Friday, July 18, 2008

Insights from a Top Five Star Fund Manager on Drug Pipelines (Part III)

Recently, Larry and I met with an interesting person, Ken Kam. Ken manages the Masters 100 Fund (MOFQX) and is a Morningstar Five Star fund manager. He has been regularly beating the S&P 500 Composite Stock Price index. Ken believes that his approach to investments using virtual portfolios to derive real investment decisions will be the wave of the future. Ken’s approach can be checked out at www.marketocracy.com. Earlier in his career, he had managed a technology and healthcare fund and had also run a medical devices company. During our meeting, we learned about his current holdings and what he thinks about the future of the pharmaceutical industry. This is the third and final of three blogs based on that interview.


This is my third and final blog based on a meeting that Larry and I had with Ken Kam, the fund manager of the Marketocracy’s Masters 100 Fund (MOFQX). In my two earlier blogs, I reviewed Ken’s thinking on the current and future prospects for Elan Corporation PLC. When Ken began talking about the future of Elan, he was touching on some of the current issues in the drug industry. That’s when Larry and I started to ask him questions about the industry in general and its future prospects.

Ken said that the industry will respond as in the past but that it can’t shortcut research. The old hit or miss approach to drug research is dead. More specifics will be required. Ken says that Genomics will drive much change and that new drugs will have a Genomics element. Large drug companies will have to find early stage drug research and then purchase it.

When looking to make future investment decisions, Ken says that he considers two stages. First, the beginning when the drug is unknown and it’s not known yet whether it will work. It’s tough to invest until the clinical trials are done. Next, once the trials are successful, it’s the basic blocking and tackling to run the business that counts. He cites Amgen as an example of a company that had been here with its drug Epogen but had to bring in a partner that had a sales force with preexisting relationships with doctors. Ken says that it’s hard to get into doctors’ offices with only one product. But, it can be done as Amgen and Genentech have demonstrated.

Ken thinks that Elan may get there. Also, Ken notes that manufacturing drugs is tough, there aren’t that many people who know how to do it, and even the big players get it wrong once in a while. Start-up’s only have scientists and this second stage is equally as important as the first. Hot IPO markets sometimes let start up’s fund these activities. Other times, it’s the big companies that provide the funding. Ken thinks that we’re in these later times right now. Also, what the business model looks like becomes a factor in making an investment decision. Outsourcing services and support to gain a cost advantage become important considerations.

Both Larry and I enjoyed our meeting with Ken Kam and we would like to take this opportunity to thank him and his team for arranging this opportunity for us.

As always, we welcome your feedback. Please contact us at
larryrothmansblog@gmail.com. We look forward to hearing from you.


Contributed by Guy de Lastin

Wednesday, July 16, 2008

Insights from a Top Five Star Fund Manager on Drug Pipelines (Part II)

Recently, Larry and I met with an interesting person, Ken Kam. Ken manages the Masters 100 Fund (MOFQX) and is a Morningstar Five Star fund manager. He has been regularly beating the S&P 500 Composite Stock Price index. Ken believes that his approach to investments using virtual portfolios to derive real investment decisions will be the wave of the future. Ken’s approach can be checked out at www.marketocracy.com. Earlier in his career, he had managed a technology and healthcare fund and had also run a medical devices company. During our meeting, we learned about his current holdings and what he thinks about the future of the pharmaceutical industry. This is the second of three blogs based on that interview.

In my last blog, I introduced Ken Kam, the fund manager of the Marketocracy’s Masters 100 Fund (MOFQX) and reviewed his position in Elan Corporation PLC, his thoughts on its drug, Tysabri,(Bapinuezumab) and its current prospects. In this entry, I will go over Ken’s future prospects for Elan and Tysabri.

Since taking his first in Elan in June 2005, the stock has doubled several times. Ken thinks that it could double again. Larry and I queried him about this and he gave us his reasons. First, Elan is conducting trials for Tysabri for use with Alzheimer’s disease. Unlike the multiple sclerosis space where Tysabri has three other competitive drugs to go against there are no others in the Alzheimer’s space to contend with. For this reason alone, Ken thinks Elan could double. He likes the Alzheimer’s story and thinks that it could make Elan another Amgen.

Next, Ken is taking a longer view on Elan. It possesses nanocrystal technology which allows the manufacture of nano-sized versions of existing drugs. This increases the surface area of the drug permitting a more effective dosage with reduced side effects. This is fundamental technology that can be applied to many other drugs, that are coming off patent. Other companies would have to do the research to see of their drugs were effective. Elan could either acquire other drugs coming off patent and make nano-sized versions or license the technology to the other drug manufacturers. Manufacturers with drugs coming off patent are looking at ways to make their drugs more effective. Nanocrystal technology offers the chance to extend a patent for another ten years Ken explained to us. This is what Ken sees as the future pipeline for Elan and explains his optimistic future for the company.

In my next and final blog based on Larry’s and my meeting with Ken Kam, I’ll write about Ken’s thoughts on the drug industry and its future.

As always, we welcome your feedback. Please contact us at
larryrothmansblog@gmail.com. We look forward to hearing from you.


Contributed by Guy de Lastin

Monday, July 14, 2008

Insights from a Top Five Star Fund Manager on Drug Pipelines (Part I)

Recently, Larry and I met with an interesting person, Ken Kam. Ken manages the Masters 100 Fund (MOFQX) and is a Morningstar Five Star fund manager. He has been regularly beating the S&P 500 Composite Stock Price index. Ken believes that his approach to investments using virtual portfolios to derive real investment decisions will be the wave of the future. Ken’s approach can be checked out at www.marketocracy.com. Earlier in his career, he had managed a technology and healthcare fund and had also run a medical devices company. During our meeting, we learned about his current holdings and what he thinks about the future of the pharmaceutical industry. This is the first of three blogs based on that interview.
Ken Kam manages the Marketocracy Masters 100 Fund (MOFQX) that has a Morningstar Five Star for three year returns. The fund’s objective is to seek capital appreciation in common stocks of domestic and foreign companies of any size, seeking to outperform the S&P 500 Composite Stock Price index. What brought Larry and I to meet with Ken was his position in Elan Corporation PLC. Elan has been conducting clinical trials on a drug, bapineuzumab, for Alzheimers patients, and they currently market Tysabri, to treat multiple sclerosis. Elan represents the largest holding of MOFQX at about 9½ % of its entire portfolio. What had brought Elan to Ken’s attention was two of the virtual portfolio managers who use his website (
www.marketocracy.com). In March 2005, these two virtual fund managers made Elan 25% of their test portfolios. They were betting their long term track records on this stock. (One had been running cash at 22% of his portfolio, a fairly conservative position.) In addition, 1,500 of 80,000 virtual investors at www.marketocracy.com had Elan in their portfolios. Elan’s clinical trials on their drug, Tysabri, for use with multiple sclerosis had been proving successful. However, because of a one in one thousand chance of a fatality, the FDA had ordered the drug withdrawn.
Ken decided to do more research on the drug. What separates Ken from other stock researchers is his use of the Internet. He e-mailed 1,500 people on the Internet to solicit their feedback. Approximately five hundred responded of whom, one hundred were MS patients and some had been participants in Tysabri’s clinical trials. All were waiting for their insurance companies to approve the drug for use despite the risk of fatality. Ken’s research approach took him in a different direction from other Wall Street analysts who normally talk with the neurologists. Being doctors, they reply that there isn’t information yet to give an opinion.
With this research behind him, Ken took his initial position two months after Elan first came to his attention. Since then the stock has doubled several times after the FDA ban was lifted and Ken is hopeful for the future.
Several things caught my attention during our meeting. First, the use of the Internet to bring together virtual investors to develop stock picks. Next, Ken’s use of the Internet to take advantage of his in depth understanding of clinical trials to conduct original patient research on Tysabri’s effectiveness. In the next several blogs, I will write about what Ken thinks about Elan’s future pipeline and the drug industry in general.
As always, we welcome your feedback. Please contact us at
larryrothmansblog@gmail.com. We look forward to hearing from you.


Contributed by Guy de Lastin

Thursday, July 10, 2008

FDA Hurdles May Provide a Win-Win Opportunity for Industry and Its Service Providers

A most interesting discussion was just posted on The Motley Fool (http://www.fool.com/index.htm?ref=Yo), primarily aimed at amateur investors, but nevertheless, in my opinion highly relevant to some of the major challenges being confronted by the Pharmaceutical Industry. As the services industry serving the Pharmaceutical and Bio-Pharmaceutical sectors is part of our target readership, it strikes me that here is an area of win-win opportunity for both the industry and its service partners. To my thinking it may be a time for some “out of the box” rethinking about both the process and testing procedures in drug development. While this is an area that has been well plowed in the past, with lots of time, money and energy expended, this may well be the impetus for some new thinking. Your opinions are welcomed at larryrothmansblog@gmail.com.

To give you some detailed background, here is the text from The Motely Fool article:


"The most headache-inducing aspect of investing in the pharmaceutical sector is that the rules and requirements to bring a new drug onto market can change dramatically in a blink of the eye.

Last week, the FDA convened a meeting that likely will spell longer and larger clinical trials, and tougher approval hurdles, for future diabetes treatments. Any investor considering shares of drug makers with such compounds in late-stage testing, like MannKind (Nasdaq: MNKD), Eli Lilly (NYSE: LLY), or Sanofi-Aventis (NYSE: SNY) should take notice.

What's at stake?:

With $24 billion in worldwide sales last year, compounds to treat type 1 and type 2 diabetes are one of the top therapeutic classes of drugs, according to IMS Health. This figure will only grow, since the number of diabetics in the U.S. and worldwide is expected to soar to almost unfathomable levels in the coming years.

Diabetes compounds are many drug makers' most important drugs, and there are many such candidates in the pipeline. Here is how the sales of diabetes compounds for most of the market's top players fared last year:

Company Selected diabetes drug sales Selected diabetes drug sales growth

Eli Lilly $3.2 billion 9.3%

GlaxoSmithKline $2.4 billion (22)%*

Merck $754 million N/A**

Novo Nordisk $5.5 billion*** 9%*

Sanofi-Aventis $3.3 billion 14.5%*

*As reported.
** Januvia approved in late 2006.
***At at a krona-to-dollar exchange rate of 0.18.

If you strip out Glaxo's performance, nearly every large-cap pharma's diabetes-care units are growing rapidly.

Avandia adversity:

Glaxo's problems began last year, owing to safety concerns with its type 2 diabetes treatment Avandia. A New England Journal of Medicine article looking at a pooled set of data from Avandia studies showed that patients taking the drug may be at a higher risk of some heart-related ailments. Since diabetes drugs are supposed to reduce a patient's incidence of many long-term adverse events, these potential Avandia safety issues pushed the FDA to ask an advisory panel to debate whether new diabetes drugs should be subjected to much more testing for long-term and hard-to-see adverse events.

What's changing:

While the FDA often seems like a mercurial beast, approving and rejecting drugs at random, the agency does issue concrete guidelines on what drug candidates for the most common therapeutic categories, like cancer and diabetes, must demonstrate in clinical testing in order to win marketing approval.

In the case of new type 2 diabetes drugs (the most common type), the FDA generally requires drug makers to prove that their compound helps to lower a patient's blood sugar levels, and that the compound is tested in "at least" 2,500 patients in phase 3 studies. More than half of these patients must take the drug for one year or more, and 300 to 500 of these patients must take the drug at least 18 months.

Unfortunately for drug makers, testing a drug for cardiovascular-related safety issues, like whether it increases a patient's risk of a heart attack, usually requires several thousand more patients in clinical testing, not to mention longer clinical studies than even the above guidelines call for.

Therefore, if the FDA wants to spot more instances of rare adverse events, it needs to up the patient numbers and study length requirements for new diabetes drugs. That's where last week's advisory panel came in.

To help avoid another potential Avandia-type instance, the advisory panel recommended in a 14-2 vote that the FDA should require long-term safety studies of at least five years for all new potential diabetes drugs.

Fortunately, the advisory panel also threw drug makers a small bone. It recommended that the FDA require that these long-term studies (which will take longer than five years to complete under nearly any circumstance, accounting for the time it takes to set up the study and complete patient enrollment) simply be under way, not completed, when a new diabetes drug is up for approval. Had the panel recommended otherwise, it could have spelled disaster for most drug makers' pipelines.

Who is affected?

It's easiest to say that every potential diabetes treatment in development will be affected by the new guidelines, if the FDA adopts the panel's recommendations in their current form. These new guidelines could definitely cost many drug makers hundreds of millions of dollars more in clinical trial expenses.

The guidelines will also likely be the kiss of death for any diabetes drug that shows even small hints of cardiovascular-related side effects in clinical testing, unless it's also finished the sort of long-term safety study the FDA now demands. (The agency is understandably harder on compounds with potential safety issues than on those with no apparent risks.)

Like all things at the FDA, the agency is sure to treat some compounds in development differently, depending on a range of variables. Compounds from some classes of diabetes treatments, such as thiazolidinediones (Avandia's class of drug), where safety issues have been a problem in the past, will likely have these new guidelines applied more harshly. Some new and unproven classes of diabetes treatments under development from companies like Bristol-Myers Squibb (NYSE: BMY) could also face a harder path to FDA approval.

Companies with potential blockbuster drugs already deep into (or past) phase 3 testing could suffer most, though. Potential new diabetes drugs that these guidelines might hurt (or, in a few rare cases, help) include: CV Therapeutics' (Nasdaq: CVTX) Ranexa, scheduled for a July 27 PDUFA. Sanofi's Acomplia, for which the company hoped to file an FDA marketing application next year. It has a huge safety study under way, but the study covers only three years. Novo Nordisk's promising GLP-1 analogue liraglutide, currently under FDA review.

Changes to the FDA guidelines won't entirely quash the development of new diabetes drug candidates. But in many cases, they will raise the regulatory hurdles that new potential therapies must overcome to get approved, while making even approved diabetes and pre-diabetes drug candidates less profitable. Some less promising treatments will also likely have their testing discontinued, if drug makers don't see a large enough potential market for them. Stricter safety testing may ultimately benefit patients, but for now, it seems like bad news for everyone else."

What do you think-how do we solve this problem???