A Doctor's Walk Down Wall Street

A cardiologist shares his thoughts on healthcare stocks.

I am a big believer in the invest-in-what-you-know thesis of Peter Lynch. This is particularly true in the field of healthcare. I have learned over time that doctors have a huge potential advantage in the handicapping of pharmaceutical stocks. We can get subjective experience of the how the new drugs work from our patients and from our colleagues, we can get a feel for how effective the marketing is for any particular drug and, just as importantly, we understand much of the science involved and know how to critically read the literature.

I have gone to several of the healthcare conferences held by big investment banks for healthcare analysts (in the past when I was thinking about working for a hedge fund) and talked to many of these folks. There is a huge lack of understanding of the basics of medicine among the analysts who cover these stocks. At one of the meetings, an analyst for Merrill asked if the plaque in arteries was related to plaque on teeth. Remarkable no one else in the room laughed at this.

As a result of this knowledge gap, the markets in healthcare are not as efficient as one would think. I have seen several situations where data were released and the market misinterpreted the finding. Later the company explained the results in small words to the analyst community and the market priced the news appropriately. One example was Esperion (ESPR). A few years ago, they released a trial on an early stage lipid drug which showed more regression coronary artery disease than any other drug before or since. The analysts had a whisper number of 10% regression and when the drug caused a 5% regression the stock traded down 20%. I bought at this point and the stock rebounded the next day when Steven Nissen commented in the analyst call that this was a landmark trial. Pfizer bought ESPR soon afterwards for a hefty premium- although the drug is still in phase 2 limbo.

I am certainly not always right- Hell, I started shorting Merck at 27 and it is now at 50. But, I have been right much more than wrong. So I am either lucky or good. I have learned a lot about the pharma industry along the way. I will be discussing my take on some of the more interesting companies in the cardiac space ( I am a cardiologist) in this series-if there is interest. Among my top picks - which I will be discussing in more detail in later articles - are CVTX, SNY. Among my top short picks are NTMD ( which I have ridden down from 20 to 2), BSX, MRK and FOXH. I have mixed feelings about companies like MDCO and PDLI.

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Comments

  • Anonymous

    July 01, 2007

    What a terrific idea for a series.

  • Anonymous

    July 01, 2007

    I was fortunate enough to buy Esperion at $16 and caught the run into the $30's when Pfizer bought the company. The HDL drugs they have in the pipeline have tremendous potential. I remember Nissen presenting at the ACC in New Orleans about regression data with Lipitor of .2% (at high doses with other interesting points in the study) while he had data showing 4.2% regression with Esperion's apo A1 milano drug, but made no mentin of it.....I know it was phase 1, but still thought it odd.

    I think CVT has a equal to better shot of a higher price surge because the product is a proven product. Data is still to be released from MERLIN and changes to the PI are in the works. Cleaning up the PI will do much to interest big pharma. A combination of increased sales, new data releases, a cleaning up of the PI, and potential partnership will run the stock up to a price that will help build to a profitable buyout...hopefully. Ranexa is an awesome drug in many areas and will soon show it!!

  • Anonymous

    July 04, 2007

    I'd very interested in your take on these companies. I agree with your thesis that Drs are probably the best suited to understand the potential for many of the drugs that are emerging. Thank you for the information.

  • Anonymous

    July 10, 2007

    Is angina a serious medical problem or merely chest pain and discomfort?

  • Anonymous

    July 10, 2007

    Great insight. Thank you for sharing.

  • Anonymous

    July 10, 2007

    This stock has been killed due to inability to control costs following their launch so I still see risk all over it. You are probably right about the opportunity in diabetes. My question is this - if they have only had one trial with diabetes as a secondary endpoint, aren't there still significant and time consuming steps which would need to be taken before Ranexa can ever be indicated for diabetes?

  • Anonymous

    July 10, 2007

    I really like this series. It is the best thing I have seen of this kind on the web. Please keep it up. I am a loyal fan whoever you are.

  • Anonymous

    July 23, 2007

    Fascinating! Thanks for posting this. Very useful.

  • biotechshorting

    August 09, 2007

    Nitromed was a dog all the way. There has never been such an obvious short in the biotech space and everyone made oodles of money shorting when Cramer said to get in. My request of you is simple. Please find me the next Nitromed and post it here. Thanks.

  • drdellerdoc@yahoo.com

    October 03, 2007

    Interesting that more than a few thought leaders in CHF(Packer, Hare, Yancy, Cohn, to name a few) believe that BiDil should be a standard of care drug for Afro-Americans with CHF. A recent article stated that the exact formulation of the drugs, as contained in BiDil, was important. Apparently, very few are buying their theory. Also suspect that the high incidence of headache and dizziness has something to do with NTMDs dismal sales. As an ER physician who sees a lot of Afro-American CHF patients, I'm not seeing very many on either BiDil or generic ISDN and HYD. The evidence clearly indicates they should be on this combination.

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