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| Unfortunately, the sorts of stocks that we're trying to make value plays on. |
I think today was a good example, however, of where the markets are in (and out) of touch with a rational valuation: mid/large cap stocks seem to be fairly valued, or at least people believe them to be fairly valued, while small caps and especially tech seem a little "momentum-y" for the moment. While the Dow Jones was only down 0.26%, the Russell 2000 was down 1.7%, and biotechs were down another percent more, with some of the smaller biotech stocks being even more volatile (like GALT). After the minor correction to IBB earlier in the year, the momentum play was back on; I'm of the belief, though, that the valuation of the biotech sector is a little out of whack from the huge amount of people jumping into it as a momentum play in the pursuit for yield in a market that many continue to view as lacking good value. My general outlook on stocks is a continual grind higher for the next year or two; I do think valuations for some of the crazy momentum stocks (like Tesla, or the biotech sector) are overdo for a correction...the only question is when. Thus, to shield ourselves a bit from this volatility, I'm adding here puts for IBB into my model portfolio. Due to the speculative, all-or-none nature of puts, this will only be a 10% position, so that if I'm wrong and IBB continues its meteoric rise, we don't lose a huge amount of our pretend money.
Thus, I am adding to our model portfolio near-the-money Jan 2016 260 puts on IBB, a 10% position. I will choose the mid-point between bid/ask as our purchase price, as determined by Yahoo's IBB Options quote page, so our position will be bought for 29.35 (I'm showing a bid of 28, and an ask of 30.70).
JVS
This is a trade analysis, not recommendation!
Hey, thanks for the interest! I hope you find this comment, since I haven't been blogging in a few days. The PFS vs. OS thing is something that has crept into my mind before, but I've never really given too much thought to; I did find one great perspective on the topic, which you can find here: http://jco.ascopubs.org/content/30/10/1030.long.
ReplyDeleteEssentially, the authors contend that there's not enough evidence yet either way to suggest that we should be using PFS to evaluate drugs vs. OS. This is a great perspective for clinicians and oncologists to have, in my opinion.
However, from a purely business standpoint -- and this will sound callous -- PFS all the way. PFS is much easier to demonstrate than OS, so I think that it's a no-brainer for companies to target PFS if they are questioning the likelihood of success in a trial which has a main read-out of OS. Easier approval of drugs is really a boon for biotechs, even though I find it ethically repugnant; the choice is yours whether you feel OK investing in a company that may or may not be toeing an ethical line (however legal it may be).
I do find it surprising that the FDA would suddenly require OS for drug approval, considering other drugs have been approved without showing OS and only showing improvement in PFS; seems like a bit of a turnaround for the FDA to suggest otherwise!
Overall, I (like the authors in the above linked paper) would prefer to see either an improvement in overall survival or quality-of-life, rather than some bizarre surrogate them in the 'progression-free-survival' metric, as it has not been examined what exactly 'progression-free-survival' means for the patient. However, historically the FDA has not held this same viewpoint. Perhaps they are coming around to a more logical stance by wanting to see concrete clinical benefit rather than statistical hand-waving; this can only be a good thing for the FDA, and a bad thing for biotech companies, as the level of stringency for new drug approval is much greater. I'm not sure that the story ends here though, so we'll have to wait and watch the two companies you mentioned, as I think they may be interesting "canaries in the coal mine" for how the FDA is going to approach the PFS vs OS debate.
Regarding the special protocol assessment that you mention: I believe (you may want to doublecheck me on this) that it's not necessary to have the FDA carry out an SPA for you, but seems to make sense, especially if the FDA will really give you a turn around of 45 days; that's a short enough time frame to not materially affect either patients with disease or the company's prospects.
The other interesting thing about the PFS tactic is that it can really drum up public support for a company, and never believe that the FDA is above social/public pressure any more than any other government officials. My complete speculation (which is mostly baseless) is that the FDA is already overworked and feeling harried on all sides; a little pressure can go a long way in a situation like that. Accordingly, imagine if you (or a loved one) has some cancer type that was just shown to be treatable by a new revolutionary drug and the FDA just won't approve it, -- it is rare that people really read and understand what PFS means, vs. what they desire it to mean -- and you can imagine the volume of 'patient advocating' that reaches the ears of the FDA. For a recent example, look at the positive noises that the FDA was making towards SRPT's new drug because of the public pressure, regardless of the proven (or not) efficacy.
I have to give a large caveat here though, which is that I am by no means an oncologist, or really an expert in cancer in any way. Hope this clarified for you my perspective!