Buyouts Hopes Dim at Human Genome (HGSI)
Human Genome Sciences, Inc. (NASDAQ: HGSI) looks to be dwindling as a takeover candidate. There have been rumors surrounding the name for months and months, yet the shelf filing for it to raise capital dampened that hope for at least many investors. Today after the close came word that the company was selling up to 12.5 million shares. At today’s prices this would raise over $300 million.
The offering indication and underwriters are covered more in-depth over at 24/7 Wall Street. When you read through the use of proceeds, you will see a company that is rapidly trying to catch up to its growth potential. It does not sound at all as though Human Genome Sciences is close to be acquired.
The company even noted that it may use a portion of funds for strategic investments, although it said it has no agreements or commitments for an acquisition nor an investment.
HGSI shares rose 2.6% to $27.82 today and the stock is down 4.7% close to $26.50 in the after-hours session. This was a penny stock before it made its exponential rise earlier in the year.
The 52-week trading range is $0.45 to $29.48 and its market cap is listed as over $4.5 billion. Being a large drug company and buying this one out even after it hit $10.00 might have been more than difficult of a sell to holders. Imagine trying to explain that now you wanted to acquire a company with great prospects in lupus and in genomics, but you wanted to pay over $5 billion (in theoretical price premium) after a stock has risen about 5,000%.
It seems that short sellers hold little fear of this being acquired as well. The mid-November short interest data showed that over 17.5 million shares were held short.
JON C. OGG
Stem Cell Study Starts in PMD (STEM)
StemCells Inc (NASD: STEM) has announced this morning that it and collaborator UCSF have initiated the enrollment of patients in the first ever clinical study of neural stem cells as a potential treatment in Pelizaeus-Merzbacher Disease (PMD), a neurological disorder that primarily afflicts children.
The company noted that the nature of this study is important on its own, but equally important is the fact that the findings from this trial may help also lead to potential stem cell treatments of other myelination disorders including multiple sclerosis and cerebral palsy.
The two have begun patient recruitment for a Phase I clinical trial designed to test the safety and preliminary efficacy of its HuCNS-SC® purified human neural stem cells. Also noted was that the study is being conducted at the University of California, San Francisco Children’s Hospital.
PMD results from a defective gene and is characterized by a lack of myelin, a substance that surrounds and insulates nerve cells’ communications fibers, which then makes the body unable to properly transmit nerve impulses. This leads to the loss of neurological function and eventually death in the most severe forms of PMD, and there are currently no effective treatment options for patients with PMD.
So far there is still a lukewarm reception. Shares are up 1%, but this is only a $1.00 stock. Starting trials is still a far cry from having positive trial results.
JON C. OGG
NOVEMBER 23, 2009
Cephalon (CEPH) Hammered On Harsh Trial News
Cephalon Inc. (NASDAQ: CEPH) is down sharply on news that it and privately-held Ception Therapeutics, Inc. did not meet some endpoints. Shares fell 8% to $54.76. Average volume is 1.9 million shares and the 52-week trading range is $52.55 to $81.35. This is the brief summary: The companies gave Phase IIb/III clinical trial data for CINQUIL (reslizumab) as a treatment for pediatric eosinophilic esophagitis. Analysis of the data indicated that patients treated with CINQUIL showed a statistically significant reduction in esophageal eosinophil levels versus placebo. In the second co-primary endpoint, patients treated with CINQUIL showed an improvement in their clinical symptoms; however, placebo treated patients also experienced an unexpectedly large improvement in their symptoms. Therefore, the study did not achieve statistical significance for this endpoint. CINQUIL was well tolerated in the study, with an adverse event profile comparable to placebo. Ception and Cephalon continue to fully analyze the data and are planning to perform an analysis of an ongoing open-label extension study to help further assess the clinical results
Douglas A. McIntyre
Value Stocks in Drugs & Biotech (AMGN, BIIB, CBST, CEPH, PDLI)
This weekend we ran screens of several drug and biotech companies in our quest for ‘cheap stocks’ in the BioHealth sector. The intent is not solely for buyout targets because we prefer to look at value stocks rather than just picking buyout hopefuls. The obvious issue that makes most of these cheap is because there have been problems or have been issues that made these look cheap on the surface. To look for sub-market valuations, we used Thomson Reuters estimates for 2009 and 2010 earnings. We then set a maximum target of 15-times earnings and screened out the companies that gave the ‘false positives’ as there were many.
Amgen Inc. (NASDAQ: AMGN), Biogen Idec Inc. (NASDAQ: BIIB), Cephalon Inc. (NASDAQ: CEPH), Cubist Pharmaceuticals Inc. (NASDAQ: CBST), and PDL BioPharma, Inc. (NASDAQ: PDLI) all made the cut. We initially wanted to look for market caps over $1 billion, but we set the bar at $500 million and tried to focus on companies with growth. We included valuation data, performance, and some color on each name. Some, but not all of these, are also in our upcoming biotech buyout targets for 2010.
Amgen Inc. (NASDAQ: AMGN) is one we have long noted during its waves of problems and as it was under future reimbursement pressure that may be more like an old fashioned drug company now as it has matured. The company’s market cap is $56 billion, which is actually now the largest market cap since Genentech is now Roche. Its stock trades at $55.48 and its 52-week trading range is $44.96 to $64.76. Because of the pressure and past issues, it trades at only about 11-times earnings for 2009 ($5.03 est.) and 2010 ($5.14 est.) both. It also trades at under 4-times 2009 and 2010 revenue expectations and it sits with an arsenal of almost $14 billion in cash and equivalents, yet has over $10.5 billion in long-term debt.
Biogen Idec Inc. (NASDAQ: BIIB) is no stranger to issues… another activist was just out this week calling for more action and the company has not been able to get out from under the TYSABRI PML despite the notion that this is a very low risk. At $46.38, its market cap is $13.4 billion and its 52-week trading range is $37.21 to $55.34. Biogen has over $3.1 billion in cash if you include its short-term and long-term investments and it carries just under $1.1 billion in long-term debt. Biogen also trades at 11.6-times the $3.99 EPS target for 2009 and only 10.5-times the $4.42 target for 2010; and Biogen trades at 3-times 2009 expected sales. The risk is here is of course the TYSABRI risks. You never know if they will have to pull it again. This is an opinion rather than a formal target, but TYSABRI is good enough in treatments of MS that it could quite literally have two or three times the number of patients using it if the PML risk can either be quantified better or could be mitigated. Another issue is that it is trying to acquire Facet Biotech Corporation (NASDAQ: FACT) as a diversification and added pipeline move.
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Activist Going Back After Biogen Idec (BIIB, CELG, GILD, GENZ, AMGN)
Biogen Idec Inc. (NASDAQ: BIIB) is not exactly new to the world of activist investors as there have been problems inside the company for years. An SEC filing this morning was filed by a fund called HealthCor Management, L.P. located in New York. It turns out that the fund is not a new entrant here, but the revelations are rather specific rather than broad and non-specific compared to other activist complaints. More importantly, the fund has CC’d in the following entities:
- PRIMECAP Management
- ClearBridge Advisors LLC
- Barclay’s Global Investors UK
- Fidelity Management & Research
- Icahn Capital LP
- Goldman Sachs Group
- State Street Corporation
- Vanguard Group Inc.
- Capital Research Group Investors
- Invesco Ltd.
Yep, you knew Carl Icahn was going to be in there. After all, the most recent Icahn holdings still showed Icahn holding a significant number of shares.
What is interesting is the data that HealthCor provided. It is calling for a specific buyback plan of $500 million to $1 billion worth of stock PER YEAR. It noted that Biogen Idec outspends and is expected to outspend all of its major large-cap biotech peers.
The activist group here compared the statistics (most of which include items) to Celgene Corporation (NASDAQ: CELG), Gilead Sciences Inc. (NASDAQ: GILD), Genzyme Corp. (NASDAQ: GENZ), Amgen Inc. (NASDAQ: AMGN), and Genentech-Roche.
R&D MARGINS (HISTORICAL AND CONSENSUS)
2007A 2008A 2009E 2010E 2011E
CELG 24% 24% 26% 24% 24%
GILD 12% 12% 12% 13% 13%
GENZ 18% 17% 18% 16% 16%
AMGN 21% 19% 18% 18% 18%
DNA 20% 20% 20% 20% 19%
AVERAGE 19% 18% 19% 18% 18%
BIIB 29% 26% 27% 27% 26%
HealthCor also noted that Biogen has failed to maximize its earnings and cash generation potential. There is a complain that CEO James Mullen has sold approximately $85 million worth of stock.
Now that the market has stabilized, there are likely to be more activist filings made in realm of underperforming biotech stocks.
JON C. OGG
NOVEMBER 20, 2009
Share Offerings Weigh on BioHealth Shares
Some secondary offerings are good for the existing holders and some are not. Adding cash to the coffers is good when a company can take advantage of a high share price when they need to raise long-term growth capital. But there is also the type of secondary offering that is just private equity or private investors selling shares after a bg run. This morning we have seen three stock offerings in drug and biotech stocks, and there is some good and some bad in here.
BioCryst Pharmaceuticals, Inc. (NASDAQ: BCRX) is getting hit this morning after the company sold 5 million shares in a secondary offering at $9.75 per share via Morgan Stanley, J.P. Morgan, and Oppenheimer. After 10:15 AM EST we have seen 2.5 million shares trade, making this one almost a full-day’s volume (2.9 million on average). This one is down 6.3% at $9.74 and the 52-week trading range is $0.85 to $13.47. This offering is under an existing shelf registration when the company filed to raise up to $57 million. Gross proceeds from this offering before fees and commissions is $48.75 million.
Novavax, Inc. (NASDAQ: NVAX) is trading down this morning on its 6.8 million share public secondary offering which priced at $3.30 per share through Piper Jaffray and Lazard Capital Markets. We have seen only 2.8 million shares so far this morning and the stock is down 10.6% at $3.37. Average volume is now over 6 million shares and the 52-week trading range is $0.52 to $7.79. This is just over $22.4 million in gross proceeds, and the company noted that it would net out $21 million.
Warner Chilcott plc (NASDAQ: WCRX) was the big sale today. The drug company priced a 20 million share secondary offering of common stock at $22.92 per share via Goldman Sachs, Morgan Stanley, Credit Suisse, and JPMorgan. This is not for the company’s benefit as selling shareholders include funds affiliated with Bain Capital Partners, DLJ Merchant Banking, J.P. Morgan Partners, Thomas H. Lee Partners, and certain other institutional investors and members of the company’s senior management. WCRX will not receive any proceeds from the sale of the shares, but it is still paying for the expenses of the offering under an existing agreement. This was a very low discount compared to the $23.15 close yesterday, and frankly it is sort of surprising that shares are only down 1.8% at $22.71. That is a new supply of $458 million in stock which has been dumped on the market.
JON C. OGG
VIVUS Tapping ED Hurdles (VVUS, PFE, LLY)
VIVUS Inc. (NASDAQ: VVUS) may soon have a new erectile dysfunction drug on the market if the test results lead to an FDA approval. Shares are trading higher this morning after it announced positive results in a phase 3 pivotal study evaluating the safety and efficacy of avanafil for the treatment of erectile dysfunction.
If everything is as solid as it sounds, it looks like Pfizer (NYSE: PFE) via Viagra and Eli Lilly & Co. (NYSE: LLY) via Cialis may have a new competitor.
The 646 patient study met the safety and efficacy enpoints of avanafil, with what may be some lower side effects than traditional ED drugs. The endpoints were also met across the three doses studied by demonstrating statistically significant improvement in erectile function as measured by the Sexual Encounter Profile and improvements in the International Index of Erectile Function score.
Nearly 80% of sexual attempts among patients on the 200 mg dose of avanafil had erections sufficient for intercourse. Full efficacy was reported by patients in 30 minutes or less, which is better than current ED drugs. Full efficacy was maintained for all doses across multiple time points beyond six hours.
The company also noted that all FDA-defined primary endpoints were met across all three doses of avanafil, and it was well tolerated as demonstrated by a high retention rate (85%). More importantly, there were no drug-related serious adverse events in the study and patients had low reports of common PDE5i side effects.
VIVUS shares are up 13% at $9.72 in pre-market trading and the 52-week trading range is $2.72 to $12.88.
JON C. OGG
Geron Suppliers Register Shares for Sale (GERN)
Geron Corp. (NASDAQ: GERN) on Monday filed a registration statement for the resale of shares by existing holders. This is not a huge deal on the surface as it is ‘only’ 344,120 shares of common stock with a listed value of roughly $2 million. The following share counts are being filed to possibly be sold as follows:
- 55,545 shares by Hongene Biotechnology Limited,
- 93,244 shares by Samchully Pharm. Co., Ltd.
- 195,331 shares of our common stock by ReSearch Pharmaceutical Services, Inc.
Geron has already noted that it will not receive any of the proceeds from the sale of these shares. As you will also see, this represents an insignificant number of shares in the grand scheme of things.
As of November 11, 2009, Geron had 200,000,000 shares of common stock authorized for issuance and 91,971,441 shares of common stock outstanding. also as of November 11, 2009, Geron has reserved for future issuance approximately 25,831,114 shares of common stock for the company stock plans, potential milestone payments and outstanding warrants.
On November 10, 2009, in payment to Hongene Biotechnology Limited under a manufacturing agreement where Hongene is making certain raw materials intended to be used for the manufacture of drug product for use in human clinical trials, Geron issued to Hongene 55,545 shares of common stock.
On November 10, 2009, in payment to Samchully Pharm. Co., Ltd. under a manufacturing agreement where Samchully is performing certain services and manufacturing certain raw materials and products for use in human clinical trials, Geron issued to Samchully 93,244 shares of common stock.
On November 10, 2009, in payment to ReSearch Pharmaceutical Services, Inc. under a project agreement where RPS is providing certain services in support of Geron’s clinical programs, the company issued 195,331 shares to RPS.
Some insider sales by existing holders have ominous implications, but that does not appear to be the case here on the surface.
Jon C. Ogg
Buffett & Berkshire Hathaway BioHealth Stocks (BRK-A, BDX, GSK, JNJ, SNY)
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
Carl Icahn Narrows BioHealth Focus (AMLN, BIIB, ENZN, CYBX, EXEL, FRX, GENZ, REGN)
Carl Icahn, via his Icahn Capital LP and other entities owned the following drug and biotech or biohealth names. There may be some overlaps because of more than 1 filing, but here goes:
Amylin Pharmaceuticals Inc. (NASDAQ: AMLN) 12,971,328 shares;
Biogen Idec Corp. (NASDAQ: BIIB) 3,215,051 shares, second filing showed 12,860,205 shares;
Enzon Pharmaceuticals Inc. (NASDAQ: ENZN) 704,214 shares;
Cyberonics Inc. (NASDAQ: CYBX) 2,107,972 shares;
Exelixis Inc. (NASDAQ: EXEL) 2,357,110 shares;
Forest Labs (NYSE: FRX) 1,000,000 shares
Genzyme Corp. (NASDAQ: GENZ) 1,450,800 shares;
Regeneron Pharmaceuticals (NASDAQ: REGN) 2,508,001 shares.
Two smaller positions were omitted.
This is not the smallest amount he has held in biotechs and biohealth plays, but the focus looks narrower than in the past when there were more positions.
JON C. OGG
