More problems for those suffering from lupus! The FDA has decided to delay its review of the proposed lupus treatment BENLYSTA. Human Genome Sciences, Inc. (NASDAQ: HGSI) and GlaxoSmithKline PLC (NYSE: GSK) announced after the close of trading today that the FDA has extended the Prescription Drug User Fee Act target date for its priority review of the Biologics License Application (BLA) for BENLYSTA.
The review extension just went from December 9, 2010 all the way out to March 10, 2011. The companies noted, “After the FDA Arthritis Advisory Committee met on November 16, 2010 to consider the BENLYSTA BLA, the FDA requested some additional information from HGS, which has been submitted.
BENLYSTA is an investigational drug and the first in a new class of drugs called BLyS-specific inhibitors. The drug is under a co-development and co-commercialization agreement that the companies entered into in 2006. This would be the first new lupus treatment in roughly 50 years if the FDA approves the drug.
We have reviewed the FDA’s request and looked at the side effects that are part of the concern. Our own take is that the FDA will approve BENLYSTA and make it have either Black Box warnings or make the companies make all sorts of disclosures. The problem is that with each new delay comes a new round of questioning your own judgment.
Predicting FDA action is often more than difficult. Sometimes the FDA does things that just don’t make sense, and sometimes it is accused of being very conflicted in its decisions. Others argue that it is far too conservative in approvals.
Human Genome Sciences closed up 2.4% at $25.60 and its shares are down 3.9% at $24.60 in the after-hours session. The 52-week trading range is $20.56 to $34.49.
The plot thickens, yet again.
JON C. OGG
Human Genome Sciences Inc. (NASDAQ: HGSI) has some vindication for its BENLYSTA as a treatment for lupus. The company announced that it and partner GlaxoSmithkline plc (NYSE: GSK) received FDA panel backing from the Arthritis Advisory Committee.
The company noted that a vote tally of 13 approval recommendations was above the 2 that recommended against approval. The FDA does not always follow its panel recommendations, but generally it does and a wide vote like this makes the winds favor an approval over a blockage. If approved as a treatment for autoantibody-positive patients with active systemic lupus erythematosus, this would mark the first treatment in about two generations.
The FDA’s committee is convened to provide the FDA with independent expert advice on a broad range of issues related to rheumatology drug products, and these are non-binding recommendations. The decision on final FDA approval of BENLYSTA a Prescription Drug User Fee Act was given a target date of December 9, 2010.
Human Genome Sciences and GlaxoSmithKline are developing BENLYSTA under a definitive co-development and co-commercialization agreement which was entered into back in 2006. The two companies will share equally in Phase 3/4 development costs, sales and marketing expenses, and profits of any product commercialized under the current agreement.
Cautious FDA comments over the safety and efficacy had recently caused a stir and had put pressure on the shares. Over the weekend we issued a note that despite the concerns voiced, FDA approval seemed very likely here for BENLYSTA because the incidence of side-effects seemed low and it also is hard to know if those suicides had anything to do with the drug. Human Genome Sciences had been at $25.88, and in the post-halt trading the stock is up 9% at $28.28.
The ultimate proof in the pudding will come from the FDA formal decision. The FDA itself does not always follow the panel recommendations. Still, our bet is that Human Genome Sciences wins FDA approval.
The big question now is rather simple… Will takeover chatter return when it comes to Human Genome Sciences? The issue in saying that M&A is likely is that the market cap is almost $5 billion even before the effect of the after-hours pop. To top that off, this one has traded north of $34.00 and the company would likely need a high premium to secure shareholder backing. Anything is possible in the world of M&A, but a split here on the costs and the expenses for a split of the profits may have been a cheaper way to acquire the company than a buyout.
Human Genome Sciences was briefly a $1.00 stock. Then it began its monumental climb. For a company to justify acquiring the company at a major premium now, management of the acquirer might have to do some deep explaining to shareholders who wonder why a chance was not taken before the market cap got too high here.
FDA approval seems close to a certainty. A buyout does not seem so certain here.
JON C. OGG
Two key biotechs had a rough day on Friday and these issues will be key to focus on in the coming days. Genzyme Corporation (NASDAQ: GENZ) is showing some very concerning trends, and the first Lupus drug in two generations from Human Genome Sciences Inc. (NYSE: HGSI) may now have some safety concerns. We wanted to take a look at the action in each and offer some outlook and color for further review.
We have previous noted how and why Genzyme Corporation (NASDAQ: GENZ) may be the entire pivot point for the biotech sector in 2011. We conducted an options analysis on Friday evening and have found not just that there was unusual options trading in the company. The options trading reveals that traders are betting on a breakdown in the Sanofi-Aventis (NYSE: SNY) merger and/or that no new bidders will emerge by Christmas.
Genzyme’s stock closed down 0.46% at $69.84 on Friday. This might not seem much on the surface, but this close is now under $70 and that means a dimmer hope of a deal premium above the $69.00 already on the table. Shares had traded under $70 on an intra-day basis since Wednesday, but the low was Friday at $69.51. The $69.84 close is actually the lowest close since going all the way back to the end of August.
Human Genome Sciences Inc. (NYSE: HGSI) is seeing a further breakdown on its Benlysta lupus drug hopes. The stock had a very rough day Friday after the FDA has raised questions about its Lupus drug over safety issues. Shares closed down 10.88% on Friday at $23.60 on 17 million shares.
HGSI’s safety concerns are on mortality rates, questions about three suicides, and on an issue of how the drug may not perform in African Americans well. There was very heavy options trading taking place in HGSI on Friday. At $23.60, its 52-week range is $20.56 to $34.49.
Genzyme is a special situation and it may literally be holding up the entire biotech sector. As far as Human Genome Sciences, our interpretation has been that Benlysta will get FDA approval as there have been no new true lupus treatments in close to a half-century. Our belief has been that a significant improvement in their disease would trump these safety issues.
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
Pharma-Biotech Major Research Alerts (TEVA, AMGN, ACOR, CELG, HGSI, BIIB, GILD, EXAS, ZGEN, DYAX, IDXX, VPHM)
Biotech and pharma research calls from Wall Street research firms have come out of the wood work this Thursday.
Teva Pharmaceutical Industries Limited (NASDAQ: TEVA) is one of our recent “Defensive Stocks for the Next Bear Market” picks based upon valuation. This morning Oppenheimer raised the rating to OUTPERFORM on hope and expectations that it will see a big boost in the second half from its Effexor sales.
STIFEL NICOLAUS started many key biotech stocks with coverage this morning:
- Amgen Inc. (NASDAQ: AMGN) and Acorda Therapeutics, Inc. (NASDAQ: ACOR) and Celgene Corporation (NASDAQ: CELG) and Human Genome Sciences Inc. (NASDAQ: HGSI) were all started with BUY ratings;
- Biogen Idec Inc. (NASDAQ: BIIB) at SELL;
- Gilead Sciences Inc. (NASDAQ: GILD) at HOLD.
EXACT Sciences Corp. (NASDAQ: EXAS), a molecular diagnostics company focused on the early detection and prevention of colorectal cancer, is soaring by 13% after being started with new coverage as a Buy rating by Jefferies ahead of next week’s presentations at the Rodman & Renshaw 12th Annual Healthcare Conference and at the Baird’s 2010 Health Care Conference.
ZymoGenetics Inc. (NASDAQ: ZGEN) was hit with a cut to Neutral at UBS, but that is because of the Bristol-Myers Squibb buyout.
Dyax Corp. (NASDAQ: DYAX) and IDEXX Laboratories, Inc. (NASDAQ: IDXX) were both started as MARKET PERFORM and ViroPharma Inc. (NASDAQ: VPHM) as OUTPERFORM at Leerink Swann.
JON C. OGG
Everyone is looking for the next or the next to the next biotech and BioHealth merger candidate. Just a day after being worried about major financial losses all over again…. Morningstar has listed this week three of its favorite buyout targets in biotech from its pool of large pharmaceuticals, devices, instruments, and services companies.
Those are Auxilium Pharmaceuticals Inc. (NASDAQ: AUXL), Human Genome Sciences Inc. (NASDAQ: HGSI), and Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX). While we have a brief synopsis here in the image from Morningstar, the full article goes into more detail.
Of the three merger candidates here, Human Genome Sciences (HGSI) seems the biggest risk because its shares could have been acquired for far cheaper when it was weak and chasing it now would perhaps only make sense for its existing drup partner companies.
JON C. OGG
We have now seen the changes in short selling in biotech stocks via the Mid-March short interest report from NASDAQ. This marks the changes seen at the March 15, 2010 settlement date versus a prior February 26 settlement date. We took a look at Amgen Inc. (NASDAQ: AMGN), Biogen Idec Inc. (NASDAQ: BIIB), Gilead Sciences Inc. (NASDAQ: GILD), Celgene Corporation (NASDAQ: CELG), Genzyme Corp. (NASDAQ: GENZ), Geron Corporation (NASDAQ: GERN), Dendreon Corp. (NASDAQ: DNDN), Human Genome Sciences Inc. (NASDAQ: HGSI), and Amylin Pharmaceuticals, Inc. (NASDAQ: AMLN). We even included the wild Cell Therapeutics, Inc. (NASDAQ: CTIC) to see what the shorts were betting on there.
There were some rather large changes both up and down. Again, the change reflects the March 15 settlement date versus a prior date of February 26:
After today’s hostile Astellas offer for OSI Pharmaceuticals (NASDAQ: OSIP), we have investors and traders alike looking for ‘the next takeover target’ in biotech. Buy now you know that there are many pitfalls in simply looking for biotech stocks to buy because they will be taken over. We have taken a look through our own recent stocks noted as takeover candidates and even gone through some sites of our partners looking through potential takeover candidates in the space.
Morningstar just last week had a short video with some key potential buyout targets in the biotech space. It noted Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX), Auxilium Pharmaceuticals Inc. (NASDAQ: AUXL), and InterMune Inc. (NASDAQ: ITMN). Those are all names that have come up as takeout targets before.
But two that are on Morningstar’s list for buyouts are Human Genome Sciences Inc. (NASDAQ: HGSI) and Celgene Corporation (NASDAQ: CELG) for its REVLIMID franchise. The problem with Human Genome is that it is in the same boat we have addressed on multiple occasions: its size got away from the potential realm of buyers. And Celgene has just become too big at a $28 billion market cap for most potential buyers to consider it and the sales growth from $2.689 billion in 2009 is expected to go to $3.26 billion in 2010 and $3.75 billion in 2011 per Thomson Reuters estimates.
After looking around elsewhere, we went back to some Dendreon Corp. (NASDAQ: DNDN) rumors from last month we covered. This was based somewhat on options trading, and we think this company may have to wait for a suitor. Taking the risk of buying the company out before the FDA approves PROVENGE for advanced prostate cancer is something companies are seeming to shy away from.
Enzon Pharmaceuticals, Inc. (NASDAQ: ENZN) is another name that comes up routinely in the rumor mill. We noted this one hitting 52-week highs in January on fresh rumors.
Facet Biotech Corporation (NASDAQ: FACT) has also fought off attempts from Biogen Idec (NASDAQ: BIIB) as a new add-on for its MS franchise. Biogen has been rebuffed and it supposedly will not have an interest anymore.
ETF investors are chasing up names in the sector as well. PowerShares Dynamic Biotech & Genome (NYSE: PBE) is up 4% at $18.48 and the SPDR S&P Biotech (NYSE: XBI) is up 4.7% at $58.98.
Jon C. Ogg
We have seen two very key biotech analyst calls this morning, and shares of both are responding. Dendreon Corp. (NASDAQ: DNDN) and Human Genome Sciences (NASDAQ: HGSI) were both given positive brokerage initiations this morning.
Dendreon Corp. (NASDAQ: DNDN) is seeing gains this morning after the stock was started as “Overweight” and $46 target at JPMorgan. The call is based upon a belief that PROVENGE will be approved for advanced prostate cancer. This is actually not the highest price target as a $50 target does already exist, but this implies a 42% upside to the target price versus the $32.36 closing bell price on Friday. Shares are up 2.6% before the open on this call.
Human Genome Sciences (NASDAQ: HGSI) was resumed at “Buy” with a $35 price target at BofA/Merrill Lynch. The belief here is that its Lupus drug BENLYSTA will be approved and a focus on its other franchises with more room for upside. The $35 price target implies upside of about 18.6% to Friday’s closing price of $29.47. The 52-week trading range was $0.45 to $32.07. Shares are only indicated up so 0.5% this morning before the open.
JON C. OGG