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)
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
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
Biogen Idec Inc. (NASDAQ: BIIB) is up nearly 4% today on news that ISI Group raised its rating to BUY from HOLD. The driving force is Biogen’s promising MS drug candidate BG-12 with the belief that earnings can grow exponentially in the years ahead. If one company has a lock on the MS market, it is Biogen Idec.
The report today has shares up nearly 4% at $98.47 late in the day. The consensus analyst price target is $104.13 and the 52-week trading range is $46.15 to $106.99.
Our take is that the consensus price target objective of $104.13 is just not enough upside to merit a new purchase for a biotech giant. We will be the first to admit that consensus price targets are very far from perfect. In early January, Biogen Idec was “Overvalued” if you just used the projected consensus price target of the time. At that time, Biogen was trading at $67.20 and its implied consensus analyst price target objective was $62.83. The price target was just wrong in the start of 2011.
A lot has happened since then and shares are massively higher. The earnings estimates are $5.88 EPS for 2011 and $6.20 EPS for 2012, generating forward earnings multiples of 16.75-times 2011 expected earnings and almost 15.9-times expected 2012 earnings.
There are two sides to most coins. The company can now probably act without too much Carl Icahn input.
JON C. OGG
Opexa Therapeutics, Inc. (NASDAQ: OPXA) is on fire this morning with investor interest. The company announced that it has successfully completed two End-of Phase 2 meetings with the FDA over its Tovaxin. This is the company’s lead-product candidate and is said to be the first ever personalized T-cell therapy aimed as multiple sclerosis.
The company believes that these FDA meetings put Opexa in position to move forward with a pivotal Phase 3 study of Tovaxin, which Opexa preparing for to being the Phase III study.
A Phase 2b study of Tovaxin demonstrated overall clinical and disability benefits over the placebo group, including a clinically relevant decrease in the Annualized Relapse Rate and improvement in disability score. Another benefit beyond the efficacy measures that the FDA will ultimately evaluate is the safety profile. Opexa notes an “excellent safety profile” with no serious adverse events related to the Tovaxin treatment.
There are MS drugs on the market. Biogen Idec Inc. (NASDAQ: BIIB), which we recently covered as having risen above analyst expected targets, has the great MS drug called TYSABRI. Unfortunately, the adverse effects that have greatly limited TYSABRI are rare instances of the potentially fatal brain infection PML.
It is probably too soon to call for a change of treatment regimens based upon already approved drugs against drug-candidates that still have to go through Phase III trials for broader data before the application process can even begin. That being said, what makes Tovaxin different from current MS treatments is that it is a personalized cellular immunotherapy treatment. It is derived from T-cells isolated from a patient’s peripheral blood, which is then expanded ex-vivo, and ultimately reintroduced into the patient by injection. This process then triggers an immune response against specific subsets of autoreactive T-cells known to attack myelin, which reduces the relapse risks through time.
Opexa noted, “The second meeting was a face-to-face End of Phase 2 clinical meeting in which Opexa presented its rationale and trial design for a Phase 3 pivotal study with Tovaxin in Relapsing Remitting-MS (RR-MS) patients. The FDA concurred with Opexa regarding its proposed clinical trial protocol including the patient population, end points, patient numbers and trial design. The FDA also offered several recommendations to further enhance a Phase 3 trial.”
Opexa is one we highlighted before on positive stem cell safety profiles. Opexa is also one that has not been without controversy and has not been without financial liquidity measures. Novartis (NYSE: NVS) put the company on the map on news in 2009 that it was acquiring the company’s stem cell technology.
The war against MS is a large one. The National Multiple Sclerosis Society lists on its site that there are approximately 400,000 people with multiple sclerosis in the United States alone, with 200 more new cases diagnosed every week. The Society also noted that MS is thought to affect more than 2.1 million people on the planet.
It is still too soon to know if Tovaxin will be the next big MS treatment. The FDA is a tricky institution and approvals have been more scrutinized of late. So you know the good news, and you have at least some of the caveats.
The market is voting this one as a success today. Opexa shares are up almost 60% at $2.49 on almost 6 million shares as of 11:30 AM EST. The high for the day is $2.90 and the 52-week trading range is $1.02 to $3.07.
Even after the big gain, Opexa has a micro-cap value of only $45.9 million. The company’s cash and equivalents was listed as only $4.73 million as of September 30, 2010. Another round of funding is probably a safe assumption for the near future. The company has noted funding and partner searches and the press release today noted: “Moving forward we are focused on implementing the necessary steps to advance toward a Phase 3 clinical trial, continuing discussions with potential development partners for Tovaxin and attempting to secure appropriate financing.”
If the company’s new MS treatment is as good as the investor reaction is signaling today, that funding should be easy enough to secure. The question to ask on funding is probably “how much and when?” over other issues.
JON C. OGG
It is already 2011 and we have begun the coverage of our annual outlook series. We covered the best of 2010 and an outlook for big-biotech stocks with the most implied upside already. Sometimes it is important to know also which of the big biotech and biohealth names may be overvalued when it comes to analyzing the current price and valuation data. We have compiled data on the active biotech stocks which have at least five analysts making price target calculations for a year ahead. What we found was that a whole slew of companies were trading above the Thomson Reuters mean consensus price target objectives. That does not assure that the analysts are right, but it means that either the analysts will have to play catch-up with price hikes or that they will be considering downgrading their expectations.
Our screen generated the following names: Amylin Pharmaceuticals, Inc. (NASDAQ: AMLN), Biogen Idec Inc. (NASDAQ: BIIB), Exelixis, Inc. (NASDAQ: EXEL), Illumina, Inc. (NASDAQ: ILMN), Jazz Pharmaceuticals, Inc. (NASDAQ: JAZZ), Medivation, Inc. (NASDAQ: MDVN), Osiris Therapeutics, Inc. (NASDAQ: OSIR), and Sequenom, Inc. (NASDAQ: SQNM).
Amylin Pharmaceuticals, Inc. (NASDAQ: AMLN) is way off its highs but may still be overvalued. The company is seeking expanded approval for its BYETTA along with Basal insulin for diabetes but it may not be enough unless the analysts are missing the boat here. At $14.80 and with a market cap of $2.1 billion, its 52-week trading range is $9.51 to $24.21. The unfortunate issue is that Amylin’s consensus price target is $13.21 and the great huge hope here has yet to pay off for the company. For whatever it is worth, Amylin’s CEO Dan Bradbury was given the honor of “The worst biotech CEO in 2010″ just last month.
Biogen Idec Inc. (NASDAQ: BIIB) has handily recovered from its past woes, perhaps recovered too much if analysts are anywhere close. Shares are now trading at $67.20, with a market cap of $16.01 billion and a 52-week range of $45.96 to $68.60. The consensus analyst target is listed as $62.83. In early December Credit Suisse only gave a neutral rating but did assign a $68 target. Biogen Idec was also reiterated Neutral but its target was raised to $70 at BofA/Merrill Lynch.
Exelixis, Inc. (NASDAQ: EXEL) may be overvalued to formal targets and maybe not… It came back in focus in November-2010 on news that Phase II clinical trial data on XL184 in ovarian and prostate cancer showed that the drug appears to be a help in both tumor types after it was effectively given back rights to the drug by Bristol-Myers Squibb earlier. Share shave jumped and jumped and now trade at $8.49 with a market cap of $925 million and a 52-week trading range of $2.86 to $9.20. Unfortunately, its consensus price target is $7.75 and there have been shares registered for sale by insiders over the last month.
Illumina, Inc. (NASDAQ: ILMN) was one of the best of the best in 2010, but that was then and this is about valuations. The most recent price of $64.34 generates an $8.05 billion market cap and its 52-week trading range is $29.76 to $66.59. We’ll be looking for analysts to catch up or for the stock to back off because the consensus target is listed as $60.34 still. This is on the instrument side of the biohealth sector in integrated systems for the analysis of genetic variation and biological function.
Jazz Pharmaceuticals, Inc. (NASDAQ: JAZZ) appears on the list of ‘overvalued’ biohealth names apparently just over extreme end of year performance in November and December. Jazz shares rocked higher from under $11.00 per share to right at $20.00 for its most recent $19.96 close. The market cap is about $776 million and the 52-week range is $6.38 to $20.28. The consensus target is $16.80. Its sleep-disorder treatment Xyrem recently won a new patent for narcolepsy and it has seven other Xyrem patents that expire between 2019 and 2024. It also raised guidance in November after swinging to a better profit. Jazz is still greatly under-followed by analysts with only 5 real targets out there. This may be a situation of catching-up that is needed by analysts rather than a major concern that something is wrong at Jazz.
Medivation, Inc. (NASDAQ: MDVN) imploded early in 2010 on an Alzheimer’s disappointment. Shares are now around $16.09 with a $556 million market cap and a very wide trading range of $8.43 to $40.49. Unfortunately, its consensus price target is $14.50 per share.
Osiris Therapeutics, Inc. (NASDAQ: OSIR) is tricky considering that it aims for the stem cell therapeutic segment. At $7.77, its market cap is $255 million and its 52-week trading range is $5.39 to $9.24. Unfortunately, its consensus target is $5.88. Shares have been in a trading range for more than a year after a big sell-off and there is just an information gap that implies that Osiris could end up like “Ra” or “Rat” if you forgive the Egyptian mythology pun.
Sequenom, Inc. (NASDAQ: SQNM) is currently back up off its post-implosion lows. The investing public has no idea how lucky they are that it is even still a public and traded company because it could have disintegrated entirely. Shares are trading around $7.85 and have a market cap of almost $600 million and a 52-week trading range of $3.91 to $8.65. The consensus price target is unfortunately $7.13
Sequenom was an interesting name in the screen even if it is more into diagnostics rather than cures. It recently raised capital at $6.00 per share, so it has popped rather well. The $7.85 price is trading above the $7.13 consensus price target. Piper Jaffray initiated coverage with an Overweight rating in mid-December and gave it a $8.00 price target.
As you can see, being screened as ‘overvalued’ may be no fault of the company and may not even matter in the long-term development plans of a company. Sometimes stocks outperform the market and they can outperform enough that the analysts have either not updated their coverage or maybe it was ‘too much too fast’ in that performance.
JON C. OGG
Top BioHealth Analyst Upgrades & Downgrades (AMGN, AZN, BAY, BIIB, CELG, EXAM, GILD, GSK, HGSI, LH, NVS, PFE, UTHR, WCRX)
We have seen many research calls from Wall Street analysts with upgrades, downgrades, and initiations this Tuesday in the world of biotech, pharmaceuticals, and biohealth. Some of the key calls we have seen are as follows:
Amgen Inc. (NASDAQ: AMGN) Started as Neutral w/ $58 target at Credit Suisse.
AstraZeneca (NYSE: AZN) Cut to Underperform at Credit Suisse.
Bayer AG (NYSE: BAY) Raised to Outperform at Credit Suisse.
Biogen Idec Inc. (NASDAQ: BIIB) Started as Neutral w/ $68 target at Credit Suisse.
Celgene Corporation (NASDAQ: CELG) Started as Neutral w/ $60 target at Credit Suisse.
Celgene Corporation (NASDAQ: CELG) Maintained Buy with $68 price target at BofA/ML.
Examworks Group Inc. (NASDAQ: EXAM) Started as Outperform w/ $22 target at Credit Suisse.
Gilead Sciences Inc. (NASDAQ: GILD) Started as Outperform w/ $52 target at Credit Suisse.
GlaxoSmithKline plc (NYSE: GSK) Raised to Neutral at Credit Suisse.
Human Genome Sciences Inc. (NASDAQ: HGSI) Started as Outperform w/ $31 target at Credit Suisse.
Lab Corporation of America (NYSE: LH) Started as Neutral w/ $89 target at Credit Suisse.
Novartis (NYSE: NVS) Raised to Outperform at Credit Suisse.
Pfizer Inc. (NYSE: PFE) Maintained Outperform at Credit Suisse.
United Therapeutics Corp. (NASDAQ: UTHR) Started as Neutral w/ $57 target at Credit Suisse.
Warner Chilcott plc (NASDAQ: WCRX) Reiterated Buy at BofA/ML.
You can join our free daily email distribution list from 24/7 Wall St. to hear more about broader analyst upgrades and downgrades, top day trader and active trader alerts, news on Warren Buffett and other investment gurus, IPOs, secondary offerings, private equity, and more.
JON C. OGG
We have previously outlined how the bull market is leaving biotech in the dust. With a lack of exponential growers in 2010 compared to 2009, there is a sad state of affairs that may be the most crucial element of all for biotech in 2011. Genzyme Corporation (NASDAQ: GENZ) could be the one critical element for the whole biotech sector. We would pay particular attention to Biogen Idec Inc. (NASDAQ: BIIB), Life Technologies Corporation (NASDAQ: LIFE), Illumina Inc. (NASDAQ: ILMN), Dendreon Corp. (NASDAQ: DNDN), and Human Genome Sciences Inc. (NASDAQ: HGSI), depending upon the outcome of the Genzyme situation.
Genzyme shares have slid after the Sanofi-Aventis (NYSE: SNY) offering peak and the larger company has asked Genzyme to come to the bargaining table. So far, Genzyme is looking for and hoping for a higher bid. So far, Henri Termeer’s stance has been that the offer undervalues the company and that the offer is opportunistic. So far, the stock has remained above the $69.00 offer. If Genzyme shares fall under that $69.00 offer, more shareholders may just decide to tender their shares to Sanofi-Aventis and call it a day.
So, why is Genzyme key to the whole sector?
Again, biotech has lagged the market and the sector has headwinds from patent issues, to cost controls out of D.C., to a more harsh FDA when it comes to drug approvals. Goldman Sachs issued very cautious research on the sector as a whole, with one exception. The biggest issue is that this tender or a rival deal could unleash more than $17 billion that would have to find a new home. For institutions and for many investors alike, it is not an unheard of event that money in one sector has to now find a new home inside the stock of another company in the same sector. At $70.23, Genzyme has a market cap of roughly $17.9 billion.
Unlocking $17 billion or more could create significant interest in the biotech and biohealth players that are smaller than Genzyme. Our data shows that there are more than 20 biotechs smaller than Genzyme which are valued at $1 billion or more by market capitalization. The next closest smaller companies tied to biotech are Biogen Idec Inc. (NASDAQ: BIIB), Life Technologies Corporation (NASDAQ: LIFE), Illumina Inc. (NASDAQ: ILMN), Dendreon Corp. (NASDAQ: DNDN), and Human Genome Sciences Inc. (HGSI).
This is giant for US biotech, and it is number four by market cap in US-listed biotechs as the table shows:
|Amgen Inc. (AMGN)||54.0B|
|Gilead Sciences Inc. (GILD)||30.7B|
|Celgene Corporation (CELG)||26.9B|
|Genzyme Corp. (GENZ)||18.2B|
|Biogen Idec Inc. (BIIB)||13.6B|
|Life Technologies Corporation (LIFE)||8.9B|
|Illumina Inc. (ILMN)||6.2B|
|Dendreon Corp. (DNDN)||6.1B|
|Human Genome Sciences Inc. (HGSI)||5.4B|
|Qiagen NV (QGEN)||4.2B|
|Abraxis BioScience, Inc. (ABII)||3.1B|
|Amylin Pharmaceuticals, Inc. (AMLN)||3.1B|
|Talecris Biotherapeutics Holdi (TLCR)||2.8B|
|BioMarin Pharmaceutical Inc. (BMRN)||2.3B|
|Techne Corp. (TECH)||2.3B|
|Regeneron Pharmaceuticals, Inc (REGN)||2.2B|
|Charles River Laboratories Int (CRL)||2.1B|
|Incyte Corporation (INCY)||1.8B|
|Medicis Pharmaceutical Corp. (MRX)||1.8B|
|Onyx Pharmaceuticals Inc. (ONXX)||1.7B|
|Savient Pharmaceuticals, Inc. (SVNT)||1.5B|
|Theravance Inc. (THRX)||1.4B|
|Acorda Therapeutics, Inc. (ACOR)||1.3B|
|Seattle Genetics Inc. (SGEN)||1.2B|
|ViroPharma Inc. (VPHM)||1.2B|
|XOMA Ltd. (XOMA)||1.0B|
JON C. OGG
Things have changed in the last week. The mid-term elections took away the majority of the House of Representatives, and the Senate now no longer has the super-majority which could get laws passed no matter what they included. Now it seems that the tax cuts may be extended for another year or maybe two years, which could imply a permanent change ahead if the 2010 election trends remain close to the same in 2012. Quantitative easing from the FOMC is meant to drive investors into riskier assets and create a higher pricing environment to avoid deflationary pressure. Generally speaking, those riskier assets are commodities, and broader stocks tied to industrial, exports, financials, and more. But what about biotech and emerging pharma? So far, QE2, tax extension, and the reversal of ‘the new normal’ has not highlighted biotech in the slightest.
Biotech HOLDRs (NYSE: BBH) and SPDR S&P Biotech (NYSE: XBI) are classic examples of underperforming ETFs in the last week as you can see in the chart below. The Biotech HOLDRs actually fell during the rest of the market gains, while the SPDR S&P Biotech ETF significantly underperformed the PowerShares QQQ (NASDAQ: QQQQ).
A research call this last Thursday came from Goldman Sachs and it was cautious in Celgene Corporation (NASDAQ: CELG) and Gilead Sciences Inc. (NASDAQ: GILD); and the call was very cautious in Amgen Inc. (NASDAQ: AMGN) and Biogen Idec Inc. (NASDAQ: BIIB). Alexion Pharmaceuticals, Inc. (NASDAQ: ALXN) was the one that Goldman Sachs liked, and despite its large gains so far in 2010 the stock performed well after rising from about $68 early Tuesday to close the week out at $72.72.
MannKind Corp. (NASDAQ: MNKD) is one of those companies that will have nearly zero impact from Quantitative Easing nor from who is in control of the House, Senate, or White House. Alfred Mann’s inhalable insulin candidate took a hit because of fraud allegations from a terminated employee who brought up study misconduct concerns. Shares went from $6.20 on Thursday early morning to close the week out at $5.54 for roughly a 10% drop. The 52-week range is $4.76 to $11.12, and the general theme is that AFREZZA is farther and farther away from approval.
Human Genome Sciences Inc. (NASDAQ: HGSI) has lost some of its high-flyer status compared to 2009 and early 2010, and this week brought about a negative cloud on teh company even though the company itself was not at fault. The SEC charged a French research doctor with insider trading that allowed a hedge fund to dump 6 million shares after a tip that the drug Albuferon for Hepatitis C had negative test results. The problem is that the incident goes back to 2007. Human Genome shares were nearly at $27.00 at the start of the week and they closed at $25.31 versus a 52-week range of $20.56 to $34.49.
VIVUS Inc. (NASDAQ: VVUS) was started as Buy at Roth Capital this last week with a $12 price target, yet it did not hold much of the large gains from the week before. VIVUS shares rose a week earlier from $6.13 ti $7.75 after the FDA denied its Qnexa weight loss drug but after most issues seemed to be within working conditions without the need for a new round of drug trials. Shares did not close on the lows Friday, but the loss was close to 10% at $7.12 on the week. If this is approved, we have seen some research that indicates many patients will probably pay out of pocket on their own for this if insurance reimbursement rates do not cover it.
Dendreon Corporation (NASDAQ: DNDN) was another dud this week. The company’s loss was more than $79 million due to ongoing product expansion and promotion costs for PROVENGE. The drug is selling less than expected so far. The company sold $20.2 million and sales grew each month, but analysts were looking for nearly $24 million in sales. Dendreon gave sales projections of $46 to $47 million in 2010 revenue. It said it expects $350 to $400 million in revenue in 2011, but 2011 is expected to be very back-end loaded as capacity comes on line. That implies that any delay will push revenues further and further out, perhaps as more prostate cancer competition can come on the market. Analyst expectations were more like $62.6 million in 2010 and over $400 million in 2011. Shares peaked at $39.00 during the week but closed down at $35.07; its 52-week range is $25.05 to $57.67.
Most investors consider biotech and emerging pharma to be risk-based assets. These are a different sort of risk. Some of the pressure from Washington D.C. may abate, but Republicans have vowed to address some of the cost side of the equation when it comes to healthcare. If Washington can figure a way for hospitals to not charge $25 for administering an aspirin tablet or an ibuprofen pill, it seems logical that $20,000 to $90,000 treatment regimens could remain under scrutiny.
So far, biotech and emerging pharma is being discounted entirely despite the winds of change feeling a tad less abrasive.
JON C. OGG
Goldman Sachs is taking a very cautious view on many of the large biotech leaders in a new coverage call. While there is a silver lining call in one, the bulk of the research has a very cautious stance due to revenue woes that could lie ahead for the large biotechs.
Amgen Inc. (NASDAQ: AMGN) started with a “SELL” rating.
Biogen Idec Inc. (NASDAQ: BIIB) started with a “SELL” rating.
Celgene Corporation (NASDAQ: CELG) started with a “NEUTRAL” rating.
Gilead Sciences Inc. (NASDAQ: GILD) started with a “NEUTRAL” rating.
Alexion Pharmaceuticals, Inc. (NASDAQ: ALXN) is the standout stock this morning and the exception to the rule. Alexion shares were started on the CONVICTION BUY LIST and the stock is up 2% at $71.94 and close to challenging the 52-week high of $72.45.
JON C. OGG
Biotech earnings are seeing mixed reactions after the news so far. Biogen Idec Inc. (NASDAQ: BIIB) has some very positive momentum behind it that may be changing how investors view the company. The company was noted as a win by Zacks Investment Research this morning with references to Elan Corp. (NYSE: ELN) and Novartis (NYSE: NVS). What is perhaps most interesting about Biogen Idec is that the stock is hitting 52-week highs today and the new 52-week trading range is $41.75 to $61.57. If you go back further, Biogen is actually trading at a high not seen since the big slide in mid-2008. Some investors and traders may now be hoping that today’s move represents a full breakout from a very long trading range.
Zacks noted Biogen Idec as “Biogen Beats by a Wide Margin” and is as follows:
Biogen Idec Inc. (NASDAQ: BIIB) reported third-quarter earnings per share of $1.33, well above the Zacks Consensus Estimate of $1.20 and the year-earlier figure of $1.09. Excluding the impact of stock-based compensation expense, third quarter 2010 earnings came in at $1.35 per share. Performance was boosted by higher revenues and lower share count. Revenues increased 5% to $1.18 billion, with Tysabri and Rituxan being the primary growth drivers. Revenues were slightly above the Zacks Consensus Estimate of $1.16 billion.
Revenue by Major Products
Third quarter Tysabri revenues came in at $221 million, up 7% from the prior period. Global in-market net sales of Tysabri, which is partnered with Elan Corp. (NYSE: ELN), came in at $307 million (up 9%) in the third quarter of 2010. Tysabri global sales consisted of US sales of $151 million and ROW (Rest of the World) sales of $156 million.
Biogen estimates that as of the end of Sept. 2010, about 55,100 patients were on commercial and clinical Tysabri therapy worldwide. This represents an increase from the 52,700 patients reported by the company in the second quarter of 2010.
With Tysabri being an important growth driver for Biogen, we remain concerned that an increase in the number of progressive multifocal leukoencephalopathy (PML) cases associated with its use could lead to a slowdown in Tysabri sales going forward. We note that new patient additions during the third quarter remained flat sequentially at 2,400.
Biogen is currently conducting studies (STRATIFY 1 and STRATIFY 2) to confirm that patients who test negative on the JC virus assay could use Tysabri with lower concerns regarding the development of PML. Biogen reported that Elan presented data supporting the utility of using a JC virus assay. The companies intend to apply for label changes in both the US and the EU by the first quarter of 2011.
Meanwhile, Biogen’s lead multiple sclerosis (MS) product Avonex posted second quarter sales of $644 million (up 11%).
We note that, going forward, both Avonex and Tysabri will face additional competition in the form of Novartis’ (NYSE: NVS) Gilenya which was launched in early Oct. Results from a study comparing Gilenya with Avonex showed that Gilenya reduced relapse rates by 52% at one year compared with Avonex. Being an oral therapy, Gilenya could find quick acceptance as currently available therapies require injection or infusion.
Meanwhile, we were disappointed to see Rituxan revenues decline 9% to $258 million in the third quarter. Biogen and partner Roche have been working on driving Rituxan growth by expanding the label for additional indications. Moreover, Biogen has been working on improving unit and market share performance of the product through greater sales efforts, improving customer segmentation and highlighting the data on the product.