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.
Dividends Coming In Biotech & Pharma? (WCRX, AMGN, MRK, PFE, PPH, BBH)
Many investors have been focusing on the number of dividend raises we have so far seen since the end of December. It is the perfect vote of confidence issued by a company, much more so than a share buyback plan. The dividend means “we will be able to this rate over and over” for investors. There have been very few big moves in the BioHealth arena. We have two very interesting dividend candidates. Amgen Inc. (NASDAQ: AMGN) as the world’s largest independent biotech stock, and 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. Amgen is opting for share buybacks right now and its peers are not known for being thge greatest of the world’s dividend candidates. We wanted to take a look at each in a deep review of the basics that allow for dividends.
There is a precedent here. The two key ETF products we have used to follow the sector are in the HOLDRs family, which are the oldest of the drug and biotech ETF products. And they are liquid, mostly and usually. The Pharmaceutical HOLDRs (NYSE: PPM) pays dividends, but these are irregular and are dependent upon which shares are making quarterly distributions through each quarter. Then there is the Biotech HOLDRs (NYSE: BBH), which are currently less liquid than what we have seen in the past. Dividends are more sporadic here, but they are present.
WARNER CHILCOTT
Warner Chilcott plc (NASDAQ: WCRX) seems to quietly and rapidly emerging as one of the greatest drug companies on the scene in years. Many pharma and biohealth investors still do not even really know the company. If all goes well and according to plan, the company may be one of the best value stocks out there in the land of pharma and biotech. The company pays no dividend, but after we get a couple of more quarterly adjusted balance sheets and earnings reports behind us it seems as though the company will want to join Merck & Co. (NYSE: MRK) and Pfizer Inc. (NYSE: PFE) with a dividend to help further get on the map.
The stock has done very well since it completed the acquisition of the global branded pharmaceutical business from The Procter & Gamble Company (NYSE: PG) on October 30, 2009. Its most recent guidance is as follows for 2010: Adjusted total revenue for 2010 after the impact of its distribution agreement with LEO Pharma A/S in range of $2.9 to $2.95 billion; Adjusted gross margin of 88% to 89%; Total SG&A expenses in the range of $1.2 to $1.25 billion; total R&D in the range of $180 to $200 million; net income of $190 to $215 million; adjusted cash net income in the range of $842 to $867 million; and using 255 million ordinary shares adjusted cash net income per share of $3.30 to $3.40 per share for the full year 2010.
We would think it is safe to assume that the company wants to get a couple more quarters to pass before a dividend is launched, but barring any other mergers we would expect the company to get on the map with a dividend. With shares close to $25.00, a 4% yield would be about $1.00 per year of that $3.30 to $3.40 per share in 2010 earnings. Thomson Reuters has estimates of $3.37 EPS and that would give a forward P/E ratio expected of less than 8-times earnings. An estimated guess is that the dividend will start at about $0.60 to $0.75 per year, for now.
AMGEN INC.
Amgen Inc. (NASDAQ: AMGN) is the world’s biggest independent biotech by market cap. Yet the stock has been stodgy enough and its anemia franchise has been under fire enough that Amgen almost feels like a good old-fashioned Big Pharma stock now. It seems like an unlikely dividend stock on the surface and not just because it wants to be thought of as a biotech that does not pay dividends. So far, the company has chosen to conduct share buybacks to deploy cash and it is not in a hurry to begin paying a dividend.
In the investor Q&A of its investor relations site, the phase is there: “Amgen does not pay a dividend on stock, and does not foresee doing so in the immediate future.” There is an issue though and that is that the expected earnings growth leaves more and more room for Amgen to begin rewarding its shareholders. It recently announced a $5 billion share buyback, on top of the $1.2 billion remaining at the time still authorized for buybacks. But share buybacks were the shareholder-friendly actions of 2007 to 2009. In the new normal, the dividend may matter more to holders who want to get money back from companies. Amgen trades at a mere 11-times 2010 estimates from Thomson Reuters.
We do not want to say that Amgen has been dead money for five years, but it has been very quiet money. For more than 3 years the stock has had a hard time staying above $60 for very long. And for some time we have noted that Amgen is effectively valued more like a Big Pharma stock than a biotech stock. With $5 billion in cash flow and with a mountain of cash, it can afford a dividend on top of its debt and on top of its buyback plans. Both Merck & Co (NYSE: MRK) and Pfizer Inc. (NYSE: PFE) yield close to 4%, and Amgen could easily afford to pay close to 2% or $1.00 per share for its initial dividend rate.
There are two issues which would keep Amgen from paying a dividend for years. The first is a big acquisition, but the company likely knows that this would likely take its stock lower as we have seen in most buyer situations. Amgen could also embark on a huge debt pay-off in the future. That is also shareholder friendly. But initiating a dividend, and a noticeable one, might be the best effort the company could make.
JON C. OGG
FEBRUARY 11, 2010
Cyclacel Pharmaceuticals (CYCC) Rise Looks Bogus
Cyclacel Pharmaceuticals (NASDAQ:CYCC) is up after BeaconEquity.com announces a video investment report featuring the company. There is nothing new about CYCC and it would appear that the promotion is immaterial to the company’s future.
Douglas A. McIntyre
A Dip At Molecular Insight (MIPI)
Molecular Insight (NASDAQ:MIPI) is off about 10% today on no news.
The most recent announcement from the company was almost a week ago when it said it executed an exclusive 10-year agreement to supply the Onalta 90-Y edotreotide radiotherapeutic to BioMedica Life Sciences S.A., Athens, Greece.
In September, Molecular Insight entered into a Territory License Agreement with BioMedica for commercialization of Onalta in certain European countries, the Middle East, North Africa, Russia and Turkey.
Under the Agreement, BioMedica is expected to perform clinical studies and to secure all regulatory approvals to market, sell and distribute Onalta within its licensed territories. Molecular Insight retains Onalta rights in all other markets and territories, including the United States, Japan and Asia.
Douglas A. McIntyre
BioHealth Earnings Floodgates Opening (BSX, BIIB, GILD, ISRG, PFE, DGX, SYK, AMGN, ELN, LLY, GENZ, STJ, BMY, MRK, SGP, ZMH)
Next week is going to be the mother of all earnings reports for the BioHealth community. We have included the key device companies as well in this calendar with the routine top drug and biotech companies. As a reminder, these estimates may change between now and when some of the players report earnings. In the screens for earnings we have the estimates included listed as the Thomson Reuters consensus figures.
MONDAY OCTOBER 19
- Boston Scientific Corporation (NYSE: BSX) $0.14 EPS on $2.04 billion in revenues
TUESDAY OCTOBER 20
- Biogen Idec Inc. (NASDAQ: BIIB) $1.04 EPS on $1.11 billion in revenues
- Gilead Sciences Inc. (NASDAQ: GILD) $0.67 EPS on $1.76 billion in revenues
- Intuitive Surgical, Inc. (NASDAQ: ISRG) $1.46 EPS and $256.44 million in revenues
- Pfizer Inc. (NYSE: PFE) $0.48 EPS and $11.4 billion in revenues
- Quest Diagnostics Inc. (NYSE: DGX) $0.96 EPS and $1.89 billion in revenues
- Stryker Corp. (NYSE: SYK) $0.69 EPS and $$1.62 billion in revenues
WEDNESDAY, OCTOBER 21
- Amgen Inc. (NASDAQ: AMGN) $1.27 EPS and $3.79 billion in revenues
- Elan Corporation, plc (NYSE: ELN) -$0.13 EPS on $285.18 million in revenues
- Eli Lilly & Co. (NYSE: LLY) $1.01 EPS and $5.4 billion in revenues
- Genzyme Corporation (NASDAQ: GENZ) $0.44 EPS and $1.11 billion in revenues
- St. Jude Medical, Inc. (NYSE: STJ) $0.58 EPS and $1.16 billion in revenues
THURSDAY, OCTOBER 22
- Bristol-Myers Squibb (NYSE: BMY) $0.51 EPS and $5.5 billion in revenues
- Merck & Co., Inc. (NYSE: MRK) $0.83 EPS and $6 billion in revenues
- Schering-Plough Corporation (NYSE: SGP) $0.39 EPS and $4.45 billion in revenues
- Zimmer Holdings Inc. (NYSE: ZMH) $0.86 EPS and $953.6 million in revenues
JON C. OGG
OCTOBER 16, 2009
Biotech Short Sellers Changing Beat (AMGN, GILD, BIIB, CELG, GENZ, LIFE, DNDN, HGSI, AMLN, OSIP)
Over the weekend we got to see some of the short interest changes for the key biotech stocks. While these was no clear unified directional move, there were some interesting changes seen. Amgen Inc. (NASDAQ: AMGN), Gilead Sciences Inc. (NASDAQ: GILD), Biogen Idec Inc. (NASDAQ: BIIB), Celgene Corporation (NASDAQ: CELG), and Genzyme Corp. (NASDAQ: GENZ). Due to growing market caps in the sector, we have also included Life Technologies Corporation (NASDAQ: LIFE), Dendreon Corp. (NASDAQ: DNDN), Human Genome Sciences Inc. (NASDAQ: HGSI), Amylin Pharmaceuticals, Inc. (NASDAQ: AMLN), and OSI Pharmaceuticals Inc. (NASDAQ: OSIP)in the run down this month.
Amgen Inc. (AMGN)
AS OF DATE Short Int. Change
9/30/2009 18,363,198.. 5% GAIN
9/15/2009 17,449,497
Gilead Sciences Inc. (NASDAQ: GILD)
AS OF DATE Short Int. Change
9/30/2009 16,015,311.. 3.8% GAIN
9/15/2009 15,466,285
Celgene Corporation (NASDAQ: CELG)
AS OF DATE Short Int. Change
9/30/2009 8,177,698.. 9% DROP
9/15/2009 8,935,957
Biogen Idec Inc. (NASDAQ: BIIB)
AS OF DATE Short Int. Change
9/30/2009 9,459,673.. 1% DROP
9/15/2009 9,565,418
Genzyme Corp. (NASDAQ: GENZ)
AS OF DATE Short Int. Change
9/30/2009 8,771,379.. 19% GAIN
9/15/2009 7,388,108
Life Technologies Corporation (NASDAQ: LIFE)
AS OF DATE Short Int. Change
9/30/2009 6,799,196.. 3% DROP
9/15/2009 7,033,841
Dendreon Corp. (NASDAQ: DNDN)
AS OF DATE Short Int. Change
9/30/2009 8,939,869.. 2% DROP
9/15/2009 9,146,253
Human Genome Sciences Inc. (NASDAQ: HGSI)
AS OF DATE Short Int. Change
9/30/2009 19,786,339.. 1% DROP
9/15/2009 19,867,823
Amylin Pharmaceuticals, Inc. (NASDAQ: AMLN)
AS OF DATE Short Int. Change
9/30/2009 13,171,869.. 5.7% DROP
9/15/2009 13,928,154
OSI Pharmaceuticals Inc. (NASDAQ: OSIP)
AS OF DATE Short Int. Change
9/30/2009 5,444,450.. 5.8% GAIN
9/15/2009 5,137,212
JON C. OGG
Sangamo BioSciences (SGMO) Hurt By Share Pricing
Sangamo BioSciences (SGMO) is down 9 to $7.30% after it announced the pricing of a public offering of 3,000,000 shares of its common stock. The offering is expected to close on or about October 13, 2009, subject to the satisfaction of customary closing conditions. In addition, Sangamo has granted the underwriter a 30-day option to purchase up to an additional 450,000 shares of common stock to cover over-allotments, if any.
Douglas A. McIntyre
AspenBio Pharma (APPY) Hurt On Share Pricing
AspenBio Pharma (AAPY) announced an it has priced a public offering of 4,482,609 shares of its common stock at $1.70 per share. The approximately $7.2 million of net proceeds, after deducting the underwriting discounts and commissions and estimated offering expenses, will be used for product development, FDA 510(k) submission related activities, general corporate purposes, and working capital. The offering is expected to close on or about October 13, 2009, subject to the satisfaction of customary closing conditions.
ThinkEquity did a poor job pricing the deal. The shares closed at $2.15 yesterday and now trade at $1.87, down 13%. APPY should have found another banker.
Douglas A. McIntyre
RegeneRx (RGN) Falls On Stock Offering
RegeneRX (RGN) is off 24% to $.85 on news that it has entered into a securities purchase agreement with new institutional investors for the sale of 4,512,195 shares of its common stock in a registered direct offering at $0.82 per share. In addition, warrants to purchase 2,256,098 shares of common stock will be issued to the investors. The warrants are immediately exercisable, have a term of 5 years and an exercise price of $1.12 per share. Gross proceeds of the offering, before deducting placement agent fees and other estimated offering expenses payable by RegeneRx, are expected to be approximately $3.7 million
Douglas A. McIntyre
Controversy Toward American Oriental Bioengineering (AOB)
American Oriental Bioengineering Inc. (NYSE: AOB) is being highlighted by a service which the company probably wished did not cover it. If you recall a websire called Asensio.com, and active site that highlights short selling opportunities or red flags in companies, Shenzen, China-based American Oriental Bioengineering is the new target of such activity.
If you look at the “Recent Reports” section at Asensio.com, there are two highted articles both dated as of today. One article is “AOB Chairman’s Questionable Second Passport and Potential Undisclosed Conflicts of Interest” and another article is “AOB’s Disclosures Concerning Director Cosimo Patti Appear Incomplete.”
You will need to go through these individually before making your own call. The notion that one short seller or one independent service highlights a company is something that should be checked and measured by each investor.
Shares were down early in the pre-market session, but the stock was actually back to positive right after the open. At 9:39 AM Est we have shares up 0.3% at $5.39. The 52-week trading range is $3.29 to $7.66 and the average volume is over 1.4 million shares.
American Oriental Bioengineering, Inc. is a Chinese pharmaceutical company “dedicated to improving health through the development, manufacture and commercialization of a broad range” of prescription and over the counter products. The market cap of this one is $421 million.
JON C. OGG
September 22, 2009
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