AMGN's US EPO revenue in the dialysis market is $2B not $4B so you need a 50% haricut to your valuation up front. Perhaps you were looking at the global EPO revenues or even the global ESA revenues including arnesp. How on earth a drug with the taint of instant death gets a 10% market share when there is the validated option of original EPO at least four EPO biosimilars with years of validation in Europe and long acting EPO mircera from Roche is beyond me, but you also think there is a 95% odds of the drug coming back to market. Even if it is human error as you claim, what dialysis organization would trust their people with the drug the clinic would be legally responsible for any anaphalxis deaths. Oh not to mention 35% of the market is tied up by the DaVita/Amgen contract meaning Takeda would need to capture almost 20% of the remaining market just to get to your 10% estimate (of an amount that is 2x too large.
Also discount rate is the cost of capital for a company with CERTAIN cashflows. This company has $11M of cash and $13M of current labilities and a drug that kills people as its only shot for revenue, those cash flows are anything but certain. It would be smart to point out that Takeda accounts for the majority of current liabilityes (8 of 13M) but game theory says they would love to see AFFY go under because it would increase their share of profits in this peptide that is a proven killer.
Looks like I was right. Right for the wrong reason, but it is pretty safe to say now they will never make a profit. Anyway to the morons who thumbs downed my original post you were wrong and I was right. Now the only money to be made is from the $0.25 left for paying out shareholder lawsuits or if Fresenius decides it was a manufacturing issue and the IP is worth something even if it only gives them some negotiating leverage on AMGN
The Eyelea and Omontys launches do have a parralel in that they each have an easily identifiable market that is unserved even though drugs have been available for some time. For Eyelea it was patients who were wtill getting monthly doses of Lucentis (or Avastin), but still had lots of fluid in their eyes, Eyelea solved that very well in nearly all patients. Omontys has the peritoneal and home hemo dialysis populations who don't need to be in the clinic three times a week. Both have the advantage of less frequent dosing.
That is where the similarities end. Eyelea had other clear advantages over Lucentis including less frequent dosing, but more importantly it has far greater affinity for VEGF, it is dosed less frequntly because it is more potent. Omontys is not clinically superior and the population with unmet needs is far smaller than the one REGN exploited. Also the buyer of Omontys are economically sensitive and the drug is a cost center for prescribers, while the buyers of Eyelea (insurance companies) have no influence on it's use and the prescribers see it as a rfit center. Most likely Omontys will find a niche in the dialysis market, but it will be nowhere close to Eylea. The launches of each drug are a stark reminder of this as Eyelea has had six consecutive massive beats of consensus, while it appears Omontys will be a dissapointment in its second full quarter after launch. The only lever AFFY has to pull to move market share is lowering price which just makes the revenue opportunity smaller and hurts their chances of ever being profitable.
Competition is coming for both as well with biosimilar EPO and Mircera in the ESA market and AGN's DARPin (dosing once every four months) for Eyelea.
I could be, but I could be dead right, time WILL tell, but it's your money (mine is off the table). I would welcome some evidence that supports your opinion. Brian was able to offer some supporting rationale and it helps everybody. Perhaps you or somebody else knows the M&A people at Takeda or has some insight into what Fresenius is thinking, I would say if you don't know that any investment in AFFY is a guess at best.
Hey Brian nice reply, it is refreshing to get some intelligent discourse on a yahoo board for a change.
I agree with the rationale for approval by the FDA, the fact that they looked at dialysis patients as a different patient population altogether, and likely also the fact that given the distribution only through clinics that there was very little risk for off label use. I do think Omontys is a good drug otherwise I would have never been long at $5 before the FDA panel. Anybody who really looked at the data saw that the hazard ratio in the CKD population was driven by an unusually low death rate in the Aranesp arm, not by a significant amount of problems with Pegenesatide, but the failure still creates a shadow of a doubt.
Unfortunately, I do think there will be enough nephrologists who find Omontys on the formulary at the clinic they work with that retain enough of a shadow of a doubt on safey that market share will be limited early in Omontys life cycle, but the company just doesn't have enough time to establish themselves before increased competition comes to market in the form of Mircera and biosimilars. If it was Omontys vs EPO for 10 years I would expect 30% share or higher and pricing at parity. However competition is going to mean splitting the market several ways and at a bigger price cut. The only way for AFFY to address the issue of missed sessions is with additional rebates either on a case by case basis or extra price cuts up front. The bigger the discounts the higher the share needed to make money. Perhaps there are savings to be had on other drugs like Iron, but that isn't something you can count on. You will notice that I did recognize the potential for the drug in the PD and HHD setting, but ultimately they will spit the market with Mircera in this market and any incenter share they do garner inthe next two years will be eroded by competition.
I said before I though the only way out was a take out. I believe that to be true over the long term, but in the near term there is also the chance for the stock to pop when Wolter Kluwer reports monthly script data, if I were long I would use this strength to sell because unless AFFY can get to a total expense run rate under $100M they may never get past break even.
Good reply, but consider that PEARL and EMERALD were designed to be studied together and the hazard ratio of the combined study was 1.13 which is a trend to worse safety. If you cherry pick the data to just the dialysis setting you got a 0.95 hazard ratio. BUT they EMERALD study was open label, and open label studies are notoriously easier on the evaluated drug when it comes to safety. The drug made it through the FDA though so Kudos to AFFY, they put together a great submission file and convinced a not so easy panel, but now nephrologists are left to ask "Who is the sicker patient, a CKD patient not on dialysis or one on dialysis?" obviously the one on dialysis is sicker. Why would this population be BETTER off than a less sick population. When in doubt wait it out, is the right mantra here, let other people test the drug and use it when the drug is proven in the clinical setting. This would be fine for AFFY, except for the coming biosimilar competition. The timing just doesn't work. They can still hope for a take out so I would not short AFFY, but I would be taking profits.
Thanks for the reply. I agree Amgen made a ton of money over the years, but they did it in a monopoly position and AFFY doesn't have that luxury. They won't even have a duopoly after this year. This market was a $2B annual market, but bundling has made that a $1.6B market and the level of price cuts AFFY needs to use to get their contracts makes it a $1.4B market. They have a $150M cost base so they need to get just about 10% share just to break even and that is not even factoring more price cuts when biosimilar competition comes into play. The only hope is a take out by a company that can eliminate the SG&A. That is not a buy thesis, but maybe it is enough to avoid a short. I don't think I would short AFFY, but I would be taking profits for sure.
I do not think AFFY will have what it take to become a profitable biotech company. The product is equivalent to EPO, but more dangerous in the CKD population and the trials showed a trend toward higher cardiovascular risk in the dialysis population too. Nephrologists are reluctant to change and EPO has a long track record in the clinic that Omontys doesn't this makes for a long hard fight for market share. Plus AMGN has already locked up DVA clinics making 30% of the market essentially off limits.
Once monthly dosing, Omontys biggest selling point, is also it's most under appreciated risk to getting market share in the in center setting. Since Medicare went to a bundled payment structure clinics have been looking for any way possible to use less ESAs and one of the most common has been by changing the dosing algorithm so that pateints who have a high enough hemoglobin level simply are not given their EPO some days, this flexibility is not available with Omontys. Even worse if a patient misses a treatment or are in the hospital the facility and the facility used Omontys they have already paid for the drug and lose the money, if they use EPO they don't have to use drug for a petiant who isn't there. The same dynamic is in place with patients who pass away (which is 20% of the population every year).
Making matters worse is that EPO patents begin to expire in 2014 and will be totally gone the next year letting Roche's Mircera on to the market, this is also a long acting ESA and will certainly encroach on Omontys market share among physician who do want longer half life and biosimilar ESAs will come too moving in on the only other strategy AFFY management has to gain share, which is cut rate contract pricing.
They have made some progress with contracts only by offering a cut rate price, but giving the dosing economics and the problem with missed sessions and eventual biosimilar competition mean the drug will be relegated to sharing the peritoneal and home hemo dialysis market with Mircera and that is only 10% of the market combined. AFFY with their cost base will not be able to get to profitability before competition wears them out.
I have made a ton of money investing in AFFY since the big drop when the trials appeared to fail, but I do not see now as the good time to put new money in. Take profits if you have them. You may disagree, but that is my opinion.
I was looking at the Medical expense ratios for the last few years in the report: 2004 = 87%, 2005 = 89.9%, 2006 = 90.1%, 2007 = 86.7%, 2008 = 88.4%, 2009 = 88.5%, 2010 = 82.3%. It seems like this year is way lower than it ever has been, can it really stay this low, or will it move up? Is this year right or are the six years before that? Won't the new rules from health care reform limit increases to the rates the governement pays Humana and are then passed on to MDF? I am going to call the analyst listed on the report tomorrow to see if he is for real or a sham.
I got a copy of the Feltl Report. It was actually mostly positive, but the analyst thought medical costs are going to go up over the next two years and reduce profits, otherwise many details and many good things to say about MDF.
I know most posters on this board (or at least the one who post most frequently) won't agree with this, but I see the now infamous trade as a legitimate hedge. The notional value of the e-mini is 50 times the S&P 500. On May 6th the S&P 500 traded between roughly 1167 and 1065 meaning the higgest possible total value of 75,000 contracts is $4.376 billion. While this is a huge trade it is only 17% of the Asset Strategy Fund total assets under management and would roughly hedge half of their US equity exposure in that product.
They were only 1% of volume that day and 9% in the 20 minutes that the trade got filled. Also a trade on the futures market would not create the type of pricing anomolies in the cash equity market that we saw like ACN trading at $0.01.
As much as some of you might have a bone to pick with the company or want to jump in with some sort of populist "hang em high" post it just doesn't seem accurate in this case.
Just wondering did you cover or did you put new capital in when your broker came with the margin call (since your loss is now over $11,000)
I think the version of reform that passed was pretty tame and health insurance companies are going to be under some incremental pressure, but there is nothing at this time that is going to put them out of business (stress not at this time). As long as the insurance companies are still going MD's NICU business is ok. Medicaid will expand and it will crowd out commercial insurers somewhat, but the shift will be gradual and might not even be noticed over the next few years if the unemployment rate drops and more people are back on employer sponsored insurance. Not to mention the fact that MD will probably get a significant revenue and profit bump from the incentives around the HCIT part of the stimulus bill, which will help offset any shift for a while.
I do not like the anesthisiology business as much as NICU, but I am not as negative on it as roman. They have arguably overpaid for the first practices they bought, but I don't think they will do this for future deals in the space and now they can get a little profit leverage since they have an infrastructure in place. Reform will eventually provide incremental volume to this business which means deals done now will be more valuable over the long term.
I agree with Roman the company has very little organic growth and needs to do acquisitions to grow, and roll up companies can be a real mess if they are mismanaged, which makes me curious about the CRNA issue you raised. However, the company has always had to do deals to grow and they have hit the magic roll up formula: buy firms at a discount to your valuation, add value to those firms, and lock up the professionals. Given their success in NICU and the length at which they prepared to enter the anesthisiology market I give them the benefit of the doubt (also they are a huge free cash flow generator). I don't think the firm is going away and the stock is not that expensive.
I would like to hear more about their problems with CRNAs...is there any practice in particular that is having issues??
New package doesn't do much since everybody has been covered for dialysis for decades. In fact if the unintended consequences of the bill (like higher overall costs) lead to companies dropping coverage and just paying the taxes and letting employees buy their own coverage on the "exchange" it could lead to a higher mix of medicare patients, which is bad since medicare is break even at best. I do not worry about medicare price caps since the price has effectively been capped since the inception of the Medicare Secondary Provider law (very few annual updates) and since access to care will almost certainly be hurt if the rates fall below the incremental costs for marginal providers.
Bundling on the other hand will be a boon for the dialysis companies.
GAAP financials mask true profitability. Look at script growth and EBITDA per script. The reason the valuation is expanding is because the NextRx acquisition is going to be a huge driver of earnings growth and by the time its integrated the biggest year ever for patent expirations will be upon us. they are going to go from earning under $4 this year to around $7.5 by 2012. What other large cap has that kind of earnings ramp ahead of it?
I think there is a real opportunity for DVA and FMS to improve profit margins under a bundled payment rate. They could do subQ EPO, and titrate to the low end of the HG range. This alone would mean huge savings, maybe also less frequent lab tests. As long as they can continue to do the best for patients. Any thoughts on this, especially form naybody who works in a facility would be appreciated.
Aetna, Cigna, and United Health Group have all listed XLIF as an investigational procedure, making their official national stance that they won't pay for XLIF unless special prior authorization is obtained prior to surgery.
On a practical basis though all indications are that doctors are still getting paid for a few reasons. First national coverage decisions take a while to get to the local level and secondly, but more importantly doctors bill insurance companies under the code for ALIF so it is extremely difficult for an insurance company to deny coverage automatically. This doesn't mean its not a deterrent for doctors after all would you want to bill 100 XLIFs as ALIFs and then get audited and have to write a huge check back to the insurance company? To make matters worse competitors like Medtronic, Synthes, and JnJ are launching competitive lateral approach products, none of which are specifically called out in any of the insurance company coverage decisions, meaning technically a surgeon could do a lateral approach procedure and not be violating the policy.
I doubt NUVA will see their procedures dry up overnight due to this little dust up, but it could make it way harder to maintain their growth, and getting good clinical data is going to be expensive.
I hope so too. At least their guidance doesn't explicitly call out any cost savings, that would indicate a conservative outlook. If there is one thing Steve Paldino can do it is manage costs well. Butler has 16 distribution centers and there is no doubt some of them can be closed and consolidated into Henry Schein's. I just hope they can retain the sales force. They have been highlighting the vet business for the last few quarters so I wonder if they were trying to get investors ready for this deal.
There is no link because its research that is not widely disseminated, but if you want to check out the Aetna position statement go to: http://www.aetna.com/cpb/medical/data/1_99/0016.html
Somebody else on this board said XLIF doesn't ahve its own code and that is right, but some doctors are apparently mis-coding and it has caught the eye of the insurance companies, which is what happens when you grow five times faster than the rest of the market, NUVA has become somewhat of a victim of their own success. It's dumb really because the insurers don't pay any more for an XLIF than an ALIF, but patients have shorter hospital stays so the insurers are saving money there, yet they want to potentially deny payment? Doesn't make sense and that's why this will blow over.
@ biofeedback, I guess you were wrong on a few things, its not BS (actually totally right), its not about bad news on litigation (totally wrong), but you are right major owners are selling (panic selling). Your also right that Neurovision is what sets NUVA apart, that and a good aggressive service oriented sales force, thats what will make this nothing but a bump in the road for the company, but its obviously more than a bump for the stock.