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
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.
More Biotech Buyout or M&A Targets (OSIP, VRTX, AUXL, ITMN, HGSI, CELG, DNDN, ENZN, FACT, PBE, XBI)
After today’s hostile Astellas offer for OSI Pharmaceuticals (NASDAQ: OSIP), we have investors and traders alike looking for ‘the next takeover target’ in biotech. Buy now you know that there are many pitfalls in simply looking for biotech stocks to buy because they will be taken over. We have taken a look through our own recent stocks noted as takeover candidates and even gone through some sites of our partners looking through potential takeover candidates in the space.
Morningstar just last week had a short video with some key potential buyout targets in the biotech space. It noted Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX), Auxilium Pharmaceuticals Inc. (NASDAQ: AUXL), and InterMune Inc. (NASDAQ: ITMN). Those are all names that have come up as takeout targets before.
But two that are on Morningstar’s list for buyouts are Human Genome Sciences Inc. (NASDAQ: HGSI) and Celgene Corporation (NASDAQ: CELG) for its REVLIMID franchise. The problem with Human Genome is that it is in the same boat we have addressed on multiple occasions: its size got away from the potential realm of buyers. And Celgene has just become too big at a $28 billion market cap for most potential buyers to consider it and the sales growth from $2.689 billion in 2009 is expected to go to $3.26 billion in 2010 and $3.75 billion in 2011 per Thomson Reuters estimates.
After looking around elsewhere, we went back to some Dendreon Corp. (NASDAQ: DNDN) rumors from last month we covered. This was based somewhat on options trading, and we think this company may have to wait for a suitor. Taking the risk of buying the company out before the FDA approves PROVENGE for advanced prostate cancer is something companies are seeming to shy away from.
Enzon Pharmaceuticals, Inc. (NASDAQ: ENZN) is another name that comes up routinely in the rumor mill. We noted this one hitting 52-week highs in January on fresh rumors.
Facet Biotech Corporation (NASDAQ: FACT) has also fought off attempts from Biogen Idec (NASDAQ: BIIB) as a new add-on for its MS franchise. Biogen has been rebuffed and it supposedly will not have an interest anymore.
ETF investors are chasing up names in the sector as well. PowerShares Dynamic Biotech & Genome (NYSE: PBE) is up 4% at $18.48 and the SPDR S&P Biotech (NYSE: XBI) is up 4.7% at $58.98.
Jon C. Ogg
Hostile Mergers Back in Biotech (OSIP)
Mergers are back in biotech…. Astellas Pharma Inc., a global pharmaceutical company in Japan, announced that it will commence a tender offer to acquire all outstanding shares of common stock of OSI Pharmaceuticals (NASDAQ: OSIP). The direct tender is nothing short of a hostile merger after Astellas said that OSI has refused to discuss terms.
The offer is for $52.00 per share in cash valued at approximately $3.5 billion on a fully diluted basis. Astellas notes that this offer is premium of over 40% to the recent closing stock price and it is a 53% premium over the three-month average share price. The deal is also said to not be suject to any financing terms or conditions.
In the deal, Astellas hopes to build a world-class oncology platform and expects to invest in OSI’s business and employees. Here is how Astellas describes the deal:
The acquisition of OSI – a biotechnology company primarily focused on the discovery, development and commercialization of molecular targeted therapies addressing medical needs in oncology, diabetes and obesity – would support Astellas’ growth strategy of becoming a Global Category Leader in oncology. OSI manufactures and sells Tarceva as a leading cancer medication and has several prospective new oncology medications in its R&D pipeline.
This is a hostile takeover rather than an approved and friendly merger. Astellas noted that it has made numerous attempts to engage in substantive discussions to acquire OSI. The company first raised its interest in acquiring OSI during a meeting with OSI’s CEO in January 2009. It noted that it then made its first written proposal in February 2009. It then sent letters reiterating its interest in March and June 2009 and several face-to-face meetings, including a meeting between the two CEOs on February 12, 2010. The company has maintained that OSI has refused to engage in a meaningful discussion, so Astellas is going directly to OSI stockholders.
This may not be the only or last deal either, because Astellas said it will consider all means necessary to secure a completed transaction. Astellas also intends to nominate directors at OSI’s upcoming annual meeting to give stockholders a voice in the outcome.
Stay tuned.
JON C. OGG
Buyout Rumors Resurface in Biotech, Maybe (DNDN, MYGN)
Sometimes it is the action seen in stock options gets traders moving more than the action in the stock. With more commentators on CNBC and other media outlets talking about ‘elevated options trading seen in…’ it gets even more on alert. From our best read today, that seems to be the case in Dendreon Corp. (NASDAQ: DNDN) and Myriad Genetics Inc. (NASDAQ: MYGN). There has been talk of ‘buyout rumors’ but we would first and foremost stress ‘caveat emptor’ when it comes to this.
Dendreon shares are up only 1.4% before the closing bell at $32.46 and not even on any crazy volume. But there was a new high today of $32.62. So far we have seen more than 18,000 CALLS and more than 6,000 PUTS trade today… but again, expiration may be part of the issue here.
Myriad Genetics saw more than 3,000 CALLS trade, but 1,100 of those were in the MARCH 2010 $24.00 CALLS, almost $2.00 above today’s share price. Myriad was up over 3% late in the day at $22.30, but its 52-week trading range is $20.62 to $47.08 and it traded about 150% of normal trading volume.
These ‘buyout rumors’ get tossed around far too liberally. Today was options expiration date and lots of the ‘unusual activity’ is frequently nothing more than expiration roll-outs in the last few trading days of each month when options are expiring. We’d also note that if there were genuine rumors of substance rather than of hope then you would be seeing much more than just a few thousand options contracts and more than 100% or 150% of normal volume.
Anything is possible, particularly in biotech. But for traders to really be honing in on buyouts, there is generally far more interest than this.
Earnings is getting tiring and the world is tired of it…. That being said i am going to do an early preview and have it ONLY focused on the big retail names so that it is targeted. That is the bulk of the earnings of big companies next week anyhow.
JON C. OGG
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
Human Genome Sciences… When Insiders Sell Stock (HGSI)
Human Genome Sciences, Inc. (NASDAQ: HGSI) has been one of the great biotech success stories, with returns far dwarfing the 10-bagger or 1,000%. This went from a small genomics company to a company with what seems to be or likely to be the newest lupus treatment in a generation after (and if) the FDA approves of it. While management has been quick to quiet buyout rumors, the investment community for most of 2009 was betting or hoping that the company would be acquired.
Yet when you see insiders making share sales, and some significant share sales, it probably makes you think no real deal is on the table. In short, buying Human Genome Sciences here now better be for that pending FDA approval and for its pipeline rather than for a hope of a buyout. Here were the insider sales we have seen so far this month:
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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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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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