Can Human Genome Really Double Its Stock Price? (HGSI)

December 28, 2011 · Filed Under analyst calls, Lupus · 10 Comments 

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.

Read Also: The 24/7 Wall St. Top Biotechs For 2012 Over $1 Billion

JON C. OGG

Rare Analyst Calls With Huge Upside in Vical and VIVUS (VICL, VVUS, BMY)

November 4, 2011 · Filed Under analyst calls, Cancer, Diabetes, Heart, obesity · 18 Comments 

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)

October 19, 2011 · Filed Under analyst calls, Cancer, dendreon, Financial, M&A, R&D · 8 Comments 

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

Unusual Analyst Upgrade & Endorsement for Cell Therapeutics (CTIC)

October 13, 2011 · Filed Under analyst calls, Cancer, fda, R&D, Research · Comment 

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

Beyond the Dendreon Implosion… What To Look For Next (DNDN)

August 4, 2011 · Filed Under analyst calls, Cancer, dendreon, fda, Financial, M&A · Comment 

This morning we gave a full preliminary analysis of the implosion happening at Dendreon Corporation (NASDAQ: DNDN) at 24/7 Wall St.  What is obvious as a heart attack, or as obvious as metastatic prostate cancer, is that the market is bracing for far worse news than what has been seen so far.  The price drop after withdrawal of guidance and the cost cutting only happens this far when another shoe is expected to fall.

We have seen many analysts come in on this today, mostly calls which are blow-ups.  To say that Dendreon caught most of the market off balance would be a severe understatement. We also believed that this was going to become the standard for final-stage prostate cancer care.

Here is what Wall Street analysts are making calls on today:

  • Raised to Neutral at Credit Suisse, but the target was cut to $22.00 from $29.00 as they were actually very negative ahead of the blow-up here.
  • Robert W. Baird downgraded Cut to Neutral from Buy and the new target is $20.00.
  • Collins Stewart cut the rating to Neutral from Buy and the new target is $19.00.
  • RBC Capital Markets cut the rating to Sector Perform from Outperform and took the target down to $15.00 from $50.00.
  • Needham cut the rating to Hold from Buy.
  • Cowen & Co. cut its rating to Neutral from Outperform.
  • Gleacher & Co. cut the rating to Neutral from Buy.
  • Canaccord Genuity lowered the price target 70% to $19.00 from $65.00 on “significantly diminished expectations for Provenge commercial penetration” but the company maintained a ‘Buy’ rating.
  • Bank of America Merrill Lynch cut the rating to Underperform from Buy and cut the target to $16.00 from $50.00 previously.
  • Brean Murray lowered the rating to Sell from Buy and issued a dismal $6.00 target.  Ouch!

After only 40 minutes of trading (plus pre-market trading), Dendreon shares are down a whopping 64% at $12.92 and shares hit a new low of $12.48 this morning.  We are now at ten-times volume on Dendreon as more than 24 million shares have already traded hands.

Again, withdrawing guidance and cutting the costs with employees and more is one thing, even if it is a really bad thing.  What the market is telling you is that more negative news is going to put a lid on this one in the near future.  Otherwise, Dendreon would be down ‘only’ 25% or so.

Many considered this to be a buyout candidate.  That will not be met by much enthusiasm today as investors worry about worse news yet to come.

As far as what to expect next, lawsuits are the first thing to expect.  Shareholders can accuse the company of over-inflating expectations.  Medicare and Medicaid pricing might be an issue, or maybe more doctor reports of considering alternative treatments will come.  Picking the next shoe to drop is difficult, but a drop of this magnitude is rarely a one-time event.  Most people got this one very wrong.

JON C. OGG

More Buyout and M&A Candidates in BioHealth (INCY, LLY, NVS, CELG, CADX, HSP, SLXP)

June 27, 2011 · Filed Under Acquisitions, analyst calls, M&A · 1 Comment 

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

Has Biogen Idec Become Too Expensive? (BIIB)

June 20, 2011 · Filed Under analyst calls, multiple sclerosis · Comment 

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

Large Fund Manager Sticks With Valeant (VRX)

June 9, 2011 · Filed Under analyst calls, Financial · Comment 

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

The Other Side of the Coin: Big Caution in Dendreon (DNDN, JNJ)

May 27, 2011 · Filed Under analyst calls, Cancer, dendreon · Comment 

Dendreon Corporation (NASDAQ: DNDN) is one we have been very positive about before the FDA approval of Provenge for metastatic prostate cancer.  We often like to feature both sides of the coin, and the other side of the coin is one of caution from Credit Suisse this week.  If this research call is right, shareholders could face some competitive pressure in shares of Dendreon.

Credit Suisse has been very cautious when it comes to Dendreon Corporation (NASDAQ: DNDN).  The firm noted that an editorial in this week’s New England Journal of Medicine was published based upon Johnson & Johnson (NYSE: JNJ) and its abiraterone post-chemotherapy trial results.  What made the concern is the focus on results which validate abiraterone’s action. 

Some may consider one article not a strong enough basis for this week’s caution.  Credit Suisse believes that the results can imply off-label pre-chemotherapy use as a competing agent against Provenge from Dendreon.  Another bit was the combination data of abiraterone and other agents as lacking, but the firm believes that its concerns about abiraterone as a competitor are currently under-appreciated.

The belief is that these trial results show that abiraterone might possibly be used in all patients with metastatic castration-resistant prostate cancer.  This is a longer-term concern rather than near-term, but and the firm is not assuming either “a pre-chemo approval in 2011 or significant off-label use ahead of an approval.”  Still, it does seem to enhance compeitive risks to Provenge.

The article from the NEJM suggests that this could impact both how new drugs are developed and used.  There is also a concern that a lack of combination data could eventually impact how Provenge is used in combination with other therapies.

Credit Suisse’s official rating Underperform with a discounted cash flow model price target obkective of $29.00 per share.  The firm is much more cautious on the risks here than most Wall Street analysts based upon competitive threats and based upon lower E.U. pricing and penetration.

Credit Suisse has modelled $0.59 EPS for 2012 on about $877.2 million in revenues and it sees 2013 estimates of $1.68 EPS and $1.162 billion in sales.

Sadly, this call is one that is very expensive to hedge against.  The call is long-term rather than short-term, so we looked at longer-dated LEAPS in options.  Going all the way out to the JAN-2013 $35 PUTS is almost at $6.50 per contract, implying that a sub-$29 share price is the breakeven point on your contract. 

Reuters noted that of the analysts following Dendreon, the ratings were as follows:

  • BUY- 11
  • OUTPERFORM- 6
  • HOLD- 5
  • UNDERPERFORM- 1
  • SELL- 1

Thomson Reuters has a consensus price target objective of $49.72 and Dendreon shares are currently trading around $42.25 with a 52-week range of $25.78 to $44.85.

AFTERTHOUGHT…… I have already been receiving some emails that need to be considered regarding abiraterone’s side-effects.  These were not really covered in the report summary and they are very important to consider.  I also kept the comments mostly to what this report was simply because it was one of the only standout research calls from the rest of the pack. 

JON C. OGG

Analysis Sizing Up FDA Approval Chances of Obesity Drugs (VVUS, OREX, ARNA)

May 12, 2011 · Filed Under analyst calls, Diabetes, obesity · 81 Comments 

We have a new report sizing up obesity drugs this morning from Bank of America Merrill Lynch.  The long and short of the three ratings is that Orexigen Therapeutics, Inc. (NASDAQ: OREX) and Vivus, Inc. (NASDAQ: VVUS) are both rated ‘Buy’ at Bank of America Merrill Lynch, but Arena Pharmaceuticals, Inc. (NASDAQ: ARNA) is ‘Underperform’ rated.  As always, it is the devil in the details that offers the most insight.

Vivus, Inc. (NASDAQ: VVUS) is finalizing its study design and the company’s President said efforts to finalize the trial design is assessing the risk of fetal malformations from Qnexa use in pregnant women.  The company will complete its retrospective analysis and re-file the Qnexa application by year-end. If the fetal malformation results are bad, then Vivus will re-file for a limited indication that excludes excluding women of child-bearing age. BofA believes this will boost the chance of commercially available in 2012 and it has a discounted cash flow model price of $10.00 ($7 of which is based upon Qnexa). An earlier than expected approval or securing a commercial partner could offer upside. 

Orexigen Therapeutics, Inc. (NASDAQ: OREX) is getting ready for an FDA meeting this quarter and its CFO focus is on that meeting.  The company hopes for FDA approval on cutting the time required for pre-approval.  It so far is assuming 0.5% per year in major cardiac event risk. The company indicated that Takeda would participate in the upcoming FDA meeting for Contrave.  BofA sees a relatively low downside risk for Orexigen with a discounted cash flow price target of $5.00.  It is using a 50% chance of success in its model but noted that upside could be seen if the FDA approves trials faster, if it secures an international sales partner, or if managed care organizations add weight loss drugs to formularies.

Arena Pharmaceuticals, Inc. (NASDAQ: ARNA) will conduct a three month “rat carcinogenicity trial” of Lorcaserin to satisfy the requirements in FDA’s complete response letter. Arena will conduct several non-human studies to assess the potential role of elevated prolactin levels.  The company submitted results from its BLOOM-DM trial on obese patients with diabetes showing a statistically significant reduction in A1c and fasting glucose levels from lorcaserin.  Bank of America remains cautious and has a $1.00 discounted cash flow target on Arena. The risks to its $1 target are an FDA request for long-term trials, a rejection of the lorcaserin NDA, an approval with restricted use, and a slower than expected sales ramp after approval.  Some upside could be there if lorcaserin gets approval before expectations, if production costs are lower, and if lorcaserin can gain market share faster than is expected. 

For whatever this is worth, BioHealthInvestor’s take is that the most likely of these three to get approval is Vivus for Qnexa and then Orexigen for Contrave.  Our take is that Vivus will get approval but it will exclude pregnant women and those who may wish to become pregnant.  Most doctors already monitor pregnant womens’ medications as is and it seems that a doctor would not want at all for a pregnant woman on a weight loss drug during pregnancy going in.  Many doctors are even against most basic vitamins and supplements during pregnancy, let alone  most prescription drugs.

JON C. OGG

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