Biopharma & Investing
A mega-price increase from a small company I had never heard of before: Aytu, who increased the price of their Ambien-containing nasal spray. This is actually a neat product, as some people have difficulty swallowing pills and it makes sense that a non-pill Ambien by the bedside may be easier to use. I once tried to buy a company (for $0 EV) called Transcept who made a ODT version of Ambien. That drug is now generic. If I worked at an HMO, I’d mandate people take that drug instead of the nasal spray. So, some price increases don’t work (or shouldn’t work). People who are on and are comfortable on this drug, however, are unlikely to be forced to switch. Maybe a higher copay (maybe much higher).
Beigene and Alnylam have similar valuations but extremely dissimilar prospects. Beigene is late-to-market in China for PD1 and extremely late to a crowded market in the US where they “share” economics with CELG. Their other drugs don’t target large markets. Alnylam has revolutionary technology which has proven successful in many clinical settings, with at least one drug that will sell well over $1 billion.
I’m starting to get worried about Bluebird. Wiping out your bone marrow and living in a hospital for 6 months may not be the cure for what ails you in the shadow of gene therapy for some illnesses and traditional modalities for others (sickle cell). But, BCMA!, you might say? Well, lots of companies have BCMA CART. The MM market is starting to worry me, too. We have lots of great drugs and we haven’t seen commercial success for CART yet. I’m starting to wonder about the upside here.
Some people want more from me on the subject of investing. I write this blog mostly for my teammates around the world who can study my notes and help my companies grow. I’m an unemployed passive investor, but if my philosophies and notes can be of use to someone, great. It’s free. I doubt I’ll give any structured theory of investing despite interest in a book on the subject. The grand unified theory for investing is still unclear to this observer, but I’ll share some explorations as they occur. I will probably write extensively on quantitative investing, value investing and other topics as time marches on.
One of my favorite questions in investing is how do you reconcile taxes in long-term market ‘expectations’? I, of course, believe that the expected median return for an individual global equity is actually negative. But if you are in the polyanna crowd, and you think for some insane reason that future stock performance will be 5% pa or something like that, how do you reconcile having to pay ~25% taxes (long-term rate) in the US? Does that make a 4% return a 3% return? How do you account for the asymmetry? And what about inflation, what is that really? In a world where the “price of goods and services” are irrelevant to a millionaire (any reasonable investor), shouldn’t the price of asset classes be your new inflation? After all, I’m not so worried about a tank of gas and a carton of milk. The prices of a Hamptons house and a La Ferrari are not in the current CPI basket, but your frame of reference is crucial to understanding inflation, in my opinion.
Anyway, if you believe, for whatever reason, that US stock markets going forward, measured by the S&P 500 index (implicit bias here, too), will average 5% per annum, what are you really getting? Well, you have to pay the 25% taxes, no matter what. I’m being generous as there are all kinds of hidden taxes, such as consumption tax, legal and accounting costs (which are, in essence, taxes). So that’s 3.75% net, but net of 2% inflation (whatever that is), you’re at 1.75% real returns. That’s including your massively foolish implicit bet that large-cap United States stocks have their best days ahead, as compared to say, China, India or any other country. You’d have to buy the Russell to avoid the large-cap bias, and perhaps hedge with international MNCs to avoid the US bias. If you could construct a basket of diverse market cap stocks, with their % of business in the US at perhaps 20%, you’d have a truly equity-like instrument. I think your performance net of inflation and taxes would be negative or zero. You might ask how this “system” could do anything but fall apart, in the long run. I’m not a perma-bear or anything like that. First, I don’t think expected return on equities is massively negative. Next, I think a large part of our financial system is constructed on a strange and amorphous foundation that still holds surprises for us. The stock market is ‘everything’ to so many, but real estate, private equity and other fields dwarf equities. Events in those markets impinge on stock performance such that sometimes its a good idea to pay $750 billion for $6 billion in annual (but growing!) cash flow and sometimes it isn’t. I’ll have more to say next time.
Papers I’ve Read
A Phase 3 Trial of Semagacestat for Treatment of Alzheimer’s Disease. Doody et al. NEJM 2013 369;4:341-350.
This is maybe the third time I’ve read this paper from 5 years ago. It’s rare in medicine to get a hypothesis so wrong that the drug does a statistically significantly WORSE job than placebo. This gamma-secretase “inhibitor” worsens cognition and functioning. Some believe it is in fact, not a gamma-secretase inhibitor, but I don’t agree. Peripheral reduction of the putative causative agent of Alzheimer’s, amyloid-beta, was seen, but CSF (no mention of cortical) amyloid-beta was not. Brain disease is region specific (paracrine) and that makes treatment quite difficult. For instance, hippocampal amyloid-beta may be harder to target than perhaps more vascularized areas of the brain. So what explains -9 ADL for placebo and -13 for drug, a palpably worse effect? Two possibilities come to mind.
First, this drug is inhibiting some enzyme that is causing the effect seen. Whether that target is gamma-secretase or not is an entirely different question. If it is gamma secretase, two more sub-questions result. 1) Does regiospecific inhibition explain this phenomenon? We have APP for a reason. It is possible APP aids cognition or synpatic function or something in one cortical area and is problematic when it aggregates in another (hippocampus, amygdala). Oxytocin, serotonin and other neurotransmitters work this way. 2) The second major question is this drug is inhibiting gamma-secretase but that is not the primary causal effect. Many enzymes like GSAP are in this cascade and enzyme conformation often is a signal onto itself for feedback purposes. Stopping gamma-secretase, which ordinarly processes (cleaves) a precursor protein (a common theme in peptide signal biology, see endothelin, angiotensin), may prevent a key feedback signal telling some gene to stop making APP, resulting in paradoxically greater APP. We see reductions in AB, so one is tempted to reject this hypothesis, but AB alone may not be the whole story.
If semagacestat’s target is not gamma-secretase, what enzyme is it, and how could it serendipitously have such a profound impact on cognition? This seems highly unlikely, and we should use this opportunity to probe semagacestat further to understand AD biology. We see immune changes with human dosing, raising the possibility that AD results from immune aging, a hypothesis that was once also speculated for cancer. With no CSF AB or PET changes, one still has to question target engagement for sema. The dosing of 100mg vs 140mg is terribly awkward and hardly seen in medicine. That we see an increase in AB40 and AB42 reduction at 140mg is somewhat puzzling. Why not 200mg? What is DLT here and where is it coming from? Everyone seems to be pointing the finger at NOTCH inhibition but would that really explain increased dementia? If so, why not reverse this process? How about some CSF PK data?
Anyway, this one is an important mystery for current, future and prospective drug hunters to look back on and learn from. A pharmacological mystery.
Phase 3 Trials of Solanezumab for Mild-to-Moderate Alzheimer’s Disease. Doody, et al. NEJM 2014 370;4:311-321.
A lot of observers felt Lilly could have filed and received approval for sola on these barely-missed Phase IIIs. Certainly they stoke the idea that beta-amyloid intervention in AD should begin as early as possible and tantalize potential benefit with predictive diagnostics. That EXPEDITION 2 wasn’t repowered for only mild disease is unfortunate, they probably would have met a primary endpoint. Then, EXPEDITION 3 failed. So, just remember that subgroups are still subgroups and even with an a priori mechanism of action, there is a bit of luck involved in these trials, and trying to squeeze out a really small treatment effect in a new trial powered for that small effect is likely to backfire. Why develop a drug that is, at best, a modest therapy? The lack of binding fibrillar AB probably did this one in. A prodromal study is ongoing, I believe.
Some people are interested in how sentencing works. Given that almost no one is a criminal defense attorney (a very tough job!), allow me to explain to the uninformed. In federal prison, there is no parole. “Good time” is roughly 15% of one’s sentence, assuming serious no violations (so far so good, on my end). However, the 15% is overstated, and actually works out to 13.8% or something like this. Some speculate that the entire 15% will be restored in a soon-to-come criminal justice reform. While I won’t hold my breath, you can look up and calculate the exact number of DAYS you would get on an 84 month sentence by statute. My attorneys and sentence consultant have done this, it’s around 12 months. As you may know, I was sentenced to 84 months, and as of two days ago, I have been in prison for 10 months, meaning I have 74 months to go. When you include “good time”, I would have 62 months left. We’ve only gotten started on calculating, however. Prisoners like me are able to do 10% of their sentence as “home confinement”, which would be 8.4 months. This option is not available to everyone, but for nonviolent crimes, it is available. It used to be 5% until very recently. Next, there is a program available to certain prisoners that reduces a sentence by 12 months. Finally, any half-way house time would overlap with home confinement time, but if greater than that time, would count. For instance, if halfway house of 12 months were assigned to a prisoner who had 8.4 months of home confinement time, that prisoner would simply get halfway house/home confinement of 12 months. So, 84 – 10 – 12 – 12 – 12 = 36. Of course, the final 12 could be as little as 8, and one of the 12s could be anywhere from 11.0 to 12.6. My lawyers and I are confident in those numbers, but the full range best case/worst case would be 35 to 40 months. So, I project I’m 37 months away from home at this time. I also have an appeal pending, don’t sleep on that 🙂 Anyone playing along at home is free to do their own calculations and comment on the site!
There’s a guy here who doesn’t know any Beatles songs. I think there are a few guys here. He wanted to know their most famous song. I said: “Yesterday, Hey Jude, Lucy in the Sky With Diamonds, err… Imagine? Yellow Submarine?”. Drew blanks. Did I miss one?
I think the left needs to talk about unity instead of resistance. I’d be willing to apologize to Lauren Duca for nagging and teasing her, apologize to Lena Dunham for offering to afford her private plane trip to Canada, and others. The right needs to reach across and stop the flame war, as fun as it is. People like Hannity, Carlson, Dinesh, Milo, any standard bearer for Republicans, should begin this process. If the left won’t agree to “lay down arms” and focus on strengthening our country instead of dividing us further, then their party will dwindle into irrelevance and implode in hatred (has it already happened?) But we shouldn’t follow that lead. Let’s find common ground and cease the incessant and overwrought narrative that everything left-of-center is malignant and everything right-of-center is righteous. My reasoning for this change of pace arises from witnessing the miserable sorrow of various pundits and commentators. Losing stinks, but cheer up. We can get through this together. We lose, too. Being happy is more important than having your life subsumed by complaining. You can be happy with Trump. I was happy with Obama. I was happy with Bush. I’m always happy because there are more important things than driving yourself (and others) crazy with politics. Some of us like politics, and are passionate about it, and that’s fine, too. But we can use a different, less inflammatory and flamboyant language to convey what we’re thinking. Sometimes the understated is far more effective than bombast.