Saturday, November 14, 2015

Seeking Alpha: Roche Could Be A Victim Of Its Own Success

Roche (OTCQX:RHHBY) (ROG.VX) hasn't done all that well in the market of late, with the shares down about 6% over the past year. Then again, that's not so bad in the larger context - Pfizer (NYSE:PFE) and Bristol-Myers (NYSE:BMY) have done significantly better (both up about 11%), but Novartis (NYSE:NVS), Merck (NYSE:MRK), and AstraZeneca (NYSE:AZN) have performed just as poorly or worse than Roche.

This market performance forms an interesting contrast with the news that Roche has been reporting. The company continues to advance one of the deepest oncology/immuno-oncology portfolios, and the company's efforts outside of cancer have achieved some notable successes of late in hemophilia and multiple sclerosis.

Even so, the question remains as to whether this will be enough to push the company back to double-digit earnings growth. Not only are politicians taking a harsher tone on drug pricing, but Roche faces significant challenges from biosimilars and intense competition in oncology. I continue to believe that Roche is a high-quality, well-run drug company, but Roche's success not only makes it a prime target for its competition but also makes it harder for the next generation of blockbusters to do more than simply maintain what the company already has.

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Roche Could Be A Victim Of Its Own Success

Seeking Alpha: Alnylam Pharmaceuticals Keeping Multiple High-Potential Programs Moving Forward

The biotech sector has gotten a little "interesting" since drug pricing re-emerged as a tempting target for political soundbites and investors started looking back on just how far the sector has come in terms of valuation and multiples. Alnylam Pharmaceuticals (NASDAQ:ALNY) has taken its share of drubbing, with the shares down about 20% since my last piece on concerns about the implications of potential drug pricing reforms on its largely orphan drug-focused pipeline, as well as concerns relating to the company's Phase III revusiran program.

I wasn't thrilled with the valuation back in June, but I think the combination of the share price performance and the company's clinical updates makes for a more interesting opportunity today. Time will tell whether my estimates and model are reasonable, conservative, or aggressive, but I do see significant value-add potential over the next six months as more information comes out on programs like ALN-CC5, ALN-AT3, ALN-GO1, and the core TTR platform.

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Alnylam Pharmaceuticals Keeping Multiple High-Potential Programs Moving Forward

Seeking Alpha: Steady, Albeit Not Spectacular, Progress At Accuray

Patience may be a moral virtue, but it's not a particularly compelling investment thesis. To that end, Accuray (NASDAQ:ARAY) is most definitely making progress from an operational standpoint, and is operationally outperforming its much larger rivals Varian (NYSE:VAR) and Elekta (OTCPK:EKTAY), but the pace of the progress is likely stifling the enthusiasm of would-be new investors.

I continue to hold Accuray as a small position in my portfolio because I think the company has turned the corner and remains meaningfully undervalued. Not only has the company improved its Tomo platform to a point where it is a legitimate standalone option, but the company's CyberKnife system is well positioned to take advantage of growing adoption of stereotactic radiosurgery and stereotactic body radiation therapy. With a fair value range of $9 to $12, there is still meaningful upside if, or when, investors become more comfortable that the company is establishing a more consistent pace of order and revenue growth and a credible road to profits and free cash flow.

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Steady, Albeit Not Spectacular, Progress At Accuray

Seeking Alpha: Is Microsemi Courting The Winner's Curse?

I've written pretty regularly on Microsemi (NASDAQ:MSCC) for Seeking Alpha, and this has long been a semiconductor stock that I've liked (and own in my own portfolio). Along the way, I've often mentioned that additional M&A felt like a "when, not if" question given Microsemi's past success in using deals to broaden its product, market, and technology exposures. I wasn't expecting something quite as dramatic as the company's bid for PMC-Sierra (NASDAQ:PMCS), but this is a deal that otherwise fits Microsemi's pattern of diversification, cost synergy, and market expansion.

I believe that PMC-Sierra can be a good deal for Microsemi, but I openly acknowledge that Skyworks (NASDAQ:SWKS) will prevail in the end if that company decides that it simply cannot afford to let PMC-Sierra slip away. I also believe, though, that Microsemi has more to gain in terms of synergies and market diversification. Last and not least, while Skyworks' all-cash deal is definitely a lower-risk proposal for PMC-Sierra shareholders, Microsemi's offer appears to me to give PMC-Sierra shareholders more long-term upside.

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Is Microsemi Courting The Winner's Curse?

Wednesday, November 11, 2015

Seeking Alpha: Neurocrine Biosciences Has The Flash And The Cash

It wasn't all that long ago that I last updated my thoughts on Neurocrine Biosciences (NASDAQ:NBIX), but the company has made a few noteworthy moves since then that are worth mentioning. Neurocrine remains a very promising biotech on multiple levels. First, the company has two late-stage compounds that each have more than $1 billion in revenue potential. Second, the company has recently shown that it can, in fact, add new compounds to its pipeline. Third, the company has quite a bit of cash on hand, ending the last quarter with nearly half a billion dollars. Last and not least, there remain multiple upcoming events that can attract attention and drive positive sentiment.

The "but" is valuation. It's hard to recommend any development-stage biotech unless the potential gains are such that it's worth overlooking the industry's generally poor track record (most biotechs never develop a commercial product). I do think that Neurocrine is undervalued, and my underlying assumptions may prove conservative, but investors may want to hope for another biotech sector freakout that could push the price down 20% or more.

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Neurocrine Biosciences Has The Flash And The Cash

Tuesday, November 10, 2015

Seeking Alpha: Plum Creek's Value Finally Realized, But Weyerhaeuser Has Some Work To Do

I've been relatively bullish on Plum Creek Timber (NYSE:PCL) for a while, arguing (maybe stubbornly) that the shares were valued too cheaply in the public market relative to private market timberland transactions and the potential cash flow and value to be realized from timber and land sales as the U.S. housing market recovers.

It would seem that Weyerhaeuser (NYSE:WY) had at least a somewhat similar view of the situation, as the two companies have announced a merger that will see the two companies merge in an all-stock deal that will leave Weyerhaeuser shareholders with 65% of the combined company. Together, these two companies will own over 13 million acres of timberland, offering even more exposure to a housing recovery but also creating an opportunity for Weyerhaeuser to drive more value from Plum Creek's assets.

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Plum Creek's Value Finally Realized, But Weyerhaeuser Has Some Work To Do

Seeking Alpha: Lundbeck Executing Where It Can, But The Biggest Drivers Are Risky

As I've written in the past, I think being a little reluctant to sell out of a good position is far from the worst trait an investor could have. To that end, while I saw less value left in the shares of Danish drug company H. Lundbeck (OTCPK:HLUYY) (LUN.CO) than I would have liked back in August, I was hesitant to sell ahead of potential upside in the cost-cutting program.

Since that last article, Lundbeck shares have logged solid double-digit appreciation and outperformed most pharmaceutical peers. Moreover, the company has provided some evidence that the cost-cutting efforts will drive better profit improvements than the sell-side initially expected. That said, the valuation argument is even harder to make now, and the prime drivers of further outperformance are both risky and at least a few months off.

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Lundbeck Executing Where It Can, But The Biggest Drivers Are Risky

Sunday, November 8, 2015

Seeking Alpha: Lexicon Pharmaceuticals Produces Another Positive Surprise

This has been quite the year for Lexicon Pharmaceuticals (NASDAQ:LXRX), as long-suffering shareholders have finally seen the stock do well on the back of optimism about the company's oral treatment (telotristat etiprate) for the GI effects of carcinoid syndrome and its progress into Phase III testing of its SGLT-1/SGLT-2 inhibitor sotagliflozin for Type 1 diabetes. Now the company has achieved a more surprising success, with Friday's announcement of a partnership with diabetes giant Sanofi (NYSE:SNY) to develop and commercialize sotagliflozin for both Type 1 and Type 2 diabetes.

Lexicon investors (or at least most of them) had pretty much written off the chance of a major partnership more than a year ago, as the company had been shopping the drug to partners for about two years without reaching any sort of agreement. Now, though, the $1 billion-plus potential of sotagliflozin in Type 2 diabetes is at least back on the table as a point of discussion.

There are still plenty of unknowns here to confound valuation. What sort of pricing will the company get for telotristat etiprate? Will it become the go-to choice for patients getting inadequate relief from somatostatin analogs? Does Sanofi have the marketing muscle to drive meaningful market share with a drug that will be quite late to market? Will sotagliflozin show any distinctive efficacy or safety aspects in large-scale studies (good or bad) that will impact its market potential? Will the company choose to rejuvenate its internal drug development programs? These are all important questions, but I would nevertheless argue that Lexicon remains meaningfully undervalued today.

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Lexicon Pharmaceuticals Produces Another Positive Surprise

Saturday, October 10, 2015

Seeking Alpha: The Market Is Skeptical Toward ON Semiconductor ... As It Should Be

"Under-promise and over-deliver" is popular corporate speak, but apparently not a central part of the operating philosophy at ON Semiconductor (NASDAQ:ON). Although I do think that ON Semiconductor has some good things going for it and has done a respectable job of improving its cost structure, there has been a trend in place here for some time of promising more than is actually delivered.

That's an admittedly harsh opening statement on a company that, on balance, I still like. I wasn't all that fond of the shares back in March (and the price has fallen about 20% since), but the stock's performance relative to Texas Instruments (NASDAQ:TXN), Maxim (NASDAQ:MXIM), and Fairchild (NASDAQ:FCS) hasn't been too bad over the last year (or three years), though NXP (NASDAQ:NXPI) has handily outperformed the group. With this pullback, I think the shares are once again a more interesting prospect, particularly given growth opportunities in wireless, computing, and autos, but for as much as the performance of these shares may be tied to future revenue growth and margin improvements, a stronger sense of credibility from management may be the biggest potential catalyst of all.

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The Market Is Skeptical Toward ON Semiconductor ... As It Should Be

Brief apology on posting

I want to apologize to folks who depend on my posts here to keep up with my work - I've obviously forgotten to post some articles in a timely fashion. I'm happy to say that there's no "bad news reason" for this, and instead it's just a byproduct of being a little busy and sometimes forgetting to do it at night.

On a related note, I probably won't be writing as much this coming week (even though its earnings season), as my wife has multiple appointments and it's tough for me to "get in the groove" for a half-day or less of writing. But here's hoping the bloodwork and next infusion go smoothly on Wednesday!

Seeking Alpha: Neurocrine Biosciences Racks Up Some Much-Needed Good News

Stock prices in the biotech sector are getting carpet-bombed as investors bail out of the sector, but this is still fundamentally a data-driven industry where good data almost always win out in the end. To that end, Neurocrine Biosciences' (NASDAQ:NBIX) recent run of good news should encourage shareholders even as the market has turned cold on these once-outperforming shares.

Neurocrine Biosciences remains a challenging biotech to value, due in part to the fact that the markets that the company's lead drugs are targeting could prove to be substantially more robust than they seem at present. Even with what I believe to be relatively conservative assumptions, though, Neurocrine's shares look appealingly undervalued.

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Neurocrine Biosciences Racks Up Some Much-Needed Good News

Seeking Alpha: AGT Food And Ingredients Still Offers Interesting Upside

Canada's AGT Food and Ingredients (AGT.TO)/(OTCPK:AGXXF) has two characteristics that I really like in a publicly traded company - it does something that most investors find mind-numbingly tedious (sorting and processing pulses) and it is shifting its business up the value chain. I can't say that these efforts have gone unnoticed, as the shares are up about 7% since my last article and up 78% since my first article on the company for Seeking Alpha, but I believe the company's leadership position in pulse processing and nascent efforts in food ingredients can generate enough cash flow growth to make these shares interesting on a long-term basis.

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AGT Food And Ingredients Still Offers Interesting Upside

Seeking Alpha: Core-Mark Continues To Deliver With A Plan That Can Drive Further Growth

While I had some concerns about Core-Mark's (NASDAQ:CORE) valuation back in March, and there was a noticeable pullback in April that lingered for a few months. The shares have fought back to just above break-even for the year as this large convenience store (or "C-store") distributor continues to deliver good same-store sales growth and EBITDA leverage.

My concerns about the valuation are still in place, but I do still see opportunities for Core-Mark to outperform in terms of customer acquisition (competitive wins and M&A), improved infrastructure utilization, and greater penetration of value-added services. Were the shares to offer up another 10%-plus pullback, I would certainly be more interested, but this at least looks like a credible hold for now.

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Core-Mark Continues To Deliver With A Plan That Can Drive Further Growth

Seeking Alpha: Coloplast Is A Rare Story On Multiple Levels

You don't see many large-cap med-tech stocks trade for more than seven times sales, but then you don't see many companies in that space logging high-single digit sales growth and excellent margins/returns on capital with a significant opportunity to grow sales and profits even further. That's the basic story on Coloplast (OTCPK:CLPBY) - a Danish med-tech company that has built an excellent business by focusing on some decidedly un-sexy areas of healthcare like ostomy and incontinence - and it creates a challenge for investors. While investors can do well in supposedly "boring" med-tech stories like Becton Dickinson (NYSE:BDX) and Bard (NYSE:BCR), it's tough to ignore an eye-watering multiple even when the growth is strong.

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Coloplast Is A Rare Story On Multiple Levels

Wednesday, October 7, 2015

Seeking Alpha: LDR Holding Corp. Seems To Be In The Right Place At The Right Time

The spinal surgery/spinal care market has been marked in recent years by a few trends that run counter to how many investors historically see the med-tech market. First, size hasn't proven to be such an insurmountable competitive advantage, as up-and-comers like NuVasive (NASDAQ:NUVA), LDR Holding (NASDAQ:LDRH), and Globus (NYSE:GMED) have gained share at the expense of larger rivals like Johnson & Johnson (NYSE:JNJ) and Medtronic (NYSE:MDT). Second, and apologies for the obvious pun, it seems to be one of the few areas of medicine where insurers have found some backbone and pushed back on pricing.

The subject of this article, LDR Holding, strikes me as an appealing growth story in med-tech by virtue of its commitment to doing things differently in the spinal space. Not only does the company have a strong product in the fast-growing cervical disc replacement market, but the company is also advancing technology in the lumbar area that features less hardware and less collateral damage to the patient. LDR Holding still has a difficult climb on its way to the top, including not only competition with the likes of JNJ and Medtronic, but also surgeon inertia, and the valuation is not obviously cheap, but the balance between growth and valuation is at least promising enough to look closer.

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LDR Holding Corp. Seems To Be In The Right Place At The Right Time

Tuesday, October 6, 2015

Seeking Alpha: Launch Delays The Wrong Prescription For GenMark Shares

Investors don't really have to look forward many years to value potential high-growth med-tech stories, but the consequences can be severe when those companies disappoint. GenMark Diagnostics (NASDAQ:GNMK) is certainly not the first or only diagnostics company to disappoint investors with delays in its commercialization timeline, but the confluence of a roughly half-year delay, ongoing progress at BioMerieux, and more risk aversion in the market has pushed the shares down about 40% since my last update.

The good news is that GenMark's ePlex system still compares quite favorably to systems from BioMerieux, Luminex (NASDAQ:LMNX), and Nanosphere (NASDAQ:NSPH) and the multiplex molecular diagnostics (or MDx) market is still very underpenetrated at hospital and reference labs. The bad news is that BioMerieux has done really well with system placements and the hospital diagnostics market is intensely competitive. GenMark does look undervalued today, but investors are looking at a wait of several years before there is meaningful revenue or cash flow and the risk here is well above average.

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Launch Delays The Wrong Prescription For GenMark Shares

Seeking Alpha: After Some Turbulence, NuVasive Appears To Be On A Better Flightpath

I've liked NuVasive (NASDAQ:NUVA) for some time now, and the company's share price performance (up 12% from my last article in March, and up 48% since this article in the summer of 2014) has given me no cause for regrets. While the company has seen plenty of turmoil, including major departures of "C-suite" executives, the basic plan of driving increased market share, increased overseas sales, and better margins seems very much intact.

I continue to believe that NuVasive has a strong future. Minimally invasive procedures should continue to gain share within the large spinal procedure market, and I see little evidence that NUVA is losing its edge in terms of innovation and product development. The company does have the significant challenge of striking the right balance between growth-supportive spending and improved margins, but I think it has a credible plan to achieve both. M&A remains a big wildcard, both in terms of who/what NuVasive may buy and who may try to buy NuVasive.

A relative outperformer in a tough market, NuVasive doesn't leap out to me as a cheap stock today, but then again high-quality med-tech growth seldom sells cheaply. A mid-$50s fair value still looks reasonable on an EV/revenue basis, but the volatility of these shares may argue for a wider-than-average margin of safety for new buyers.

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After Some Turbulence, NuVasive Appears To Be On A Better Flightpath

Sunday, September 20, 2015

Seeking Alpha: As Getinge Embarks On Much-Needed Restructuring, A Lot Is Already In The Price

Turnarounds can be great opportunities for outsized returns, but that typically only holds true when the company in question is undervalued going into the turnaround process and/or the company exceeds its transformation goals. While Sweden's Getinge (OTCPK:GNGBY) could create additional value by exceeding its recently outlined restructuring goals, it is hard to call the shares undervalued absent that outperformance.

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As Getinge Embarks On Much-Needed Restructuring, A Lot Is Already In The Price

Thursday, September 17, 2015

Seeking Alpha: Chr Hansen Is A Rare Story In The Food Sector

On the whole, established companies in the food and beverage space don't typically grow their revenue at more than a low-to-mid single digit clip over the long term. But then, those companies aren't Denmark's CHR Hansen (OTCPK:CHYHY) and aren't leveraged to strong underlying trends in consumer preferences, as well as R&D-driven edges in customer costs and efficiency.

Not unlike Novozymes (OTCPK:NVZMY), CHR Hansen has almost everything I like to see in a company except for an attractive valuation. I do believe that the company has meaningful opportunities to leverage growth opportunities in dairy consumption, probiotics, natural colors, and agriculture, but the stock's valuation already reflects what I believe are generous assumptions regarding growth and the quality of the company.

I'd certainly monitor CHR Hansen in the hope of buying on a market freak-out (whether company-specific or across the market), but the shares today seem priced more for those who are comfortable buying growth almost irrespective of value.

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Chr Hansen Is A Rare Story In The Food Sector

A Year of Cancer

This post has next-to-nothing to do with investing, so only read further if you're interested in more "personal" stuff. I originally posted this on Seeking Alpha, so you can read it there instead if you prefer.

Today is a year to the day that my wife was first diagnosed with cancer. It was a very sobering day; especially as I knew enough about this type of cancer to know how poor her chances were and are (perhaps luckily for her, she *didn't* know what she was getting into, and that probably helped preserve her optimism).

Since the time of diagnosis, there has been surgery, radiation, and three forms of chemo. Surgery addressed the immediate problem (a tumor that had grown from the size of an almond to a hockey puck in about five or six weeks), but most of the interventions have done little to help. The second round of chemo shrank the tumors, but that only lasted for about six months (bang in line with the median response). Now she's looking at the last proven therapeutic option for her type of cancer (or at least the last with a response rate that actually supports any hope).

A lot has changed. My productivity has plunged. I've gone from routinely writing about 1,000 articles a year to a pace where I may only halfway there this year. Funny how work really is a "habit".
A lot has also changed about how I look at healthcare and biotech/pharma. I wish there was more that the FDA could do to squash the frauds, crackpots, and scum who try to promote their phony fake cures for cancer and try to propagate myths about how "deadly" chemo is and how the healthcare system is simply trying to scam them.

I'm also grateful that there are doctors who choose to go into oncology - in effect choosing a field where they know they will lose a large number of patients instead of a specialty that offers far more certain positive outcomes on a regular basis.

Last and not least, I've learned how much months matter. Whether or not a drug that extends life by 6 months is "worth" $100,000 or more is a subject for another time, but those months matter a lot more when you're living through them one at a time. It's ridiculous that anybody in his or her early 40's should feel grateful to get another six months, but that's how it is.

On a related subject, it's interesting how much timing matters. If my wife had been diagnosed with this disease five years ago, none of her chemo options would have been available outside of clinical trials. In stark terms, she'd mostly likely be dead by now were that the case. Because of its complexity, I don't believe I'll live to see a point where cancer is like or HIV (serious, but very treatable/manageable) but given how much has changed just in the last five or 10 years, there's nevertheless hope that further improvements will come.

And when it comes down to it, hope gets you through a lot. I've learned that over the last year.

Tuesday, September 15, 2015

Seeking Alpha: Novozymes And The High Cost Of Greatness

When I first started the process of refreshing and updating my research on Danish enzyme specialist Novozymes (OTCPK:NVZMY), I was really hoping that the end result would be an undervalued and appealing investment opportunity. This is a company that I like a lot and a stock that I want to like. Now, readers can carp about whether wanting to like a company pollutes the research/analysis process, but I see no reason to hide the fact that I think Novozymes is a well-run company with a strong leadership position in a sizable but growing industry.

Valuation is the issue. I realize that investors should expect to pay up for quality, and Novozymes's nearly 50% market share in the industry and strong history of ROIC generation are certainly marks of quality, but I'm not comfortable with the sort of growth/certainty that appears to be factored into the valuation today. Investors less sensitive to valuation may find more to like here (particularly after the 20% decline from the 52-week high), as this is the sort of situation where price is really my only major hang-up.

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Novozymes And The High Cost Of Greatness