Value Stocks in Drugs & Biotech (AMGN, BIIB, CBST, CEPH, PDLI)
This weekend we ran screens of several drug and biotech companies in our quest for ‘cheap stocks’ in the BioHealth sector. The intent is not solely for buyout targets because we prefer to look at value stocks rather than just picking buyout hopefuls. The obvious issue that makes most of these cheap is because there have been problems or have been issues that made these look cheap on the surface. To look for sub-market valuations, we used Thomson Reuters estimates for 2009 and 2010 earnings. We then set a maximum target of 15-times earnings and screened out the companies that gave the ‘false positives’ as there were many.
Amgen Inc. (NASDAQ: AMGN), Biogen Idec Inc. (NASDAQ: BIIB), Cephalon Inc. (NASDAQ: CEPH), Cubist Pharmaceuticals Inc. (NASDAQ: CBST), and PDL BioPharma, Inc. (NASDAQ: PDLI) all made the cut. We initially wanted to look for market caps over $1 billion, but we set the bar at $500 million and tried to focus on companies with growth. We included valuation data, performance, and some color on each name. Some, but not all of these, are also in our upcoming biotech buyout targets for 2010.
Amgen Inc. (NASDAQ: AMGN) is one we have long noted during its waves of problems and as it was under future reimbursement pressure that may be more like an old fashioned drug company now as it has matured. The company’s market cap is $56 billion, which is actually now the largest market cap since Genentech is now Roche. Its stock trades at $55.48 and its 52-week trading range is $44.96 to $64.76. Because of the pressure and past issues, it trades at only about 11-times earnings for 2009 ($5.03 est.) and 2010 ($5.14 est.) both. It also trades at under 4-times 2009 and 2010 revenue expectations and it sits with an arsenal of almost $14 billion in cash and equivalents, yet has over $10.5 billion in long-term debt.
Biogen Idec Inc. (NASDAQ: BIIB) is no stranger to issues… another activist was just out this week calling for more action and the company has not been able to get out from under the TYSABRI PML despite the notion that this is a very low risk. At $46.38, its market cap is $13.4 billion and its 52-week trading range is $37.21 to $55.34. Biogen has over $3.1 billion in cash if you include its short-term and long-term investments and it carries just under $1.1 billion in long-term debt. Biogen also trades at 11.6-times the $3.99 EPS target for 2009 and only 10.5-times the $4.42 target for 2010; and Biogen trades at 3-times 2009 expected sales. The risk is here is of course the TYSABRI risks. You never know if they will have to pull it again. This is an opinion rather than a formal target, but TYSABRI is good enough in treatments of MS that it could quite literally have two or three times the number of patients using it if the PML risk can either be quantified better or could be mitigated. Another issue is that it is trying to acquire Facet Biotech Corporation (NASDAQ: FACT) as a diversification and added pipeline move.
Cephalon Inc. (NASDAQ: CEPH) is not without its disputes, but it still fits the screens. At $59.61 it has a market cap of $4.45 billion and a 52-week range of $52.55 to $81.35. Cephalon carries about $1.6 billion in cash if you include short-term and long-term investments. Its $350+ million in long-term debt is sort of in the shadow of its shorter-term liabilities. It trades at only 10-times 2009 estimates of $5.93 EPS and only 9.6-times the $6.17 estimate for 2010; and that is roughly 2-times expected revenues. The company recently settled a dispute over Fentora and it is giving Barr Pharmaceuticals Inc. (NYSE: BRL) a license to sell a generic version of its pain drug Fentora in 2018. For whatever it is worth, there are many active call options at various strikes and expiration dates and that means some buyout speculation or at least speculation that this one will come back in favor. Cephalon treats central nervous system, inflammatory disease, pain, and oncology.
Cubist Pharmaceuticals Inc. (NASDAQ: CBST) has been in the doghouse over earnings. At $16.95 it has a $982 million market cap and its 52-week trading range is $13.81 to $28.74. It trades at a mere 12.75-times 2009 estimates of $1.33 EPS and 11-times the $1.54 estimate for 2010. It has over $500 million in cash if you count its short-term and long-term estimates and carries about $242 million in long-term debt. In its most recent quarter report the company lowered its Cubicin projections for 2009 at $520 to $525 million, under a prior $520 to $540 million range. But its last quarter was ahead of estimates. That puts this one under 2-times projected revenues. Cubist has only Cubicin on the market as its standalone product and has a MERREM partnership with AstraZeneca and a pipeline with Alnylam Pharmaceuticals, Inc. (NASDAQ: ALNM). While there is some competition from other drugs, this is supposed to be the best MRSA (methicillin-resistant Staphylococcus aureus) on the market. Frankly, this is a company that we thought could be an acquisition target. That being said, there had been some options speculation in the last two weeks but in the November contracts that expired Friday.
PDL BioPharma, Inc. (NASDAQ: PDLI) is technically out of the $1 billion market club as its $7.90 price has a market cap of roughly $945.4 million and its 52-week range is $5.20 to $9.92. It trades at only 6.75-times the $1.17 estimate for 2009 and about 6.3-times the $1.24 estimate for 2010. The problem is that the convertible shares make the numbers misleading here and the company announced another special dividend earlier this month that it will pay a $200 million special dividend to stockholders, with part of the proceeds from the $300 million securitization transaction completed on November 2, 2009. All stockholders owning shares of PDL on December 1, 2009 will be paid a special dividend on December 15, 2009. PDL has a significant amount of convertible securities outstanding and the remaining net proceeds of $85 million will be used for working capital and other corporate purposes. PDL pioneered the humanization of monoclonal antibodies and receives patent royalties on sales for multiple humanized antibody products. The company has further noted that it may receive royalty payments on additional humanized antibody products launched before the late 2014 patent expiration date. So now you know why the screen is there: many investors may not know what its long-terms plans are. All this makes PDL a bit of a wild card rather than an outright value stock.
Stay tuned for our biotech buyout targets for 2010 coming soon.
- The Hope for a BioHealth/BioTech IPO Pipeline (OMER, CPIX, TLCR, EBS, AGAM)
- More Biotech/Drug Mergers Coming? (SEPR, CBST, ONXX, GERN, VNDA, REGN, SGEN, ALNY)
JON C. OGG
NOVEMBER 21, 2009
