Teva Could Be Seeking Mega-Cap Status (TEVA, PFE, NVS, MRK, SNY)
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
Stem Cells Versus Aging, Fountain of Youth (BTIM, GERN, ACTC)
How many movies and legends are based upon eternal youth? Hundreds or thousands for sure. BioTime, Inc. (NYSE Amex: BTIM) is seeing a massive surge of interest today after the company announced a “Peer-Reviewed Scientific Publication on the Reversal of the Developmental Aging of Normal Human Cells.”
The company is a small-cap biotechnology company (approximately $250 million) pursuing the development and marketing of products in the field of stem cells and regenerative medicine. The article was released online today in the peer-reviewed journal Regenerative Medicine ahead of the print publication showing that the aging of human cells can be reversed. The company noted that this “may have significant implications for the development of new classes of cell-based therapies targeting age-related degenerative disease.”
BioTime and its collaborators demonstrate the successful reversal of the developmental aging of normal human cells according to the article. The full article at Future Medicine is here.
BioTime is is led by Dr. Michael West as CEO. He was the Founder of Geron Corporation (NASDAQ: GERN), where he served until 1998. From 1998 to 2007 he was President and Chief Scientific Officer of Advanced Cell Technology Inc. (OTC: ACTC). Dr. West also gave a CNBC video here just this morning.
Also noted was that the aged differentiated cells became young stem cells capable of regeneration and transforming adult human cells back to a state very similar to embryonic stem cells. Does it come without exception or without differences? No.
Still, this is sending BioTime shares through the roof. Usually we see just over 100,000 shares trade hands. Today we have 3.3 million shares traded at 12:50 PM EST and BioTime’s stock is up 28% at $7.43 today.
JON C. OGG
Sequenom Still Seeks Down’s Syndrome Grail (SQNM)
Sequenom, Inc. (NASDAQ: SQNM) is trading lower in the after-hours session after the troubled diagnostics company reported its year-end earnings. Because of its recent woes of 2009, the earnings and revenue reports are a true side-show compared to what the company is updating over its pipeline and over its products.
We would note that actual trading could whip around significantly during the company’s conference call due to very speculative nature of the company and due to its trading history in 2009 and so far in 2010.
The company gave a T21 (Down syndrome) update, and it does not sound like the company is throwing in the towel here nor anything at all like it is backing off… This is the biggest issue, or has been, for the company. At least that is our take. Sequenom said that it “remains committed to the development, third party validation and launch of a noninvasive T21 test. R&D efforts focus on DNA based approaches using our MassARRAY platform and next-generation sequencing platforms. Collectively, the R&D and clinical sample collection costs that will be required to enable a pivotal third party T21 test validation study represent the single largest investment the company will make in 2010.”
More specifically, Paul V. Maier, interim chief financial officer, was quoted as saying, “With the completion of a strategic review in late 2009, we are now focused on funding priority projects in 2010, which includes continuing to make a major investment in T21 development and clinical studies. An additional project which will receive priority funding for 2010 includes development of the next generation of MassARRAY instrumentation.”
OSI Can’t Stay Indpendent Forever (OSIP)
OSI Pharmaceuticals Inc. (NASDAQ: OSIP) is holding up yet again, despite the notion that Astellas Pharma, Inc. of Japan wants to acquire the company. OSI decided to formally reject the $52.00 per share tender offer and is recommending that its shareholders reject the offer while it contacts other parties. Today we have a counter-response from Astellas. The profitable maker of Tarceva either wants to remain independent regardless of its notion that it will contact outside parties, or it wants to fetch a much higher price. Based upon a $52.00 deal offer and a current price of about $58.00 after the fact, take a guess what the market is thinking.
Astellas has said that it is pleased that OSI’s board of directors has finally instructed its management to explore a transaction for the Company. But it also noted that the Astellas offer gives OSI Pharma shareholders the opportunity to get a full and fair value immediately in cash. The market is paying $58.00, not $52.00, at least as of this afternoon.
But what Astellas did note was that its offer is not subject to any financing conditions nor to due diligence. The deal only contains customary conditions to close, as per its own words.
Astellas decided that its best route is to take its offer directly to shareholders of OSI Pharma. Astellas said that it will also nominate a full slate of directors for OSI’s upcoming shareholder meeting, although it is not likely to get a warm reception. The company further noted that the $52.00 per share cash offer was a 40% premium from the last trading day before Astellas made its offer public. It further said the deal is a 53% premium to the 3-month average and a 31% premium to the 52-week high.
The problem is wider than today’s share price. OSI has been public long enough that it is one of the oldest in its class. For a brief period in 2000 to 2001 its shares hit $80 a share. Then it even more briefly went up to almost $100.00 per share in 2006 and spent several months north of $60.00 on its own.
Savient, Gout, and FDA… Back At The Door (SVNT)
Savient Pharmaceuticals, Inc. (NASDAQ: SVNT) is from giving up on its KRYSTEXXA as a gout treatment. This morning the company announced that it has resubmitted its Biologics License Application to the FDA. This has been in the news, particularly since the company announced a secondary offering late last year after the FDA denied this in August and sent shares down 35% at the time. This one even got on the map as an old Jim Cramer favorite.
The resubmission is for KRYSTEXXA to treat chronic gout in patients refractory to conventional therapy, which is effectively in patients who have failed to normalize their levels of serum uric acid and whose signs and symptoms are inadequately controlled with xanthine oxidase inhibitors at the maximum medically appropriate dose. It also for patients where these drugs are contraindicated. The resubmission includes data from three consecutive manufacturing validation batches, additional and improved analytical methods for the control and release of pegloticase API and KRYSTEXXA and other data which are designed to address the issues cited by the FDA in its July 31, 2009 Complete Response Letter (CRL). Also included is a safety update from the remaining studies that were ongoing at the time of the previous 120-Day Safety Update.
More Drug and BioHealth Dividends (MRX, WCRX, AMGN, MRK, PFE, PPH, BBH)
Medicis (NYSE: MRX), a specialty pharmaceutical company in treatments of dermatological and aesthetic conditions, has the talk going again about dividends in the drug and biotech sector. The company declared a quarter-end cash quarterly dividend of $0.06 payable on April 30, 2010 for holders of record at the close of business on April 1, 2010. This dividend hike is a 50% increase versus the previous $0.04 dividend and the last hike was in March 2008. But what is more important than Medicis is that this brings up the focus on dividends in both the pharma sector and potentially in the biotech sector.
Many investors have seen scores of dividend hikes since the end of December, which is the yardstick for a vote of confidence issued by a company. We have noted two more dividend candidates which are not currently paying dividends:
- Amgen Inc. (NASDAQ: AMGN) as the world’s largest independent biotech stock;
- Warner Chilcott plc (NASDAQ: WCRX) as perhaps the newest and best up and comer in the pharmaceuticals sector.
Neither pay a dividend. Not yet. It would seem that the most likely candidate of the two would be Warner Chilcott because companies like Merck & Co. (NYSE: MRK) and Pfizer Inc. (NYSE: PFE) do pay dividends with roughly a 4% yield. Here is a full dividend analysis we gave earlier on the sector.
So far Amgen is opting for share buybacks right now and it has not indicated that it will pay a dividend.
The two key ETF products we use to follow the biotech/drug sector are the Pharmaceutical HOLDRs (NYSE: PPM) and the Biotech HOLDRs (NYSE: BBH). Both have irregular dividends and he biotech is far more sporadic than the pharma HOLDR.
More dividends coming!
JON C. OGG
The Facet Biotech Buyout Saga (FACT, BIIB, ABT, PDLI)
Facet Biotech Corporation (NASDAQ: FACT) is a buyout saga that seemed as though it would never end in 2009. The company is now finally being acquired, but not by Biogen Idec (NASDAQ: BIIB). Abbott Laboratories (NYSE: ABT) announced last night that it entered into a definitive agreement for $27.00 per share in a cash buyout. The deal is valued at $722 million, but that includes about $272 million in cash and equivalents.
The net cost will be about $450 million. In late-2009, Facet turned down a second unsolicited offer from Biogen Idec of $17.50 a share after having rejected a lower offer before that.
Facet has discovery and development partnerships with Biogen Idec for MS, and it also has partnerships with PDL BioPharma (NASDAQ: PDLI) and Roche.
Facet shares are up 66% at $26.96 this morning after last night’s deal. Its prior 52-week trading range was $5.86 to $18.35.
JON C. OGG
EDAP TMS, Back on the Map (EDAP)
EDAP TMS SA (NASDAQ: EDAP) is a French company which makes medical devices for the treatment of urological diseases and the company’s stock is soaring after the company was granted marketing approval of its newly designed, high-end Sonolith I-Sys lithotripsy device by the Japanese Administration. Because this market is still under-served, we wanted to look into the news despite this not being a drug or biotech company.
The Japanese equivalent of the FDA in the US granted marketing approval of EDAP’s Sonolith I-Sys lithotripsy device. What makes this unique is that the lithotripsy market in Japan is supposed to rank as the number one market in the world in total lithotripsy sales volume and in the installed base. The company also noted that Japanese physicians have traditionally been fast adopters of products in this field.
The Sonolith I-Sys is an easy to use high-end system that the company called an effective tool to deliver benefits to both patients and physicians with integrated and robotized features. The company noted that the device successfully obtained marketing clearance by the U.S. FDA in August 2009.
Amylin & Friends Brace for Diabetes Review (AMLN, LLY, ALKS)
Amylin Pharmaceuticals, Inc. (NASDAQ: AMLN) has a big event on deck this week. This Friday, March 12, is its Prescription Drug User Fee Act (PDUFA) action date for an FDA panel to issue a recommendation on Byetta as the the first once a week treatment for Type II diabetes. The date had been moved due to recent weather closures in February in and around Washington D.C.
Analysts are mixed on the stock with BMO cutting its rating last week, but there were two positive calls from Credit Suisse and Jesup & Lamont.
Options are elevated today, but not overly active. The open interest of stock options is also large enough that the $20 synthetic options straddle would imply that shares have to rise above $24.70 or drop below $15.30 to be profitable.
Byetta is already sold with Eli Lilly & Co. (NYSE: LLY), and Alkermes, Inc. (NASDAQ: ALKS) provides the technology that makes Byetta last longer in the delivery mechanism for a once per week use. Open interest in the Alkermes options is elevated but not astronomical.
There is a risk here for a potential delay on top of what has already been seen. Some feel the FDA will delay this recommendation with a request for more side effect data.
Amylin is currently believed to be the winner of ultimate once-weekly approval, even if a delay comes this week. But that notion also depends upon whom you ask. The most recent short interest data shows about 16.25 million shares (almost 12% of the float) are listed as being in the short interest. The stock is at $20.10 and the 52-week trading range is $7.89 to $20.46. That 52-week high was also hit today.
JON C. OGG
The Changing Landscape of Biotech Valuations (ACOR, CBST, MNKD, INCY, SGEN, ITMN, IPXL, MRX, SVNT, VPHM)
The biotech and biohealth universe is changing in size. In 2008 and 2009, partly due to mergers and partly due to market valuations, there had become a surprisingly small number of biotech stocks which had market capitalization rates of more than $1 billion. At one point there were only about 10 or 11 in our universe of biotech stocks that actually had market caps which were very far north of $1 billion, or at least out of the biotech stocks which followed at BioHealth Investor.
We have recently seen Acorda Therapeutics, Inc. (NASDAQ: ACOR), Cubist Pharmaceuticals Inc. (NASDAQ: CBST), MannKind Corporation (NASDAQ: MNKD), Incyte Corporation (NASDAQ: INCY), Seattle Genetics, Inc. (NASDAQ: SGEN), InterMune, Inc. (NASDAQ: ITMN), Impax Laboratories Inc. (NASDAQ: IPXL), and Medicis Pharmaceutical Corporation (NYSE: MRX) either get into or get back into the $1 billion market cap club. And then we have Savient Pharmaceuticals Inc. (NASDAQ: SVNT) and ViroPharma Incorporated (NASDAQ: VPHM) that have been in the club and are currently just short of it.
Due to waves of big emerging drug news and due to strong performance we now have 16 of the biotech and related stocks (at least of those which we cover as pure biotechs) which have market caps north of $2 billion. More importantly, the biotech news flow and he bull market has suddenly helped many stocks rise or at least get back above the $1 billion mark. Many of these had been there before, but the market has helped many new names get back above the $1 billion market capitalization level. And waves of mergers in the last two and three years sort of thinned out the group.
In these we did not take into consideration revenues, earnings, and not even cash. This has largely been news-driven and momentum-driven. Below is a review of each.
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