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PSW Members, it has been a good year for us in the biotech space. We have had a few hard to swallow misses (ARNA being the most disappointing and the biggest if you stayed in to the end), but IMGN, JAZZ, VVUS (short), ARIA and many, many others put some good cash in our accounts. There are plenty more companies to watch and 'prey" upon, and I have a few worth considering for the beginning of next year.
NuVasive, Inc (NUVA) – NuVasive is a medical device company focused on the design, development, and marketing of products for the surgical treatment of spine disorders. In late October, NuVasive reported a challenging business environment, and cut its guidance. At issue is its lower back spinal surgery implants in which the patient is not complaining about the projection of pain to the lower limbs, and for which there is little clinical evidence that implants can help. NuVasive's management noted a slowdown in the spinal surgery market, and analysts picked up that 10-20 percent of surgical procedures are cancelled at the last minute, just before surgery. There are claims that not all surgical procedures conducted in the US are medically justified, as those procedures are encouraged by policies of payments to doctors. Therefore, insurers and the passage of Obama's healthcare bill has put pressure on the industry (as well as doctors) to justify the procedures. Other companies, JNJ, Mazor Surgical and Stryker have not issued such a warning, but the new year is not here yet so it remains to be seen. On the other side, the population continues to age, and spinal surgeries will continue to take place. I like taking the options on this company out a while, as the health care bill is still a big question mark on the industry. The Jan12 $25/35 for $2.10 and selling the 20s for $2.75 or better. I know Phil is not a fan of buying premium, but this is a cheap mellow way to play the recovery and NuVa has not been below $20 in a long time.
Regeneron (REGN) – Recently, Regeneron Pharmaceuticals and Bayer HealthCare's intravitreal VEGF inhibitor, VEGF Trap Eye, has met the primary endpoint of non-inferiority to ranibizumab in maintaining or improving vision in age-related macular degeneration (wet AMD) patients in two phase III trials. Further data will be presented in February 2011 at the 13th International Symposium on Anti-Angiogenic Therapy in San Diego, CA. now what makes this an interesting play, and one that I think could manifest in the fist part of 2011, is lawsuits. Regeneron’s latest quarterly securities filing should give investors some pause about the eye treatment. The company says Genentech, the US biotech arm of Swiss drug maker Roche, claims patents and pending applications that could result in a patent infringement lawsuit against Regeneron. For any drug that is making billions, and Lucentis is….then I would fight for those rights. So, I think SHORTING REGN by buying a few May11 $30/25 put verticals at $2.10 or less for the lawsuits to start.
Ironwood (IRWD) – Ironwood was mentioned in my writeup on Forest Labs. Linaclotide is a novel therapeutic agent being developed by Microbia Inc for the treatment of constipation-predominant irritable bowel syndrome (IBS-C) and chronic idiopathic constipation (CIC). Linaclotide is a 14-mer peptide that acts as an agonist of guanylate cyclase-C (GCC), thus stimulating the production of cyclic guanosine monophosphate (cGMP). Now, there is a competitor in this field, Synergy, that is partially owned by Callisto Pharma, and these are arbitrage plays on Ironwood noted by James Altucher. The competition is behind IRWD, but we can play them all at some point, and I would start with Callisto Pharma for 60c or better. Now, though, Ironwood is the play as they are first up and we want that initial pop, so I like setting up the entry on IRWD by buying the stock and selling the May11 $10 straddle for about $3.60 or better.
Vertex (VRTX) – well, or play on them did not pan out the first time, as I thought they were going to recover back up to the $37 area, but the company is still a solid play for their Hep C drug, telaprevir. The timing of the telaprevir approval filing to the U.S. Food and Drug Administration was widely expected. Vertex asked FDA for priority review, which if granted, would mean an approval decision could be made by June 2011. For an upside play I like the jan 12 $25/30 bull call spread, selling the Jan12 $25 puts for 2.60 or better. The calls are 100% ITM, and VRTX has not been near $25 for 2 years. The spread also gives time for things to work out should the FDA not give the company review priority status….stay tuned.
Looking forward to a new year at Phil's Stock World! Happy Holidays to All….and to All a Good Day.
