We have seen two very key biotech analyst calls this morning, and shares of both are responding. Dendreon Corp. (NASDAQ: DNDN) and Human Genome Sciences (NASDAQ: HGSI) were both given positive brokerage initiations this morning.
Dendreon Corp. (NASDAQ: DNDN) is seeing gains this morning after the stock was started as “Overweight” and $46 target at JPMorgan. The call is based upon a belief that PROVENGE will be approved for advanced prostate cancer. This is actually not the highest price target as a $50 target does already exist, but this implies a 42% upside to the target price versus the $32.36 closing bell price on Friday. Shares are up 2.6% before the open on this call.
Human Genome Sciences (NASDAQ: HGSI) was resumed at “Buy” with a $35 price target at BofA/Merrill Lynch. The belief here is that its Lupus drug BENLYSTA will be approved and a focus on its other franchises with more room for upside. The $35 price target implies upside of about 18.6% to Friday’s closing price of $29.47. The 52-week trading range was $0.45 to $32.07. Shares are only indicated up so 0.5% this morning before the open.
JON C. OGG
Human Genome Sciences, Inc. (NASDAQ: HGSI) has been one of the great biotech success stories, with returns far dwarfing the 10-bagger or 1,000%. This went from a small genomics company to a company with what seems to be or likely to be the newest lupus treatment in a generation after (and if) the FDA approves of it. While management has been quick to quiet buyout rumors, the investment community for most of 2009 was betting or hoping that the company would be acquired.
Yet when you see insiders making share sales, and some significant share sales, it probably makes you think no real deal is on the table. In short, buying Human Genome Sciences here now better be for that pending FDA approval and for its pipeline rather than for a hope of a buyout. Here were the insider sales we have seen so far this month:
Human Genome Sciences, Inc. (NASDAQ: HGSI) is down today after presenting data at the JPMorgan Healthcare conference today. Frankly, it was not really bad data. More important than just ‘another down day’ is that this price action would make for the fifth consecutive trading day on the heels of yesterday’s guidance.
Today’s drop is on the heels of yesterday’s ‘lower guidance’ ahead of key data presentations. Some may try to merely say that after a more than 1,000% return last year that today’s selling is now just because it is a leveraged market-play. Yesterday’s guidance was a disappointment, but if the guidance was really so bad then why was it only down less then 4% on the day? The real issue is that as of now, and for the near-term, is that ‘ongoing good news’ is not likely to be received as good news from the investment community.
First, let’s get yesterday’s news out of the way. The lower guidance on Monday morning ahead of the conference may have been somewhat taken out of context based upon headlines after an analyst downgrade from Goldman Sachs last week based upon valuation. The company noted that $163 million in revenue was recognized from the first 20,000 doses delivered to the Strategic National Stockpiles, but that was completed in April 2009. The company noted that approximately $151 million is expected from a second order for 45,000 doses to be delivered over three years. The company’s goal was for 15,000 doses this year, which has led some to believe that it won’t see an added ramp up in product revenues this year. The problem with this notion is that anthrax is deemed a minimal societal threat at this point, so it is an all or none. If there is a giant anthrax scare, then HGSI cleans up. The company noted, “Even with our expected ramp of investment in commercial build-out and pre-launch manufacturing, we expect to end 2010 with between $840 million and $890 million in cash and investments.”
Second, the ‘ongoing’ aspect above refers to its Benlysta drug application with the FDA as the first new treatment for lupus in more than a generation. The company’s summary was “First Drug for Lupus to Succeed in Phase 3 Trials; On Track for Second Quarter 2010 Submission of U.S. and European Marketing Applications; Potential U.S. Approval Fourth Quarter 2010″ and that offers actually very little for any ramped up instant FDA approval. In short, it is ongoing news. Some have been hoping for an approval of the drug in the earlier part of the first half or even the first quarter. Could this be delayed? Anything is possible out of the FDA.
Human Genome Sciences (NASDAQ: HGSI) has become a one of the biggest and widespread stocks literally out of the blue over the last year. This company went from what was originally a genomics stock with few significant and ongoing revenue prospects on the immediate horizon to a biotech stock with a very promising lupus treatment candidate in very short order. Now it has a market cap of over $5 billion and it has active share volume and its options are frequently active with a large open interest. We were just given an option alert from Joe Kunkle over at OptionsHawk.com, who relayed the following trading data to us:
- “Human Genome Sciences, with a bullish price, bearish volatility bet as a large call butterfly spread trades in February. The trader bought the $28 and $35 wings for 2,500 contracts, and sold 5,000 of the $33 body strike for a net debit of around $1.25. February implied volatility in HGSI stands at 46%. The trade comes ahead of a January 11th presentation at the big JP Morgan Healthcare Conference. HGSI is expecting FDA approval for Benlysta, it’s blockbuster Lupus drug int he first half of 2010, but this trade is not expecting that event by February and instead sees modest upside ahead of the anticipated approval.”
Today’s options trading data is activity that does not frequently get daily color. But generally speaking, trades of this nature and similar trading patterns are what individual investors and smaller institutional investors love to look for. It is also easy to miss or overlook. At the end of the day, options bets frequently signal significant moves. We have been shown many such pre-move notifications from OptionsHawk like this one today.
Our own review has focused out to April 2010, where this is effectively the last month with a large options open interest until the Janauary-2011 Puts and Calls from our own data seen. From our checks on what to expect, most consider that Human Genome will receive FDA approval. The Lupus treatment reports show safety and efficacy, but the other notion is that Lupus has had no new real treatments in a generation. Still, predicting FDA outcomes has proven over and over to be very risky business.
Human Genome was recently reviewed as we looked for the end of 2009 trading patterns showing how investors and speculators were looking for the next 1,000% returns in the realm of biotech and BioHealth stocks.
JON C. OGG
Quest For 10-Baggers in BioHealth in 2010 (JAZZ, TRGT, VNDA, DNDN, HGSI, CGEN, BNVI, QCOR, ACHN, PSDV, ATHX, SNSS, AVNR, BIOD, ALXA, CTIC)
If one thing was noticed in biotech stocks, or BioHealth stocks as we often say, it was that investors, traders, and speculators all piled into the chase for the next ten-bagger late in the year. When you have as many biotech and BioHealth stocks that ran over 1,000% in 2009 that is only to be expected…. hence the 10-bagger comments. We had many biotech and biohealth shares rally from their lows significantly this year, with companies such as Jazz Pharmaceuticals, Inc. (NASDAQ: JAZZ), Targacept, Inc. (NASDAQ: TRGT), Vanda Pharmaceuticals, Inc. (NASDAQ: VNDA), Dendreon Corp. (NASDAQ: DNDN), and Human Genome Sciences, Inc. (NASDAQ: HGSI) all being in or having been in the 10-bagger club this year.
But late in 2009 we started seeing an onslaught of low-priced stocks with small cap or micro-cap values running rapidly higher on news. In some cases these faded, and in some not. We saw the traders run up shares of Compugen Ltd. (NASDAQ: CGEN), Bionovo, Inc. (NASDAQ: BNVI), Questcor Pharmaceuticals, Inc. (NASDAQ: QCOR), Achillion Pharmaceuticals, Inc. (NASDAQ: ACHN), pSivida Corp. (NASDAQ: PSDV), Athersys, Inc. (NASDAQ: ATHX), Sunesis Pharmaceuticals, Inc. (NASDAQ: SNSS), and AVANIR Pharmaceuticals, Inc. (NASDAQ: AVNR) on news late in 2009. Also covered as potentials for this are Biodel Inc. (NASDAQ: BIOD), Alexza Pharmaceuticals, Inc. (NASDAQ: ALXA), and Cell Therapeutics, Inc. (NASDAQ: CTIC).
We have reviewed each of these and given a synopsis for each to see if these could be the 10-baggers for 2010.
Human Genome Sciences, Inc. (NASDAQ: HGSI) looks to be dwindling as a takeover candidate. There have been rumors surrounding the name for months and months, yet the shelf filing for it to raise capital dampened that hope for at least many investors. Today after the close came word that the company was selling up to 12.5 million shares. At today’s prices this would raise over $300 million.
The offering indication and underwriters are covered more in-depth over at 24/7 Wall Street. When you read through the use of proceeds, you will see a company that is rapidly trying to catch up to its growth potential. It does not sound at all as though Human Genome Sciences is close to be acquired.
The company even noted that it may use a portion of funds for strategic investments, although it said it has no agreements or commitments for an acquisition nor an investment.
HGSI shares rose 2.6% to $27.82 today and the stock is down 4.7% close to $26.50 in the after-hours session. This was a penny stock before it made its exponential rise earlier in the year.
The 52-week trading range is $0.45 to $29.48 and its market cap is listed as over $4.5 billion. Being a large drug company and buying this one out even after it hit $10.00 might have been more than difficult of a sell to holders. Imagine trying to explain that now you wanted to acquire a company with great prospects in lupus and in genomics, but you wanted to pay over $5 billion (in theoretical price premium) after a stock has risen about 5,000%.
It seems that short sellers hold little fear of this being acquired as well. The mid-November short interest data showed that over 17.5 million shares were held short.
JON C. OGG
Human Genome Sciences, Inc. (NASDAQ: HGSI) has spent 2009 as its year where the company acted as the rising Phoenix from the ashes. Things had reached bad enough levels that the stock traded under the $1.00 mark. But a surprising twist in its experimental lupus drug called Benlysta has created a major change of fate here because lupus is largely unmet with any real treatments and it has been years and years that any new drug has come on the market to fight this disease.
Options trading had gone through the roof last week ahead of this morning’s expected study results. The second study showed that Human Genome Sciences’ Benlysta met its primary endpoint in BLISS-76, the second of two pivotal Phase III trials in seropositive patients with systemic lupus erythematosus.
The company noted that BENLYSTA is the first drug for lupus to reach Phase III and achieve positive results, in the largest randomized placebo-controlled clinical trials ever completed in patients with the disease. The company further noted that this is an important milestone for the lupus community as there has not been a new treatment for lupus approved by regulatory authorities in more than 50 years.
The first positive results from the first BENLYSTA trial, called BLISS-52, were announced in July. GlaxoSmithKline is the partner for this drug and the companies are said to split the profits 50/50 when it is approved. The companies plan to file for marketing approval applications for BENLYSTA in the United States, Europe and other regions in the first half of 2010.
There is one notion to consider, although the reality is that it probably won’t matter. The success came in the higher dosage arm of the study rather than at the low dosage.
Today’s news takes Human Genome Sciences back to highs not seen since 2002 when the company had a much different focus as that was a post genome-mapping period. The last time this was at $25.00 was in March-2002. And this had been a $70 stock in 2001 and even above $100 on a split-adjusted basis in early 2000.
Shortly after the market open, we have shares trading up some 38% at $28.84 on over 9.7 million shares. You can count on today being an exponential volume day compared to its 7.9 million shares on average trading days.
As far as why this is soaring so much, that is simple. Any lupus drug has blockbuster written all over it for that $1 billion in annual sales hurdles. One estimate we saw last week even noted the possibility that this could be a $3 billion drug under the right circumstances. And if there have been no new treatments for as long as the company noted, then a more restrictive healthcare and drug spending climate probably won’t apply to hammering down on a company with this big of a treatment.
JON C. OGG