AMP Inaugural Quarter (Q4 '16) Postmortem

With 2017 just started, we wanted to look back at the events of the last quarter and see how things turned out. In total, 5 events occurred; 2 events moved the price positively, 2 events resulted in mixed outcomes, and 1 event moved the price negatively.

The big negative event we saw was with the Ophthotech (OPHT) Fovista pure-play. While we argued some of the downside was priced in following Regeneron’s failed trial, there was still significant downside for a ~$1B company with only two assets. We still hold that the read-through between trials was inappropriate given the many differences between them. Regardless, investing in biotech is a risky game often with big winners and big losers. As such, it is important to manage one’s portfolio accordingly, having in our view, some pure-play binary events like this one, as well as several other investments that are less dependent on a single outcome.

The mixed events that occurred in 4Q16 were with UniQure and CytRx. UniQure announced new data from their high dose cohort in Hemophilia B patients at the annual ASH meeting. This data while positive, did not hit double-digit values, which we thought was the minimum threshold to regain investor confidence. As such, sentiment has remained neutral and the price has stayed relatively level.

CytRx announced updated data from their Ph3 trial of Aldoxorubicin in second-line STS patients. The positive results from this study were mined out of the data in non-predefined subset analyses that resulted in a modest, short-term positive swing in price that has since settled back down.

Importantly, in both of these cases, the overall thesis has played out as expected and there is still potential upside with additional events in 1Q17. These companies were both trading near all-time lows with sufficient cash to see the readouts in 4Q16 and 1Q17. With multiple chances at upside, and downside risk mitigated with a cash backstop, these investments offered a favorable risk/reward. We plan to hold these companies through their next data announcements this quarter.

Two of our Q4 picks resulted in positive data that resulted in price movements in the positive direction. Alkermes announced the results of their third Ph3 trial of ALKS 5461 which has so far resulted in gains ~ +29%. Their next major inflection point will be with their pre-NDA meeting with the FDA when their chance of approval will become clearer. This meeting is expected this quarter.

Synergy Pharmaceuticals also announced positive results from their second Ph3 trial of plecanatide in patients with IBS-C. While largely expected, this news increased the likelihood of gaining marketing approval in both CIC and IBS-C and has the price up ~36% so far. This company will be important to watch over the course of this month as it approaches its PDUFA date (for CIC) on January 29th. There is early evidence that the price may continue to run up leading into that date and may alter the risk/reward scenario. This underscores another important aspect of investing: as price changes, so must your investment thesis. At some point, price may exceed value and it will be important to realize those gains before the market appropriately adjusts the price.

As a side note, Nektar Therapeutics also announced preliminary data with NKTR-214. While this data was supportive of 214’s potential efficacy in solid tumors, as expected, the low n and early stage of development has kept enthusiasm modest and forward-looking. As discussed in our report, the real value-driver here will be data related to its efficacy as a companion product with checkpoint inhibitors. This data is expected this year.

To conclude, overall we are very excited about our next set of near-term events and believe 2017 holds many more chances at upside. As most biotech investors know, 2016 was a tough year in biotech with the biotech indexes all down around -20%. The last year of comparable performance was back in 2002. Finding gains in a tough market can be very challenging and our goal is to help you in that effort.