Some Bold Baseball and Biotech Picks for the 2013 Season
Spring training is here. That means I get to spend days thinking and writing about biotech and nights dreaming about hard-throwing setup men with decent walks-plus-hits-allowed per inning pitched (WHIP) ratios who have a shot at becoming a closer.
I’ll leave it up to you to decide which obsession is the greater malady.
Kidding aside, I happen to subscribe to the notion that all kinds of useful ideas and metaphors from the national pastime can be applied to other aspects of life, including biotech. As I wrote last year, in the first of what I think ought to be an annual BioBeat-meets-baseball column, the game is full of some fascinating human characters we can see everywhere. There are underrated rookies (usually in Tampa Bay or Pittsburgh), superstars with a lot to prove (hello Los Angeles Dodgers) and teams full of overrated players past their prime (usually in New York).
Sometimes baseball even inspires innovation. The whole data-intensive sabermetrics movement chronicled in “Moneyball” changed the way baseball executives value players a decade ago. Today’s “big data” movement is prompting lots of people to think of new ways to use data to drive better decisions in drug development, healthcare, and other aspects of life. See Kyle Serikawa’s recent guest post for an idea of what I’m talking about.
OK, so in the spirit of using baseball to find new insights on biotech, and have a little fun along the way, here are some baseball-inspired awards. If you have other suggestions of baseball-inspired biotech honors (and dishonors), I’d love to hear them.
Here are a few of mine:
The Jacoby Ellsbury Comeback Player of the Year: Cambridge, MA-based Alnylam Pharmaceuticals (NASDAQ: ALNY). Last year this time, I was all fired up about the gifted Red Sox centerfielder, drafting him in the second round of my fantasy draft. Ellsbury hurt his shoulder, and stunk when he returned. At 29, he is still in his prime, has a lot to prove, and many observers expect him to return to form this year, especially since he’s in the last year of his contract and poised to become a free agent.
Alnylam is the leading developer of RNA interference drugs, with all the intellectual property, management pedigree, money, and external validation that you expect of a hot biotech prospect. It went through some travails for a few years. Big daddy Roche turned its back, skeptics wondered whether it could ever deliver RNAi drugs effectively, and it ran into a messy IP dispute with Vancouver, BC-based Tekmira Pharmaceuticals (NASDAQ: TKMR). It started last baseball season with its stock trading in the $11-12 a share range. But in the past year, it settled the Tekmira dispute, and made people forget about Roche when it started to show impressive clinical trial data with drug candidate for a rare disease called TTR amyloidosis. Steve Dickman connected a lot of the dots in the Alnylam story in this recent guest post. But if you don’t have time to read the whole story, here’s the box score: Alnylam investors saw their holdings double in the past year, closing at $24.58 a share on Friday.
The Alex Rodriguez ‘Can We Renegotiate That Contract Now?’ Award: New York-based Bristol-Myers Squibb (NYSE: BMY). The Yankees gave their star third baseman the biggest contract in Major League Baseball history, a 10-year, $275 million deal for Rodriguez in December 2007. It was defensible on paper at the time, as Rodriguez was 32, and had just finished a season in which he batted .314 with 54 homers and 156 runs batted in. Rodriguez performed well in the first two years of the contract, but the last four years have been a story of decline. He’s out for at the start of this year now because of hip surgery, and might miss the whole season.
Bristol-Myers executives must know the feeling Yankees executives get when they think about that A-Rod contract. Bristol shelled out $2.5 billion last January to acquire Alpharetta, GA-based Inhibitex at the height of Big Pharma’s frenzy for new antiviral drugs to fight hepatitis C. Only eight months later, Bristol reported that a patient taking the Inhibitex drug in a clinical trial developed heart failure and died, while others were hospitalized. Within days, Bristol-Myers told shareholders it essentially had to write off the drug completely, and take a $1.8 billion write-off for the failed acquisition. Although many acquisitions are structured with “earn-out” provisions that require little companies to hit certain development goals before they get paid the full acquisition amount, Inhibitex had the leverage in this deal and was able to extract the full $2.5 billion upfront, in cash, from Bristol. If you’re a Bristol shareholder, I feel your pain.
The Melky Cabrera Wild Card of the Year: Cambridge, MA-based Ironwood Pharmaceuticals (NASDAQ: IRWD). This normally mediocre outfielder broke out as a star last season, until he was suspended for using performance-enhancing drugs. Assuming he goes off the juice this season to avoid tougher penalties, the question turns to how well he’ll perform when he’s clean. This one is anybody’s guess.
Ironwood Pharmaceuticals is in a similarly tricky position for handicappers. The company is in the early days of marketing a new kind of treatment for irritable bowel syndrome with constipation, and chronic constipation. There are a lot of unknowns here. Even though tens of millions of people complain of these conditions, how many are motivated to get new treatment? How well will Ironwood and its partner, Forest Laboratories, do at getting the word out now that the Web and social media have disrupted traditional mass media marketing campaigns? How well can anybody execute on a primary-care drug rollout, at a time when primary care medicine is declining? How effective will the drug be in real-world use, where repeat prescriptions by doctors and refill orders by patients will be critical. CEO Peter Hecht says he expects it will take about nine months of experience to get solid data that says just how good linaclotide (Linzess) is going to be.
The Mike Trout Rookie of the Year: South San Francisco-based Hyperion Therapeutics (NASDAQ: HPTX). The Los Angeles Angels looked like a mess last season, as high-priced superstar Albert Pujols struggled in April. So the Angels promoted 20-year-old hotshot outfielder Mike Trout, who brought new mojo to the Angels clubhouse and set the whole league on fire, hitting .326 with 30 homers, 129 runs, and 49 stolen bases.
Maybe Hyperion Therapeutics never got the advance hype that Trout did, but it has lived up to its early promise. The company went public in July at $10 a share on the hope that its drug glycerol phenylbutyrate (Ravicti) would win FDA approval as a new option for a small group of patients with urea cycle disorders. Hyperion secured the FDA green light on Feb. 1, set an aggressive price at $250,000 to $290,000 per patient per year, and made it 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.