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.
Value Stocks in Drugs & Biotech (AMGN, BIIB, CBST, CEPH, PDLI)
This weekend we ran screens of several drug and biotech companies in our quest for ‘cheap stocks’ in the BioHealth sector. The intent is not solely for buyout targets because we prefer to look at value stocks rather than just picking buyout hopefuls. The obvious issue that makes most of these cheap is because there have been problems or have been issues that made these look cheap on the surface. To look for sub-market valuations, we used Thomson Reuters estimates for 2009 and 2010 earnings. We then set a maximum target of 15-times earnings and screened out the companies that gave the ‘false positives’ as there were many.
Amgen Inc. (NASDAQ: AMGN), Biogen Idec Inc. (NASDAQ: BIIB), Cephalon Inc. (NASDAQ: CEPH), Cubist Pharmaceuticals Inc. (NASDAQ: CBST), and PDL BioPharma, Inc. (NASDAQ: PDLI) all made the cut. We initially wanted to look for market caps over $1 billion, but we set the bar at $500 million and tried to focus on companies with growth. We included valuation data, performance, and some color on each name. Some, but not all of these, are also in our upcoming biotech buyout targets for 2010.
Amgen Inc. (NASDAQ: AMGN) is one we have long noted during its waves of problems and as it was under future reimbursement pressure that may be more like an old fashioned drug company now as it has matured. The company’s market cap is $56 billion, which is actually now the largest market cap since Genentech is now Roche. Its stock trades at $55.48 and its 52-week trading range is $44.96 to $64.76. Because of the pressure and past issues, it trades at only about 11-times earnings for 2009 ($5.03 est.) and 2010 ($5.14 est.) both. It also trades at under 4-times 2009 and 2010 revenue expectations and it sits with an arsenal of almost $14 billion in cash and equivalents, yet has over $10.5 billion in long-term debt.
Biogen Idec Inc. (NASDAQ: BIIB) is no stranger to issues… another activist was just out this week calling for more action and the company has not been able to get out from under the TYSABRI PML despite the notion that this is a very low risk. At $46.38, its market cap is $13.4 billion and its 52-week trading range is $37.21 to $55.34. Biogen has over $3.1 billion in cash if you include its short-term and long-term investments and it carries just under $1.1 billion in long-term debt. Biogen also trades at 11.6-times the $3.99 EPS target for 2009 and only 10.5-times the $4.42 target for 2010; and Biogen trades at 3-times 2009 expected sales. The risk is here is of course the TYSABRI risks. You never know if they will have to pull it again. This is an opinion rather than a formal target, but TYSABRI is good enough in treatments of MS that it could quite literally have two or three times the number of patients using it if the PML risk can either be quantified better or could be mitigated. Another issue is that it is trying to acquire Facet Biotech Corporation (NASDAQ: FACT) as a diversification and added pipeline move.
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Top Analyst Upgrades-Downgrades in BioHealth Sector (BMRN, CBST, CYTK, ELN, PPDI, RGEN)
This morning we have seen an unusual number of analyst upgrades and downgrades in the drug and biotech space that comprises BioHealth. These are the top analyst upgrades, downgrades, and initiations in the BioHealth sector this Thursday morning:
- BioMarin (NASDAQ: BMRN) Raised to Outperform at Credit Suisse.
- Cubist Pharmaceuticals (NASDAQ: CBST) Raised to Perform at Oppenheimer.
- Cytokinetics (NASDAQ: CYTK) Cut to Hold at Needham.
- Elan Corp. plc (NYSE: ELN) Cut to Neutral at UBS.
- Pharmaceutical Product Development (NASDAQ: PPDI) Cut to Market Perform at Wells Fargo.
- Repligen (NASDAQ: RGEN) Cut to Sector Perform at RBC Capital.
If you like analyst upgrades, downgrades, and initiations, you can join our open email distribution list from 24/7 Wall Street to get updates on top analyst upgrades and downgrades, top day trader alerts, IPO’s, secondary offerings, Warren Buffett and other guru activity, M&A and more.
JON C. OGG
Sepracor: A Thought Of A Higher Price… (SEPR, CBST, ONXX, GERN, VNDA, REGN, SGEN, ALNY)
It is common that when mergers are announced that some shareholders are either unsatisfied or want more. Sepracor Inc. (NASDAQ: SEPR) and its proposed $2.6 billion sale to Dainippon Sumitomo Pharma Co. might not be enough to satisfy everyone involved in the shareholder side of the deal. That is the case if you read a Bloomberg report from Tuesday night and this could be the first of many such suits.
It appears that the allegations are that the terms of the merger are detrimental to shareholders because of a break-up fee and shopping provisions. This is an effort either to block the merger or to secure a higher price and better terms. So here is how the $23.00 stacks up… It was a 27.6% premium to the September 1 price, but was a 48% premium to the 6-month average.
This deal does make-whole anyone who bought shares over the last year. But it comes with a huge hit for many investors who have been in it for the long-term. From the end of 2004 to mid-2007 this was generally a $40 to $60 stock. Then it was a $30 stock and the stock was in the low $20’s to $30 for most of the period from mid-2007 to mid-2008.
If you look at the deal on a valuation basis, it seems very cheap. The Thomson Reuters figures for 2010 are $2.91 EPS and $1.26 billion in revenues for 2009 and $2.99 EPS and $1.31 billion in revenues for 2010. In short, The company is selling for less than 8-times a blended earnings estimate and just over 2-times revenues for a blended time horizon.
Any time a merger is seemingly based upon a 52-week high, it is hard to feel too sorry for investors. At least until you start looking at the multiple of earnings being so low. We screened recently for all of the low P/E stocks in drug and biotech and there are still many other low P/E multiples in there.
We also are putting together another piece right now containing the following stocks as merger candidate discussions:
- Cubist Pharmaceuticals Inc. (NASDAQ: CBST)
- Onyx Pharmaceuticals Inc. (NASDAQ:ONXX)
- Geron Corporation (NASDAQ: GERN)
- Vanda Pharmaceuticals, Inc. (NASDAQ: VNDA)
- Regeneron (NASDAQ: REGN)
- Seattle Genetics Inc. (NASDAQ: SGEN)
- Alnylam (NASDAQ: ALNY)
JON C. OGG
SEPTEMBER 9, 2009
More Biotech/Drug Mergers Coming? (SEPR, CBST, ONXX, GERN, VNDA, REGN, SGEN, ALNY)
This week came a merger of at least one of the drug and biotech players we expected to occur. That was in Sepracor (NASDAQ: SEPR). We will be putting together a list of much more detailed picks in teh sector this coming week.
Some of these are our own picks which we think should be acquired, and some are current biotech-drug targets which others feel are on deck. To see the full deal on how this related, BioMedReports.com has a full breakdown on teh Spreacor terms and we used this for determining value on some of our other picks….
Among the picks being presented in detail next week are as follows:
Cubist Pharmaceuticals Inc. (NASDAQ: CBST)
Onyx Pharmaceuticals Inc. (NASDAQ:ONXX)
Geron Corporation (NASDAQ: GERN)
Vanda Pharmaceuticals, Inc. (NASDAQ: VNDA)
Regeneron (NASDAQ: REGN)
Seattle Genetics Inc. (NASDAQ: SGEN)
Alnylam (NASDAQ: ALNY)
Have a great weekend and stay tuned for the full details on these and others next week.
JON C. OGG
SEPT. 4, 2009
Value in Biotech: Do Low P/E Ratios Make For Cheap Stocks? (AMGN, BIB, CEPH, CBST, GENZ, PDLI)
Biotechnology has historically been a very tough segment for investors to find “value” in. Usually, the multiples of earnings and revenues are high and many of the emerging companies have no revenues or earnings and will not for years to come. Yet we recently found a study of biotech analysts, investors, and portfolio managers from BIO and Thomson Reuters which showed how many influential investors in the new tougher world of lower valuations are looking at traditional low-price/earnings ratios and other traditional investment valuation metrics in evaluating biotech stocks. So this week we ran a screen of some of the top 50 biotech stocks and wanted to review the following companies:
Amgen Inc. (NASDAQ: AMGN)
Biogen Idec Inc. (NASDAQ: BIIB)
Cephalon Inc. (NASDAQ: CEPH)
Cubist Pharmaceuticals Inc. (NASDAQ: CBST)
Genzyme Corporation (NASDAQ: GENZ)
PDL BioPharma, Inc. (NASDAQ: PDLI)
In each of these we reviewed the share prices and why these are trading where they are. We also gave detailed data from Thomson Reuters for 2009 and 2010 consensus earnings and revenue estimates, as well as what their forward P/E and Times-Revenues figures are. Also included are average analyst target prices and any recent calls. We also gave the caveats, issues, or suppositions behind each company and a layout of what lies ahead. We also had a market cap criteria, and while all of these companies are over $1 billion in market cap we were willing to look down as low as $400 million. These six companies also greatly exceeded our average daily volume minimum of 250,000 shares.
Lastly, these were reviewed alphabetically rather than by any order of preference because each company and each case is rather unique.
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Biotech Short Selling Positions (XBI)(VRTX)(UTHR)(REGN)(MATK)(GENZ)(CBST)(BMRN)(BIIB)(ALNY)(AMGN)
There were some major moves in the short positions in major biotechs for the period ending August 11.
Amgen (AMGN) short interest was flat at 21 mllion shares.
Alnylam Pharmaceuticals (ALNY) share short rose 2% to 5.8 million.
Biogen Idec (BIIB) short interest dropped a fraction to 9.1 million.
BioMarin Pharmaceutical (BMRN) shares short dropped 6% to 11.7 million.
Cubist Pharmaceuticals (CBST) short interest dropped 8% to 4.8 million.
Genzyme Corporation (GENZ) share sold short fell 5% to 5.7 million.
Martek Biosciences (MATK) shares short rose 2% to 4.2 million.
The short interest in Regeneron Pharmaceuticals (REGN) rose 9% to 5.9 million.
United Therapeutics (UTHR) shares sold short moved down 10% to 3.1 million.
Vertex Pharmaceuticals (VRTX) shares short dropped 2% to 18.1 million
These ten stocks are the top holding of the SPDR S&P Biotech ETF (XBI)
Data from NYSE and Nasdaq
Douglas A. McIntyre
Five Fast-Growing Biotechs To Watch Right Now (ALNY, FOLD, HALO, AOB, STEM)
Alnylam (Nasdaq: ALNY) leads a short list of some of the fastest-growing biotech stocks where analyst estimate revisions continue to rise.
BioHealth Investor began by analyzing 171 stocks in the biotech sector based on revenue growth over the trailing four quarters, identifying 30 stocks in the sector with better than 50 percent revenue growth over the past 12 months.
We then screened those 30 stocks to look for those very few names that have seen both strong growth in at least the past two years and positive analyst estimate revisions in recent months, in an effort to find stocks with strong trends that still have potentially improving operations going forward.
The work resulted in growth biotech stocks to watch: Alnylam Pharmaceuticals Inc. (Nasdaq: ALNY), Amicus Therapeutics Inc. (Nasdaq: FOLD), Halozyme Therapeutics Inc. (Nasdaq: HALO), American Oriental Bioengineering Inc. (NYSE: AOB), and Stemcells Inc. (Nasdaq: STEM).
1) Alnylam:
With a new class of potential biotech medicines, aggressive goals for development and partnerships, cash on the books and a large addressable market, Alnylam tops our short list of biotechs with strong growth and increasing analyst estimates.
