It seems that if there is one segment that everyone agrees will continue to see consolidation, it is the biotech, drug, and specialty pharmaceutical sector. A report this week from UBS has highlighted several possible deals that it could imagine from its universe of analysts and there were four possible deals in biotech and pharma that were touted and which we think were worth mentioning.
The companies covered as possible targets were Incyte Corporation (NASDAQ: INCY), Celgene Corporation (NASDAQ: CELG), Cadence Pharmaceuticals Inc. (NASDAQ: CADX), and Salix Pharmaceuticals Ltd. (NASDAQ: SLXP). We have sort of handicapped each scenario with our own outlook and shown how these compare to an overall analyst consensus.
Incyte Corporation (NASDAQ: INCY) is called a biotech takeover target as it is partnered with Eli Lilly Co. (NYSE: LLY), a larger company which has shown a past appetite for making deals with partners. On LLY-104, Lilly owes Incyte $616 million in remaining milestones and which it splits operating profits equally. The firm believes that Lilly could acquire Incyte in order to consolidate economics on a key product in the pipeline. With a typical premium of about 50%, that would imply a price of at least $30.00 per share based upon a $20 price target. If you include the current pipeline and technology platform, the belief is that $30.00 would be a floor. Another Incyte partnership is with Novartis (NYSE: NVS) on ruxolitinib, but the outlook is less dependent on that product and partnership. At $18.58, the Thomson Reuters consensus price target is $22.57 and the 52-week range is $10.21 to $21.15.
Both Incyte Corporation (NASDAQ: INCY) and Celgene Corporation (NASDAQ: CELG) are rated Buy at UBS.
Celgene Corporation (NASDAQ: CELG) is one biotech we do not really agree with UBS on, but only because we imagine it being an acquirer to grow its enterprise. After all, its market cap is almost $27.5 billion. Still, UBS noted that Celgene is trading below an estimated intrinsic value if the company achieves success on its pipeline and receives its milestones. The idea here is a Big Pharma buyer somewhere under $80.00 per share with a value of $40 billion or so. UBS did at least note that the absolute likelihood of a deal happening here is not very high but it is more attractive compared to other large biotechs when considering patent terms, growth, and its strategic positioning. At $59.39, Thomson Reuters has a consensus price target of $66.91 and the 52-week trading range is $48.02 to $63.46.
Cadence Pharmaceuticals Inc. (NASDAQ: CADX) was given a very short write-up in the specialty pharmaceutical sector. It was noted as being that Hospira Inc. (NYSE: HSP) could drive significant SG&A synergies by leveraging its own sales force. UBS also only has a neutral rating, but this is in that sweet spot with a market cap of $585 million. We would note that the consensus Thomson Reuters data shows revenues growing from about $21.5 million in 2011 to just over $110 million in 2012. With shares around $9.22 today, the 52-week range is $6.41 to $10.00 and Thomson Reuters has a price target of $10.14 from its analyst pool.
Salix Pharmaceuticals Ltd. (NASDAQ: SLXP) is also only given a Neutral rating at UBS, but its $2.24 billion market cap is one that UBS could be driven higher on synergies by leveraging its sales force to juice sales in Xifaxan. It is hard to get excited about the deal size projected too with a likely value of $2.5 to $3.0 billion.
As a reminder, just because M&A deals are dreamed about does not mean that a deal is imminent or even in the works. It is our take that some of the broad list of over 40 companies throughout many sectors not tied to healthcare or biohealth may have more attractive candidates for M&A. That is what makes a market.
JON C. OGG
Icagen Inc. (NASDAQ: ICGN) is one of the smaller biohealth companies out there and it is often overlooked by investors. When headlines hit that Pfizer Inc. (NYSE: PFE) may be interested in acquiring the company, you know what happened… Shares skyrocketed.
What we want to know is if the deal could be worth it now that the biotech outfit has seen shares more than double in a single session.
Pfizer has said it was considering a strategic transaction with the company, and it needs to be known that Pfizer already is a stakeholder in the company. Icagen is also reportedly engaged in discussions.
What is amazing is that Icagen had a market capitalization of only about $18 million before the news, and now that is listed as $38.9 million after a 116% gain to $5.19. MILLION… not billion.
Icagen is based in the notorious Research Triangle Park, North Carolina. The two companies have collaborated in a development partnership with Pfizer’s capital for exclusive rights for drugs that come from the partnership.
The company’s description is as follows: “orally-administered small molecule drugs that modulate ion channel targets. Its drug candidates include ICA-105665, a small molecule compound that targets specific KCNQ ion channels for the treatment of epilepsy and pain, which is in Phase II clinical trial stage; and a compound that targets the sodium channel Nav1.7 for the treatment of pain, which is in Phase I clinical trial stage.” It was also noted that Icagen is conducting R&D in epilepsy, pain, and inflammation.
After the new 52-week high today, the new 52-week trading range is $0.96 to $5.75. Icagen’s most recent balance sheet lists about $11.01 million in cash and almost no significant long-term debt. While it has revenues, those appear to be R&D based sales.
Icagen used to have a significantly higher value than this, but that was long before the recession. This could be a huge deal for Icagen’s newer investors but this is so small that it would not even be a line-item expense for Pfizer with its near-$160 billion market cap.
JON C. OGG
Clovis Oncology, Inc. has filed for an initial public offering. The company plans to list on the NASDAQ Global Market under the stock symbol “CLVS.” Financial terms were not disclosed, but Clovis listed that the proposed maximum to be sold in shares is up to $149,500,000.00.
Book-runners are listed as J.P. Morgan and Credit Suisse; and the co-manager is Leerink Swann.
Clovis is a biopharmaceutical outfit focused on acquiring, developing and commercializing innovative anti-cancer agents in the United States, Europe and additional international markets. The target arena are development programs in subsets of cancer populations.
The company currently is developing three product candidates where it holds global marketing rights:
- CO-101, a lipid-conjugated form of the anti-cancer drug gemcitabine, which is in a pivotal study in a specific patient population for the treatment of metastatic pancreatic cancer;
- CO-1686, an orally available, small molecule epidermal growth factor receptor, or EGFR, covalent inhibitor that is currently in preclinical development for the treatment of non-small cell lung cancer, or NSCLC, in patients with activating EGFR mutations, including the initial activating mutations, as well as the primary resistance mutation, T790M;
- and CO-338, an orally available, small molecule poly (ADP-ribose) polymerase, or PARP, inhibitor being developed for various solid tumors that is currently in a Phase I clinical trial.
The company was founded in April 2009 by former executives of Pharmion Corporation, which developed and commercialized oncology products and which was ultimately acquired by Celgene Corporation (NASDAQ: CELG) in 2008.
Pfizer, Inc. (NYSE: PFE) was listed as a beneficial owner by name, but no actual shares were mentioned.
The company’s full IPO prospectus filing is available here.
JON C. OGG
Against a backdrop of falling stock prices, Pfizer Inc. (NYSE: PFE) and Bristol-Myers Squidd company (NYSE: BMY) have bucked the trend of the day and both are seeing a rise in their share prices after reporting that “apixiban” has tested as being superior to and safer than the generic drug “warfarin.” Both drugs are intended to aid in preventing strokes in patients with dangerously irregular heart rhythms. “Apixiban” is the experimental blood thinner being developed by both Pfizer and Bristol Myers. “Warfarin” is the generic version of Coumadin, whose patent expired more than 10 years ago.
The hope is that this will lead to another blockbuster drug with more than $1 billion in sales. The timing couldn’t be better for the two companies as Big Pharma companies are generally facing an industry-wide patten cliff, where a number of significant pattens will soon expire. As a result, less expensive and far-less-profitable generics will soon displace proprietary pharmaceuticals along with much off the revenues these products generate. This has so far not managed to keep these companies from being able to offer extremely high dividends.
The news of apixiban’s successful tests negatively impacted the prices of companies manufacturing competing blood thinners. Bayer AG (BAYRY.PK) and Johnson & Johnson (NYSE: JNJ ) are seeking FDA approval for “xarelto,” their own blood thinner, traded lower. In mid-day activity, Bayer traded at $77.15, down 7.26%, while Johnson and Johnson traded at $64.85, down 1.85%. Sanofi-Aventis (NYSE: SNY) who partners with Bristol-Myers in co-marketing, the hugely successful blood thinner, “Plavix” traded down over 2% at $37.08. “Plavix” will lose its patent protection in the near future.
The successful tests of “apixiban” effectively make Bristol-Myers a double winner by compensating for the impending expiration of its proprietary position with a promising new blood thinner. In mid-day activity, shares of Bristol-Myers traded up 5.4% at $29.25, while Pfizer traded up 2.1% at 20.72. Shares of both companies are near their highs for the day.
Before today’s announcement, the consensus price target for Pfizer was $23.37 per share, giving the shares an implied upside a tad less than 13%. With today’s gains, Bristol-Myers Squibb has essentially surpassed its posted consensus target price. Keep in mind that unforeseen and significant new product introductions like “apixiban” have the potential of powering upside adjustments in consensus price targets, earnings and revenue estimates, and even in the overall bias. The question is, how much of a game changer will “apixiban,” prove to be . . . not merely in “targets” but in realized revenues and profits.
Morgan Stanley has now boosted its rating on Bristol-Myers Squibb to Overweight and said they win from this much more than Pfizer due to relative size.
JON C. OGG
Biogen Idec Inc. (NASDAQ: BIIB) is up nearly 4% today on news that ISI Group raised its rating to BUY from HOLD. The driving force is Biogen’s promising MS drug candidate BG-12 with the belief that earnings can grow exponentially in the years ahead. If one company has a lock on the MS market, it is Biogen Idec.
The report today has shares up nearly 4% at $98.47 late in the day. The consensus analyst price target is $104.13 and the 52-week trading range is $46.15 to $106.99.
Our take is that the consensus price target objective of $104.13 is just not enough upside to merit a new purchase for a biotech giant. We will be the first to admit that consensus price targets are very far from perfect. In early January, Biogen Idec was “Overvalued” if you just used the projected consensus price target of the time. At that time, Biogen was trading at $67.20 and its implied consensus analyst price target objective was $62.83. The price target was just wrong in the start of 2011.
A lot has happened since then and shares are massively higher. The earnings estimates are $5.88 EPS for 2011 and $6.20 EPS for 2012, generating forward earnings multiples of 16.75-times 2011 expected earnings and almost 15.9-times expected 2012 earnings.
There are two sides to most coins. The company can now probably act without too much Carl Icahn input.
JON C. OGG
Gilead Sciences, Inc. (NASDAQ: GILD) has been fighting an image of being “dead money” for biotech investors for a year. Now the company has disclosed after the close on Friday that it has received a subpoena from the Department of Justice.
The exact office is the United States Attorney’s Office for the Northern District of California.
We actually have very little as to what the details are but the company said that the DOJ has requested documents related to the manufacture, and related quality and distribution practices of the company. Specifically noted were Atripla®, Emtriva®, Hepsera®, Letairis®, Truvada®, Viread® and its investigational fixed-dose combination of Truvada and EdurantTM.
Here is where the issues is going to arise… Gilead said that it “is cooperating in this civil and criminal investigation.”
CRIMINAL?????? When investors see a civil charge that is one thing. Including “criminal” in the wording with the documents pertaining to just about all of its major products and some of its research candidates is not going to fly well.
That is not exactly what shareholders want to hear about. Shares closed down 2.26% at $40.23 and its 52-week trading range is $31.73 to $42.93. The after-hours has shares trading down some 2.25% more around $39.25.
It appears that someone was concerned, or worse, today in the options trading. There was not a highly unusual share trading volume in stock during the trading day but there is elevated trading in the following PUT options:
- JUNE $40 PUTS 2,264 contracts versus a prior open interest of 2,552 contracts;
- JULY $38 PUTS 2,295 contracts versus a prior open interest of 1,361 contracts;
- JAN12 $37.00 PUTS 500 contracts versus a prior open interest of 500 contracts.
This is not highly unusual options contract trading but it does stand out at least some.
JON C. OGG
Valeant Pharmaceuticals International, Inc. (NYSE: VRX) is trading higher this morning by 1.5% at $53.15 against its 52-week range of $13.84 to $55.00. This company is one which does not show up on most drug, biotech, and Pharma screens because its shares have risen, its analyst coverage is mixed, and its value is massive at $15+ billion.
Fund managers often can influence investing decisions by the public and one top fund at the moment is the $4+ billion Sequoia Fund (SEQUX). That fund has performed very well, it makes concentrated equity bets, and its biggest bet at the moment is Valeant. This fund goes after companies that it believes have attractive long-term economic prospects in America or internationally.
Waiting on a FDA decision is always tricky, but the FDA has a pending review on Potiga for epileptic seizures along with GlaxoSmithKline (NYSE: GSK).
The fund’s manager just made a brief CNBC appearance this morning and he gave some quick hits on why Valeant the fund’s largest holding. He noted that the company is more focused on acquisitions rather than being focused on expiring patents as many other giants. As this fund have averaged almost 14.5% through time versus 10.6% for the S&P 500 Index, investors care. It should be noted that the fund sometimes has large overperformance or big underperformance due to its concentrated bets.
Our only concern here is that the performance has been massive and the stock is now trading above the consensus analyst target of $52.38.
JON C. OGG
When you hear about the oncology conference of the American Society of Clinical Oncology annual meeting in Chicago each year, you are probably drawn to what may be the next Genentech. This is the conference that if good cancer and oncology study data can come out then it is likely to be presented here.
We have broken down some of the key ASCO news bits, but these are in very abbreviated summaries in order to keep it from going on and on. Antigenics Inc. (NASDAQ: AGEN), ARIAD Pharmaceuticals Inc. (NASDAQ: ARIA), BioSante Pharmaceuticals, Inc. (NASDAQ: BPAX), Celgene Corporation (NASDAQ: CELG), Genomic Health Inc. (NASDAQ: GHDX), Geron Corporation (NASDAQ: GERN), Incyte Corporation (NASDAQ: INCY), Oxigene Inc. (NASDAQ: OXGN), RXi Pharmaceuticals Corporation (NASDAQ: RXII), Seattle Genetics Inc. (NASDAQ: SGEN), Sunesis Pharmaceuticals Inc. (NASDAQ: SNSS), and Vical Incorporated (NASDAQ: VICL) are just some of the companies reacting to ASCO and oncology news this morning.
Antigenics Inc. (NASDAQ: AGEN) has disclosed data on from Phase 2 Brain Cancer Study with Prophage Series G-200 (HSPPC-96) showing improved overall survival as a vaccine in glioblastoma multiforme at ASCO. Trial results showed that 93% of the patients were alive at greater than or equal to 26 weeks after surgery and a median overall survival of 47.6 weeks. Results from pre-defined exploratory analyses showed a median progression free survival of 20 weeks. Measures of immune response post vaccination demonstrated a significant tumor-specific CD8+ T-cell response and also showed an innate immune responses as marked by a significant increase in levels of circulating NK cells. Unfortunately, shares are now in the red and down almost 5% at $0.964. Update after 4 PM EST: shares closed down 11.4% at $0.895.
ARIAD Pharmaceuticals Inc. (NASDAQ: ARIA) is higher after coming on CNBC saying it is not for sale after presenting data that its sarcoma drug with Merck reduced the risk of the disease progressing. Merck & Co. (NYSE: MRK) is its marketing partner and it plans to apply for FDA and E.U. approval this year. ARIAD shares are up 1.9% at $8.04 after the open. Update after 4 PM EST: shares closed up only 0.25% at $7.91.
BioSante Pharmaceuticals, Inc. (NASDAQ: BPAX) is more general cancer news than ASCO but important nonetheless…. The company announced the lifting of clinical hold on its GVAX prostate cancer vaccine by the FDA. Manufacturing is complete and planning for a Phase II clinical trial at the Johns Hopkins Kimmel Cancer Center is underway. Shares are up 2.6% at $3.09 after the open. Update after 4 PM EST: shares closed down 0.3% at $3.00.
Celgene Corporation (NASDAQ: CELG) is not reacting to news that Abraxane has improved the response rate in non-small cell lung cancer patients compared to the generic chemotherapy drug paclitaxel. It appears that Abraxane did not delay tumor growth or help lung cancer patients live longer in phase III study data. The company believes that increasing the rate of tumor shrinkage will be enough to get FDA approval in 2012. Shares are down $0.09 at $58.77 right after the open. Update after 4 PM EST: shares closed down 0.7% at $58.46.
Genomic Health Inc. (NASDAQ: GHDX) is supposed to be a winner on the front of personalized cancer care but we are not seeing that today. It presented 10 New studies in breast, colon and prostate cancers. The results included a second large validation study confirming the performance of the Oncotype DX colon cancer recurrence score. The goal is to make a test for biopsy specimens available in 2013. Shares are actually down 1% at $26.23 right after the open. Update after 4 PM EST: shares closed down 1.6% at $26.07.
Geron Corporation (NASDAQ: GERN) is the stem cell leader and it reported presentations at the ASCO/AACR joint session regarding Telomeres and Telomerase in Cancer are taking place today at the 2011 ASCO Annual Meeting. Shares are only up $0.01 at $4.28 right after the open. Update after 4 PM EST: shares closed down 0.9% at $4.23.
Incyte Corporation (NASDAQ: INCY) has two bits of news. It announces Ruxolitinib (INC424) showed a significant clinical benefit for Myelofibrosis patients in two Phase III studies at ASCO. The company also announced this morning that it did submit a new drug application for Ruxolitinib in Myelofibrosis to the FDA. Shares are up 4% at $17.17 right after the open. Update after 4 PM EST: shares closed up 2.3% at $16.90.
Oxigene Inc. (NASDAQ: OXGN) presented updated safety and clinical activity data from the FALCON trial, a stratified randomized, controlled Phase 2 study of ZYBRESTAT in patients with non-small cell lung cancer at ASCO. An updated analysis conducted approximately 11 months after the enrollment of the last patient in June 2010 showed that the combination regimen of ZYBRESTAT plus bevacizumab, carboplatin and paclitaxel (ZYBRESTAT Arm) was observed to be well-tolerated with no significant cumulative toxicities when compared with the control arm of the study. Shares are up 16% at $4.96, but it also regained NASDAQ compliance. Update after 4 PM EST: shares closed up 7.5% at $4.59.
RXi Pharmaceuticals Corporation (NASDAQ: RXII) is one of the larger ASCO winners so far. It showed positive NeuVaxTM Phase 2 efficacy results for the adjuvant treatment of low to intermediate HER2 expressing breast cancer. The Phase II trail did show statistically significant increase in disease free survival at 36 months versus the control group for the planned Phase 3 patient population. The new timeline is to initiate the Phase 3 trial in the first half of 2012 to accelerate this treatment for women who are not eligible for other HER2 directed therapies. Shares are up 14% at $1.495 after the open. Update after 4 PM EST: shares closed down 8.5% at $1.17.
Seattle Genetics Inc. (NASDAQ: SGEN) is marginally after presenting SGN-75 clinical data… two patients achieved a partial response, eight patients had stable disease, 11 patients had progressive disease and four patients were not evaluable for response in non-Hodgkin lymphoma patients. The every-three-week dosing schedule has been selected for further study. Shares are up 1.5% at $19.23. Update after 4 PM EST: shares closed up 2.2% at $19.37.
Sunesis Pharmaceuticals Inc. (NASDAQ: SNSS) is down after its presentation of its adaptive study design for Vosaroxin Phase 3 VALOR trial in acute myeloid leukemia. VALOR is expected to enroll 450 evaluable patients at leading sites in the U.S., Canada, Europe, Australia and New Zealand. Shares are down 12% at $2.63 after the open. Update after 4 PM EST: shares closed down 17.9% at $2.47.
Vical Incorporated (NASDAQ: VICL) was initially up 3% after the open but is now flat. The company showed reports of a positive correlation between the response and survival for completed Allovectin melanoma trials at ASCO. Update after 4 PM EST: shares closed up 0.25% at $3.87.
Unfortunately, 2011 has so far failed to yield any massive winners. Our view is that the personalized angle will probably continue to draw the most interest. Keep in mind that any large or small company comments throughout the conference can make or break a stock.
JON C. OGG