Efrem Kamen from the leadership of his hedge fund firm Pura Vida Investments is drawn to the market from a uniquely biotech and healthcare-centric perspective, a captivation that has served him well since founding the firm five years ago with partner Dr. Frank Litvack. For Kamen, leverage is crucial in terms of relying on profound healthcare sector coupled with medical knowledge to beef up risk-adjusted returns. This is a long and short investment trading firm that knows how to look past short-term volatile stock players, instead opting to keep a watchful eye on medium to long-term twists and turns in the market. Pura Vida’s second quarter moves were rife with big changes, from initiations to scratching the board on holdings. What does Kamen anticipate is in store for the future of Otonomy Inc (NASDAQ:OTIC), Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA), and Gilead Sciences, Inc. (NASDAQ:GILD)? Let’s take a closer look.
Opportunely-Timed Retreat in Otonomy
Pura Vida wisely pulled back 30% in its holding in Otonomy in the second quarter before the biotech firm had 80% of its value ripped away in a tidal wave of failure. After showcasing some clever sense of foresight for a stock that has proven to be quite volatile, rattling the needle, Kamen cut his stake in OTIC down to 96,800 shares worth $1,825,000.
What happened that made it such a smart play for the hedge fund to retreat before Otonomy crashed to the bottom of the market floor? The firm’s drug candidate Otividex in the indication of Meniere’s disease ended up missing its primary endpoint in a pivotal Phase III trial.
This hit as sharply disappointing news to investors for a drug that could have met a significant unmet need. Meniere’s disease stems from issues with the inner ear area that leads to vertigo and fluctuating hearing loss- a disease which presently has no cure. Otonomy could have maximized on this market opportunity, but was forced to put a halt entirely to its Otividex program.
SunTrust analyst Edward Nash believes that shares were meaningfully “oversold,” and despite the failed Meniere’s program, he sees compelling buying potential only in viewing OTIC as a “pure speculative pharma play.”
Therefore, the analyst maintains a Buy rating on OTIC while hacking the price target from $45 down to $15, which represents a just under 317% increase from where the shares last closed. (To watch Nash’s track record, click here)
“This valuation is purely based on Otiprio for its currently approved indication and the two additional label expansion indication being sought […]” explains Nash, who believes, “With the failure of the Meniere’s program, we now view Otonomy as a pure play spec pharm company. We have not changed our revenue estimates for Otiprio in any way and only the indications currently approved or being developed for Otiprio are in our model,” concludes Nash.
Not everyone in Wall Street is counting out this drug maker quite like Kamen’s bearish reduction in shares, as TipRanks analytics showcase OTIC as a Buy. Out of 4 analysts polled by TipRanks in the last 3 months, 2 are bullish on Otonomy stock while 2 remain sidelined. With a return potential of 233%, the stock’s consensus target price stands at $12.00.
Total Evacuation from Teva
Teva is getting the scorched earth policy from the hedge fund guru, as Kamen has struck all shares (124,875) in Teva- a biotech firm finding itself eaten away by the cutthroat intensity of rivalry in a tough generic market, and one without leadership to guide the very comeback it needs, for that matter. Without a CEO or CFO to steer through troubled waters, is Teva’s potential unfortunately set to drown?
It would seem Vamil Divan of Credit Suisse echoes Pura Vida’s stark flight away from Teva stock, as without “a credible CEO/CFO, disposal of assets at attractive terms and continued exclusivity for Copaxone 40mg well into 2018,” the analyst likewise has joined the bears on this struggling firm.
“While TEVA may regain its luster a few quarters from now, we see this as the least compelling opportunity in our sector for the next several months as recovery from challenges of this extent typically take time,” warns Divan.
In reaction, the analyst downgrades TEVA from a Neutral to an Underperform while slashing the price target almost in half to $13, which represents an 84% increase from where the shares last closed.
Divan underscores, “For the core US generics business, we believe the issues around generic price erosion and increased competition will continue for some time. On the specialty pharma side, we see an opportunity for upside from fremanezumab (anti-CGRP) but limited other reasons for optimism, while the threat of generic versions of Copaxone 40mg entering the market in 2017 or early 2018 remains. Finally, the company has yet to fill its CEO and CFO positions and we believe they may be finding it difficult to find the proper leader(s) to tackle the various internal and external challenges TEVA is facing.”
However, without hope for “the core challenges they are facing to fade anytime soon,” Divan ultimately finds Teva up a creek without a paddle to swim back to the shore.
Are there any bulls left for this drug maker? It appears any positive sentiment has been swiped to the sidelines at best, as TipRanks analytics indicate TEVA as a Hold. Based on 15 analysts polled by TipRanks in the last 3 months, 12 maintain a Hold on Teva stock while 3 issue a Sell. The 12-month average price target stands at $26.65, marking a nearly 68% upside from where the shares last closed.
Ushering in Gilead
Gilead is one of the few options in the biotech world that has Kamen stepping right in, guiding his hedge fund to initiate a holding of 50,000 shares worth $3,539,000 in the giant. This is a move that proved savvy ahead of Gilead’s strategic takeover of smaller biotech pharma company Kite in a $11.9 billion deal. Notably, Gilead has its eyes set on Axi-Cel, a CAR-T cancer therapy in non-Hodgkin’s lymphoma- a drug candidate that has a PDUFA date with the FDA at the end of November.
Cowen analyst Phil Nadeau pinpoints this as an excellent offensive move from Gilead in acquiring a “leading CAR-T platform,” that he wagers could bring in $785 million in revenue in third line aNHL within the next five years, a prospective slight offset to his forecasted $4 billion dip in the biotech giant’s product revenue.
“Over the past several quarters Gilead has discussed its desire to build its oncology franchise, and therefore it has been widely anticipated that the company would make an acquisition in oncology. Moreover, Gilead has also discussed a desire to enter the CAR-T field, and many anticipated that it could make a bid for one of the CAR-T companies,” notes Nadeau, who all this withstanding did not find the news “overly surprising.”
Asserting, “We are confident both in the potential of Axi-Cel to become a standard therapy in the treatment of aggressive non-Hodgkin’s Lymphoma, as well as Kite’s leadership position in the CAR-T field,” the analyst maintains an Outperform rating on shares of GILD with a $90 price target, which implies a 7% upside from where the shares last closed. (To watch Nadeau’s track record, click here)
With Gilead slated to boast “an innovative new product that will contribute to revenue over the next several year” and Axi-Cel to “fill about 20% of Gilead’s anticipated revenue ‘hole’ based on its current BLA/MAA filings,” Nadeau clearly mirrors the hedge fund guru’s bullish stride forward into owning Gilead shares. With the giant primed to take footsteps into the CAR-T arena, “gaining expertise and a number of other pipeline programs. […]” Nadeau commends this shrewd M&A chess move, especially considering: “In the past Gilead has struggled to be competitive in oncology, while Kite has been at the forefront of the field of T-cell directed therapies in oncology […]”
How do Kamen’s and Nadeau’s bullish praise measure up against the word of the Street? TipRanks analytics exhibit GILD as a Buy. Out of 15 analysts polled by TipRanks in the last 3 months, 11 are bullish on Gilead stock while 4 remain sidelined. With a return potential of 2%, the stock’s consensus target price stands at $85.46.