May 14 Biotech Update- The Wait is Almost Over

Happy ASCO abstracts day. I would expect volatility as we get later into the day and perhaps some significant moves into tomorrow and then ASCO. I know the expectation of no ASCO run up but I still lean against that consensus and expect a run up into ASCO (especially if there is something to spark interest in the abstracts). This is not to say that the entire sector moves on it but I would not be surprised to see the sector outperform the rest of the month.

1. Before we dive into ASCO, there were two conference calls last night that were of interest. CNAT basically reported a bland, everything is on track conference call. This is exactly what we want from a fundamental perspective. The ACLF trial is still on track for data later this year (note the delay of these results in the last CC was a proximate cause for selling). In addition, they started the POLT trial with interim data expected next year (although it is going to take forever for this trial to actually complete). Plus, there will be NASH data later this year and the start of a CLF trial. This is all consistent with previous guidance. How the stock will react to this is anyone’s guess given sentiment and the fact that most small caps have been selling off after their earnings. Regardless of any price action, the fundamentals remain and eventually the market will come back to CNAT but knowing exactly when is anyone’s guess.

2. EPZM is another company that reported a decent quarter with continued progress but no near term news. The key remains data from the ongoing trials which are expected in the second half. Analysts tried to pin down the company on a more precise timeline but management was not biting. I think the most likely scenario are presentations at ASH and perhaps a top-PR a month or so before. Perhaps we get data before then but I would rather view that as an upside surprise rather than the base case. All told, however, this is another conference call in which the company reiterates guidance and everything seems to be moving along as expected.

3. Finally, I will note that today is the start of the Markman hearing for CELG. I think the odds of something of real note happening are low but I would not be surprised to see everyone reading their tea-leaves as to how the trial is going. So perhaps we get some added volatility to CELG as people try to extrapolate from today to how this is going to end. My base case is still that CELG is in a strong position and would win a trial but is not going to take that risk and will ultimately settle. Both sides are going through the motions to get a better bargaining position for the settlement discussions. While a settlement could occur this year, I expect it is more likely to happen in 2015 with the agreement putting the generic entry around 2024 (plus or minus a couple of years).

I will end it here as we wait for the abstracts (and XNCR conference call after the market close). Have a great day.

Disclosure: Long CELG, CNAT, EPZM, and XNCR.

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