The Reason Why Prescription Drugs Are So Expensive

Any complicated and controversial topic in business, financial markets, or even so far as life, never has one sole reason for the current conditions.

High prescription drug is a persistent issue, and one that will no doubt be heavily debated and discussed during the 2016 campaign election cycle (insert throwing up sound).

There are many reasons why, on a per person basis, Americans spend around of $1,000 out of pocket on prescription drugs every year.  These are what I believe, contribute but are not the major cause of these high prices:

• Due to characteristics of inelastic demand and high barriers of entry through the patent process, the laws of economics tell us that any rationale participant would price these goods relatively high
• The average new drug costs about $2.5B to develop through R&D and legal and regulatory costs, takes approximately 10 years from start to finish, and only 10% drugs ultimately make it to the market; put simply, this developing drugs is a high risk venture
• In other countries outside of the United States, there are far fewer companies and organizations that will purchase prescription drugs, which allows a large concentrated group to exert a large amount of purchasing power, and thus demand lower costs when compared to Americans

The third point relates closely as to my belief of what is driving up prescription drug spending by 13.5% in 2015, and those raising pill payments. The primary cause of this issue is Medicare being prohibited from negotiating drug prices with pharma manufacturers.

Some may be surprised to know this is even a law. But yes, the largest insurer of the elderly population, which uses prescription drugs more than any other age demographic has ZERO pricing power in America; it’s the total opposite in the majority of developed and undeveloped nations.

What’s even more comical is that it was introduced by a Republican and continued on by a Democrat.  As a side note, the more you look into political actions, the more you realize both sides are much more alike than different.

Yes, that lovable Congress with their sky high approval rating along with George W. Bush snuck that minuscule provision in into the legislation piece that created the Plan D prescription benefit program in 2003.

But as you’re well aware, our current full of fear leader, Obama, had a tremendous opportunity to include this in his healthcare reform bill. The point of Obamacare was to decrease healthcare costs, yet he and his Ivy League brain couldn’t put these two together (or he got lobbied out of it…).

As a side note, want to know how Martin Shkreli and Turing got away with jacking up Daraprim from $13.50 up to $750 a pill? Read the following from American Journal of Managed Care:

“For many years, most insurers had formularies that consisted of only three tiers: Tier 1 was for generic drugs (lowest copay), Tier 2 was for branded drugs that were designated “preferred” (higher co- pay), and Tier 3 was for “nonpreferred” branded drugs (highest copay).

Generic drugs were automatically placed in Tier 1, thereby ensuring that patients had access to medically appropriate therapies at the lowest possible cost. In these three-tier plans, all generic drugs were de facto “preferred.”

Now, however, a number of insurers have split their all-generics tier into a bottom tier consisting of “preferred” generics, and a second tier consisting of “non-preferred” generics, paralleling the similar split that one typically finds with branded products. Copays for generic drugs in the “non-preferred” tier are characteristically much higher than those for drugs in the first tier.”

What does this all mean? Basically, while the healthcare reform bill outlawed denying care because of pre-existing conditions, it allows for a new form of drug tiering.

What Shkreli did was take an old generic pill, rocket up the price while knowing full well this could easily be included in the non-preferred tier, and would still be reimbursed.

In the end, however, when you the largest entity representing the consumer is unable to negotiate on price, you can be sure the producer or manufacturer will use this to their advantage.

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Let me start off by wishing everyone a Happy New Year. I’ve been out of commission (extra brokerage house) for the past couple weeks due to a minor outpatient surgical operation, but I’m feeling country strong.

As many of you know, Fly had very generously laid out to you his plan to use OS signals in Exodus and hold for a 10 day period as his sole trading strategy for 2016.

The purpose of this piece is to show how almost anyone looking to make money on a widely available and liquid asset class will increase their chances of success through Exodus.

Please note this up front; I’m not being compensated by Dr. Fly nor anyone else involved at iBC to write what some of you may pessimistically believe to be a full on advertisement and/or testimonial.

Before I get into the strategies and tools, the absolute #1 reason why Exodus will improve your returns is quite simple: it will takes away, if not at the very least reduce (depending on how big of mental case you are), emotions out of trading and investing.  Raise your hand if these four days have been emotional for you (sheepishly raises hand).

Emotions can occasionally produce outsized gains, but more often than not, they will lead you to larger blowups and drawdowns. And here’s another dirty little secret: everyone has them, from a multibillion dollar hedge fund manager to the hero trading his four figure account. One of the most vital keys to success for either of these two is controlling their emotions.

Any actively managed account should have some sort of short term trading strategy. My reasoning is that this is the designated area for taking out those funds and spending the cash. It’s a good reminder to take money so that you get a tangible sense of your end goals.

Like statistics, any chart can be manipulated to certain extent. Exodus provides Technical scores, which helps the trader remove any biases. Hybrid scores, which combines fundamental metrics with the aforementioned technical data, are generated as well.

Beyond the hard numbers, one of the most unique and valuable features for the Adderall taking, Snapchat curating, give me the answer right now I can’t even populace is the visual aspects and outputs that the developers stressed. You can make a very quick decision in an informed manner. Rarely do you get these two traits together.

With all of that being said, here are potential strategies different types of traders and investors.

Short-term trade for an individual equity

Many traders will use charts, trend lines, support, resistance, volume bars, and technical indicators such as RSI, ATR, and Bollinger Bands. While I respect and admire this type of analysis, the Technical score provides a comprehensive indicator to analyze the stock’s technicals.

Price targets are key in short-term trading; set them up based on the Oversold and Overbought Signal.

If you’re unfamiliar with this, the algorithm flashes OS or OB for 3 mo, 6 mo, 12 mo, and historical time sets. It will display the average returns for multiple holding periods (1, 3, 5, 7, 10 days) and the times the return result was positive and negative (this is where understanding the odds plays a huge role).

Example: You want to trade $AMBA. It flashes OS on the 12 mo algorithm at a price of $50. For a 5 day holding period, the Avg Return is 5%. And times up vs. times down is 10 vs. 3 (so up 77% of the time).

Based on this, you can set your price target based on a return ($52.5) or holding period (5 days) or a combo of both.

My preference is to trade ETFs (big ups to$ XIV) using OB and OS because the non-systematic risk (i.e., individual stock risk) is eliminated, which improves confidence levels and mitigates scared hands. I also look for win rates of 80% or above; that way the mathematics support me going in big on certain trades.

Trading options

The same OS and OB tools and stats can be used for calls and puts. Many members have mentioned using it trade general options, weeklies (think 5 day), YOLOs (shout out to Option Addict).

However, one of my favorite strategies, especially when I’m holding a ton of cash on the sidelines is to sell puts on stocks that have hit OS and have very high win rates. The number of contracts I sell are dependent on the win rate.

If it’s a stock I wouldn’t mind owning and is hit because of general market conditions, non-company factors, and isn’t industry sensitive (think oil stocks here), I sell slightly below the money for a higher premium. If it’s a stock I don’t want to own, a high win rate is necessary but sell deeper in the money.

Using the OS signal and buying weekly calls have also produced wins for me as well.

Long term investor

If you’re someone who wants to focus more on the fundamentals and valuation metrics, Exodus is ideal. Rapidly compare revenue, profit, debt, ROA, ROI, etc. from one company vs. competition.

Also, you get the Price/Book, Price/Earnings, and Price/Sales ratios for the company, and medians for the sector, industry, and general market for comparison and valuation capabilities.

Lastly, the most intangibly valuable characteristic is the community of members. We learn and teach successful trading and investing strategies, ask questions, absorb unique market knowledge, and get confirmation when we hit that proverbial wall.

This is the toughest game in the world because everyone can play, from the sophisticated pros to the newbies. I mean, you can’t stroll into Rucker Park and play pick up with Steph Curry and Kevin Durant.

Take trading and investing extremely seriously, and dish out a little capital. Used correctly, it’ll pay for itself in one or two trades. Otherwise, just like the past four days, this time due to China, you’ll get dunked on (extra Yao Ming).

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Seeing as how the A-Squad iBC writers put out there yearly predictions, I figured I’d give a run at this game of “Finding Miss Cleo.”

Feedback/banter is highly encouraged in the comments, as well as any of your own predictions so that when you say, “I told you Company ABC was going to be $350”, the Internet will have record of your claim.

Without further adieu:

• Gilead hits $150
• Seattle Genetics gets acquired for purposes of their patented cancer treatment technology
• Jazz Pharma gets acquired for inversion purproses and their attractive valuation that investors have been sleeping on (pun intended)
• Value over growth will be a winning theme, except for a select few…
• Ambarella reaches $100
• Salesforce.com blasts through $100
• Bill Ackman will get his revenge and go absolute beast mode on his doubters, except for his Herbalife bet
• David Tepper will become more well known to the general public through environmental pressure due to his SUNE attack; he will come out on top of course
• Uber and Airbnb go public and experience the IPO down round
• Palantir goes public and immediately trades up due to global security concerns and their reputation as a terrorist prevention firm
• Slack becomes the new Silicon Valley darling that EVERYONE will know
• Facebook hits $125 quickly after Q1 report but flat lines for the rest of the year
• Twitter gets bought out
• Fed raises twice and lowers once; actively managed monetary policy becomes a trendy phrase
• Brits raise rates and creates tenuous relations with ECB
• Turkey leaves NATO and G20
• Oil trades between range of $25-$45
• The high yield ETF (HYG) will be down 15%-20% YTD at some point
• Immigration policy will be the political lightening rod due to heighten domestic terror risks and outlandish claims of wall building
• An old white dude over 60 will not win the presidential election
• The Chicago Cubs will at last… No way, those Lovable Losers will not win the World Series
• And finally, after my Michigan State Spartans beat Bama in the College Football Semis, they take down Clemson in the Finals and are crowned the champs

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A long time ago in a galaxy far, far away called Silicon Valley, Unicorns and the mighty Decacorn roamed the land. These species were a colossal force to be reckoned with.

While a handful of these creatures displayed growing revenues and high margins, many of them exhibited scary features such as pre-profit (even pre-revenue) and excess capital burn.

They were so powerful that there was a belief that they could raise more capital being privately held vs. publicly traded.

Things all changed on an apparently normal, mildly temperate day. Out of nowhere, the evil Grandma Yellen traveled via Greyhound through the heartland and rained down interest rate hike after interest rate hike, as if giant asteroids were hitting the Earth.

These confounding hikes were too much to withstand for the Unicorns and Decacorns who fell by the wayside and disappeared…

Okay, enough fairy tales.

I’m of the vehement belief that ZIRP and historically low interest rates were gigantic factor in these companies gaining +$1B valuations.

Two reasons: money was (still is, but its rising) extremely cheap which allowed easy access to credit, and a seemingly everlasting low yield environment that encouraged excessive risk taking.

Seriously though, how many companies can “change the world?” You’re telling me an app that can find the cheapest grilled cheese in downtown Chicago is worth a cool billion? The f#*k out of here.

It should come as no surprise that there has been a drastic reduction in amount of headlines or news stories about SnapBox raising $275M or DropChat being valued at $19B.

Instead, the dreaded “down-round” phrase has been thrown around and associated with these SanFran darlings.

This past October, BlackRock, which led a $350M deal that more than doubled Dropbox’s valuation, cut its estimate of their valuation by 24%. In November, Fidelity wrote down its stake of Snapchat by 25%. Oh yeah, they also wrote down Zenefits (HR platform) by 48% and Blue Bottle Coffee Co. by 43%.

Don’t get me started on the court jester display that Theranos has put on over the past three to four months. Further, deteriorating conditions in public markets and smarter big money players are confirming this trend. Tech IPOs are at 20 year low.

According to Renaissance Capital, only 23 of 169 IPOs were from tech. More worrisome, these tech IPOs have raised a total of $4.2B in 2015, shockingly lower than the 55 tech IPOs that raised $32.3B in 2014.

Box and Square, while taking a line drive to the nuts, went public this year at values substantially lower than their last private valuation, 30% and 40% respectively.

Finally, the ever egregious “liquidation preference” clause that VC’s, founders, and board members include in their preferred equity shares just screams slippery slope. Often, the owner of this equity class gets a guaranteed return of at least 1x their investment.

What does this mean? Imagine Fred Wilson, skipping and frolicking, buys 20% of the above mentioned grilled cheese app company for $200M (said company is now worth $1B), with $1 per share and 1x preference. Also, there is the factor whether the shares are participating or not.

Compare the two situations below:

Sale Price:	$       1,500	(in $millions)
	Preferred and Participating	Preferred, but Non- Participating
Preferred	$          460	$          300
Common	$       1,040	$       1,200

 

Sale Price:	$          600	(in $millions)
	Preferred and Participating	Preferred, but Non- Participating
Preferred	$          280	$          200
Common	$          320	$          400

Don’t get me wrong, there are plenty of viable, awesome, and disruptive Unicorns and new IPOs. Uber, Xiaomi, Airbnb, Palantir, Snapchat, and Pinterest come to mind under the privately held umbrella, and the recent IPOs of Pure Storage and Atlassian are very attractive long-term investments.

Factors such as ridiculously elevated valuations, low barriers to entry, and heavy competition are just a few challenges I see for these Unicorns. I plan on analyzing these companies next year, and providing a reasonable valuation.

In the end however, with Yellen halting easy monetary policy and cheap capital, I highly suspect that this will have a major negative impact on these companies. VC’s and other investors will pull back on reaching for yield.

In an ironic and perilous similarity of circumstances, the Fed aggressively began raising interest rates by a quarter point, beginning in June of 1999 through December 2000. Anyone remember something bursting during that time?

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Before you say anything about Carl Icahn, you cannot argue with the fact that he is one of the greatest investors of all time. Is he intelligent? Is he ruthless? Is he is lucky? Yes to all.

However, with his recent double downs in LNG and FCX, as well as holdings in CVI, CHK, and RIG, one has to wonder whether he’s losing his touch.

With the high yield market starting to publicly teeter (this isn’t a surprise to many); I had wrote about this in a post just over a week ago: Coming Down from the High.

After reading two separate posts on iBankCoin about Uncle Carl, one from The Fly Icahn: This Market is a ‘Keg of Dynamite’ Ready to Blow and the other from Activiststocks Icahn Goes Senile: Loses Half Billion, something came across my mind.

How and why is Icahn pushing a large amount of chips in the middle of the table on his holdings in these debt laden commodity companies, while giving out warnings and at least seemingly being cognizant of the dangers in high yield?

While Activist gave an entertaining and very possible explanation, I’d like to explore three other reasons, and will conclude at the end where my vote is.

Hypocrite

The reason I say this is because Carl has been at the forefront beating the drum about the dangers of high yield. Just take a look at this strange video produced by his daughter, Danger Ahead.

Carl has also been a stringent critic of Larry Fink, Blackrock’s CEO, saying that his high yield ETFs and mutual funds are in deep trouble and will cause major problems investors. I love how he always just refers to him in interviews as “Larry,” as if the viewer was a dear personal friend of Fink’s.

Lunatic

After watching the video referred to above, one has persuasive evidence that this is a sound choice.  He would also be considered borderline because he has been buying more shares of LNG and FCX, a liquefied natural gas company and a major commodity player.

Both of these organizations have been issuing debt like a fat guy eats donuts; quickly and messy.

Someone with the investing acumen as Carl would realize that these are risky businesses, with commodities in a constant deflationary state.  The actual operations and basic materials that drive these interest and principal payments are in serious peril.

Only a mentally incompetent person at this point would be adding to their position, especially one that manages billions of institutional dollars.

Strategist

So that brings us to the answer that, with everything being equal, would seem to be the most correct explanation. I can also explain why this is the best answer, without everything being equal.

Carl runs a hedge fund, a giant one that moves markets. A hedge fund is supposed to hedge! Over the past few years, the running joke on Wall Street has been long/short funds are just long.

Over the past few years, the persistent rumor (and likely truth) is that many managers have stopped hedging.

However, I am of the belief that Queens’ own Mr. Icahn has very likely been hedging, and this is what explains the perceived talking two sides of his mouth in going very long LNG and FCX, and screaming like the Boy Who Cried Wolf that high yield will drastically crash.

If you read my prior post about high yield coming down, my belief was based on the divergence of spreads between CCC and Below rated from the Total High Yield. While I believe charts have their limits, I’ve based my thesis on the charts themselves telling me and the general market a story.

If a beginner blogger who recently had his training wheels removed, such as myself, was able to catch this move, there is absolutely no reason why Mr. Give Me Three Seats on Your Board  and his team Ivy’s wouldn’t be aware of this.

Remember, 13F’s only disclose long positions; Icahn could easily buying puts or shorting HYG, or selling calls on his commodity companies, or multiple other strategies of protecting the downside.

This is the divergence I’m talking about; please see the upward sharp move in the CCC and Below in late October of this year:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conclusion

I believe he is a Strategist, and doing something he always does: talk his book. Although there is no way for me to prove that he is also protecting his tail and hedging, him building up his long position and warning about high yield makes complete sense.

But then again, Carl Icahn could easily be senile, a hypocrite, a lunatic, or all of the above…

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Here’s another reason why Gilead is probably the most undervalued and underappreciated company in the world:

According to the U.S. Centers for Disease Control and Prevention’s, Truvada, or the PrEP pill, taken daily can reduce the risk of sexually acquired HIV by more than 90%, and can reduce injection drug users’ risk of HIV by more than 70%.

What is PrEP/Truvada? It is an HIV prevention strategy where HIV-negative individuals take anti-HIV medications before coming into contact with HIV to reduce their risk of becoming infected.

While Truvada was approved by the FDA in 2012 for HIV prevention and in 2004 for HIV treatment, the CDC estimates that 1.2M people should be taking it to prevent infection and stop its spreading.

So why haven’t you heard about this drug?

A lot of it has to do with the lack of knowledge, or purposeful ignorance in the medical community. A CDC survey found 34% of primary care doctors and nurses have never heard of Truvada.

Another, and possibly even more bizarre, reason is critics within the LGBT community argue that those who use Truvada can sashay around town (extra pun intended) and have as much unprotected sex as they want.

They have been called “Truvada Whores”; no joke, Huffington Post has an article with this ridiculous and simple-minded categorization.

This is akin to me saying that because condoms prevent STD’s, I should never use them with a female partner because I’ll be labeled a “Trojan Whore” (extra Helen of Troy). Read a book if you didn’t get that joke.

Oh and by the way, it isn’t inconceivable that someone (straight or gay) would lie and say they don’t have an STD. A reasonably intelligent person would think to themselves that some sort of protection is prudent (see what I did there?).

Many of the readers may be thinking to themselves that isn’t this the same Gilead who jacks up the Hep C prices and makes patient access very difficult through their evil “revenue-driven” strategies (check out Gilead Findings: Government Work at its Finest)?

Given Gilead’s low-brow media perception and genius findings of Senators Wyden and Grassley, your skepticism is warranted given that Truvada treatment can run from $1,000 to $1,300 a month.

However, more significant and noble, is the fact that many insurance plans cover Truvada. Moreover, uninsured patients can get Truvada for free through Gilead’s patient assistance program. How come Tweedledee and Tweedledum didn’t mention in this government report?

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As the saying goes, the bond guys are the smartest in the room. The alpha male out of all those Rain Man brainiacs is Jeff Gundlach.

Gundlach has been pounding the table and shaking his head at the notion of the Fed raising rates. Recently, he was quoted as saying, “I do believe the Fed raising interest rates will increase volatility and will weaken the economy.”

However, as another saying goes (for you newbies, there are plenty of mantras on Wall Street), don’t fight the Fed. Gundlach’s play book to prepare for a rate hike: Take more interest rate risk and less credit risk.

Translation= Buy long-term Treasuries, and sell high-yield bonds. In his words, “the long bond wants the Fed to tighten.” He oversees $80B. How much do you manage? I for one will not argue with him.

While I encourage you, the reader, to explore the idea of buying 30 year bonds, the rest of this article will explore the notion of selling high yield bonds, and what potential impact that may have on equities.

This will be broken down in a few graphs/figures/exhibits, along with commentary.

High Yield Spreads

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The first graph represents the spread for all credit classes of High Yield bonds.  The second graph represents a subset, CCC or Below. Higher spreads means an increasing amount of credit risk.

Think of the first graph as a bunch of different whiskeys, while the second graph is swill contained in a plastic handle that you wouldn’t even serve at an undergrad house party.

The takeaway: For the most part, both lines tend to move in a very similar pattern. However, you’ll notice a steep move to the upside in the CCC or Below but not in High Yield as a whole beginning about a month ago.The credit market seems to be signaling that there is more risk underneath the surface, especially in the lower rated issues.

Corporate Debt Spreads

 

 

 

 

 

 

 

 

 

This graph represents credit spreads for higher grade credit issues, particularly in the corporate debt space. Essentially, a much tastier and higher quality group of wine bottles as compared to the High Yield’s collection.

The takeaway: While spreads here have been in a general uptrend as well, you’ll notice that they’ve been flat, and almost dipping lower, right at the same inflection point of where CCC or Below broke out to the upside.  I interpret it as rate risk not impacting the higher quality instruments, but that there is major concern in the junk. And remember, dumpster fires can spread to nice areas rather quickly.

Financial Conditions Index

 

 

 

 

 

 

 

 

 

Here, the higher the number, the tighter the actual financial conditions and environment.  Not too alarmed here, despite the upward trend. I’ll trim some risk and sound the horn if we start creeping into -0.5/-.55.

Leveraged Loan Index or ETFs

 

 

 

 

 

 

 

There has been a continuing decrease in Leverage Loan arena, as measured by the PowerShares Senior Loan ETF (BKLN). This is another factor in considering that higher yielding instruments are becoming less attractive.

Conclusion

The combination of the credit cycle being stretched as far as it ever has been, the seeming intentness of the Fed to raise, and under 50 ISM reading in November, the maturity wall may be too high to climb for a ton of these High Yield instruments.

With everything presented above, I do believe it would be wise to take a little risk off the table and go into some cash. I’m not predicting a crash or a spike because, even if I knew, I wouldn’t be posting it here without charging all of you.

An additional tactic is to buy SJB (Inverse High Yield ETF) or purchase puts on HYG. With the cash on the sidelines and with HYG being a much more liquid trade, the plan is to hedge by using 2%-3% of my account and purchase long dated HYG puts.

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Supposedly, being a United States senator is prestigious job. I mean, they only have 100 available positions; this isn’t like being the lead burrito wrapper at Chipotle.

Yet, the incompetence, lack of cohesiveness and private sector experience, and sluggishness of both the Senate and House of Representatives makes my local Starbucks look like a black-belt Kaizen operation.

The “bi-partisan” tag team of Senator Ron Wyden (D-OR) and Chuck Grassley (R-IA) is the most recent example of too much public service and too little real world experience. Yesterday, they released a report titled, “The Price of Sovaldi and Its Impact on the U.S. Health Care System.” Report can be read here: Senate Finance Committee Report on Sovaldi and Harvoni

The report is an enthralling 144 pages, and took these two wanna be Hemingways 18 months to write. I’m guessing it was their interns or aides that actually produced the content.

The premise and conclusion of the report can be summarized as follows: Gilead purposely established an exorbitant and outrageous price on Sovaldi and Harvoni, which has led to many patients not being able to access the drugs.

For those unaware of the prices, Gilead prices Sovaldi $84,000 for a 12-week duration, and Harvoni, a follow-up pill that’s even more effective, with a list price of $94,500.

At first glance, most people (including myself), would believe this is a tremendously expensive drug. And it is; this post isn’t meant to dispute that obvious fact.

However, I’d like to share with you, the educated and level-headed reader, where this report fails on many levels and why government can be so contradictory and inefficient.

If you’re unfamiliar with Solvadi or Harvoni, either read my Analyst Report on Gilead or pay attention to commercials run during nightly sporting events. These two blockbuster drugs CURE (not TREAT) Hepatitis C.

Again, since polio, what other disease has been cured? Here’s a dirty secret: 99% of pharma companies make boat loads of cash because they treat, not eradicate. Essentially, the customer is always coming back.

I’ve seen family members and friends viciously struggle with as cancer or autoimmune disorders, just to name a few. It’s heartbreaking. But you know what, nothing is eliminated; it’s only managed at best.

What Wyden and Grassley laughably excluded is Sovaldi and Harvoni will decrease long-term health costs, such as hospital stays and doctor visits, and prescription refills. This is obnoxiously expensive too.

These two court jesters barely scratch the surface in discussing the role of health insurers, which lessens the impact on patients. As Chris Rock so eloquently put it, “Insurance should just be renamed ‘in case shit happens.’”

Their sole focus was on list price, neglecting negotiated discounts and health insurers’ responsibility, and disregarded the fact that Gilead has basically given away these drugs s in third world countries.

Moving away from what they excluded, let’s discuss what they included.  For starters, check out the comedic headline title on the official U.S. Senate Committee on Finance website:

“Wyden-Grassley Sovaldi Investigation Finds Revenue-Driven Pricing Strategy Behind $84,000 Hepatitis Drug”

I guess in the world of business savvy public service leaders, revenue-driven ideas are a big no-no. Clearly all entities, whether they are government or free-enterprise, should avoid any avenues or tactics that lead to BRINGING IN money.

Also, Behind should be spelled behind; these numb-nuts even screw up third grade grammar rules.

This mindset is one of the many catalysts that have created a national debt of $18.1T (approximately 74% of GDP). This purposeful ignorance of money in vs. money out is attributed to both parties so please save any comments about being a bullheaded conservative stalwart or nutty liberal socialist.

You know who also has pursued revenue-driven strategies? Hmmm… How about everyone’s favorite company Apple? I’ve never heard anyone utter that iPhones are reasonably priced, or data usage is fair.

We all know people who couldn’t survive without their phones (while a sad statement, this isn’t a joke). If an iPhone was $5, you cannot argue against the premise that an informed individual is better off.

GM and Ford have also instituted a crazy concept of revenue-driven strategies. But we do not give away cars to people, even though it would help them get to that job interview.

Nor do we force home builders to drastically reduce their construction price, only to see them go bankrupt. I would love a world of zero homelessness, but it’s not the reality.

And don’t even get me started on medicine’s sham of a cousin, dentistry (extra Seinfeld). You and I both know people who need dental work for aesthetical and physical needs. We don’t have Senators investigating Tim Wattley for over-charging on a simple teeth cleaning.

We can all agree that low price and available health care is ideal. However, simply saying prescription drugs are way too expensive, and supporting that thesis on a short-sighted purview with no recommended alternative, is government at its finest.

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While there have been breakthrough advances in the efficacy and success of treating illness, diseases, and ailments through biotech drugs, some companies take it a step further.  In addition to improving effectiveness, they have developed innovative and convenient methods in delivering treatments.

One of these companies is Oramed.  If you are not familiar with ORMP, they develop drugs and vaccines in an oral pill form that are traditionally and currently delivered through an injection.  Their most successful product to date is an insulin capsule used to treat diabetes.

Does this sound like a make believe story with fairy dust sprinkled all over it? No, it’s not a Theranos situation where they claim to have a much improved methodology that eliminates archaic outdated procedures and tests only to find out they’ve been using the new technology for only 1 of the 240 tests that they claim.

What interests me about ORMP is not simply their success (see below) in treating a debilitating disease, but their vision to totally shift the paradigm on how the drugs are delivered. In the ultra-competitive world of biotech and pharma, any differentiator will give you a leg up.

This is what I like about ORMP; they’re showing me something that is new, convenient, and successful. Ms. Holmes, while I admire her ambition and hope to have her success, could learn something from this company about going through the proper channels to have a sustainable, long-term breakthrough product.

Positive Factors:

– ORMP reported details from their Phase II A clinical trial:

“The results showed that ORMD-0801 oral insulin appeared to be safe and we ll-tolerated for the dosing regimen considered in this study. No hypoglycemic events occurred at any point in any treatment group and no treatment related adverse events were observed.

Although the study was not powered to show statistical significance, there were trends observed showing pattern of well-defined and short-term increases in plasma insulin and decreases in blood glucose.”

– This flagship product has successfully completed multiple Phase II A clinical trials and on June 30^th of this year started its Phase II B clinical trial with the FDA for Type 2 diabetes, with the treatment for Type 1 diabetes is in the middle of Phase II clinical trials as well.

– On September 24^th, their patent for “Methods and Compositions for Oral Administrations of Proteins” has been allowed by the United States Patent and Trademark Office.

Although this wasn’t celebrated like an FDA approval, its’s an important and vital step because it will essentially let Oramed be the only company that can distribute diabetes treatments in an oral pill form for the length of the patent.

– In addition to oral insulin, ORMP’s proprietary POD technology can be used to orally administer a number of protein-based therapies that are currently available only through an injection.

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As of today, ORMP signed a definitive licensing and investment agreements valued up to $50M with Hefei Tianhui Incubator of Technologies Co., Ltd., a well-known Chinese incubator, for exclusive rights to market the oral insulin capsule in China, Hong Kong and Macau. The details include:

$3M upon execution of the agreement; $8M in near-term payments subject to ORMP entering into certain agreements; and balance payable upon achievement of certain milestones.

In addition, if all conditions are met, HTIT will pay a 10% royalty on net sales of the related commercialized products. Lastly, Oramed will issue to HTIT 1.51M restricted shares of ORMP stock at a price of $10.39 (or ~$12M) in total, subject to customary closing conditions.

The concept of treating and testing diseases in a new manner has been a proven anecdote (pun intended) for investor enthusiasm.

Just look at the run-up Exact Sciences had up until the end of the summer; they’ve been successful at developing non-invasive colorectal cancer screening products. There are so many ways I could make a literate joke here…

Make no mistake about it; ORMP is no sure thing (nothing is in the market or in life for that matter). Uncertainty abounds what the end game is between buyout, partnership, growing the business organically, or eventual bankruptcy.

However, if you’ve got the patience and the awareness that this is a boom or bust long-term investment, I highly encourage you to learn more about them. Note, I’ve been long since late May-early June with an extremely small position (less than 1% of portfolio).

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