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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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
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
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
The biotech sector has been full of consolidation and mergers of late, but now we have a new model whereby a smaller company is set to grow by taking a part of a larger company. We cannot exactly call it a reverse merger. Alkermes, Inc. (NASDAQ: ALKS) and Elan Corporation, plc (NYSE: ELN) have signed a definitive pact where Alkermes will merge with Elan’s unit called Elan Drug Technologies.
The drug technologies unit is profitable and is the drug formulation and manufacturing unit. The cash and stock transaction is valued toda at roughly $960 million and Alkermes and the unit will be combined under a new holding company structure that is incorporated in Ireland called Alkermes plc.
Alkermes says this deal will be immediately accretive to cash earnings. It also is said to accelerate Alkermes’ path “to building a sustainably profitable biopharmaceutical company with expertise in developing treatments for central nervous system diseases and a broad, diversified portfolio of products and pipeline based on proprietary science and technologies.”
The deal is a game-changer because on a standalone basis Alkermes was set to have a loss of -$0.31 EPS on $213.27 million in its fiscal year March-2012. The combined company is said to see a growing product, royalty and manufacturing revenues in excess of $450 million annually. Alkermes said it will also become immediately profitable on a cash earnings basis. In short, Alkermes instantly transforms. Now the company will have a revenue stream from 25 commercialized products and its 5 growth products will now be from RISPERDAL CONSTA, INVEGA SUSTENNA, AMPYRA, VIVITROL, and BYDUREON.
For Elan, it gets to cut the debt on its balance sheet and will get to improve its capital structure, increase its operating leverage, and this will allow for additional focus and disciplined investments. It also gets a stake in Alkermes plc that can drive its value ahead.
RISPERDAL CONSTA and INVEGA SUSTENNA are both commercialized by Johnson & Johnson (NYSE: JNJ) as long-acting injectable atypical antipsychotic medications for schizophrenia and bipolar I disorder. Ampyra is an MS drug under Acorda Therapeutics, Inc. (NASDAQ: ACOR). Bydureon is an extended release Typy-II diabetes treatment that Alkermes is in with Amylin Pharmaceuticals, Inc. (NASDAQ: AMLN) and Eli Lilly and Company (NYSE LLY).
Elan is set to receive $500 million plus it will also receive 31.9 million ordinary shares of Alkermes plc common stock. The companies will also enter into a shareholder agreement that contains a lockup, standstill and voting agreement for Elan’s shares of Alkermes plc.
As far as existing Alkermes holders, they will receive one ordinary share of Alkermes plc per each share of Alkermes, Inc. owned at the merger date. The new Alkermes plc shares will be registered in the United States and are expected to trade on NASDAQ. Alkermes plc will be headquartered in Dublin, Ireland The company did note that this transaction is expected to be taxable to existing Alkermes holders and it has obtained a commitment from Morgan Stanley & Co. and HSBC to provide up to $450 million of term loans to finance the transaction.
Revenues are expected to grow in fiscal 2012 and is expected to reach double-digit growth rates in fiscal 2013 and beyond. Pro forma Adjusted EBITDA margins in fiscal 2012 are projected at 15% to 20%, pro forma Adjusted EBITDA is put at $70 million to $90 million, and pro forma adjusted EBITDA margins should expand to 30% to 35% in fiscal year 2013 and beyond. Also noted was that it has identified about $20 million of annual synergies in U.S. operations that can be fully realized by fiscal 2013.
JON C. OGG
Orexigen Therapeutics, Inc. (NASDAQ: OREX) is beyond ugly after the FDA said that the company must now submit more trial data before its new diet pill Contrave may be cleared for sale. The vote was 13-against versus 7-for votes and now the FDA is asking for another study on the drug’s cardiovascular risks.
Outside FDA advisers said back in early December that the benefits of the weight loss exceed the dangers of a higher pulse and blood pressure, with the indication that a larger study targeted on risks of the heart might until after the final drug approval. That wasn’t so.
Both VIVUS Inc. (NASDAQ: VVUS) and Arena Pharmaceuticals Inc. (NASDAQ: ARNA) have been in a race with Orexigen to introduce the first approved diet pill for weight loss in a about a decade. Now all of these products are on the back-burner and approval will not likely be seen in the near-term on any of these drugs.
Orexigen is down 71% at $2.63 and shares hit a new year low and the new 52-week range is $2.50 to $11.15. VIVUS is down 15% at $7.57 and its 52-week range is $4.69 to $13.68. Arena shares are flat at $1.58 as its hope was already diminished.
Abbott Laboratories (NYSE: ABT) recently pulled its Meridia weight loss pill off of the market due to heart risks. Orexigen was expected to receive royalties from partner Takeda if it was approved. At issue with all these drugs is that they all have the possibility of becoming blockbuster drugs with more than $1 billion in annual sales from America alone. The competing drugs Qnexa from VIVUS have concerns about birth defects tied to one of the ingredients, while lorcaserin from Arena has tumor risks associated with it.
Contrave uses two approved drugs as a cocktail and the target areas are different parts of the brain which influence appetite and influence cravings. One is an antidepressant and one is a treatment for alcohol and opioid addictions. While patients lost generally 5% of their weight after a year, the weight loss group had a higher pulse and higher blood pressure than the placebo.
What just happened is that Orexigen was put in a situation where it has to evaluate what to do with its lead candidate. A new trial will easily run into the millions and millions of dollars and the time frame could easily run well over a year. Just how big the costs and how long the time would be, well that is still up for debate. Orexigen had just over $100 million in cash and short-term investments at the end of September-2010. Chances are that this is not enough cash.
Things went from maybe to awful here. Now it is dire.
JON C. OGG
M&A Bonanza For Drug & Biotech in 2011 (MRK, PFE, ALXN, DNDN, HGSI, CEPH, UTHR, CADX, AMAG, SNY, GENZ, AMGN, BEC, TEVA, SGMO, LLY, ALTH, CBST, VVUS, AUXL, VRTX)
The game of predicting mergers and acquisitions in the biotech and in pharma sectors is not a new one. The talk heats up, then it dies down. A deal comes, followed by another deal, and the activity goes quiet. This next week is likely to have at least more chatter in the biohealth sector for possible mergers and acquisitions after Barron’s gave a cover story called “The New Doctor in the House: Consolidation.”
Barron’s noted that “as big drug firms buy up smaller, specialty outfits and their most innovative products, better pipelines and sales-force efficiency will boost profits.” Here is the thing to consider: Barron’s did not really offer anything new or ground-breaking this weekend. It will have rekindled some hope that M&A is coming in the space. At issue: pipeline fatigue. A note we’d throw in as well, dead-dead stocks. We are going to at least address some of the Barron’s roster, but we want to show you many others which are just as or even more likely acquisition targets. Some of ours have even been in-play before.
Barron’s threw in Merck & Co. (NYSE: MRK) and Pfizer, Inc. (NYSE: PFE) as the largest of the Big Pharma players and it threw out biohealth names with stock-market values below $10 billion:
- Alexion Pharmaceuticals, Inc. (NASDAQ: ALXN) with a $7.5 billion value after a hueg run-up;
- Dendreon Corporation (NASDAQ: DNDN) for Provenge for prostate cancer (and future cancers) with a $5 billion market value today;
- Human Genome Sciences, Inc. (NASDAQ: HGSI) for its Benlysta in patients with severe active lupus nephritis and CNS lupus and a $4.5 billion market cap;
- Cephalon, Inc. (NASDAQ: CEPH) is one we have rarely looked as since things quieted down there;
- United Therapeutics Corporation (NASDAQ: UTHR) for its treat pulmonary arterial hypertension and an almost-$4 billion value;
- Cadence Pharmaceuticals Inc. (NASDAQ: CADX) was noted for its pain medication without the addiction aspects of morphine and its value is only $369 million;
- AMAG Pharmaceuticals, Inc. (NASDAQ: AMAG) was called a value stock despite its recent weak sales and despite its cash burn with a $368 million market cap.
Much of the biotech M&A game hinges on Sanofi-Aventis (NYSE: SNY) in its chase to acquire Genzyme Corporation (NASDAQ: GENZ). The latest talk is that a work-out could come to $80 all-in if certain milestones were achieved but the deal is still south of there officially. As noted above, we have our own opinions on which biotech companies and drug companies could find their way into the hands of a larger acquirer.
Amgen Inc. (NASDAQ: AMGN) is likely to continue being an acquirer. The company recently announced a deal worth potentially $1 billion to acquire privately-held BioVex. Last year the company said it was aggressively looking for new targets and its $52 billion market cap is the largest of all the independent biotechs in America. The company has more tricks up its sleeve.
Beckman Coulter Inc. (NYSE: BEC) went into play in early December with private equity firms being the likely acquirers of the portfolio of biomedical testing equipment and supplies. We argued at the time of the premium that it seemed shares fully reflected that value, and shares are actually lower now.
And don’t forget Sangamo Biosciences Inc. (NASDAQ: SGMO), where shares rallied in November on rumors of a potential bid interest from Eli Lilly & Co. (NYSE: LLY). It had good news on ZFP Therapeutic program to develop SB-509, a zinc finger protein transcriptional activator (ZFP-TF) of the vascular endothelial growth factor (VEGF)-A gene as a treatment for ALS and the news flow has continued to propel shares higher. It went above $4.50 on the rumors but now shares trade at $7.39. The market cap is still low here at $334 million.
Allos Therapeutics, Inc. (NASDAQ: ALTH) has been another name floated out there for M&A possibilities, but things are looking less and less bright for the company. Shares hit a 52-week low just on Friday.
Cubist Pharmaceuticals Inc. (NASDAQ: CBST) has not really gone anywhere as it is deemed a mature company, but it is one we thought for sure that would find its way into being part of a larger company. Its Cubicin is on the market and it fights severe hospital-induced infections and the market cap is $1.3 billion here.
VIVUS Inc. (NASDAQ: VVUS) remains a wild card due to the FDA. Diet and weight-loss pills have not been given any real love by the FDA. The exception here is that Qnexa does have serious benefits. There are side effects, particularly in cases of pregnancy. We would ask this though: How many pregnant and soon-to-be-pregnant women really diet? Most doctors don’t even want pregnant women taking supplements, let alone drugs. IF the FDA approves Qnexa, that $680 million market cap may be worth far more.
Teva Pharmaceutical Industries Limited (NASDAQ: TEVA)… We have also noted Teva’s mega-cap ambitions, and making more acquisitions would generally get there.
Last year, Morningstar put out a list of three favorites that it sees as acquisition targets in the biohealth space: Auxilium Pharmaceuticals Inc. (NASDAQ: AUXL), Human Genome Sciences Inc. (NASDAQ: HGSI), and Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX). FULL ARTICLE
This should at least give you a better and more concise list of possible deals and deal-makers for 2011. Just remember this, regardless of what Barron’s or other media outlets try to tell you: not all biotechs have to be acquired, not at all.
JON C. OGG
MannKind Corporation (NASDAQ: MNKD) is currently not looking kind nor like a very nice man(n). Shares of the already-controversial MannKind are getting crushed after the FDA sent the company a ‘Complete Response Letter’ regarding its inhalable Afrezza for diabetes. The FDA has requested two new clinical trials with its next generation inhaler. One test is for Type I diabetes and the other is for Type II diabetes.
The FDA request also wants more data the performance characteristics, as well as the usage, handling, shipment, and storage.
While MannKind said it remains committed to working with the FDA, it is also disappointed. That is an understatement of the year. At 6:30 PM EST the after-hours reaction had shares down a whopping 43.5% at $5.15 on more than 2 million shares in the after-hours session alone.
So, what now? MannKind already has some late-stage studies underway and it hopes to be able to offer more insight at its fourth quarter report date. Unfortunately, MannKind has declined to comment on when the company can resubmit the application and it is also now going to be far less optimistic about ultimate approval if its legal team gets to have its way. The dream of inhalable insulin is so far more like the Boulevard of Broken Dreams.
With shares at $5.15, the 52-week trading range is $4.76 to $11.12. That will put the new market cap closer to $600 million than the $1.14 billion listed as of the $9.11 last price today.
The company CEO just recently spent $6 million or so to buy shares of the company and it was just about a month ago that the prior delay had been sent to the company without the indication of more tests being needed. Today’s news delays the time line and cuts it cash balances ahead while it has to keep spending money in R&D without any revenues. The company has raised cash but the September 30, 2010 balance sheet showed that it had just under $100 million in cash and investments at the time.
It is safe to assume that the lawyers will have filed class action suits against the company by Thursday morning, and there will almost certainly be some analyst downgrades in the morning as well. Things are not likely going to be much better at MannKind until more clarity is available.
JON C. OGG
VIVUS Inc. (NASDAQ: VVUS) has done what was expected. It is not going to bet its entire future on the US FDA regulatory process for its QNEXA obesity pill. The company is applying for marketing approval in the European Union.
The company filed its European Marketing Authorization application for QNEXA as a treatment for obesity. The indications it filed for in the EU are for weight loss and maintenance of weight loss which should be used in conjunction with a lower calorie diet.
The EMA review will follow a centralized marketing authorization procedure and the company noted that, if QNEXA is approved, that it could receive marketing authorization in all European Union nations possibly as soon as late-2011.
VIVUS is not exploding higher on the news but shares are up. After a $9.78 close on Friday, VIVUS shares are indicated up around $10.12 in Monday’s pre-market trading.
JON C. OGG
EnteroMedics Inc. (NASDAQ: ETRM) is raising more capital than had been previously disclosed and its shares are getting hit as a result. The company which focuses on devices using neuroblocking technology now plans to sell more shares and warrants.
The company is raising R&D funds for the commercialization of its obesity treatment. It is selling 14.8 million shares and warrants, higher than the 12 million previously disclosed. The price is at $1.75, with a warrant exercise price of $2.19 per share.
As far as how this compares to the float and dilution, that is rather large because the float was said to be only about 7.5 million shares before this offering.
After the obesity treatment news from Orexigen (NASDAQ: OREX) this week, the hiked offering may be less of a surprise. Here is the problem: shares closed at $2.21 yesterday. The early indications have EnteroMedics shares down over 12% at $1.93 and the 52-week trading range is $1.52 to $8.64. The market cap here was a mere $16.5 million as of yesterday.
JON C. OGG