2017 is off and running, and for healthcare investors world-wide, their attention turns to San Francisco and the 35th JP Morgan Healthcare Conference. Thousands of healthcare practitioners, big pharma, biotech and others, gather at arguably the most visible conference for the sector. For investors, the focus is on major announcements by healthcare firms. These announcements usually concern major drug trial data, Merger and Acquisition announcements (or major partnerships), or earnings guidance.
Some of the issues in the ISAW personal portfolio made headlines like Johnson & Johnson, Merck, and Illumina. And while we try to focus on the long-run instead of short-term headlines, some of the announcements helped goose the stock prices significantly—especially with Illumina.
Illumina (see Next Generation Gene Sequencing issue)—after disappointing investors and analysts for much of 2016, ILMN had some encouraging guidance for the fourth quarter just ended. Things appear to be looking up for 2017 as well, as they also made a major product announcement for a soon-to-be-introduced, high-end sequencing instrument that can sequence the human genome in a day. Illumina also sees the cost of sequencing falling to the $100 area… about 90 percent cheaper than the cheapest sequencing costs today from their HiSeq instrument. The stock market cheered for the first time in several quarters, and the stock rallied from $142 to $165 – up $23.00 on the day. Good thing too, as this stock was in the dog house… and still is… but we are breathing a little easier. We have watched Illumina go from $199, our purchase price, to $240, and then lose nearly half its value. Hopefully they have some follow-through. Much of Illumina’s sales are to reusable or consumable reagents and chemicals. The more installed units, the more revenues from consumables. This part of the business should pick up as well. We knew this was a risky pick when we bought it and it hasn’t disappointed in that regard. With P/E and price to sales ratios in the stratosphere, any disappointment would bring pain. Perhaps the healing has begun!! Stay tuned.
Merck spoke about partnering with Incyte regarding studies in combination therapy—combining their PD-1 checkpoint inhibitor (named Keytruda) with Incyte’s IDO inhibitor (IDO stands for Indoleamine 2,3 deoxygenase). IDO inhibitors, like checkpoint inhibitor PD-1, help inhibit tumors from neutralizing our immune system. The result, our immune system can better fight cancerous growths. Merck is a leader in immuno therapy and is battling with Bristol Myers’ Opdivo for greater usage in multiple indications. Merck had a slight rise above $60 per share but seems to be having trouble breaking through the $60 range decisively.
Before the JP Morgan Healthcare conference, Regeneron Pharmaceuticals, along with partner Sanofi, received the bad news that a judge ordered them to cease selling their PCSK 9 inhibitor and cholesterol lowering drug, Praulent, because it infringed on a patent owned by Amgen. While the case will be appealed, Regeneron got hammered. We had thought that Regeneron and Sanofi would, at worst case, have to pay royalties to Amgen, but the judge ordered the halt of sales. However, the two parties can still come to terms if they wish to avoid a long court battle.