I have written about the killer, super-bug staph infection MRSA but new, proposed legislation in California is bound to make it a headline again -- and a big one!

The proposed law would give California, perhaps, the toughest MRSA reporting requirements -- it would require all high-risk patients be screened, such as people in hospital ICUs. Caifornia would also add MRSA to the list of communicable diseases that must be reported to state authorities. This would make California the fifth, and by far the most important, state to adopt these kinds of regulations.

Is this an opportunity for investors?

There are few plays, and the closest to being a pure play in 2008 is a small diagnostics company, Cepheid (CPHD). They have a new, state of the art test that is much faster than existing tests, for a variety of reasons, but the Department of Veterans Affairs is giving between 90% and 95% of its business to CPHD.

The company uses a razor and blades business model -- they sell hardware that can run any CPHD test, MRSA being one of the first and easily the most popular -- and make their real profits on test cartridges. The stock quadrupled from its low in 2007, in part due to new state and Medicare regs and the outbreak of community MRSA that has killed several non-patients. A CDC report saying at least 17,000 people a year die from MRSA also helped push the stock. I own shares in the company.

Another play is Swiss company Basilea (BSLN on the Zurich exchange). It is developing something called Ceftobiprole in Phase III trials for hospital acquired pneumonia but it also works on MRSA. The company believes it will be superior to the current gold standard for treatment, vancomycin, and in this world, all new anti-biotics are welcome due to the inevitable problem with drug resistant strains. I do not own any Basilea stock.

Check out all the legislative and industry activity in this area. I believe all -- that's right all -- patients will be screened for MRSA in the next 3-5 years, prompted in part by interest in the subject by tort attorneys. See if it belongs in your portfolio in some fashion.

Last week held more bad news for Amgen, and rather than compete against other observers, I did a little digging, made some calls. Amgen is actually in worse shape than headlines and value investors ascribe to the company. I have written - negatively - about Amgen in the past as the company is the subject of more inquiries from my subscribers than any other company. And that was when the stock was drifting down from $80 - it is now teetering above $45. I disliked it as much then as I do now.

Why?

The headlines, the FDA concerns, Medicare attacks on the use and reimbursement for their anemia drugs - these are all material threats, not just headlines as is more often the case for bad news.

Here in Washington, regulators are clearly worried about abuse of AMGN's anemia drugs - it began with illegal or unseemly rebates for usage, resulting in over usage. And now the problem is whether these anemia drugs actually speed up the process of tumor growth in cancer patients. Amgen is its anemia drugs: two-thirds of sales, more of profits. Its pipeline is not weak, rather, it is terrible, especially in light of the billions it has spent on R&D since 1991, without coming up, on its own, with a blockbuster.

So what is new now? Two things.

First, the FDA concern over the use of AMGN drugs in cancer patients could hit sales even harder than Medicare reimbursement and usage guidelines - and I believe ( the ChangeWave Alliance staff will be doing a survey on this later in the month, stay tuned) sales of these drugs will fall sharply in the next 3-18 months.

Second, the stock has fallen so far the company has far less latitude to buy its way out of trouble through an acquisition than it did just a year ago. This is actually a larger problem than analysts have written about - hence, this column. Amgen has committed to a huge stock buyback to buoy the stock (it hasn't worked) and if it backs off to conserve capital for an acquisition, well, that won't work for investors either.

Simply put, the company is in a box.

What will it do? The classic response is to buy or license a series of smaller drug companies or drugs in development in Amgen's core market. Small-cap cancer biotechs have been hit hard and many are ripe for a buyout, such as immunotherapy company Cell Genesys (CEGE) or adjunct therapy company Novelos (NVLT). Of course, management is weak and it is an open question whether an acquisition or any company will work in the short to mid term.

So, ignore the ignorant - those value investors who look at charts and cashflow and don't understand pipelines and the FDA. And stay away from Amgen until it is in the $35-$40 range. For purposes of disclosure, I am not short the stock, I recommend shorting it in my short service and have recommended investors go long Cell Genesys and Novelos in my biotech service.

Curis (CRIS) is one of the those companies Wall Street loves to hate - and so far, with good reason. It has sucked investors dry for many years in attempts to develop novel treatments for various forms of cancer. The company has consumed hundreds of millions in capital before and after going public in 2000, and now trades at little more than a buck -- off of an early high of near $25. It appears to be a dog with fleas.

But it is also a $70 million (and change) market cap company with about $40 million in cash that has concrete plans for a Phase II trial with a partner. That partner, Genentech (DNA), is arguably the world's leading cancer company and they don't do Phase II trials unless something good has a reasonable possibility of happening.

Genentech also does very sound trials - proper design, proper size, lots of listening to history and the FDA. DNA will pay Curis an unspecified milestone payment when the trial commences. If the drug makes it through the FDA to the market, Curis would receive royalties that are, to date, unspecified.

The stock is up more than 20% since that announcement (a whopping 20 cents) so at least some people think this might be an intriguing development.

What is this Phase II trial all about? Curis as developed what is called a Hedgehog antagonist, an entity that works along the Hedgehog pathway and could be used, if it proves to work, against several forms of solid tumors. This technology, (again, if proven to work) is surrounded by lots of intelelctual property protection and is extensible to a variety of cancer types. Nothing more in the way of information has been forthcoming from either company.

I am not recommending you buy Curis (CRIS), but when an old dog learns a new trick that enables it to keep entertaining us, it may be worth a look. At present, I do not own any Curis shares.

The Dendrreon (DNDN) bulls are not exactly a cult. Cult is not the right word -- I would say they are an unreasonably large number of wild optimists who love the stock they own, always a dangerous thing.

A little history for new readers.

In my paid service I recommended DNDN for several years and said they would get an FDA panel approval. Only the folks at Biotech Stock Research and Sagient Research agreed, no one on Wall Street did. The panel meeting was held, it was almost unseemly as both DNDN and the FDA broke records for incompetence and Provenge, DNDN's treatment for prostate cancer, was approved. I immediately told my subs to hedge or take profits becuase the nature of the panel decision put the final approval at risk. The final decision was negative -- the FDA overturned the panel -- and then the fun started.

Many people hung on to DNDN when it went from $4 to $24 and back to around $6 or $7. I believe the stock is worth about $2, because I do not believe the early results from the current trials will generate an approval.

So far -- just as before -- I'm in the minority and the stock is holding up to near where it first landed after the FDA reversal. There is not enough space or time here to explain why I think the new, early trial data will fail to get them an approval. I do believe if the company were managed by adults, which it is not, DNDN would forego an early shot at approval and would ultimately get approval in 2010 or 2011.

Part of the tragedy generating the ongoing publicity is from those people who are aware of patients dying early or needlessly because of the FDA decision and the attempts to reverse the decision through political means.

A reversal will not happen -- and better not happen unless you want Congress, and therefore lobbyists, making decisions on which drugs will or will not work! That being said, the cowardice and incompetence of the FDA staff -- in particular the oncology gods at CDER and the statisticians -- are killing more men earlier and/or needlessly in a month, than we're losing in Iraq in a year, if Provenge does work for even a small percentage of prostate cancer patients.

And everyone agrees even if Provenge does not work it does no harm. Hormone refractory, late-stage prostate cancer is one of the meanest deaths on the planet.

What were the FDA bureaucrats thinking when they said no after the panel agreed unanimously (and strongly) that the treatment was safe?

I hope this helps.

For purposes of disclosure, I still own DNDN as I sold January, 2009 $7.50 calls as part of a hedge after the FDA panel decision.

There was in inquiry about concentrating one's portfolio, and indirectly about Xoma.

First, I do not follow Xoma although my insitutional clients hopefully made a bundle when I recommended shorting the company in 2002 -- before it blew up due to problems I saw coming in a critical clinical trial. But that was a long time ago and now, to quote Sergeant Schultz from the Hogan Hero's show, "I know nothing!" I'll look into it and get back to you.

About portfolio concentration.

Portfolio theory varies by indidivdual needs, goals and the ability to tolerate and manage risk and loss. I am not in a position to say have a one, three or one hundred position biotech portfolio. I know a sucessful hedge fund manager in San Francisco who only does biotech little guys, always has 30 or 50 kicking around and he did 70% or more last year. I never own more than a handful at any one time and the biotechs in my personal portfolio did 40% or more last year -- I think. I've still got to crunch the final numbers.

So, I am punting -- only you can determine your risk tolerance.

Given the market conditions, consider this an exercise in cognitive dissonance or willful denial or some other overused term. But the topic here is biotech and life sciences, where successes typically overcome all market conditions.

The demise of Novo Nordisk's (NVO) inhaled insulin program -- using technology developed by Aradigm (ARDM.OB) leaves two serious inhaled programs left for investors to scrutinize.

Eli Lilly (LLY) and Alkermes (ALKS) have developed a product called AIR Insulin that is in phase III clinical trials. Lilly is a market leader in diabetes and insulin products and understands diabetics and the doctors treating them (unlike Pfizer, who blew the commercialization of Exubera, now off the market).

And Alkermes is the most successful drug delivery company in the world. If inhaled insulin is to be successful in the marketplace, it will be this tandem that delivers the success. It's an easy-to-use disposable device (that lasts a month) and is built around the same measurements or units of insulin that is injected.

The other player in advanced stages of development is Mannkind. They have a technology called Technosphere. The company was founded by the founder of MiniMed, Al Mann, who has reputedly put in something near a billion bucks to get the product to market. They still do not have a big-pharma parent -- a major issue -- and Mannkind (and many analysts) counters by saying they have the best technology and delivery system for insulin.

What should investors do? Inhaled or oral insulin is a breakthrough product -- actually while most scientists believe it will never be possible, an oral insulin would be a revolutionary product -- in the hands of the right marketing company.

Pfizer had no idea what to do with Exubera and is clueless about a lot of other things (another article) and Novo did not want to spend another half billion to get the product approved and onto the market.

Lilly would if it continues to develop and otherwise back the product. No recommendations here - just keep an eye on this opportunity - and if Mannkind gets a partner, things could get very interesting.

My regrets about missing a week of blogging -- with the markets in turmoil, I used the opportunity to take a hard look at some smallish companies. Today though, before I get to some of those, I am gong to vent about a small company getting much smaller -- NitroMed (NTMD) -- and this is just venting, not exploring an opportunity.

NitroMed is shrinking itself -- radically -- and looking for strategic options.

In 2005 the company got FDA approval for the first-ever drug targeted at an ethnic group: African Americans with heart disease.

The drug, BiDil, was no "me too" drug. It was a resounding success in clinical trials. Called the A-HeFT trial, it was a typical double-blind, placebo-controlled trial. The trial was co-sponsored by the Association of Black Cardiologists -- the right, no, the perfect group of influencers for this drug.

More than a thousand patients were in the trial, which was abruptly halted in July 2004 on the recommendation of the independent Data and Safety Monitoring Board and the steering committee for the trial. Why? Were there problems? Did the molecules get stuck somewhere? 


No. Long before the trial was scheduled to end, there were 43% fewer deaths and 39% fewer hospitalizations in the group receiving BiDil than the group taking a placebo. It was considered unethical to keep the placebo group on trial, so they were immediately switched to the real thing.

A hit you say?

No. The drug has failed in the marketplace for a variety of reasons, one being the incompetence of the company in getting the right co-payments from companies like Aetna and Medicare. That, and the lack of political support and pressure from politicians and other public figures, doomed the drug.

I asked a former CEO of NitroMed why they did not explicitly take the political route to get better co-pays form Medicare and other payers -- important because 80% of the target population has insurance. He shrugged as if embarrassed (remember, even morons get to be CEOs occasionally). And where are the members of the Congressional Black Caucus? Or the professional race baiters like Al Sharpton?

So, thousands of African Americans -- oh, to hell with heritage - thousands of our fellow citizens die needlessly every year because a drug that would help or save them is either unavailable to too expensive.

There have probably been more of these needless deaths from heart disease since the drug was approved, than soldiers who have died in Iraq. Sad thought, that -- either way.