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

December 28, 2011 · Filed Under analyst calls, Lupus · 13 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


Odds-Making on a Human Genome Sciences Acquisition (HGSI, GSK, BIIB, MRK)

October 18, 2011 · Filed Under Financial, Lupus, M&A, Rumor · 4 Comments 

Human Genome Sciences Inc. (NASDAQ: HGSI) is surging on reports that GlaxoSmithKline PLC (NYSE: GSK) could be set to make a $25.00 per share offer to acquire the company.  The report surfaced in the Daily Mail out of the United Kingdom, and we would note that this publication pushes out enough rumors that it could be called the Daily Rumor (or Rumour for the Brits).  It also has a spotty track record.

The reason for the speculation is simple… GSK was long thought of to be the natural buyer because of the long pacts that are in place already.  The two already have Benlysta as the lupus treatment under a collaboration pact.  Then there is the issues of HGS’s pipeline.

What is interesting is that the Daily Mail also threw out Biogen Idec Inc. (NASDAQ: BIIB) and Merck & Co. (NYSE: MRK) could also be suitors.  Our caution here is that those companies would have to want to be involved in collaboration pacts with GSK either way.

It is always interesting when you see a rumor of a 100% buyout premium.  Sadly, even a 100% premium is not an assured price that would get a deal done.  It would seem likely, but others may still fight it as the 52-week high is $30.15.  The thing that would make a deal simple is that the market cap is only about $2.4 billion. 

One issue that current investors could make for undervaluing the company is that the consensus price target from analysts is still above $24.00.  If the stock is worth that on its own, investors could argue a buyout should make it worth even more. 

A deal would make sense for GSK here, but we would be a bit more cautious on betting the farm that another large player would want to buy the company.  It would be normal that GSK would not allow itself to be stuck in a new deal under a change of control if it found the buyer to be difficult or incompetent.  That being said, anything is possible.  This is not the first time buyout rumors have circulated around Human Genome Sciences.

Shares are up almost 13% at $12.68 and the 52-week trading range is $10.40 to $30.15.

Since this is probably the fourth or fifth time we have heard “HGSI Buyout Rumors,” our odds would automatically put the chance under 50% that a deal is imminent just because of the history of rumors.  Still, an acquisition would make sense for GSK or for a large player that GSK would want to work with.  That being said, we’d assign a 33% to 40% chance of a deal… 1-in-3 or 2-in-5.


Benlysta Approval Cheat Sheet: What You Need to Know (HGSI, GSK)

March 9, 2011 · Filed Under analyst calls, Cancer, fda, genomics, Lupus · Comment 

It is official… The FDA has approved Benlysta as the first new drug regimen for systemic lupus in  over 50 years.  Human Genome Sciences, Inc. (NASDAQ: HGSI) and partner GlaxoSmithKline plc (NYSE: GSK) are sure to have a Blockbuster on their hands.  The treatment is for the treatment of adult patients with active, autoantibody-positive systemic lupus erythematosus who are receiving standard therapy.

We want to stress that analyst data is going to change greatly and we want a snapshot here of what this looks like before the change.  The side-effects have taken a lot of space, and those are just verbatim.  The rest after that is where the guts of the outlook is.  We have been keeping tabs on a few side-bar issues going into this approval and here is are some of the key issues we think you need to know:

First is that we have been expecting Human Genome Sciences to win approval.  Not everyone was, but this is not an issue we see being negative for Human Genome regardless of how this stock acts in the first few days.  By now you know FDA approval stocks can have mega-moves up down and back and forth. The cost is currently aimed at $35,000 per patient per year.  There will be discounts and exceptions but this is within the range we were expecting.

THERE ARE SOME LIMITATIONS… The efficacy has not been evaluated in patients with severe active lupus nephritis or severe active central nervous system lupus.  It has not been studied in combination with other biologics or intravenous cyclophosphamide. Use is therefore not recommended in these situations.  What you need to know: Like it or not, off-labeling will occur here.  Think about it, 50+ years since the last approval…

TIMING & REVENUE HOPES… The companies are aiming for deliveries to begin to doctors within a couple of weeks, which of course will be an average.  That means that revenues can actually start sneaking in during this first quarter.  Do not expect much… Thomson Reuters only had estimates of $21.77 million in Q1 and $30.64 million in Q2 for revenues.  The current estimates of $172.37 million for 2011 revenues are fair and the estimates of $495.96 million for 2012 may need to be adjusted.  For 2012 the range is $295 million to $736 million, so it is not like there aren’t some differing opinions.  Our guess is that estimates on the lower end will come up.

SIDE-EFFECTS & MORTALITY RISKS… “Out of 2133 patients in 3 clinical trials, a total of 14 deaths occurred during the placebo-controlled, double-blind treatment periods: 3/675 (0.4%), 5/673 (0.7%), 0/111 (0%), and 6/674 (0.9%) deaths in the placebo, belimumab 1 mg/kg, belimumab 4 mg/kg and belimumab 10 mg/kg groups, respectively. No single cause of death predominated. Etiologies included infection, cardiovascular disease, and suicide. Serious and sometimes fatal infections have been reported in patients receiving immunosuppressive agents, including belimumab. In controlled clinical trials, serious infections occurred in 6.0% of patients treated with belimumab and in 5.2% of patients who received placebo. The most frequent serious infections included pneumonia, urinary tract infection (UTI), cellulitis, and bronchitis. The most frequent infections (≥5%) were upper respiratory tract infection, UTI, nasopharyngitis, sinusitis, bronchitis, and influenza.” Hypersensitivity reactions were reported in 13% of patients receiving belimumab and 11% of patients receiving placebo, and included anaphylaxis (0.6% with belimumab and 0.4% with placebo). Infusion-associated adverse events were reported in 17% of patients receiving belimumab and 15% of patients receiving placebo. Psychiatric events (primarily depression, insomnia, and anxiety) were reported more frequently with belimumab (16%) than with placebo (12%). Serious psychiatric events, serious depression and two suicides were also reported (0.8% for belimumab and 0.4% for placebo).

Analyst estimates… Thomson Reuters has a consensus price target objective of about $34.00 today, with a low of $23 and a high of $45 per share from analysts.  Over the last year shares have traded in a range of $20.56 to $34.49.  Earnings estimates are -$0.43 EPS and $21.77 million in revenues for this quarter; -$0.41 EPS and $30.64 million in revenues next quarter; -$1.47 EPS and $172.37 million in 2011; and -$0.60 EPS and $495.96 million in revenues in 2012.

Buyout or independent… Some still consider HGSI a buyout candidate.  We ONLY consider it a buyout target if GSK wants to acquire it.  Buying the company only gives a half-share of Benlysta and come-along partners do not always work as well in biotech and drug deals.

Company stats… The market cap is $4.85 billion.  Assets in cash and other we are looking at as hard assets are $155.7 million in cash and equivalents, $282 million in other short-term investments, and $448.6 million in long-term investments.  It also has $253 million in plant and equipment. Long-term dent is $434.7 million.

Trading patterns… Average daily volume is down to only 2.3 million shares and March 1 was the most recent day with 5 million shares traded.  That volume will be explosive Thursday.  March options show an open interest of over 100,000 CALLS for MARCH and over 70,000 contracts for MARCH only.

More analyst calls… Gleacher was very positive at the end of December.  Cowen & Co. took a very negative stance.

We will get to see how this begins trade indications early-early tomorrow after the NASDAQ releases its halt time.  Again, trading may very well be all over the place for the next few days.

The links throughout will offer more insight to individual sales targets, but hopefully this offers a bit of a cheat sheet. By morning, much of the analyst data will have changed… that part never changes.


Big Biotechs With The Most Upside for 2011 (AMGN, GILD, CELG, HGSI, DNDN, INCY, ACOR)

December 29, 2010 · Filed Under analyst calls, Cancer, fda, Financial, genomics, Lupus, M&A · Comment 

Bioheath Investor is creating some ongoing outlook pieces as 2010 ends so we have an outline of what to expect for 2011.  We have already given the “Best of Big Biotech in 2010″ and now we want to focus on “The Big Biotechs With The Most Upside for 2011.”  Using “Big Biotech” implies market caps of those with a market cap of $1 billion or higher.  It was surprising that many of those big biotechs are actually trading much higher than their projected price targets.

Our screen generated 7 of the pack with implied upside of more than 15% for 2011.  Those making the screen were Amgen Inc. (NASDAQ: AMGN), Gilead Sciences, Inc. (NASDAQ: GILD), Celgene Corporation (NASDAQ: CELG), Human Genome Sciences, Inc. (NASDAQ: HGSI), Dendreon Corporation (NASDAQ: DNDN), Incyte Corporation (NASDAQ: INCY), and Acorda Therapeutics, Inc. (NASDAQ: ACOR) made the grade for those with the most implied upside to the average analyst price targets with a one-year horizon.

We did create a brief table showing the tickers, the current price, the implied analyst consensus price target from Thomson Reuters, the implied upside to that target, and the 52-week trading range.  More importantly, we gave an added breakdown on each with supporting data and color for building such an outlook.

Stock Current Target Implied Gain 52-Week Range
AMGN $56.13 $65.39 16.5% 50.26 – 61.26
GILD $36.54 $44.67 22.2% 31.73 – 49.50
CELG $60.28 $70.48 16.9% 48.02 – 65.79
HGSI $24.63 $35.17 42.8% 20.56 – 34.49
DNDN $35.81 $52.73 47.2% 25.78 – 57.67
INCY $16.81 $21.08 25.4% 8.50 – 17.48
ACOR $27.60 $33.58 21.6% 24.99 – 40.48

Amgen Inc. (NASDAQ: AMGN) has been range-bound for so long that we have called it a Big Pharma company masquerading as a biotech.  It is THE largest of all U.S.-based biotechs out there.  The 16.5% implied upside to a consensus target of $65.39 would mean a multi-year high as this one has been greatly range-bound in a $50 to $60 range.  We’ll be looking forward to more data on its prostate cancer indication possibilities.  The market cap here is well over $50 billion and it has so far survived its political risks and reimbursement risks from Washington D.C.  What else is there really to add?

Gilead Sciences, Inc. (NASDAQ: GILD) has a high implied upside of more than 22% and it ranks among the biggest biotechs in the world with its $29.6 billion market cap.  The implied target of $44.67 has already been breached before as the 52-week high is $49.50.  Gilead even peaked at $55 back in 2008 before the meltdown.  Its recent loss may have become InterMune’s gain.

Celgene Corporation (NASDAQ: CELG) has become harder and harder to evaluate on its valuation versus growth, but grown it has… even if shares have been range-bound.  Its market cap is north of $28 billion based on REVLIMID, THALOMID, and others.  If it makes that near-17% upside to $70.48, that will be a new 52-week high and will be within striking distance of the 2007 and 2008 highs.

Human Genome Sciences, Inc. (NASDAQ: HGSI) is the #2 stock of the implied upside stocks worth more than $1 billion.  The implied event is the FDA review of Benlysta for lupus in March 2011 and if approved it would be the first lupus treatment in the last 50 years.  While the implied upside is almost 43% to $35.17, Human Genome shares have already traded as high as $34.49 over the last year.  Two recent analyst calls could not have been more opposite.

Dendreon Corporation (NASDAQ: DNDN) won the pole position as #1 with the most implied upside.  Dendreon is a 2011 story as it telegraphed that its Provenge is likely to see a later in the ramp up and back-ended growth cycle as more capacity comes on line.  The company is also seeking expanded Provenge manufacturing approval.  While the implied upside is 47% to the $52.73 target, shares have traded north of $57.00 this year.  We recently saw a very bullish outlook from a research report here.

Incyte Corporation (NASDAQ: INCY) is expected to have some 25% upside to its $21.08 consensus target, and it should be noted that it has a 52-week high of only $17.48.  Thomson Reuters expects a decline in 2011 revenues and the story is still one that can go either very well or could backfire as its losses mount.  Incyte’s market cap is still north of $2 billion and its cash is in excess of $400 million as of its September 30, 2010 balance sheet.  Keep in mind that at the time of that balance sheet, debt and deferred liabilities already offset that cash balance.  Incyte is one that could be a huge wild card ahead.

Acorda Therapeutics, Inc. (NASDAQ: ACOR) is one that is close enough to the 52-week lows that the implied upside may not be believed by many investors.  The implied upside to the $33.58 target is still over 21%, but shares have come off the yearly highs by more than 30% so far in 2010.  Its market cap is barely over the $1 billion line at $1.08 billion and we’d rate this another wild card for biotech investors.

As far as how these big biotech targets compare with a fresh initiation from Credit Suisse, that can be seen here.  Keep your eyes out for both Human Genome Sciences and Dendreon in 2011.  Those are both exponential winners and were up for review in late 2010 as they were among the field of ten-baggers with implied gains of 1,000% or more.


Bullish 2011 Outlook For Human Genome (HGSI)

December 22, 2010 · Filed Under analyst calls, fda, Lupus · Comment 

Human Genome Sciences, Inc. (NASDAQ: HGSO) has received a positive research call from an analyst targeting upside in the shares.  Gleacher & Co. initiated coverage on the company with a BUY rating and a $30 TARGET PRICE.  The thesis is actually “Slow and steady wins the race.”

Ying Huang, Ph.D, of Gleacher, sees Benlysta receiving a broad label and that concerns of a restrictive label is the key overhang today.  The belief is that the FDA will not completely restrict Benlysta in patients with severe active lupus nephritis and CNS lupus.

The report predicts that the FDA will likely request the company conduct post-marketing studies.  It is bullish long-term, albeit with a slow initial launch, and it ultimately sees over $1 billion in global sales in 2014 that may peak at $3.6 billion out in 2023.

The firm also feels that pricing could bring more upside, and it is modeling $30,000 in the U.S. and $24,000 in ex-U.S. pricing per year.  As far as what upside is there, the firm sees that every $5,000 price increase would add about $4.00 in its price target based upon discounted cash flows.

The firm did note that its own physician consultants have indicated that physicians are likely to be cautious at the start but they are likely to use Benlysta in many more patients through time.

Human Genome shares are up 1.7% at $24.69 today in very light trading volume against a 52-week trading range of $20.56 to $34.49.

We recently highlighted a call from Credit Suisse showing an Outperform rating and $31 target in a broader sector call this month and pitted that against a very cautious call from Cowen & Co. with an Underperform rating and fair value well under $20.00.


A Very Cautious Case Against Human Genome (HGSI, GSK)

December 9, 2010 · Filed Under analyst calls, Lupus · 1 Comment 

It was just earlier this week in a broad call that Human Genome Sciences Inc. (NASDAQ: HGSI) saw a very positive research call in a sector initiation as its stock was initiated with an “Outperform” and a $31.00 price target by Credit Suisse.  Apparently, that was then and this is now.  A new research call almost reverses all of that with an opposite stance.  Cowen & Company initiated coverage of Human Genome Sciences with an “Underperform” rating this morning and the implied value puts the stock as being overvalued.

More important than a formal rating is the target.  Cowen’s Eric Schmidt (no relation to Google’s Eric Schmidt) says that Human Genome Sciences could have a share price that is overvalued by the tune of 30% or even 35%.

While expected to be a big winner with Benlysta against lupus, the new report is looking for peak worldwide sales of $1.7 billion against an implied consensus of roughly $3 billion to $5 billion.

The firm gives the good, the bad, and the ugly… The good is safety and efficacy with an unmet need with minimal regulatory risk and longevity to the brand (remember, it has been about 50 years for a lupus drug).  The bad is an expectation of a sales shortfall due to a smaller real target population with ‘physician conservatism.’  The ugly is that HGSI’s $5+ billion market cap is almost entirely tied to its 50% ownership of Benlysta with GlaxoSmithKline plc (NYSE: GSK) and that value may be closer to $11 to $12 per share for its stake and lower sales.

Schmidt gave a lower sum of the parts valuation in a much longer report than this summary of $16.78 per share.

A price target of $16.78 is far different than the $31.00 target from Credit Suisse earlier this week.  It is always interesting to see dual-analysis calls when the same information is available and the opinions are so different.  That is what makes a ballgame.

We have noted some concerns and possible second-guessing of our own opinion here because of the FDA concerns.  This drug seems like one which will receive approval.  Lupus has had no new treatments in two generations.  Frankly, the safety concerns seem low compared to the need and considering that some of the adverse effects could be argued as ‘coincidental’ rather than strictly due to the use of Benlysta.  Still, this is the FDA and making FDA predictions is a knife that cuts hard both ways.


FDA Brings More Doubt Over BENLYSTA Against Lupus (HGSI, GSK)

December 3, 2010 · Filed Under fda, Lupus · 2 Comments 

More problems for those suffering from lupus!  The FDA has decided to delay its review of the proposed lupus treatment BENLYSTA.  Human Genome Sciences, Inc. (NASDAQ: HGSI) and GlaxoSmithKline PLC (NYSE: GSK) announced after the close of trading today that the FDA has extended the Prescription Drug User Fee Act target date for its priority review of the Biologics License Application (BLA) for BENLYSTA.

The review extension just went from December 9, 2010 all the way out to March 10, 2011.  The companies noted, “After the FDA Arthritis Advisory Committee met on November 16, 2010 to consider the BENLYSTA BLA, the FDA requested some additional information from HGS, which has been submitted.

BENLYSTA is an investigational drug and the first in a new class of drugs called BLyS-specific inhibitors. The drug is under a co-development and co-commercialization agreement that the companies entered into in 2006.  This would be the first new lupus treatment in roughly 50 years if the FDA approves the drug.

We have reviewed the FDA’s request and looked at the side effects that are part of the concern.  Our own take is that the FDA will approve BENLYSTA and make it have either Black Box warnings or make the companies make all sorts of disclosures.  The problem is that with each new delay comes a new round of questioning your own judgment.

Predicting FDA action is often more than difficult.  Sometimes the FDA does things that just don’t make sense, and sometimes it is accused of being very conflicted in its decisions.  Others argue that it is far too conservative in approvals.

Human Genome Sciences closed up 2.4% at $25.60 and its shares are down 3.9% at $24.60 in the after-hours session.  The 52-week trading range is $20.56 to $34.49.

The plot thickens, yet again.


Vindication for Human Genome… Takeover Chatter to Resume? (HGSI, GSK)

November 16, 2010 · Filed Under fda, Lupus, M&A · Comment 

Human Genome Sciences Inc. (NASDAQ: HGSI) has some vindication for its BENLYSTA as a treatment for lupus.  The company announced that it and partner GlaxoSmithkline plc (NYSE: GSK) received FDA panel backing from the Arthritis Advisory Committee.

The company noted that a vote tally of 13 approval recommendations was above the 2 that recommended against approval.  The FDA does not always follow its panel recommendations, but generally it does and a wide vote like this makes the winds favor an approval over a blockage.  If approved as a treatment for autoantibody-positive patients with active systemic lupus erythematosus, this would mark the first treatment in about two generations.

The FDA’s committee is convened to provide the FDA with independent expert advice on a broad range of issues related to rheumatology drug products, and these are non-binding recommendations.  The decision on final FDA approval of BENLYSTA a Prescription Drug User Fee Act was given a target date of December 9, 2010.

Human Genome Sciences and GlaxoSmithKline are developing BENLYSTA under a definitive co-development and co-commercialization agreement which was entered into back in 2006. The two companies will share equally in Phase 3/4 development costs, sales and marketing expenses, and profits of any product commercialized under the current agreement.

Cautious FDA comments over the safety and efficacy had recently caused a stir and had put pressure on the shares.  Over the weekend we issued a note that despite the concerns voiced, FDA approval seemed very likely here for BENLYSTA because the incidence of side-effects seemed low and it also is hard to know if those suicides had anything to do with the drug.   Human Genome Sciences had been at $25.88, and in the post-halt trading the stock is up 9% at $28.28.

The ultimate proof in the pudding will come from the FDA formal decision.  The FDA itself does not always follow the panel recommendations.  Still, our bet is that Human Genome Sciences wins FDA approval.

The big question now is rather simple… Will takeover chatter return when it comes to Human Genome Sciences?  The issue in saying that M&A is likely is that the market cap is almost $5 billion even before the effect of the after-hours pop.  To top that off, this one has traded north of $34.00 and the company would likely need a high premium to secure shareholder backing.  Anything is possible in the world of M&A, but a split here on the costs and the expenses for a split of the profits may have been a cheaper way to acquire the company than a buyout.

Human Genome Sciences was briefly a $1.00 stock.  Then it began its monumental climb.  For a company to justify acquiring the company at a major premium now, management of the acquirer might have to do some deep explaining to shareholders who wonder why a chance was not taken before the market cap got too high here.

FDA approval seems close to a certainty.  A buyout does not seem so certain here.


Clearing Some Air in Genzyme & HGSI (GENZ, HGSI)

November 13, 2010 · Filed Under fda, Lupus, M&A, Options · Comment 

Two key biotechs had a rough day on Friday and these issues will be key to focus on in the coming days.  Genzyme Corporation (NASDAQ: GENZ) is showing some very concerning trends, and the first Lupus drug in two generations from Human Genome Sciences Inc. (NYSE: HGSI) may now have some safety concerns.  We wanted to take a look at the action  in each and offer some outlook and color for further review.

We have previous noted how and why Genzyme Corporation (NASDAQ: GENZ) may be the entire pivot point for the biotech sector in 2011.  We conducted an options analysis on Friday evening and have found not just that there was unusual options trading in the company.  The options trading reveals that traders are betting on a breakdown in the Sanofi-Aventis (NYSE: SNY) merger and/or that no new bidders will emerge by Christmas.

Genzyme’s stock closed down 0.46% at $69.84 on Friday.  This might not seem much on the surface, but this close is now under $70 and that means a dimmer hope of a deal premium above the $69.00 already on the table.  Shares had traded under $70 on an intra-day basis since Wednesday, but the low was Friday at $69.51.  The $69.84 close is actually the lowest close since going all the way back to the end of August.

Human Genome Sciences Inc. (NYSE: HGSI) is seeing a further breakdown on its Benlysta lupus drug hopes. The stock had a very rough day Friday after the FDA has raised questions about its Lupus drug over safety issues.  Shares closed down 10.88% on Friday at $23.60 on 17 million shares.

HGSI’s safety concerns are on mortality rates, questions about three suicides, and on an issue of how the drug may not perform in African Americans well.  There was very heavy options trading taking place in HGSI on Friday.  At $23.60, its 52-week range is $20.56 to $34.49.

Genzyme is a special situation and it may literally be holding up the entire biotech sector.  As far as Human Genome Sciences, our interpretation has been that Benlysta will get FDA approval as there have been no new true lupus treatments in close to a half-century.  Our belief has been that a significant improvement in their disease would trump these safety issues.


Post-QE2 Economy Skipping Biotech (BBH, XBI, CELG, GILD, AMGN, BIIB, ALXN, MNKD, HGSI, VVUS, DNDN)

November 6, 2010 · Filed Under analyst calls, Anemia, Cancer, dendreon, fda, Financial, Lupus, M&A, multiple sclerosis, obesity · Comment 

Things have changed in the last week.  The mid-term elections took away the majority of the House of Representatives, and the Senate now no longer has the super-majority which could get laws passed no matter what they included.  Now it seems that the tax cuts may be extended for another year or maybe two years, which could imply a permanent change ahead if the 2010 election trends remain close to the same in 2012.  Quantitative easing from the FOMC is meant to drive investors into riskier assets and create a higher pricing environment to avoid deflationary pressure.  Generally speaking, those riskier assets are commodities, and broader stocks tied to industrial, exports, financials, and more.  But what about biotech and emerging pharma?  So far, QE2, tax extension, and the reversal of ‘the new normal’ has not highlighted biotech in the slightest.

Biotech HOLDRs (NYSE: BBH) and SPDR S&P Biotech (NYSE: XBI) are classic examples of underperforming ETFs in the last week as you can see in the chart below.  The Biotech HOLDRs actually fell during the rest of the market gains, while the SPDR S&P Biotech ETF significantly underperformed the PowerShares QQQ (NASDAQ: QQQQ).

A research call this last Thursday came from Goldman Sachs and it was cautious in Celgene Corporation (NASDAQ: CELG) and Gilead Sciences Inc. (NASDAQ: GILD); and the call was very cautious in Amgen Inc. (NASDAQ: AMGN) and Biogen Idec Inc. (NASDAQ: BIIB).  Alexion Pharmaceuticals, Inc. (NASDAQ: ALXN) was the one that Goldman Sachs liked, and despite its large gains so far in 2010 the stock performed well after rising from about $68 early Tuesday to  close the week out at $72.72.

MannKind Corp. (NASDAQ: MNKD) is one of those companies that will have nearly zero impact from Quantitative Easing nor from who is in control of the House, Senate, or White House.  Alfred Mann’s inhalable insulin candidate took a hit because of fraud allegations from a terminated employee who brought up study misconduct concerns. Shares went from $6.20 on Thursday early morning to close the week out at $5.54 for roughly a 10% drop.  The 52-week range is $4.76 to $11.12, and the general theme is that AFREZZA is farther and farther away from approval.

Human Genome Sciences Inc. (NASDAQ: HGSI) has lost some of its high-flyer status compared to 2009 and early 2010, and this week brought about a negative cloud on teh company even though the company itself was not at fault.  The SEC charged a French research doctor with insider trading that allowed a hedge fund to dump 6 million shares after a tip that the drug Albuferon for Hepatitis C had negative test results.  The problem is that the incident goes back to 2007.  Human Genome shares were nearly at $27.00 at the start of the week and they closed at $25.31 versus a 52-week range of $20.56 to $34.49.

VIVUS Inc. (NASDAQ: VVUS) was started as Buy at Roth Capital this last week with a $12 price target, yet it did not hold much of the large gains from the week before.  VIVUS shares rose a week earlier from $6.13 ti $7.75 after the FDA denied its Qnexa weight loss drug but after most issues seemed to be within working conditions without the need for a new round of drug trials.  Shares did not close on the lows Friday, but the loss was close to 10% at $7.12 on the week.  If this is approved, we have seen some research that indicates many patients will probably pay out of pocket on their own for this if insurance reimbursement rates do not cover it.

Dendreon Corporation (NASDAQ: DNDN) was another dud this week.  The company’s loss was more than $79 million due to ongoing product expansion and promotion costs for PROVENGE.  The drug is selling less than expected so far.  The company sold $20.2 million and sales grew each month, but analysts were looking for nearly $24 million in sales.  Dendreon gave sales projections of $46 to $47 million in 2010 revenue.  It said it expects $350 to $400 million in revenue in 2011, but 2011 is expected to be very back-end loaded as capacity comes on line.  That implies that any delay will push revenues further and further out, perhaps as more prostate cancer competition can come on the market.  Analyst expectations were more like $62.6 million in 2010 and over $400 million in 2011.  Shares peaked at $39.00 during the week but closed down at $35.07; its 52-week range is $25.05 to $57.67.

Most investors consider biotech and emerging pharma to be risk-based assets.  These are a different sort of risk.  Some of the pressure from Washington D.C. may abate, but Republicans have vowed to address some of the cost side of the equation when it comes to healthcare.  If Washington can figure a way for hospitals to not charge $25 for administering an aspirin tablet or an ibuprofen pill, it seems logical that $20,000 to $90,000 treatment regimens could remain under scrutiny.

So far, biotech and emerging pharma is being discounted entirely despite the winds of change feeling a tad less abrasive.


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