Sometimes, you gotta hear management in person.

Last week, at the UBS Life Sciences Conference, I attended a presentation by one of my favorite companies, Cepheid (CPHD). It is getting traction, in the real world and on Wall Street, due to rapid acceptance of a new test for MRSA -- the killer hospital acquired staff infection highly resistant to treatment.

I knew all this entering the room, and when I walked downstairs to the breakout (smaller) Q&A session with the CEO and chief scientific bearded type -- an ex of the Mayo Clinic -- I planned to sit back and see how they answered other people's questions.

And someone asked a great one about their micro RNA strategy.

A couple of posts ago I mentioned Rosetta Genomics (ROSG) as a play on micro RNA -- the latest and greatest version of RNA interference, and a way of manipulating RNA and gene expression to treat or diagnose diseases. I had no idea CPHD was in the micro RNA business - if you read their financial documents, press releases and Web site, nada. So I sat up.

Turns out they have identified "several hundred" micro RNA they have surrounded by their intellectual property and these may, and I repeat may, be valuable in creating blood tests for biomarkers for solid tumor cancers -- lung, etc. A breakthrough of this sort would literally save hundreds of thousands of lives as many solid tumor cancers are diagnosed too late because they don't cause pain or symptoms early on. This would propel the company into a new area of diagnostics.

Just thought I would pass it along -- and given CPHD's track record in developing genetic based diagnostics of disease, this is a very interesting development.

A great, if unknown, leader of the financial press died this week -- James Michaels, the former editor-in-chief of Forbes. He was an iconoclast, a ground breaker, a contrarian -- and now you know why I liked and admired him so much. When the rest of the press were printing company press releases and copying each others' business stories in the early sixties, Michaels turned Forbes into an aggressive, contrarian, leading-edge publication that set the tone, and the bar, for quality, terrific financial reporting for decades.

I never met the man but he has greatly influenced my view of what I do. And his credo is something any financial analyst or adviser can never stray from: "We may be wrong, but are never uncertain."

And that is the key to making an investment, recommending a company or challenging someone -- do not be uncertain. You may be wrong and have to take a loss, change a position or eat crow at the next cocktail party or family gathering, but certainty is the key to successful investing. If you get into a position you are lukewarm about, you are going to mismanage that position.

I learned this when I ran institutional research at ChangeWave, calling on more than 200 hedge and mutual funds. The prospect or client wanted certainty. I remember being thrown out of one sales call for saying Cisco (CSCO) would not hit previous highs until my grandchildren were out of college; I lost a sale because I continued to insist Apple (AAPL), then (split-adjusted) at $8, was a screaming buy.

And, of relevance to biotech, I had it out with a hedge fund manager who did not like generic manufacturers because of an "uncertain business model" five years out, due to competition. Of course, he did not own a company that could produce revenue in anything less than five years. Or the biotech analysts who defended her investment in Genta (GNTA), at $14, because "they have so many trials, one will work." It trades below a buck and she trades somewhere else, I believe.

I was certain Cisco would not grow, on average, fast enough top its previous highs; the ChangeWave surveys told me all I needed to know about Apple; Teva's (TEVA) mixed model of generics and proprietary drugs was far better than anything in that bozo hedge fund manager's portfolio; a physician familiar with Genta's drugs told me that when a patient prefers to die than be subject to the toxicity of a drug's trials, that drug has problems.

I was certain, the way James Michaels would have demanded I be certain if I had worked for him.

My best wishes to his family.

As I have written before, I get more e-mail about Amgen than any other biotech. No wonder -- lousy stock, lousier company. The company is more of a Short than a Buy due to problems in its core anemia drugs. I wrote about it just a few days ago. That diatribe focused on the Congressional Black Caucus and may have obscured the essential truth about Amgen: The company is just about to start taking serious hits due to new reimbursement guidelines.

I'm writing about this again today because I hear more and more analysts who are only marginally acquainted with the company talking "value" -- but there is no value here unless you play the short side.

Anemia drugs are more than 60% of AMGN's sales and I estimate 80% of profits and sales will slow, stagnate and eventually slide within four quarters. It has no blockbusters on the near- or mid-term horizon -- at least five years -- and has not produced a blockbuster on its own since 1991. That was the year Gorbachev dissolved the Soviet Union -- a long time ago and there was a different George Bush -- oh so different -- in the White House.

So stop e-mailing about Amgen. E-mail me about something else and stay away from AMGN.

If you want a recap on the Medicare issue, check out Mike Huckman's blog at http://www.cnbc.com/id/15837675. He is THE pharma and biotech reporter for CNBC and, as the husband of a journalist who has won every award one can win, Mike knows his stuff. His blog will keep you fresh.

For many people in medicine, the Holy Grail is the card or chip carried by a patient with the person's genetic code. That code would tell them what drugs and other treatments would work best for a specific illness. This vision is driving long-term plans for many companies and, unfortunately, these companies are beginning to ask investors for money.

Stay away.

The hypesters are being led by one who's very experienced named Craig Venter -- the self-proclaimed decoder of the human genome, sort of. This year this modest, unassuming fellow published a complete genetic blueprint on the Internet of himself that he said cost $60 million. Makes the Bionic Woman look cheap. He did say it could be done again for a fraction of the cost, maybe $300 grand. And once people can walk around with their genes in their jeans, miracle cures are around the corner.

At the recent UBS Global Life Sciences conference, industry equipment leaders (guys who make money selling stuff to guys like Venter) said the price of coding or decoding one person's DNA is going to fall to $10,000 bucks. At that price, it may become more common for patients to have their genes sequenced for medical tests.

This probably will happen, but who will make money with the results? Oh, you think because we sequence a gene, our gene, we have all the answers? Sorry, but the arrogance of sciences and scientific language comes into play here.

When Venter and company say they mapped his gene, they are leaving out something called junk DNA. Did you know that when researchers say they decode a human gene, they throw our something called "junk DNA?" This constitutes maybe 80%-90% of the material involved in gene expression and contributes, in an unknown way, to the impact of genes on human health. A good definition of junk DNA can be found in Wikipedia -- junk DNA is a label for that part of the DNA component of a chromosome or genome that sicentisits have yet to define a function. Some think junk DNA is akin to the appendix -- it serves no purpose. As a father of identical twins with the same DNA, trust me, something makes them different other than the environment.

For the foreseeable future, no companies with cures are doing the decoding, just the firms making the equipment. Two at the forefront of the market for providing incredibly high-tech equipment to genomic researchers are Illumina (ILMN) and Applera (ABI). They are going to make a lot of dough, not just because genetic research is hot but because it is still primitive and in its earliest stages.

We are in the very-early stages of a genomic equipment boom and you should look at the equipment guys, avoid the hype about cures right around the corner. That being said, if you are interested in the super-speculative, itty-bitty biotechs -- some of them who might be in this area or now or in the future -- check out at Baby Biotechs.

Alzheimer's disease is easily the largest, looming public health threat on the near- and long-term horizon. Alzheimer's affects half of all people over the age of 85 and has a direct, linear relationship to age. Modern science is going to make us live longer and then we'll forget why we wanted to.

Research to date has been so catastrophically bad that Alzheimer's several drugs approved for use by the FDA provide mild symptomatic relief for as little as six months.

There is no standard animal model for researchers, and some don't even believe the brain plaques found during the autopsies of Alzheimer's victims are a cause of the disease, but rather are a symptom.

There are just a few drugs in late-stage trial

Researchers are now turning to lifestyle and behavioral factors to mitigate symptoms or prevent onset of the disease altogether. A recent study by Robert Wilson of Chicago's Rush University Medical Center showed that people the study characterized as self disciplined -- organized achievers among the elderly -- are at a much lower risk of Alzheimer's. What was most interesting was that when people in the study died and were autopsied, many had the brain lesions associated with the disease, but no symptoms before death. These findings were published in the Archives of General Psychiatry

One caveat: The 997 people in the study (average age was 75) were Catholic nuns and priests, who also live in what many consider a low stress and highly communal environment. They also have far more social stimulation at an advanced age than many of the elderly. During the 12 years of the study, 176 people developed Alzheimer's and, according to the study authors, participants characterized as the most "conscientiousness" had 89% less of a chance to show signs of Alzheimer's. Participants characterized themselves, another weakness in the study.

If you cannot live a disciplined life or future studies shows only Catholic priests and nuns are self-disciplined enough to avoid Alzheimer's (that was a joke) some treatments may be coming. Check out a mid-stage trial from Prana (PRAN) with results being published in Q1 of next year, or a mid stage trial that will take much longer by Transition (TTHI) and Elan (ELAN).

I am tired of reading breathless reports about the coming onslaught of generic biologics. It ain't gonna happen!

The recent legislation reauthorizing the FDA (sort of) -- I'm trying to be brief -- started out with a clause to create a regulatory pathway for generic biologics, also called biosimilars, and it did not make the final cut of the bill.

This pathway is critical for it lays out what procedure a company could use to file a biologic drug as a generic without doing a clinical trial. In Europe, the regulator is the European Medicines Agency (EMEA) and it's much farther along.

The lack of development of biosimilars just for Europe shows how important the U.S. market is -- and now that market is another few years away as this issue will not be revisited on Capital Hill until 2009, at the earliest.

Why is this all going on? Why can't a generics manufacturer just go ahead and clone an off-patent biologics? Biologic drugs have a very-high level of complexity, especially at the molecular level -- and this means complex, patented and secret manufacturing processes. A generics manufacturer is on its own trying to copy the drug and if it is just off bit, the drug may be off a bit -- a real safety and regulatory roadblock. Another way of looking at it is a different manufacturing process may mean a different drug, which may mean a different safety and efficacy profile for the generic.

In Europe, regulators have approved some protein-based drugs, which the regulators termed "similar biological medicinal products." The manufacturer must show a very-high level of similarity. In the U.S., the FDA has approved (by using regulatory sleight of hand) a generic of Human Growth Hormone and that's about all.

If and when the pathway in the U.S. emerges, watch Teva (TEVA). Although highly secretive about this market, the company is generally believed to be ready to rock with a slew of generic biologics. While investors and patients will just have to wait to see for sure, if you want to invest in traditional generics companies, Teva is the biggest and the best and the opportunities are growing.

And if you want something really out there -- hidden plays Wall Street may not have seen -- check out companies involved in generic radiopharmaceuticals.

Sounds cold, but how can you make money on the superbug that is now scaring school administrators and public health officials all round the country?

It's a big market - an article published this week in Journal of the American Medical Association said about 17,000 people die form MRSA each year, about 90,000-95,000 are infected. There are not many investment opportunities - but some background first.

MRSA, which stands for Methicillin-resistant Staphylococcus aureus (MRSA), is the killer super bug found in hospitals but now spreading to schools, gyms and other places where people sweat, spill blood and congregate. The disease is treatable, especially when caught very early, but is highly resistant tro conventional anti-biotics. The standard of care as things progress is a drug called Vancomycin.

On Oct. 1, Medicare said it would stop paying for hospital mistakes, including hospital-based infections, except MRSA, as the industry said it was too hard to eradicate. That's nonsense. Many European countries have very-low incidences of MRSA and the Verterans Affairs is rolling out a national program based on a pilot program that reduced it by roughly 75%. That being said, the Medicare changes put infecitons on everyone's radar, and now that a teenager has died in Virginia (outside of our nationa's capital) people are taking notice.

Where to invest? Some options:

Testing: You have to test to find the bug and get rid of it, and hospitals are ramping up testing for MRSA, led by the VA. Look at Cepheid (CPHD), it dominates this market and has tripled already.

Treatment: Vancomycin is not really investable but new verisons of Vancomycin and other new antiobiotics might be. Check out Basilea - it is working on an antiobiotic called Ceftobiprole in partnership with a Johnson & Johnson (JNJ) subsidiary. The drug is in late stage trials for infections and is pending approval for severe skin infections.

Cadence (CADX): This recent IPO is working on an ointment, sort of, that would be applied when a catheter is inserted, and it heads off infections. Catheter infections are now going to be paid for by hospitals, not Medicare (and probably other payors will refuse as well), so there will be a great deal of interest once it gets approval, if it does in late 2009 or early 2010.

Can you imagine how active MRSA will all get once the tort lawyers discover it?

Last week Pfizer (PFE), without any warning to its partner Nektar (NKTR), announced it would no longer manufacture or market Exubera -- a form of inhalable insulin -- and my subscribers took a hit.

Analysts applauded and an incredibly smug newsletter editor, David Kliff, even signed off saying I told you so. I guess Freud was right that not everyone finishes development of their super ego and, therefore, ends up with an infantile personality. Of course, then we have to live with them forever after.

And Pfizer was wrong.

My outfit -- ChangeWave Research -- regularly performs highly scientific and hyper-accurate surveys of many segments of the economy, including health care. And all, I repeat all, our surveys showed inhalable insulin would be a hit, wth more than 70% of new patients wanting to try an inhalble form of insulin. This same group said Byetta from Amylin would be a hit when Wall Street said it would not. And our surveys were right.

The real problem?

Right now, because it's in a total panic about the falling sales of Lipitor, an onslaught from generics aimed at its drugs coming off-patent, and a dry product pipeline ... Pfizer couldn't sell water in the desert unless it was bundled with Lipitor.

Pfizer was new to the diabetes market (and made the mistake Amylin avoided) and focused on the big guys, the leading endocrinologists and diabetes centers who already know how to manage diabetes with insulin and are not early adopters.

PFE ran ads that mentioned the word insulin once and did not go head to head with Exubera's strongpoint: no needles.

And they turned the product over to the sales force selling Lipitor, which is doing nothing but focusing on the world's largest-selling, and now one of the fastest-falling drugs.

How can a big company be so lame? The answer is in the word "big." Pfizer does not really know how to sell anything that is not an easy-to-sell, billion-dollar drug. The company is built around this sales and distribution model. Exubera is not a billion dollar product.

Anyone who thinks this is a simplistic answer has never worked for a big company. I worked for AT&T when it entered the computer market and it killed many products like Exubera that were absolutely world class and superior to competitors' offers, but it simply could not sell them due to the dynamics and focus of its sales force. Also, look at Xerox: It invented the graphical user interface, the laser printer, the mouse and Ethernet, and never sold more than a handful of these products.

Hopefully, the spirit of John Patton -- the man who invented Exubera and fought like hell for a generation to get it to market -- will prevail and Exubera (or other versions of inhalable insulin) will make it to market.

I also have a vested in interest in this as I had plans to write a book on the development of Exubera, then hit a wall with agents and publishers when the product was in limbo in the market. Maybe these events will kick start interest in the book.

And, finally, hopefully, more enlightened and better managed companies -- like Eli Lilly and Novo Nordisk, and their respective partners Alkermes and Aradigm -- will not cut and run like Pfizer did. So far, they have said they will stay the course and get products to market in 2010-2011 time frame.

More on Pfizer and the generic threat facing the company later this week.

Monday, October 29, 2007

It's Monday and so far, the world is safe:

• The Sawx won the world series - I predicted a sweep while being interviewed on the Fox Business Channel. (DirectTV Channel 359 or check your local listings.) I'm on a few days a week for a few seconds, but it is all worthwhile -- of course, I predicted a sweep by the Rockies, not of the Rockies, so, well, I was just one preposition off.
• The Giants beat the Dolphins in London, the teams destroying the brand new field, and the Redskins lost 52-7, the Patriots destroying the team whose colors of mustard and ketchup reflect my opinion of them.
• And the government - Uncle Sam and others - are spending a bit more time worried about healthcare costs, which actually makes me feel good - not bad. I don't own Big Pharma stocks and don't recommend those companies that live on price increases and loosely controlled healthcare costs.

About controlling costs, some anecdotes from here and abroad:

• Britain's National Health Service will allow use of Johnson & Johnson's (JNJ) cancer treatment Velcade with a proviso - a moneyback guarantee for those patients who do not respond. That makes sense to me and this will eventually spread to the U.S., despite lobbying by Big Pharma and biotech, alike.

If this happens, there will be lots of winners and losers and they are not what you think - and Genentech (DNA) is not a loser in this scenario.

• Senator Charles - ah, a good guy from New York, let's call him Chuck, like his press secretary wants us to - has called for nationwide testing for the killer staph infection MRSA. While this is great politics, great headlines and also makes sense. More importantly it is a great center of cost savings for hospitals - with at least 17,000 deaths a year (maybe as many as five times that number), and billions of dollars in medical costs. A simple $36 (wholesales cost to the hospital) test offered by Cepheid (CPHD) would find patients with the disease as they enter the hospital, who could then be screened and isolated an cured easily when the infection is in its earliest stages. Again, it would save lives and billions of dollars.
• Former FDA Commissioner - a great one and a great public servant now making money as a consultant (his kids are nearing college age) - said that we cannot control healthcare costs until we control disease, with a specific focus on obesity and its cousins, diabetes and weight-related cardiac problems.

And some government officials and politicians are actually beginning to listen. Look for new obesity and diabetes control products and companies in the coming years. The only one with a real medical treatment, right now, in trials is Amylin (AMLN).

Just another non-manic Monday. I think I'm on Fox from 11-12, Monday, Wednesday and Friday this week.

The news and activity surrounding the killer-staph infection, MRSA, is increasing. A brief update and then a couple of companies of interest:

• Senator Richard Durbin of Illinois is set to introduce MRSA legislation next week. This bill would require a government agency -- the Agency for Healthcare Research and Quality -- to promulgate guidelines on how to control MRSA and other hospital-acquired infections. The bill would force hospitals to report infection rates to the CDC. This action follows, by one day, a call by Senator Charles (Chuck) Schumer of New York for hospital reporting of infections.

• A recent study showed MRSA has spread to the animal population, possibly from pets serving as companions to people in nursing homes and other long-term café facilities.

• More and more cases of non-hospital-acquired MRSA are being reported around the country, mostly in schools and mostly among athletes or kids frequenting athletic facilities.

• So far, the tort lawyers are not involved. Stay tuned.

Why do I mention tort lawyers? Because several countries in Europe have virtually eliminated MRSA and the U.S. Dept. of Veterans Affairs reduced it 75% in a pilot program.

The infection can be contained and perhaps eradicated over time in a hospital setting, BUT a hospital with a bad infection rate is going to be a target for these attorneys. Go get 'em, I say!

That will get the hospitals' collective butts in gear. There is no excuse for the level of infections and the thousands of deaths - the CDC suggests at least 17,000 per annum - caused by MRSA.

Is there money to be made? Check it out yourself - the best and increasingly dominant test is from Cepheid (CPHD). I own the stock. And a new form of antibiotic is being developed by Basilea (SWX: BSLN). Nektar (NKTR) is working on an inhaled form of antibiotic useful in niches.