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

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

October 18, 2011 · Filed Under Financial, Lupus, M&A, Rumor · 3 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.

JON C. OGG

Private Equity Changes CRO Landscape With PPD Buyout (PPDI, CRL, CVD, PRXL)

October 3, 2011 · Filed Under Financial, M&A, R&D, Research · 4 Comments 

The world of contract research organizations is changing.  The unexpected news hit the wire this Monday that Pharmaceutical Product Development, Inc. (NASDAQ: PPDI) is being acquired.  This was no gobble-up acquisition where a larger public company preyed on a smaller company.  This was a private equity transaction.

PPD has entered into a definitive merger agreement to be acquired in a $3.9 billion cash buyout by affiliates of The Carlyle Group and Hellman & Friedman.  The terms of the deal call for the assumption of liabilities and for the common holders to receive $33.25 per share in cash.  Before today, the trading range had effectively been $25 to $32 but the stock closed at $25.66 on Friday and that implies a near-30% premium.

PPD has also been north of $40 in the last 5-year period.  That being said, the board of directors has unanimously approved the deal and is recommending that shareholders vote for the transaction.

The attraction here is the CRO business, which aims to help pharmaceutical and biotech companies develop new drugs at lower costs and with less inside oversight.

As you would expect, the deal is subject to approvals and to regulatory reviews, but the transaction is not subject to any financing conditions. The funds combined between Hellman & Friedman and Carlyle were listed as nearly $22 billion and it was also noted that external debt financing is being provided by Credit Suisse, JP Morgan, Goldman Sachs and UBS.

PPD does have a “Go Shop” provision as the terms allow the company to go solicit acquisition proposals from third parties for a period of 30 calendar days from the date of the merger agreement.  PPD can also respond to unsolicited proposals that the board “determines are reasonably likely to result in a superior proposal.”  Carlyle and Hellman & Friedman were given a “right to match” term and the current merger is expected to close in the fourth quarter of 2011.

PPD has offices in 44 countries and more than 11,000 professionals worldwide.

Charles River Laboratories International Inc. (NYSE: CRL) is up 1.5% at $29.05 and its 52-week range is $27.76 to $42.84.

Covance Inc. (NYSE: CVD) is up 1.3% at $46.07 and the 52-week trading range is $43.00 to $63.86.

Paraxel International Corp. (NASDAQ: PRXL) is up 3% at $19.45 and its 52-week range is $15.26 to $27.91.

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

Quest+Celera… Value With Growth (DGX, CRA)

May 18, 2011 · Filed Under Cancer, Cardiac, genomics, M&A · Comment 

Quest Diagnostics Inc. (NYSE: DGX) is a stock we have recently screened out for value investors who are looking for exposure to healthcare and now in genomics.  Some investors might not recognize the value on the current trailing 12-month P/E ratio, but there is value here in this diagnostics player.  Now the company has announced that it has completed its acquisition of Celera Corporation (NASDAQ: CRA).

Many areas in healthcare are no longer as feared by investors as in 2008 and 2009.  It turns out that Obamacare has actually not crippled as many healthcare segments as feared.  If one area is going to remain afloat in the healthcare treatment segment it is diagnostics.

Quest’s dividend is still less than 1% and that $0.10 quarterly payout has been in place since early-2006.  With the dividend growth theme that investors are seeking, it would make sense that Quest will grow its dividend through time and come more in-line with peers.

Thomson Reuters has estimates of $4.33 EPS for 2011 and $4.87 EPS for 2012., indicating over 10% earnings growth on about 5% revenue growth.  The value-boost here that remains unlocked and which acts as a hidden value that will generate future growth is Quest’s acquisition of Celera Corporation (NASDAQ: CRA).  That is a $671 million acquisition, on the surface until you consider that almost half of Celera’s value was in cash.   The revenue and earnings estimates will not be greatly changed for a few years on Quest after the addition of Celera but this is a key future growth mechanism that is being acquired on the cheap.

Celera has no real debt and carried over $325 million in cash and liquidity on its books.  Quest will have a broader personalized genetic testing business for heart condition, cancer and more via genomics and proteomics after it integrates Celera. The old saying is that beauty is in the eye of the beholder, but it is feasible to think that Celera could possibly become a multi-billion value in the coming decade.

Quest recently paid $241 million in a settlement to get a Medicaid suit behind it. While the company has a larger debt load with over $3.5 billion in long-term debt versus a $89 billion market cap, Quest’s earnings ahead should be more than sufficient to offset leverage. 

Shares closed Tuesday at $57.93, its 52-week range is $43.38 to $59.39, and Thomson Reuters has a consensus share price target of $64.28.  A combined 2011 to 2012 blended earnings estimate puts a forward earnings multiple at only about 12.5-times expected earnings.

JON C. OGG

Alkermes & Elan, Game-Changing Deal For Both Companies (ALKS, ELN, JNJ, ACOR, AMLN, LLY)

May 9, 2011 · Filed Under Diabetes, Diagnostics, Financial, M&A, multiple sclerosis, R&D · Comment 

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

Prana: A Speculative Ten-Bagger Scenario (PRAN)

March 26, 2011 · Filed Under alzheimer's, Financial, M&A, R&D, Research, Secondary Offering · Comment 

This last week brought an interesting move in shares of Prana Biotechnology Ltd. (NASDAQ: PRAN).  On Friday we gave this coverage right at the open noting at 24/7 Wall Street that the stock was still worth a look for speculators despite a news pop followed by a capital raise that hurt the stock’s gain during the week.  This ADR is of a company based in Australia and its focus is Alzheimer’s, Parkinson’s, and Huntingston’s Diseases.  It is highly speculative by any measurement.  Prana effectively has no revenues and our take is that it will be highly reliant upon grants from governments, agencies, and other foundations and organizations or it will have to rely upon the capital markets or a partnership for more funding down the road. 

The company saw shares surge earlier in the week on reports that data was being published in the science journal PLoS ONE with the title “Metal Ionophore Treatment Restores Dendritic Spine Density and Synaptic Protein Levels in a Mouse Model of Alzheimer’s Disease.”  Its PBT2 was shown to have repaired damage in an Alzheimer’s affected brain and that facilitated the restoration of cognition in Alzheimer’s Disease.

Then came news from the company that it was raising capital in Australia to the tune of $6.1 million (Australian Dollars), a move which investors often consider as pump and dump capital raises.  What is interesting though is that right after we published “Still Worth a Look for Speculators” we saw an immediate 10% rise in the stock.  Shares went from $2.78 or so up to $3.10 in very short order and then the stock rose again in a second leg up to as high as $3.34 before closing at $2.86 for a near three percent gain on the day.

Prana ADRs were under $1.50 before it published the news on Monday and shares closed at $2.86 on Friday, nearly a double for the week.  We also saw shares hit a high of $4.50 on Tuesday and that was on a whopping 36.4 million shares that day.  This was previously unheard of trading volume in a single day and there are many days where the stock has traded only a few thousand shares.  The 52-week range is $1.09 to $4.50 and this stock once traded above $6.00 per ADR back in 2004 or 2005.

We would note that StockCharts.com offers a full gallery review for the charts on Prana, and its Point & Figure price target objective is all the way up at $7.50.  That figure will change through time and was based upon March 25 prices and volume.

So, even at the low of $1.09, you may wonder why we call Prana an opportunity for a ten-bagger with that implied upside of 1,000%.  Shares have never traded above $10.00 for its ADRs and technically this stock would have to rise to well above $11.00 before we could legitimately call this a ten-bagger.  The whole issue surrounding the stock is that even at $2.86 the company’s market cap is a mere $69.2 million before considering the effects of its capital raise.  For these ADRs to rise this high in ten-bagger land it would imply a market capitalization rate of what is still only about $266 million.

We believe that the company will continue to need more funds ahead in the coming months and years and it seems logical that the company will raise capital each time its shares rise significantly.  There is no way to know yet whether PBT2 is going to be the Holy Grail or whether it will be yet another disappointing flash in the pan.  The company noted, “After 11 days of treatment, the brains of the Alzheimer’s mice showed a statistically significant increase in the numbers of spines on the branches (or dendrites) of neurons in the hippocampus, a memory centre specifically affected in Alzheimer’s Disease.” 

What we do know is simple.  If it turns out that Prana has the next new real treatment candidate for Alzheimer’s, even a $266 million market cap will sound very small.  It could quite literally end up being an “Off To The Races” scenario for investors.  A Big Pharma company could either become an acquirer or it could become a partnership opportunity. Again, this is all around speculative analysis rather than using true fundamental and financial analysis based solely on today’s finances.  There are no real US firms which cover Prana so we have no real benchmark to judge what could happen in just a bullish scenario rather than a runaway scenario.  The company has a single research report posted on its site from 2009 by Southern Cross Equities and it is very bullish with a title “Unforgettable Opportunity” from that time.

Looking at potential ten-baggers is not for widows and orphans.  After all, we are talking about study results conducted on mice and on a company which will need significant funding ahead by our count.  A large partnership or other liquidity event from a Big Pharma player could also bring rewards and also bring risks down the road.  Many companies rise on news and end up in a flame-out situation.  All of the magic characteristics are in place for a possible ten-bagger scenario, and all of the risks are in place as well.  Time will be the judge as to whether or not Prana will end up being he next ten-bagger in biohealth. 

Here is that data published in PLoS ONE.

JON C. OGG

Why Celera’s Buyout Makes Sense (CRA, DGX, HGSI, AFFX, GHDX, GNOM, ROSG, HLCS)

March 18, 2011 · Filed Under Acquisitions, Financial, genomics, M&A, R&D · Comment 

If you would have said ten years ago that Celera Corporation (NASDAQ: CRA) would be acquired by Quest Diagnostics Inc. (NYSE: DGX), most investors would have said that you were off your rocker.  Celera was a leader in genomics at the time and it had a huge mountain of cash that made up much of its value.

Celera’s Berkeley HeartLab unit has a proprietary lipid testing technology, esoteric testing capability, advanced therapy guidelines and patient support services.  The company is also focused on personalized disease management where it is “developing tests and services that identify a person’s inherent risk for a disease and may also characterize its biological basis, aiding selection among treatment options and monitoring treatment effectiveness.”

The value of the buyout is $657 million based upon an $8.00 buyout price.  Interestingly enough, the buyout cost is actually much lower because Celera has roughly $327 million in cash and short-term securities on its balance sheet.  Quest expects only a 1% revenue boost in 2011 revenues.

Celera was deemed by some to have some of the next-generation testing that goes back to when investors were all gung-ho on genomics.  Think testing for personalized medicine.  That day is not yet here but it is getting closer.  The promise goes back to the late-1990s and early 2000s.

What Quest is getting is a deal on the cheap that could offer huge upside when you consider that Quest is much more dominant and prominent than Celera.  Quest was almost 20-times its size in market cap and somewhere around 50-times its size in revenues.

We would perhaps highlight several other genomic stocks out there based in part on this deal.  Human Genome Sciences, Inc. (NASDAQ: HGSI) is now in the drug phase and we all know that it has risen from the ashes back to the genomics days.

Affymetrix, Inc. (NASDAQ: AFFX) is in genetic analysis in the life sciences and clinical healthcare markets and it has been considered a buyout target in the past.

Genomic Health Inc. (NASDAQ: GHDX) has breast cancer testing and is worth $675 million in its market capitalization.

Complete Genomics, Inc. (NASDAQ: GNOM) develops and commercializes a DNA sequencing platform for human genome sequencing and analysis and it worth nearly $190 million in market cap.

Rosetta Genomics Ltd. (NASDAQ: ROSG) develops microRNA-based diagnostic and in Israel, but its market cap is so small that most may forget that it is even there.

HELICOS BIOSCIENCES (HLCS) is pink-sheet listed now, but it is the one that was aiming for the $1,000 genome map.

JON C. OGG

Defining the Contingent Value Rights in Genzyme (GENZ, SNY)

February 16, 2011 · Filed Under M&A · Comment 

By now you already know about the confirmed acquisition by Sanofi-Aventis (NYSE: SNY) for Genzyme Corporation (NASDAQ: GENZ).  The companies have finally entered into a definitive agreement where Sanofi-Aventis will pay $74.00 per Genzyme share in cash along with a contingent value right.

The deal comes to about $20.1 billion before the consideration of the contingent value right.  Genzyme shareholders will receive one Contingent Value Right for each share they own.  These are referred to as CVRs by the investment bankers and each CVR gives each holder the right to receive additional cash payments if specified milestones are reached related to Lemtrada™ or if a milestone related to production volumes in 2011 for Cerezyme® and Fabrazyme® is achieved.

The value to each CVR is as follows:

  • $1.00 per CVR if specified Cerezyme®/Fabrazyme® production levels are met in 2011
  • $1.00 per CVR upon final FDA approval of Lemtrada™ for multiple sclerosis (MS) indication
  • $2.00 per CVR if net sales post launch exceed an aggregate of $400 million within specified periods per territory
  • $3.00 per CVR if global net sales exceed $1.8 billion
  • $4.00 per CVR if global net sales exceed $2.3 billion
  • $3.00 per CVR if global net sales exceed $2.8 billion

We had highlighted that the total workout could come to about $80.00 after the effect of the CVR, but we also gave a list of other buyout targets that could be up for consideration as well.

JON C. OGG

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