Some Bold Baseball and Biotech Picks for the 2013 Season
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available to patients within about four weeks. With demand for its stock soaring above $20 a share, it decided to make hay while the sun was shining (sorry for the farming metaphor) by selling another 2.9 million shares to investors at $20.75 apiece. Although such deals dilute the value of existing shares, Hyperion stock has continued to climb, closing at a high of $23.38 on Friday. That deal could end up easily netting another $60 million before the final tally is in, which puts this company in great position to make the most of its rookie year in the commercial side of the pharmaceutical business.
The Pablo Sandoval Most Overrated Player Award: Affymax (NASDAQ: AFFY). You’d think that if a person were talented enough to play major league baseball, and good enough to hit three home runs in a World Series game, the person would be disciplined enough to keep their weight under control. Not Pablo Sandoval. The folks in San Francisco may love their Kung Fu Panda, but after owning him for most of last year’s fantasy baseball season, I figure I’ll let someone else roll the dice on this talented but injury prone and reckless player.
Affymax, I have to admit, broke my heart over the last year, just like the Panda. The Palo Alto, CA-based company was my “sleeper pick” in last year’s spring training column, because it had just won FDA approval for the first anemia drug that could challenge Amgen’s 20-plus year monopoly in the space. Things looked great for a while, as Affymax had comparable clinical trial data, and was prepared to undercut Amgen on price, offering a compelling value proposition to insurers who are looking to cut costs. But disaster hit last month. Affymax and its partner, Takeda Pharmaceuticals, voluntarily pulled peginesatide (Omontys) off the market after reports of 19 severe allergic reactions among patients on the drug, three of which were fatal. Affymax saw its shares peak at more than $27 a share last October, but the recall was devastating. It closed at $3.29 on Friday.
The Marco Scutaro Steal of the Draft: Alkermes (NASDAQ: ALKS). As any major league general manager will tell you, teams don’t win baseball championships by running out and signing the most high-priced free agents. Budget limitations are real. So you need to find those late-round hidden gems, like Marco Scutaro, a solid middle infielder who got hot at the right time last year for the World Series champion San Francisco Giants.
Alkermes is the biotech company that reminds me of a scrappy veteran survivor that gets the job done, like Scutaro. Alkermes, founded in 1987, doesn’t make big news like Genentech, because it doesn’t have the one glamorous molecule like the new “smart bomb” for breast cancer. Most of its business is about making existing drugs last longer in the blood, so they can be more effective and convenient for patients. Yawn, I know. But CEO Richard Pops is one of the savviest operators in the business, and proved it with his strategic acquisition of Elan Drug Technologies in 2011. That deal turned Alkermes into a fully integrated company. Even if the ballyhooed exenatide once-weekly (Bydureon) ends up being a dud for diabetes, it’s not a crushing blow for a company with five different meaningful revenue streams. Alkermes even has enough cash flow to take a few swings for the fence in R&D. The company still has the look of a company that’s underappreciated by big fund managers who size up the Amgens and Gileads of the world, but it shouldn’t be. I remember just a couple years ago when Alkermes was worth $1 billion. It’s worth $3 billion now.
The Buck Showalter Manager of the Year: Clay Siegall, Seattle Genetics (NASDAQ: SGEN). The Baltimore Orioles manager pulled off a small miracle last season in leading his overmatched-on-paper squad to the playoffs. My opinion, he should have beaten Oakland’s Bob Melvin for manager of the year.
Clay Siegall is also one of the biotech leaders easily snubbed. He’s a scientist by training, and not the flashiest guy in the business. He lives in far-off Seattle, a small media market, like Showalter’s. But Siegall’s company delivered the first truly successful example of a “smart bomb” antibody drug for cancer—brentuximab vedotin (Adcetris). People evaluating the company on that one drug alone might say it’s overvalued, but remember, Seattle Genetics has the industry-leading technology for linking antibodies to toxins. It stands to rake in significant milestones and royalties as its partners make progress on dozens of different antibody-drug conjugates in development.
Most importantly, as a manager, Siegall has shown he knows the importance of hiring people smarter than he is at certain things. Many biotech companies struggle with management depth, and end up failing because of it. Now look at the stellar roster Siegall has built of major leaguers in finance, medicine, business development, operations, sales & marketing, quality control, and on and on. Biotech may be an industry where the guy at the top (and it’s usually a guy) gets all the credit or the blame, but it’s much more of a team sport than baseball is. And I’m guessing Siegall—a big baseball fan himself—genuinely believes that the success of Seattle Genetics isn’t all about him, but it’s more about the depth of his lineup from top to bottom.