While we have started mostly using The Wire at 247wallst.com for our biotech and active trader posts (among many other aspects 50 to 100 times per day), we have a question for BioHealthInvestor readers after VIVUS, Inc. (NASDAQ: VVUS) has basically doubled on news of Qnexa getting a recommendation for approval from a FDA panel…
If you were the CEO or CFO of VIVUS, wouldn’t you immediately go out and raise capital now?
Our take is not just “yes” but a resounding yes. With $150 million or so in net tangible assets as of September 30, 2011, with a ten-year history, and for many more reasons, this would seem like a shoe-in for a capital raise.
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Vical Inc. (NASDAQ: VICL) and VIVUS, Inc. (NASDAQ: VVUS) are both running higher this Friday on news that Credit Suisse initiated both biotech outfits with “Outperform” ratings. What matters more than the call are the price targets and the inferences made in the research calls.
Vical Inc. (NASDAQ: VICL) is rarely given huge analyst calls due to what is a small $250 million or so in market cap. The team at Credit Suisse initiated Vical with an “Outperform” rating this morning but more important is its price target of $7.00 per share. This represents more than a 100% move compared to the $3.45 close on Thursday. What was more impressive was the $7.00 price target versus a $3.45 close before, indicating just over 100% upside.
Credit Suisse noted that Vical’s lead product Allovectin is in a Phase III trial for the treatment of metastatic melanoma but noted that it also has a pipeline of other vaccine product candidates. The firm’s discounted cash flow target is based solely on Allovectin, which the firm noted “makes Vical a high risk investment because Allovectin still needs to successfully complete Phase 3 and the FDA approval process.” The firm went on to note impressive Phase II data with overall survival of chemo-naïve and experienced patients as being 18.8 months. It further noted that the drug did even better in chemo-naïve patients with a median overall survival of 22.5 months versus 11.2 months from Bristol-Myers Squibb Company (NYSE: BMY) Yervoy+DTIC in chemo naïve patients.
VIVUS, Inc. (NASDAQ: VVUS) was also started as “Outperform” with $15 target at Credit Suisse. The firm noted the title “The Road to a New Obesity Drug Is Tough, but
It Ain’t Over ‘Til the…” The firm believe that VIVUS’ weight loss pill Qnexa will be approved in the United States as a drug to treat obesity with a restricted label in the second quarter of 2012 and then will be approved in Europe in the third quarter of 2012. Credit Suisse’s discounted cash flow based target price is driven entirely by Qnexa. The firm went on to note, “which makes Vivus a high risk investment because our target price is dependent on US approval.”
Vical is up 5% at $3.62 on normal trading volume and VIVUS is up 4.5% at $9.92. Bristol-Myers Squibb Company (NYSE: BMY) is down 1.5% at $31.26 on the day.
JON C. OGG
VIVUS Inc. (NASDAQ: VVUS) is getting yet one more sign of life for its Qnexa drug aimed at treating obesity. The emerging drug outfit has reached an agreement with the FDA on resubmitting its new drug application as an obesity treatment.
Here is the plan: “VIVUS intends to resubmit the QNEXA NDA by the end of October 2011, prior to completion of the FORTRESS study. Top-line results from FORTRESS are expected in December 2011, with validation of FORTRESS expected in the third quarter of 2012. The FDA also stated that an Advisory Committee meeting for QNEXA will be held in the first quarter of 2012.”
It was also just earlier this week that its Avanafil phase III study results were shown again to be positive in its REVIVE study in diabetes.
What helps VIVUS here is that treating obesity also in effect treats diabetes, heart and respiratory conditions, hypertension, dyslipidemia, allows for more active lifestyles, and more. It also needs to be noted that the FDA has treated most obesity treatments as taboo due to side-effects and and due to a lack of results in many instances. The history of obesity drugs is a marred one.
Orexigen Therapeutics, Inc. (NASDAQ: OREX) and Arena Pharmaceuticals, Inc. (NASDAQ: ARNA) are also both up a limited amount as they are “the other obesity drug contenders” by Wall Street’s eyes. Those are not as close, not by a mile, if you note the share prices. Orexigen is up 2.5% at $1.41 and Arena is up 3% at $1.43.
VIVUS stock is up almost 8% at $9.14 but the stock was up in the double-digits at $9.62 earlier. As of 11:15 AM EST there have also been more than 2.7 million shares traded when the average volume is only 1.5 million shares.
Before the effects of this news pop, Thomson Reuters had a consensus price target objective of $11.69 on VIVUS and the 52-week trading range has been $5.28 to $11.48.
JON C. OGG
We have a new report sizing up obesity drugs this morning from Bank of America Merrill Lynch. The long and short of the three ratings is that Orexigen Therapeutics, Inc. (NASDAQ: OREX) and Vivus, Inc. (NASDAQ: VVUS) are both rated ‘Buy’ at Bank of America Merrill Lynch, but Arena Pharmaceuticals, Inc. (NASDAQ: ARNA) is ‘Underperform’ rated. As always, it is the devil in the details that offers the most insight.
Vivus, Inc. (NASDAQ: VVUS) is finalizing its study design and the company’s President said efforts to finalize the trial design is assessing the risk of fetal malformations from Qnexa use in pregnant women. The company will complete its retrospective analysis and re-file the Qnexa application by year-end. If the fetal malformation results are bad, then Vivus will re-file for a limited indication that excludes excluding women of child-bearing age. BofA believes this will boost the chance of commercially available in 2012 and it has a discounted cash flow model price of $10.00 ($7 of which is based upon Qnexa). An earlier than expected approval or securing a commercial partner could offer upside.
Orexigen Therapeutics, Inc. (NASDAQ: OREX) is getting ready for an FDA meeting this quarter and its CFO focus is on that meeting. The company hopes for FDA approval on cutting the time required for pre-approval. It so far is assuming 0.5% per year in major cardiac event risk. The company indicated that Takeda would participate in the upcoming FDA meeting for Contrave. BofA sees a relatively low downside risk for Orexigen with a discounted cash flow price target of $5.00. It is using a 50% chance of success in its model but noted that upside could be seen if the FDA approves trials faster, if it secures an international sales partner, or if managed care organizations add weight loss drugs to formularies.
Arena Pharmaceuticals, Inc. (NASDAQ: ARNA) will conduct a three month “rat carcinogenicity trial” of Lorcaserin to satisfy the requirements in FDA’s complete response letter. Arena will conduct several non-human studies to assess the potential role of elevated prolactin levels. The company submitted results from its BLOOM-DM trial on obese patients with diabetes showing a statistically significant reduction in A1c and fasting glucose levels from lorcaserin. Bank of America remains cautious and has a $1.00 discounted cash flow target on Arena. The risks to its $1 target are an FDA request for long-term trials, a rejection of the lorcaserin NDA, an approval with restricted use, and a slower than expected sales ramp after approval. Some upside could be there if lorcaserin gets approval before expectations, if production costs are lower, and if lorcaserin can gain market share faster than is expected.
For whatever this is worth, BioHealthInvestor’s take is that the most likely of these three to get approval is Vivus for Qnexa and then Orexigen for Contrave. Our take is that Vivus will get approval but it will exclude pregnant women and those who may wish to become pregnant. Most doctors already monitor pregnant womens’ medications as is and it seems that a doctor would not want at all for a pregnant woman on a weight loss drug during pregnancy going in. Many doctors are even against most basic vitamins and supplements during pregnancy, let alone most prescription drugs.
JON C. OGG
Orexigen Therapeutics, Inc. (NASDAQ: OREX) is beyond ugly after the FDA said that the company must now submit more trial data before its new diet pill Contrave may be cleared for sale. The vote was 13-against versus 7-for votes and now the FDA is asking for another study on the drug’s cardiovascular risks.
Outside FDA advisers said back in early December that the benefits of the weight loss exceed the dangers of a higher pulse and blood pressure, with the indication that a larger study targeted on risks of the heart might until after the final drug approval. That wasn’t so.
Both VIVUS Inc. (NASDAQ: VVUS) and Arena Pharmaceuticals Inc. (NASDAQ: ARNA) have been in a race with Orexigen to introduce the first approved diet pill for weight loss in a about a decade. Now all of these products are on the back-burner and approval will not likely be seen in the near-term on any of these drugs.
Orexigen is down 71% at $2.63 and shares hit a new year low and the new 52-week range is $2.50 to $11.15. VIVUS is down 15% at $7.57 and its 52-week range is $4.69 to $13.68. Arena shares are flat at $1.58 as its hope was already diminished.
Abbott Laboratories (NYSE: ABT) recently pulled its Meridia weight loss pill off of the market due to heart risks. Orexigen was expected to receive royalties from partner Takeda if it was approved. At issue with all these drugs is that they all have the possibility of becoming blockbuster drugs with more than $1 billion in annual sales from America alone. The competing drugs Qnexa from VIVUS have concerns about birth defects tied to one of the ingredients, while lorcaserin from Arena has tumor risks associated with it.
Contrave uses two approved drugs as a cocktail and the target areas are different parts of the brain which influence appetite and influence cravings. One is an antidepressant and one is a treatment for alcohol and opioid addictions. While patients lost generally 5% of their weight after a year, the weight loss group had a higher pulse and higher blood pressure than the placebo.
What just happened is that Orexigen was put in a situation where it has to evaluate what to do with its lead candidate. A new trial will easily run into the millions and millions of dollars and the time frame could easily run well over a year. Just how big the costs and how long the time would be, well that is still up for debate. Orexigen had just over $100 million in cash and short-term investments at the end of September-2010. Chances are that this is not enough cash.
Things went from maybe to awful here. Now it is dire.
JON C. OGG
M&A Bonanza For Drug & Biotech in 2011 (MRK, PFE, ALXN, DNDN, HGSI, CEPH, UTHR, CADX, AMAG, SNY, GENZ, AMGN, BEC, TEVA, SGMO, LLY, ALTH, CBST, VVUS, AUXL, VRTX)
The game of predicting mergers and acquisitions in the biotech and in pharma sectors is not a new one. The talk heats up, then it dies down. A deal comes, followed by another deal, and the activity goes quiet. This next week is likely to have at least more chatter in the biohealth sector for possible mergers and acquisitions after Barron’s gave a cover story called “The New Doctor in the House: Consolidation.”
Barron’s noted that “as big drug firms buy up smaller, specialty outfits and their most innovative products, better pipelines and sales-force efficiency will boost profits.” Here is the thing to consider: Barron’s did not really offer anything new or ground-breaking this weekend. It will have rekindled some hope that M&A is coming in the space. At issue: pipeline fatigue. A note we’d throw in as well, dead-dead stocks. We are going to at least address some of the Barron’s roster, but we want to show you many others which are just as or even more likely acquisition targets. Some of ours have even been in-play before.
Barron’s threw in Merck & Co. (NYSE: MRK) and Pfizer, Inc. (NYSE: PFE) as the largest of the Big Pharma players and it threw out biohealth names with stock-market values below $10 billion:
- Alexion Pharmaceuticals, Inc. (NASDAQ: ALXN) with a $7.5 billion value after a hueg run-up;
- Dendreon Corporation (NASDAQ: DNDN) for Provenge for prostate cancer (and future cancers) with a $5 billion market value today;
- Human Genome Sciences, Inc. (NASDAQ: HGSI) for its Benlysta in patients with severe active lupus nephritis and CNS lupus and a $4.5 billion market cap;
- Cephalon, Inc. (NASDAQ: CEPH) is one we have rarely looked as since things quieted down there;
- United Therapeutics Corporation (NASDAQ: UTHR) for its treat pulmonary arterial hypertension and an almost-$4 billion value;
- Cadence Pharmaceuticals Inc. (NASDAQ: CADX) was noted for its pain medication without the addiction aspects of morphine and its value is only $369 million;
- AMAG Pharmaceuticals, Inc. (NASDAQ: AMAG) was called a value stock despite its recent weak sales and despite its cash burn with a $368 million market cap.
Much of the biotech M&A game hinges on Sanofi-Aventis (NYSE: SNY) in its chase to acquire Genzyme Corporation (NASDAQ: GENZ). The latest talk is that a work-out could come to $80 all-in if certain milestones were achieved but the deal is still south of there officially. As noted above, we have our own opinions on which biotech companies and drug companies could find their way into the hands of a larger acquirer.
Amgen Inc. (NASDAQ: AMGN) is likely to continue being an acquirer. The company recently announced a deal worth potentially $1 billion to acquire privately-held BioVex. Last year the company said it was aggressively looking for new targets and its $52 billion market cap is the largest of all the independent biotechs in America. The company has more tricks up its sleeve.
Beckman Coulter Inc. (NYSE: BEC) went into play in early December with private equity firms being the likely acquirers of the portfolio of biomedical testing equipment and supplies. We argued at the time of the premium that it seemed shares fully reflected that value, and shares are actually lower now.
And don’t forget Sangamo Biosciences Inc. (NASDAQ: SGMO), where shares rallied in November on rumors of a potential bid interest from Eli Lilly & Co. (NYSE: LLY). It had good news on ZFP Therapeutic program to develop SB-509, a zinc finger protein transcriptional activator (ZFP-TF) of the vascular endothelial growth factor (VEGF)-A gene as a treatment for ALS and the news flow has continued to propel shares higher. It went above $4.50 on the rumors but now shares trade at $7.39. The market cap is still low here at $334 million.
Allos Therapeutics, Inc. (NASDAQ: ALTH) has been another name floated out there for M&A possibilities, but things are looking less and less bright for the company. Shares hit a 52-week low just on Friday.
Cubist Pharmaceuticals Inc. (NASDAQ: CBST) has not really gone anywhere as it is deemed a mature company, but it is one we thought for sure that would find its way into being part of a larger company. Its Cubicin is on the market and it fights severe hospital-induced infections and the market cap is $1.3 billion here.
VIVUS Inc. (NASDAQ: VVUS) remains a wild card due to the FDA. Diet and weight-loss pills have not been given any real love by the FDA. The exception here is that Qnexa does have serious benefits. There are side effects, particularly in cases of pregnancy. We would ask this though: How many pregnant and soon-to-be-pregnant women really diet? Most doctors don’t even want pregnant women taking supplements, let alone drugs. IF the FDA approves Qnexa, that $680 million market cap may be worth far more.
Teva Pharmaceutical Industries Limited (NASDAQ: TEVA)… We have also noted Teva’s mega-cap ambitions, and making more acquisitions would generally get there.
Last year, Morningstar put out a list of three favorites that it sees as acquisition targets in the biohealth space: Auxilium Pharmaceuticals Inc. (NASDAQ: AUXL), Human Genome Sciences Inc. (NASDAQ: HGSI), and Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX). FULL ARTICLE
This should at least give you a better and more concise list of possible deals and deal-makers for 2011. Just remember this, regardless of what Barron’s or other media outlets try to tell you: not all biotechs have to be acquired, not at all.
JON C. OGG
VIVUS Inc. (NASDAQ: VVUS) has done what was expected. It is not going to bet its entire future on the US FDA regulatory process for its QNEXA obesity pill. The company is applying for marketing approval in the European Union.
The company filed its European Marketing Authorization application for QNEXA as a treatment for obesity. The indications it filed for in the EU are for weight loss and maintenance of weight loss which should be used in conjunction with a lower calorie diet.
The EMA review will follow a centralized marketing authorization procedure and the company noted that, if QNEXA is approved, that it could receive marketing authorization in all European Union nations possibly as soon as late-2011.
VIVUS is not exploding higher on the news but shares are up. After a $9.78 close on Friday, VIVUS shares are indicated up around $10.12 in Monday’s pre-market trading.
JON C. OGG
EnteroMedics Inc. (NASDAQ: ETRM) is raising more capital than had been previously disclosed and its shares are getting hit as a result. The company which focuses on devices using neuroblocking technology now plans to sell more shares and warrants.
The company is raising R&D funds for the commercialization of its obesity treatment. It is selling 14.8 million shares and warrants, higher than the 12 million previously disclosed. The price is at $1.75, with a warrant exercise price of $2.19 per share.
As far as how this compares to the float and dilution, that is rather large because the float was said to be only about 7.5 million shares before this offering.
After the obesity treatment news from Orexigen (NASDAQ: OREX) this week, the hiked offering may be less of a surprise. Here is the problem: shares closed at $2.21 yesterday. The early indications have EnteroMedics shares down over 12% at $1.93 and the 52-week trading range is $1.52 to $8.64. The market cap here was a mere $16.5 million as of yesterday.
JON C. OGG
Bank of America/Merrill Lynch is out with a very positive call for VIVUS, Inc. (NASDAQ: VVUS) after Orexigen Therapeutics, Inc. (NASDAQ: OREX) received an FDA panel backing yesterday for its Contrave diet pill for weight loss. The thesis here is that the path for FDA approval of Qnexa for weight loss will also be set.
BofA/ML raised its rating to BUY and more importantly it raised its price target objective to $12.00 from $6.00 in the call.
The note says, “We previously had low expectations for a near-term approval for VIVUS’ obesity drug Qnexa, due to concerns that the FDA would require a large scale cardiovascular events trial prior to approval, consistent with the agency’s more cautious stance on CV risks for metabolic drugs.
The FDA advisory panel’s vote for Orexigen’s Contrave is expected to provide VIVUS with a more clear path to overcome the FDA objections and requests.
Another issue is better efficacy for Qnexa from VIVUS. BofA noted that Qnexa has a better effect on blood pressure reduction and a better risk/reward profile with better efficacy against Contrave at 9% weight loss versus 5% weight loss.
Orexigen Therapeutics, Inc. (NASDAQ: OREX) is trading up above $11.00 in early pre-market trading after a $4.87 close and against a 52-week range of $3.81 to $8.88. VIVUS, Inc. (NASDAQ: VVUS) is trading up at almost $9.00 in early pre-market indications after a $7.80 close and against a 52-week range of $4.69 to $13.68.
JON C. OGG
What? An FDA panel backing in the diet pill arena? Orexigen Therapeutics Inc. (NASDAQ: OREX) had seen some controversy grow around its Contrave diet drug pill to assist in weight loss, but tonight is good night at the company. An FDA panel voted 13 YES to 7 NO in an advisory panel recommendation before a formal FDA review for approval. If approved, this would mark the first real diet drug in a decade. This news is likely to bolster rivals as well.
Contrave was voted on favorably after its benefits in weight loss in the obese are greater than the risks. Earlier comments voiced concern over heart risks.
While the FDA formal approval or denial is not assured, the general trend is that the FDA follows a panel advisory recommendation when the votes are a large majority in favor of approval.
Orexigen’s news is going to be a win for other speculative emerging pharma companies. VIVUS Inc. (NASDAQ: VVUS) closed up over 10% at $7.80 and the stock rose over 8% to $8.45 in the after-hours trading session. Despite delays at the FDA, this is one we have thought would get approval even if the conditions are great. Arena Pharmaceuticals, Inc. (NASDAQ: ARNA) closed up 2.15% at $1.41 and shares are up over 11% at $1.57 in the after-hours.
Today was not an assured win for the diet pill drug segment. It was the next best thing.
JON C. OGG