Lexicon Likely Looking At Even More Competition In Type 1 Diabetes

As more and more competitor data accumulate, it’s looking like Lexicon (LXRX) is going to face significant competition in the market for SGLT inhibitors in Type 1 diabetes. Granted, it has long been my base-case assumption that Lexicon would see serious competition for its drug sotagliflozin (an SGLT-1/-2 dual inhibitor) in this large and underserved indication, but recently-presented data from Lilly (LLY) suggests that Jardiance (or empagliflozin) will be a meaningful potential threat in addition to AstraZeneca’s (AZN) Farxiga (dapagliflozin) and off-label use of SGLT-2 inhibitors already approved for Type 2 diabetes.

Lexicon could really use some good news, as the company has seen sentiment on sotagliflozin fade due to concerns about diabetic ketoacidosis (or DKA), a potentially serious side effect of SGLT inhibitor therapy, and has come up short of expectations multiple times already in the short commercial life of its only approved drug Xermelo. Although I believe Lexicon shares remain undervalued on the basis of just the potential value of sotagliflozin in Type 1 and Type 2 diabetes with partner Sanofi (SNY), shareholders could really use some positive clinical data on new compounds and a better sales trajectory for Xermelo.

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Lexicon Likely Looking At Even More Competition In Type 1 Diabetes

A Weak Xermelo Ramp Continues To Weigh On Lexicon

If Neurocrine’s (NBIX) launch of Ingrezza in tardive dyskinesia is a good example of an excellent new drug launch, Lexicon’s (LXRX) ongoing struggles with Xermelo reflect the other side of the coin, as the company continues to see lower-than-expected patient interest, compliance, and ability to pay. At the same time, while the data on the company’s lead diabetes drug sotagliflozin remain quite good and the company has the backing of a large player in diabetes (Sanofi (SNY)), the Street remains quite skeptical regarding the drug’s prospects for gaining meaningful share in the sizable Type 1 diabetes market, let alone the much larger Type 2 market.

Lexicon shares continue to look undervalued to me, but investors have to at least consider the risk that this is a “value trap” and that Xermelo and sotagliflozin will never live up to the commercial potentials.

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A Weak Xermelo Ramp Continues To Weigh On Lexicon

Nektar Therapeutics Building A More Exciting Pipeline

As Nektar (NKTR) has gotten investors more excited about its pipeline, including a somewhat surprising success with its late-stage pain drug NKTR-181, the shares have done all right since the fall of 2016 – rising more than a third since then (in line with the SPDR S&P Biotech (XBI) and ahead of the iShares Nasdaq Biotechnology (IBB)). The shares don’t look so undervalued to me now, but there are still multiple drivers in the queue for key pipeline candidates that could drive meaningful value.

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Nektar Therapeutics Building A More Exciting Pipeline

A Year Later, It's Still 'Hurry Up And Wait' For Roche

I try not to spend too much of my writing time on well-known, well-covered names like Roche (OTCQX:RHHBY), but I do own the shares and it has been a year to the day since I've last written on this giant Swiss pharmaceutical company.

I thought the company was more or less in a holding pattern a year ago, and the shares have gone almost nowhere (on a net basis) since then, as positives like the launch and early acceptance of Ocrevus and the promising clinical data on emicizumab/ACE910 in hemophilia has been offset by progress with competitive biosimilars, mixed results from next-gen oncology compounds, and worries about lead immuno-oncology drug Tecentriq.

It's tempting to say, “Roche is Roche… and it'll all just work out in the end.” This is a well-regarded pharmaceutical company with a deep internal R&D effort that has not gone to the same excesses as some of its peers in attempting to cost-cut its way to prosperity. At the same time, we're all still learning as we go when it comes to immuno-oncology, and it is tough to say how Roche will stand against the likes of Merck (MRK), Bristol-Myers (BMY), and many others in the years to come.

I do still believe Roche is undervalued, but major upcoming updates (like Tecentriq in first-line non-small cell lung cancer) in the second half of 2017 and on into 2018 are key to the modeling assumptions that drive the fair value.

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A Year Later, It's Still 'Hurry Up And Wait' For Roche

Aspen Pharmacare Has Continued To Grow And Branch Out

It has been many years since I've updated my coverage on South Africa's Aspen Pharmacare (OTCPK:APNHY)(APNJ.J), but the intervening years have seen a lot of familiar themes. Management has continued to use M&A to expand its market reach and has continued to expand beyond South Africa, while organic growth has continued to be underwhelming relatively to perpetually rosy expectations from investors and most sell-side analysts.

Assessing the shares remains a difficult exercise. On one hand, the likely underlying discounted cash flow doesn't seem to support the share price, but that has long been the case and the shares have risen despite that (up more than 20% since my last article for the ADRs and up over 100% at the interim peak price). Aspen continues to offer rare access and potential to high-potential markets like China, Brazil, Indonesia, and Sub-Saharan Africa, but price controls and consumers' ability to pay remains a real concern. I expect that investors will continue to be willing to pay a premium for this emerging market pharma story, and the price isn't so unreasonable relative to EBITDA growth, but I would remain alert to the various macro challenges, as well as the sub-standard liquidity of the ADRs.

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Aspen Pharmacare Has Continued To Grow And Branch Out

Synergy Pharmaceuticals Getting Closer To 'Go Time'

Synergy Pharmaceuticals (NASDAQ:SGYP) has inched a little higher since I last reviewed the company, climbing a little less than 10% over a time when biotechs in general have declined (as measured by the iShares Biotechnology Index (NASDAQ:IBB) and SPDR Biotech ETF (NYSEARCA:XBI)). On the other hand, Synergy's closest comp, Ironwood (NASDAQ:IRWD) has risen close to 40%.

Synergy remains an interesting biotech opportunity to me, but I think the company has a lot of work to do to reassure the Street that it can really compete on its own in the market and gain real share once its lead drug plecanatide hits the market. Without a large partner (Ironwood has Allergan (NYSE:AGN) and Nektar (NASDAQ:NKTR) has AstraZeneca (NYSE:AZN) selling its OIC drug Movantik), I think a lot of investors fear that Synergy will never manage to break through and could find it in a situation like XenoPort did with its restless leg drug. I believe there are some key differences between those situations, though, and while I do worry that Synergy's plecanatide sales may ramp more slowly than its bullish analysts' forecast, I think these shares are worth more than $9 on the potential of plecanatide.

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Synergy Pharmaceuticals Getting Closer To 'Go Time'

Lexicon Checks A Key Box

There are times when it feels like the companies I own/follow conspire to make sure I can't take days off. That was the case on Friday, when Lexicon Pharmaceuticals (NASDAQ:LXRX) announced the first top-line Phase III results for its key drug sotagliflozin in Type 1 diabetes. The results were positive, taking the stock up almost 20%, but they don't answer all of the remaining questions on this drug.

I continue to believe that Lexicon is meaningfully undervalued, with about 50% upside to my new fair value. Lexicon still needs to fully prove out the efficacy and safety of sotagliflozin in Type 1 diabetes and Sanofi (NYSE:SNY) needs to do its part with the Type 2 indication. What's more, investors would do well to remember that the FDA can be very demanding and unpredictable when it comes to new treatments for diabetes. That said, I think the risk-reward here is still interesting and worthwhile.

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Lexicon Checks A Key Box

Incremental Progress At Nektar Therapeutics

With the shares up about 30% from the time of my last article, I can't complain about how Nektar Therapeutics (NASDAQ:NKTR) has been performing. While an improvement in sentiment on biotech stocks in general certainly hasn't hurt, I also think Nektar is benefiting from signs of life in the Movantik business, a clever deal that may revive a cancer drug's commercial potential, and growing optimism about an early-stage pipeline asset in cancer.

Between the passage of time, the deal with Daiichi Sankyo, and a little more optimism about NKTR-214, I've added about $3 to my fair value (with the simple passage of time accounting for about half of that). With that, I'd say these shares still hold some appeal.

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Incremental Progress At Nektar Therapeutics

Seeking Alpha: Clovis Oncology Trying To Rebuild A Once-Bright Outlook

In a market where biotechs that have done nothing wrong can be down 40% or more from prior highs, you can probably imagine what's happened to biotechs that have disappointed the Street. Clovis Oncology (NASDAQ:CLVS) certainly fits into the latter group, as a surprisingly negative update in November on the efficacy of its lead drug has pushed the shares down almost 75% over the past year and down closer to 80% from my last article on the company.

There are certainly very good reasons to be cautious around Clovis. Neither of its two most advanced drugs will be first to market, and it's unclear if the company can get approval for rociletinib or commercial acceptance even if it is approved. While rucaparib may have a better future, competition and identification of patients most likely to respond could be limiting factors.

In total, the market has probably overreacted to the rociletinib disappointment and that is likely shadowing the valuation of rucaparib as well. This is a consummate "show me" market for biotech, though, and Clovis comes up short of getting gold stars across the board on those attributes that biotech investors prefer. The potential upside here is still worthwhile, but I can't argue that the risk-reward balance is as compelling given the overall carnage in the sector and the option options available.

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Clovis Oncology Trying To Rebuild A Once-Bright Outlook

Seeking Alpha: Roche's Deep Pipeline And Strong R&D Platform Make For A Long-Term Winner

You're not going to often hear me say that earnings don't matter, but I don't believe that Roche's (OTCQX:RHHBY) reported financials are going to be the driving factor behind the share price performance in 2016 and 2017. I am expecting that investors will, instead, put more emphasis on the company's clinical trial performance, as data read-outs over the next two years will go a long way toward shaping the future of Perjeta, Gazyva, and atezolizumab.

My basic view of Roche remains that the company is well-placed to play a major role in the evolving field of immuno-oncology and that recent clinical successes in hemophilia, asthma, and multiple sclerosis give it a little more of a balanced mix. I'm looking for Roche to generate around 5% long-term revenue growth, largely on the back of oncology, with additional cash flow leverage pushing the FCF growth rate into the high single-digits. Discounted back, that supports a fair value just shy of $36 today.

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Roche's Deep Pipeline And Strong R&D Platform Make For A Long-Term Winner

Seeking Alpha: Nektar Therapeutics Going Into The Decline With A Better Profile

I have no idea how long this downturn in the biotech sector will last, but Nektar Therapeutics (NASDAQ:NKTR) has survived its share in the 20-plus years of the company's existence. I also believe that the company is going into this downturn in the best shape it has been - Nektar can look forward to meaningful royalty streams from two drugs with $1 billion-plus potential, and the company has a more credible and focused pipeline.

My model suggests that the shares should be worth over $18 today, with royalties from approved drugs (AstraZeneca (NYSE:AZN)/Movantik and Baxter's (NYSE:BAX) Adynovate) making up about $9 of the valuation. Nektar's pipeline remains high-risk, but the potential of abuse-resistant painkillers and differentiated immuno-oncology drugs is meaningful, and the company seems to be making better decisions with regard to its R&D capital allocation.

It's certainly important to note that this is an ugly stretch in the biotech space and it could get worse (if not much worse) before getting better. My valuation is predicated in part on what the market has been willing to pay for approved drugs in the past, and the market can certainly undershoot those multiples during pullbacks.

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Nektar Therapeutics Going Into The Decline With A Better Profile

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: Can Lexicon Pharmaceuticals Make Any Progress In Diabetes On Safety?

Lexicon Pharmaceuticals (NASDAQ:LXRX) continues to languish (down 25% over the past year, but up almost 17% over the last six months) amid a hot biotech market as investors are paying very little attention to the company's carcinoid drug and largely writing off the dual SGLT-1/2 inhibitor sotagliflozin. That may yet prove to be a premature decision, though, as the company is moving into its Phase III program in Type 1 diabetes (whereas competing SGLT-2 drugs are approved for Type 2 diabetes, but used off-label in Type 1) and may have an emergent opportunity to stand out with its safety profile.

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Can Lexicon Pharmaceuticals Make Any Progress In Diabetes On Safety?

Seeking Alpha: With Nektar Therapeutics, Value Never Comes Easy

Ordinarily you might think that the approval of one billion-dollar drug and the imminent approval of another would be good news for a biotech, but then Nektar Therapeutics (NASDAQ:NKTR) has never been an ordinary biotech. Investors remain rightly concerned about the odds of commercial success with the company's OIC drug Movantik and somewhat less rightly concerned about the prospects of Baxter's (NYSE:BAX) upcoming long-acting PEGylated rFVIII product, and the negative results from the Phase III BEACON study of NKTR-102 surely didn't help.

I've never been a particular fan of Nektar, so it serves me right that the shares would fall about 15% since I last wrote favorably about them. Even despite these concerns and the elevated level of risk, I continue to believe that Nektar shares look undervalued today.

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With Nektar Therapeutics, Value Never Comes Easy

Seeking Alpha: Competition Will Be Tough, But Clovis Oncology Has Legitimate Compounds

One of the contributory causes to biotech bubbles seems to be a collective amnesia on the part of investors regarding the fact that not every drug launched for an indication is going to succeed. Even in underserved indications like lung cancer, there are winners and losers and competitive differentiation is an important part of long-term success.

In the case of Clovis Oncology (NASDAQ:CLVS), I think investors are right to be concerned about the potential competitive pressures from AstraZeneca (NYSE:AZN) and Tesaro (NASDAQ:TSRO) among others, but I also think the market is underestimating the value of the company's lead drug candidates for lung and ovarian cancer.

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Competition Will Be Tough, But Clovis Oncology Has Legitimate Compounds

Seeking Alpha: Stronger First Quarter Sales Help Roche, But ASCO Probably Matters More

Swiss drug and diagnostics giant Roche (OTCQX:RHHBY) is in a challenging position today. On one hand, this remains the preeminent global oncology franchise with three incredible strong mature drugs and a deep pipeline. Roche is also a strong player in several diagnostics markets and has arguably done more than any other drug company to advance the companion diagnostics concept. The other hand is the uncertainty around the cash flow streams - many investors are worried about the prospect of generic competition for those "Big Three" oncology drugs, as well as the risk that Bristol-Myers (NYSE:BMY), Merck (NYSE:MRK), and AstraZeneca (NYSE:AZN) might not only beat Roche to the punch, but preclude the company from being a market share leader in oncology.

For my part, I think the push-pull of the Street has these shares more or less fairly priced. I'm content to own the fairly-priced shares of a great company, and I think Roche is exactly that. What's more, I see more potential to the upside from pipeline successes than downside risk to failures and generic competition. That said, I will once again repeat a complaint I've made multiple times regarding Roche - I'd like to see a stronger pipeline and R&D effort outside of oncology.

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Stronger First Quarter Sales Help Roche, But ASCO Probably Matters More

Seeking Alpha: Poor Pipeline Productivity Has Left Roche More Vulnerable

I bought Roche (OTCQX:RHHBY) years ago because I thought that the Street was overly concerned about near-term threats to the company's oncology portfolio and was overlooking the long-term potential of a true giant in oncology and an underrated player in global pharmaceuticals and diagnostics. I really can't complain about the performance since my early 2011 purchase, as Roche's 90%-plus gain has outstripped Novartis (NYSE:NVS), Johnson & Johnson (NYSE:JNJ), Glaxo (NYSE:GSK), Pfizer (NYSE:PFE) and Novartis . Of the stocks I was looking at at that time (when I decided to sell Johnson & Johnson), only Amgen (NASDAQ:AMGN) and Bristol-Myers (NYSE:BMY) have done better.

Since then, though, Roche has underwhelmed me with its R&D productivity. The company has done fine with its oncology drug development, but its repeated failures outside of oncology have left the company with a gap in its pipeline and vulnerability to potential price competition in immuno-oncology. Absent a more comprehensive re-think of its approach to R&D, it may be time to think about taking profits in this Swiss drug and diagnostics giant.

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Poor Pipeline Productivity Has Left Roche More Vulnerable

Seeking Alpha: With An Iffy Non-Oncology Pipeline, Roche Pays Up For InterMune

Roche (OTCQX:RHHBY) does a lot of things well. It is one of the largest players in oncology and markets three of the top ten best-selling drugs in the world. It also has a strong diagnostics business and a deep immuno-oncology platform. What Roche has not done so well, though, is develop new drugs outside of oncology, with notable recent failures in cardiology, diabetes, and CNS disease. Given those failures, and perhaps seeing an opportunity to leverage existing efforts in pulmonary/respiratory disease, Roche has stepped up with an expensive bid for InterMune (NASDAQ:ITMN).

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With An Iffy Non-Oncology Pipeline, Roche Pays Up For InterMune

Seeking Alpha: Competition And Momentum Weighing On Clovis Oncology

The last year hasn't actually been all that bad for biotech, as the S&P Biotech ETF (NYSEARCA:XBI) has outperformed the S&P 500 by about six or seven points. Whether or not the XBI is a great benchmark for the biotech industry is beside the point, though; by any standard Clovis Oncology (NASDAQ:CLVS) has done poorly since I wrote about it in late December of 2013. Down almost 30% since then, some of the weakness may be due to less risk appetite from biotech investors, but I think it has more to do with growing concerns over competition for the company's lead drug CO-1686 (or rociletinib).

I don't take it lightly when any stock I recommend is down 30%, but I also acknowledge that that can be the way it goes in biotech - in the absence of solid data to go on, investors obsess over the tea leaves and can run hot or cold on a stock to dramatic effect. I was concerned in December that analysts were already too aggressive with their assumptions about market share and odds of approval, but my own numbers haven't changed that much. With a fair value of $75 and several news events on the way, Clovis shares could turn the tide over the next six to 12 months (or smash on the rocks).

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Competition And Momentum Weighing On Clovis Oncology

Seeking Alpha: Nektar Therapeutics Has More To Give

This year has seen biotechs on a rockier road, but those companies that have continued to develop broad pipelines have fared a little better. Nektar Therapeutics (NASDAQ:NKTR) belongs on that list, as the company continues to move forward with an array of late-stage assets and a deep pipeline based upon its PEGylation technology (a technology that alters pre-existing drugs to improve efficacy, tolerability, and so on). Not only does Nektar still look undervalued, I believe that the assumptions underlining that valuation are still conservative enough that de-risking events (namely clinical trial results) can add meaningful value.

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Nektar Therapeutics Has More To Give