Michael Scally MD

Doctor of Medicine

That’s the question I keep asking myself coming away from the annual JP Morgan Healthcare conference this past week. The optimism. Was. Pervasive. And I’m guilty as well. Undoubtedly drug discovery and development have become more efficient and more specialized, with targeted/personalized treatments improving success rates and outcomes for patients. Meanwhile, technologies like gene therapy and the potential for one-time cures have made biotechnology exciting to the masses. JPM passes were harder than ever to come by this year, and the organizers of the concurrent Biotech Showcase conference indicated that attendance was up over 30% from last year.

But small and mid-cap biotech valuations are lofty, and healthcare specialists are aware. I spoke with many smart investors who expounded their bullish outlook for the sector and in the same breath explained how difficult it is to put money to work at these prices. In other words, speaking out of both sides of their mouth. This is a phenomenon that deserves some exploration coming away from the optimistic delirium of JPM.

  1. Everyone is optimistic, but few are excited about buying at current valuations.
  2. There’s a general sense that we may see some near-term weakness as JPM winds down, but everyone is ready to buy the dip.
  3. Talk of a “biotech bubble” that pervaded the conversation in early 2014 is virtually non-existent, despite indices being up another 30%.
This makes for an odd dynamic, and one that I suspect may lead to more sideways price action and volatility for the biotech sector in 2015, not the tremendous outperformance that has characterized the last two years. I don’t think we’re in a bubble, but I’m not convinced the raging bull market continues at the same pace.

Michael Scally MD

Doctor of Medicine
Dazzling promises wait behind mundane initials

This is a story about a billion-and-a-half bucks, two companies founded in 2010, and two acronyms that may both be a big part of the future: AR and mRNA.

AR stands for augmented reality, and mRNA for messenger ribonucleic acid. Company number one, in Florida, is called Magic Leap, and it raised $542 million last fall. Company number two, in Cambridge, is Moderna Therapeutics, and this month it announced $500 million in new funding.

Neither of these private companies will have a product on the market for several years, and so when they each raised roughly five times what the typical company raises in an initial public offering, jaws dropped in the tech and biotech industries. Moderna, in fact, set a record as the biggest private funding round for a biotech company, ever, and since it was hatched five years ago, the 150-person company has raised a cool $1 billion in total.

Investors make these kinds of big bets when they believe they have an opportunity to create a pillar company in an emerging industry: a Biogen, an Apple, a Google, a Tesla. And when they don’t pay out, they are often looked at in the rear view mirror as moments of irrational exuberance.


With Moderna and mRNA, by contrast, we’re currently at the hot table in heart of the casino. Messenger RNA is a type of RNA molecule carries instructions from your DNA to other sites in a cell, enabling it to produce proteins. Moderna is attempting to modify the mRNA so that it can carry special kinds of recipes for the cell — enabling it to make proteins that would treat a disease, or antibodies that could fend off a virus. So far, the company has shown this can work in mice and monkeys, but not yet in people.

Some of the breakthrough research behind Moderna was done at Harvard Medical School, and the fledgling company incubated at Flagship Ventures in Cambridge. Chief executive Stéphane Bancel says making medicines inside your cells, rather than a factory, seemed to many like “a totally crazy idea” at first, but the progress has been faster than he expected. For instance, a year ago no one was sure Moderna’s approach could produce a vaccine, but the company has shown it can protect animals from a lethal dose of virus “only one week after an injection of one dose,” Bancel says, unlike vaccines that require several weeks or doses to provide protection.

The company has struck up partnerships with pharmaceutical giants such as Merck and AstraZeneca that will explore how Moderna’s custom-crafted mRNA, which must be injected, can work against a wide range of diseases and viruses. Bancel says that he expects several tests in humans to commence in the next year or two. With the massive influx of funding this month, Moderna could hire 100 to 150 employees this year.

What are the limits of what mRNA-based drugs can do? “We don’t know,” Bancel says. That answer hints at unlimited upside — but also the eventual sting of reality, since everything has limits.

Banking more money than any biotech before it means there is a big spotlight on Moderna, Bancel acknowledges, and plenty of skeptics. “We’re playing a long game,” he says. “We’re putting our heads down and focusing on the science — and we’ll know the results in the next 24 months.”

Michael Scally MD

Doctor of Medicine
The Absurdity of Flex Pharma IPO: 2 Spices and a Veg Net $86M

The biotech industry's Arctic ice-cube salesman Cristoph Westphal managed to raise $86 million Wednesday night in an initial public offering to develop a treatment for leg cramps made from food ingredients commonly found in your spice drawer and refrigerator.

If the biotech bull market hasn't reached 11 on the absurdity meter quite yet, the Flex Pharma(FLKS) IPO gets us darn close.

Michael Scally MD

Doctor of Medicine
Israeli Biotech Surges on Mystery Firm’s No-Name Report

(Bloomberg) -- When Pluristem Therapeutics Inc., an Israeli developer of experimental stem-cell treatments, rose 39 percent in Nasdaq trading last week, traders attributed it to a bullish report on a website linked to a California biotech pundit.

The two-page report from Acceleron Equity Research dated Jan. 26 was published on Acceleron’s website and distributed by Marketwired, a press-release distribution service, the next day. The site and research document don’t identify anyone involved with the firm, while the press release about the report lists a media contact named M. Morhamus. The report says the analysts who wrote it don’t own Pluristem stock, but that employees and officers of Acceleron might.

The report shines a light on the often opaque world of research firms that drive shares of small-cap companies up and down. Investors don’t have enough information about Acceleron to judge its credibility, said Steven Tepper, a senior biomedical analyst at Migdal Capital Markets Ltd. in Tel Aviv.

“It would be very irresponsible to make investment decisions on a research report that has no analyst name standing behind it,” he said, adding that his comments do not reflect his opinion about Pluristem. “We need to know who owns this research company, who are the managers, what is its business model. A disclaimer means nothing if there’s no analyst name written on the report.”

Domain Name

The domain name for Acceleron’s site was registered by M.E. Garza on July 16, according to records on, which tracks registrations. Garza operates biotech news site, and in 2012 he posted an article on that site in which he said he owned Pluristem shares. Acceleron was started by Michael Morhamus and A.J. Deniken, both of whom have contributed to BioMedReports, Garza said in a telephone interview.

Deniken, reached by telephone, said he isn’t an owner of the research firm and didn’t profit from the increase in Pluristem’s stock price. He wouldn’t say who owned Acceleron and declined to comment further. Morhamus didn’t reply to requests for comment sent via Twitter.

“I registered a domain for them, and helped them establish the website, but I don’t have ownership or interests in the company,” Garza said of Acceleron. “I helped them set up the website technically. I don’t have contact with the company and I don’t benefit from it financially.” He said he owned Pluristem stock in the past, but no longer does and didn’t benefit from the recent share moves.

More at link ...

Michael Scally MD

Doctor of Medicine

UniQure NV (QURE) is a Dutch commercial-stage biotechnology company pioneering therapeutics in the gene therapy field, also the developer of Glybera, the first and only gene therapy product to receive regulatory approval in the European Union. Despite this, uniQure carries a comparatively low valuation next to clinical-stage gene therapy peers, many of which have gone public only in the last two years. These include bluebird bio (BLUE), Avalanche (AAVL), and most recently Spark Therapeutics (ONCE) Spark priced its initial public offering at $23 on Thursday and traded as high as $51.9 in the Friday session, valuing this latest gene therapy entrant at ~$1.2B (closing price of $50).

We see uniQure as a dark horse in the field, in-part because of numerous catalysts in 2015 that will put fresh eyes on this European company. UniQure IPO’d in early 2014 and only began to capture attention in the second half of the year.

Our thesis centers around the fact that uniQure is a commercial-stage, fully integrated (manufacturing) gene therapy company with two value-driving events this year: Glybera’s European commercial launch in the 1st quarter of 2015 and phase I/II data for uniQure’s hemophilia B product candidate around mid-2015.

UniQure’s hemophilia B program is marginally lagging a similar therapeutic at Baxter International (BAX), and Baxter could have data on its own program sometime this year. “When” is a complete unknown. Meanwhile, Spark will also bring its hemophilia B candidate into the clinic this year. Spark has captured the attention of Wall St, in-part, because the hemophilia program is partnered with Pfizer (PFE). That’s certainly compelling, but we outline in this report why uniQure may have a leg up on the competition. Finally, we point to the valuation disparity between QURE and SPARK – $375 million vs $1.2 billion. We suspect this gap will continue to close in 2015.

Michael Scally MD

Doctor of Medicine
The Year In New Drugs.

For the pharmaceutical industry, 2014 was one for the record books: sky-high merger and acquisition activity, unprecedented levels of financing, and, last but not least, a peak in new drug approvals.

The Food & Drug Administration’s green light for 41 new molecular entities—the biggest crop in nearly two decades—signaled a return to innovation for an industry that just five years ago seemed stagnant.

As important as the quantity of new products was their quality. In years past, a surge in drug approvals often meant a glut of me-too products and molecules that, after many regulatory setbacks, finally squeaked their way onto the market.

The 2014 class, in contrast, featured numerous examples of scientific breakthrough. An improved regulatory environment allowed some of them to reach patients at breakneck speed, albeit often at hefty price tags. And although the quantity of new drugs might not keep up in 2015, the hope is that the quality will persist.

Among the 41 new molecular entities approved, 17 offer a novel way of treating a disease, in many cases through a new mechanism of action.


Regulatory filings to date suggest that this year could bring a similarly strong crop of drugs, again offering quantity and quality. Attention is shifting to the cardiovascular arena, where several drugs with the potential for multi-billion-dollar sales are expected to be approved this year. The most buzz is around a new class of powerful cholesterol-lowering treatments that block PCSK9, a protein that keeps the liver from removing “bad” LDL cholesterol.

Amgen was the first to file for approval of a PCSK9 inhibitor, with FDA setting Aug. 27 as a deadline for review. Sanofi and its development partner, Regeneron Pharmaceuticals, submitted an application late last year and expect their drug to be on the market in the second half of 2015. Consultancy Datamonitor expects both drugs to rack up $5 billion in annual sales by 2023.

Another highly anticipated cardiovascular therapy is Novartis’s heart failure treatment LCZ696, which combines the active ingredient in the firm’s heart drug Diovan with the novel neprilysin inhibitor sacubitril. The combo made headlines last fall when a Phase III study showed it reduced by 20% the number of cardiovascular deaths compared with the ACE inhibitor Vasotec. Novartis anticipates FDA approval in the second half of the year; Datamonitor forecasts the drug to reach $6 billion in annual sales by 2023.

Beyond cardiovascular treatments, industry watchers anticipate several other innovative drugs this year. Novartis has already gained approval for Cosentyx, a psoriasis treatment that stock analysts expect to reach blockbuster status by 2019. Cosentyx is the first antibody approved to block IL-17A, a cytokine implicated in inflammation. Lilly and Amgen are both working on their own IL-17A inhibitors.

Pfizer expects to win approval for palbociclib, a CDK 4/6 inhibitor for the treatment of breast cancer, in April. Leerink stock analyst Seamus Fernandez predicts that the drug will bring in $4 billion in annual sales by 2020.

And analysts expect Vertex Pharmaceuticals to win FDA’s nod in the first half of the year for a pill that pairs its cystic fibrosis treatment Kalydeco with the novel molecule lumacaftor to aid roughly 30% of cystic fibrosis patients. On its own, Kalydeco, which Vertex pegged at about $460 million in sales last year, can treat just 5% of patients.

As the next wave of potential blockbusters approaches, battle lines are already being drawn over their cost. Last year’s drugs included many with eye-popping price tags, and a particular furor has risen over the cost of new treatments for hepatitis C. This year more than ever, as companies hail the approval of each new drug—no matter how innovative—they will also need to prove it is worth paying for.

Michael Scally MD

Doctor of Medicine
New Cancer Technology Gives Investors a Shot in the Arm

George Soros , Michael Milken and David Bonderman are among marquee investors benefiting from early bets on a red-hot sector: young companies developing drugs that fight cancer by using the body’s immune system.

Interest in the nascent approach, known as immunotherapy, has taken off following the success of Yervoy and Opdivo, a pair of drugs developed by giant Bristol-Myers SquibbCo. The treatments could generate $8.5 billion in annual revenue by 2020, Credit Suisse predicts, or more than half the New York company’s 2014 revenue of $15.9 billion.

Hopes that fledgling companies will repeat and extend upon those advances are behind the recent share-price gains in Juno Therapeutics Inc., Kite Pharma Inc. and bluebird bio Inc. Their treatments, which take a different approach than Bristol-Myers’s, haven’t yet reached the market.

Shares of Juno, which is developing therapies for leukemias and lymphomas, ended Friday’s trading at $45.52, following a December initial public offering at $24. Kite Pharma has soared to $62.80 from $28 since the beginning of October. Bluebird bio, driven more by advances by gene-therapy drugs than in immunotherapy, has climbed to $93.32 from $39 since early December.

The three companies’ treatments are complex, likely to be expensive and cause severe side effects for some patients; none has yet been approved. But the strategy has shown dramatic results in leukemia and other blood cancers in early trials and researchers are racing to find ways to extend their use to other cancers.

Michael Scally MD

Doctor of Medicine
Stock Index Tracking Red-Hot Cancer Immunotherapy Field Launched

A new stock index is debuting Tuesday to track the performance of companies developing cancer immunotherapies.

The Loncar Cancer Immunotherapy Index (LCINDX) is an equal-weighted basket of 25 pharmaceutical and biotech companies developing (or already marketing) drugs which use the body's own immune system to target and kill cancer cells.

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