An Option Trader’s Take on Human Genome Sciences (HGSI)
Human Genome Sciences (NASDAQ: HGSI) has become a one of the biggest and widespread stocks literally out of the blue over the last year. This company went from what was originally a genomics stock with few significant and ongoing revenue prospects on the immediate horizon to a biotech stock with a very promising lupus treatment candidate in very short order. Now it has a market cap of over $5 billion and it has active share volume and its options are frequently active with a large open interest. We were just given an option alert from Joe Kunkle over at OptionsHawk.com, who relayed the following trading data to us:
- “Human Genome Sciences, with a bullish price, bearish volatility bet as a large call butterfly spread trades in February. The trader bought the $28 and $35 wings for 2,500 contracts, and sold 5,000 of the $33 body strike for a net debit of around $1.25. February implied volatility in HGSI stands at 46%. The trade comes ahead of a January 11th presentation at the big JP Morgan Healthcare Conference. HGSI is expecting FDA approval for Benlysta, it’s blockbuster Lupus drug int he first half of 2010, but this trade is not expecting that event by February and instead sees modest upside ahead of the anticipated approval.”
Today’s options trading data is activity that does not frequently get daily color. But generally speaking, trades of this nature and similar trading patterns are what individual investors and smaller institutional investors love to look for. It is also easy to miss or overlook. At the end of the day, options bets frequently signal significant moves. We have been shown many such pre-move notifications from OptionsHawk like this one today.
Our own review has focused out to April 2010, where this is effectively the last month with a large options open interest until the Janauary-2011 Puts and Calls from our own data seen. From our checks on what to expect, most consider that Human Genome will receive FDA approval. The Lupus treatment reports show safety and efficacy, but the other notion is that Lupus has had no new real treatments in a generation. Still, predicting FDA outcomes has proven over and over to be very risky business.
Human Genome was recently reviewed as we looked for the end of 2009 trading patterns showing how investors and speculators were looking for the next 1,000% returns in the realm of biotech and BioHealth stocks.
JON C. OGG
Top 2010 Established Biotech Stock Picks for Upside (MNKD, THRX, DNDN, INCY, ILMN, ALNY, GILD, SVNT, AMGN, ONXX, PDLI, OSIP, CELG)
BioHealthInvestor.com wanted to put together a list of key biotech and BioHealth-related stocks that had the most upside for 2010 according to consensus analyst price targets. This is of course no exact science for many reasons, but getting a lot of consensus price targets together is often a sign of at least where to start when looking for upward price targets in stocks. And we all know that BioHealth and biotech stocks often offer the upside of the century as these companies all hold a bit of your own personal lottery ticket in all of their share prices.
After taking a look at our normal universe of biotech and biohealth related stocks. it was obvious that MannKind Corp. (NASDAQ: MNKD) still has the most upside from the consensus price targets IF it is hit. Then in order of expected share price appreciation comes Theravance Inc. (NASDAQ: THRX), Dendreon Corp. (NASDAQ: DNDN), Incyte Corporation (NASDAQ: INCY), and then came Illumina Inc. (NASDAQ: ILMN), Alnylam Pharmaceuticals, Inc. (NASDAQ: ALNY), and Gilead Sciences Inc. (NASDAQ: GILD).
The stocks above all had upside of over 25%. The other stocks here are the ‘lower rung’ of upside expectations but are all still offering over 20% upside to the consensus analyst price targets (again IF they are hit). Of the 13 stocks with markets caps of $750 million (or almost $750 million) which we cover, these still had upside of over 20% except a few: Savient Pharmaceuticals, Inc. (NASDAQ: SVNT), Amgen Inc. (NASDAQ: AMGN), Onyx Pharmaceuticals Inc. (NASDAQ: ONXX), PDL BioPharma, Inc. (NASDAQ: PDLI), OSI Pharmaceuticals Inc. (NASDAQ: OSIP), and Celgene Corporation (NASDAQ: CELG).
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Quest For 10-Baggers in BioHealth in 2010 (JAZZ, TRGT, VNDA, DNDN, HGSI, CGEN, BNVI, QCOR, ACHN, PSDV, ATHX, SNSS, AVNR, BIOD, ALXA, CTIC)
If one thing was noticed in biotech stocks, or BioHealth stocks as we often say, it was that investors, traders, and speculators all piled into the chase for the next ten-bagger late in the year. When you have as many biotech and BioHealth stocks that ran over 1,000% in 2009 that is only to be expected…. hence the 10-bagger comments. We had many biotech and biohealth shares rally from their lows significantly this year, with companies such as Jazz Pharmaceuticals, Inc. (NASDAQ: JAZZ), Targacept, Inc. (NASDAQ: TRGT), Vanda Pharmaceuticals, Inc. (NASDAQ: VNDA), Dendreon Corp. (NASDAQ: DNDN), and Human Genome Sciences, Inc. (NASDAQ: HGSI) all being in or having been in the 10-bagger club this year.
But late in 2009 we started seeing an onslaught of low-priced stocks with small cap or micro-cap values running rapidly higher on news. In some cases these faded, and in some not. We saw the traders run up shares of Compugen Ltd. (NASDAQ: CGEN), Bionovo, Inc. (NASDAQ: BNVI), Questcor Pharmaceuticals, Inc. (NASDAQ: QCOR), Achillion Pharmaceuticals, Inc. (NASDAQ: ACHN), pSivida Corp. (NASDAQ: PSDV), Athersys, Inc. (NASDAQ: ATHX), Sunesis Pharmaceuticals, Inc. (NASDAQ: SNSS), and AVANIR Pharmaceuticals, Inc. (NASDAQ: AVNR) on news late in 2009. Also covered as potentials for this are Biodel Inc. (NASDAQ: BIOD), Alexza Pharmaceuticals, Inc. (NASDAQ: ALXA), and Cell Therapeutics, Inc. (NASDAQ: CTIC).
We have reviewed each of these and given a synopsis for each to see if these could be the 10-baggers for 2010.
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BioHealth IPO Focus: Tengion, Organ Replacements (TNGN)
If you have heard horror stories about real human kidney theft, that may be a thing of the past. If this actually works. An IPO filing this week revealed a rather interesting company that we will look forward to how it prices in 2010. Tengion, Inc. filed for an initial public offering of its common stock. While no terms were indicated for its IPO, the filing notes a sale of up to $40.25 million in common stock and Piper Jaffray was designated as he underwriter. This is not quite stem cells, not RNAi, and not quite genomics. The company is focusing on a range of replacement organs and tissues.
Here is how Tengion desrcibes itself:
We believe we are the only regenerative medicine company focused on discovering, developing, manufacturing and commercializing a range of replacement organs and tissues, or neo-organs and neo-tissues. We currently create these functional neo-organs and neo-tissues using a patient’s own cells, or autologous cells, in conjunction with our Organ Regeneration Platform. We believe our proprietary product candidates harness the intrinsic regenerative pathways of the body to regenerate organs and tissues that are native-like, or substantially similar to native organs and tissues. We manufacture our product candidates in our scalable facilities using efficient and repeatable proprietary processes and we have implanted our neo-organs in clinical trials. We intend to develop our technology to address unmet medical needs in urologic, renal, gastrointestinal and vascular diseases.
Our lead product candidate, the Neo-Urinary Conduit, is an autologous implant that catalyzes regeneration of native-like bladder tissue for bladder cancer patients requiring a urinary diversion following bladder removal, or cystectomy. This tubular conduit passively transports urine from the ureters, through a hole in the abdomen, or stoma, into a removable, disposable bag, or ostomy bag. We have an effective investigational new drug application, or IND, and expect to start a Phase I clinical trial for this product candidate in the first half of 2010 in bladder cancer patients. We have also applied our technology in two Phase II clinical trials for our Neo-Bladder Augment for the treatment of neurogenic bladder, or dysfunctional bladder due to some form of neurological disease or condition. Our Neo-Urinary Conduit leverages recent advances in our technology platform that enable us to produce this product candidate more quickly and efficiently, and less expensively, than our Neo-Bladder Augment, enabling us to address larger market opportunities. Our product pipeline includes several candidates in early stage development, such as our Neo-Kidney Augment for patients with advanced chronic kidney disease, or CKD.
It also lists the following steps for the platform:
- Isolation and expansion. We receive a small tissue sample, generally by routine biopsy, and isolate the necessary committed progenitor cells, which are relevant to a specific organ or tissue type. Committed progenitor cells have not yet developed into a single cell type and retain the ability to promote regeneration. We then use our proprietary cell growth process to grow, or expand, the progenitor cells.
- Seeding and growth. We place, or seed, these expanded cell populations on a bioabsorbable scaffold and put the seeded structure in a bioreactor, or a closed container used for enhancing biological growth under controlled conditions.
- Implantation. The neo-organ or neo-tissue is shipped by a standard overnight courier service and implanted by a surgeon using standard surgical procedures.
- Regeneration. Based on clinical and preclinical data, we believe that our implanted product candidates serve as templates for the body to regenerate native-like organs and tissues. Blood vessels and nerves grow into the implanted neo-organ or neo-tissue and the scaffold is gradually absorbed by the body. In preclinical tests, we have observed that the newly grown tissue integrates with its surroundings and becomes substantially indistinguishable over time from the native organ. Clinical results indicate that the body regulates the growth and development of the organ to ensure that it is not under- or over-developed.
The company’s Organ Regeneration Platform is based on work that began in the early 1990s at Children’s Hospital Boston and Massachusetts Institute of Technology, and continued at the Wake Forest Institute for Regenerative Medicine and at the company. 5% stockholders are listed as follows:
- Oak Investment Partners XI, Limited Partnership 18,034,824 shares for a 19.6% stake.
- HealthCap Venture Capital 13,153,457 million shares for a 14.3% stake.
- Johnson & Johnson Development Corporation 11,522,503 shares for a 12.5% stake.
- Brookside Capital Partners Fund, L.P. 7,930,273 shares for a 8.6% stake.
- Bain Capital Venture Entities 7,850,970 shares for a 8.5% stake.
- Quaker BioVentures 7,671,363 shares for a 8.3% stake.
- L Capital Partners SBIC, L.P. 5,900,528 shares for a 6.4% stake.
The full SEC Filing is here. Tengion plans to list on the NASDAQ under the stock ticker “TNGN.”
JON C. OGG
Could Affymetrix Be Next Takeover in BioHealth? (AFFX, CALP, LIFE, QGEN)
Everyone wants to know which stocks in biotech and medical technology will be the next buyout target. It is rare that research reports or interviews from traditional brokerage firms point out an obvious takeover candidate, but that is exactly what came about in shares of Affymetrix Inc. (NASDAQ: AFFX) this morning. We first saw a move today in the company’s stock options volume on the heels of an analyst’s comments today.
The company is into consumables and systems for genetic analysis in the life sciences and clinical healthcare markets with its integrated GeneChip microarray platform including disposable DNA probe arrays consisting of nucleic acid sequences. It also operates or sells in North America, Europe, Latin America, India, the Middle East, China and the Asia Pacific regions. It has collaboration partnerships with Caliper Life Sciences (NASDAQ: CALP), CapitalBio Corporation, Life Technologies Corporation (NASDAQ: LIFE), Pathwork Diagnostics, and Qiagen (NASDAQ: QGEN). Of these partnerships, Qiagen and Life Technologies are both far larger than Affymetrix.
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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
Lupus Buster Unleashed! (HGSI, GSK)
Human Genome Sciences, Inc. (NASDAQ: HGSI) has spent 2009 as its year where the company acted as the rising Phoenix from the ashes. Things had reached bad enough levels that the stock traded under the $1.00 mark. But a surprising twist in its experimental lupus drug called Benlysta has created a major change of fate here because lupus is largely unmet with any real treatments and it has been years and years that any new drug has come on the market to fight this disease.
Options trading had gone through the roof last week ahead of this morning’s expected study results. The second study showed that Human Genome Sciences’ Benlysta met its primary endpoint in BLISS-76, the second of two pivotal Phase III trials in seropositive patients with systemic lupus erythematosus.
The company noted that BENLYSTA is the first drug for lupus to reach Phase III and achieve positive results, in the largest randomized placebo-controlled clinical trials ever completed in patients with the disease. The company further noted that this is an important milestone for the lupus community as there has not been a new treatment for lupus approved by regulatory authorities in more than 50 years.
The first positive results from the first BENLYSTA trial, called BLISS-52, were announced in July. GlaxoSmithKline is the partner for this drug and the companies are said to split the profits 50/50 when it is approved. The companies plan to file for marketing approval applications for BENLYSTA in the United States, Europe and other regions in the first half of 2010.
There is one notion to consider, although the reality is that it probably won’t matter. The success came in the higher dosage arm of the study rather than at the low dosage.
Today’s news takes Human Genome Sciences back to highs not seen since 2002 when the company had a much different focus as that was a post genome-mapping period. The last time this was at $25.00 was in March-2002. And this had been a $70 stock in 2001 and even above $100 on a split-adjusted basis in early 2000.
Shortly after the market open, we have shares trading up some 38% at $28.84 on over 9.7 million shares. You can count on today being an exponential volume day compared to its 7.9 million shares on average trading days.
As far as why this is soaring so much, that is simple. Any lupus drug has blockbuster written all over it for that $1 billion in annual sales hurdles. One estimate we saw last week even noted the possibility that this could be a $3 billion drug under the right circumstances. And if there have been no new treatments for as long as the company noted, then a more restrictive healthcare and drug spending climate probably won’t apply to hammering down on a company with this big of a treatment.
JON C. OGG
AVI BioPharm (AVII) Spikes Up
AVI BioPharma (AVII) is up 29% to $2.03 which give the company a market cap of $173 million.
Barron’s made favorable comments about the firm on Saturday.
The company also said it received expanded contract funding of approximately $11.5 million from the Defense Threat Reduction Agency’s (DTRA) Transformational Medical Technologies Initiative (TMTI) to support development of the Investigational New Drug (IND) data package for its candidate drug, AVI-7012, to treat Junin virus infection. To date, the United States Department of Defense (DoD) has contracted with AVI for work potentially worth up to $45 million for the development of AVI’s RNA-based drug candidates to treat Ebola, Marburg and Junin virus infections (AVI-6002, AVI-6003 and AVI-7012, respectively).
Douglas A. McIntyre
Helicos BioSciences (HLCS) Soars, But Will Probably Sell Off
Helicos BioSciences (HLCS) is up 32% to $3.20 very near its 52-week high. The period low is $.21 so consider the shares over-bought and ripe for a sell-off, particularly because today’s news is not spectacular.
The firm announced the publication of a landmark study in which Helicos’ True Single Molecule Sequencing (tSMS)™ technology was used to directly sequence individual molecules of RNA. The paper appeared yesterday in the on-line edition of Nature and will appear in an upcoming 2009 print issue of Nature.
The study consists of the accurate sequencing and quantitation of RNA molecules obtained directly from a biological sample without amplification, ligation or cDNA synthesis.
Any revenue potential from that?
Douglas A. McIntrye
