While we have started mostly using The Wire at 247wallst.com for our biotech and active trader posts (among many other aspects 50 to 100 times per day), we have a question for BioHealthInvestor readers after VIVUS, Inc. (NASDAQ: VVUS) has basically doubled on news of Qnexa getting a recommendation for approval from a FDA panel…
If you were the CEO or CFO of VIVUS, wouldn’t you immediately go out and raise capital now?
Our take is not just “yes” but a resounding yes. With $150 million or so in net tangible assets as of September 30, 2011, with a ten-year history, and for many more reasons, this would seem like a shoe-in for a capital raise.
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At the end of December, we usually review the biotech sector to see which stocks have the most upside for the year ahead. The basis of the “implied upside” is the consensus mean estimate from Thomson Reuters. Sometimes the pack of analysts is very right, and sometimes they all get blind-sided.
It was interesting to see that Human Genome Sciences, Inc. (NASDAQ: HGSI) was the top biotech and biohealth related stock as far as implied upside for the year ahead. Perhaps the upside is because analysts were caught off their feet over the doctor-patient adoption despite that no new lupus treatment had been given FDA approval in years. Perhaps it is now that more clarification is coming on the reimbursement and recommended drugs from physicians.
Either way, this was what biotech traders would refer to as a widow-maker in 2011. Shares are currently around $7.07 and the $17.06 price target objective from Thomson Reuters implies more than 100% upside ahead. Can that be true? Most likely it is because the stock has been sold off even more than most analysts expected: its 52-week range is $6.51 to $30.15.
Many investors still hope for a takeover, but it would realistically be puzzling as to how such a deal could get done now that the share price implosion would leave so many shareholders buried with assured losses.
JON C. OGG
Alimera Sciences, Inc. (NASDAQ: ALIM) is the latest of the drug implosions and this one looks even worse than just severely damaging. The FDA’s complete response letter is really a request for additional data. This is almost as bad as it could be, short of an outright rejection with an order of termination, for its diabetic macular edema (vision-loss for diabetics) drug candidate called ILUVIEN.
The reason the stock was down so much (almost 75%) is because we can’t see how the company can adequately fund the next trial and the next trial after that. One trial, maybe. Two, no way. The company had less than $39 million in cash on hand as of the end of September and its quarterly loss was $6.5 million in the last quarter even though its R&D expenses were lower.
This killed co-development partner pSivida Corporation (NASDAQ: PSDV) as well as the intravitreal insert was aimed at providing a therapeutic effect delivering a sustained release of the drug. pSivida was down 48% at $2.02 on the news as is supposed to get 20% of the profits. Alimera would have owed an additional milestone payment of $25 million to pSivida had ILUVIEN been approved.
We hate to see companies with drug candidates that are so needed fail. This is one of those cases where a new treatment could really come in use. Sadly, unless this drug has some very clear cut benefits on other indications, this could be the beginning of the end.
Alimera has only been public for a year and a half. Welcome to the biotech stock market. This stock fell 73% to $1.96 on Friday and it still has a $61 million market cap. A 73% drop is never a good thing unless you are a short seller. Alimera has a very tough road ahead.
JON C. OGG
Tuesday has been an awful day for shareholders of Targacept Inc. (NASDAQ: TRGT). The company shares lost more than half of their value on news that initial test results from the Phase III antidepressant (TC-5214) failed to meet their endpoints in treating major depressive disorder. Targacept is covered under a co-development pact with AstraZeneca PLC (NYSE: AZN) in the United Kingdom and this is supposed to be an add-on treatment for patients where primary treatment was not adequate.
Effectively, this was the first of four Phase III trials and more data on all of the results should come by the first half of 2012. What is amazing is that the companies have said that they still hope to file for FDA approval in the United States during the second half of 2012. Depression treatment is such a toss-up that a company’s primary endpoints might be well above what a minimum threshold is for FDA approval.
Investors are speculating that Targacept does not die on the vine here. Targacept is down almost 57% today but the stock is still at $8.25 and the market cap is still $275 million. Shares hit a new 52-week low today and the new 52-week range is $7.93 to $30.47. To show just how much optimism has been wiped out, the Thomson Reuters pre-news consensus price target was just above $30.00. AstraZeneca ADRs are down 2% at $46,34 in New York trading.
The hope is that there could still be approval. We won’t endorse that, but we did want to see what else Targacept has up its sleeve in the pipeline other than TC-5214:
- TC-5619 for Residual Symptoms in Schizophrenia, Alzheimer’s Disease and ADHD
- AZD3480 – ADHD
- AZD1446 – Alzheimer’s Disease
As of June 30, 2011, Targacept had nearly $189 million in net tangible assets. If you just look at cash, cash equivalents, short-term investments and long-term investments, the figure is more than $290 million before backing out liabilities.
JON C. OGG
Vical Inc. (NASDAQ: VICL) and VIVUS, Inc. (NASDAQ: VVUS) are both running higher this Friday on news that Credit Suisse initiated both biotech outfits with “Outperform” ratings. What matters more than the call are the price targets and the inferences made in the research calls.
Vical Inc. (NASDAQ: VICL) is rarely given huge analyst calls due to what is a small $250 million or so in market cap. The team at Credit Suisse initiated Vical with an “Outperform” rating this morning but more important is its price target of $7.00 per share. This represents more than a 100% move compared to the $3.45 close on Thursday. What was more impressive was the $7.00 price target versus a $3.45 close before, indicating just over 100% upside.
Credit Suisse noted that Vical’s lead product Allovectin is in a Phase III trial for the treatment of metastatic melanoma but noted that it also has a pipeline of other vaccine product candidates. The firm’s discounted cash flow target is based solely on Allovectin, which the firm noted “makes Vical a high risk investment because Allovectin still needs to successfully complete Phase 3 and the FDA approval process.” The firm went on to note impressive Phase II data with overall survival of chemo-naïve and experienced patients as being 18.8 months. It further noted that the drug did even better in chemo-naïve patients with a median overall survival of 22.5 months versus 11.2 months from Bristol-Myers Squibb Company (NYSE: BMY) Yervoy+DTIC in chemo naïve patients.
VIVUS, Inc. (NASDAQ: VVUS) was also started as “Outperform” with $15 target at Credit Suisse. The firm noted the title “The Road to a New Obesity Drug Is Tough, but
It Ain’t Over ‘Til the…” The firm believe that VIVUS’ weight loss pill Qnexa will be approved in the United States as a drug to treat obesity with a restricted label in the second quarter of 2012 and then will be approved in Europe in the third quarter of 2012. Credit Suisse’s discounted cash flow based target price is driven entirely by Qnexa. The firm went on to note, “which makes Vivus a high risk investment because our target price is dependent on US approval.”
Vical is up 5% at $3.62 on normal trading volume and VIVUS is up 4.5% at $9.92. Bristol-Myers Squibb Company (NYSE: BMY) is down 1.5% at $31.26 on the day.
JON C. OGG
Top Biotechs With Upside Ahead of Earnings (GILD, AMLN, ARIA, INCY, JAZZ, DNDN, HGSI, ILMN, AMGN, CELG, BIIB, BMRN, LIFE, REGN, AMLN, CBST, ONXX, THRX, VPHM)
Earnings season is afoot and we wanted to see how the analysts are ranking the top biotech stocks before these companies begin their earnings reports. We pulled the top biotech and biohealth related stocks which have market caps of $1 billion and higher and we broke these out into three separate groups by size. The large-cap biotechs are ranked in descending order by size. The stocks under $10 billion in market cap and then under $3 billion were broken out in alphabetical order.
We have compiled some color on selected names, but we also listed the current trading prices, the implied price targets from Thomson Reuters, gave multiples of earnings estimates (from Thomson Reuters) for the forward year (2012 in most cases), showed the trading history and listed a price-to-book ratio. We did not take any merger news into consideration so that we could just show an as-is model here.
Of the large cap stocks in biotech, Gilead Sciences, Inc. (NASDAQ: GILD) was the leader. Several other standouts in the biotechs under $10 billion with a high degree of expected upside were as follows: Amylin Pharmaceuticals, Inc. (NASDAQ: AMLN), ARIAD Pharmaceuticals, Inc. (NASDAQ: ARIA), Incyte Corporation (NASDAQ: INCY), and Jazz Pharmaceuticals, Inc. (NASDAQ: JAZZ). Other biotechs such as Dendreon Corporation (NASDAQ: DNDN), Human Genome Sciences, Inc. (NASDAQ: HGSI) , and Illumina, Inc. (NASDAQ: ILMN) also screen out as those with the most upside, but that is because of huge share price drops of late.
THE $10 BILLION AND OVER IN MARKET CAP
Amgen Inc. (NASDAQ: AMGN) is the largest of the independent biotechs and it remains stuck like Chuck. At $56.71, the consensus target is $64.85 and the stock trades at a mere 10-times 2012 earnings estimates. Its 52-week range is $47.66 to $61.53 and its market cap is north of $52 billion. It is also worth about 2-times book value. Implied Upside: 14.3%.
Gilead Sciences, Inc. (NASDAQ: GILD) trades around $40.37 and estimates have a consensus price target of $47.96. This forward earnings multiple is only about 9.0 now. The 52-week range is $35.28 to $43.49, the market cap is $31.1 billion and the company trades at more than 5-times book value. Implied Upside: 18.5%.
Celgene Corporation (NASDAQ: CELG) trades at $64.97 and the consensus price target is about $71.86. This one is more expensive than many of the established biotech players at more than 15-times forward earnings. Celgene’s 52-week range is $48.92 to $67.01, its market cap is $29.8 billion, and it trades at nearly 5-times book value. Implied Upside: 9.8%.
Biogen Idec Inc. (NASDAQ: BIIB) remains the big-cap recovery stock of biotech. At $102.00, its consensus price target is $110.36, and it trades at close to 16-times forward earnings. The market cap is about $24.7 billion, the 52-week range is $57.58 to $109.63, and the company is worth about 4-times book value. Implied Upside: 8.5%.
UNDER $10 BILLION IN MARKET CAP
BioMarin Pharmaceutical Inc. (NASDAQ: BMRN) trades at $33.05 and analysts have a consensus price target of $36.25. Unfortunately, this one is expected to lose money this year at -$0.31 EPS and next year’s earnings are expected to be -$0.04. The 52-week range is $21.70 to $34.50, its market cap is $3.7 billion, and it is listed as trading at close to 5.0-times book value. Implied Upside: 9.6%.
Illumina, Inc. (NASDAQ: ILMN) trades around $26.56 and the consensus price target is about $42.90. The company trades at more than 18-times next year’s earnings estimates, its 52-week range is $25.57 to $79.40, its market cap is about $3.3 billion, and it trades at almost 2.9-times its book value. Implied Upside: 62%.
Life Technologies Corporation (NASDAQ: LIFE) may be difficult to compare after a huge run higher followed by a recent tank in the share price. It is also on the equipment side. Shares are back down around $37.24 and the consensus analyst price target is now down to $52.66. The company now trades at barely 9-times forward earnings, if you trust the “E” in that P/E ratio. LIfe’s 52-week trading range is $35.30 to $57.25, its market cap is about $6.7 billion, and the stock is worth about 1.5-times the stated book value. Implied Upside: 41%.
Regeneron Pharmaceuticals, Inc. (NASDAQ: REGN) trades around $60.00 after a large drop due to a $400 million convertible note offering. The consensus price target is about $66.14. The company is also expected to lose as much as $2.00 per share in 2012. It has a 52-week trading range of $24.29 to $79.90, its market cap is $5.5 billion, and it trades at more than 12-times its previously stated book value. Implied Upside: 10.1%.
UNDER $3 BILLION IN MARKET CAP
Amylin Pharmaceuticals, Inc. (NASDAQ: AMLN) trades around $10.14 and the consensus price target from analysts is $13.44. The 52-week trading range is $8.03 to $21.23, its market cap is about $1.5 billion, and it is worth about 4.6-times book value. Implied Upside: 32.5%.
ARIAD Pharmaceuticals, Inc. (NASDAQ: ARIA) trades around $10.25 and the consensus price target is $15.44. The company is expected to have losses this year and next. Its 52-week trading range is $3.51 to $13.50, its market cap is $1.35 billion, and the book value at the last report was barely positive. Implied Upside: 50%.
Cubist Pharmaceuticals, Inc. (NASDAQ: CBST) was another big winner earlier in the year and its shares are now at $36.71 versus a consensus price target of $40.82. This used to be a value stock but now trades at closer to 22-times next year’s earnings estimates. The 52-week range is $20.81 to $39.29, the market cap is $2.24 billion, and it trades at just over 3-times book value. We once considered this a biotech buyout target, but that is in the past. Implied Upside: 11%.
Dendreon Corporation (NASDAQ: DNDN) shares are now around $9.40 and the consensus analyst target has come down all the way to $13.72. The company has no forward P/E ratio now as it is expected to lose money. The 52-week range is $7.81 to $43.96, its market cap is down to $1.4 billion, and it is listed as being worth more than 3-times its own stated book value. Implied Upside: 45%. Shares have fallen far from grace, so analyst targets and the ratios may all look a bit off. We also cannot count on estimates since the analysts and the company got this one so wrong on the end demand for Provenge. Now we have to hope that Provenge can have many more expanded uses outside of prostate cancer or this is a hard one to follow. What is odd is that Provenge is being tested for other uses and those could reignite interest if more promising data ever comes out. If not, let’s just say this was a painful lesson in biotech.
Human Genome Sciences, Inc. (NASDAQ: HGSI) is now up around $12.81 after buyout rumors and the consensus target is still listed as being roughly $24.00. The company trades at about 24-times next year’s earnings estimates, its 52-week range is $10.40 to $30.15, its market cap is now under $2.5 billion, and it is worth about 5.3-times its book value. Implied Upside: 87%.
Incyte Corporation (NASDAQ: INCY) trades around $14.04 and anlaysts have a consensus price target of $22.92 on the stock. It is expected to lose money this year and next year and the 52-week range is $12.58 to $21.15. While there is a $1.77 billion market cap, Incyte’s is listed as having a negative book value as laibilities exceed assets. Implied Upside: 63%.
Jazz Pharmaceuticals, Inc. (NASDAQ: JAZZ) trades around $40.00 after a sharp drop due to an FDA warning. That may make the figures a bit distorted. The consensus price target is $54.00 but that does not include the FDA impact. Jazz trades at only about 10.6-times next year’s earnings estimates. Its 52-week range is $10.51 to $47.88, its market cap is almost $1.7 billion, and the company trades at close to 16-times an implied book value. Implied Upside: 35%.
ONYX Pharmaceuticals, Inc. (NASDAQ: ONXX) trades at close to $34.50 and the consensus target is closer to $44.60. It is one which is also expected to lose money this year and next year. The 52-week trading range is $26.17 to $45.90, its market cap is $2.2 billion, and the stock trades at close to 3.5-times its book value. Implied Upside: 29.2%.
Seattle Genetics, Inc. (NASDAQ: SGEN) trades around $20.50, above the $19.15 consensus analyst price target. The company is expected to lose money in 2011 and 2012. With a 52-week range of $12.29 to $22.37, its market cap is $2.35 billion, and it trades at close to 9-times book value. Implied Upside: NEGATIVE by -6.5%.
Theravance, Inc. (NASDAQ: THRX) trades around $21.40 and analysts have a price target of $27.43 for the stock. The company is another one expected to lose money this year and next. The 52-week range is $16.44 to $28.95, the market cap is $1.8 billion, and it is another one that trades with a negative tangible asset level. Implied Upside: 28%.
ViroPharma Incorporated (NASDAQ: VPHM) trades around $19.00 and the consensus price target is $23.54. Due to an expected drop in royalties, its earnings are expected to be halved in 2012 versus 2011. Its 52-week range is $14.39 to $22.16, its market cap is about $1.45 billion, and it trades at about 1.5-times its stated book value with a large portion of assets as intangible assets. How this one looks on a standalone basis through time is a guess. Implied Upside: 24%.
On all of these implied upsides, please be sure to do your own research. We encourage our readers to challenge Wall Street analysts rather than merely following them blindly. Many cases have been there before were the analysts were just dead wrong. We also cannot help but notice how the biotech sector often has two very same observations based upon the exact same set of data, yet one analyst will say “Buy” and the other will say “Sell.”
JON C. OGG
Human Genome Sciences Inc. (NASDAQ: HGSI) is surging on reports that GlaxoSmithKline PLC (NYSE: GSK) could be set to make a $25.00 per share offer to acquire the company. The report surfaced in the Daily Mail out of the United Kingdom, and we would note that this publication pushes out enough rumors that it could be called the Daily Rumor (or Rumour for the Brits). It also has a spotty track record.
The reason for the speculation is simple… GSK was long thought of to be the natural buyer because of the long pacts that are in place already. The two already have Benlysta as the lupus treatment under a collaboration pact. Then there is the issues of HGS’s pipeline.
What is interesting is that the Daily Mail also threw out Biogen Idec Inc. (NASDAQ: BIIB) and Merck & Co. (NYSE: MRK) could also be suitors. Our caution here is that those companies would have to want to be involved in collaboration pacts with GSK either way.
It is always interesting when you see a rumor of a 100% buyout premium. Sadly, even a 100% premium is not an assured price that would get a deal done. It would seem likely, but others may still fight it as the 52-week high is $30.15. The thing that would make a deal simple is that the market cap is only about $2.4 billion.
One issue that current investors could make for undervaluing the company is that the consensus price target from analysts is still above $24.00. If the stock is worth that on its own, investors could argue a buyout should make it worth even more.
A deal would make sense for GSK here, but we would be a bit more cautious on betting the farm that another large player would want to buy the company. It would be normal that GSK would not allow itself to be stuck in a new deal under a change of control if it found the buyer to be difficult or incompetent. That being said, anything is possible. This is not the first time buyout rumors have circulated around Human Genome Sciences.
Shares are up almost 13% at $12.68 and the 52-week trading range is $10.40 to $30.15.
Since this is probably the fourth or fifth time we have heard “HGSI Buyout Rumors,” our odds would automatically put the chance under 50% that a deal is imminent just because of the history of rumors. Still, an acquisition would make sense for GSK or for a large player that GSK would want to work with. That being said, we’d assign a 33% to 40% chance of a deal… 1-in-3 or 2-in-5.
JON C. OGG
Cell Therapeutics, Inc. (NASDAQ: CTIC) is a controversial stock in the field of cancer and the company is still aiming for a 2012 debut market launch for its pixantrone drug candidate. In the last couple of weeks it had reported more positive data and the FDA had earlier this year noted that pixantrone would need a review using a new panel of independent radiologists. Pixantrone is to be a new treatment for non-Hodgkin Lymphoma.
This morning we saw a very unlikely and very unusual support or endorsement of Cell Therapeutics. This came from Zacks Investment Research where the outfit was called The Bull of The Day. That is generally considered a stock that has strong winds behind it and Zacks raised the rating to Outperform.
Zacks noted, “we believe pixantrone is getting closer to approval… We are encouraged by the FDA’s decision to allow Cell Therapeutics to re-submit the NDA for pixantrone for review without the need for an additional trial.” The report also noted that Opaxio is its second most advanced pipeline candidate as a potential maintenance therapy for women with advanced ovarian cancer who achieve complete remission following first-line therapy with paclitaxel and carboplatin.
The full Zacks report is available here. Shares are at $1.19 and the adjusted 52-week trading range is $0.95 to $3.30.
JON C. OGG
The world of contract research organizations is changing. The unexpected news hit the wire this Monday that Pharmaceutical Product Development, Inc. (NASDAQ: PPDI) is being acquired. This was no gobble-up acquisition where a larger public company preyed on a smaller company. This was a private equity transaction.
PPD has entered into a definitive merger agreement to be acquired in a $3.9 billion cash buyout by affiliates of The Carlyle Group and Hellman & Friedman. The terms of the deal call for the assumption of liabilities and for the common holders to receive $33.25 per share in cash. Before today, the trading range had effectively been $25 to $32 but the stock closed at $25.66 on Friday and that implies a near-30% premium.
PPD has also been north of $40 in the last 5-year period. That being said, the board of directors has unanimously approved the deal and is recommending that shareholders vote for the transaction.
The attraction here is the CRO business, which aims to help pharmaceutical and biotech companies develop new drugs at lower costs and with less inside oversight.
As you would expect, the deal is subject to approvals and to regulatory reviews, but the transaction is not subject to any financing conditions. The funds combined between Hellman & Friedman and Carlyle were listed as nearly $22 billion and it was also noted that external debt financing is being provided by Credit Suisse, JP Morgan, Goldman Sachs and UBS.
PPD does have a “Go Shop” provision as the terms allow the company to go solicit acquisition proposals from third parties for a period of 30 calendar days from the date of the merger agreement. PPD can also respond to unsolicited proposals that the board “determines are reasonably likely to result in a superior proposal.” Carlyle and Hellman & Friedman were given a “right to match” term and the current merger is expected to close in the fourth quarter of 2011.
PPD has offices in 44 countries and more than 11,000 professionals worldwide.
Charles River Laboratories International Inc. (NYSE: CRL) is up 1.5% at $29.05 and its 52-week range is $27.76 to $42.84.
Covance Inc. (NYSE: CVD) is up 1.3% at $46.07 and the 52-week trading range is $43.00 to $63.86.
Paraxel International Corp. (NASDAQ: PRXL) is up 3% at $19.45 and its 52-week range is $15.26 to $27.91.
JON C. OGG
VIVUS Inc. (NASDAQ: VVUS) is getting yet one more sign of life for its Qnexa drug aimed at treating obesity. The emerging drug outfit has reached an agreement with the FDA on resubmitting its new drug application as an obesity treatment.
Here is the plan: “VIVUS intends to resubmit the QNEXA NDA by the end of October 2011, prior to completion of the FORTRESS study. Top-line results from FORTRESS are expected in December 2011, with validation of FORTRESS expected in the third quarter of 2012. The FDA also stated that an Advisory Committee meeting for QNEXA will be held in the first quarter of 2012.”
It was also just earlier this week that its Avanafil phase III study results were shown again to be positive in its REVIVE study in diabetes.
What helps VIVUS here is that treating obesity also in effect treats diabetes, heart and respiratory conditions, hypertension, dyslipidemia, allows for more active lifestyles, and more. It also needs to be noted that the FDA has treated most obesity treatments as taboo due to side-effects and and due to a lack of results in many instances. The history of obesity drugs is a marred one.
Orexigen Therapeutics, Inc. (NASDAQ: OREX) and Arena Pharmaceuticals, Inc. (NASDAQ: ARNA) are also both up a limited amount as they are “the other obesity drug contenders” by Wall Street’s eyes. Those are not as close, not by a mile, if you note the share prices. Orexigen is up 2.5% at $1.41 and Arena is up 3% at $1.43.
VIVUS stock is up almost 8% at $9.14 but the stock was up in the double-digits at $9.62 earlier. As of 11:15 AM EST there have also been more than 2.7 million shares traded when the average volume is only 1.5 million shares.
Before the effects of this news pop, Thomson Reuters had a consensus price target objective of $11.69 on VIVUS and the 52-week trading range has been $5.28 to $11.48.
JON C. OGG