UK-based Vectura will be receiving $31.8 million, in addition to product royalties, from drug manufacturer GlaxoSmithKline for the rights to license Vectura’s dry powder drug formulation patents. The patents would allegedly be used for two late-stage drugs that are set by GSK to replace Advair, GSK’s asthma and COPD treatment, when it goes off-patent. These drugs are GSK642444 and GSK573719.
Working to reassure shareholders, Vectura CEO stated in response to the deal that “the non-exclusive nature of this agreement also allows us to continue our efforts to deliver further value for shareholders from our inhaled therapy technologies in the future.”
-Michael B. Sauter
According to Bloomberg, the Sanofi-Aventis (NYSE: SNY) last week to potentially purchase generic drugmaker Genzyme Corp. (NASDAQ: GENZ) is on track to become an actual bid, worth potentially as much as $18.7 billion. Last week, rumors were flying that struggling GENZ would be competed over by as many as three major drug companies (Sanofi-Aventis, GlaxoSmithKline, and Johnson & Johnson) but SNY was expected to be the most likely, and that notion has been reinforced by the bid, which was recently approved by the Sanofi board.
The acquisition is not set in stone, however, as Genzyme refused to facilitate the talks Sanofi-Aventis requested for the unsolicited bid. Analysts expect the $70/share may be refused by the generic drug producer as well, which will send the bidder back to their drawing board. Meanwhile, no reports have surfaced regarding bid plans from GSK or JNJ.
-Michael B. Sauter
Genzyme Corporation (NASDAQ: GENZ) may have managed to save itself without really saving itself. That is what happens when buyout interest emerges in a struggling situation, particularly in the world biotechnology. With Sanofi-Aventis (NYSE: SNY) first having interest per reports Friday, the stock rose over 15% to $62.52. After the weekend, we have shares up 6.7% at $66.76 on word that Johnson & Johnson (NYSE: JNJ), GlaxoSmithKline plc (NYSE: GSK), or potentially other suitors may be interested.
What we wanted to check on was the pricing of near-month stock options to try to establish an implied buyout price. Genzyme stock options are showing right at $2.00 for the AUG-2010 $70 Calls. The AUG-2010 $65 Puts are at $2.55.
Using current prices alone does not give a 100% accurate read on any implied buyout price indications. Quite simply, the snapshot of today does not always reflect the trading book of an options market maker. It does give theoretical pricing and probability.
You also have to consider that we have already now seen a large run-up and the buyout interest that had been indicated could have easily been based upon where shares were… in the low-to-mid-$50′s. Corporations rarely care about appeasing speculators who invest in and around the potentiality of a merger, but they do have to keep in mind that securing a merger often requires more than just appeasing shareholders who are happy to get a boost from low levels.
After crunching numbers based on options prices today, it seems that $70.00 is the implied theoretical buyout price. Extra premium on top of this would garner the hope that GSK or J&J would try to jump in with a rival bid or a higher bid.
Again, these prices are merely based on snapshots in time. Options are merely one component of what is a convoluted situation. Sometimes these are dead-on, and sometimes they are off by a mile.
As far as this comparison, the Call options are far more active and have a far larger open interest than the Put options. Generally that is a sign that speculation is for upside rather than downside. Of the speculative Put strikes in August, we have only seen a bit more than 5,000 contracts trade today versus a prior open interest of 5,877 contracts. Today’s Calls have seen more than 12,000 contracts trade versus a prior open interest of more than 27,000 contracts.
What Genzyme ultimately fetches, if it garners a deal, points to a high implied bid of around $70.00 by our take. The value of anything is what someone is willing to pay for it. That could be far more or far less. Genzyme’s average share price for last week before the reported bid rumors was close to $53.00.
JON C. OGG
Genzyme Corp. (NASDAQ: GENZ) was up more than %6 this morning as traders continued to speculate about what seems to be the inevitable buyout of the biotech company. Last week, bearish sentiments amount the stock increased as the company’s 2Q profits showed severe financial difficulties as a result of manufacturing-end drug shortages. Outlook for the company started to improve, however, after pharma giant GlaxoSmithKline (NYSE: GSK) expressed a very casual interest in purchasing Genzyme.
Speculation about a potential acquisition of the third-largest biotech company in the world continued throughout the week, and Johnson & Johnson (NYSE: JNJ) was added to the list of potential suitors, although perhaps seen as more of a long shot than GSK. On Friday, Sanofi-Aventis (NASDAQ: SNY) made a casual approach to to GENZ which appeared to be a more serious expression of interest.
-Michael B. Sauter
According to Reuters, GlaxoSmithKline plc (GSK) and its Japanese biotech partner, Shionogi, are set to begin phase III clinical trials of their integrase inhibitor-based HIV treatment. The drug is currently in phase IIb clinical trials and has exhibited promising results, prompting the plans to enter the next phase some time towards the end of the year. GSK reports earnings today at 4:00 PM EST.
-Michael B. Sauter
When conglomerates and consumer products lay off workers and employees, shareholders generally cheer the company for saving money and cutting costs by figuring out productivity measures that milk more output per employee. That leaves more income and ultimately brings more dividends down the road. But biotech firms are far from being thought of in the same light. These are growth stories and investors generally get more excited about expanding operations. So here comes XenoPort, Inc. (NASDAQ: XNPT) announcing on a Friday that HALF of its workers just won the pink-slip lotto ticket from the HR department. Today just officially became National Employee Morale Day at XenoPort.
XenoPort just announced a restructuring plan today that more narrowly focuses its R&D pipeline, and one that “includes an overall reduction in its workforce of approximately 50%.” The company says this will allow it to focus its resources to advance its later-stage product candidates. This comes on the heels of the February 17, 2010 FDA Complete Response Letter which effectively gave the complete response that its Horizant™ treatment for moderate to severe primary restless legs syndrome was a no-go.
XenoPort is collaborating with Astellas Pharma Inc. and GlaxoSmithKline (NYSE: GSK) to develop and commercialize XP13512, which is Horizant. Its product candidates are being studied for the potential treatment of restless legs syndrome, GERD, migraine headaches, neuropathic pain, spasticity and Parkinson’s disease.
The company called this an “unexpected setback” in the approval of Horizant. It also noted that this action is forcing it to review its operating plans.
It will now focus on later-stage development activities and more importantly will eliminate its own discovery research efforts. XenoPort claims a number of product candidates in clinical development as well as several other advanced preclinical compounds.
The company noted specifically that “maximum value will be created for our stockholders over the next several years by reducing our overall spending while focusing on helping our partners gain approval of Horizant in the U.S. and XP13512 in Japan, completing our ongoing Phase 2b trial of arbaclofen placarbil (AP) in gastroesophageal reflux disease (GERD) patients and initiating a Phase 2 clinical trial of XP21279 in patients with Parkinson’s disease.”
The projected estimates of annual cash saving reductions is approximately $15.6 million, most of which is from cuts to compensation and benefit expenses. XenoPort will incur cash expenditures of up to $4.2 million in the first half of this year and it does expect some non-cash charges as part of the action.
Traders and shareholders are also betting on “National Employee Morale Day” at the company being adverse. The stock is now down 2% at $7.72. The 52-week trading range is $6.39 to $25.42. This one effectively dropped from almost $20 to under $10.00 when the FDA determined that the best action for patients with Restless Leg Syndrome was to have less caffeine and to get more exercise.
The company still has close to $150 million in cash and short-term equivalents ($143.7 million per the company’s latest results) and its market cap is now $234 million. The most recent annual report data (on page 29) shows that XenoPort had 219 full-time employees, about 155 of which were involved in R&D.
This is usually one of those instances where the beatings will continue until morale improves.
JON C. OGG
Generic drugs are just one of the many combined issues that are coming front and center in the world of healthcare reform. Frankly this is not a new notion. Not all. This weekend came a feature in Barron’s “Asian Trader: Pill Maker That’s Set To Pop” calling Dr. Reddy’s Laboratories Ltd. (NYSE: RDY) of India the next big drug play for investors. We wanted to look closer under the hood here.
The Indian generic drug company’s ADR closed at $24.61 Friday and Barron’s noted two analysts with big price targets: one giving it room up to $29.63 and and another implied rupee price we pegged around $30.82.
Sales are expected to approximately double to around $3 billion by 2013 and the waves of name brand drugs coming off patent in the U.S. may offer some added hope there. That is the biggest wild card with many noting that generics have a chance to capture a part of what is put at $70 to $80 billion.
Dr. Reddy’s is thought of by the US investor public as a generic player, but it has its own products. It produces finished dosage forms, active pharmaceutical ingredients and intermediates, and biotechnology products; and it conducts R&D in cancer, diabetes, cardiovascular, inflammation, and bacterial infection.
There are some issues here in other drug makers. Teva Pharmaceutical Industries (NASDAQ: TEVA) is perhaps the best generics player out there with a whopping $53 billion market cap today versus about $4.1 billion as Dr. Reddy’s market cap.
Teva is a large customer and Dr. Reddy’s also has a distribution pact with GlaxoSmithKline (NYSE: GSK) for emerging markets and there are some who expect GSK to take a significant stake in the Indian drug maker. Teva’s stock is right around $60 and analysts on average have a price target of $63 and the highest target seen is $70.00. If Teva gets more downgrades on valuation, it seems as though it could pull Dr. Reddy’s down simply as the best can drag down or pull peers higher.
If the markets are flat or solid, it seems that Dr. Reddy’s may have a 2% or so Barron’s-pop. Our problem here with this one is that Dr. Reddy’s shares are up almost 200% in the last year. Its 52-week range is $7.27 to $27.33.
Dr. Reddy’s may have more room to run, but the big move has probably been seen. The recalls may be behind and they may not, ditto with FDA scrutiny. The stock is not cheap by some Indian company valuation standards, so it seems that waiting may offer better risk-reward here than chasing.
JON C. OGG
XenoPort, Inc. (NASDAQ: XNPT) has a big day coming for its GSK1838262/XP13512 (gabapentin enacarbil) next week. The company has a date of February 9 for an FDA Prescription Drug User Fee Act (PDUFA) decision on its Horizant. This is the dated goal for the company’s New Drug Application for Horizant for the treatment of moderate-to-severe primary restless legs syndrome. Horizant is licensed to GlaxoSmithKline (NYSE: GSK) in the United States and several other countries.
There is one concern here… The company’s release last week noted that the GaxoSmithKline partnership may be in doubt because Glaxo has noted that it may end research on depression and pain treatments. GSK and XenoPort are discussing the next steps in the development plan for XP13512 in the neuropathic pain area and will disclose this development plan at a future date.
XenoPort shares closed up 3.4% at $19.01 Friday on 422,000 shares. Average volume is 337,000 shares, but the stock trading has been elevated over the last week.
Date Volume Close
5-Feb 422,100 $19.01
4-Feb 504,800 $18.38
3-Feb 373,200 $19.90
2-Feb 420,200 $19.99
1-Feb 216,400 $18.50
There is also a binary options event factored in here, although on far fewer options contracts than what you normally see. Here is the CALL and PUT volume for Feb-2010 expiration that expire on February 19, with data on the Friday volume and the open interest:
CALL Volume OpInt
17.50 44 1,006
20.00 167 1,995
22.50 170 1,938
PUT$ Volume OpInt
12.50 209 1,062
15.00 95 1,467
17.50 114 2,055
20.00 170 2,812
The stock did manage to close up for the week, which might be impressive considering the weak stock ticker tape action we saw this last week. It looks like the company still has $150 million or so in liquidity with revenues from partnership income looking very spotty and also looking like they are in the rear-view mirror. Analysts expect losses in 2010 and revenues of only about $63 million per Thomson Reuters consensus data.
XenoPort will be able to survive without GSK if push comes to shove. But the restless leg syndrome is not an area without controversy. Ask someone with it if they think it is real or not. Then ask one of their younger family members if they think it largely from inactivity or what the RLS patient consumes daily.
This PDUFA date may not seal the fate of XenoPort, but a very positive review will be of help. The stock has a 52-week trading range of $13.36 to $28.33 and a market cap of about $576 million.
JON C. OGG
Pfizer Inc. (NYSE: PFE) is making a pipeline presentation today, and it is meant to address a serious and potentially severe issue affecting all Big Pharma companies from Merck & Co. (NYSE: MRK) after its Schering-Plough deal all the way down to where drug companies become biotech companies: That is the billions and billions of dollars that may disappear from profits as key drug patents expire in the coming years. This is also affecting Roche and companies like Novartis AG (NYSE: NVS) and GlaxoSmithKline plc (NYSE: GSK) on an international basis, which is why you have seen them make their own partnerships and acquisitions where possible.
Pfizer is giving a pipeline update showing its own efforts to address a whole new class of potential blockbuster drugs in the years ahead. Today’s pipeline update from Pfizer is the first real update since the company close the acquisition of Wyeth back in October, 2009.
The new development pipeline has potential drugs from both legacy companies. Pfizer is noting that this includes 133 programs from phase 1 studies through pipeline candidates in the registration process.
Pfizer is also noting that it has identified its six “Invest to Win” areas of research where there exist significant opportunities for innovation and market leadership. The new pipeline demonstrates focused investment in these areas of significant unmet medical need as well as growth in the critical technologies of vaccines and biologics. The six arena are as follows:
- Alzheimer’s disease;
- and diabetes.
The combined Pfizer-Wyeth pipeline had 600 projects ranging from discovery through registration, and the new portfolio is roughly 500 projects. Pfizer’s goal is to become a top-tier biotherapeutics company by 2015, meaning effectively that it wants to take over some of the dominance currently held in several areas by pure-play biotech companies. Its pipeline now includes a total of 6 vaccines and 27 biologics in development.
Human Genome Sciences, Inc. (NASDAQ: HGSI) is down today after presenting data at the JPMorgan Healthcare conference today. Frankly, it was not really bad data. More important than just ‘another down day’ is that this price action would make for the fifth consecutive trading day on the heels of yesterday’s guidance.
Today’s drop is on the heels of yesterday’s ‘lower guidance’ ahead of key data presentations. Some may try to merely say that after a more than 1,000% return last year that today’s selling is now just because it is a leveraged market-play. Yesterday’s guidance was a disappointment, but if the guidance was really so bad then why was it only down less then 4% on the day? The real issue is that as of now, and for the near-term, is that ‘ongoing good news’ is not likely to be received as good news from the investment community.
First, let’s get yesterday’s news out of the way. The lower guidance on Monday morning ahead of the conference may have been somewhat taken out of context based upon headlines after an analyst downgrade from Goldman Sachs last week based upon valuation. The company noted that $163 million in revenue was recognized from the first 20,000 doses delivered to the Strategic National Stockpiles, but that was completed in April 2009. The company noted that approximately $151 million is expected from a second order for 45,000 doses to be delivered over three years. The company’s goal was for 15,000 doses this year, which has led some to believe that it won’t see an added ramp up in product revenues this year. The problem with this notion is that anthrax is deemed a minimal societal threat at this point, so it is an all or none. If there is a giant anthrax scare, then HGSI cleans up. The company noted, “Even with our expected ramp of investment in commercial build-out and pre-launch manufacturing, we expect to end 2010 with between $840 million and $890 million in cash and investments.”
Second, the ‘ongoing’ aspect above refers to its Benlysta drug application with the FDA as the first new treatment for lupus in more than a generation. The company’s summary was “First Drug for Lupus to Succeed in Phase 3 Trials; On Track for Second Quarter 2010 Submission of U.S. and European Marketing Applications; Potential U.S. Approval Fourth Quarter 2010″ and that offers actually very little for any ramped up instant FDA approval. In short, it is ongoing news. Some have been hoping for an approval of the drug in the earlier part of the first half or even the first quarter. Could this be delayed? Anything is possible out of the FDA.