Sunday, August 16, 2015

The Timing of Goldman Sachs's analyst Terence Flynn's Sell rating on Ophthotech (OPHT) was not Coincidental

Dear Terence Flynn and All Readers,  

On Friday, August 7, 2015, Terence Flynn PhD issued what we interpreted to be an extremely lukewarm Sell rating on Ophthotech (OPHT). Then just 6-days later news broke from Avalanche (AAVL) which weakened part of his fundamental thesis of competitive threats. Since the Sell rating OPHT has pulled back 17.9%, but now that we know more details we expect shares to rally back above $60/share sooner than later. Flynn's Sell rating was rendered somewhat obsolete in less than 1-week and now poses a greater risk to Traders who followed him and shorted the stock. Fasten your helmet as we attempt to debunk Flynn's downgrade to Sell and shine some Educational light on the fuzzy tactics some analysts use and always get away with; perhaps this time we have a high-profile tuna, hooked.

After certain facts hit the wires on Thursday, August 13, 2015, the probability of a bidding war for OPHT has increased by roughly 33% by year-end as there are no drugs either on the market or in any clinical trials, that we know of, with the stellar pharmacological profile of Fovista.




OPHT's Fovista is a drug currently in Phase III trials for the treatment of wet age-related macular degeneration (AMD). Fovista marked much better results as measured by reading acuity in Phase IIb trials than Roche's Lucentis which has been FDA approved and rings in Sales of roughly $2 billion per year.






Even after the broad pullback in biotechs of late and Flynn's very aggressive downgrade, OPHT's chart since its IPO 2-years ago is in tact -bullish- and in our opinion the current technical pullback offers Traders and aggressive Investors a very attractive Entry point, right-here right-now.






OPHT's market cap at $51.00/share = $1.77 billion, that's < 1X of yearly Sales of Lucentis for AMD. Just based on that fundamental metric we are convinced Flynn will be proven wrong literally within days as OPHT rallies back closer to $60.00/share than $50.00/share. And we will admit defeat IF shares trade down to Flynn's Price Target of $45.00 any time from this day forward. 


In Phase IIb trials Fovista showed benefits beyond improving reading acuity or simply halting the damage to blood vessels. There was some science that pointed to the drug's ability to Reverse some of the blood vessels damaged by AMD. This data was in no way definitive since Phase IIb was not designed to test or achieve that goal, yet Phase III is extremely exciting since there is no drug on the market with that unique quality and the patients who have a more aggressive form of AMD often go blind. OPHT will issue a press release updating this monumentally important data in Q4, 2015.

Flynn did mention the Buyout risk scenario but argued it was small since Fovista is in Phase III . His Sell opinion focused more on valuation (technicals) and competitive threats. But now we know that just 6-days after his report 1 of the competitive threats has been erased

Here are some insights from Jerry Helzner just before AAVL went public 13-months ago. Flynn mentioned REGN in his Sell report so we're nearly 90% sure that he knew about the partnership with AAVL that was forged more than a year ago. "Fish still on."

July 1, 2014
The new collaboration covers novel gene therapy vectors and proprietary molecules, discovered jointly by Avalanche (Menlo Park, Calif.) and Regeneron (Tarrytown, N.Y.), and developed using the Avalanche Ocular BioFactor, an adeno-associated virus (AAV)-based, proprietary, next-generation platform for the discovery and development of gene therapy vectors for ophthalmology.

The collaboration covers up to eight distinct therapeutic targets. Regeneron will have exclusive worldwide rights for each product it moves forward in clinical development. In addition, Avalanche has the option to share in development costs and profits for products directed toward two therapeutic targets selected by Avalanche.

As part of the agreement, Regeneron has a time-limited right of first negotiation for certain rights to AVA-101, Avalanche’s gene therapy product targeting vascular endothelial growth factor currently under development for the treatment of wet AMD, upon completion of the ongoing phase 2a trial. 

Credit to Jerry Helzner, Senior Contributing Editor of Ophthalmology Management magazine and online. 

Here's a look at the 27.6% selloff AAVL suffered last Friday, 1-day after the company pulled their lead AMD candidate AVA-101 stating that the drug will not proceed to the next Phase but return to their labs for further analysis after they took a closer look at the data. 

  




Though this blog is mainly an Educational outlet for us as well as Traders and Investors who appreciate reading market analysis that uses a combination of techniques often sprinkled with a lot of common sense and behavioral psychology in an attempt uncover the Truth. 

Flynn's Timing of issuing a Sell on OPHT we believe was not coincidental but calculated, based on public information that AAVL was going to have a live conference call regarding earnings as well as a progress update on AVA-101. Flynn was hoping that the update on AVA-101 would be bullish but it backfired bearish.


Our thesis is that Flynn was worried about a positive update regarding AVA-101 so he took a Defensive leap 6-days before AAVL's press conference by downgrading OPHT to a Sell.  


Please note that Fovista, currently in Phase III trials, showed better efficacy in reading acuity not only versus Roche's Lucentis but also REGN's Eylea in Phase IIb trials where an very large group of 499 patients suffering from AMD were studied. 


The two drugs known as Eylea and Lucentis are the standard treatment for AMD today as both have been approved by the FDA several of years ago. And since the threat from AAVL's AVA-101 is now at least delayed, a bidding war for OPHT could occur sooner than Flynn hypothesized in his report.   


Do you agree with our psychology that Goldman's Sell rating was really a Defensive call just a few days ahead of public knowledge that AAVL was set to release earnings and a progress update on AVA-101, a drug which REGN backed as part of a collaborative agreement. 


We believe that Flynn's Sell rating was motivated by the potential of positive data breaking regarding the pharmacology of AVA-101 that was set to go public on August 13, 2015, yet he made no mention of this catalyst in his report. 


We believe that our thesis carries more weight due to the enormous difference in Price Targets from Oppenheimer's Ling versus Goldman's Flynn with main focus being on when these Price Targets went public. 

Aug 7 - Flynn, Sell OPHT, Price Target $45.00
Aug 13 - AAVL's drug AVA-101 fails
Aug 14 - Ling, Outperform OPHT, Price Target $95.00

It's crystal clear that Ling's report was issued hours after news of AVA-101's failure while Flynn issued his report 6-days before the AVA-101 facts were known. 


We believe Flynn's downgrade was rooted less in valuation but the competitive threat from AVA-101 that lied ahead. We very much question the Timing of his actions and it's difficult for us to overlook that he simply didn't know or care about the AAVL press conference scheduled for August 13. 


Flynn did nothing unethical but we give him a 'D' for lack of transparency in addition to the fact he was missing in Manhattan on Friday, the day after the AVA-101 news as well as the $50.00 Higher Price Target from an Oppenheimer analyst armed with more timely facts.


Will Flynn update his Sell opinion to at least a Neutral sooner than later or will he just hope either nobody figures out his fuzzy tactics or that the broad Biotech pullback affects OPHT


With AAVL's AVA-101 back in the lab we feel certain that the previous results were staged and therefore not scientific. We believe AVA-101 has < a 10% chance to ever win an FDA approval.

Where was Goldman's Terence Flynn on Friday to address his thesis of 'competitive threats'? His 10-day old Sell thesis on specifically mentioned the potential for 'competitive threats' from Regeneron (REGN) and Roche, and to be fair there was no mention of AAVL in the write-up. 



We believe Flynn's Timing was not coincidental but calculated
  1. Flynn knew that AAVL scheduled an earnings report and AVA-101 progress update for Thursday, August 13, 2015, 
  2. Flynn's Sell rating on OPHT was disseminated on Thursday, August 6, 2015, exactly 1-week ahead of AAVL's earnings and progress update on AVA-101,
  3. In his Sell report Flynn mentioned the potential for competitive threats and REGN who we know was a backer of AAVL,
  4. If AAVL issued a positive update on AVA-101 that would have caused OPHT to suffer a technical selloff since they are partnered with REGN, a stock highlighted in Flynn's Sell thesis on OPHT

REGN's executive team saw promise in AVA-101 because they gave AAVL an undisclosed upfront payment and the potential for a whopping $640 million in milestone monies. 

REGN is an extremely respected and high-profile biotech that has been 1 of the best performers on the Nasdaq since 2011. REGN's due diligence regarding AVA-101 had to be thorough since they forged a partnership and took a financial interest in the company. Though AVA-101's failure was not a binary event for REGN we believe it boosted psychology of OPHT's executives and shareholders as now 1 'competitive threat' has been removed. 


Oppenheimer's Ling Wang sprung to action on Friday, August 14, 2015, by issuing an Outperform rating on OPHT and price target of $95.00. Though the iShares Biotech ETF (IBB) Closed down 0.64% last Friday, OPHT bucked that downdraft and Closed Up 0.41% at $51.02.  


We have no way of knowing all the facts and assumptions behind Ling's bullish thesis and $95.00 price target we know that just 15-hours prior to his report a huge setback occurred for AAVL



Which analyst's rating on OPHT do you feel is more credible?

  • Goldman Sachs's Terence Flynn who acted ahead of the AVA-101 update with a Sell rating and $45.00 target, or
  • Oppenheimer's Ling Wang who acted after the AVA-101 update with an Outperform rating and $95.00 target.


Oppenheimer's Ling Wang's opinion copied and pasted
OPHT's lead asset, Fovista, a PDGF inhibitor, is being evaluated in three pivotal phase III trials in combination with approved VEGF inhibitors in with AMD. We see the phase III programs significantly de-risked by the positive efficacy and safety data from a large-size, similarly designed, phase IIb trial. We also view a strong MOA and the anti-fibrotic activity observed in retrospective analysis of the phase IIb trial as supportive of the disease-modifying activity of Fovista, which could expand the market substantially (not in our model). Key catalysts for shares include interim data from a phase II fibrosis trial by YE15 and phase III trials readout by YE16."

We welcome anyone to email us with questions and comments: Psychologyofthecall@gmail.com

Thank You,
POTC~

4 comments:

Macro Assets said...

It hit $44.76 this morning.

American Capitalist Pigs said...

Macro Assets: The GS analyst was right and we congratulate him for that Trading call. And in a very weak market shares have outperformed and recoiled 10% from that temporary Low as they are near $50. GS analyst is mum while we think shares are oversold. Perhaps consider that OPHT issued stock options in the $40's after the GS downgrade and politics played a role IF shares rally back above $60 within a Quarter? Thanks for your message

Jenny Hayes said...

Way cool some valid points! I am grateful for you making this post on hand; the rest of this website is also first-class. Have a great fun. Leslie Campbell

American Capitalist Pigs said...

Thank you very much for the kind words Jenny Hayes.