Changes in my portfolio - advance notice

Investment Analysis Clubs Saul’s Investing Discussions
21

SO again…how have can you be so sure you have picked THE winner???

Sorry Duma, I didn’t in any way mean the ONLY winner, just that it was the one that was going to be commercialized in November while the others seemed a considerably longer wait and I wanted to concentrate rather than disperse my investment. They also have a big pipeline, they are already building a large commercialization center, are planning all the follow-up that will be necessary, and seem miles ahead of the others. As far a bluebird, obviously I liked it too. It was one of my original four, and I’ll continue to follow it. As far as the TAM, when a single dose gives you a complete remission for 3-5 years, and counting, on hopeless cases, that opens the door to lots earlier patients, and lots more patients. And the fact that this reported study follow-up was done at the National Cancer Institute gives it some gravitas beyond the small numbers of patients.

That’s how I thought about it anyway.

Saul

10 Likes
22

<<<last comment and I would hope that Tinker could weigh in here because he has a lot of experience on the investment side of early stage biotechs as does Mauser (I lived through many of them with long long long discussions on the NPI from DNDN, VRTX, and so many more)…often the stock price now presumes approval for KITE…VRTX had a $5 Billion market BEFORE approval of its Hep C drug and had the sole drug for several years after…the ONLY player…the market caps make assumptions well before FDA approval. SO how much will KITE run up from here with numerous CAR-T drugs in development for every indication?>>>

BLUE is open on my computer for review but I have not got to it yet. It is kind of foreign territory to me however. I am use to buying biotech disasters when the whole world is panicked, when fear is in the air, and not buying drugs where the fear is sort of vague and things are going well. With that said, VRTX shares exploded both during the clinical development period, and exploded thereafter as well.

The key was that VRTX had the market to itself for the most part, and it had follow up drugs in cystic fibrosis. The shares may have actually appreciated by a greater amount after approval than before.

I have seen the opposite with other biotech companies. The post approval stock started to look at actual commercialization issues, and the share price would drop as pre-approval and approval perception and excitement gave way to market doubt, and then actual underperforming sales thereafter.

I have already brought this issue up, in this class of drugs, charging $300k-$600k per treatment is not going to be a market winner.

This is harsh, but also true. I have no doubt, John McCain would be moved to the front of the line for this sort of treatment for his brain tumor. And God speed - I have no problem with that.

The problem is though that Tinker, with excellent coverage ($5k out of pocket for $125k heart procedure at one of the best facilities in the country, with a pioneer on the daVinci robot surgeon) would end up told to take a final trip to Maui (like the doctor on that George Clooney hospital series did back in the 1990s).

These treatments are spectacular. But if you want a Vertex like post-approval stock performance, this issue needs to be resolved.

I will be looking more at BLUE, but this is my general concern about this entire drug class. It is not so much about how much an individual life is worth, but what the system is willing (and capable of paying), and then there is the world wide market that is even more eager to deny treatment based on cost.

Remember Tysabri’s rejection in England?

Tinker

12 Likes
23

I have already brought this issue up, in this class of drugs, charging $300k-$600k per treatment is not going to be a market winner.

But Tinker, you have to consider the cost of the alternatives, remembering these are fairly untreatable cancers. We are talking about repeated courses of chemotherapies, and repeated surgeries, all with expensive recoveries, expensive side effects, and prolonged hospitalization. This, on the other hand, is one-shot and you are apparently cured, in a significant percent of the patients. If you were the patient or the insurance company, which would you go for?
Saul

2 Likes
24

Duma I no longer invest in drug companies

They just take too much time to research, and I am too busy with more predictable stories like BEV and AI. I can’t find any edge here.

5 Likes
25

<<<This, on the other hand, is one-shot and you are apparently cured, in a significant percent of the patients. If you were the patient or the insurance company, which would you go for?>>>

As a patient, no doubt!

As an insurance company…that is at bottom one of the things the healthcare debate is all about. The single payor side would say “no,” the free market side would say “if you can afford it” and we are somewhere in-between.

Certainly if outcome based medicine is your only guide, the answer is yes, for for it!

I was out of the market for about 12-18 months, so I missed out when KITE had its crash, and only lately getting up to speed with this drug class. It is just now reaching mainstream articles (in a usually uninformed manner).

So I will definitely be giving it a deeper look.

My favorite stock is one (like we recently discussed on NPI on how I could hold just 2 stocks - and it was because SHOP had a bottom built in due to acquisition value of its peers, and NVDA was just dang cheap given the future ahead of it despite being called “overvalued”) a situation like KITE may very well be a similar situation. looking expensive and scary, but really like NVDA, it has to be more valuable in the future. Almost like how black holes are inevitable given the math, even though it all looks chaotic before that happens (been reading about string theory lately thus my analogies have taken on a certain frame).

KITE may be like that however, thus, even though not a beaten down and misunderstood FUD infested biotech, it is of interest to me (much later than to many of you guys). I finished my look at Nutanix and will move to KITE and BLUE next.

Thanks Sal.

Tinker

3 Likes
26

you have to consider the cost of the alternatives, remembering these are fairly untreatable cancers. We are talking about repeated courses of chemotherapies, and repeated surgeries, all with expensive recoveries, expensive side effects, and prolonged hospitalization

Saul,

I totally agree. But we need to quantify the alternative costs. If the costs (for the average patient) is higher than the expensive one-time probable cure then a strong case for reimbursement can be made. Anyone with a medical or healthcare background care to take a stab at ballpark quantifying the costs of the alternative treatments?

Chris

1 Like
27

I have already brought this issue up, in this class of drugs, charging $300k-$600k per treatment is not going to be a market winner.

Perhaps that means the first company that brings the cost down is the winner. One trend that applies to a lot of genetic analysis is that costs keep dropping. Whether that can be applied to the type of work required here, the work that pushes the price up to those stratospheric numbers, is an open question. A company at the cutting edge of the technology would seem to be well placed to push costs lower, and they have to know how important that is to widespread adoption.

3 Likes
28

Perhaps that means the first company that brings the cost down is the winner. One trend that applies to a lot of genetic analysis is that costs keep dropping. Whether that can be applied to the type of work required here, the work that pushes the price up to those stratospheric numbers, is an open question. A company at the cutting edge of the technology would seem to be well placed to push costs lower, and they have to know how important that is to widespread adoption.

Yes, costs will need to come down. Genetic analysis costs are dropping indeed and have been dropping for several decades. As an example, genome sequencing costs have dropped from about $3 billion in 2000 to less then $1000 today. This cost will continue to drop and may well reach $100 in the next several years.

Lowering the cost of CAR-T will be more challenging unless specific cell engineering for each patient can be avoided. For KITE’s therapy to be applied, each patient must have some T-cells removed. T-cell removal is not that complicated because T-cells are circulating in the blood, but there is cell culture work involved. The cells must then be genetically engineered meaning that some of the gene sequence in the T-cells must be replaced. The cells must then be cultured to increase their numbers before the cells are introduced back into the patient. The problem that makes this therapy expensive from a manufacturer’s cost perspective is that for each patient there is a custom treatment that is very difficult (bordering on not possible) to automate. There are other challenges. Most notably, since there is lots of hands on time required, the amount of doses capable of being produced may be limited…this makes scale-up challenging.

Chris

2 Likes
29

<<<The problem that makes this therapy expensive from a manufacturer’s cost perspective is that for each patient there is a custom treatment that is very difficult (bordering on not possible) to automate. There are other challenges. Most notably, since there is lots of hands on time required, the amount of doses capable of being produced may be limited…this makes scale-up challenging.>>>

DNDN had a similar, but less egregious problem.

Yes, DNDN’s treatment was not nearly as efficacious. Not even close.

But DNDN had a hard time scaling up, and even if they could scale up, they had a difficult time get reimbursements and prescriptions.

The issue here with KITE, even if insurance will cover it, is as you bring up, how do you manufacture this product at scale.

If KITE cannot scale the numbers of people to be serviced will be small. That may be a more important issue than even the cost per treatment (which of course would come down if some automation could be done).

What I fear is a line for treatment with a KITE drug that is similar to getting on an organ transplant list.

But TBD. I haven’t looked at it yet, but that its a huge issue of personalized medicine like this.

Yes, a company that can take this drug class and mass produce it will be like the Henry Ford of this product category.

Tinker

2 Likes
30

I have been looking at these Car-T companies as well. I have not purchased anything as of yet because I agree with Tinker’s response. If the treatment is going to be something like 400k -500k it will not fly for the general population. I work in the insurance industry and a lot of people dont know that health policies have a lifetime payout benefit to them. An insurance company is not going pay these kind of amounts. Trust me, it just will not happen. If we think the costs could get under 100k I think there is then a chance it will take off but not until then.

Still considering a position, but I need some bad news to come out first then that may cause me to act. =)

3 Likes
31

sorry I should make my last post more clear.

“health policies have a lifetime payout benefit to them”

This was not worded very well. It is actually a lifetime limit. Meaning they stop paying out when you reach this limit that is occurring over your lifetime.

1 Like
32

I owned KITE a while back. Bought in at $69, sold out at $75. At the time, I just thought that biotech was too risky for me. Since then, have been kicking myself off and on but kept thinking I had missed the boat. Recently though, had been thinking seriously of buying back in. Yesterday, because Saul’s post served as a catalyst, I decided to do it. A 3% position.

Today I spent several hours sitting with my wife as she received her first Chemotherapy treatment. She recently had a double mastectomy. At first, after surgery we were told that they got all the cancer and things were looking good. But then, about 3 weeks later, we got the results of a lymph node genetic biopsy test that showed she is in a high risk category for recurrence. So we must do the chemo.

She lost one kidney to cancer a number of years ago. So now it’s back. I was surprised by how many people were in that room, getting chemo. Men and women. There are about 30 chairs and all but two were occupied. Chemo is no fun. You get sick after each treatment and then start losing your hair. If it grows back, she will likely have permanently grey hair, or be wearing a wig. Very difficult for her. But better than dying from cancer. We have been married for 45 years.

Is there a connection to me buying KITE and my wife’s cancer ? Maybe. But not intentionally. Life goes on.

Frank,
KITE shareholder

18 Likes
33

Frank,

My prayers and best wishes go out to you and your wife for a full recovery!

My family has also been heavily hit by cancer (my Grandfather, my Dad, my Mother-in-law, 2 Uncles and my cousin have all lost their battle with various forms of cancer), can’t wait till science figures it all out and we rid the world of this disease.

And just to put this post on topic, I did purchase my first batch (small) of KITE today.

5 Likes
34

I owned KITE a while back. Bought in at $69, sold out at $75. At the time, I just thought that biotech was too risky for me. Since then, have been kicking myself off and on but kept thinking I had missed the boat. Recently though, had been thinking seriously of buying back in. Yesterday, because Saul’s post served as a catalyst, I decided to do it. A 3% position.

Today I spent several hours sitting with my wife as she received her first Chemotherapy treatment. She recently had a double mastectomy. At first, after surgery we were told that they got all the cancer and things were looking good. But then, about 3 weeks later, we got the results of a lymph node genetic biopsy test that showed she is in a high risk category for recurrence. So we must do the chemo.

She lost one kidney to cancer a number of years ago. So now it’s back. I was surprised by how many people were in that room, getting chemo. Men and women. There are about 30 chairs and all but two were occupied. Chemo is no fun. You get sick after each treatment and then start losing your hair. If it grows back, she will likely have permanently grey hair, or be wearing a wig. Very difficult for her. But better than dying from cancer. We have been married for 45 years.

Is there a connection to me buying KITE and my wife’s cancer ? Maybe. But not intentionally. Life goes on.

Frank,

Kind of the same story. About a month ago my Father-in-Law was getting very weak. The couldn’t figure it out. The finally figured out he has Non-Hodgkin lymphoma. While it is extremely unlikely that treatment could even be given to him, and if it were, it probably would not add a great many years to the 84 he has in the bag, I sent a copy of the report to my Mother-in-Law to take to MD Anderson when they go on the 1st of August.

Cheers
Qazulight
KITE shareholder (5 percent position)

3 Likes
35

Frank,

I will keep you and your wife in my prayers.

Kindest Regards,
Steve

36

Duma,

I will try to respond later. I am at the 10 year board certification cycle and have to take them on Monday so I’ll be busy with my head in some books for the next couple of days.

As for the cost issue that has been brought up… a bone marrow transplant costs at least as much as CAR-T therapy. I would venture that the treatment of most cancers with chemo/radiation/surgery rival the numbers being thrown around for CAR-T. So, while expensive, its not worse than the others in the long run.

MC

3 Likes
37

So to summarize, the issues that suggest caution with these CAR-T stocks are:

  1. The market caps have run up substantially - several as though FDA approval already occurred
  2. There are several competing “me too” companies that will serve to compete on price and therefore lower revenue
  3. There are concerns about the sustainability of a $300,000 treatment…compare that to end of life care that averages $100,000.
  4. There are indications of cell mutations that can reduce response rates and necessitate retreat needs at another $300,000?
  5. Insurance companies are likely to resist payment…whether FDA approved or not. Can the average person afford the additional cost with high deductible plans, etc.
  6. The cost to bring each agent to market is around $1 Billion each…who has the resources to launch a flurry of those agents?
  7. What exactly is the TAM for each indication considering each of the above?
  8. There is still a high adverse effect rate especially when considered for less dire circumstances so that may not expand the TAM
  9. Treatment is a painstaking process and may result in lower margins
    10)These CAR-T are also in a hype phase

A special mention on the costs…IMO, we often see new treatments near arbitrarily priced to a prior treatment. I don’t think it is coincidence that the $300,000-400,000 figure closely approximates the cost of a bone marrow transplant…it isn’t that they may not be able to scale up and therefore lower the price of treatment…its more that these companies want maximize revenue and scaling up while lowering price can be fraught with profit miscalculations.

Be that as they may (and feel free to dispute them), these hype stocks can still trade higher…hype can carry a stock quite a ways…and KITE seems to have the lead on likely approval and manufacturing ability…but these are fleeting advantages and eventually defeatable (see Michael PORTER’s 5 Forces of competitive advantage).

So I would offer that neither KITE nor any other CAR-T company is a buy and forget stock…expect volatility and surprises. This does not appear to be unique technology that ONLY KITE has…there were numerous competitors each likely to produce effective agents…perhaps differing in rates of adverse side effects.

That is my summary final 2 cents and I reserve the right to be completely mistaken…now back to the NPI.

13 Likes
38

Duma,

Now I remember why I only invest in either very early stage biotechs like Vertex whom have products that in a very rare case can be said to work and be utterly new and better, or on FUD infested biotechs with world changing drugs like DNDN or ELAN or ISIS and there were at least 3 others. Each and every one of them turned out to have enormous returns if you could stand holding for many years and not mine seeing 6 figures worth of money turned into 4 figure of money and back again…literally

KITE, BLUE, JUNO, seem to be the drug at issue here.

It is a drug category that is special and world changing.
These are drugs that work.
The issue is how many drugs for how many indications can they bring to market, and how many clients can they serve and get paid for serving per year.

At the current market caps, one needs to look at what we call the TAM based upon their ability to produce, get the price down, and for reimbursement, as well as look at competition.

I am tired of looking at the competition and foibles. What drug is ahead of what drug. Sure, BLUE has a drug partnered with Celgene that is considered to be a year ahead of the competition, such as KITE, but always panic that this gap may close. I don’t want look at what attributes each company’s drug has etc.

Instead, I am going to assume that at least KITE and BLUE, within the next 3 years, will have drug to market (and with KITE sooner). I am solely going to look at what the TAM is for these drugs.

If there are multiple indications and multiple drugs to come out over the next 3-5 years, with billion dollar TAMs, yeah, then KITE is still cheap. I will look the same at BLUE. My goal is to determine if I can do, as I said I had the goal of doing, of just putting money aside each month and investing monthly and take my time back, and reduce my stress. With KITE and BLUE that may be possible.

I am tired of waiting of years, watching the latest clinical news on this stuff, etc. It is no fun, been there, done that.

I will look at it on that basis. Of course I will see other things as I go.

Tinker

6 Likes
39

Thanks to all for your kindness and prayers in response to what I told you about my wife Linda’s breast cancer and subsequent ongoing Chemotherapy treatments.

I hope that all of the companies like KITE are successful in finding a cure for this disease.

Frank

1 Like
40

In terms of the TAM, I read that for Non-Hodgkins it was US 7,400, Europe 7,000, Japan 7,800 and China 25,000; total about 47,000 excluding ROW. I have no certainty about the accuracy of this.

By the way, while all cancers are different and cannot generally be compared, I would like to instil some hope to the board. I had non-Hodgkins in the mid-eighties. The treatments (both) took a year out of my life and were naturally no fun (I understand the side-effects are marvellously reduced these days). There has been no recurrence.

After thirty-five years, I have some impatience with doctors who curiously say, I am ‘in remission’ instead of cured! After all, in three years I will have had my ‘three score years and ten’ and who could ask for anything more?

Thus, although I strongly agree with (I think) Wally Weitz’s reservation about drug companies ‘the pipelines always seem to have internal friction’, in this case I decided to fly a kite, both as a highly speculative investment and capitalism-as-philanthropy, always my preferred kind of charity. Maybe it’s payback time.

17 Likes