7/4/18

Biopharma & Investing
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In demonstrating PFE and MRK to an inmate here, I was reminded of the poor R&D productivity of big pharma. I’ll do a little more of an in-depth analysis but if you take the aggregate R&D spend of these two “industry leaders” and evaluate what projects ended up being successful, what are we left with? Only compounds definitely from within count. Buying Schering who bought Organon and lucking out on Keytruda doesn’t count. I’ll try and trace back the origins of each compound.

Organic Merck: Januvia, Cervarix, Isentressp
Organic Pfizer: Ibrance?, Lyrica, Xeljanz, Inlyta, Chantix, Celebrex, Neurontin, Lipitor
Inorganic Merck: Keytruda (Organon/Schering), Remicade (Centocor), Simponi (Centocor), Vytorin (Schering), Zetia (Schering)
Inorganic Pfizer: Prevnar (Wyeth), Enbrel (Wyeth), Sutent (Sugen/Pharmacia)

This analysis will continue. Anything I missed?

–Very glad to see the WSJ take Greenlight down a notch. There’s a joke in there about me. Well, I guess the jokes on Einhorn. He passed on my company and I project that is up about 4x. Meanwhile his Greenlight fund is… uh… not doing so well, apparently. I’m far better off than he was at my age, and at the rate he is losing money and I’m making it, I’ll be wealthier than him soon even without the 15 years he has on me. Keep shorting NFLX and AMZN bro, you gotta be right someday.

Book Review
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The Dhandho Investor – Monish Pabrai

This is one of the worst books I’ve ever read. Most investing books suck, and Pabrai breaks new ground in the arcane field of suction engineering. Pabrai is what I would call a weak-form Buffett clone, and appropriately comes off as embarassingly clueless. The only property of this work worse than its content, which lacks one original thought, is Pabrai’s putrid writing style. I lost count at how many times he printed his meaningless platitude “heads I win, tails I don’t lose much”. Pabrai believes he’s doing the world a favor by writing, but I suggest he finds a new hobby. As if the secrets of wealth are contained in 180 pages of regurgitated “value investing basics”, Pabrai’s arrogance is intolerable. He doesn’t mention that, like any investment strategy, value investing can become wildly overcrowded and ineffective. Why are all the value hedge funds doing so poorly? I guess they haven’t picked up this classic.

Contradicting himself repeatedly, Pabrai screws up basic calculations, doesn’t explain (frequently being wrong) key inputs to important formulas. He stresses simplicity, but misses the point that investing, in fact, is anything but simple. Take Buffett. I consider myself a Buffettologist and have learned a lot about this legendary investor. From what I can tell, Mr. Buffett and Berkshire Hathaway have been a leveraged, long-only beta bet on American equities. It has worked well. The false conclusion drawn by Pabrai and his sorry acolytes is that we should be like Buffett. America has changed. We are a very leveraged country and much larger, among other differences. I have no idea if the great bull run of the 60s-present day will continue. Neither does Pabrai. The US may be the next Japan or Russia (two leading countries in the 70s), or worse. The question of ‘why is it so easy?’ apparently never enters Pabrai’s mind. The answer is because it isn’t. Nowhere does Pabrai suggest holding cash in a portfolio or entering into more complex transactions.

Even in relative bright spots, like a fairly pathetic tour of his successful investments, Pabrai’s level of ignorance is astonishing. His funeral home example excludes the company’s gigantic debt load from his calculations, happily allowing him to pronounce his purchase of the company’s stock at 3x cash flow. Yes, I too can ask Bloomberg to print me out a list of enormously overvalued companies ‘trading at low P/Es’. I was perhaps this ignorant when I was 17 years old, in my first year on Wall Street. Some examples, like his Level Three convertible bond “analysis” are superficially fun, but show the Buffett sycophant syndrome. He buys these bonds because Buffett buys the bonds. Okie, dokie. Pabrai’s application of the Kelly criterion is also laughable, often humorously suggesting to put 90% of one’s portfolio in an equity.

I hate to criticize other investors or beat my chest and imply “I’m richer than you” or “I’m smarter than you”. But I must implore you to ignore this book, or read it with an eye to correcting it. I’m not sure who sent it to me, but you hurt me. Why are you hurting me? One should read about great investors like Buffett, but try to abstract the governing dynamics of their actions. “Buffett started an insurance company. So should I!” “Buffett bought a lot of American Express during their crisis, I should do something like that!”. These are all unoriginal and overly simplistic thoughts that will teach you nothing and lead you astray. Investing actions are a manifestation of your investing theory. If you discover and understand, and then extend theory, you can create actions that aren’t simple acts of mimicry.

There are exceedingly important questions the advanced investor has to ask: are there times when I can discount future cash flow at very low (close to zero) rates? Is investing a “zero-sum game”? What is the relationship between arbitrage and crime/ethics? What can we infer from liquidity? Pabrai reminds me of the old SNL skit “Deep Thoughts”, the modern day equivalent of the philosoraptor. Except, even those constructs grope for a further truth and a refinement of technique. Not Pabrai, he’s got Dhandho.

Papers I read today and yesterday
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The protocadherin 17 gene affects cognition, personality, amygdala structure and function, synapse development and risk of major mood disorders. Chang et al. Molecular Psychiatry 2018,23:400-412.
Interesting paper on a new target. First thing I ask myself when I read something like this is, how many AA is PCDH17 and is there a crystal structure?

The Lymph Node and the Metastasis. Tjan-Heijnen & Viale. NEJM 378;21.
Another “Clinical Implications of Basic Research”. Oh boy. Here we debate the irrelevant question of how tumors seed metastases. I don’t think it matters.

Correction of a splicing defect in a mouse model of congenital muscular dystrophy type 1A using a homology-directed-repair-independent mechanism. Kemaladewi et al. Nature Medicine 2017.
I reread this paper. It actually is a bit of a breakthrough, delivering CRISPR through AAV9 and selecting just the right PAM to excise/correct/create just the right donor splice-spite mutation in post-mitotic tissue. The animal data is impressive and augurs well for humans. I’m a little wary of the immunogenicity of the humorous delivery of gene editing through a viral vector. I also have questions about what drives expression from the episomes, but you can’t argue with the data!

Transglutaminase 2 overexpression induces depressive-like behavior and impaired TrkB signaling in mice. Pandya et al. Molecular Psychiatry 2016
Not terribly impressed here. Maybe I’ll re-read it.

Glossary
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synapse. The gap between neurons where chemical or electrical messages are sent. Understand the difference between presynapse and postsynapse.
amygdala. Bilateral brain structure in the temporal lobe responsible for a variety of functions including memory and emotion (not just rage as we’re taught in school). Close in proximity to the hippocampus.
hippocampus. Bilateral brain structure in the temporal lobe responsible for memory consolidation among ther functions.
temporal lobe. Major area of the brain responsible for interpreting sensory input and many other things.
dendrite. branched extensions of neurons that receive impulses/signals.
dendritic spine density. the arborization of dendrites is thought to be important for various illnesses. the more dense the better.
GWAS. genome-wide association studies. The study of entire genome (or exome) and its correlation to some phenotype. Beware multiplicity statistical errors, which are frequent in GWAS.
NHEJ. Non-homologous end joining. Contrasted with HDR, NHEJ allows for double strand break correction without a template. More error prone than HDR.
Protospacer-adjacent motif. A target region for Cas9 nuclease activity.
Single guide RNA. Guides CRISPR to nuclease site.
spliceosome. Cellular apparatus that removes introns from RNA.
donor splice site. 5′ site of intron to be spliced out.
post-mitotic cell. Cell that will no longer undergo mitosis. E.g. neurons.
hemagglutinin-tag. Similar to other tags like His6, FLAG, SUMO etc., tag proteins with short amino acid sequence to assist purification and identification. Used FLAG for my first proteins until I realized it really is a research tool. I believe there is one FDA approved drug with the tag intact, however (LOL!).
syngeneic model. An animal model using a tumor allograft from the same species/background to ensure immune competence.

7/1/18

BIOPHARMA
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What to make of Sage? I am skeptical. PPD is unlikely to be a major market and I’m suspicious of the preliminary findings with the GABAergic agent. Studying the history of “GABA antidepressants” (misnomer) has been interesting thus far. Lilly, Roche and others have published in this field on mostly anxiety agents and still found it very hard to differentiate from benzo-like properties.

Nektar. No, the cure for cancer is not pegylated Proleukin. Some in the biopharma industry lost its collective mind for a minute or two. You can’t call it a bubble without some inflation. Back to reality… this drug doesn’t work.

BeiGene. I believe this emporer may have no clothes. Or, at least at this price, you’re paying Armani for Old Navy. It remains to be seen if cancer drugs will sell well in China, and if their own Revlimid is any indication…

Wuxi Biologics. I wish I could think of the right meme here. What is going on with this company? Holy moly. I gather if you look at Celltrion, Samsung Biologics and Wuxi Biologics as a basket of biosimilar companies, you will do see expectations are too high. In full disclosure, I pioneered the idea of comparing Celltrion and Hospira 6 years ago when Celltrion was worth $7B. Today it’s $30 or $40B (who the heck even knows? or cares?). So the total value of these three monsters is close to $100B. Biologic drugs themselves subject to biosimilar competition is, say, $60B. 18 + 7 + 7 + 7 + 6 + 4 + 4 + 4 (Humira, Remicade, Enbrel, Rituxan, Avastin, Prolia, EPOs, Neupos). The possible biosimilar share is arguably 50% — innovators can discount and biosimilars are not interchangable. so you are chasing $30B of business. The problem is these three companies don’t keep all the economics for their drugs — they have an array of deals with various players (BIIB, etc). And they’re not the only three games in town: Amgen, Biogen, Bohringer, Teva, Mylan, Pfizer, Biocon, Allergan, Apotex and others are all developing biosimilars. I’m not saying these companies will never make money, but, I think you can safely bet against them at this point.

Papers I’ve Read Today
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When less is more: a case of phenytoin toxicity. Robertson K, et al. BMJ Case Rep 2013.
Random case report as I navigate the world of epilepsy.

Preventing Sudden Unexpected Death in Epilepsy. Devinsky, et al. JAMA Neurology 2018.
No comment.

Nivolumab plus Ipilimumab in Lung Cancer with a High Tumor Mutational Burden. Hellmann, et al. NEJM 2018 378;22.
It always puts a smile on my face when Yervoy actually does something. A double smile for whenever antibodies beat chemotherapy heads-up. May the next generation never utter the words ‘platinum-taxane doublet therapy’. Where’s Avastin in all of these studies? Out with angiogenesis, in with immunooncology (what does that say about ‘IO’?)

Essential Tremor. Haubenberger & Hallett. NEJM 2018;378:1802-1810.
Scary illness, not many treatments. What to do? Will read more. Interesting that ethanol resolves symptoms. Perhaps an NMDA antagonist should be tried here… perhaps I should keep that to myself.

Battling the biology of opioid addiction. Nature Medicine 2017;23:790.
Haven’t made any progress in a year. The NIH could be a cool thing for Trump to turn upside down.

Correction of a splicing defect in a mouse model of congenital muscular dystrophy type 1A using a homology-directed-repair-independent mechanism. Kemaladewi et al. Nature Medicine 2017.
More tomorrow…

A tripartite complex of suPAR, APOL1 risk variants and alphaVbeta3 integrin on podocytes mediates chronic kidney disease. Hayek et al. Nature Medicine 2017.
The Sever/Reiser team publishes more of their work on suPAR. The science is clear, compelling and straddles all methodologies: in vitro, in vivo and human. I’ve always been impressed by Reiser but this work is still incomplete and missing the bullseye. I can’t put my finger on it but pharma should be paying attention to suPAR/APOL1.

Biopharma self-education
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I’m a big proponent of self-education because there’s no other kind. Here are some concepts or terms you should know if you follow medicine/biopharma. I take these terms/concepts from the papers I’m reading and note which a person with a career in biopharma should be familiar with. Generally, terms are easy to understand, but remembering them is tricky. Concepts are tricky to understand, but remembering them is easy. A lot of these are really simple but I think most people have only vague understandings of important things. But some are truly elementary and designed for beginner education. I’d highly recommend you understand these core concepts. These are all my own definitions and subtleties or even errors may exist. I’ll keep a running list of them and make a separate page for just terms I think you should know.

Core concepts:
Penetrance. Simple concept, the likelihood a genotype will manifest as a phenotype. Be able to explain why an illness may display high penetrance or low penetrance.

Haploinsufficiency (related term). The result of a non-functional allele in a biallelic state, leaving one working copy of a gene/gene product.
Haplotype. Genotype of a haploid gene, really an allele. Some other usages include linkage-related phenomena.

Splice-site mutation. Any mutation that result in an exon/intron shift, resulting in an incorrect gene product.
Homologous recombination. The process by which DNA strand breaks/errors are fixed using a homologous strand of DNA.
HDR pathway. The homology-directed repair pathway that uses homologous recombination to fix genetic errors with a DNA repair template.

Ataxia. Common neurological finding where the patient is unable to coordinate broad motor function due to lack of coordination of muscle movements.
Nystagmus. Common neurological finding where patient is unable to control eye gaze, resulting in aberrant and involuntary eye movement.
Diplopia. Double vision.
Dysarthria. Speech dysfunction secondary to neurological dysfunction.
Past pointing. A neurological test to detect cerebellar dysfunction.
Intention Tremor. Contrasts with Essential Tremor as a low frequency tremor.
Dystonia. Involuntary muscle contractions.
Paresthesia. Abnormal tingling feeling.
Cerebellum. The “small brain” which controls motor function, movement and coordination.
Hypotonia. Lack of muscle tone, or weaker than normal muscle tone.
Schwann cells. Peripheral nervous system cells that form myelin (among other things).
SUDEP. Sudden Unexpected Death in Epilepsy
Generalized Seizures. Seizures with bilhemispheric origin.
Tonic-clonic seizure. Formerly known as a grand-mal seizure, features both tonic and clonic aspects.
Tonic seizure. Seizure featuring rigidity/muscle tightening.
Clonic seizure. Seizure featuring jerking/contracting movement.
Focal seizure. Formerly known as partial seizure. A seizure originating from a definitive brain area.
Ictal. Related to a seizure.

Surface plasmon resonance (SPR). A laboratory technique sometimes used to measure ligand affinity. Works best with two proteins if I am not mistaken. Not very commonly used as there are simpler methods.

Hazard Ratio. Common statistical measurement to determine the risk reduction of one intervention as opposed to another. HR=0.50 is a 50% reduction in the risk of an event over the course of time. This is opposed to odds ratios, which do not account for area under the curve in a Kaplan-Meier plot and are “landmark”-type analyses. Be able to explain why 1-year overall survival and hazard ratio could be very different statistics for the same RCT.

Copy Number Variation. A phenomenon where a stretch of DNA (as little as a trinucleotide or as large as an entire gene) is repeated. May result in no phenotypic change, or some change due to gene product instability, translation changes or gene dosage.

De Novo Mutation. A genetic mutation arising for the first time in a patient, not passed through a classical inheritance from the parents.

Music
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Music is hard to come by here. We have prison-issued MP3 players. Many of the newer albums (and older) aren’t available on our system. You can generally forget about anything mainstream. One song I had on yesterday that I really enjoyed was Pianos Become The Teeth’s “Repine”. I listened to it a lot prior to prison. I’m told they finally have put on a new album but I haven’t heard it. A friend of mine even sent me the lyrics! Imagination’s all I’ve got.

Politics
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Liberals must be losing it. Are Trump’s approval ratings increasing? I have no idea. The economy is doing well, North Korea is finally behaving (imagine he wins a Nobel Peace Prize? perhaps with a bit more progress, he should!), and a new conservative Justice is coming to the Supreme Court. Bad era for the other team, which is why it’s important to remember, we’re all team America. Grow up, liberal pussies. As a conservative, and something of an intellectual, I am dismayed at the sanctimonious left. You’re not better than anyone else, and you’re damn sure not better than me.

Oh, I hope some people are not upset that I’m trolling Lauren Duca. How can you troll your own wife?

Sports
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I’m going to be paying a lot of attention to sports going forward. I’ve always been a sports fan, as a natural competitor. I’ve ignored the major sports, save for following championship games. You can guess why I’m interested in this, all of a sudden. Lebron is going to the Lakers. Not sure what that means quite yet but will make for interesting games later this year.

Disclaimer – You should assume I have a conflict of interest on everything I talk about (even in sports, music and politics!) given my web of complex holdings. I don’t give stock advice, and you should not ever listen to anything I say because I’m an idiot. Never come back here again.

June 30th, 2018

Welcome to my first blog. I’ll be discussing biopharmaceuticals and other topics. I am not recommending any stocks or making investment advice. This is merely me “thinking out loud”. I’ll try to mark sections clearly for those who are here for industry commentary as compared to my personal life.

BIOPHARMA
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–Tesaro and Jazz sold products they don’t want anymore. For those that business, this was noteworthy.

–Recordati’s sale to private equity marks the probable end of an era, but we’ll see if the family sticks around. An incredibly well managed roll-up for the naysayers out there. Rollups are best done slowly (see Berkshire, Loews, but not Valeant).

–Global Blood Therapeutics intrigues me. I will write in further detail in the near future.

–SEL-212. I think this drug should do well, take new patient starts away from Krystexxa. Not a huge problem for Horizon or anything, but notable.

–Novartis’ much-telegraphed sale of Alcon and the continued implosion of GE reminds us conglomerates are more out of fashion than probably at any point in the history of business. This flies in the face of mechanical logic, but practically makes sense. Finding good managers is hard (I’ve maybe found a very small handful of decent managers out of close to 1000 I’ve employed over the years) and conglomerates can only work if you have an engaged CEO (about 5% of CEOs) and engaged managers (less than 5%? less than 10%?), which probability tells you is far lower. The flipside is you get enormous diversification and cash flow stability. Even Bayer pruned some assets, but Berkshire continues to prove everyone wrong. Anyway, I’d rather have a well-managed conglomerate than a well-managed single-focused MNC anyday. Vasella’s failure in buying Alcon was the asburd price paid at the time. Now, divesting it for half the purchase price (~10 years later!) is a sad day for his legacy. The purchase price was $50 billion, but including opportunity cost, the company lost $50 billion on Alcon ($25b asset value, $25b lost opportunity). Given Novartis is still top 5 big pharma, a great performance from the rest of the business.

–In teaching discount rates to some of the guys here, we find dogma like ‘sovreigns always have less default risk than corporates’, when obviously most S&P 100 companies have lower default risk than the Eastern European countries I come from. Or my notion that a conglomerate should always have (all else being equal) less default risk than an industry-focused company. Certainly GE has more default risk than Amgen. You can slap together a lot of low-margin businesses with leverage and you’re far less safe than a well-run industry leader. But, ceritus paribus, the Novartis move is risk-neutral since healthcare conglomerates aren’t really conglomerates. Having an eye healthcare business isn’t particularly diversifying other than somewhat eliminating concentration risk which naturally comes with scale. GE selling Healthcare markedly increases risk, in my eyes. Any precision that comes from better operational focus is overwhelmed by the idea that one of their highest-return businesses is being spun off. Companies need to weather bad times. There’s a reason Berkshire Hathaway, the consummate rollup/conglomerate (dirtiest words possible) bailed everyone out in 2008.

–Alexion’s new antibody should position the company for further complement growth. No one is going to show up and eat their lunch. Having said that, owning this stock is a labor of love (actually, that doesn’t exist in finance!) similar to owning IDPH in 2002 (for you fellow old-timers!). In Idec’s case, you watched great growth of Rituxan but were always wondering “what’s next”. Alexion has their work cut out but sometimes the best solution is to just grow and grow with your middle fingers proudly displayed (a bit of AbbVie’s solution to product concentration risk).

If there is a biopharma company or medicine you want me to think about, email martin@thotpatrol.com (gets snail mailed to me by a friend) or send me a snail mail at:
Martin Shkreli
Register #87850-053
FCI Fort Dix
Federal Correctional Institution
PO Box 2000
Joint Base MDL, NJ 08640

Papers I’ve Read Today
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Prostate Cancer Metastatis — Fueled By Fat? Cory Abate-Shen. NEJM 2018 378;17
NEJM should stop this ‘clinical implications of basic research’ section. It’s embarassing to dumb down basic research and this is the wrong audience. Just make a NEJM Biology journal or something.

Making Sense of Triple Inhaled Therapy for COPD – Suissa & Drazen. NEJM 2018
Authors are too critical of IMPACT, in my opinion.

Once-Daily Single-Inhaler Triple versus Dual Therapy in Patients with COPD. Lipson et al. NEJM 2018 378;18.
The “IMPACT” study worked. Disagree with the editorial. I like GSK.

Association of Serum Retinol-Binding Protein 4 Concentration With Risk for and Prognosis of Amyotrophic Lateral Sclerosis. Rosenbohm et al. JAMA Neurology 2018.
Embarassing this got published. Look at the delta in serum RBP4 between groups and you tell me that is of any value.

Identifying fast-onset antidepressants using rodent models. Ranmaker and Dulawa. Molecular Psychiatry 2017.
100 ways to torture a mouse.

Genome-wide association study of positive emotion identifies a genetic variant and a role for microRNAs. Wingo AP et al. Mol Psychiatry 2017.
Less fun paper than it sounds.

PERSONAL
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I have around 38 months to go assuming no success on an appeal. I spend most of my time reading. A newspaper misreported that I’m ‘buff’. This is not the case. Oh, the Wu-Tang album is still in my possession. As are all of my assets. I couldn’t have a lower opinion of newswriters now that I’ve had folks report on me. It’s astonishing, really. I understand that not everyone can be capable or excel at their chosen career, and the reporting of occurrences and chronicling of history is not a vitally important task to those charged with it. So, don’t pay too much attention (an admonishment to the reader and a reminder to myself). Anyway, the fate of the Wu-Tang album remains to be seen, but the choice is distinctly mine. I’m a bit frustrated by the Clan’s insistence on making a further album. I was told this would be the final work–I would have never purchased ‘Shaolin’ if that representation was false. That sounds like a violation of a certain section of Title 18 I’m familiar with, come to think of it. Anyway, I’ll decide at some point if I want to sell the album. If a higher-return troll opportunity occurs, I just might.

What else? Politics seem to be tearing this country apart. I think both sides have to start capitulating or perhaps California/NYC should become a special entity with their own federal government. The rest of the backwards nation will have to make do. It’s more practical than what we have going on. Same federal taxes but less whining. Just thinking way outside the box 🙂

You probably won’t find me talking too much about jail as I think it’s in bad taste. This will undoubtedly be read my inmates and staff and it’s easier (and safer) for me to just avoid certain topics. The only thing I can probably say is I miss my family, friends and cat, roughly in that order.

Well, this will be a living project. If you have any advice, like, “less this and more that”, leave some comments or email martin@thotpatrol.com (my people will slowly deliver this email to me in the form of printed snail mail — takes about 2 weeks from your email until I get it in the actual paper mail). I write this message on our “TRULINCS” prison email system to a friend. That friend posts it on the blog. Hope you enjoy this!