The sky is falling, grab a bucket if you can afford one

The last two nights had a wonderful geomagnetic storm that hit most of America. People as far south as central Florida got to see the aurora from a large coronal mass ejection. Here in Oregon it’s simply been overcast. Markets likewise are getting blasted and compounders known for low volatility are breaking records in terms of their drawdowns. Constellation software as your Canadian stalwart of M&A is a chief example of a quality corporate construct that’s having its share prices implode (implode is a relative term).

It’s a bit of a bittersweet year for me personally. After five years of following Clearpoint Neuro, the delivery method had its first true large breakthrough outside of an ultra rare disease with Huntingtons disease. Yet even though the trial was made in collaboration with the FDA, plans came to an abrupt change and without the agency pivoting again, the time until patients can access AMT-130 has probably been extended by a minimum of 5 years. Probably more.

Personally I’m bearish to the near term outcomes because this is the same agency that has been greenlighting clinical trials for topical medicines that treat onychomycosis with nonsense primary endpoint selection (since when has a subjective clinical endpoint ever been more important than an objective one) and where routine hygiene has been washing away active components for every “reduced dosing study” for 10+ years. Almirall’s outcome is no different, among every other IND for the indication.

While this may be a surprise or an unknown to readers, it’s not an oversight by the agency or the developers themselves. It’s probably the single most common thing that’s known about any topical medicine that’s ever been made. Avoid showering or washing an area over the duration of a topicals treatment may as well be a written law.

Specific to this indication because of how they’re enrolling people/building these trials, the label values you see all fill up progressively like a bucket because their value is representative of the entire treatment arm which has a variable disease involvement that’s using a fixed amount of medicine to address. Sort of like a progress bar, where the initial values are of the mild cases recruited into the trial resolving because it’s the distal end of the nail where topicals first begin to work.

If the FDA can’t get sponsors to do this one right, how are you or I supposed to have any faith in their ability to properly regulate more serious disease with more complicated drug products? The obvious “it’s not black or white” answer is just by them caring more or less about specific things that are percieved as substantially more serious than a marginally improved medical intervention for nail fungus. Yet this willingness of our drug regulator to entertain actual fraud while CMS pays out something like a billion USD/yr to the ~18,000 board certidied podiatrists for disease management of the indication gives me little hope in anything productive happening anytime soon for any of the large rare diseases of new drugs.

No less because all of this is a quiet acknowledgement of the agencies willingness to accept fees & let peoples bodies rot while sponsors are performing fake science experiments with real drugs that were never intended to be registered for human use. I do hope I am being pessimist at this point, but the complaint is inspired by observation of a behavior that’s consistent across far more than just Moberg Pharma.

The US government has also been oddly finicky and strange about cost savings this year as well, which makes the prospects of these high cost, 1-time treatments like AMT-130 even more suspect. I.e., DOGE formed and proceeded to blow up many internal controls all across the government while being advertised as a cost saving measure.

Even Marty Makary has been having public conversations about the amount of spending on biologics in terms of its share of total drug spending, and the FDA is definitely not an agency whose public directive/mandate has anything at all to do with drug pricing conversations. Beyond the FDA having no formal bearing on drug pricing outside of their influence on them as the formal gate keeper of new and current drugs, it’s also just a message that doesn’t ring true.

There is a typical 20 year exclusivity period for any IND. After that generics are supposed to be able to come and it make using that same thing cheaper. But Natroba is an example of an exclusivity period for a new drug that’s been extended simply by the exclusivity agreements of the single approved API supplier of Natroba. Its for a very common skin disease that primarily afflicts those of poverty (scabies) with a widely commercialized active component (spinosad) that can be safely applied to the skin in large concentrations if one simply has spinosad concentrate and lotion on hand.

But this is not how spinosad was decided to be made available to the general American public for scabies. Instead a person seeking spinosad for scabies must purchase a wildly expensive topical versus the people who purchase and distribute Captain Jacks Dead Bug brew, who do so for mere pennies. The tragedy here is only made worse when you find people on reddit spraying themselves with garden made insecticides bought from a groccer in an attempt to clear their scabies infestations.

Moving forward, I will probably just be avoiding anything that has a central authority dictating its introduction onto the market like a clinical stage biotech. Its an area that certainly works for some people, but it has most definitely not worked out for me.

The highlight of the year has probably been Zedcor. While I don’t believe I have the ability to predict the price at which these things should trade, I do think some startups give you the opportunity to see how they’ll scale up & develop themselves. In this way you can kind of estimate how big something may get.

Zedcor is one I’ve been following since they had a bit under 500 towers IIRC, and they recently crossed over 2350 at quarter end. They are generating enough free cash flow to finance something on the order of 250-350 towers per quarter now.

If you’ve been following their development in the US over the course of the last 12 months, margins have been climbing in the United States and their growth has been extremely rapid. Revenue for Q3 grew 363% Y/Y and their initial expansion into Texas last year has only just been initiated accross several states. Fanning out into several new states will probably let them maintain a triple digit growth rate in the US for at least another year. As margins in the US continue to climb higher all of their financial metrics will rapidly inflect higher as well.

I keep hearing feedback and questions about either the commoditization of the offering or the total market size of remote live monitoring. While Zedcor is rapidly approaching a $100M CAD runrate from their current base of ~2350 towers + the Z-boxes, I cannot envisage a reason as to why there isn’t actually room for millions of towers across the United States and Canada. It sounds a bit wild, but that’s only because no ones ever made that business exist before. It’s not because the market isn’t there.

In 2023 it wasn’t uncommon to hear about a low 5 figure to high 4 figure monthly price option for the same exact offering Zedcor supplies today for ~$2500 USD. To that end a “race to the bottom” has already taken place. But as a tradeoff, where the offering belongs now has been dramatically expanded.

How fast this can scale up and to what size I do not know, but from reading their MD&A it seems like present utilization of every tower that’s getting built is getting sold. Next year according to SCD’s latest interview they’re targetting placing something above 1,800 towers for the year, which is about 34 per week. I’m hoping to see them crush this obviously.

Todd Zinuk has quoted an ability of taking present day manufacturing in Texas to 100 towers/week, and this is obviously something that will happen if they establish themselves in enough locations to support that level of demand.