Speculation about a potential acquisition of the third-largest biotech company in the world continued throughout the week, and Johnson & Johnson (NYSE: JNJ) was added to the list of potential suitors, although perhaps seen as more of a long shot than GSK. On Friday, Sanofi-Aventis (NASDAQ: SNY) made a casual approach to to GENZ which appeared to be a more serious expression of interest.

-Michael B. Sauter

-Michael B. Sauter

We have recently seen Acorda Therapeutics, Inc. (NASDAQ: ACOR), Cubist Pharmaceuticals Inc. (NASDAQ: CBST), MannKind Corporation (NASDAQ: MNKD), Incyte Corporation (NASDAQ: INCY), Seattle Genetics, Inc. (NASDAQ: SGEN), InterMune, Inc. (NASDAQ: ITMN), Impax Laboratories Inc. (NASDAQ: IPXL), and Medicis Pharmaceutical Corporation (NYSE: MRX) either get into or get back into the $1 billion market cap club.  And then we have Savient Pharmaceuticals Inc. (NASDAQ: SVNT) and ViroPharma Incorporated (NASDAQ: VPHM) that have been in the club and are currently just short of it.

Due to waves of big emerging drug news and due to strong performance we now have 16 of the biotech and related stocks (at least of those which we cover as pure biotechs) which have market caps north of $2 billion.  More importantly, the biotech news flow and he bull market has suddenly helped many stocks rise or at least get back above the $1 billion mark.  Many of these had been there before, but the market has helped many new names get back above the $1 billion market capitalization level.  And waves of mergers in the last two and three years sort of thinned out the group.

In these we did not take into consideration revenues, earnings, and not even cash.  This has largely been news-driven and momentum-driven.  Below is a review of each.

Acorda Therapeutics, Inc. (NASDAQ: ACOR), going after multiple sclerosis, spinal cord injury and other nervous system disorders, rejoined the $1 billion market cap club just at the end of this January.  At $33.03, it has a market cap of $1.25B, is up 112.82% from its 52-week low and has a 52-week trading range of $15.52 to $33.64.

Cubist Pharmaceuticals Inc. (NASDAQ: CBST) is at $21.75 has a market cap of $1.26B    and is up 55.36% from its 52-week low.  Its trading range of the trailing year is $14.00 to $22.39.  This antibiotic and infection fighter rejoined the $1 billion-plus club back in December.

MannKind Corporation (NASDAQ: MNKD) in diabetes and cancer targets trades at $10.19, has a market cap of $1.15B and is now up a whopping 382.94% from its 52-week low.  It has a 52-week trading range of $2.11 to $12.30 and it rejoined the $1+ billion market cap club in January. This stock still falls far short of its 2004 to 2006 highs.  This has been above the $1 billion mark on and off, and it regained its $1 billion status in January.

Incyte Corporation (NASDAQ: INCY) overtook its $1 billion level back in December after having been out of the billionaire club since late summer or early fall of 2008.  The company targeting oncology, inflammation, and diabetes trades for $11.60, has a market cap of $1.38B and is up 491.84% from its 52-week low.  It has a 52-week trading range of $1.96 to $11.74.

Seattle Genetics, Inc. (NASDAQ: SGEN) in cancer and autoimmune targets rejoined the $1 billion club last summer and has bounced in and out of the club since.  At $11.78, it has a market cap of $1.18B, is up 68.29% from its 52-week low, and has a 52-week trading range of $7.00 to $14.94.

InterMune, Inc. (NASDAQ: ITMN) just rejoined the $1 billion club this week on news of its lung drug.  It has been here before, and some still have ongoing questions for it.  That is a different article though.  At $23.28 it has $1.07B market cap and is now up 122.14% from its 52-week low and has a 52-week trading range of $10.48 to $25.37.

Impax Laboratories Inc. (NASDAQ: IPXL) is in the development and commercialization of bioequivalent and brand-name pharmaceuticals.  The 1-plus year it has been public has been a straight line up and our data is showing that Its $16.48 high close gave this a market cap of $1 billion on the nose.

Medicis Pharmaceutical Corporation (NYSE: MRX) is technically not a biotech, but BioHealth Investor has it in with emerging pharma and biotech stocks for tracking purposes in dermatology and aesthetics.  At $23.09 it has a $1.33B Market cap, is up 194.14% from its 52-week low and has a 52-week range of $7.85 – $28.10.  Its market cap has been north of $1 billion since the end of last summer.

And then there are two which are very close to the $1 billion club today.

Savient Pharmaceuticals Inc. (NASDAQ: SVNT) has been in the $1 billion club on and off but is not currently in the club.  At $13.94, it has a market cap of $928.77M and is actually up 292.68% from its 52-week low.  Its 52-week trading range is $3.55 to $16.62.

ViroPharma Incorporated (NASDAQ: VPHM) has been in and out of the $1 billion club on and off.  At $12.74, it has a market cap just under the mark of $986.61M yet shares are up 222.53% from its 52-week low.  The stock has a 52-week trading range of $3.95 to $13.31.

If you wonder why we focus on this $1 billion level and were dedicating a fixed piece solely to that, this is because $1 billion is a key hurdle for institutional investors.  Many institutions cannot or are at least supposed to not invest in companies with market caps under the $1 billion level.  In biotech that means those investors miss out on many huge opportunities.  But they also frequently miss on most  of the biotech zombies and dollar implosions that occur.

Small cap is defined differently from source to source.  We generally consider the cut off as being under $1 billion for small cap stocks and then under $100 million for micro-cap stocks.  But there are many variations.

• Investopedia.com is at $300 million to $2 billion as small cap;
• InvestorWords.com defines small cap as $250 million to $1 billion;
• The S&P SmallCap 600 Index criteria is $250 million to $1.2 billion.

JON C. OGG

Neither pay a dividend.  Not yet.  It would seem that the most likely candidate of the two would be Warner Chilcott because companies like Merck & Co. (NYSE: MRK) and Pfizer Inc. (NYSE: PFE) do pay dividends with roughly a 4% yield.  Amgen is opting for share buybacks right now and its peers are not known for being thge greatest of the world’s dividend candidates.  We wanted to take a look at each in a deep review of the basics that allow for dividends.

There is a precedent here.  The two key ETF products we have used to follow the sector are in the HOLDRs family, which are the oldest of the drug and biotech ETF products.  And they are liquid, mostly and usually.  The Pharmaceutical HOLDRs (NYSE: PPM) pays dividends, but these are irregular and are dependent upon which shares are making quarterly distributions through each quarter.  Then there is the Biotech HOLDRs (NYSE: BBH), which are currently less liquid than what we have seen in the past.  Dividends are more sporadic here, but they are present.

WARNER CHILCOTT

Warner Chilcott plc (NASDAQ: WCRX) seems to quietly and rapidly emerging as one of the greatest drug companies on the scene in years.  Many pharma and biohealth investors still do not even really know the company.  If all goes well and according to plan, the company may be one of the best value stocks out there in the land of pharma and biotech.  The company pays no dividend, but after we get a couple of more quarterly adjusted balance sheets and earnings reports behind us it seems as though the company will want to join Merck & Co. (NYSE: MRK) and Pfizer Inc. (NYSE: PFE) with a dividend to help further get on the map.

The stock has done very well since it completed the acquisition of the global branded pharmaceutical business from The Procter & Gamble Company (NYSE: PG) on October 30, 2009.  Its most recent guidance is as follows for 2010: Adjusted total revenue for 2010 after the impact of its distribution agreement with LEO Pharma A/S in range of $2.9 to $2.95 billion; Adjusted gross margin of 88% to 89%; Total SG&A expenses in the range of $1.2 to $1.25 billion; total R&D in the range of $180 to $200 million; net income of $190 to $215 million; adjusted cash net income in the range of $842 to $867 million; and using 255 million ordinary shares adjusted cash net income per share of $3.30 to $3.40 per share for the full year 2010.

We would think it is safe to assume that the company wants to get a couple more quarters to pass before a dividend is launched, but barring any other mergers we would expect the company to get on the map with a dividend.  With shares close to $25.00, a 4% yield would be about $1.00 per year of that $3.30 to $3.40 per share in 2010 earnings. Thomson Reuters has estimates of $3.37 EPS and that would give a forward P/E ratio expected of less than 8-times earnings.  An estimated guess is that the dividend will start at about $0.60 to $0.75 per year, for now.

AMGEN INC.

Amgen Inc. (NASDAQ: AMGN) is the world’s biggest independent biotech by market cap.  Yet the stock has been stodgy enough and its anemia franchise has been under fire enough that Amgen almost feels like a good old-fashioned Big Pharma stock now.  It seems like an unlikely dividend stock on the surface and not just because it wants to be thought of as a biotech that does not pay dividends.  So far, the company has chosen to conduct share buybacks to deploy cash and it is not in a hurry to begin paying a dividend.

In the investor Q&A of its investor relations site, the phase is there: “Amgen does not pay a dividend on stock, and does not foresee doing so in the immediate future.” There is an issue though and that is that the expected earnings growth leaves more and more room for Amgen to begin rewarding its shareholders.  It recently announced a $5 billion share buyback, on top of the $1.2 billion remaining at the time still authorized for buybacks.  But share buybacks were the shareholder-friendly actions of 2007 to 2009.  In the new normal, the dividend may matter more to holders who want to get money back from companies.  Amgen trades at a mere 11-times 2010 estimates from Thomson Reuters.

We do not want to say that Amgen has been dead money for five years, but it has been very quiet money.  For more than 3 years the stock has had a hard time staying above $60 for very long.  And for some time we have noted that Amgen is effectively valued more like a Big Pharma stock than a biotech stock.  With $5 billion in cash flow and with a mountain of cash, it can afford a dividend on top of its debt and on top of its buyback plans.  Both Merck & Co (NYSE: MRK) and Pfizer Inc. (NYSE: PFE) yield close to 4%, and Amgen could easily afford to pay close to 2% or $1.00 per share for its initial dividend rate.

There are two issues which would keep Amgen from paying a dividend for years.  The first is a big acquisition, but the company likely knows that this would likely take its stock lower as we have seen in most buyer situations.  Amgen could also embark on a huge debt pay-off in the future.  That is also shareholder friendly.  But initiating a dividend, and a noticeable one, might be the best effort the company could make.

JON C. OGG
FEBRUARY 11, 2010

Douglas A. McIntyre

The most recent announcement from the company was almost a week ago when it said it executed an exclusive 10-year agreement to supply the Onalta 90-Y edotreotide radiotherapeutic to BioMedica Life Sciences S.A., Athens, Greece.

In September, Molecular Insight entered into a Territory License Agreement with BioMedica for commercialization of Onalta in certain European countries, the Middle East, North Africa, Russia and Turkey.

Under the Agreement, BioMedica is expected to perform clinical studies and to secure all regulatory approvals to market, sell and distribute Onalta within its licensed territories. Molecular Insight retains Onalta rights in all other markets and territories, including the United States, Japan and Asia.

Douglas A. McIntyre

MONDAY OCTOBER 19

• Boston Scientific Corporation (NYSE: BSX) $0.14 EPS on $2.04 billion in revenues

TUESDAY OCTOBER 20

• Biogen Idec Inc. (NASDAQ: BIIB) $1.04 EPS on $1.11 billion in revenues
• Gilead Sciences    Inc. (NASDAQ: GILD) $0.67 EPS on $1.76 billion in revenues
• Intuitive Surgical, Inc. (NASDAQ: ISRG) $1.46 EPS and $256.44 million in revenues
• Pfizer Inc. (NYSE: PFE) $0.48 EPS and $11.4 billion in revenues
• Quest Diagnostics Inc. (NYSE: DGX) $0.96 EPS and $1.89 billion in revenues
• Stryker Corp. (NYSE: SYK) $0.69 EPS and $$1.62 billion in revenues

WEDNESDAY, OCTOBER 21

• Amgen Inc. (NASDAQ: AMGN) $1.27 EPS and $3.79 billion in revenues
• Elan Corporation, plc (NYSE: ELN) -$0.13 EPS on $285.18 million in revenues
• Eli Lilly & Co. (NYSE: LLY) $1.01 EPS and $5.4 billion in revenues
• Genzyme Corporation (NASDAQ: GENZ) $0.44 EPS and $1.11 billion in revenues
• St. Jude Medical, Inc. (NYSE: STJ) $0.58 EPS and $1.16 billion in revenues

THURSDAY, OCTOBER 22

• Bristol-Myers Squibb (NYSE: BMY) $0.51 EPS and $5.5 billion in revenues
• Merck & Co., Inc. (NYSE: MRK) $0.83 EPS and $6 billion in revenues
• Schering-Plough    Corporation (NYSE: SGP) $0.39 EPS and $4.45 billion in revenues
• Zimmer Holdings Inc. (NYSE: ZMH) $0.86 EPS and $953.6 million in revenues

JON C. OGG
OCTOBER 16, 2009

Amgen Inc. (AMGN)
AS OF DATE Short Int. Change
9/30/2009  18,363,198.. 5% GAIN
9/15/2009  17,449,497

Gilead Sciences Inc. (NASDAQ: GILD)
AS OF DATE Short Int. Change
9/30/2009  16,015,311.. 3.8% GAIN
9/15/2009  15,466,285

Celgene Corporation (NASDAQ: CELG)
AS OF DATE Short Int. Change
9/30/2009  8,177,698.. 9% DROP
9/15/2009  8,935,957

Biogen Idec Inc. (NASDAQ: BIIB)
AS OF DATE Short Int. Change
9/30/2009  9,459,673.. 1% DROP
9/15/2009  9,565,418

Genzyme Corp. (NASDAQ: GENZ)
AS OF DATE Short Int. Change
9/30/2009  8,771,379.. 19% GAIN
9/15/2009  7,388,108

Life Technologies Corporation (NASDAQ: LIFE)
AS OF DATE Short Int. Change
9/30/2009  6,799,196.. 3% DROP
9/15/2009  7,033,841

Dendreon Corp. (NASDAQ: DNDN)
AS OF DATE Short Int. Change
9/30/2009  8,939,869.. 2% DROP
9/15/2009  9,146,253

Human Genome Sciences Inc. (NASDAQ: HGSI)
AS OF DATE Short Int. Change
9/30/2009  19,786,339.. 1% DROP
9/15/2009  19,867,823

Amylin Pharmaceuticals, Inc. (NASDAQ: AMLN)
AS OF DATE Short Int. Change
9/30/2009  13,171,869.. 5.7% DROP
9/15/2009  13,928,154

OSI Pharmaceuticals Inc. (NASDAQ: OSIP)
AS OF DATE Short Int. Change
9/30/2009  5,444,450.. 5.8% GAIN
9/15/2009  5,137,212

JON C. OGG

Douglas A. McIntyre

ThinkEquity did a poor job pricing the deal. The shares closed at $2.15 yesterday and now trade at $1.87, down 13%. APPY should have found another banker.

Douglas A. McIntyre