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
Is VIVUS Inc. (NASDAQ: VVUS) the next stock that could double in emerging pharma and biotech? It depends upon whom you ask. The stock was started as “Buy” at Wedbush with an price target of $20.00 per share. This follows a long line of positive research initiations from last year and this year, but $20.00 is now the highest target we see from the recognized research outfits in Thomson Reuters. The prior highest target was $18.50, and the average target was roughly $14.00.
Wedbush’s note calls VIVUS as being one of the most attractive in the mid-cap biotech space. The firm noted that the $775 million market cap is well below what it should be and could be for a drug that addresses such a large and virtually unmet need of treatment. The company also still holds all of its own rights, and we’d throw in the note that this puts it among the potential pool of biotech acquisition candidates out there.
After Amgen Inc. (NASDAQ: AMGN) and Sonofi-Aventis (NYSE: SNY) are both reportedly out looking for target acquisitions, it is hard to leave VIVUS entirely off the list of potential buys. The issue is that the FDA decision is still pending.
Dendreon Corp. (NASDAQ: DNDN) is holding up rather well considering that competition from its prostate cancer drug market may be higher than before. The FDA has approved a competing product called Jevtana (cabazitaxel) from Sanofi-Aventis (NYSE: SNY).
Jevtana is a chemotherapy drug used in combination with the steroid prednisone to treat men with prostate cancer. The release from the FDA noted that Jevtana is the first treatment for advanced, hormone-refractory, prostate cancer that has worsened during or after treatment with docetaxel, a commonly used drug for advanced prostate cancer.
The approval came after a priority drug review and before the September 30, 2010 deadline.
Jevtana’s safety and effectiveness was established in a 755-patient study and all had previously received docetaxel. The study was designed to measure overall survival in men who received Jevtana in combination with prednisone compared with those who received the chemotherapy drug, mitoxantrone, in combination with prednisone. The median overall survival for patients receiving the Jevtana regimen was 15.1 months compared with 12.7 months for those who received the mitoxantrone regimen. You can see the updated Dendreon survival data on PROVENGE here.
PROVENGE from Dendreon is designed to stimulate a patient’s immune system, using a patient’s immune cells to a protein that functions as a prostate cancer-associated antigen, to target prostate cancer cells.
The thing to consider here is rather simple for now. Dendreon’s PROVENGE is not as simple (none really are) but the demand is far greater for PROVENGE today than what can be delivered. The centers who participated in the Dendreon studies are getting first call for this, and based upon two separate discussions with personal contacts with family members who have prostate cancer it is being issued effectively on a lottery basis right now. Dendreon is in the process of manufacturing more facilities and it has secured more supplies to assist it in making more and more PROVENGE treatments.
Dendreon closed at $40.59 earlier this week and the shares were at $39.57 the day before this Jevtana was approved. Dendreon closed at $38.46 yesterday and shares are down less than 0.2% today at $38.40. Is this competition in the classical sense of competition? Yes, of course? Will it likely have any impact at all on any demand for PROVENGE over the ramp-up time of the next 18 to 24 months? Absolutely not. Even if some decide to go for Javtana right now and pull their name from the PROVENGE waiting list, there are many many patients who will step in to fill their slot.
JON C. OGG
There is a new weapon in the war on insomnia, and one which does not appear to have the drug dependence and the nasty side-effects associated with many other sleep aids. Somaxon Pharmaceuticals, Inc. (NASDAQ: SOMX) announced this morning that the FDA has approved the New Drug Application for Silenor as a treatment of insomnia characterized by difficulty with sleep maintenance. Somaxon calls this the “First and Only Prescription Sleep Aid to Provide a Full Night’s Sleep Without Abuse Potential.”
The company said it will focus on seeking a U.S. commercial partnership and will then build a U.S. commercial presence and will prepare to launch Silenor in the second half of 2010.
Silenor binds with high affinity to histamine (H1) receptors, which is believed to be the mechanism to promote the maintenance of sleep. The company noted that this mechanism of action is different from any other prescription medication currently approved for the treatment of insomnia.
- Sanofi Aventis (NYSE: SNY) makes Ambien. Drugs.com noted that Ambien CR was the #43 drug with sales of $865 million. Sepracor Inc. makes LUNESTA, but this company has been acquired. Drugs.com notes that in 2008 Lunesta was the #47 drug with $771 million in sales.
- Sleep maintenance difficulty is defined as waking frequently during the night and/or waking too early and being unable to return to sleep. The company noted that this is the most commonly reported nighttime symptom of insomnia.
Teva Pharmaceutical Industries Limited (NASDAQ: TEVA) is slowly becoming one of the biggest drug makers in the world. This morning the company is up on the news that it won the bidding process to acquire German generic drug maker Ratiopharm GmbH. The price tag: 3.6 billion Euros, or about $5 billion today in a cash and debt deal. Had this been 2009, the price tag would have been closer to $6 billion in the Euro currency.
Ratiopharm is a top generic drug maker in Germany and Pfizer Inc. (NYSE: PFE) was supposed to be one of the other bidders as it has not frowned upon having generic drugs of its own. Ratiopharm had about 750 drugs and a solid pipeline.
Teva is now one of the top drug companies in the world with most operational sales in North America and in Europe. Teva’s last big transaction was Barr Pharmaceuticals Inc. for about $7.46 billion. The company said this deal will allow growth in Germany, as well as higher growth markets in Spain, Italy and France.
Usually companies buying other companies suffer a drop on dilution concerns. Not Teva. Shares are up 4% after the open and the $62.58 price hit today was not just a 52-week high. That marks an all-time high. Its $55 billion market cap is still far from the mega-cap status of the $100 billion mark. But there are only a handful of companies there at that level of a mega-cap status. Pfizer Inc. (NYSE: PFE), Novartis AG (NYSE: NVS), Merck & Co. Inc. (NYSE: MRK) and Sanofi-Aventis (NYSE: SNY) are all among those which have a $100 billion market cap and higher.
The last date you have to go back to see a TEVA stock double is December 2006 when the stock was just under $30.00. Calling for stocks to double yet again is tricky and that is not quite our intent here. But if the company continues to make acquisitions, the market cap can get there without the stock needing to double.
Teva has shown that it likes to do deals. Analysts are looking for 10% organic earnings growth ahead as the Thomson Reuters estimate for 2010 is $4.55 EPS versus $5.04 EPS in 2011. That is not considering the effects of this merger, and the deal is expected to close late this year.
As far as other top drug companies, here is how Teva’s $55 billion market cap compares:
- Pfizer Inc. (NYSE: PFE) $138.9B
- Novartis AG (NYSE: NVS) $124.7B
- Merck & Co. Inc. (NYSE: MRK) $118.6B
- Sanofi-Aventis (NYSE: SNY) $101.6B
- GlaxoSmithKline plc (NYSE: GSK) $95.9B
- Abbott Laboratories (NYSE: ABT) $84.6B
- AstraZeneca plc (NYSE: AZN) $64.9B
- Bristol-Myers Squibb Company (NYSE: BMY) $44.5B
- Eli Lilly & Co. (NYSE: LLY) $39.8B
JON C. OGG
Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK-A) is still a holder of some drug companies and medical devices companies. Here are the Berkshire Hathaway biohealth positions as of September 30, 2009:
- Becton Dickinson & Co. (NYSE: BDX) 1.2 million shares, same as last quarter.
- GlaxoSmithkline (NYSE: GSK) 1.51 million shares, same as before.
- Johnson & Johnson (NYSE: JNJ) was just over 36.91 million shares; Same as last quarter and still well under the 62 million shares at one point in 2008… probably held more as a consumer goods rather than for medical device and drug exposure.
- Sanofi Aventis (NYSE: SNY) more than 3.9 million shares, same as before.
Warren Buffett’s newest full stock holdings in Berkshire Hathaway Inc. (NYSE: BRK-A) are available here.
JON C. OGG
As far as whether a deal is really imminent for Dendreon Corp. (NASDAQ: DNDN) in this rumored buyout is coming is still a topic up for debate. We still have a Caveat Emptor flag here, but the trading in this name is just too hard to not notice now that the stock price and market cap is getting so high.
We saw a greater than 10% gain on Monday to where it closed at the highest closing of the year at $27.43. Of course it sold off, but throughout the day Dendreon shares have climbed and the stock is now up 9% at $29.23 on well above average volume.
We have seen over 30,000 options contracts trade hands for the September Calls alone against almost no Put volume. That is over 3 million shares on a fully leveraged basis. What is so interesting is that these options are all set to expire in just over 48 hours. If no deal is announced or leaked out early Friday, then those will all expire as worthless if out-of-the-money or at the intrinsic value if they are in-the-money. So again, this suggests that something is imminent if you only watch stock options.
Again, Sanofi-Aventis (NYSE: SNY) is the most widely thrown out name as a European buyer that can get companies on sale in the U.S. over a weak US Dollar. But Roche (RHHBY) for its Genentech unit and AstraZeneca plc (NYSE: AZN) have been pondered before.
PROVENGE is believed to be getting FDA approval, but this is still not a formally approved event. Roche already took that chance on Genentech ahead of a key independent study ahead of the panel releasing data that was shocking as Avastin turned out to not be good at using in patients with the aim of maintenance or future cancer prevention. The market cap here is now $3.3 billion, and the price is getting to be in the realm of gambling when considering the FDA-risk that is inherent in any pre-revenue stock in the biotech realm. And any merger has to come at a premium to get shareholder approval.
JON C. OGG
We have been digging into ‘rumors’ of a Dendreon Corp. (NASDAQ: DNDN) buyout. We would stress that Dendreon has been the subject of rumors before as both a partnership or stake-taken deal, and sometimes as merger-buyout bait, several times in the past. As with all rumors and with all ‘hope’ trades like this, Caveat Emptor!
That being said, the stock volume is exponential, but the most impressive activity is in the SEPT-2009 call options. The reason this is of such notice is because the September options expiration date is only four short days out, meaning that the bets for or against a deal would suggest an “imminent” timing if it was accurate.
We noticed a blurb out there today noting that Sanofi-Aventis (NYSE: SNY) was the likely party…IF… the rumor is correct. In the past we have also heard of Roche/Genentech as a potential rumored buyer. One name also thrown out as an acquirer of small to mid-cap biotech companies is AstraZeneca plc (NYSE: AZN). To date, all such rumors have been unfounded and never materialized. We would also note that with shares up above $26.50, they are also back very close to the old intra-day high of $27.40. The old high closing levels were $26.08 on June 19… On April 29 this hit the $27.40 intra-day high but the close was $22.94; and the last day this hit $27.00 was June 7, but it closed at $25.74.
The biggest hurdle to date is that a buyer would be forced to pony-up much more cash than today’s price. The buyer is also taking a big FDA event-risk as PROVENGE is still ‘believed to be approvable’ and has not received FDA approval as a last line of defense for men with advanced prostate cancer. Roche took that risk with Genentech, and while everyone believed that the endpoint was likely it turned out to not be the case.
Anything is of course possible in the land of the biotech rumor-mill. Again, Caveat Emptor!
JON C. OGG
Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK-A) still holds healthcare and medical and drug related companies in the Berkshire Hathaway portfolio. Of these, some are health insurance, two are drug, one is a medical and consumer products conglomerate, and one is medical products. Any changes in the position notes are during Q2 for the period ending June 30, 2009 and are compared to Q1.
Buffett’s got some drugs. Sanofi Aventis (NYSE: SNY) is more than 3.9 million shares, which looks same as Q1. He holds GlaxoSmithkline (NYSE: GSK) as 1.51 million shares, also the same as before.
Johnson & Johnson (NYSE: JNJ) is one we think Buffett holds for its consumer products mostly, but he has grown his stake here to rival what it once was. The new holdings are about 32.5 million. This is above the prior 28.6 million shares from Q1 but still way down from the 62 million last year.
Becton Dickinson & Co. (NYSE: BDX) appears to be a new holding over last quarter according to our records. Berkshire holds 1.2 million shares, even though the Fed Filing listed this one as “Beckton Dickson” in the filing. B&D is a medical technology company that develops, manufactures, and sells medical supplies, devices, laboratory equipment, and diagnostic products.
Buffett still has some health insurance operators, although he has lightened up here from a quarter ago. Wellpoint Inc. (NYSE: WLP) is 3.5 million, which is down from the 4.7773 million shares in Q1. United Health Group (NYSE: UNH) was listed as 4.5 million, down from over 6 million in Q1.
Since Buffett is getting closer and closer to 80 years old, he’s probably getting more interested in various aspects of healthcare as each day passes.
JON C. OGG
AUGUST 14, 2009