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Celgene Realigns Bluebird Collaboration; Good or Bad?

By
ME Staff
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bluebird

At market close on Wednesday, June 3 2015, bluebird bio, Inc. (NASDAQ: BLUE) announced that there had been an amendment to its CAR T agreement with biopharmaceutical behemoth Celgene Corporation (NASDAQ: CELG). During the session that followed, we saw – at its peak – a 10% decline in bluebird’s market capitalization, and it looked as though markets had interpreted the news as bearish for the company. However, we are now trading at a level not dissimilar to that which preceded the announcement, and pre-market open trading on Friday looks to have closed the gap entirely. So, with this said, what was the announcement, what does it mean for Bluebird, and what can Bluebird shareholders expect going forward? Further, is this recent dip and consolidation a good time to buy in to the company for those who do not yet have any exposure? Let’s take a look.

So, first, the announcement. Bluebird announced that its existing collaboration with Celgene had been amended and restated to focus on developing product candidates targeting B-cell maturation antigen (BCMA). Under the terms of new agreement, the two companies will work together on an initial phase I clinical trial (expected to be enrolled during 2016), and Bluebird will receive a $25 million payment from Celgene to fund phase I development. So why is this bad news? Well, back in 2013, Bluebird announced a global strategic collaboration with Celgene to advance its gene therapy programs in oncology. The collaboration was to focus on advancing its chimeric antigen receptor (CAR) T cell program, and the deal included an upfront payment (undisclosed) and up to $225 million per product in potential option fees and clinical regulatory milestones. The amended agreement sees this $225 million per product in option fees effectively scrapped, and it looks as though Celgene is no longer involved in bluebird’s other CAR T programs. The bearish momentum came as a result of markets questioning why Celgene no longer wished to be involved, and why they would switch so suddenly to involvement in BCMA, an as yet undeveloped program.

Chief executive officer of Bluebird, Nick Leschly, had this to say on the announcement:

“We have successfully achieved the initial goal of our collaboration with Celgene —identifying a promising lead development candidate in the CAR T cell field — and we are excited to focus our Celgene collaboration on the development of anti-BCMA products”.

So, then, this would suggest that Bluebird executives consider the move a positive one, and consider their initial agreement with Celgene complete and successful. They have not yet however reached the successful development stage that would command a $225 million payout, and so this optimism could perhaps be a masking of the real situation. Investors have to ask themselves why Celgene would agree to fund the development of a brand-new candidate, rather than see through the already identified lead candidate for bluebird’s CAR T pipeline.

Regardless, however, any speculation as to what we will see going forward is just that – speculation. Markets, especially when it comes to biotech, are notoriously volatile and driven pretty much exclusively by interpretation of market news that can have numerous different influences, and so, with this said, is it worth getting into Bluebird at this stage in advance of the new collaboration with Celgene?

Well, this is where things could get interesting. The announcement means that – over the next 24 months – we will likely get a stream of preclinical updates related to the new investigative trial, and – if we get any positive insights – we could see some upside momentum build in bluebird shares. The company has already been one of the darlings of the biotech space year-to-date, up more than 100% since January, and we are currently trading about 5% off yearly highs – primarily as a result of the decline driven by the Celgene announcement. This means that an aggressive investor could gain exposure to the new Celgene collaboration at a discount at current rates.

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Xanthopoulos Steps down, Trouble Brewing for Regulus?

By
ME Staff
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Regulus Therapeutics

On June 1, 2015, Regulus Therapeutics (NASDAQ:RGLS) announced that its president and chief executive officer Kleanthis G. Xanthopoulos was stepping down. The announcement came as a surprise to markets and shareholders alike, and translated to some steep downside in the company’s market capitalization during Monday’s session. The question now is whether the exit of Xanthopoulos is indicative of wider problems in the company’s pipeline, and – further – whether these problems are likely to have a material effect on Regulus going forward. So, let’s try and answer this question.

First, let’s start off with two quotes.

Quote one:

“I am extremely proud of our achievements at Regulus and am excited about the future of the company and microRNA therapeutics as they become a new and major class of drugs. RG-101, our GalNAc-conjugated anti-miR-122, is moving rapidly into Phase II and our ‘Clinical Map Initiative’ strategy is on track to create multiple clinical programs… I am truly honored to have been a part of building this great company.”

Quote two:

“I am proud of our accomplishments at Anadys and excited about our current clinical programs and deep pipeline… I am honored to be part of that.”

The first is an Xanthopoulos quote that accompanied yesterday’s announcement reporting his departure from Regulus. The second, a comparative quote reporting his departure from biotech Anadys, a company he founded, back in 2006. The similarity is clear to see. You ask, however, why this is an issue? Both statements seem like a perfectly reasonable parting comments. Well, the reason is that two weeks after Xanthopoulos left Anadys, the company announced it had dropped one of its lead pipeline candidates – ANA975 for hepatitis C – citing an intense immune stimulation in early animal studies.

So, naturally, the concern here is that we will get a mirroring of the Anadys situation, and that Xanthopoulos is bailing out of a so-called “sinking ship”. Obviously, this is pure speculation, and at the moment, nobody really knows the reason for the Xanthopoulos step-down, but in the biotech space, speculation can be a real driver of volatility, and – as a result – Regulus is down more than 17% on its daily open for Wednesday, no doubt driven by the latest revelation.

Adding fuel to the fire is a report last month that Xanthopoulos sold a large number of shares in an insider sale of Regulus stock. On April 21, 2015, Xanthopoulos sold 200,000 shares at a per share price of $17.1, totaling the sale at $3.42 million. Subsequent to the sale, he now indirectly owns 80,216 shares and directly owns 3,705 shares, meaning he unloaded more than 70% of his shares in the sale. Again, it would be pure speculation to attempt to uncover Xanthopoulos’ motives for the sale, but in light of the recent announcement, it doesn’t look too good.

So what can we expect going forward, what does all this mean for Regulus shareholders? Well, in recent announcements we have seen the company suggest a range of its RG-101 pharmacokinetics clinical trials have been promising, with healthy volunteer testing suggesting safety and tolerance and some efficacy in mice infected with genotype 1A hard to treat a genotype 3A hepatitis C virus. While promising, and especially in light of recent events, markets will be looking for updates on these trials before any real confident buying can return to the fore.

Takeaways: the recent announcement has hit Regulus hard, and both the company’s shareholders and wider markets will be reluctant to add to any – or initiate any – positions before the dust settles on the CEO departure. Xanthopoulos has expressed his confidence in the company’s pipeline, but we have seen him do this in the past, only to then see a lead candidate dropped from trial shortly after. Further, we saw an insider sale of the majority of Xanthopoulos’ shareholding in Regulus just a few ago, and this seems to contradict his reported confidence in Regulus’ ability to expand going forward.

Disclaimer: the author has no position in any of the stocks mentioned and any inference made by the content of this article is purely speculative in nature.

 

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Clovis up on Ovarian Cancer, Lung Cancer Reports

By
ME Staff
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Clovis

On Sunday morning, 9 AM Eastern Daylight Time in the US, Clovis Oncology, Inc. (CLVS) reported a host of updated results for its non-small cell lung cancer treatment rociletinib. The data, reported as “consistent and promising” comes just 24 hours after the announcing of even more promising updates from the company’s concurrent phase 2 study of Rucaparib in treating ovarian cancer. Both announcements are likely to translate to some upside momentum in Clovis stock and so, with this said, what are the treatments in question, and what could it mean for Clovis going forward?

First, let’s take a look at the treatments themselves.

Rucaparib is an oral treatment designed to inhibit a protein called poly (ADP-ribose) polymerase (“PARP”). When cells divide – both tumor and normal cells – the DNA of those cells must replicate correctly or the cell will die. Oftentimes there occur breaks in these cells during replication, but in a normal situation, the body will repair these breaks and the process will continue as normal. The PARP protein plays a key role in one of two primary methods used in the body to repair these DNA breaks. Using a biomarker test, Clovis identifies ovarian cancer tumor cells that are sensitive to PARP inhibition, and the treatment targets these cells. Essentially, the drug stops the body from repairing DNA breaks that occur during cell replication for ovarian cancer cells, and in turn, slows or stops the growth of tumors.

The other treatment is Rociletinib. Rociletinib is designed to inhibit protein called epidermal growth factor receptor (EGFR). When EGFR activates on cancer cells, it signals the cancer cells to grow and replicate. When taken orally by a specific type of lung cancer patients (those with EGFR mutation-positive non–small cell lung cancer) Clovis believes that Rociletinib blocks the EGFR signaling and – in turn – halts or reduces replication of cancer cells.

With that out of the way, what did the results that Clovis released over the weekend show?

First let’s look at Rucaparib. In the treatment of platinum sensitive BRCA-mutant ovarian cancer patients, we saw an overall response rate of 82%, disease control at 94%, and a medium progression free survival of 9.4 months. We also saw a 10% complete response rate, as well as a manageable safety profile and the suggestion that the drug is well tolerated, with only mild adverse events including anemia, fatigue, and nausea. This is great news for Clovis, and Patrick J. Mahaffy, President and CEO of Clovis Oncology had this to say upon its release:

“With these data presented at ASCO, we believe rucaparib has clearly emerged as a unique and best-in-class PARP inhibitor”.

Now let’s look at Rociletinib. In this instance we saw a 60% overall response rate and the 90% of these control rate in very advanced patients with EGFR mutant non-small cell lung cancer. Medium progression free survival totaled 10.3 months in patients without history of metastases and 40% of those with a history of metastases. While these results are not quite as exciting as those demonstrated by the previously mentioned Rucaparib, this still indicate efficacy and could be enough to give us some bullish momentum in Clovis stock this week.

What is the potential market impact of these two drugs being approved for Clovis? According to the National Cancer Institute, nearly 230,000 Americans are diagnosed with lung cancer each year. About 80% of these diagnoses will be non-small cell lung cancers, and about 10% of these will be EGFR gene mutated. This means the US market is just short of 20,000 patients every year. In the US, average treatment costs for lung cancer come in around $60,000, meaning the industry is a $1 billion industry. Obviously, this number includes all treatment expenses, but it gives an idea of where the market fits in terms of size.

Looking at ovarian cancer, the total market for a varying cancer in the US, Europe and Japan combined is about $460 million at the moment. Analysts forecast that this will increase to US$1.4 billion by 2021. BRCA mutations occur in about 10% of total cases, which – at a rough estimate – will put the global markets around $140 million.

So, with all this said, what are takeaways? Well, markets will likely respond positively to this data, especially the Rucaparib results. An 82% response rate is impressive, and if the company can report similar trial completion results, we could see some serious upside as we head into phase 3 and beyond.

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Cellectis Up On Pfizer Rumors; A Good Time to Buy?

By
ME Staff
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CLLS

In June last year, biotech giant Pfizer (PFE) entered the CAR-T technology arena with an investment in the then private company Cellectis (CLLS). According to the terms of the deal, Pfizer got exclusive rights to Cellectis development products to be targeted at 15 Pfizer applications. Further, Cellectis had the right to choose 12 targets and have Pfizer contribute towards preclinical development, with $80 million paid upfront and a potential further $185 million milestone for every successful treatment developed. Two months ago, in March 2015, Cellectis went public, with a $228 million IPO. With the IPO priced at $41.50, the company started out strong, but lost some strength over the last six weeks or so to trade just ahead of $30 mid-May. However, over the last 10 days, Cellectis shares have gained more than 55% on the $30 lows, and are currently trading at just over $47 at last night’s close. The reason? Buyout rumors. According to a report released last night by the Financial Times, a number of companies are lining up to discuss a potential acquisition of Cellectis – with the current reported front runner none other than Pfizer itself. With this said, what are the potential terms of any acquisition, and what might it mean for Cellectis shareholders? Let’s take a look.

First, let’s do a quick recap of what Cellectis does and why it might be an attractive acquisition to an incumbent in the space. The company focuses on what is called engineered T cell CAR therapy, with CAR standing for chimeric antigen receptor. The science behind these treatments is pretty complicated, but it can be summed up as follows: Cellectis constructs CARs by piecing bits of different proteins together. They then introduce these to immune cells – generally T lymphocytes – and then the engineered T cells intoto the human body. The CARs that are now present on the T cells allow them to recognize a particular antigen that is present in cancer cells. Upon recognition, an immune response is triggered, and the T cells attack the cancer cells.

Ahead of its IPO, the company announced plans to initiate four phase 1 trials, one for each of its four lead and most promising CAR-T candidates. Even if the negotiations between Cellectis and its suitor are drawn out, therefore, we still have a number of potential catalyst events that could further expand the company’s market capitalization near-term. One of these is the upcoming presentation at the American Society of Clinical Oncology Annual Meeting between May 29 and June 2 in Chicago.

The presentation will include poster sessions on three incidences, UCART19, an Allogeneic “Off-the-Shelf” Adoptive T-Cell Immunotherapy Against CD19+ B-Cell Leukemias, Adoptive immunotherapy of acute myeloid leukemia with allogenic CAR T-cells targeting CD123 and a multidrug resistant engineered CAR T-cell for allogeneic combination immunotherapy targeted at leukemia. The market is very hot for CAR-T at the moment, and so the introduction of these treatments to Cellectis’ pipeline could drive some short term upside momentum in the company’s stock.

Looking specifically at the potential acquisition, what might be the terms? Again according to FT, and sources close to the company, Pfizer has already approached Cellectis to pitch a deal that values the company at as much as €1.5 billion ($1.64 billion). However, given the current run up in Cellectis’ market capitalization, we may get word of an inflated offer in the coming weeks. If this happens, expect another run up in share value before anything is closed.

What are the risks in taking a position at this stage? Well, Cellectis shares – as mentioned – are up 56% on yearly lows, with the increase driven pretty much entirely by speculation of a buyout. If the buyout does not materialize, or we hear rumors that it may be delayed, then we could see much of this added value given back to the markets medium-term. In short, this could be a rewarding play if things turn out as expected, but as a general rule, relying on expectations in pharma is very risky.

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Accelerated Assessment Primes Amicus for a Billion Dollar Market

By
ME Staff
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Amicus

On May 26, 2015, the European Medicines Agency (EMA) announced that its “Committee for Medicinal Products for Human Use” had granted accelerated assessment to Migalastat – a small molecule treatment targeted at patients suffering from Fabry disease, currently being developed by Amicus ($FOLD). The company has been one of biotech’s top performing stocks over the last year and a half, and the latest announcement looks to have compounded the bullish momentum that has carried the stock more than 250% since May last year. The latest announcement could present us with an opportunity to buy into further gains, but before we do, let’s have a look at what the company does, what it’s treatments involve, and what the implications are of accelerated assessment status.

In order to understand how the treatment works, it’s first important to understand what Fabry disease is and what it does to the body. The disease is a lysosomal storage disease. A lysosome is the part of the cell that contains something called hydraulic take enzymes – which are enzymes that break down things that are no longer needed in the body such as dead cells or external debris. One of the primary enzymes associated with lysosomes is α-galactosidase A (α-Gal A). In patients with Fabry disease, the α-Gal A is not delivered and stored in sufficient quantities to the lysosomes, and so unwanted debris is not removed efficiently. This can lead to chronic pain, kidney failure, heart disease and strokes.

So where does Migalastat come in? Migalastat – according to the company website – is designed to “bind and stabilize the endogenous α-Gal A that is made in the patient’s own cells, thereby increasing its trafficking to lysosomes”. This essentially means that the treatment serves as a kind of delivery vehicle, collecting up α-Gal A that the body has produced but is not rendering effectively, and taking it to lysosomes where it can be made put to use.

And what is the benefit of accelerated assessment status? The process was introduced in Europe in 2005, and is designed to speed up the regulatory procedure to enable patients access to new medicines quicker. It basically means that – instead of the usual 210 days required for the marketing authorization assessment (MAA) phase of the approval process, the EMA will conduct its MAA in a maximum of 150 days.

And what might this mean for the company? Well, it means we could see a quick(er) turnaround of the final step in the approval process and – in turn – an approval that comes sooner than initially expected. A number of treatments have qualified for accelerated assessment in the past – one of the prime examples being soliris for the treatment of hemolytic uremic syndrome – and, while it is by no means a sure sign that the treatment will receive approval, it can often serve as an insight into the EMA’s perception of a particular treatment.

John F. Crowley, Chairman and Chief Executive Officer of Amicus had this to say about the accelerate assessment granting:

“The designation of Accelerated Assessment in the European Union (EU) demonstrates that the EMA understands the current unmet medical need in Fabry disease as a major public health interest, and with this designation may accelerate the approval and our launch timelines to make migalastat available for patients very rapidly.”

So what is the upside potential for Amicus if the drug is approved? While Amicus has not yet revealed a price point for the treatment, we can use the cost of a current treatment alternative to estimate how big the market potential is for Migalastat. There are an estimated 5000 individuals suffering from Fabry disease across Europe, and analysts expect this to increase at a compound annual growth rate of 18% over the next four years. This means that by 2020 there will be approximately 10,000 sufferers in Europe. Current treatments offered by Shire ($SHPG) and Genzyme cost on average $200,000, making the market potential in Europe $1 billion currently and – by 2020 – $2 billion.

Conclusion: Amicus is a company will be watching very closely over the coming quarters. Biotech is notoriously unpredictable, but all the cards look lined up and pointing towards a Migalastat approval in Europe, and – if this is achieved – there could be some serious upside potential on Amicus’ current $1.1 billion market capitalization. One to watch.

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A Look at What Drove the Genocea Market Frenzy

By
ME Staff
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valeant

On may 20, 2015, Genocea Biosciences, Inc. (GNCA) announced the results of its phase 2 trial for genital herpes immunotherapy treatment GEN-003. Widely perceived as positive, the data translated to some heavy volume buying of Genocea stock, and temporarily boosted the market capitalization of the company. Now the dust has settled and Genocea stock has dipped a bit, what are our feelings about the results and their implications as far as Genocea is concerned? Let’s take a look.

First, let’s take a quick look at the drug that the results represent, what it is and how it works. GEN-003 is an immunotherapy treatment, meaning it is designed to elicit a response from a patient’s own immune system and a subsequent attack on the cells that cause damage. While not a cure, the drug is targeted at effective treatment of genital herpes, and has already demonstrated statistically significant reductions in clinical signs of genital herpes and viral shedding in previous trials. The actual process through which the drug works is quite complicated, but to simplify, it presents pieces of the herpes virus to T cells and B cells in the body. This presentation causes the human immune system to respond, and triggers an attack on the HSV-2 cells that cause outbreaks and viral shedding (viral shedding is the release of something called virus progeny that follows the replication of a virus cell and its rate is an indication of the virility of a virus – the lower the better).

The latter of these – viral shedding – is considered one of the key metrics by Genocea in determining efficacy of GEN-003. So, with this in mind, what did the results show? During a 28 day observation period starting from completion of dosing, we saw a 55% decline in the viral shedding rate when GEN-003 was introduced with Matrix-M2 as an adjuvant (an adjuvant simply means something that is combined with viral treatments in order to aid the antigen in its task of eliciting an immune system response). The company reported that – across all doses aside from the lowest dose combination – the trial demonstrated statistically significant viral shedding rate reduction against the baseline and versus the placebo.

Chip Clark, president and CEO of Genocea had this to say alongside the announcement:

“We are extremely pleased with these positive top-line results which have successfully allowed us to identify the optimal dose to advance into further trials…  The results strengthen the product profile from our Phase 1/2a trial, which we have shown in market research to be highly clinically meaningful and commercially attractive, providing further evidence of the strong value proposition of GEN-003 for patients, physicians and payers.”

So what’s next? Well, before we can consider any sort of approval potential, Genocea must first find a commercial partner to help get GEN-003 into – and through – phase 3 trials. We saw efficacy demonstrated in the recent trials, but it is not uncommon for efficacy to be demonstrated on a small scale yet not scale up in the final trial phase. It’s news and information surrounding the phase 3 trial that we will now look to in order to form a medium-term bias. If we do see any announcements over the coming couple of weeks regarding a further trial, it could quickly translate to an upside revaluation in Genocea stock.

What is the potential market for a herpes treatment such as GEN-003? In a report published in 2010, analysts estimated the global herpes market at $4.2 billion, and suggested we will likely see a compound annual growth rate of 10.1% to reach $9.1 billion by 2018. This is for both herpes simplex and herpes zoster, while Genocea’s GEN-003 only targets the former, so the actual market potential for GEN-003 is approximately 60% of those numbers mentioned.

So, is now good time to buy in? In its latest financials, Genocea reported a $12.1 million loss for Q1 2015, and in doing so, missed expectations by about seven cents per share across an average of  six analyst forecasts. With little to no revenues ($121,000 last quarter) it’s important for a biotech company at this stage of its development to attract funding. Before we can recommend the stock, we would like to see some outside capital commitment. Having said this, we are still about $12 short of the 52 week high, and – if we see some positive results related to the company’s other candidate, GEN-004, a vaccine for pneumococcal infections that is currently undergoing phase 2 trials – we might see some upside as speculative investors enter on the announcements.

Conclusion: we will be on the lookout for some outside financing before taking a long position, but more risk tolerant investors might be in for a speculative punt on expectations of further positive news.

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Prima BioMed Ltd; Speculative Bubble or an Opportunity to Buy on a Dip?

By
ME Staff
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Stockgrowth

On May 19, 2015, junior stage development biotech company Prima BioMed Ltd (PBMD) announced the final data for its CAN-003 Phase II trial, with the data coming after five years of collection. The results seemed overwhelmingly positive, and hitting markets pretty much concurrent in the grand scheme of things to a number of other positive announcements, sent biotech investors into a frenzy. By market close, the company’s stock was up over 1000%, and a number of market analysts were not only justifying the increase, but also calling for further gains. Now the dust has settled a bit, was the increase in Prima’s market capitalization valid, what can we make of action since, and – ultimately – where is the stock likely to be headed over the coming 12 months? Let’s take a quick look.

In order to understand the data and its ramifications, we must first take a quick look at what the company does, and how the treatment in question works. The announcement reported the final data for a treatment called CVac, which is currently undergoing trials for targeting ovarian cancer. The treatment is autologous, which essentially means it is introduced to the body through a form of grafting, and it uses a patient’s T cells to stimulate the immune system into attacking of varying cancer cells. Through process called apheresis a doctors remove a patient’s blood (little over 100 mL in total) and spins it in a centrifuge. This spinning separates out the different elements of the blood and plasma, one of which is something called the dendritic cell. Dendritic cells are used in the body to present antigens to the immune system and stimulate appropriate responses to these antigens. In this instance, the dendritic cells (once removed) are combined with the something called mannan-mucin-1 fusion protein, with mucin a protein and mannan just a type of sugar that speeds up the absorption of the protein by the dendritic cells. A doctor then injects the manipulated dendritic cells into the patient, the cells combine with T cells and turn them into “killer T cells”, which then attack ovarian cancer cells.

So, with the science out of the way, what did the results show? Well, out of a group of n=20 second remission patients, the median overall survival rate for standard of care patients (with the standard of care just referring to traditional chemotherapy and radiotherapy) was 25.53 months. For patients treated with CVac, however, 42 months have gone by, the study has completed in closed, and the median has still not yet been reached. Even without this reaching, the data suggests that for CVac treated second remission patients there is a minimum of 16 months median survival advantage.

In response to the results, and alongside their announcement, Lucy Turnbull, Chairman of Prima BioMed, commented:

“This final clinical data for CVac is most encouraging for cancer patients in second remission. We sincerely thank all patients and medical staff who have participated in the trial over the last five years. Our concerted focus will now be to find a development partner to make CVac widely available to cancer sufferers around the world.”

So, it looks like the results were positive, and the science backs up the drug’s efficacy. But, as ever, with biotech, getting excited early on can be very risky. So, what do we need to see from the company before we can say it’s a good bet for the future? Well, most  standard FDA approved treatments (those granted accelerated approval aside) require a phase 3 trial which proves efficacy on a much wider scale than previous phase 1 and phase 2 trials. In order to take the CVac through this trial, Prima will need a commercial sponsor to both help fund and help manufacture the treatment on the scale required. Sometimes this will be one of the large pharma companies in the US, and sometimes not. Regardless of who the commercial partner is, we will be looking for the announcement before we can safely recommend the company longer-term.

Having said this, Prima has recently announced a partnership with NEC Corporation and Yamaguchi University, a $15 million investment from health care investor Ridgeback, and the receiving of a financial milestone payment from GlaxoSmithKline plc (GSK). All these announcements are the kinds of developments that can translate to further excitement in the markets, and – since we are now trading at around a 50% discount from highs reached as a result of the CVax announcement – Prima may present an attractive speculative allocation for the more risk tolerant investor.

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What HSBC’s Stephen King Means and Why he is not Entirely Correct

By
ME Staff
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Titanic

Last week, HSBC chief economist Stephen King reported his take on the global economy to HSBC clients. Instantly – and perhaps due to its dire nature – news media picked up on the report, and have (alongside a swathe of images of big ships) reported how the global economy is the equivalent of the Titanic and – true to the analogy – headed for an iceberg. Many of the reports have pretty much stopped there as far as an actual explanation of what Stephen King meant, so, let’s take a deeper look.

The Analogy

The analogy referenced by Stephen King is based on the idea that normally, when the economy takes a turn for the worse, federal governmental institutions have tools that they can implement in order to counter a recession. These tools are the “lifeboats” of the so-called ship. According to Stephen King, we are six years into a recovery and – as a result – likely closer to the next recession than we are to the last. However, this time around, we don’t have these tools at our disposal.

The primary tool used when an economy dips into recession is interest rates. Pretty much the sole purpose of many of the central banks across the world (the Bank of England, the Federal Reserve) is to use interest rates to maintain a steady inflation level. In a recession, inflation falls to, or falls below, zero, while in times of economic expansion, inflation expands to 2, 3, 4 or 5% in developed economies. When inflation falls and an economy suffers, a central bank will reduce interest rates in order to stimulate borrowing and dis-incentivize saving. Increased borrowing and a reduction in saving results in more spending on both a consumer level and a business level, and with more spending we get more jobs, increase wages and – once again – more spending. In addition, the central bank can introduce more money into an economy (referred to these days as quantitative easing) via a range of mechanisms but most popular at the moment via the purchase of government bonds. An increase in the money supply can also stimulate spending, boost the equities markets and increase perceived wealth. Once again, this can lead to recovery.

As Stephen King has pointed out in his latest report, however, these tools or “lifeboats” are unavailable to us. Interest rates are pretty much zero across the globe (or even negative in some places such as Europe) and government debt is so high in many developed nations that further quantitative easing is not a realistic option. Therefore, when we hit the next recession, we will not have the usual tools available to us to fight it. The recession, therefore, is the iceberg, and the global economy, the Titanic.

Potential Tipping Points

So what could cause us recession? Stephen King highlights four potential causes. First up is the idea that increasing wages in the US will translate to a reduced profit for US corporations, and in turn, negatively impact US GDP. He suggests that this will then lead to a bursting of the stock market bubble and an economic downturn. Second, he theorizes that certain non-bank financial organization such as insurance companies and pension funds will fail to meet their obligations, causing a mass sell-off in liquefiable assets and – again – an economic downturn. Third, we could see a weakening of Chinese economic expansion, leading to a decline in commodity prices and a corresponding increase in US dollar strength. This would make it difficult for outside economies to do business with the US, and impact US GDP. Finally, and perhaps most pertinent, if the Federal Reserve raises interest rates too soon, it could trigger a recession.

A Solution?

So, with all this bad news just round the corner, is Stephen King right and are we headed for a sinking ship situation, or is there something we can do when the recession finally hits? In other words, do we have any lifeboats left?

Well, back in the 30s, during the great depression, the now famous British economist John Maynard Keynes suggested to then president Roosevelt that, through paying men to dig holes in the desert, he could stimulate a recovery. This, of course, was an analogy to illustrate the suggestion that government intervention and funded structural reform could lead to economic activity and national spending increases. Roosevelt took Keynes’ advice and initiated a huge amount of public work, his so-called “new deal”, perhaps the most famous result of which is the Hoover Dam. The increase in employment that came round as a result of the new Deal translated to economic stimulus. In other words, yes we may not have interest rates at our disposal to fend off a recession, but when it comes around, if we can emulate the New Deal policies of the 1930s, we may be able to raise an otherwise sinking ship.

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As Gold Miners Consolidate, Some Juniors Reap the Benefits

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PershingGold

The devastating bear market in gold miners, particularly juniors since 2011, has hit gold stock investors hard. If you’ve been a buy and hold long term in this sector, then you better be young and gainfully employed or you’re in big trouble. The top majors including Barrick (ABX), Goldcorp (GG), and Newmont (NEM) have slipped an average 70% since peaking in September 2011. Junior miners (GDXJ) have been even worse, down 85% from their highs.

In the face of this devastation in the resource sector, silver (or gold) linings are now emerging which may provide an opportunity to significantly recoup losses even before this market turns around as a whole.

Gold miners have been pummeled by a deadly combination of falling gold prices and the rising costs of mining. While gold did have a “bull market” up to 2011 in the sense of rising gold prices, these prices did not rise sufficiently even at their peaks to cover the equally extreme rise in mining costs.

For Newmont, for example, all-in costs began to skyrocket in 2011, just as gold prices were topping out. They began to really spiral out of control in 2012 topping out at $1,192 per ounce just in cash costs, barely improving in 2013 to $1,105 an ounce. Barrick and Goldcorp fared a bit better in cash costs but all three still suffered massive losses after the gold bull topped. Barrick in particular had enormous impairments in 2013 of over $13B and hasn’t had a profitable year since 2011.

Newmont, on the other hand, has been weathering the gold bear relatively well, not in terms of stock price, but in terms of its bottom line. After suffering a $4.3B impairment in 2013, it somehow turned a profit of half a million in 2014, despite gold prices continuing to languish.

Part of the reason Newmont has been successful relative to its competitors since the gold bear began is that it has made a herculean effort since 2012 to consolidate its assets, focus on its core business, and not take too many risks with new ventures in order to lower per-ounce mining costs. Now, as of the end of Q1 2015, and for the first time since the last gold bull ended, Newmont has finally lowered its all-in costs on a year over year basis.

Newmont CEO Gary Goldberg reported 18% lower all-in sustaining costs in Q1 2015 over Q1 2014, down to $849 from $1,035 an ounce. Total all-in costs which taking into account new ventures together with sustaining costs for current mining projects, went down to $1,215 from $1,300 per ounce. $1,215 is even lower than its 2013 costs of $1,274 per ounce, so it seems that Newmont’s cost cutting measures are finally getting somewhere.

As for Goldcorp and Barrick, Goldcorp is likewise shaving down its all-in costs significantly since 2013 after breaking $1,660 in 2013, then down to $1,400 an ounce Q12014, much higher than Newmont which is why Goldcorp is having a harder time. All-in cost per ounce is now down to $1,210, around the same as Newmont. Barrick, however, is going in the opposite direction. All-in costs came in this quarter at $1,024, up from $938 per ounce last year, but that is still better than the $1,317 per ounce in 2013. Barrick can afford to spend a bit more on mining since $1,024 is still sufficiently below spot price to pull a profit.

Even some mid-tier miners like Sandstorm (SAND) have been successfully cutting costs, with companies like Sandstorm down to $1,140 per ounce in 2014, down from $1,281 in 2013.

Whatever the all-in cost level is for each miner, all three companies know very well that gold prices have not recovered and may not recover significantly in the near future. Though gold bugs may strongly disagree with that assumption, the safest play for all three considering the last three plus years of carnage is to assume that prices will not recover to their previous highs in the near term and cost cutting measures are absolutely imperative.

That said, cost-cutting measures have sometimes been done with blunt instrument in a rush instead of carefully with a scalpel, considering the urgency. This shedding of assets sometimes offers opportunities for newer, smaller juniors who pick them up – juniors that were never affected by the latest bear market because they didn’t exist or were not doing any significant business back before 2011.

With majors consolidating into their core business and divesting from riskier projects, a big find by a junior picking up those divestitures is bound to happen at some point. The question is finding it. It is still too early to tell for certain, but Pershing Gold (PGLC) may have a real find in the Relief Canyon Mine in Pershing Nevada, which it acquired from none other than Newmont in several stages. Newmont was looking to sublet this mine out in 2012 as it was hit by the first year of the gold bear, and Pershing took the sublease in April of that year. On January 19th, Pershing dug deeper, both financially and literally, into the real estate and put up another $6M for 1,600 more acres with other surface mining claims at Relief Canyon.

Then in March, two months after the latest deal with Newmont closed, Pershing reported finding intercepts as high as 124 grams per ton, or 3.6 ounces per ton on the acquired land.

As to why Newmont gave up these claims for cash, the answer is that, having decided to relinquish Relief Canyon in stages years ago, and having decided on a consolidation strategy as well, exploring risky assets is not its main business plan. Cutting costs is.

The next questions are, first, does Pershing have the capital to see resource production through? And second, what are the concrete plans for the mine?

In terms of the first question, Pershing is backed by billionaire Dr. Phillip Frost, who owns 15% of the company. The other main investor is Barry Honig, who owns 28.5% of the company and just purchased more shares this month. Pershing just raised $11.5M in a private placement to continue development of Relief Canyon.

As for concrete plans going forward, its most recent press release on April 27th states that completion of the regulatory resource estimate is expected next quarter.  This includes estimates of production rates, cash costs, all-in-sustaining-costs, life-of-mine, and NAV estimates.

Pershing already has all of the state and federal permits to start mining in the existing open-pits, and has submitted an expansion proposal to the Nevada mining authorities that would involve three years of mining and five years of heap leaching. Further technical details are available in the release, but judging by the timing of insider buys and a planned resource estimate next quarter, it seems that the project can very well begin next year and be ongoing for the next three years considering proposals for permits already filed.

Pershing is only one example of a junior capitalizing on the cost cutting measures of the majors. On May 5, Premier Gold (PIRGF), a midtier miner, acquired 40% of the South Arturo mine from Goldcorp, also in Nevada, after Barrick did not intervene with its right of first refusal.

When big mining interests like Newmont and Goldcorp need to consolidate, it’s the midtiers and junior exploration stage ventures that can stand to benefit if they pick the right merchandise at the fire sale.

While there is no assurance that Pershing has for certain acquired the right asset yet, the news keeps improving, and the insider buys keep coming.

 

 

 

Market Exclusive Is a financial portal geared to engaging discussion on current financial topics. Market Exclusive is not an investment advisor. Please read our full disclaimer at http://marketexclusive.com/about-us/disclaimer/

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Opko’s Frost Inks Levon Deal with Israel’s SciVac, a Hint for the Next Merger?

By
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Frost

On September 11 last year, a little-known Israeli financial magazine called Globes came out with a report that Dr. Phillip Frost, Chairman and CEO of Opko Health (NYSE:OPK), and then Chairman of Teva Pharmaceuticals (NYSE:TEVA), was interested in moving a private Israeli biotech called SciVac, 45% owned by Opko, into a corporate shell and making it public.

Today, Frost accomplished his goal, as SciVac has been officially acquired by Levon Resources (OTCMKTS:LVNVF), with 68.4% of the new company going to the former private SciVac shareholders and 31.6% going to former Levon shareholders. Since Opko already has a 45% stake in SciVac, that brings its total take in SciVac to 30.8%.

The deal still has to be voted on by current Levon shareholders in April, but is expected to pass.

Opko has had some success taking stakes in biotech companies so far this year. Its recent 8% stake in Cocrystal Pharma (OTCBB:COCP) has jumped 100% since February. Cocrystal is its second largest investment behind private Russian biotech Pharmsynthez.

SciVac’s Hepatitis B Vaccine

SciVac is the developer of a third generation hepatitis B vaccine (HBV) called Sci-B-Vac . It is approved in several countries including SciVac’s home country of Israel, where it is administered to hundreds of thousands of newborns each year. While first generation HBV vaccines are mostly effective, their effectiveness is still only 90%. In a clinical trial of over 5,000 people, Sci-B-Vac was shown to have an effectiveness of greater than 98% with higher immunogenicity, or immune response in terms of antibodies produced.

The difference between Sci-B-Vac and the current standard-of-care HBV vaccine is that Sci-B-Vac is derived from mammalian cells instead of yeast cells, and carries on it the three main HBV surface antigens instead of just one. It is believed that the 10% of people who do not respond to first generation HBV vaccines are infected with mutant versions of HBV that escape the single antigen vaccine. It is much harder for HBV to mutate all three surface antigens simultaneously to escape Sci-B-Vac.

Despite vaccines available, HBV is still a huge pandemic. According to the World Health Organization, one third of the world’s population is infected with HBV, with up to 400M people suffering chronic infections leading to chronic liver disease. 250M of those people are in the Asia-Pacific region alone.

SciVac’s next regulatory goal is approval in the United States, where 12M people are infected every year despite the current first generation vaccine available. What regulatory hurdles have to be overcome remains to be seen, given that Sci-B-Vac is already clinically tested and approved in several countries. SciVac will be aiming at the immunocompromised as well as end stage renal disease and HIV patients, as these are patient populations who have special difficulties responding to current HBV vaccines.

Context of Frost’s Latest Move Hints at Possible Future Moves

Dr. Frost’s latest move comes in the context of several other interesting stock movements that may tip off future deals in the making. In October last year, only one month after Globes reported Frost’s interest in taking SciVac public, Levon acquired 35M shares, or 10% of Pershing Gold Corporation (OTCMKTS:PGLC) another one of Frost’s pet projects of which he has a 15% stake translating to 53.7M shares. Those 35M shares of PGLC will be moving to new entity Spinco, so speculators looking out for the next Frost-related deal should keep an eye on a possible merger between Spinco and Pershing. A similar deal was inked bewteen Pershing and Continental Resources Group in February 2013 where the latter was acquired by Pershing. Continental had a substantial stake in Pershing at the time.

Cocrystal, which is fairly similar to SciVac in that it is focusing on molecularly tailored vaccines, primarily hepatitis C. Cocrystal is also 22% owned by Frost through his investment trust as well as an 8% stake through Opko. Cocrystal has skyrocketed over 100% since February but lacking any obvious catalyst for doing so. Another possible move to watch then is for a deal between Levon, now SciVac, and Cocrystal, which itself was once BioZone, also an Opko investment that was merged into Cocrystal.

With Frost’s myriad of moves and deals over the last few years things can get admittedly confusing and make your head spin. The structure of these mergers, however, repeatedly seems to start with Opko at the base and then moves out from there. Opko itself has been on a nearly 100% tear since December. As for Cocrystal’s recent 100% move, it may have investors scratching their heads but connecting the dots here could point to the beginning stages of a Frost deal at some point between Cocrystal and SciVac as both specialize in hepatitis vaccines, as well as one between Spinco and Pershing.

Call it equity consolidation with synergies in mind, it certainly is a fascinating chess game.

 Market Exclusive Is a financial portal geared to engaging discussion on current financial topics. Market Exclusive is not an investment advisor. Please read our full disclaimer at http://marketexclusive.com/about-us/disclaimer/

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