get some (I know this is crazy) science experience. Notice the mITT HR=1.24? Only thing I found unusual here, whatever mITT definition that differed from ITT moved this from no trend HR=1.09, p=0.55 to trend HR=1.24, p=0.13. If it didn’t bother the FDA, it doesn’t bother me. Goodbye black box.

Personal
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I might quit trolling. This wouldn’t be a permanent retirement as much as it would be a shift in focus. I intend on doing fewer in frequency but higher-impact public performance art style trolls (eg Wu-Tang). I have been heavily influenced by a loved one in this regard.

I have been busy reading proprietary research and, of all things, working on math. I am particularly interested in algebraic number theory–if anyone out there is a or knows a professor in this field, I would love to compare notes. martin@thotpatrol.com is the best place to contact me.

Interview
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1. I don’t really care if an applicant understands the cell cycle (unless they got a PhD in cell biology and wrote papers on anaphase dynamics!) or can tell me about non-inferiority margins and esoteric statistics or anything else. I’m trying to determine if the person is self-confident, honest, humble, ashamed, self-conscious, etc. after being asked a technical question. The number of people who tell me they have statistical experience or chemistry experience only to swing and miss a softball technical question is large. If you can fluster someone with a softball, they’re probably not a good fit.
2, 3. See question 1. Answer for 2. is $10-$20, 3. $75m for Company A and $140m for Company B.
4. I have a lot of answers to this one. Perhaps the nusinersen results were the most eye-opening in recent memory.
5. Any beta-amyloid mab trial in mild-to-moderate patients.
6. Alzheimer’s disease is the easy answer. Parkinson’s is a great underdog. Autism would be an intriguing answer. polyQ disorders would get a gold star. Treatment-Resistant/Cognitive-Impairment in Schizophrenia would be an accurate answer. Neuropathic pain is not a bad choice.
7. Well, you can read my blog! I’d say GBT.
8 & 9 See 1.
10. Fluorine! Hungriest element! Personality is important. I’m curious how creative candidates are. I’ve asked people what superhero they most identify with.
11. Similar to #10, looking for creativity and values. A bit of a Rorschach.
12, 13 & 14. More general industry knowledge. On #12, first isn’t always best. 13. Rarely, Viagra is probably the biggest example. 14. Most have no idea the relative size of revenue by country–somewhat dependent on the type of medicine.
15. Testing the candidate’s understanding of capitalism. The point of any capitalist entity is to deploy capital and engineer a return on it. So, a drug company is in competition with a drug hedge, private equity or venture capital fund. How are those investors doing? What are they doing?
16. Overpaid for acquisitions as they scaled, NOT Philidor or price increases.
17. Replicate the experiment internally before forking over the big $.
18. No treatment effect.

8/6/18

Investing/Biopharma
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Ovid’s data look flimsy.

Opdivo and Keytruda are approved in China. CStone and countless others are in pivotal trials. AstraZeneca has a long history in China and you can bet will register Imfinzi there. I’m not sure what Roche’s or Pfizer’s ambitions are, but they also do strong business in China and have globally registered PD-1s. So there are at least 6 PD-1 mabs I can name off the top of my head that are China-approved or likely to be that do not come from Beigene. But Beigene has a very large market capitalization. This will not persist. I have not seen something like this in a long time.

Lots of interesting companies to look at. Constellation, Summit, Fibrogen and so many more. Not enough hours in the day!

Is the world ready for biosimilar orphan drugs? Cerezyme and Myozyme aren’t tiny. I guess we have a few “me-toos” but they’re not cheaper.

Interesting article in JAMA my father sent me on body dysmorphic disorder and social media photo editing software as a trigger for this disorder. BDD is real: if you’ve ever seen someone with large amounts of plastic surgery, they likely suffer from BDD. But there are plenty of people who suffer quietly. Most people are probably unconsciously affected by societal progression of beauty standards. There’s a reason I’m attracted to Lindsay Pelas and Jen Selter–it’s mostly because I’m a man and they largely embody deeply inherited/evolutionary desires of man. So what if they understand that and have perfected it? We’ve reached the singularity of female desirability and the technology-enabled enhancement (both photographical and biological) of it. What’s next? I don’t know.

Always study the history of the industry you’re following. For biopharma, be familiar with companies like Cetus, Chiron, MedImmune, Centocor, Immunex, HGS, Genentech, Genzyme, Idec, Millennium, ICOS, Vicuron, Athena, Genta, Sugen, Warner-Lambert, Pharmacia, Syntex, Abgenix, Triangle, CV Therapeutics, Pharmion, Sandoz, Ciba-Geigy, RPR, ICI, Aventis, Parke-Davis, Scios, COR, Imclone, Medarex, Atherogenics, Telik, Tularik, Intermune, Elan, Northfield, Vion, GenVec, Cell Genesys, Pharmasset, Idenix, ViroPharma, NPS, Myogen, MGI, OSI, Synta, Trimeris, TKT, Aviron, GI, Tanox, and so many more. There is some wisdom in history. You have to mine for it, distill it.

Papers I’ve Read
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Functional gamma-secretase inhibitors reduce beta-amyloid peptide levels in brain. Dovey et al. J Neurochem 2001.
I guess this Elan/Lilly paper started the whole semagacestat/gamma-secretase mess. They go up to 200mg/kg (!!!) dosing in these experiments with their putative GS inhibitor DPAT. Its very hard to trust any of the data given what we know now about APP processing and intracellular retention. Still, you can see the errors in judgment with the high-powered lens of hindsight. It’s also funny to see what passed for a screen in 2001.

The gamma-secretase inhibitor N-[N-(3,5-Difluorophenacetyl)-L-alanyl]-S-phenylglycine t-butyl ester Reduces AB Levels in Vivo in Plasma and Cerebrospinal Fluid in Young (Plaque-Free) and Aged (Plaque-Bearing) Tg2576 Mice. Lanz et al. JPET 2003, 305:864-871.
Pharmacia workers “replicate” Dovey. Same issues. I think everyone was okay with the 100-200mg/kg dose given low brain partitioning and a cell-based assay affinity of ~100nM. It’s really hard to tell what these ELISAs are picking up and what species are relevant for aggregation.

Personal
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I’ve received around 500 books by mail since I entered the prison system. There is a Twilight Zone episode, “Time Enough At Last” (I think that’s what it is called!), that summarizes my feelings on having a lot of time to read. It’s a joy, but I don’t exactly have the shelf space. I probably have around 50 books here at Fort Dix. This is still far too many. So, please don’t send me any books without my knowledge! They will probably end up donated or thrown away. Also, if you mail me, it must be in a plain white envelope with plain white paper. No stickers, glitter, or contents other than paper. No stamps.

Sarah Jeong joining the New York Times is a disgrace. This woman is not a satirist, she has truly backward and painful racial beliefs. We should ask her some simple questions to clear up her “satire”. If you did the same to me, it would look like this:

Q. What do you really think of Hillary Clinton?
A. I think she is an untrustworthy parasite of politics. She should not hold office and represents what is wrong with the American political system.

Q. But why?
A. Just look at how much money her family has made through “speeches”. That’s basic influence peddling. I don’t expect Bill Clinton to become a store clerk after being President, but to become a high-paid lobbyist is a bit disgusting. They’re certainly allowed to be capitalists, but the irony of HRC railing against the rich is not unnoticed.

Q. Do you wish harm on the Clintons?
A. No. I admire all Presidents, once elected. As someone who has achieved a lot, the Presidency is the ultimate achievement and I respect the winner of such an arduous contest. I haven’t yet seen a President so contemptuous to break this ingrained respect. I also begin my analysis of a candidate with a “clean slate”, once elected. I would have done the same for Hillary.

If you did that with Sarah Jeong I think she’d have a hard time disavowing some fairly extreme views. I’d like to see the demographics of the New York Times staff and its readership. I wonder if “white people” are high on that list. I also want to remind Ms. Jeong that Asian Americans are now the highest earners in the United States. There are a lot of poor, uneducated and very, very non-privileged white people. Racism is painful and shameful, but society must grow and move on. Never forget, but learn and grow. What is Jeong adding to the conversation?

Glossary
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strabismus – crossed eyes

8/1/18

Investing/Biopharma
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Always remember that investing is simply price calculations. Your job is to calculate accurate prices for a bevy of assets. When the prices you’ve calculated are sufficiently far from market prices, you take action. There is no “good stock” or “bad stock” or “good company”. There’s just delta from your price and their price. Read this over and over again if you have to and never forget it. Your job is to calculate the price of things and then buy those things for the best price you can. Your calculations should model the real world as thoroughly as possible and be conservative in nature.

Neurocrine is selling a lot of drug. Sometimes you’re wrong! Good for them.

It’s the end of an era for Johnson & Johnson as Stelara takes over Remicade as their best-selling drug. What an achievement, and mostly on psoriasis? Kind of incredible how patients will be diagnosed the more a treatment is effective. Build it and they will come!?

I’m going to start including “Patents I’ve Read”, as a very important source of knowledge that I try and keep up with.

Papers I’ve Read
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Computation through Cortical Dynamics. Driscoll et al. Neuron 2018.
This… this is a paper on computer science? 10-dimensional data can’t be visualized? Hold my beer.

Hearing out Ultrasound Neuromodulation. Airan and Pauly. Neuron 2018.
Funky ideas debunked. Ultrasound evokes an auditory response even at inaudible frequencies. Probably useless for neuromodulation.

Noninvasive blood tests for fetal development predict gestational age and preterm delivery. Ngo, Quake, et al. Science 2018, 360, 1133-1136.
Dr. Quake out with another banger. Drake should take notes. The cell-free fetal RNA test looks at the mother’s blood to determine delivery date. It’s as effective as ultrasound, which was a little disappointing, but my guess is it will be optimized. Pretty amazing!

Subclinical Hyperthyroidism. Biondi & Cooper. NEJM 2018.
Just in case you needed to know about a disease with no symptoms or sequelae.

Reboxetine in therapy-resistant enuresis – a randomized placebo-controlled study. Lundmark et al. J Pediatric Urology 2016.
If you’re old enough to remember Pfizer developing a reboxetine isomer, good for you. The problem with bringing reboxetine to the US is you have atomoxetine which is functionally similar (and generic). So, you could spend a lot of money “repurposing” reboxetine for ADHD, enuresis, NOH or god knows what else, and probably do just fine, but I don’t do just fine, do I?

Chronic delta9-THC in rhesus monkeys: effects on cognitive performance and dopamine D2/D3 receptor availability. John et al. JPET 2017.
I’m all for getting monkeys high and seeing what happens. Apparently you develop a tolerance to some cognitive impairment and whatever else goes away after two weeks of abstinence. Legalize away!

Personal
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Long has paled that sunny sky;
Echoes fade and memories die,
Autumn frosts have slain July.

You can imagine how surprised I was to receive a book from “Ringo” today. Ringo is a member of the canine species, and said member unfortunately lacks a uniform color. Nevertheless, despite his polychromicity and limited intellect, he successfully mailed me “Quantum Physics of Atoms, Molecules, Solids, Nuclei and Particles by Eisberg and Resnick”. This is a subject I know little of and hope to know even less. It will fit snugly on a planck under my bed until Ringo learns how to respect members of the feline species. Jokes aside, thanks you Ringo. May you outlive your namesake.

Glossary
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goiter – n – enlarged thyroid