Generex Files To Raise Cash (GNBT)
You have seen us talk about companies in the BioHealth and biotech space after big pops of news lately. But some companies are also just raising cash, or leaving room to raise cash if needed. It is the second group that today’s filing from Generex Biotechnology Corp. (NASDAQ: GNBT) for up to $150 million falls into.
What is interesting here is that this is effectively the same size of the company today. Generex has a market cap after a 6.8% gain to $0.63 today of only about $156 million. Its 52-week trading range is $0.08 to $1.14 and the average daily volume is only about 2.94 million shares.
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InterMune Sees Pre-Event Options Activity (ITMN)
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
GenVec Shows Again the Risks of Biotech Trophy Hunting (GNVC, ROSG, MRNA, CYCC)
We have covered over and over in recent months about the news flow of biotech and emerging biohealth companies creating an avenue that is causing traders to chase many speculative stocks up exponentially on news. In 2009 we had perhaps a dozen biotech and biohealth related stocks which posted gains of 1,000% or more, and this is where that term of a ‘ten-bagger’ comes from. In recent weeks we have seen shares of GenVec Inc. (NASDAQ: GNVC) rise exponentially.
The 52-week low is $0.33 and this was effectively at $1.05 to $1.20 at the very end of 2009. In recent weeks and recent trading days we have seen news that allowed this to run even above $3.00. Then today came the share price haircut after the company entered into a registered offering of $28 million in agreements with institutional investors for the sale of 14 million shares of its common stock and warrants to purchase 4.2 million shares of common stock. At 1:05 PM EST GenVec shares are down 24% at $1.87 on more than 18 million shares.
We have referred to chain of positive news followed by more positive news, followed by a highly dilutive capital raise on several occasions as “Three-Card Monty.” That does not mean that all biotechs should be avoided nor does it mean that all biotechs raise cash after a big move, but it is the umpteenth reminder of how biotech investors and traders need to be careful what they are getting into when they chase after stocks in a trophy-hunting strategy.
We have recently seen this happen in both Rosetta Genomics, Ltd. (NASDAQ: ROSG) and in MDRNA, Inc. (NASDAQ: MRNA). Cyclacel Pharmaceuticals (NASDAQ: CYCC) took a big hit after it raised cash following its big news that drew in trophy hunting biotech traders.
Here was the full report from the end of 2009 showing how and why so many traders are willing to chase the 10-baggers or 1,000% possibilities. Stocks noted are JAZZ, TRGT, VNDA, DNDN, HGSI, CGEN, BNVI, QCOR, ACHN, PSDV, ATHX, SNSS, AVNR, BIOD, ALXA, and CTIC.
This is just one of the risks involved in chasing a biotech stock that is up big after a news dissemination of after a run up has been seen after waves of good news. Many companies in the biotech sector need capital to operate and some need it for satisfaction of listing requirements. You cannot blame a company for wanting to raise capital after a move up rather than when they are down and out. You just need to keep track of which companies need capital when chasing after the next ten-bagger.
There is also some good news here that occurs for those who may have wanted to get into some of these companies but may have missed their chance. Usually we see large price drops, and that gives investors and traders a chance to buy into these stocks at a discount if they believe that the news flow ahead is substantial and is not just a series of press releases geared toward generating short-term price pops.
JON C. OGG
Pfizer Outlines New Drug R&D Pipeline (PFE, MRK, NVS, GSK)
Pfizer Inc. (NYSE: PFE) is making a pipeline presentation today, and it is meant to address a serious and potentially severe issue affecting all Big Pharma companies from Merck & Co. (NYSE: MRK) after its Schering-Plough deal all the way down to where drug companies become biotech companies: That is the billions and billions of dollars that may disappear from profits as key drug patents expire in the coming years. This is also affecting Roche and companies like Novartis AG (NYSE: NVS) and GlaxoSmithKline plc (NYSE: GSK) on an international basis, which is why you have seen them make their own partnerships and acquisitions where possible.
Pfizer is giving a pipeline update showing its own efforts to address a whole new class of potential blockbuster drugs in the years ahead. Today’s pipeline update from Pfizer is the first real update since the company close the acquisition of Wyeth back in October, 2009.
The new development pipeline has potential drugs from both legacy companies. Pfizer is noting that this includes 133 programs from phase 1 studies through pipeline candidates in the registration process.
Pfizer is also noting that it has identified its six “Invest to Win” areas of research where there exist significant opportunities for innovation and market leadership. The new pipeline demonstrates focused investment in these areas of significant unmet medical need as well as growth in the critical technologies of vaccines and biologics. The six arena are as follows:
- oncology;
- pain;
- inflammation;
- Alzheimer’s disease;
- psychoses;
- and diabetes.
The combined Pfizer-Wyeth pipeline had 600 projects ranging from discovery through registration, and the new portfolio is roughly 500 projects. Pfizer’s goal is to become a top-tier biotherapeutics company by 2015, meaning effectively that it wants to take over some of the dominance currently held in several areas by pure-play biotech companies. Its pipeline now includes a total of 6 vaccines and 27 biologics in development.
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New FDA Approval in Diabetes Drug (NVO)
The FDA has announced the approval of Victoza made and marketed by Novo Nordisk (NYSE: NVO). The approval is listed as being an approval to treat type-2 diabetes in come adults. This has been a pending approval and is Novo Nordisk’s once-daily injection. The drug is intended to help lower blood sugar levels along with diet, exercise, and selected other diabetes medicines; but it is not recommended as an initial therapy in patients who have not achieved adequate diabetes control on diet and exercise alone.
Victoza is in a class of medicines known as glucagon-like peptide-1 (GLP-1) receptor agonists that help the pancreas make more insulin after eating a meal, and this was part of our own “Next $180 Billion in Drug Opportunities” from last year.
The company has noted that five clinical trials involved more than 3,900 people, pancreatitis (inflammation of the pancreas) occurred more often in patients who took Victoza than in patients taking other diabetes medicines. Victoza should be stopped if there is severe abdominal pain, with or without nausea and vomiting, and should not be restarted if pancreatitis is confirmed by blood tests. Victoza should be used with caution in people with a history of pancreatitis. The most common side effects observed with Victoza were headache, nausea, and diarrhea. Other side effects included allergic-like reactions such as hives.
Victoza was not associated with an increased risk for cardiovascular events in people who were mainly at low risk for these events.
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Amgen Earnings: The Coin-Toss Continues… (AMGN)
Amgen (NASDAQ: AMGN) has just reported earnings that appear disappointing on the surface. The world’s largest independent biotech stock posted $1.05 EPS on revenue of $3.81 billion. Unfortunately, Thomson Reuters estimates were $1.12 EPS and $3.85 billion. The net number after backing out non-GAAP items was $0.92 EPS.
The company is issuing its 2010 guidance of $5.05 to $5.25 EPS on revenues of $15.1 to $15.5 billion. We have estimates of $5.12 EPS and $15.31 billion in revenues from Thomson Reuters.
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Trophy Hunting: No Yawns Over Somaxon Insomnia Drug (SOMX)
Somaxon Pharmaceuticals, Inc. (NASDAQ: SOMX) has soared in after-hours trading as we have noted over and over how micro-cap and low-priced biotech stocks are seeing trophy hunters trying to find the next 1,000% move… That is the quest for the ten-bagger in investor slang. The company provided an update on the status of its New Drug Application for Silenor for the treatment of insomnia. It held a meeting with senior leadership at the FDA on January 20, 2010 to discuss the issues raised in the FDA’s Complete Response Letter Somaxon from December 2009.
According to Somaxon, the FDA acknowledged that this resubmission would be considered a complete response and noted that no additional safety or efficacy data was needed. Furthermore, the company now sees a decision from the FDA due by March 21, 2010. Somaxon has no stock options, so no binary trading event opportunity exists here other than being long or short. The short interest as of December 31 was a mere 522,000 shares.
The company noted that the only remaining efficacy issue was over the robustness of sustained subjective sleep maintenance efficacy in non-elderly adults with primary insomnia. The FDA has instructed Somaxon to resubmit the contents of its pre-meeting briefing package to the FDA and the agency has reportedly acknowledged that the resubmission would be considered a complete response to the Complete Response Letter Somaxon received from the FDA back in December.
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Lexicon Rejoins Diabetes War (LXRX)
Lexicon Pharmaceuticals Inc. (NASDAQ: LXRX) is the beneficiary of data on the war against diabetes. We might call this the rejoining in the war against diabetes, but the term ‘rejoining’ would pertain just to its stock getting back in the news. ‘We have addressed over and over how the trading and investing community has been seeking the 1,000% returns or the ten-baggers on many occasions. Today is not really a ten-bagger or trophy hunting example if you look at the reaction and trading action, although this probably did get a secondary benefit from the interest in low-priced biotechs.
Today’s news is based upon a successful second trial of the company’s diabetes treatment drug candidate. The company was studying the performance of its LX4211 drug in 36 patients with type 2 diabetes and made with the intent to cut glucose accumulation. This is one of the weight loss and diabetes drugs with improved metabolic and cardiovascular parameters.
- This one soared on news that it showed positive Phase I data back in September and it also soared on unrelated trial news in November.
While shares are up over 16% at $2.30 right now on well over 8 million shares in later afternoon trading, shares were trading up around $2.90 in pre-market trading. Average volume is 736,000 shares and the 52-week trading range is $0.81 to $3.78. The volume spike here and price jump may sound like the quest for ten-beggers, but the market cap is $404 million. Generally the trophy hunting takes place in emerging companies with market caps of $100 million and far less.
This is still an emerging company in development stage with no significant revenues, which keeps this one well within speculative territory even if it is not a ten-bagger quest or trophy hunting stock. As of September 30, 2009, the cash and short-term investment account was over $125 million.
JON C. OGG
Sequenom Close To Getting Off, Maybe Scott-Free (SQNM)
Sequenom, Inc. (NASDAQ: SQNM) may be pulling the oldest hat trick in the book. It is settling a class action suit. This always sounds good on the surface, except for the notion that these class action settlements can sometimes exonerate a company from future liabilities. The good news here is that there is an opt-out provision. The bad news is that it might not matter.
The SEC filing stated:
On January 15, 2010, Sequenom, Inc. announced entry into a stipulation of settlement which will resolve the class action securities lawsuits consolidated under the caption In re Sequenom, Inc. Securities Litigation, S.D. Cal. Case No. 09-CV-0921 LAB (WMc), pending in the U.S. District Court for the Southern District of California. Attorneys for Harry Stylli, Paul Hawran, Allan T. Bombard, Charles R. Cantor, Steven Owings, Harry F. Hixson, Jr., and Elizabeth Dragon, all of whom were named as defendants in the consolidated lawsuits, have also entered into the stipulation of settlement. The stipulation of settlement, a copy of which is filed as Exhibit 99.1 hereto, remains subject to preliminary and final approval by the U.S. District Court.
Subject to final approval of the stipulation of settlement by the U.S. District Court, in exchange for a release of all claims by the class members and a dismissal of the consolidated lawsuits, we have agreed (i) to pay the class members and their attorneys a total of $14 million which will be funded from insurance proceeds, (ii) to issue to the class members and their attorneys shares of our common stock, and (iii) to adopt certain corporate governance measures, including an amendment to our Bylaws to provide that at all times a majority of our directors must be independent. The number of shares of our common stock to be issued will be determined on a date to be established after final approval of the settlement by the U.S. District Court and will constitute 9.95% of the shares of our common stock outstanding post-issuance, provided that certain shares issued after entry into the stipulation of settlement, including any shares issued in a bona fide financing, in connection with a licensing, collaboration or acquisition transaction or pursuant to our currently existing equity incentive plans, will be excluded from the shares outstanding calculation. As of December 23, 2009, we had 61,693,241 shares of common stock outstanding, and if the share number had been determined as of that date, we would have been obligated to issue 6,816,743 shares of common stock pursuant to the terms of the settlement.
In connection with the approval of the stipulation of settlement, our board of directors implemented the agreed upon corporate governance measures and approved the amendment to our Bylaws.
If the settlement is approved preliminarily by the U.S. District Court, potential class members will be notified of the proposed settlement and the procedure by which they can request to be excluded from the class. The settlement will then be subject to final approval by the U.S. District Court.
Many shareholders are likely at odds over whether they should be in settlements or not. The company further noted, “The settlement agreement contains no admission of liability, but the company is settling the lawsuit to avoid potentially lengthy, costly, distracting and time-consuming litigation.” Shareholders here were duped and have been crucified and probably deserve more than what they can or will get from the company if all the fraud allegations are anywhere close to the truth. Unfortunately, there may only be a limited amount to get back now that the company has limited prospects and has seen its cash dwindle.
It is worth noting that the new management team is not the team involved in the old scandal. That is at least something that needs to be a reminder when it comes to the pitchfork riots that could have been seen here in this instance.
Shares are up over 5% at $4.39 this morning before the market opens on the news.
JON C. OGG
Is Enzon a Real-Real Takeover Target, Again? (ENZN, PFE)
Enzon Pharmaceuticals, Inc. (NASDAQ: ENZN) is not your normal biotech and emerging pharma company. It is a name that has been tossed around in the rumor mill in the past, and that is the case this week. That is part of why the stock is at 52-week highs today. Pfizer Inc. (NYSE: PFE) is the rumored buyer this time around, although other companies have been rumored on and off in the past. While it is an $11+ stock today, this stock used to trade at an exponential share price and it has nearly a 20-year history as a public company now.
What makes this an interesting ‘buyout story’ is that Enzon already has a special meeting on deck on Wednesday, January 27, 2010, as the date of its special shareholder meeting to vote on the proposed sale of its specialty pharmaceutical business to the sigma-tau Group in Italy. That sale is valued at $327 million plus royalty payments. New holders have no say here as the cut-off date for the record-date in order to vote is December 9, 2009.
The new-Enzon will focus on experimental cancer drugs and technology and it currently has a Phase II metastatic breast cancer trial. The company also has Phase I studies for solid tumors and lymphomas. Its balance sheet as of September 30 had over $90 million in long-term investments and listed another $110 million in cash and short-term equivalent investments. It also has $250 million in long-term debt, versus total assets including intangibles of $337.67 million.
Enzon’s market cap today is now north of $500 million in its current market capitalization and its 52-week trading range is $4.70 to $11.37. Again, this one has been a rumor mill stock on and off in the past. It also has a pending deal in the works for its specialty pharma business on the table and up for a shareholder vote.
Anything is possible in today’s world, and the question of whether a development-stage and earlier clinical-stage biotech pipeline should be acquired by a Big Pharma company always comes down to need versus desire.
JON C. OGG
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