Implosion Analysis For Targacept… What Lies Ahead? (TRGT, AZN)

November 8, 2011 · Filed Under Depression, R&D · Comment 

Tuesday has been an awful day for shareholders of Targacept Inc. (NASDAQ: TRGT).  The company shares lost more than half of their value on news that initial test results from the Phase III antidepressant (TC-5214) failed to meet their endpoints in treating major depressive disorder.  Targacept is covered under a co-development pact with AstraZeneca PLC (NYSE: AZN) in the United Kingdom and this is supposed to be an add-on treatment for patients where primary treatment was not adequate.

Effectively, this was the first of four Phase III trials and more data on all of the results should come by the first half of 2012.  What is amazing is that the companies have said that they still hope to file for FDA approval in the United States during the second half of 2012.  Depression treatment is such a toss-up that a company’s primary endpoints might be well above what a minimum threshold is for FDA approval. 

Investors are speculating that Targacept does not die on the vine here.  Targacept is down almost 57% today but the stock is still at $8.25 and the market cap is still $275 million.  Shares hit a new 52-week low today and the new 52-week range is $7.93 to $30.47.  To show just how much optimism has been wiped out, the Thomson Reuters pre-news consensus price target was just above $30.00.  AstraZeneca ADRs are down 2% at $46,34 in New York trading.

The hope is that there could still be approval.  We won’t endorse that, but we did want to see what else Targacept has up its sleeve in the pipeline other than TC-5214:

  • TC-5619 for Residual Symptoms in Schizophrenia, Alzheimer’s Disease and ADHD 
  • AZD3480 – ADHD 
  • AZD1446 – Alzheimer’s Disease

As of June 30, 2011, Targacept had nearly $189 million in net tangible assets. If you just look at cash, cash equivalents, short-term investments and long-term investments, the figure is more than $290 million before backing out liabilities.

JON C. OGG

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

Unusual Analyst Upgrade & Endorsement for Cell Therapeutics (CTIC)

October 13, 2011 · Filed Under analyst calls, Cancer, fda, R&D, Research · Comment 

Cell Therapeutics, Inc. (NASDAQ: CTIC) is a controversial stock in the field of cancer and the company is still aiming for a 2012 debut market launch for its pixantrone drug candidate.  In the last couple of weeks it had reported more positive data and the FDA had earlier this year noted that pixantrone would need a review using a new panel of independent radiologists.  Pixantrone is to be a new treatment for non-Hodgkin Lymphoma.
 
This morning we saw a very unlikely and very unusual support or endorsement of Cell Therapeutics.  This came from Zacks Investment Research where the outfit was called The Bull of The Day.  That is generally considered a stock that has strong winds behind it and Zacks raised the rating to Outperform.

Zacks noted, “we believe pixantrone is getting closer to approval… We are encouraged by the FDA’s decision to allow Cell Therapeutics to re-submit the NDA for pixantrone for review without the need for an additional trial.”  The report also noted that Opaxio is its second most advanced pipeline candidate as a potential maintenance therapy for women with advanced ovarian cancer who achieve complete remission following first-line therapy with paclitaxel and carboplatin.

The full Zacks report is available here.  Shares are at $1.19 and the adjusted 52-week trading range is $0.95 to $3.30.

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 · 3 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

What Pfizer Would Get From Icagen (PFE, ICGN)

June 27, 2011 · Filed Under Acquisitions, R&D · Comment 

Icagen Inc. (NASDAQ: ICGN) is one of the smaller biohealth companies out there and it is often overlooked by investors.  When headlines hit that Pfizer Inc. (NYSE: PFE) may be interested in acquiring the company, you know what happened… Shares skyrocketed.

What we want to know is if the deal could be worth it now that the biotech outfit has seen shares more than double in a single session.

Pfizer has said it was considering a strategic transaction with the company, and it needs to be known that Pfizer already is a stakeholder in the company. Icagen is also reportedly engaged in discussions.

What is amazing is that Icagen had a market capitalization of only about $18 million before the news, and now that is listed as $38.9 million after a 116% gain to $5.19.  MILLION… not billion.

Icagen is based in the notorious Research Triangle Park, North Carolina.  The two companies have collaborated in a development partnership with Pfizer’s capital for exclusive rights for drugs that come from the partnership.

The company’s description is as follows: “orally-administered small molecule drugs that modulate ion channel targets. Its drug candidates include ICA-105665, a small molecule compound that targets specific KCNQ ion channels for the treatment of epilepsy and pain, which is in Phase II clinical trial stage; and a compound that targets the sodium channel Nav1.7 for the treatment of pain, which is in Phase I clinical trial stage.”  It was also noted that Icagen is conducting R&D in epilepsy, pain, and inflammation.

After the new 52-week high today, the new 52-week trading range is $0.96 to $5.75.  Icagen’s most recent balance sheet lists about $11.01 million in cash and almost no significant long-term debt.  While it has revenues, those appear to be R&D based sales.

Icagen used to have a significantly higher value than this, but that was long before the recession.  This could be a huge deal for Icagen’s newer investors but this is so small that it would not even be a line-item expense for Pfizer with its near-$160 billion market cap.

JON C. OGG

The Next Blockbuster Drug (PFE, BMY, BAYRY, JNJ, SNY)

June 23, 2011 · Filed Under fda, Financial, Heart, R&D · Comment 

Against a backdrop of falling stock prices, Pfizer Inc. (NYSE: PFE) and Bristol-Myers Squidd company (NYSE: BMY) have bucked the trend of the day and both are seeing a rise in their share prices after reporting that “apixiban” has tested as being superior to and safer than the generic drug “warfarin.”   Both drugs are intended to aid in preventing strokes in patients with dangerously irregular heart rhythms.  “Apixiban” is the experimental blood thinner being developed by both Pfizer and Bristol Myers.  “Warfarin” is the generic version of Coumadin, whose patent expired more than 10 years ago.

The hope is that this will lead to another blockbuster drug with more than $1 billion in sales.  The timing couldn’t be better for the two companies as Big Pharma companies are generally facing an industry-wide patten cliff, where a number of significant pattens will soon expire.  As a result, less expensive and far-less-profitable generics will soon displace proprietary pharmaceuticals along with much off the revenues these products generate.  This has so far not managed to keep these companies from being able to offer extremely high dividends.

The news of apixiban’s successful tests negatively impacted the prices of companies manufacturing competing blood thinners.  Bayer AG (BAYRY.PK) and Johnson & Johnson (NYSE: JNJ ) are seeking FDA approval for “xarelto,” their own blood thinner, traded lower.  In mid-day activity, Bayer traded at $77.15, down 7.26%, while Johnson and Johnson traded at $64.85, down 1.85%. Sanofi-Aventis (NYSE: SNY) who partners with Bristol-Myers in co-marketing, the hugely successful blood thinner, “Plavix” traded down over 2% at $37.08. “Plavix” will lose its patent protection in the near future.

The successful tests of “apixiban” effectively make Bristol-Myers a double winner by compensating for the impending expiration of its proprietary position with a promising new blood thinner.  In mid-day activity, shares of Bristol-Myers traded up 5.4% at $29.25, while Pfizer traded up 2.1% at 20.72.  Shares of both companies are near their highs for the day.

Before today’s announcement, the consensus price target for Pfizer was $23.37 per share, giving the shares an implied upside a tad less than 13%.  With today’s gains, Bristol-Myers Squibb has essentially surpassed its posted consensus target price.  Keep in mind that unforeseen and significant new product introductions like “apixiban” have the potential of powering upside adjustments in consensus price targets, earnings and revenue estimates, and even in the overall bias.  The question is, how much of a game changer will “apixiban,” prove to be . . . not merely in “targets” but in realized revenues and profits.

Morgan Stanley has now boosted its rating on Bristol-Myers Squibb to Overweight and said they win from this much more than Pfizer due to relative size.

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

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)

January 29, 2011 · Filed Under Acquisitions, Anemia, Cancer, Cardiac, dendreon, Diabetes, Heart, Infections, M&A, obesity, R&D, Rumor · Comment 

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

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