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
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
Sangamo Biosciences Inc. (NASDAQ: SGMO) may not be the biggest name in the biotech world, but it is among the latest with buyout rumors driving its share price.
Rumors of a potential bid interest from Eli Lilly & Co. (NYSE: LLY) drove shares higher all day on Monday. The rumor is that the drug developer is being looked at by Lilly.
The rumors may be tied to data from the last couple of weeks after it presented Phase II clinical data from its 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.
Its presentation data from study SB-509-801 demonstrated that the drug was well-tolerated in subjects with ALS and that 40% of SB-509 treated subjects had delayed deterioration of toe and ankle muscle strength as measured by manual muscle testing. That 40% figure compared to 23% of baseline-matched historic controls. Positive improvements in electrophysiological measures of motor nerves were observed in a subset of treated subjects were also observed.
Shares closed up 9.6% on Monday at $4.54 versus a 52-week range of $2.81 to $6.82. The volume was also more than 1 million shares, making this about 5-times normal trading volume.
Sangamo’s market cap is $205 million and the development stage company has cash and short-term securities as of September 30 of $62.7 million.
JON C. OGG
MannKind Corporation (NASDAQ: MNKD) is not without controversy. So what happens when you hear ‘buyout rumors’ driving the stock higher?
Barron’s reported a rumor first being published by TheFlyOnTheWall that MannKind could be a takeout buyout candidate. Eli Lilly & Co. (NYSE: LLY) was noted as the buyer, and $12.50 was the price hinted at.
The problem is that it is still an outstanding issue over whether or not MannKind will get its inhaled insulin approved by the FDA. The company has raised money and it has even gone as far as changing the name for AFREZZA.
To make matters even more complicated, MannKind is a highly-shorted stock. The most recent settlement date of September 15, 2010 showed that the short interest was down to 14.215 million shares. That was actually the lowest short interest since mid-April, but that represented 13 days to cover at the most recent time.
Recent financing has not been without criticism, and share lending arrangements are often hated by shareholders. The big catch here is that the inhalable insulin market will be huge if the safety risks can ever be overcome. Imagine no more needles for diabetics taking insulin. Pfizer Inc. (NYSE: PFE) has gone down this path before. It failed.
Novo Nordisk A/S (NYSE: NVO) has one monster insulin franchise, and it would likely do anything it could to protect its market share and its market cap is a whopping $57+ billion. Not bad for a Danish company, not bad at all. Its shares hit a new 52-week high of $99.75 today.
Options trading has been elevated today as well in MannKind trading, but the options expirations of JAN-2011 are the first month where the options start to price in any FDA event decisions.
In late-day trading, MannKind shares were up over 8% at $6.59, but the 52-week trading range is $4.76 to $11.12. The bet is an obvious one: inhalable insulin, if ever approved, is an easy blockbuster treatment.
Keep in mind that rumors have been out on MannKind before. Of course, most rumors turn out to be nothing more than unfounded rumors. The risks of acquiring a company without FDA approval are often too large for a large for a Big Pharma player. With a sub-$1 billion market cap, anything is possible.
JON C. OGG
September 29, 2010 (3:30 PM EST)
What is the oldest trick in the book when you need a share price up after it challenges 52-week lows? Float a a takeover rumor… Allos Therapeutics, Inc. (NASDAQ: ALTH) is up big on more than triple-normal the trading volume. A fresh article from FORBES got the rumor going that Allos could be a takeover stock based upon a screen from biotechnology analyst Geoffrey Porges of Sanford C. Bernstein. The claim is that 10,000 companies were screened to find a list of 25 that look like possible takeout candidates, and then Porges picked 4 of those which he thinks could get scooped up.
On Allos, Porges noted that it sells the cancer drug Folotyn. While the stock has not performed well ( big understatement), the ultra-orphan cancer niche would give a new team something that would appeal to buyers. Frankly, there was very little meat to the argument.
Three other names floated out there were ViroPharma Incorporated (NASDAQ: VPHM), Geron Corporation (NASDAQ: GERN), and Pharmacyclics Inc. (NASDAQ: PCYC).
Allos was the stock that investors took most to heart in a very short description article today. With about 90 minutes to the market close, shares are trading up 8.3% at $4.31 on more than 3.85 million shares. The 52-week trading range is $3.58 to $8.79 and average volume in the last 90 days has been roughly 1.1 million shares. That $3.58 low in Allos was just seen as recently as August 31.
Unfortunately, Geron is now too embattled in this ban on embryonic stem cells that is not yet resolved; Geron was down 2.3% at $5.15.
ViroPharma was up less than 1% at $13.19 and Pharmacyclics was up 4% at $7.73 on the notation that a buyout could come their way too.
JON C. OGG