At MoneyShow Las Vegas May 14-16, biotech sector expert John McCamant was given the show's "Stock Picker of the Year" award. Indeed, in 2017, the model portfolio of his The Medical Technology Stock Letter rose 65% while his trader's portfolio rose 98%. Here's a look at three of his current favorite stocks.
John McCamant, The Medical Technology Stock Letter
Acadia Pharmaceuticals
Acadia Pharmaceuticals (ACAD) recently reported strong first-quarter Nuplazid net sales in Parkinson's disease psychosis (PDP) of $48.9 million, above the consensus estimate of $47.1 million (and guidance of $45 million-$48 million).
Nuplazid net sales grew 12% quarter over quarter based on a gross to net adjustment of 24% (vs. 13% in fourth quarter 2017). Management guided to second-quarter sales of $57 million-$61 million and reiterated Nuplazid 2018 net sales guidance of $255 million-$270 million.
In our view, Nuplazid sales in Q1 are positive and reflect the drug's utility in PDP, not something one might see in a drug that leads to fatalities. We will monitor prescription trends closely to see if the recent misinformation in the media affects sales.
The recent call focused on the erroneous media reports on Nuplazid safety, and management remains confident in its pharmacovigilance activities and the Nuplazid risk/benefit profile. The following points support the company's risk/benefit claims around Nuplazid:
1) The two placebo-controlled studies completed post Nuplazid approval in around 300 patients resulted in no difference in the number of reported deaths between the drug and placebo arms;
2) Post-marketing safety reviews and signal detection analysis of serious and fatal adverse events have not identified the presence of any common etiology or underlying mechanism that would lead to the conclusion of a causal relationship to Nuplazid and death;
3) The reported deaths remain consistent with patient age, medical conditions and comorbidities, and when put into context of comparable natural history literature and large insurance datasets of other PD psychosis patients, the rates observed appear to be in line.
Acadia noted that the FDA has stated that "based on information to date they have not identified a specific safety issue that is not already adequately described in the product label."
While the FDA has said they are performing an evaluation of the emerging safety information, at this point there is nothing to suggest there is a new risk and that providers will stop prescribing the drug while the evaluation is ongoing.
In our view, the FDA was backed into a corner and had to conduct the safety review after all the publicity. Our confidence in the drug is based on it being the only drug ever approved for PDP, previously an unmet medical condition, and the fact that Nuplazid is as safe, or safer, than other antipsychotics on the market.
Madrigal Pharmaceuticals
At Madrigal Pharmaceuticals (MDGL) , all eyes are on the upcoming MGL-3196 Phase 2 biopsy data, which is expected by the end of this month. We expect to have 36-week biopsy data in the non-alcoholic steatohepatitis (NASH) subjects who completed the 12-week MRI scan (n=116).
MDGL management expects MGL-3196 to exhibit consistent and durable improvements in NASH patients. They have guided for a statistically significant 2-point reduction in NAS score (focus on components, particularly ballooning) and a strong, favorable trend in NASH resolution.
We believe '3196 will show a trend in fibrosis improvement (given measurement variance) and importantly, maintenance of the cardio, lipid and liver enzyme benefits.
In regard to the NAS score, management views an improvement in ballooning (i.e., damaged hepatocytes driving inflammation and fibrosis) as the most important component, and notes that if '3196 can show such a reduction "that would be a win."
Measures of inflammation tend to be more variable as clearing immune cells (e.g. macrophages) could confound the benefits. When determining fibrosis scoring based on biopsy, we expect there to be some variation (up to 30%) between the initial and end-of-study biopsy (and vs. placebo) given the likelihood of extraction from different sections of the liver making it a difficult component to measure.
Therefore, management will look to additional imaging (MRI-PDFF and multiparametric MRI) and biomarker data to provide a more clear and consistent picture of the improvements.
In our view, the data will be positive but given the small sample size (n=116) we do not expect statistical significance across the board with NASH resolution and fibrosis improvement both expected to trend in the right direction.
We will be monitoring the lipid improvements as the reduction in inflammation has the potential to treat the disease at its source, not just the symptoms. Strong data will position Madrigal to start a pivotal Phase III program in the third quarter.
Lastly, strong Phase II data could easily lead to a major bidding war to acquire Madrigal as a potential best-in-class once-a-day pill in one of the most sought-after assets in the pharmaceutical world.
Sangamo Therapeutics
Sangamo Therapeutics (SGMO) released first-quarter results and held a quarterly call. With the broadest gene editing/therapy clinical program around, Sangamo is expected to deliver proof-of-concept clinical data across seven gene therapy and gene editing programs over the next 18 months, with near-term initial proof-of-concept (POC) results in MPS11 and Hemophilia A (both due late summer) up first.
Sangamo ended the quarter with $235 million in cash, not including the $150 million from the KITE/GILD deal or the $215 million from a recent follow-on offering -- together totaling over $600 million.
Year-end 2018 cash guidance of $485 million is sufficient to fund operations for an impressive five years, as the company is building new HQs and manufacturing capacity. More important, Sangamo intends to hold onto and internally develop some longer-term but potentially much larger programs (metabolic diseases, CNS and immunology).
There is a slew of steady progress at Sangamo, creating the leader in the gene therapy, gene editing with by far the most-advanced clinical programs in the field.
In our view, the recent stock weakness is not at all due to the solid and improving fundamentals, but due to the secondary offering that broke deal price ($16.25) and the stock also fell below its 200-day moving average -- both reasons for traders to sell.
We recommend subscribers take advantage of this wide divergence of excellent fundamentals and an oversold stock.
-- This commentary was originally published May 24 on Real Money.
