Teva Pharmaceutical Industries Limited (NASDAQ: TEVA) is not exactly one of the first companies we would think of as offering a bond issue, and it might normally lead us to think that Teva was on the verge of making another acquisition. The company is raising debt capital but it does not seem to be signaling any imminent deal is coming.
The company’s finance unit is selling some $750 million with fixed and floating rates. The floating tranche is said to be $500 million expected at about 50 basis points over LIBOR and the $250 million fixed piece had price talk of 70 to 75 basis points above Treasuries.
This appears to be debt that can be used to refinance other debt coming due without tapping into the cash coffers. The official use is “for general corporate purposes.”
Teva was already carrying $4.331 billion in long-term debt and carried more than $2 billion between ‘other liabilities’ and deferred long-term liability charges. The company’s market cap is now back down to $42.7 billion now that shares are this far off its 52-week high. With shares down 1.9% at $47.53 today, Teva’s 52-week trading range is $46.99 to $64.95
JON C. OGG
M&A Bonanza For Drug & Biotech in 2011 (MRK, PFE, ALXN, DNDN, HGSI, CEPH, UTHR, CADX, AMAG, SNY, GENZ, AMGN, BEC, TEVA, SGMO, LLY, ALTH, CBST, VVUS, AUXL, VRTX)
The game of predicting mergers and acquisitions in the biotech and in pharma sectors is not a new one. The talk heats up, then it dies down. A deal comes, followed by another deal, and the activity goes quiet. This next week is likely to have at least more chatter in the biohealth sector for possible mergers and acquisitions after Barron’s gave a cover story called “The New Doctor in the House: Consolidation.”
Barron’s noted that “as big drug firms buy up smaller, specialty outfits and their most innovative products, better pipelines and sales-force efficiency will boost profits.” Here is the thing to consider: Barron’s did not really offer anything new or ground-breaking this weekend. It will have rekindled some hope that M&A is coming in the space. At issue: pipeline fatigue. A note we’d throw in as well, dead-dead stocks. We are going to at least address some of the Barron’s roster, but we want to show you many others which are just as or even more likely acquisition targets. Some of ours have even been in-play before.
Barron’s threw in Merck & Co. (NYSE: MRK) and Pfizer, Inc. (NYSE: PFE) as the largest of the Big Pharma players and it threw out biohealth names with stock-market values below $10 billion:
- Alexion Pharmaceuticals, Inc. (NASDAQ: ALXN) with a $7.5 billion value after a hueg run-up;
- Dendreon Corporation (NASDAQ: DNDN) for Provenge for prostate cancer (and future cancers) with a $5 billion market value today;
- Human Genome Sciences, Inc. (NASDAQ: HGSI) for its Benlysta in patients with severe active lupus nephritis and CNS lupus and a $4.5 billion market cap;
- Cephalon, Inc. (NASDAQ: CEPH) is one we have rarely looked as since things quieted down there;
- United Therapeutics Corporation (NASDAQ: UTHR) for its treat pulmonary arterial hypertension and an almost-$4 billion value;
- Cadence Pharmaceuticals Inc. (NASDAQ: CADX) was noted for its pain medication without the addiction aspects of morphine and its value is only $369 million;
- AMAG Pharmaceuticals, Inc. (NASDAQ: AMAG) was called a value stock despite its recent weak sales and despite its cash burn with a $368 million market cap.
Much of the biotech M&A game hinges on Sanofi-Aventis (NYSE: SNY) in its chase to acquire Genzyme Corporation (NASDAQ: GENZ). The latest talk is that a work-out could come to $80 all-in if certain milestones were achieved but the deal is still south of there officially. As noted above, we have our own opinions on which biotech companies and drug companies could find their way into the hands of a larger acquirer.
Amgen Inc. (NASDAQ: AMGN) is likely to continue being an acquirer. The company recently announced a deal worth potentially $1 billion to acquire privately-held BioVex. Last year the company said it was aggressively looking for new targets and its $52 billion market cap is the largest of all the independent biotechs in America. The company has more tricks up its sleeve.
Beckman Coulter Inc. (NYSE: BEC) went into play in early December with private equity firms being the likely acquirers of the portfolio of biomedical testing equipment and supplies. We argued at the time of the premium that it seemed shares fully reflected that value, and shares are actually lower now.
And don’t forget Sangamo Biosciences Inc. (NASDAQ: SGMO), where shares rallied in November on rumors of a potential bid interest from Eli Lilly & Co. (NYSE: LLY). It had good news on ZFP Therapeutic program to develop SB-509, a zinc finger protein transcriptional activator (ZFP-TF) of the vascular endothelial growth factor (VEGF)-A gene as a treatment for ALS and the news flow has continued to propel shares higher. It went above $4.50 on the rumors but now shares trade at $7.39. The market cap is still low here at $334 million.
Allos Therapeutics, Inc. (NASDAQ: ALTH) has been another name floated out there for M&A possibilities, but things are looking less and less bright for the company. Shares hit a 52-week low just on Friday.
Cubist Pharmaceuticals Inc. (NASDAQ: CBST) has not really gone anywhere as it is deemed a mature company, but it is one we thought for sure that would find its way into being part of a larger company. Its Cubicin is on the market and it fights severe hospital-induced infections and the market cap is $1.3 billion here.
VIVUS Inc. (NASDAQ: VVUS) remains a wild card due to the FDA. Diet and weight-loss pills have not been given any real love by the FDA. The exception here is that Qnexa does have serious benefits. There are side effects, particularly in cases of pregnancy. We would ask this though: How many pregnant and soon-to-be-pregnant women really diet? Most doctors don’t even want pregnant women taking supplements, let alone drugs. IF the FDA approves Qnexa, that $680 million market cap may be worth far more.
Teva Pharmaceutical Industries Limited (NASDAQ: TEVA)… We have also noted Teva’s mega-cap ambitions, and making more acquisitions would generally get there.
Last year, Morningstar put out a list of three favorites that it sees as acquisition targets in the biohealth space: Auxilium Pharmaceuticals Inc. (NASDAQ: AUXL), Human Genome Sciences Inc. (NASDAQ: HGSI), and Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX). FULL ARTICLE
This should at least give you a better and more concise list of possible deals and deal-makers for 2011. Just remember this, regardless of what Barron’s or other media outlets try to tell you: not all biotechs have to be acquired, not at all.
JON C. OGG
Amgen Inc. (NASDAQ: AMGN) has seen some unusual options trading and it appears to be based around some upcoming FDA events and on its trends.
Joe Kunkle of OptionsHawk.com noted, “The January $52.50/$47.50 ratio put spread for 3,500X7,000 at $0.95 was an opening trade on September 30 after checking the open interest, and a bearish one with shares at $55.20. Shares of the Biotech giant trade 10.22X earnings, 3.5X sales, and 9.2X cash flow, but have generally underperformed despite the valuation, and have now rallied more than 8% off lows to resistance at $56.50, already rolling over below the 200 day EMA.”
We recently noted how the upcoming reviews could offer Amgen a “Genetech-like Drug Arsenal” if the approvals were met and if the tests go positive.
Kunkle also noted, “As the third attempt at a breakout of the triangle has failed the chances for shares to return to the lower support around $51 are high, and potentially break lower, with this trade looking for a move to $47.50. Earnings are scheduled for October 29th. Stifel started shares a Buy with a $68 target on September 9. Teva Pharmaceutical Industries Limited (NASDAQ: TEVA) is seeking a generic version of Amgen’s Neupogen, a $225M revenue drug, but that has been delayed by the FDA. On October 18th the Cardiovascular and Renal Drugs Advisory Committe will meet to discuss risks and benefits of erythopoeisis-stimulating agents, which could scrutinize Amgen’s Aranesp. Positive news came recently for Amgen, with early studies showing it’s osteoporosis drug may be useful in blocking breast tumors. Amgen also recently recalled certain lots of Epogen, for the treatment of anemia in HIV therapy, a major revenue maker with $2.6B in sales in 2009. The biggest upcoming catalyst is November 18th, when the FDA will weight Prolia for bone complications in cancer patients, previously approved for osteoporosis, but Amgen is seeking further approvals for various cancers.”
OptionsHawk concluded, “As you can see there are a lot of potential hurdles ahead for Amgen, and option traders are positioning for shares to head lower.”
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
According to Reuters, Eli Lilly & Co. (NYSE: LLY) won a major battle against Teva Pharmaceutical Industries Limited (NASDAQ: TEVA), which had been petitioning for a generic version of Lilly’s drug, Evista. The court upheld the patent on Evista, which is used to treat Osteoporosis.
-Michael B. Sauter
This week we started compiling a list of safe stocks for a new bear market, and Teva Pharmaceutical Industries Limited (NASDAQ: TEVA) came up in our screens. We ran the piece during this morning there, and unfortunately the slide continued on Friday.
For starters, these are of course very long term in nature. Pharmaceutical stocks have historically offered safe havens during harder times due to the nature of your life depending upon them. Healthcare reform is changing that and many drug stocks have been dead money for quite some time.
Teva does have a disadvantage over some of the other large-cap pharma stocks. Its dividend is low. It is also based in Israel, but most of its revenue comes from North America. The latest quarter’s North America revenues rose 17% to $2.48 billion out of $3.8 billion in revenues. The company also just closed on its RatioPharm deal for $5 billion.
Despite beating earnings expectations, shares remain weak. After a 1.2% close on Friday at $49.97, Teva is relatively close to its 52-week low as the range is $46.99 to $64.95. The thought of getting a shot of owning Teva after a 23% sell-off is enticing.
Here was our note on “Safe stocks in a new bear market”:
The drug and pharmaceutical sector has been a defensive sector in the past, but that has been less of a case with healthcare reform coming. Generics offer some safety in a stormy sea, and no company has been better than Teva Pharmaceutical Industries Limited (NASDAQ: TEVA) in the group. Teva is actually based in Israel, it has been making selective acquisitions to get a larger international footprint, it has some branded drugs that are not generics, and its stock has pulled back considerably from the March and April highs when it almost reached $65.00 per share. Because it has been an acquirer and because its stock has risen, its dividend yield is lower than most drug companies at an implied yield today of roughly 1.3%.
What investors have here is growth that has not been seen elsewhere. Earnings were $3.37 EPS in 2009, but Thomson Reuters has estimates of $4.56 EPS in 2010 and $5.10 EPS in 2011. Based on the near 20% pullback from the highs, this gives forward expected P/E ratios of 11.1 for 2010 and 9.9 for 2011. There is a substantial room for dividend growth ahead. Its $45 billion market may sound high, but that is actually nowhere near the largest drug makers. Thomson Reuters also shows an average analyst price target of above $67.00, implying upside of more than 30% because of the pullback.
We’ll be keeping our eyes out on the tape for any extra news. So far, the recent pullback looks to have created a better long-term opportunity.
JON C. OGG
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
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
Teva Pharmaceutical Industries (TEVA) and OncoGenex Pharmaceuticals, Inc. (OGXI) announced today that they have entered into a global license and collaboration agreement to develop and commercialize OGX-011, as well as an agreement to purchase shares in OncoGenex. OGX-011 is a Phase III cancer therapy designed to inhibit cancer treatment resistance. OGX-011 is expected to be used as adjunct therapy to enhance the effectiveness of chemotherapy and has shown promising results when added to currently available chemotherapies in several tumor types addressing a significant unmet medical need.
The agreement will further enhance Teva’s oncology offerings and strengthen its global branded product pipeline with a promising product candidate entering three Phase III trials involving large patient populations. Teva and OncoGenex will collaborate on a global Phase III clinical program, with two Phase III clinical trials expected to be initiated in 2010: a Phase III Study for Second-line Chemotherapy in Men with Metastatic Castrate Resistant Prostate Cancer (CRPC) and a Phase III Study in First-Line Chemotherapy for Metastatic CRPC. An additional Phase III Study in First-Line Treatment of Advanced, Unresectable Non-Small Cell Lung Cancer (NSCLC) is intended to be initiated by early 2011.
OncoGenex also announced that Isis Pharmaceuticals, Inc. (ISIS) will receive a $10 million payment from OncoGenex Pharmaceuticals, Inc. as a result of OncoGenex’ license of OGX-011 to Teva Pharmaceutical Industries Ltd. OGX-011 is a second-generation antisense drug co-discovered by Isis and OncoGenex that has completed a successful Phase 2 program in patients with advanced prostate cancer and advanced non-small cell lung cancer. Teva and OncoGenex will collaborate on a global Phase 3 clinical program for OGX-011 in patients with prostate and non-small cell lung cancer.
Douglas A. McIntyre
At today’s Generic Pharmaceutical Association’s Silver Anniversary Meeting, there was an interesting take. It is not just that generics are only one-sixth of drug sales, and it wasn’t that the generic drug makers are actually defensive stocks because they are probably the last area where spending cuts will occur. What is most interesting is that it sure sounds like the big generic drug makers still want to be acquirers in this current climate.
In separate CNBC interviews with Mike Huckman, The CEOs of both Teva Pharmaceutical (NASDAQ: TEVA) and Watson Pharmaceuticals Inc. (NYSE: WPI) did more than hint that they wanted to do more deals. Both companies formally said they wanted to be acquirers in the current climate.