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Biotech 101: Knowing Your Designations

By
Jennifer Aldershot
-
NDA

The length of time it takes an investigative drug to get through clinical trials and reach markets varies dramatically, however very rough estimates put it at between 10 and 15 years from discovery to commercialization. Further, only a very small proportion of those treatments that enter this timeline actually make it to FDA approval, and a smaller proportion still achieve what can be deemed commercial success. In order to try and speed up the process in areas of biotech that the FDA deems a shorter path to market as being beneficial to patients, there are a number of specialized designations that the FDA can grant certain treatments based on their attributes and target populations and conditions. These designations can play a big part in the valuation of companies that are developing treatments, and as such, as biotech investors, it’s important to understand the implications of each. So, with this said, here’s what you need to know.

Orphan Drug Designation

First up, we got orphan drug designation. In order to qualify for consideration as an orphan drug, a treatment must be targeting a rare disease or condition – technically defined by the FDA as something that has an incidence rate of less than 200,000 in the US. Basically, it can be very expensive to develop drugs for rare diseases. Further, because of the restricted number of target patients, the revenue potential can make it difficult for a company to justify spending the development capital required to get the treatment to market. Orphan drug designation is designed to incentivize development, and includes a range of associated benefits. These include an extended exclusivity period, the potential for accelerated approval (something we will look at shortly) and a range of tax benefits.

Fast Track Designation

This one is a designation available for treatments that target serious conditions with a currently unmet medical need. A company must request fast track. For example, a pharma such as Merck & Co. Inc. (NYSE:MRK), which develops heavily in the unmet needs space, might approach the FDA and say “hey, we’ve got this treatment that we believe could cure this disease for which no other treatment currently exists”. If the FDA agrees, it will grant fast-track, which primarily involves an increased frequency of interaction between the development company and the FDA. This increased interaction helps the developing company to overcome hurdles quickly and – theoretically – speed up the time to market.

Accelerated Approval Designation

A treatment that qualifies for fast-track designation may also qualify for accelerated approval. The key to understanding accelerated approval is knowing the difference between a primary and a surrogate endpoint. A primary endpoint is (as we have discussed in other tutorials) the topline measure of the efficacy of a development stage treatment. A surrogate endpoint is an indicator of sorts – something that suggests efficacy but cannot really lay claim to confirming it. The example most widely used is that of tumor shrinkage. If Amgen Inc. (NASDAQ:AMGN), which develops a large number of breakthrough cancer therapies, can demonstrate its treatment leads to shrinkage of a tumor in a particular cancer, this might be considered a surrogate endpoint for efficacy. Accelerated approval designation gives a treatment the chance to gain FDA approval based on surrogate endpoints rather than primary efficacy endpoints. Understandably, biotech investors get very excited about the potential for accelerated approval, as it can both cut the time to market and cost to market of a pipeline candidate.

Priority Review Designation

This one is pretty simple. All drugs have either standard or priority review designation. With the standard designation, the FDA will try and review a new drug application (NDA) submitted by a company that has demonstrated efficacy in phase 3 within 10 months of the submission. With a priority review, however, this 10-month period shortens to 6 months. How does the FDA differentiate between the two? Well, it comes down to – as with a number of other designations – improvement or unmet need. If the treatment in question targets a currently unmet medical need, it will likely receive priority review. Similarly, if it demonstrates significant improvement in clinical trials over the currently available standard of care treatment, priority review becomes likely.

Conclusion

So there we go. An understanding of what each of these designations mean, and their respective implications for the time and cost to market for a development stage drug is vital, so stay on top of these designation definitions and it could give you the edge over other biotech investors when interpreting industry announcements.

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Two Biotechs With Catalysts This Week

By
Roger Hannington
-
Stockgrowth

The third quarter is always a busy one in biotech, and this year’s has been no exception. We have seen a raft of approvals and trial data hit markets during September, and – as we head into the final few days of the quarter, there are a number of further catalysts that could kick up some volatility over the next week or so. So, without further ado, here are a couple of biotech’s with upcoming catalysts to keep an eye on this week.

Anacor Pharmaceuticals, Inc. (NASDAQ:ANAC)

First up we’ve got Anacor Pharmaceuticals, Inc. (NASDAQ:ANAC). Anacor has had a great 2015, and is currently trading more than 330% higher than year open levels. However, over the last month or so, the company’s upside momentum has stagnated somewhat, and it now trades for an approximate 6% discount on annual highs. This discount could quickly disappear, however, if the company reports promising topline from its pivotal phase 3 study of its lead dermatitis treatment – AN2728. The company reported back in March this year that it would present the data before the end of Q3, 2015, and we expect to see it hit markets sometime before the end of this week. The treatment in question is what is called a phosphodiesterase type 4 inhibitor, or PDE4 inhibitor. Anacor is targeting atopic dermatitis, which is a skin disease that comes about as a result of overproduction of inflammatory cytokines in a patient. AN2728 has a pretty complicated mechanism of action, and there is a nice video describing how it works here, but for now, all we really need to focus on is the depths of science required to understand the trial’s endpoints. Lucky for us non-scientists, these relate to physical symptoms rather than scientific mechanism of action. Atopic dermatitis represents itself physically through a chronic rash, with an associated inflammation and itch. AN2728 inhibits the production of enzymes in the body that produce inflammation (very simplified), and so the company is targeting treatment success as judged by a primary endpoint of a graded improvement from baseline (essentially, has the rash cleared enough as a result of treatment?) When the results hit markets, look for a minimum of a two grade improvement from the baseline, as this will indicate the meeting of the endpoint for the phase 3, and suggests the company could get a new drug application (NDA) in the hands of the FDA before the end of the year. Looking at things from a technical perspective, we would expect positive topline results to break through near-term resistance of annual highs at $152 a share and validate a medium term target of $175.

XenoPort, Inc. (NASDAQ:XNPT)

We mentioned Xenoport back at the end of August as a potential candidate for a discount buy in the biotech space, with the thesis behind our argument being topline phase 2 results for one of its lead candidates released before the end of September. At the beginning of last week, we got a preliminary look at these results, and the full topline report is scheduled for before the end of this week. The treatment in question is XP23829, targeting psoriasis, and initial reports suggest safety, tolerability, and efficacy, with the meeting of its primary endpoint demonstrating for the first time that this type of prodrug can treat immune system related conditions such as psoriasis. All we know at the moment is that the phase 2 demonstrated statistically significant efficacy, but the degree to which this significance holds will be revealed in the comprehensive results release. Additionally, we would like to see some indication of a timeline for the initiation of the phase 3 trial alongside the results. In the preliminary data, Ronald W. Barrett, Ph.D., CEO of XenoPort suggested they could be looking at phase 3 initiation during 2016 – however, we’d like to see this narrow down a little bit. XenoPort has had a rough year, and especially a rough month, having lost 40% of its market capitalization from September highs. It looks as though markets have not yet priced in the successful meeting of XP23829’s primary endpoint, in turn suggesting that biotech investors may be waiting for the comprehensive results before taking a position. The company is currently trading at a little over $4 a share, but if we can get a narrowed down phase 3 initiation date on the back of some real statistical significance, a quick return to monthly highs of $7 looks like a realistic upside, near-term target.

 

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Biotech 101: How To Read Clinical Trial Data

By
Jennifer Aldershot
-
NDA

Last week we published the first in our Biotech 101 series. In the piece, we covered the FDA approval process – the steps a developing stage treatment must go through in order to achieve FDA approval and reach consumer markets. This time around, we will be looking at a key component of the FDA approval process in a little more detail – clinical trials. Specifically, how to read and interpret clinical trial results. In the development stage biotech space, clinical trial results are the primary driver behind any volatility, and can make or break entire companies. Many biotech traders wait for trial results to hit press, and take a position based on the inference of the results. The quicker they enter the more of an advantage they have over other traders looking to play the data. With this in mind, knowing how to interpret data quickly and accurately is an important quality in biotech investing. So, without further ado, here are the most widely used terms in trial data reporting, and how you should be interpreting them.

Efficacy

First up efficacy. Efficacy is probably the most important element of any trial, once safety and tolerability has been confirmed (both of these we will cover a little later). If efficacy is confirmed in the trial, it essentially means the treatment in question works. When a company reports on efficacy, it will do so by addressing what are called endpoints – generally broken down into primary and secondary types. The primary endpoint is the more important of the two, and secondary endpoints are generally used to reinforce primary endpoint data when submitting a new drug application (NDA). So, for example, imagine Roche Holding AG (OTC:RHHBY) is testing out a new eczema treatment. Two symptoms of eczema are itching and dry skin. Roche might target a reduction in itching as its primary endpoint, and a reduction in the amount of dry skin as its secondary endpoint. Before the trial commences, the company will set benchmarks against which it can measure both of these symptoms before and after treatment. The data released from the trial might say something like this:

Example Eczema Drug met both its primary and secondary endpoints, with the data revealing a statistically significant reduction in itching and dry skin across the patient population.

If a sentence such as this makes an appearance in data release, it means the company has demonstrated efficacy for its candidate, and markets will generally perceive this announcement as positive. If a treatment does not meet its endpoints (particularly its primary endpoint) this is essentially saying it does not work and markets will perceive this as negative.

Safety and Tolerability

Safety and tolerability are two major components of any trial data, and – alongside efficacy – should be the go-to reference points on any data release. The difference between these two elements are widely misunderstood, but the best way to think about is this: safety refers to negative symptoms associated with taking a treatment (referred to as adverse events in clinical trial data), while tolerability refers to the level to which a patient can suffer these adverse events. Essentially, it’s a risk-benefit analysis. When the FDA looks at safety and tolerability data, it considers whether the adverse events are worth tolerating in order to derive benefit from the treatment of the underlying condition. What we would ideally look for in clinical trial data is the reporting of no adverse events, however, more often than not, there will be adverse events – the trick is to consider these through the eyes of the FDA. Is it worth going through some minor headaches in order to fend off liver disease? Yes. Is it worth losing your sight? Probably not.

Affirmation

Finally, we look for some affirmation that the company is anticipating moving forward to the next stage of the clinical development phase. If Gilead Sciences Inc. (NASDAQ:GILD) has a development stage candidate in a phase 2 trial, for example, we would look for a statement at the end of the results release that indicates the company plans to move forward with a phase 3 trial. If the data relates to a phase 3 trial, we would look for a timeframe within which, by which, the company question expects to file an NDA with the FDA. An example might read a little bit like this:

Based on these results, we anticipate the initiation of registration for a phase 3 pivotal trial during the second quarter of 2016.

So there we go. When trial data hits, look for these three elements first. Using efficacy, safety and tolerability, and affirmation statements, you can quickly gain insight into the success or otherwise of a development stage candidate, and in turn, react accordingly.

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Stocks Have No Direction After Fed Shocker

By
TradeCircle
-
Surprise Move by the Fed

Well, it seems that Peter Schiff was right again. For months he has been harping on his contention that the Fed never had the intention of raising rates, and he never budged from that viewpoint, other than to say a one-off rate hike was possible and qualifying that he still thought they were not going to hike even a small 25 basis points.

The reaction to the decision was expected, except for the the effect on stocks. Gold (NYSEARCA:GLD) and silver (NYSEARCA:SLV) surged higher along with the accompanying mining stocks (NYSEARCA:GDX). Bonds surged (NYSEARCA:TLT) as interest rates plummeted, and the dollar index (NYSEARCA:UUP) fell just as fast.

The only move that raised some eyebrows is the effect the surprise lack of an interest rate hike had on stocks. The Dow (^DJI) Nasdaq (^IXIC) and the S&P 500 (^GSPC) all sold off on the announcement and then surged, only to sell off again and end the day marginally down. Equities traders clearly do not know what to think from here, given rates have been near zero for the longest time in history. The question on everyone’s mind is, if not now, when? And nobody seems to know the answer.

But the answer, after today, does seem clear to those who understand the Fed’s main fear, which is price inflation. When the consumer price index came in at negative 0.1% yesterday, the chances of a rate hike shrank. It seems likely that the only thing that will get the Fed to raise rates even a tiny bit is higher price inflation. Short of that, there is just no reason to risk cutting fragile economic growth.

The problem is, with rates so low for so long, when inflation finally does start to show up in the CPI, it may be too late for monetary policy to do anything. If the CPI begins to climb in earnest, the economy may not be ready for a rate hike aggressive enough to tame it.

If the Fed broadcast anything today to Wall Street, it is that as long as economic numbers are at least decent and inflation is low, zero interest rates will continue, if not even negative ones. One Federal Open Market Committee member even predicted negative interest rates for 2016.

The other fly in the ointment though is that China is still dumping treasuries at a record pace. China is said to have dumped $300B in foreign exchange reserves in 3 months with the latest figures showing that forex has plummeted from $4 trillion to $3.5 trillion in little over a year. At some point, this will raise interest rates regardless of what the Fed does.

One wonders if Yellen and company are ready for that. Something tells me they aren’t.

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What’s Behind Oil’s Volatility?

By
Roger Hannington
-
oil

The last 12 months or so have been extremely volatile in crude oil. From 2014 highs of close to $110 a barrel, WTI declined over a seven-month period to close out the year of $45 a barrel – a 69% decline. Year-to-date, this volatility has continued. The price per barrel has fluctuated from highs a little over $62 to lows of $37, and now trades a few dollars above where we opened the year. Major energy ETFs such as United States Oil (NYSE:USO) and the Energy Select Sector SPDR ETF (NYSE:XLE) are mirroring this action. Markets are looking at these prices and questioning the driver behind all the volatility. Really, it comes down to two things – uncertainty and misinformation. A number of conflicting global economic (macro and micro) factors are playing into crude pricing at the moment, and this conflict is creating a push pull pricing effect. So, with this in mind, here’s a look at what’s playing into the price at the moment, and how we can use these factors to form a crude strategy for the next few months.

crude

 

US Storage Supply

So, what’s weighing on oil?Well, the primary driver behind the steep decline seen throughout the latter half of last year and the first few months of this year was supply. A perceived US glut of crude supply led to wide news-media reporting on the issue, and investors sold out of their crude exposures accordingly. In reality, much of the supply speculation proved unfounded. A look at the EIA weekly supply stats reveals intra-annual fluctuations in supply. The comparisons used to stir up attention in the media were between highs and lows of these fluctuations – thus essentially invalid. However, sometimes (often) sentiment drives markets rather than reality.

Iran Sanctions

Another factor that has weighed on oil is what is happening in Iran. Again, however, the idea that the removal of trade barriers between Iran and the Western world will translate to oversupply is largely conjecture. Admittedly, Iran has reserves that would put it as the fourth largest oil producer in the world – somewhere around 160 million barrels proven resources. On a daily basis, however, it would only be able to produce 3.1 million barrels – a tiny portion of the more than 93 million barrels that make up daily global demand. Further, a large portion of its reserves are held offshore in tankers – somewhere around 35 million barrels. The quality of crude held in these tankers has been subject to debate recently, as has the quality of the Iranian oil infrastructure (i.e. its wells and processing facilities). At best, analysts expect around to be able to export around 180,000 barrels daily.

China and the US

Finally, we got what’s happening in China and the potential for a US rate hike putting downside pressure on the price of oil. The Chinese economy is slowing, and currently sits around 8 million barrels per day – down from 10 million barrels earlier on in the year. Combine this with a Federal Reserve rate hike (which would likely reduce US oil demand based on a reduction in capital spending from US industry) and you’ve got your justification for a slump.

Corrections

However, and as the chart shows, we are seeing upticks, and even bullish corrections, over the last couple of months? Why is this? Well, the first two reasons (US storage and Iranian export driven supply glut) are unfounded, and while wider market perception has driven the price down, market efficiency looks to have led to a correction of at least a portion of this downside momentum. Looking forward, don’t be surprised if, as markets further realize the realistic implications of these two factors, the price of oil corrects further to the upside.

Profit Taking

There is also likely an element of profit-taking from speculators on the short side of oil that initiated positions during 2014 highs. The uncertainty surrounding the forward economic strength of both China and the US (not to mention Europe) is enough to force short covering in any market. Especially one that – over the last 12 months – has proven so elastic to external influence.

Looking Forward…

So what can we expect going forward? Well, news-media will report a $50 price roof for a number of reasons. Those already mentioned as well as the ability of OPEC to manipulate supply with the goal of reducing the attractiveness of US shale prices, could – short term at least – force this roof into reality. However, looking forward, it cannot hold. At the peak of the last recession, oil priced about five or six dollars lower than the lows seen during August this year, and from those lows, corrected nearly 300% across a 2 ½ year period. Medium to long-term, look for a reversal around current levels to break the so-called price roof and return some upside momentum to oil going forward.

Chart source

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A Rate Hike Looks Very Likely Tomorrow

By
TradeCircle
-
Rising inflation means rising interest rates

Economists are being polled ad nauseum. Is a rate hike coming or not? How do you know? What are the signs? Admittedly, whoever makes the right call and trades accordingly will make a nice profit. The amount of power now in the hands of 12 people on the Federal Open Market Committee is absolutely enormous. One wonders if any of the people in their inner circle are making trades. How can that be prevented?

In my estimation, a rate hike looks very likely. We are currently at the dual mandate goal of price stability and full employment. The fact that the consumer price index (CPI) fell by 0.1% can be chalked off to continually falling oil prices (NYSEARCA:USO) and the collapsing energy sector (NYSEARCA:XLE). Top officials at the Fed know full well that when the supply side issues for commodities get back into balance, the CPI will shoot right back up.

If a rate hike is indeed called tomorrow, a gap down in stock indexes (NYSEARCA:SPY) will probably be overshadowed by a collapse in bond prices (NYSEARCA:TLT) which have not absorbed the shock of a rate hike in a decade.

What economists seem to be ignoring, and they ignore a lot, is what happens if the CPI reverses and starts climbing higher much faster than anticipated? In that case, the Fed would be forced to continue to raise rates much faster than they in turn anticipated, which would collapse bond prices much further and jack up the rate at which the Federal Government has to pay to service its $18 trillion debt and counting.

Everything, then, rests on consumer price inflation. As long as it stays down, the status quo can be maintained. But if and when it edges up to 2%, 3%, perhaps even 5% over the next year or two, what then? If the Federal Reserve is forced, due to climbing inflation, to raise rates to 5%, 6% or more to say ahead of inflation, how much of Federal tax revenue will be eaten up in paying those rates, given the gargantuan increase in public debt that has piled up since the financial crisis of 2008?

The worst of all cases would be a 1973-74 style stagflation with inflation nearing 10% with a concurrent recession in a debt environment like this. The dollar barely survived the 70’s and only did so with interest rates bordering on 20% by 1980.

There is no way that the US economy could possibly support rates that high given current debt levels. It would result in a Federal default on Treasuries without a doubt.

If inflation starts to get out of control at any point – any point at all – the whole jerrybuilt US economy could unravel. But as long as the CPI stays tame, there is no need to worry. It’s all business as usual. For now.

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How To Set Up Against Either Side Of Thursday’s Interest Rate Decision

By
Jennifer Aldershot
-
interest rates

The upcoming US interest rate decision is one of the most widely anticipated economic decisions of the last two decades. However, while the fact that it is about to take place is well-known, its implications are far less certain. This is the case even for those pretty well versed in economics and financial asset markets. With this said, there are a few ways we can set up against the rate decision in anticipation of a range of scenarios, which should serve to maximize our upside in the event that the decision comes out in our favour, and minimize our downside in the event that it does not. So, let’s try and figure out the un-figureoutable.

First of all, why all the uncertainty? Well, interest rates have long been the primary tool for the central bank of an economy to maintain economic stability. When interest rates are low, an economy generally expands, but in order to maintain stable inflation (generally around 2%) a central bank will normally raise interest rates to reduce borrowing and – in turn – private and public spending. You can think of it as a kind of “letting off steam for an economy”. So, since an increased rate hike generally means less industrial and private industry spending, stock markets will normally correct as interest rates increase. Conversely, since interest rates are the primary determinant in the value of a nation’s currency, currencies will usually appreciate in value as interest rates rise.

Things are different, now, however. Inflation is non-existent in the US, so we have this disparity between domestic equities markets (which have been booming for the last half decade), unemployment levels (which are – according to figures, at least – at reasonably low levels), inflation (which as we mentioned is pretty much non-existent) and economic growth (which again, is zero or negative at present).

The question is, then, is the US economy strong enough to withstand a rate hike? Alternatively, will downside pressure on private industry’s ability to borrow money and expand reverse the nation’s fortunes and send it back into recession? This is what nobody knows, and is the root of the dilemma.

So how can we set up against it? Well, normally, in anticipation of a rate hike, investors will shift assets from risk on to risk off, or in other words, out of equities markets and into gold. This is rooted in the fact that equities will generally sell-off as the rate hike constricts the flow of free capital into and out of markets. However, some will argue at the moment that a rate hike reinforces the Federal Reserve’s confidence in the US economy, and can be translated as bullish for its domestic equities markets. Why? Because there is a long way to go before we get inflation and growth. A rate hike now could suggest that we are on the path towards, but far from actually at, the end of the current bull market.

Conversely, loose monetary policy will generally boost stock markets as it suggests a continuation of free capital flow. However, in this instance, it could suggest that the Federal Reserve is taking the lack of inflation seriously, and that it believes it could be a problem going forward. For this reason, equities markets may correct in spite of the loose monetary policy, which again, could lead to an uptick in gold.

So how can we play it? Probably the safest approach is to allocate a majority portfolio to precious metals SPDR Gold Shares (NYSE:GLD) and certain areas of US industry that are relatively immune to the wider economy – health care, insurance etc. Energies are a risky allocation at the moment, and while we will likely see a spike if the Fed raises rates, the questions over how long that spike will remain in place make any exposure to them uncertain. What about those looking to get a piece of the action we are likely to see in equities markets if rates remain low? Major indices – Dow Jones Industrial Average (^DJI), NASDAQ Composite (NASDAQ:^IXIC) – remain the best bet, as these offer upside as part of a wider market buy in in the event of loose monetary policy, but also a (somewhat) protected downside as a result of the blue-chip nature of their constituent entities.

All said, tomorrow is going to be a pretty volatile day regardless of what happens. For those not looking to take an active approach, a majority cash holding might be a smart move, and one that retains capital that then becomes available to allocate in response to post-announcement market behavior.

 

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Two Companies With Near Term FDA Catalysts

By
ME Staff
-
stocks

With the US Federal reserve monetary policy announcement just round the corner, you could be forgiven for staying out of the equities markets at the moment. With all the uncertainty surrounding the announcement, any outcome will likely translate to considerable volatility, and a large number of individual investors will have already shifted allocation towards safe haven assets such as precious metals. However, and as we’ve mentioned in the past, the biotech space will often buck wider market trends. Healthcare is an inelastic industry, and as such, it’s constituent companies have the potential to gain strength while the wider market declines. The announcing of promising trial results or FDA approvals can be strong upside catalysts for any biotech – regardless of what other industries are doing. So, with this in mind, here are two companies set to receive FDA approval outcomes over the coming few weeks that should offer up some bullish reprieve in what could be a weak equities space.

Merck & Co. Inc. (NYSE:MRK)

First up we’ve got Merck. On October 2, 2015, the FDA is set to report the outcome of its accelerated approval review for a supplemental Biologics License Application for Keytruda. Keytruda is currently approved for second-line metastatic melanoma treatment, and this supplemental application is one of a whole host of applications designed to expand the range of conditions with which Merck can target Keytruda. In this instance, the company is looking at patients with advanced non-small cell lung cancer that aren’t eligible for platinum chemotherapy (or that have already received it, to no avail). The company submitted the application back in June this year. It’s worth mentioning that the potential market for this one is not huge. About 75% of newly diagnosed patients are advanced enough to qualify for platinum therapy, and only about 20% of these move onto a second-line therapy such as that under investigation. However, with its Keytruda treatment Merck looks to be targeting a wide range of small population indications, rather than a narrower range of indications that have large potential patient populations. As such, while this announcement is unlikely to have too much of an upside impact on the company’s revenues, it should contribute to an improved likelihood of further indications going forward. Further, these indications should build on each other and could eventually contribute a substantial portion to Merck revenues. So what can we expect from the FDA? Well, safety and tolerability won’t be an issue, as Merck has filed for a dosage at the exact same level as that being currently administered for the melanoma indication. Efficacy is based on these trial results, which showed a 45.2 overall response rate across a 313 patient population. Chances are this should be enough to instigate approval – especially with the treatment already in place for another type of cancer. We may see an FDA approval committee release in the coming week or so that gives us further indication as to the treatments likelihood of reaching commercialization. If we do, look for some immediate upside momentum in Merck stock, likely to continue as we head into the October 2 release.

Relypsa, Inc. (NASDAQ:RLYP)

Next, Relypsa. Back in January, the company reported it had received a target approval date for one of its lead investigator treatments Patiromer of October 21, 2015. It is targeting a condition called hyperkalemia, which simply refers to the presence of abnormally high levels of potassium in a patient’s blood. The mechanism of action of this one is pretty simple. Patients consume the treatment absorbed in water, and it travels through the digestive system binding to potassium ions. The intestines cannot absorb bound potassium ions, so the treatment reduces the level of absorption and – in turn – the amount that reaches the blood stream. This one has a whole bunch of strong data to support the application, with eight clinical trials included in the NDA, one of which is a three-part phase 3 and another of which is a 52 week phase 2 pivotal. Results across both promising look, with the primary endpoint – a reduction in mean serum potassium – coming in as statistically significant (86% to 90% in the phase 2B, not yet reported in the phase 3).

Just as with the Merck catalysts, we will initially look for an FDA approval committee announcement that reveals their recommendations to give us some upside momentum in Relypsa. A further supporting factor behind the attractiveness of Relypsa as a near-term allocation is the recent announcement that the company had signed a two-year agreement with Sanofi (NYSE:SNY), which will see the latter take control of commercialization in return for a service fee. As if this isn’t enough, current estimates put potential revenues for Relypsa at peak $1.3 billion – about 30% higher than the market currently values the company as a whole. Definitely one to watch.

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Five Stocks You Can Pick Up At A Discount Right Now

By
Roger Hannington
-
Discount Stocks

There’s no getting round the fact that stock markets are volatile at the moment. However, volatility does not always imply a lack of opportunity. At times of market correction such as this, stocks that once looked overbought can become available as a discount entry into some strong fundamentals. So, with this said, here are five discounted stocks that could make a nice addition to your portfolio right now.

Conatus Pharmaceuticals Inc. (NASDAQ:CNAT)

First up we’ve got Conatus. Conatus has been a strange stock over the past four or five years. While the vast majority of the biotech sector gained strength in a raging bull market, Conatus has remained relatively flat (if not a little down). The company is a development stage biotech, and its financials follow a pretty standard pattern – no revenues, research funded through grants and collaboration, and regular quarterly net losses. However, there have been a number of biotech’s in a similar financial position that have recorded triple digits over the last half decade. What makes this one worth keeping an eye on is an upcoming topline data release for a trial of its lead candidate, emricasan, targeted at chronic liver disease sufferers. Data from the trial – a phase 2 with a primary endpoint of reduction in what’s called hepatic venous pressure gradient (HVPG) – should hit markets this month. If the company can meet its primary endpoint, expect some quick gains and an upside revaluation.

WESCO International Inc. (NYSE:WCC)

At the beginning of 2014, Wesco trade for a little over $90 a share. Fast forward to September 2015, and the company closed out its last session at $54 – a 40% discount in 18 months. The company has struggled on the back of weak global industrial production, and with what is happening in China, there is the potential for continued struggle over the coming quarters. However, this one is purely a value play. Markets currently value Wesco at a little over $2.35 billion. During Q2, 2015, the company generated $1.9 billion revenues. Last year, it reported more than $7 billion revenues, with $276 million net earnings. Essentially, Wesco is trading at a valuation of one quarter of its annual revenues. In addition, current assets outstrip its market valuation by about $100 million. We’d like to see some earnings strength during the final quarter of this year translate to a longer-term turnaround and a reversal in fortunes for the company. Even if it takes a little longer, however, there is definitely an opportunity to pick up stock at a discount at this price.

NetEase, Inc. (NASDAQ:NTES)

Next up we’ve got NetEase. The company is a billion dollar entertainment and communications company based in China that generates the majority of its revenues from online and mobile gaming. The company gained more than 300% over the last five years, but the recent situation in Asia has translated to a sharp correction in its valuation – approximately 30% off annual highs. Net earnings have increased year over year for the past five years, and came in at $766 million during 2014 on $1.8 billion revenues. The company has very little debt, and three quarters of $1 billion in cash and cash equivalents – rising to 4.4 billion when taking full current assets into consideration. Why is this important? Well, it suggests that the recent decline has come about purely as a result of a broader market sell-off – not through any fundamental weakness in NetEase. With a spate of new US releases scheduled for the final quarter of this year, the company could (and should) quickly reverse as we head into holiday season. Definitely one to watch, and definitely an unjustified discount.

Noble Corporation plc (NYSE:NE)

Noble is down more than 70% over the past five years, primarily as a result of the decline in oil and gas prices. However, the company generates more than $150 million each quarter in net earnings (the final quarter of 2014 excepted as a result of asset acquisition spend) and brings in an average of $800 million revenues every three months. In other words, despite weak sale prices, Noble has managed to control its operating costs to maintain a positive bottom-line – something with which the vast majority of other commodities industry entities have struggled. With the recent turnaround in the price of oil, the company looks set to finish the year strong, and could be due an upside revaluation as a result.

QuinStreet, Inc. (NASDAQ:QNST)

Finally, QuinStreet. This company provides customer acquisition services through a range of online funnels, in the form of qualified leads, clicks etc. Basically, it runs a number of websites through which people express interest in things like taking a college course, and provides the leads generated through these websites to third-party organizations. The company has had a tough few years – down nearly 80% on 2011 highs – but a look at its financials suggests we could be at the beginning of a turnaround. Gradually increasing revenues (single digit percentages each quarter) and an expansion of its margins suggests we could be in for some medium-term strength. Additionally, QuinStreet generated about $30 million more revenues during 2015 than its current market valuation, and has about one quarter of its market capitalization recorded as net assets on its balance sheet – suggesting this one could be another medium to long-term value play.

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Full Employment and Price Stability Equals Rate Hike

By
TradeCircle
-
Federal Reserve

The Federal Reserve has a dual mandate. That is, full employment and price stability. These terms can have a wide range of interpretation depending on the politics of whoever is in office at the time, but they can conservatively be interpreted as historically low unemployment and low inflation.

The dual mandate does not include economic expansion by GDP numbers, stock market advances, standard of living, wage growth or anything else. Just full employment and price stability. One can argue that the dual mandate should be expanded to include other objectives, but that’s a different issue. We have reached full employment and price stability. Therefore, the Fed should, by its dual mandate, hike rates.

If it doesn’t, then we have to seriously begin questioning what the Fed’s mandate is, or what it thinks it is, and what it’s trying to do. Is the Fed’s job to keep the country out of recession? Who said that this was part of its mandate? Is the Fed’s job to keep the stock market levitated? Where is that written in the Federal Reserve Act of 1913?

Many big Wall Street players are practically begging the Fed not to raise rates next week, saying that it could shake an already unstable economic recovery. But what does that have to do with the Federal Reserve at all? Is the Fed really the guardian of Wall Street? By any measure, we are at historically low unemployment and low price inflation. What else is there to consider?

Of course, it is doubtful that the members of the Federal Reserve Board restrict themselves to only two considerations when deciding to tinker with the nation’s money supply. It is more likely that they see themselves as the central planners of the entire economy, to make sure stocks do not crash, or that recession is avoided.

Yet, by employment levels, inflation, economic growth, and stock market indices, the Fed has failed miserably since its inception. One would think that if the Fed were doing a good job, unemployment numbers would have become more stable in the decades since the Federal Reserve was founded. Economic growth would have stabilized as time goes by. there would be consumer price stability, and stock market stability would tend to increase.

But the opposite is true, by every indicator. Employment levels have gyrated continually since the Federal Reserve’s founding. Economic growth has gyrated up and down through continual and business cycle booms and busts. Price stability is nowhere to be found as inflation has eroded almost all of the dollar’s value over the past 100 years. And stock market booms and crashes have gotten more extreme as the Fed becomes older.

Given that, it is impossible to know what the Fed will do next week, because despite the dual mandate, who knows what really guides it? If it were only the dual mandate, a rate hike would be in the bag. But the Fed sees itself as more than that. In that case, they have become a truly unpredictable institution.

And unpredictability yields volatility.

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