New perspective on investment banking

I'd like to inject something fresh into this blog today and talk about my tiny knowledge of a hot financial profession - investment banking.

My limited understanding of this financial service has been the mere accumulation of countless Google searches and Hollywood portrayals. It was not until sitting through an actual I-banker's class tonight that I came to a realization that I am far from being familiar with what this much sought-after title is all about.

I'll share some of the concepts/skills that I thought were quite interesting. These are apparently commonly applied in i-banking.

No. 1: one of the most important tasks in assessing the value of a company is to know its business model and to know it well! This includes learning about how the company makes money, what is the limitation of input, how much product can be made, how the prices of the input and output materials fluctuate in relation to supply and demand, government regulation, types of product, general economy... etc. The speaker used an example of a cheese manufacturing company that he worked with to illustrate the value of building an accurate business model, which revealed that installing a $16 million equipment (a plan initially rejected by the management) was the only way to maintain a positive revenue stream for the company in the long run and prevent the company from going bankrupt. What was impressive was that the i-banker was able to build the complex model in ~2 weeks, the amount of time he said was usually granted for the job. When asked how it was possible to complete the assignment in such a short period of time, he just laughed and said anyone could do it if he works 18 hours/day, 6 days/week, highlighting the hallmark of long work hours in i-banking.

No. 2: choosing the relevant proxy for assessing returns on assets. I must be honest and say that I was confused by many of the terms and jargons he introduced while explaining the concept. However, I did try very hard to at least learn as much as I could. Basically, different companies have different ways of generating revenues, which is heavily dependent on the types of business and industry they belong to. As a result, one cannot simply rely on the same indicator when evaluating the worth of a company. This also relates to the timeline of interest. For example, planning to own a company for 5 years is different from planning to own it for 10 years. One needs to take this into account when making a decision to purchase a company. Some of the indicators used (and I need to do more research on these) were EBIT, EBITA, EBIDAR, capital-funded assets...etc.

No. 3: risk assessment. He didn't really go into this too much due to time constraints, but he brought up the Porter's Five Forces Model and foreshadowed an example of how his friend lost his old company $450 million on a deal that he would share next class.

Lastly (this is slightly tangential but funny), he mentioned quite a few times how a lot of times, i-bankers would capitalize on their deep knowledge about asset manipulation and made up phony records that accounts would never be able to detect due to the lack of financial understanding. He also joked about how his predictions and forecastings were wrong most of the time and casually stated that millions of dollars were lost here and there. Did someone mention that the US economy is currently in ruin thanks to the financial industry??

All in all, however, the financial skills shared in class were truly practical and the fascinating stories were the icing on the cake! I can't wait to hear what this guy has to say in the next class.

FDA postponed Amylin's drug approval

As predicted yesterday, Amylin held an Investor Conference Call this morning 5:30ET announcing the FDA's response to the company's request for commercializing Bydureon (see previous post on this drug). AMLN's stocks climbed this morning to $22.20 (9.58% jump from Friday's closing price), reflecting investor's confidence in the final approval of the drug. See AMLN's press release for details.

End-of-day recap
With the FDA's positive response to the NDA of Bydureon, stocks were trading up 0.22% ($36.01), 14.74% (to $14.01) and 15.99% (to$23.50) for Eli Lilly & Co., Alkermes, and Amylin, respectively, on the first day of the week. The greater leap for the latter two companies reflects the importance of Bydureon to their narrower portfolios, compared to the pharma giant, Lilly, emphasizing the magnitude of influence a single drug approval has on biotech firms. The agency will require no further preclinical or clinical data, but would like to see the finalization of the product labeling with associating Risk Evaluation and Mitigation Strategy (REMS). AMLN will also need to clarify existing manufacturing processes, likely as a result of questions related to the FDA's early problematic inspection of Amylin's Ohio manufacturing plant, where Bydureon will be produced. Nevertheless, the overall encouraging answer from the agency and the relatively swift timeline towards the eventual drug approval (several weeks for AMLN to address the issues and ~6 mo. for the FDA to make the final decision) are behind the bullish attitude of the stakeholders.

Interesting observation: Notice that the shot in stock prices for ALKS and AMLN (green shading) occurred almost at the exact same time around 12 - 1 pm ET? I suspect that this was due to those on the west coast catching up to the news around 9 am in the morning and frantically rushing in their orders, which helped raise the values. Too bad they were one step behind in grabbing those lower-priced shares!

How do drugs get approved by the FDA?

After all, anxious investors will have to wait one more day for the results of the FDA's decision on the once-weekly version of the first-in-class Type 2 diabetes drug, Byetta, previously sold as a twice-daily injection. The probable scenario was that the FDA did not respond to the companies (Amylin (AMLN), Lilly (LLY), Alkermes (ALKS)) until late on Friday (Mar. 12,2010), and therefore, it was in the best interests of the drug makers to contain their excitement (or disappointment) and make the big announcement first thing in the following week to generate more buzz around the expected approval.

Gaining a drug approval is a TREMENDOUS feat. This would only be fully understood if one were aware of the immense hurdles and challenges a drug/medical device candidate need to surpass in order to become commercially available. For novel biotech/pharmaceutical investors who are less clear on the process of advancing bench discoveries to bedside care, I thought I would take the opportunity to briefly summarize this road to glory for you.

FDA's magic wand pointing at Amylin's longer acting Byetta

As the FDA sits literally hours away from okaying the once-weekly Byetta (exenatide) co-developed by Amylin (AMLN), Eli Lilly & Co. (LLY), and Alkermes (ALKS), industry followers are holding their breath and betting on dramatic boost in stock prices of the 'renewed' Byetta's developers. Seeing that the twice-daily formulation of the GLP-1 analog was able to capture $700 million in annual sales, the revised version of the drug (Byetta LAR), requiring merely 1 injection per week (as opposed to 14 injections), is likely to be quickly embraced by the Type 2 diabetes community. If approved, the new medicine is estimated to rake in peak sales of $2 billion by 2017 according to a JP Morgan Analyst.

While approval of Byetta LAR seems utterly inevitable, analysts are split on this one. This is partly because 1) the FDA has been known to surprise the crowd in the past and may either delay the final decision or request for additional information and 2) previous records have linked GLP-1 analog to pancreatitis, renal failures, and thyroid cancer (see Novo Nordisk's Victoza, a once-daily GLP-1 agonist approved earlier this year).

Despite the skepticism, Daniel Bradbury, Amylin's CEO, is confident about the success of the approval. Will the magic work for him?

Potential short term hits

Keep an eye out for the tickers listed below for a quick snap:

Delcath Systems (DCTH): NDA filing - April, 2010

Amylin Pharmaceuticals (AMLN), Eli Lilly & Co. (LLY), Alkermes Inc. (ALKS): PDUFA date - Mar. 12, 2010



MannKind Corporation (MNkD): PDUFA pending

Dendreon Corporation (DNDN): PDUFA date - May 1, 2010

InterMune Inc. (ITMN): NDA review - Mar. 9, 2010

Updates - Generex Biotechnology Corp. (GNBT)

Oral-lyn's FDA Approval

GNBT's Oral-lyn, an oral insulin medicinal spray, was granted approval last week under the FDA's Expanded Access Treatment Investigational New Drug (IND) program. This means that, by showing benefits that outweigh the risks associated with patients for whom currently approved drugs are no longer effective, Oral-lyn can now be prescribed as an alternative therapeutic option. GNBT is now planning to further broaden Oral-lyn's access to patients in North America, where the company expects to introduce a new paradigm for the treatment of diabetes based on it's proprietary oral insulin product. The FDA's permission for Oral-lyn's prescription by physicians is viewed as a considerable attraction for partnerships and collaborations as GNBT penetrates the North American market with this novel drug. For additional details, see GNBT's press release.

Peptide Vaccine Receives Patent in China

The peptide vaccine technology, Ii-Key, developed by GNBT's subsidiary, Antigen Express Inc., obtained a patent in China last week, enabling GNBT to initiate conversations with a number of big pharmas regarding potential joint venture/licensing partnership. The Toronto-based biotech is backed by positive interim results (13-month time point) from a Phase II trial of an Ii-Key modified peptide vaccine for patients treated for breast cancer who are at high risk of relapse. The study reported a 7% relapse rate in the control arm versus 0% relapses in the Ii-Key peptide arm (AE37). GNBT's CEO, Anna Gluskin, stated that she is "confident that with the right partnerships, [the Ii Key modified peptide vaccine] technology can have a far reaching positive impact on the treatment of many types of cancers and [GNBT] intends to aggressively pursue its goal of bringing these platform technologies to the commercialization stage." For additional details, see GNBT's press release.

Portfolio growth report!!!

I'm glad to report that, in a period of as short as a month, the companies recommended in this blog including Generex Biotechnology (GNBT), Gilead Sciences (GILD), and Keryx Biopharmaceuticals (KERX) have performed outstandingly, and together have racked up a mouth-watering 14.86% return on investment as of today. Congratulations to those who took advantage of the information provided by this blog. The success announced here is meant to infuse confidence into my readers as well as to serve as a driving force for future analysis. Happy investing! - GOLD