Looking For Healthcare Growth in China (CHDX)
I was recently asked by a reader about which opportunities exist to play a “steady growth sector” in healthcare, biohealth, biotech, or medical equipment player in China. There are some obvious issues when evaluating Chinese stocks, and these are nothing short of the financials, where the businesses are based, who manages the companies and on and on. In fact, we more frequently than not avoid some of the high-volatility stocks in this group that have no earnings and where Wall Street is expecting 200% revenue growth or something that is unsustainable.
But one stock that has stood out for a while and is looking actually more like a value stock than a Chinese exponential growth stock. Chindex International Inc. (NASDAQ: CHDX) is one of these companies and its shares have been under pressure of late. This seems to be more of a steady earnings/revenue growth company, although its history of having solid large and manageable sales growth is still somewhat young and still somewhat under question by some.
This has two operations which could make for an interesting special situation down the road. The company operates a Western-style hospital network, United Family Healthcare, with operations in Beijing, Shanghai, and one under development in Guangzhou. Think “private healthcare for the well to do Chinese. The Company recently received over $100 million in combined debt and equity investment from JPMorganChase, the International Finance Corporation, and DEG Bank to fund its network expansion. On top of this, it sells medical equipment and hospital equipment all over mainland China and Hong Kong.
The company has a market cap of roughly $213 million, and this number looks like it is within a fair range for deriving forward valuations now that it has seen its shares trade down to under $15.00.
Of the analysts that cover it, the estimates for next quarter are $0.12 EPS on $33.74 million in revenues, and for the coming quarter ahead $0.16 EPS on $39.1 million in revenues. For fiscal March 2009 estimates are $0.75 EPS on $162.3 million in revenues. For the following year of March 2010 estimates are $1.08 EPS on $200 million. The problem with all of these First Call estimates is that the sample is literally from less than a handful of analysts.
As the stock has recently been cut in half, we wanted to back over the company history and see how this pairs off since the stock used to be under $5.00 back in 2005. We have gone in and applied a 25% discount to current estimates to see what a base-value would look like if the company’s growth plans begin stalling out. Based upon the historic growth of revenues being close to 20%, we insisted on a discount and took projections down to $157 million for fiscal March 2009 and $190 million for fiscal March 2010.
This stock was recently hit hard because of charges creating a net loss fo the quarter and we have seen a more than 40% drop in less than two months. Before the recent drop, this one always seemed to expensive or just hadn’t seen one of its “major Chinese stock corrections” which so many stocks over there have witnessed.
The company is not without problems and we don’t want to throw caution to the wind when evaluating more slow steady growth opportunities in healthcare in China. The company has a solid cash base as it is in the middle of an expansion project in China, but we do not believe it will have to raise much more in capital for basic operations. If it wasn’t for that recent scalping that the stock took, we might be much more cautious in covering this stock.
Jon Ogg
June 30, 2008
MS & Diabetes Hopeful Bayhill No Longer IPO Candidate
Bayhill Therapeutics Inc. was a company we had been expecting to come public for a while. This was going to be a play on autoimmune diseases like multiple sclerosis, but the company has now has withdrawn registration for what it had listed as an $86.25 million IPO.
You can probably guess the reason: unfavorable market conditions.
This was one of the ones we had followed ahead of the IPO because the company has raised what appears to be north of $60 million in venture capital funding rounds. Traditionally, companies in biotech that raise more than $25 million in venture capital tend to come onto many investor radars from VC’s to investors to institutions.
U.S. Venture Partners, Morgenthaler Ventures, De Novo Ventures, CMEA Ventures, Lilly Ventures,and others have stakes from various funding stages.
The company’s MS treatment study is actually beyond initial Phase II stage, and its diabetes study is still in Phase I studies. Investors are likely going to have to hold out longer for a new IPO that would have served these major opportunities.
Jon C. Ogg
June 30, 2008
Cervical Cancer Vaccine Developments Altering Big Pharma (MRK, SNY, GSK)
The new cervicval cancer vaccine market has been a boon for Big Pharma as a revenue stream that had not previously been there. Merck’s (NYSE: MRK) Gardasil, developed with Sanofi-Aventis (NYSE: SNY), is now apparently set to keep its lead position in the cervical cancer vaccine market. This lead should be maintained in principal but now its secondary competition is going to be pushed out even farther.
GlaxoSmithKline PLC (NYSE: GSK) has said today that it does not expect the FDA to approve its Cervarix, Glaxo’s cervical cancer vaccine. It believes that it will now not see FDA approval until 2009. Many analysts had modelled revenues reaching in the low-hundreds of millions as soon as 2008. This additional delay is going to assist Merck in keeping its leadership role in cervical cancer vaccines.
Gardasil is estimated at $2.5 Billion sales annually with 2007 sales being listed as $1.5 Billion for the first full year.
Jon C. Ogg
June 30, 2008
Vaccine Awards Propelling Akorn (AKRX)
Akorn, Inc. (NASDAQ: AKRX) has made a statement that has interesting financial ramifications for the company. That is even more so since the small biotech is largely under-followed by Wall Street.
Akorn has announced that its Q2-2008 net sales will exceed consensus estimates by about 15%. The company said that the revenue increases are a direct result of strength in its core business, primarily in vaccines.
It has also announced a contract award from the Centers for Disease Control and Prevention for Tetanus Diphtheria Vaccines. The contract award includes the multi dose Td Vaccine and the unit dose preservative free Td Vaccine. This award is effective July 1, 2008 for a period of twelve months.
What makes this interesting isn’t just the size of the awards nor the size of the company. Akorn has been public forever and 2008 has been an ugly chart year for the stock. The past years have shown to be very sporadic revenues with fiscal losses in each of the last 3 years. But the 2008 to 2009 period is supposed to be the transitional period for the company. It is expected to have a slight loss for 2008 but 2009 is expected to be its first real profitable year as revenues are expected to grow substantially.
Shares are only up 1% or 2% today after the news. This fits all the profiles for our weekly “10 Stocks Under $10″ newsletter over at 247WallSt.com. This looks like it is being largely overlooked, although we would look at the company’s balance sheet with at least a little more caution in case any hiccups come into play.
Jon C. Ogg
June 30, 2008
Disappointment on the Alzheimer’s War (MYGN)
Myriad Genetics (NASDAQ: MYGN) is seeing pressure in shares this Monday morning. Shares are down nearly 10% around $43.30 in pre-market trading after the company announced that it plans to discontinue the development of Alzheimer treatment Flurizan. The company had reported that its late-stage trial failed to meet endpoints.
The company had also spent some $60 million in the fiscal year (June) in its development of Flurizan. The company also expects to spend roughly another $8 million to wrap up the program.
Its overseas partner in Denmark was H. Lundbeck A/S (HLUKY), and it also saw a similar drop in active trading.
Myriad isn’t a one-hit wonder as its quarterly revenues were $61.7 million last quarter. But this was a blow and the Alzheimer’s franchise here could have led to a blockbuster potential for the company. As of last quarter, the company had over $300 million between its cash and equivalents and its long-term investments; while its total liabilities were $37.66 million. Unfortunately, its market cap was over $2.1 Billion before today’s price action and its 52-week trading range is $34.35 to $59.18.
Jon C. Ogg
June 30, 2008
Merck Migraine Study Looks Solid (MRK)
Big Pharma hasn’t been able to catch much of a break lately. Maybe the results from a migraine study will help Merck & Co. (NYSE: MRK) get off the floor today after it presented data at the American Headache Society (AHS) annual meeting.
Merck noted that results in a Phase III clinical trial for telcagepant (formerly MK-0974), its investigational oral calcitonin gene-related peptide (CGRP) receptor antagonist, significantly improved relief of migraine pain and migraine-associated symptoms two hours after dosing compared to placebo.
In addition, the efficacy results for telcagepant 300 mg were similar to the highest recommended dose of zolmitriptan,(1) an approved migraine therapy, with a lower incidence of adverse events associated with telcagepant in this study. The new data were
Merck continues to anticipate filing a New Drug Application for telcagepant with the FDA in 2009. Merck shares are up 2% today at $36.94, down from a 52-week high of $61.62.
Jon Ogg
June 27, 2008
Med-Bio Analyst Upgrades & Downgrades (BMY, EHTH, IMCL, BABY, NUVA, ONXX, OSIP, ZMH)
These are some of the analyst calls that have been seen in medical and biotech this Friday morning:
- Bristol-Myers (NYSE: BMY) raised to Outperform at Bernstein.
- EHealth (NASDAQ: EHTH) Raised to Overweight at Thomas Weisel.
- ImClone Systems (NASDAQ: IMCL) Started as Overweight at Thomas Weisel.
- Natus Medical (NASDAQ: BABY) Started as Buy at UBS.
- NuVasive (NASDAQ:: NUVA) Raised to Overweight at Thomas Weisel.
- Onyx Pharmaceuticals (NASDAQ: ONXX) Started as Market Weight at Thomas Weisel.
- OSI Pharmaceuticals (NASDAQ: OSIP) Started as Overweight at Thomas Weisel.
- Zimmer (NYSE: ZMH) Downgraded to Market Weight from Overweight at Thomas Weisel.
Jon C. Ogg
June 27, 2008
Vanda Scores on Insomnia Phase III Trials (VNDA)
Vanda Pharmaceuticals, Inc. (NASDAQ: VNDA) is seeing shares rise this morning on news that its Phase III data showed Tasimelteon significantly improves sleep in patients with chronic insomnia. The positive top-line results from a Phase III trial showed that its investigational drug candidate, Tasimelteon, which it calls a novel melatonin agonist, met the primary endpoint of the trial and significantly improved sleep in adult patients with chronic insomnia. This study also demonstrated that Tasimelteon was well-tolerated and exhibited a safety profile generally similar to placebo.
This was its Phase III, multi-center, placebo-controlled, 4-week trial that evaluated 322 patients with chronic primary insomnia. Patients were randomized to receive either 20 mg or 50 mg of Tasimelteon or placebo over the four weeks.
On Nights 1 and 8 of treatment, mean LPS improved by 45.0 minutes in the 20mg group (p<.001), by 46.4 minutes in the 50mg group (p<.001), and by 28.3 minutes in the placebo group. On Nights 22 and 29 of treatment, mean LPS improved by 49.4 minutes in the 20mg group (p<.001), by 45.1 minutes in the 50mg group (p=.016), and by 33.9 minutes in the placebo group. Importantly, this effect was also seen acutely on the first night of treatment. Patients in the 20mg and 50mg groups fell asleep 22.9 minutes (p<.001) and 25.9 minutes (p<.001) faster, respectively, than those in the placebo group.
Vanda shares are indicating higher with some 2-hours to the open. Shares closed at $4.99 and are indicated up at $5.90 in early trading (7:30 AM EST). Its 52-week trading range is $2.70 to $21.50. This one also has a substantial short interest so watch for that spring-loaded effect.
Jon Ogg
June 26, 2008
Short Interest Volume Changes: MAJOR BIOTECH (AMGN, GILD, BIIB, CELG, GENZ)
We ran a screen of the top five NASDAQ biotech stocks by market cap to look at the short interest changes from the end of May to mid-June. Amgen Inc. (NASDAQ: AMGN) had the largest gains in short selling by far and the others were mixed. We also screened Gilead Sciences Inc. (NASDAQ: GILD), Biogen Idec Inc. (NASDAQ: BIIB), Celgene Corporation (NASDAQ: CELG), and Genzyme Corp. (NASDAQ: GENZ).
Amgen Inc. (AMGN)
AS OF DATE Short Int. Change
06/13/2008 48,430,933 113.55%
05/30/2008 22,678,517 -8.48%
Gilead Sciences Inc. (NASDAQ: GILD)
AS OF DATE Short Int. Change
06/13/2008 34,676,528 6.77%
05/30/2008 32,478,444 -0.65%
Celgene Corporation (NASDAQ: CELG)
AS OF DATE Short Int. Change
06/13/2008 12,951,360 -5.98%
05/30/2008 13,775,373 -15.68%
Biogen Idec Inc. (NASDAQ: BIIB)
AS OF DATE Short Int. Change
06/13/2008 7,467,264 17.66%
05/30/2008 6,346,464 -6.51%
Genzyme Corp. (NASDAQ: GENZ)
AS OF DATE Short Int. Change
06/13/2008 5,751,563 1.17%
05/30/2008 5,684,945 1.12%
Jon Ogg
June 25, 2008
Roche’s AIDS (Retinitis) & Organ Transplant Drug Going Generic?
Roche Holdings Ltd. appears to have lost some protection on Valganciclovir HCl. The FDA has granted Ranbaxy Laboratories Ltd. “tentative approval” to manufacture and market Valganciclovir Hydrochloride Tablets (450 mg).
Valganciclovir HCl Tablets are indicated for the treatment of cytomegalovirus (CMV) retinitis in patients with AIDS. Valganciclovir HCl is also indicated for the prevention of cytomegalovirus (CMV) disease in kidney, heart and kidney-pancreas transplant patients at high risk.
The estimated total annual sales for Valganciclovir HCl Tablets were $239 million Ranbaxy also noted that it believes it has “First-to-File” status on on the generic AIDS drug tablets, which would give it a potential of 180-days of marketing exclusivity.
Roche Holdings Ltd. trades in the US on the Pink Sheets under the “RHHBY” ticker, so it isn’t exactly the easiest stock to play for most investors.
Jon Ogg
June 25, 2008