The Twelve Biotechs of Christmas 2018: Balthasar

by DrKSSMDPhD | January 12, 2018 4:22 pm

No, Balthasar is not a biotech company. Think fast! Aragorn, Legolas and Gimli. Athos, Porthos and Aramis. Jaclyn, Farrah and Kate. Kirk, Spock and Bones. Barry, Robin and Maurice. Shadrach, Meshach and Abednego. History and culture bestow trios upon us because threesomes keep us rapt. The Three Magi, liking the Gummune as they do, have come from afar seeking subscriptions and agreed to show up and confer a little class  and  spectacle on this year’s set of long investing ideas in biotech. Balthasar flew in on Emirates Air from Dubai and has been caught off-guard by the chilly temperatures, but is keeping headcolds at bay by huffing a bottle of myrrh. Melchior and Gaspar are on other flights and got snagged by President Huge’s travel ban, but will be along to dispense their gift biotechs in a week or two.

Let’s cover some ground considerations about this list. Foremost and first, no stock on the list is being “recommended” to you although in seeing a stock on our list, you are getting a recommendation to consider it. But we are not soliciting you to invest in anything, and neither do we have any vested interest in you having a stake in any named company. We have neither asked for nor gotten either money or anything of monetary value from ANY company….and we’d be unwilling to accept any offer of pecuniary recompense lest all our credibility go heave-ho, defenestrating itself once and for all. We are not suggesting that companies on this list are the only way to make money investing in biotech because the year will bring surprises. What we ARE suggesting is that these companies have enormous appeal, have survived extreme scientific, clinical, corporate and fiscal scrutiny and that we especially like them…..and our liking of them has held up through a comprehensive period of introspection, number crunching, cross-comparison and critical thinking. The spirit of this list is that many or most of these long ideas are what some would refer to as “special situations,” odd inflection points in the history of a stock when the wind is at the stock’s back and the tide of fortune seems to be flowing vigorously in the desired direction, times when gains may be outsize and not to be repeated. These are stocks we regard as having a certain urgency about them. Need to know.

Biotechnology is an inherently meta-stable investing space, and all you need to do is look at the carnage in the wake of last year’s list of 12 to be reminded of that. We don’t view those failed stocks as “bad” ideas though what happened with them helps us refine our modeling: for things to be perfectly fine today and in full-on detonation mode tomorrow is the nature of biotech investing, at least now-and-again. Thus Argos emulated the Challenger disaster, $AFMD was functionally stillborn, $ABIO and $ONOV wallowed while $AXSM snoozed. $CUR proved to be confidence and trust wrongly placed, and its conduct was egregious enough, we now know, that one surely has to consider further tightening the thumbscrews of consideration when it comes to neuroscience plays. We imbued Abivax with such a sense of splendor that we called it our long idea of the year….though it really hasn’t lived up to that designation (I remain long). I’ve told the “if you ain’t crashing you ain’t flying” story many times in this forum:  if you aren’t making calls in biotech that prove to be wrong, you aren’t making calls in biotech. It’s not that the calls are flawed or “bad,” but rather that they are made from a position of non-omniscience and non-omnipresence. It’s why your view of a situation in biotech must remain supple. A good biotech investor is a pugilist with lightness of foot ever-ready to pivot and convert an anticipated right jab into a temple-smashing left hook. Read carefully and follow along: If what I am now writing about a stock is substantively different from what I said two months ago—and it sometimes is—it’s not because KSS is a flaky moodring now having a paroxysm of attitude. It’s because something has changed, because we see or sense something new, possibly something purposively concealed by the company before. Having darkly just written that, KSS hastens to add that companies on this list are held in high moral esteem because they’ve fetched that. They’re also companies worthy of lofty intellectual regard. If we don’t think a company is in the most elite 15 percent of public biotechs, we won’t cover it here unless something utterly unprecedented is at hand.


We’re not necessarily advancing these long ideas for one-year performance; the one-to-three year time horizon interests us most. Don’t marry any stock on the list; if you invest, own both that investment and your decision and be accountable for it because you’ve done your own background check on it. We’re quite detail-preoccupied and picky, but once in a while something we need to know and should have picked up on is going to evade us. Be sure that being in biotech is right for you; we’ve said before: 85 percent of the stocks in this space are not worthy of your investment, either because they are doing work with integrity but have limited profit prospects, or more likely because what they are pursuing is closer than we like to bamboozling and fleecing.  But also be prepared to sell with extreme prejudice if things sour and to take profits in the short-term should they present themselves. Don’t look for someone such as us or you to blame if things blow up, and don’t look for agency when that happens, for it surely will. We have skin in the game too, and not a boundless supply of it either, and will be navigating the minefield and maze of 2018 biotech investing with you. If you want help or guidance, PLEASE ASK FOR IT. I try to answer all posted questions within 24 hours (if I fail to answer within 24 hours, kindly repost the question or email Lynn Clark; when I am remiss, Lynn bangs a steel ladle on a frying pan vigourously and doesn’t stop making noise til I’ve answered. She’s helpful like that.) People like Glenn Newberry, eyedoc, Cleveland, Sogiam, Jonathan Coulborn and literally dozens of others like the inestimable zimmyzee are usually generous with their thoughts, especially if you ask amiably and express gratitude. Besides me, linling is one other person in the forum who has worked in the industry, her as both scientist and executive. She provides insight-filled transactional analyses and has amazing intuition about how situations in biotech will play themselves out.

On 30 August 1970, when yours truly was getting underway in grammar school, an R&B-inclined flautist from Blackpool, England, took the main stage microphone at the Isle of Wight concert. He was frontman for a new group called Jethro Tull, and 600,000 people were in the audience. It was the final night of that year’s Isle of Wight festival, and Jethro Tull’s set was the final performance before the crowds broke camp and dispersed. The flautist, given to playing on one leg, was Ian Anderson and he said into the microphone: “We’re gonna play some old songs and some new songs and one or two we’ve never played before, it seems.” It’s a good opening for presenting this year’s biotech list: some old picks that are still red-hot and not from having been re-warmed in a microwave, some new coverage taking the forum into fresh and enriching directions, and even a couple of vervy raw very speculative mad money ideas for those with an urge to make splash in those waters.

Balthasar is unwrapping his shemagh and has taken some canvas sacks down from the hump of his camel. He’s reaching into a sack…is that parchment he’s taking out?

  1. Aptose ($APTO)

We foresee 2018 as a crackling, pivotal year for Aptose, one in which the company shakes off what many have misinterpreted as 2-3 years of torpor, one in which the company confidently and muscularly will reappear in the clinic. Aptose was never truly torpid, but seemed cloistered because of deep-dive problem-solving needed regarding the manufacture of APTO-253 and because new acquisition CG’806, bought for single digit millions from South Korea’s Crystal Genomics, proved to be a vastly more interesting and dynamic agent than originally recognized.

Events we are anticipating:

(a) an announcement before the end of 1Q18 that CMC issues with APTO-253 have been resolved, that the clinical hold imposed by the company on itself can be lifted with the blessing of the FDA.

(b) a return of APTO-253 to clinic in phase 1b or 2a studies. This agent has been recently recognized to have additional activity; namely, it is a c-myc inhibitor, a fact that will inform phase 2 planning. The agent already has ODD in AML.

(c) the submission of an Investigational New Drug (IND) application to the FDA to begin clinical studies with CG’806 by no later than the end of 2Q18. This drug’s pre-clinical activity is both vast and strong: it is a dynamic, agile inhibitor of oncogenic tyrosine kinases. It is the only such inhibitor that has relevant clinical activity against tyrosine kinases relevant to both AML (and possibly other myeloid malignancies) and lymphoma. This agent now has ODD for AML also.

(d) Phase 1 clinical trialling of CG’806 beginning in 2H2018. Remember all oncology phase 1 work is in patients with target malignant disease; oncology phase 1’s thus contain phase 2a elements. As oncology trial design becomes ever more adaptive, the trial being revised in real time to reflect what has just been demonstrated, the oncology drug development timeline is shrinking.

(e) clarification from the company as to the status of a third agent it possesses and plans to develop. In a recent SEC filing, the company alludes to the notion of JV to develop this agent.

(f) We speculate that the company might consider developing companion diagnostic assays to help identify patients suitable to benefit from its drugs. We have nothing material from the company to support this notion but suspect it has crossed their minds. Such a pursuit might lend itself to partnering with a diagnostics house, but could be an important eventual source of revenue for $APTO.

We think it’s reasonable to consider that share price may reach $7 in 2018 but have considerable room to run after that too. On the basis of a single drug that inhibits Bruton’s tyrosine kinase (BTK), Pharmacyclics was sold by then-CEO Robert Duggan for $21B. CG’806 is a better inhibitor of BTK than ibrutinib is, and moreover inhibits dozens of other pathology-fueling tyrosine kinases. But divide $21B by Aptose’s present market capitalization and you have one plausible scenario for the “high baggerdom” that could result from being in this stock.

My admiration for and confidence in CEO William Rice, PhD, remains outsize. Every life sciences PhD who meets Rice leaves with the same gut sentiment: “I wish HE’D been MY PhD supervisor.” Does it feel good, does it feel safe, investing in $APTO and knowing that the fate of your investment is largely in this man’s hands? Indeed it does: Rice has enjoyed enough academic and institutional and corporate biotech acclaim that he could easily get away with being elite and aloof, but he isn’t. He has movie-star good looks, a full head of wavy hair lightly adorned with gray, and height… length of leg and length of bone that reveal his hale, rugged eastern-mountainous Tennessee breeding. On a recent balmy breezy San Diego afternoon, he insists I remain at the curb in front of Aptose HQ while he goes on his own to fetch his SUV. He’s nice enough to you and to everyone that he doesn’t want you to have to hike the distance, and meanwhile recognizes that since his legs are twice as long as yours, he can ambulate the errand in foreshortened time. We drive on a short excursion near the coast  to the company’s labs, where Rice’s hired scientists respond to his arrival like a pack of jubilant labradors. Affection in both directions abounds.

Hannah Zhang, MD, PhD, manages Rice’s labs. She trained as a gynecologist in birthplace China but rethought her career and made a bold move: she decamped to California, earned a PhD in pharmacology at Loma Linda University, and impressed people. Rice plucked her out of post-doctoral work in San Diego and put her at the bench for his company. She’s serene, poised, cap-C competent; she chooses words carefully but isn’t shy. She makes you think of the unofficial international MD PhD motto a friend once had emblazoned on a T-shirt: “Who wants it easy?” (Not KSS.) As an investor in Aptose touring the labs, I draw solace from knowing that a person of Zhang’s virtuosity is playing a role in the company future. She’s somebody one can count on.

Several times throughout the day, I hear Rice and his extraordinary SVP and CFO Greg Chow repeat a leitmotif: “Back into the clinic.” We’re craving getting back into the clinic. 253 will soon be back in the clinic. We’re looking forward to being back in the clinic in 2018. We can’t wait to get 253 and 806 into the clinic. In the clinic’s where we’re hungry to be. That’s coming folks; Chow was tooling up the day I was there to review CVs of applicants for clinical development positions, and the company was seeking four. Chow is a former RBC analyst, lean and fit, impossible to ruffle, easy to converse with. You get a sense that Chow is the “EASY” button at Aptose; ask Greg and it gets executed, no hassle, no sweat, no problem. Rice and Chow  work so seamlessly together that Rice prefers that Chow accompany him on presentation trips to cover all bases and give face time to as many prospective investors as possible. Meanwhile, Chow logs much time on the road and in the air for Aptose.  Aptose retains offices in Canada, where all its corporate accounting is done as a cost-control measure. Chow is frequently in Canada.

Rice wants to keep Aptose a low-key, high-exclusivity, small company out of the glare of the Klieg lights. The low-key part may be a struggle with the sort of acclaim the company is about to win from the oncology world, which is why Aptose is right at the pinnacle of my all-time favorite investments in biotech.


2. CohBar ($CWBR)

The company’s name is a portmanteau of the first syllables of the surnames of cofounders Pinchas “Hassy” Cohen, MD, a University of Southern California geriatrician, and Nir Barzilai, MD, a prominent endocrinologist and researcher into mechanisms of aging at Albert Einstein College of Medicine, Yeshiva University. Cohen and Barzilai are from Israel.

Since our initial presentation[1] of this company to readers in October 2017, the company has presented a well-received poster at the 2017 American Association for Study of Liver Disease meeting exploring the actions of two peptides that are analogs of so-called MOTS-C, a peptide secreted in an endocrine fashion by mitochondria that governs energy thrift (storing) versus expenditure, insulin sensitivity, body mass, and fat accumulation in liver, which can be highly pro-inflammatory. The two peptides have been used in an overfed-mouse model of non-alcoholic steatohepatitis (NASH), and not only caused restoration of the mice to normal body mass, normalization of blood lipids and restoration of insulin sensitivity, but also utterly defatted the livers of treated mice. The livers had become chaotic cords of unrest, piecemeal necrosis, neutrophils, macro- and microvesicular steatosis (fat blobs) and wispy strands of fibrosis, presaging cirrhosis. Now all fat, all scar, all inflammation was absent after mere weeks of treatment. The lack of apparent side effects and holistic mechanism of action would appear to make this approach a best of breed one to NASH, one that challenges Gilead ($GILD), GenFit ($GNFTF), Madrigal ($MDGL), GalMed ($GLMD), Galectin ($GALT) and all other players in the space.

CohBar plans to submit an IND application to the FDA to place one of its MOTS-C analog peptides into human trials for NASH. The IND should be submitted during 1Q18 and lead to a phase 1/2a study of single and multiple ascending doses in obese volunteers as early as the summer of 2018.

In November, 2017, the company announced data (I have seen the cell culture images) that a mitochondrially-derived peptide it owns can offset and reverse toxicity exerted by amyloid to cultured nerve cells. It will test-drive the peptide in an animal model of Alzheimer dementia and this may be the second agent CohBar brings to human trials.

Since our prior coverage the company has also seamlessly uplisted to NASDAQ and secured a shelf registration for eventual capital needs.

An underappreciated attribute of CohBar is thrift: its IND-enabling work in NASH was completed with a mere $18M, fiscal efficacy the likes of which we’ve never seen before. Cleveland and I visited company headquarters in late summer 2017 and extensively interviewed CEO Simon Allen (a Gilead “alumnus”), originally from Australia; COO Jon Stern; and CSO Ken Cundy, PhD (also formerly of Gilead and a prolific drug inventor), originally from the U.K. On my own, in New York, I have interviewed board chairman Albion Fitzgerald (a former software entrepreneur and highly successful) and co-founder Nir Barzilai, MD. Barzilai is commonly mistaken in public for musician Paul Simon. All five left a collective impression on me of warmth, vigor, lucidity, integrity, and burning urges to see the company’s mitochondrial peptides commercialized because of the good they can bring to human medicine.

How our mitochondria gave over their genome to co-opting for higher eukaryotic needs, how the mitochondria were enjoined to devise and release “caretaker peptides” that optimize function in many of our organs, is the source of much speculation. The basic dirty work of the mitochondria is highly oxidative, and mitochondria slowly incinerate their own genomes to make ATP for our activities. Gradual loss of mitochondrially-derived peptides seems to be a unifying driver of many human states of unwellness. Indeed, human life has two yardsticks: lifespan (the time from birth to death) and healthspan (the portion of the lifespan during which the patient feels well and is capable of all activities of daily living). When healthspan is considerably shorter than lifespan, many physicians have learned to look to the mitochondria for pathology and for a place for eventual therapeutics. Mitochondrial transplantation may one day be feasible, but CohBar’s approaches are more practical and have more immediacy. Regardless of what comes in the mitochondrial medicine space, it seems wisest to assert that CohBar will have first-mover advantage and both intellectual and investigative superiority. Cohen, Barzilai, colleagues and other company co-founders have done formidable foundational work in this space. Barzilai has a bustling, busy lab in the Bronx. I spent an afternoon with him there.

While a number of small and start-up companies hope to address mitochondria-based diseased with peptides or agents that ameliorate oxidative damage or even by eventual mitochondria-directed gene therapy, CohBar is positioned to do best for investors because of its large and exclusive portfolio of known peptides elaborated from mitochondria to promote our health. Not all of the peptides within CohBar’s IP have been characterized, but CohBar has a lively laboratory enterprise and plans to roll out peptides one by one over the next few years for clinical trials. We predict that exploring and exploiting the mitochondriome will dazzle with its results because increasingly we recognize that some of the worst diseases with which we are beset, including metabolic syndrome, NASH, congestive heart failure, Alzheimer dementia, and many renal diseases are ones whose characteristics are those of inadequate mitochondrial function. CohBar may be able to treat through these.

(3) Bellerophon ($BLPH).

Bellerophon was also on our 2017 “gift list” though ironically we published little about the company during 2017 because of being so swept up in other coverage. Even so, $BLPH, in which I have a personal position, was my single best-performing holding of the year.

The company is a play on the physiological fact that nitric oxide, a gas at standard temperature and pressure that also is a human neurotransmitter and a virus-killing reagent emitted by activated macrophages, relaxes smooth muscle cells associated with endothelium. In other words, it dilates blood vessels, or can.

During the summer of 2017, I had a singular bodily experience I wasn’t anticipating. My home region was facing a summer heat wave with temperatures over 100 degrees Fahrenheit. I needed a vacation and hadn’t taken one for a while, and so on a whim flew to Bogota, Colombia, because of its year-round temperatures of about 60 degrees. Bogota is high-altitude, however… as hit me like a bolt out of the blue as I was tugging my rolling luggage through the airport after leaving the plane. The concourse in Bogota is among the longest in the world, and twice before reaching customs I had to stop: I was in danger of fainting from hypoxemia. My exercise tolerance tends to be good and I had no chest pain; there was just too little oxygen in the air to get the job done. THIS, I thought to myself, is a taste of life with pulmonary hypertension. It humbled me. It rattled me. It’s a life of moderated ambitions and short steps, and it’s a life of never being in a hurry for anything. It’s a life of always feeling you’re three inhalations removed from syncope.

Bellerophon has productively mucked about in the space of pulmonary hypertension (which is the same as pulmonary artery hypertension), found dosing methodology for nitric oxide that seems to exert a real effect, and tinkered with how to demonstrate the benefits in an FDA-worthy way. What they’re really seeking is approval NOT for use of nitric oxide (already in use and approved as a human therapeutic) but for their method of administering it, via a shoulder-slung devices that emits pulsatile spritzes of nitric oxide into a nasal cannula.

There are few subjects that we’ve read up on more than this one; the physiology of pulmonary hypertension is exquisite, maddening and joyous all at once. We like what we see in $BLPH because he is something that in all likelihood works and will see prominent use in the marketplace, and that works without the substantive side effects (like inconvenient erections) of certain oral drugs for pulmonary hypertension.

I interviewed BLPH CEO Fabian Tenenbaum during 2017; I tried on several occasions to pull that interview together for publication and each effort was eclipsed by something more pressing I needed to tell you about. Tenenbaum and I spoke intently for about 45 minutes, during which politely I tossed his way every conceivable objection or way that BLPH’s plans could go awry. In every case, the answer was similar: they’d considered that and done this to confirm the scenario does NOT pose a risk. Or that they have a fallback position. I’ve interviewed lots of biotech CEOs and they vary radically in how much confidence they express in their own work. For some the expression is so bombastic as to be hubristical (Matinas Pharmaceuticals… oh how the arrogant have fallen). Others express almost nothing, regarding doing so as impolitic (Aurinia and Achaogen, for example). Others are subdued but clearly zealous (Norchi). Tenenbaum is singular: a sturdy calm quiet confidence. He clearly plans on success, something attested to by his large holding in his company. He is clearly a meticulous enough man, having worked through so many potential outcomes for the company and having seen data more close-up than we have, and now is simply informed by rational positivism. Tenenbaum is very in control, very much present in the wheelhouse, but I think views the company’s background work and science to be superior enough that if he executes perfectly, keeps the trials running smoothly, manages the company in a smooth, spasm-free way, much of the rest of the story will play itself out just as predicted. I’m not saying success is a foregone conclusion, but what I am saying is that Tenenbaum backs his work, knows he has good people, knows the company has been through a trial-by-fire period of getting things right… and that now the best thing he can do is not get in the way of, not step into the light of, the very good thing he’s got going. Tenenbaum strikes me as a completely honest man who, here, has almost rigged his own game to succeed, so compulsive has he been in troubleshooting at the company, in anticipating every way in which things could go wrong and wielding some prophylaxis.

During 2018, we plan some didactic coverage of this company in which we explain pulmonary hypertension physiology, why it’s dreaded, why it’s harmful, how it kills. Meanwhile, $BLPH remains a favorite long that we here afford a fresh push because we think shares will continue to perform. We think it’s very plausible an investment here could yield 1000 percent within five years; I’d come to that conclusion on my own and it was echoed without prodding by Tenenbaum. Despite this auspiciousness, only one analyst follows Bellerophon. What do you think will happen when the analyst community gets on board, as they likely will this year?

(4) Aurinia ($AUPH): 

We’ve covered it exhaustively for you and will continue doing so. We’ll soon be making a fresh bull case for it by dismantling the bear case. Meanwhile, in view of the company’s planned studies of voclosporin in renal diseases FSGS and MCD, shares will have fresh catalysts in 2018 and may finally begin the long slow process of appreciating. For most investors, the issue with an investment here is not whether it’s of any quality but rather tedium and temporal overhang….and share inertness. It’s hard watching a large pool of your assets lie there dormant or under short attack, and hard not to wish you could spirit dollars out of your Aurinia stake to be at work in some hot new biotech. We will make the case for staying in, staying committed, staying long.

I encourage readers to regard their portfolios first with an eye toward stocks in our new list that were also on our old list: these are not warmed-over entries. They’re not coming to you from the microwave. We present them up front because they’re the ones about which we feel most strongly. While it’s tempting to long for fresh places to put money, we encourage you to consider maxing out your positions in these oldies but goodies because of how relatively safe they seem to us in the context of their prospective yields.

I have long positions in all four named stocks above, but am not advising you to invest in them and not directing you to. I am suggesting you consider them and believe your portfolio will be well-served by them. I won’t trade in their shares for three days, reckoned in business days, after this column is published. I have no shares or investing interests in any other company named in the column. I enjoy good relationships with the management of these companies but have received nothing of pecuniary value from them. I cover them, and present them to you, because they are the finest companies in biotechnology in my studied opinion.

The other magi… I see their shadows in the moonlight as they walk gracefully toward us.

  1. initial presentation:

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