2010 has been an interesting year for biotech and biohealth investors. While we have had far fewer of the ‘ten-bagger ambitions’ in 2010 with exponential gains, there have been many key winners. In the “$5 billion and over” category of market caps, Illumina Inc. (NASDAQ: ILMN) is the surprise winner of the biohealth players. In the $1 billion to to $5 billion category, we have several winners including shares of InterMune Inc. (NASDAQ: ITMN), Incyte Corporation (NASDAQ: INCY), Theravance Inc. (NASDAQ: THRX), and ViroPharma Inc. (NASDAQ: VPHM). We have taken a look at what has driven the gains as well as what the prospects are for 2011 and beyond.
Illumina Inc. (NASDAQ: ILMN) is sort of surprising in the $5 billion and higher category considering that it develops, manufactures, and markets integrated systems for the analysis of genetic variation and biological function. It is on the equipment and systems side of the biohealth equation. Still, it appears to be the preliminary winner in biohealth for companies in the $5 billion and higher market cap. At $63.50, shares have more than doubled from its 52-week low of $29.58 and shares are down only about 5% from the high of $66.59. After the performance, the market cap is now approaching $8 billion. Unfortunately, the consensus analyst target is currently around $60.00 per share. Thomson Reuters has analyst revenue projections of $888.03 million for all of 2010 and $1.08 billion for 2011.
And the $1 billion to $5 billion category of market capitalization rates for biohealth stocks…
InterMune Inc. (NASDAQ: ITMN) makes the grade as we were looking for those performing from recoveries, but the caveat here is that many hard losses were felt. At $38.35, its 52-week trading range is $8.34 to $49.46 and it closed out 2009 at $13.04 giving it roughly 200% gains year to date. Analysts have a consensus price target of $39.17. What is driving InterMune is the recent gains made from Esbriet (pirfenidone) with a recommended E.U. approval against Idiopathic Pulmonary Fibrosis. FULL COVERAGE
Incyte Corporation (NASDAQ: INCY) is a close call here with shares up almost 100% from the 52-week lows… With shares trading around $16.95 with nearly a $2.1 billion market cap, its 52-week trading range is $8.50 to $17.48. Incyte closed out 2009 at $9.11, so shares are up close to 75% for the year. The consensus analyst price target is just above $21.00, giving it the most remaining implied upside if you trust analysts. This was covered back at the start of the year as being one of several biohealth stocks having the most implied upside. Shares are up on positive late-stage human study results over its bone marrow cancer drug. Analysts from Thomson Reuters see $169.6 million for 2010 revenues and $107.7 million for 2011 revenues.
Theravance Inc. (NASDAQ: THRX) is currently around $26.75 with a $1.97 billion market cap and against a 52-week trading range of $9.62 to $28.84. The stock ended 2009 at $13.07, so shares are up right at 100% year to date. The average analyst price target is $25.83, so analysts see the stock being close to fully valued. This one is also a late-year runner and its gains have been tied to having raised $129 million from GlaxoSmithKline PLC (NYSE: GSK), a vote that its joint-development of Relovair as a new lung disease and asthma drug is going well. At issue here is that the revenue story is a ways off with Thomson Reuters seeing only $23.6 million in 2010 revenues and $29 million for 2011 revenues.
ViroPharma Inc. (NASDAQ: VPHM) is at $17.80 with a $1.4 billion market cap and a 52-week trading range of $8.18 to $18.37. Shares ended 2009 at $8.39, so shares are up over 100% for the year. The average analyst price target is almost $19.50, so some implied upside is still expected. Products include Cinryze for routine prophylaxis against angioedema attacks and Vancocin for treatment of antibiotic-associated pseudomembranous colitis caused by Clostridium difficile and enterocolitis caused by Staphylococcus aureus and MRSA strains. Thomson Reuters sees revenues for 2010 at $423.2 million and $344.4 million for 2011.
Stay tuned this week as we run all of the-bagger candidates whose shares have run up exponentially and which still have market capitalization rates of under $1 billion.
JON C. OGG
Gilead Sciences, Inc. (NASDAQ: GILD) terminated its ARTEMIS-IPF Phase III trial which was ongoing for its ambrisentan in patients with idiopathic pulmonary fibrosis. This is not one of those good halts. The trial was halted due to lack of efficacy.
This is potentially a huge win for InterMune Inc. (NASDAQ: ITMN). We recently noted the situation driving it up and called it a quest for ten-baggers after Europe’s EMA adopted a positive opinion that recommended granting marketing approval for its Esbriet (pirfenidone) in adults for treating mild to moderate idiopathic pulmonary fibrosis. That EMA decision was after the FDA in the United States rejected the drug despite a positive indication in a panel review.
Last week there was a come-along analyst call in InterMune from Wedbush calling for a $55 target due to this new unexpected development.
Sometimes smaller companies win on accident over their larger rivals. Gilead shares are down 1.1% at $35.95.
InterMune shares are up 1% at $36.70 versus a 52-week range of $8.34 to $49.46. It was just as recently as December 16 that InterMune shares were down at $14.27.
Long live the ten-baggers!
JON C. OGG
InterMune Inc. (NASDAQ: ITMN) was already known by many investors and was already a very volatile issue. With shares having nearly doubled on key drug news, InterMune is back on the map. You can almost hear the call for a ten-bagger alert from the year’s lows.
The stock is soaring on news out of Europe that the EMA adopted a positive opinion that actually recommends granting marketing approval for its Esbriet (pirfenidone) in adults. The indication is for treating mild to moderate idiopathic pulmonary fibrosis, a fatal lung disease. The FDA in the United States rejected the drug despite a positive indication in a panel review.
The benefits are a reduction in the rate of deterioration of lung function that is measured by a lower decline of what is called the “percent-predicted forced vital capacity.” Also shown was a benefit in the six-minute walking test.
Pulmonary fibrosis causes progressive scarring of lung tissue. As far as overall pulmonary fibrosis without getting into the various stages of the disease, the National Heart Lung and Blood Institute said that there is no cure and that many still live 3 years to 5 years after being diagnosed.
We wanted to know how many people have IPF… The Pulmonary Fibrosis Foundation notes, “There is a lack of newly published data to demonstrate an accurate estimate for the incidence of idiopathic pulmonary fibrosis in the United States. The most recent estimates indicate that approximately 128,000 Americans have IPF, although there are published estimates that suggest the number may be as high as 200,000. Varying terminology and lack of standard diagnostic criteria have complicated the accrual of accurate data.” That is a U.S. figure, and we have been looking for data on the E.U. and rest of world figures (to be updated soon).
A ten-bagger implies a rise of tenfold… 1,000%. It is rare to see such moves, but investors need to consider where InterMune has been. The 52-week trading range is $8.34 – 49.46 and yesterday’s close was $14.27. InterMune shares went from $15 to almost $50 from March to May of this year, but by June shares were sucking wind and were under $10.00.
InterMune came public in 2000 and shares hit above $50.00 and $55,00 in late-2000 and went above $50 again in late-2001 and early-2002. This might not quite fit the profile for a ten-bagger, but it all depends on how well the company can do ahead in its trials and bringing product to the market.
At 10:00 AM EST we have shares up 105% at $29.24 and we have already seen 8.3 million shares traded against an average daily volume of 940,000 shares. Even after the pop today, InterMune is still a small cap to mid-cap stock with a $1.64 billion market cap.
JON C. OGG
InterMune Inc. (NASDAQ: ITMN) is going to put the hurt on the biotech sector this week. Shares closed down 5.4% at $45.44 on fairly active trading. But then came a trading halt a few minutes before the market close for “NEWS PENDING.” The FDA just squashed it….
The FDA issued a complete response letter for its New Drug Application for Esbriet for the treatment of patients with idiopathic pulmonary fibrosis to reduce decline in lung function. A complete response letter by the FDA means a review is completed, but when there are one or more than one reasons precluding an approval:
- The FDA has requested an additional clinical trial to support the efficacy of Esbriet in IPF patients. InterMune intends to meet with the FDA as soon as possible to explore the best ways to address the points raised by the Agency and to discuss pathways to approval.
The Changing Landscape of Biotech Valuations (ACOR, CBST, MNKD, INCY, SGEN, ITMN, IPXL, MRX, SVNT, VPHM)
The biotech and biohealth universe is changing in size. In 2008 and 2009, partly due to mergers and partly due to market valuations, there had become a surprisingly small number of biotech stocks which had market capitalization rates of more than $1 billion. At one point there were only about 10 or 11 in our universe of biotech stocks that actually had market caps which were very far north of $1 billion, or at least out of the biotech stocks which followed at BioHealth Investor.
We have recently seen Acorda Therapeutics, Inc. (NASDAQ: ACOR), Cubist Pharmaceuticals Inc. (NASDAQ: CBST), MannKind Corporation (NASDAQ: MNKD), Incyte Corporation (NASDAQ: INCY), Seattle Genetics, Inc. (NASDAQ: SGEN), InterMune, Inc. (NASDAQ: ITMN), Impax Laboratories Inc. (NASDAQ: IPXL), and Medicis Pharmaceutical Corporation (NYSE: MRX) either get into or get back into the $1 billion market cap club. And then we have Savient Pharmaceuticals Inc. (NASDAQ: SVNT) and ViroPharma Incorporated (NASDAQ: VPHM) that have been in the club and are currently just short of it.
Due to waves of big emerging drug news and due to strong performance we now have 16 of the biotech and related stocks (at least of those which we cover as pure biotechs) which have market caps north of $2 billion. More importantly, the biotech news flow and he bull market has suddenly helped many stocks rise or at least get back above the $1 billion mark. Many of these had been there before, but the market has helped many new names get back above the $1 billion market capitalization level. And waves of mergers in the last two and three years sort of thinned out the group.
In these we did not take into consideration revenues, earnings, and not even cash. This has largely been news-driven and momentum-driven. Below is a review of each.
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
InterMune Inc. (NASDAQ: ITMN) has shown some very interesting options trading, and the trading looks to be a bet against all that huge volatility we have seen.
Joe Kunkle of OptionsHawk.com noted:
- ITMN with a 2,000X4,000X2,000 contract butterfly call spreads at the March $25/$30/$35 strikes. This trade bets on volatility to collapse, which will happen after the March 9th FDA meeting on it’s lung drug pirfenidone, given priority review for treating the chronic lung disease idiopathic pulmonary fibrosis, a disease impacting around 200,000 people in the US and Europe. Lazard Capital feels there is more than a 50% chance the drug gets approved, and has a $25 target for shares. However, the FDA may require post-approval studies for indications of effectiveness. It also sees shares doubling to $30 , currently trading at $15. The trade cost a debit of 50 cents, and offers profit from $25.50 to $34.50 in shares, with max profits at the $30 body strike, which offers around an 800% return. Implied volatility stands near 250% ahead of the event, and the straddle is pricing in around a 55% move in shares. Another large trade today was a buyer of 4,000 March $20 calls at the $2.55 offer. 20,996 calls and 3,348 puts have traded on the day, 8X average call volume.
It is just past noon and InterMune shares are down 4.1% at $14.70 on 975,000 shares. The 52-week range is $10.48 to $18.14 and the average stock volume is about 760,000 shares.
Just last week we saw comments from the company. Chairman and CEO Dan Welch noted, “Fourth quarter and recent events have been highlighted by the very important developments related to the regulatory progress of pirfenidone for the treatment of patients with idiopathic pulmonary fibrosis, or IPF. Our NDA for pirfenidone was granted Priority Review status on January 4, and is scheduled to be discussed at an FDA advisory committee meeting on March 9, 2010. If approved by the FDA, pirfenidone would be the first approved medicine for the approximately 100,000 Americans who suffer from this terrible disease. Regarding Europe, we currently expect to submit a Marketing Authorization Application (MAA) for pirfenidone in the European Union in the current quarter.”
JON C. OGG
We noted last week that there had been some extra options activity over in InterMune, Inc. (NASDAQ: ITMN) ahead of a date-review decision. Today saw excess trading in the stock, and explosive trading volume in both the put and call options as traders made their volatility bets for a binary trading event scheduled for March 9. The stock traded over 3.4 million shares versus 683,000 shares on average. The stock closed up 5.7% at $16.50 and the 52-week trading range is $10.48 to $19.12. We do not care about the FEB-2010 options as they are before the date, but MAR-2010 options expiration date is on March 19, 2010.
CALL Volume OpInt Last
15.00 1,755 5,074 $5.40
17.50 14,991 7,596 $4.50
20.00 8,065 2,863 $3.70
22.50 2,375 158 $3.00
PUT$ Volume OpInt Last
10.00 6,610 541 $1.85
12.50 1,745 1,101 $2.70
15.00 3,521 2,136 $4.00
We’ll save on the technical jargon, but the closest speculative volatility bet being long the closest CALL and PUT effectively puts this stock having to go above $27.00 or below $5.50… The combined premiums are roughly $9.50, up almost $5.50 from when we looked ta this last week. Keep in mind that those are major price changes from what was seen last week and those spreads should compress over the coming days…. barring any real new news.
Joe Kunkle of OptionsHawk.com pointed this one out last week and gave a brief heads-up alert on this one again.
Keep in mind that there is a huge discrepancy over analyst price targets as this is a battleground stock with many bears and many bulls on both sides of the fence. To show just how active the bets are for and against this one…. it had 6.425 million shares listed in the short interest based upon the settlement date of January 15, 2010.
The company announced this morning that the FDA Pulmonary-Allergy Drugs Advisory Committee (PADAC) is scheduled to discuss the company’s New Drug Application (NDA) for pirfenidone on March 9, 2010.
This covers InterMune’s investigational drug candidate for the treatment of patients with idiopathic pulmonary fibrosis, a uniformly fatal disease that affects about 100,000 Americans. More than 30,000 new cases are diagnosed annually. The company even noted that this has a higher mortality rate than colorectal cancer, breast cancer or prostate cancer, but noted that there are currently no approved medicines to treat IPF.
JON C. OGG
InterMune, Inc. (NASDAQ: ITMN) is up today despite the soft markets. This would actually make this the third day of gains in a row. The options trading continues to be very bullish, as shares gain 3% and implied volatility pops another 4% today. There is options trading building up here as well.
The Company recently raised cash through a 5 million share issuance. It’s key drug pirfenidone was granted fast track status at the FDA in early January, 6 month review period. It treats IPF, a fatal lung disease. Data is expected in the first from Phase2b studies of RG7227 plus SOC, for HCV.
Today there was a buyer of 2,500 March $17.50 calls at the offer on wide spreads, and now a 1,250 contract March $17.50/$15 bullish risk reversal trades for a 5 cent credit.
On Wednesday implied volatility spiked 16% higher and calls traded 3-times average with 3,000+, buyers in out-of-the-money March $17.50 and $20.00 calls. On the day 6,200 calls traded, 6X average. On a 50/95 bid-ask spread a trader bought more than 800 March $20 calls at 80 cents, 50% out of the money, extremely bullish. InterMune has a 12.6% short float, 9.8 days to cover. March implied volatility is 102% compared to Feb of 55%, while April is 155%, so traders are positioning for a catalyst.
Today call volume is approaching 6,000 once again.
Joe Kunkle, OptionsHawk.com
Bill Gates, Small Biotech's New Biggest Investor (ALTH, AMAG, RDEA, ARYX, AUXL, BMRN, ETRM, INCY, ITMN, MAPP, OREX, VRUS, REGN, SGEN, VRTX, XNPT)
Late yesterday came the 13-F quarterly filing from the Bill & Melinda Gates Foundation Trust. Bill and Melinda have invested in drugs and research before, as well as dug companies, but there was a slew of biotech stocks in their quarterly holdings. Some of these are cancer winners, while others may seem random. Below we have broken these out by company and size of the position in dollars (M for million; K for thousand) as well as the number of shares.
ALLOS THERAPEUTICS INC. (NASDAQ: ALTH) $3.090M; 500,000 shares
AMAG PHARMACEUTICALS INC. (NASDAQ: AMAG) $1.839M; 50,000 shares
ARDEA BIOSCIENCES INC. (NASDAQ: RDEA) $2.165M; 210,386 shares
ARYX THERAPEUTICS INC. (NASDAQ: ARYX) $1.635M; 480,799 shares
AUXILIUM PHARMACEUTICALS INC. (NASDAQ: AUXL) $2.062M; 74,400 shares
BIOMARIN PHARMACEUTICAL INC. (NASDAQ: BMRN) $1.295M; 104,856 shares
ENTEROMEDICS INC. (NASDAQ: ETRM) $81K; 59,700 shares
INCYTE CORP. (NASDAQ: INCY) $1.02M; 435,700 shares
INTERMUNE INC. (NASDAQ: ITMN) $1.807M; 109,900 shares
MAP PHARMACEUTICALS INC. (NASDAQ: MAPP) $98K; 46,524 shares
OREXIGEN THERAPEUTICS INC. (NASDAQ: OREX) $36K; 13,900 shares
PHARMASSET INC. (NASDAQ: VRUS) $821K; 83,641 shares
REGENERON PHARMACEUTICALS (NASDAQ: REGN) $492K; 35,500 shares
SEATTLE GENETICS INC. (NASDAQ: SGEN) $34.718M; 3,521,088 shares
VERTEX PHARMACEUTICALS INC. (NASDAQ: VRTX) $2.729M; 95,000 shares
XENOPORT INC. (NASDAQ: XNPT) $2.517M; 130,000 shares