Cephalon (CEPH) Hammered On Harsh Trial News
Cephalon Inc. (NASDAQ: CEPH) is down sharply on news that it and privately-held Ception Therapeutics, Inc. did not meet some endpoints. Shares fell 8% to $54.76. Average volume is 1.9 million shares and the 52-week trading range is $52.55 to $81.35. This is the brief summary: The companies gave Phase IIb/III clinical trial data for CINQUIL (reslizumab) as a treatment for pediatric eosinophilic esophagitis. Analysis of the data indicated that patients treated with CINQUIL showed a statistically significant reduction in esophageal eosinophil levels versus placebo. In the second co-primary endpoint, patients treated with CINQUIL showed an improvement in their clinical symptoms; however, placebo treated patients also experienced an unexpectedly large improvement in their symptoms. Therefore, the study did not achieve statistical significance for this endpoint. CINQUIL was well tolerated in the study, with an adverse event profile comparable to placebo. Ception and Cephalon continue to fully analyze the data and are planning to perform an analysis of an ongoing open-label extension study to help further assess the clinical results
Douglas A. McIntyre
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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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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The top catalysts pushing many biotech stocks to new highs (BVF, RDY, VRX, MDRX, ISTA, BIOS, NOVN, WPI, CELG, GILD, CEPH, BIIB, AMGN, PFE, MRK, LLY, AZN)
Big recent gainers including Biovail Corp. (NYSE: BVF), Dr. Reddy’s Laboratories Ltd. (NYSE: RDY) and Valeant Pharmaceuticals International (NYSE: VRX) are among the biotech names pushing to fresh highs.
But can the broad group continue to push higher in the face of new proposed legislation that threatens to choke profits for managed care providers and many other groups within healthcare?
The list of biotech stocks pushing to their highest levels since at least the same time a year earlier is impressive It includes Allscripts -Misys Healthcare Solution (Nasdaq: MDRX), ArQule Inc (Nasdaq: ARQL) BioScrip Inc. (Nasdaq: BIOS), Ista Pharmaceuticals Inc. (Nasdaq: ISTA), Noven Pharmaceuticals Inc. (Nasdaq: NOVN), and Watson Pharmaceuticals Inc. (NYSE: WPI).
With the exception of select financials that benefit from easy year-ago comparisons, biotech is the fastest-growing industry group. Projected earnings among profitable companies such as Celgene Corp (Nasdaq: CELG), Gilead Sciences Inc. (Nasdaq: GILD), Cephalon Inc. (Nasdaq: CEPH), Biogen Idec Inc. (Nasdaq: BIIB), Genzyme Corp (Nasdaq: GENZ) and Amgen Inc. (Nasdaq: AMGN) in aggregate are expected to rise about 10% in the next 12 months.
Many traders are looking at money-losing, high-beta biotechs, as well, that may show potential to become profitable in the coming years. Now that risk measures including the VIX and T/ED spreads have come down drastically from last year’s peaks, many are hoping to catch the next Genzyme or Celgene early.
Are traders simply paying too much?
Not necessarily. A relative comparison of biotech to other industry groups shows that despite a strong run the group still stacks up favorably based on relative valuation and growth rates. Traders are now paying a multiple of about 13.5x forward earnings for profitable biotechs, which is in line with the multiple of the S&P 500 as a whole.
The difference is that S&P 500 earnings are projected to increase only about 6% over the next 12 months, and many traders are seeking faster growth.
Catalysts for the biotech industry include potential legislation that may make it easier for companies to produce generic drugs based on live cells, called biosimilars. Part of the Obama Administration’s agenda is to promote biosimilars to bring down drug prices. That may open up a large potential market for existing generic companies, as well as companies like AstraZeneca (NYSE: AZN).
Read related story on biosimilars.
And, the ever-increasing pressure for large drug companies like Pfizer Inc. (NYSE: PFE), Merck & Co. (MRK) and Eli Lilly & Co. (NYSE: LLY) to fill their pipelines with the next big blockbuster drug opens the door to potential acquisitions, especially given improvements in market liquidity levels. – Mike Tarsala
The Cepahlon drug trial conundrum (CEPH)
Cephalon Inc. (Nasdaq: CEPH) looks like a conundrum. The company fails a clinical trial, and the company’s stock still rises today (2% at last check), on normal volume.
Earlier today, the company announced that patients treated with its compound to treat acute myelogenous leukemia (AML) did not show an increased benefit in overall survival. Treated patients had similar response rates vs. chemotherapy, but no increased survival benefit compared to chemotherapy alone.
The lesson here is that everything is relative to expectations in the world of equities. There’s only a small market share to treat that particular type of leukemia, so the company isn’t losing out on a whopping revenue opportunity. That’s evident, as the company reiterated its 2009 guidance today.
And the much larger opportunity is for the compound to treat myeloproliferative disorders, and the failure in AML doesn’t do anything to derail that.
Cephalon did $1.97 billion in revenue last year, is expected to show 10% growth still in the next two years, and it’s profitable.
Simply put, it’s a minor setback for a company that has other major opportunities.
– Mike Tarsala
When Barron's Runs BioHealth Stocks (CEPH, AXL, ISRG)
Today we are seeing two stocks higher after Barron’s featured these over the weekend in what traders call “The Weekly Bible” in the business.
Cephalon (NASDAQ: CEPH) is trading up slightly after Barron’s covered its promiosing pipleline. With two new products on the market and one more in 2009, Barron’s thesis was that shares are not having the same problems as other bigger drug stocks and that shareholders should be sleeping easily here. Shares are only up 0.5% at $77.37, but it is a larger company with a market cap of more than $5 Billion.
Auxilium Pharmaceuticals (NASDAQ: AUXL) is seeing a sharp 5% gain today after Barron’s talked up its Testin product, a testosterone gel used by men to live more energetic lives. Barron’s noted that the Xiaflex drug for a hand treatment in the hundreds of thousands could have blockbuster status by 2011 after launching in 2009.
Barron’s can definitely make your biotech or drug stock rise when they cover it. But remember that the axe swings both ways. Back on July 28, 2008, shares of Intuitive Surgical (NASDAQ: ISRG) took almost a $14.00 haircut after the Barron’s cover story called the company overvalued.
Jon C. Ogg
August 11, 2008
