When Biotech Layoffs Come (XNPT)
When conglomerates and consumer products lay off workers and employees, shareholders generally cheer the company for saving money and cutting costs by figuring out productivity measures that milk more output per employee. That leaves more income and ultimately brings more dividends down the road. But biotech firms are far from being thought of in the same light. These are growth stories and investors generally get more excited about expanding operations. So here comes XenoPort, Inc. (NASDAQ: XNPT) announcing on a Friday that HALF of its workers just won the pink-slip lotto ticket from the HR department. Today just officially became National Employee Morale Day at XenoPort.
XenoPort just announced a restructuring plan today that more narrowly focuses its R&D pipeline, and one that “includes an overall reduction in its workforce of approximately 50%.” The company says this will allow it to focus its resources to advance its later-stage product candidates. This comes on the heels of the February 17, 2010 FDA Complete Response Letter which effectively gave the complete response that its Horizant™ treatment for moderate to severe primary restless legs syndrome was a no-go.
XenoPort is collaborating with Astellas Pharma Inc. and GlaxoSmithKline (NYSE: GSK) to develop and commercialize XP13512, which is Horizant. Its product candidates are being studied for the potential treatment of restless legs syndrome, GERD, migraine headaches, neuropathic pain, spasticity and Parkinson’s disease.
The company called this an “unexpected setback” in the approval of Horizant. It also noted that this action is forcing it to review its operating plans.
It will now focus on later-stage development activities and more importantly will eliminate its own discovery research efforts. XenoPort claims a number of product candidates in clinical development as well as several other advanced preclinical compounds.
The company noted specifically that “maximum value will be created for our stockholders over the next several years by reducing our overall spending while focusing on helping our partners gain approval of Horizant in the U.S. and XP13512 in Japan, completing our ongoing Phase 2b trial of arbaclofen placarbil (AP) in gastroesophageal reflux disease (GERD) patients and initiating a Phase 2 clinical trial of XP21279 in patients with Parkinson’s disease.”
The projected estimates of annual cash saving reductions is approximately $15.6 million, most of which is from cuts to compensation and benefit expenses. XenoPort will incur cash expenditures of up to $4.2 million in the first half of this year and it does expect some non-cash charges as part of the action.
Traders and shareholders are also betting on “National Employee Morale Day” at the company being adverse. The stock is now down 2% at $7.72. The 52-week trading range is $6.39 to $25.42. This one effectively dropped from almost $20 to under $10.00 when the FDA determined that the best action for patients with Restless Leg Syndrome was to have less caffeine and to get more exercise.
The company still has close to $150 million in cash and short-term equivalents ($143.7 million per the company’s latest results) and its market cap is now $234 million. The most recent annual report data (on page 29) shows that XenoPort had 219 full-time employees, about 155 of which were involved in R&D.
This is usually one of those instances where the beatings will continue until morale improves.
JON C. OGG
Generic Drug Wars… Is Dr. Reddy’s The Answer? (RDY, TEVA, GSK)
Generic drugs are just one of the many combined issues that are coming front and center in the world of healthcare reform. Frankly this is not a new notion. Not all. This weekend came a feature in Barron’s “Asian Trader: Pill Maker That’s Set To Pop” calling Dr. Reddy’s Laboratories Ltd. (NYSE: RDY) of India the next big drug play for investors. We wanted to look closer under the hood here.
The Indian generic drug company’s ADR closed at $24.61 Friday and Barron’s noted two analysts with big price targets: one giving it room up to $29.63 and and another implied rupee price we pegged around $30.82.
Sales are expected to approximately double to around $3 billion by 2013 and the waves of name brand drugs coming off patent in the U.S. may offer some added hope there. That is the biggest wild card with many noting that generics have a chance to capture a part of what is put at $70 to $80 billion.
Dr. Reddy’s is thought of by the US investor public as a generic player, but it has its own products. It produces finished dosage forms, active pharmaceutical ingredients and intermediates, and biotechnology products; and it conducts R&D in cancer, diabetes, cardiovascular, inflammation, and bacterial infection.
There are some issues here in other drug makers. Teva Pharmaceutical Industries (NASDAQ: TEVA) is perhaps the best generics player out there with a whopping $53 billion market cap today versus about $4.1 billion as Dr. Reddy’s market cap.
Teva is a large customer and Dr. Reddy’s also has a distribution pact with GlaxoSmithKline (NYSE: GSK) for emerging markets and there are some who expect GSK to take a significant stake in the Indian drug maker. Teva’s stock is right around $60 and analysts on average have a price target of $63 and the highest target seen is $70.00. If Teva gets more downgrades on valuation, it seems as though it could pull Dr. Reddy’s down simply as the best can drag down or pull peers higher.
If the markets are flat or solid, it seems that Dr. Reddy’s may have a 2% or so Barron’s-pop. Our problem here with this one is that Dr. Reddy’s shares are up almost 200% in the last year. Its 52-week range is $7.27 to $27.33.
Dr. Reddy’s may have more room to run, but the big move has probably been seen. The recalls may be behind and they may not, ditto with FDA scrutiny. The stock is not cheap by some Indian company valuation standards, so it seems that waiting may offer better risk-reward here than chasing.
JON C. OGG
New Restless Leg Syndrome Review for XenoPort (XNPT, GSK)
XenoPort, Inc. (NASDAQ: XNPT) has a big day coming for its GSK1838262/XP13512 (gabapentin enacarbil) next week. The company has a date of February 9 for an FDA Prescription Drug User Fee Act (PDUFA) decision on its Horizant. This is the dated goal for the company’s New Drug Application for Horizant for the treatment of moderate-to-severe primary restless legs syndrome. Horizant is licensed to GlaxoSmithKline (NYSE: GSK) in the United States and several other countries.
There is one concern here… The company’s release last week noted that the GaxoSmithKline partnership may be in doubt because Glaxo has noted that it may end research on depression and pain treatments. GSK and XenoPort are discussing the next steps in the development plan for XP13512 in the neuropathic pain area and will disclose this development plan at a future date.
XenoPort shares closed up 3.4% at $19.01 Friday on 422,000 shares. Average volume is 337,000 shares, but the stock trading has been elevated over the last week.
Date Volume Close
5-Feb 422,100 $19.01
4-Feb 504,800 $18.38
3-Feb 373,200 $19.90
2-Feb 420,200 $19.99
1-Feb 216,400 $18.50
There is also a binary options event factored in here, although on far fewer options contracts than what you normally see. Here is the CALL and PUT volume for Feb-2010 expiration that expire on February 19, with data on the Friday volume and the open interest:
CALL Volume OpInt
17.50 44 1,006
20.00 167 1,995
22.50 170 1,938
PUT$ Volume OpInt
12.50 209 1,062
15.00 95 1,467
17.50 114 2,055
20.00 170 2,812
The stock did manage to close up for the week, which might be impressive considering the weak stock ticker tape action we saw this last week. It looks like the company still has $150 million or so in liquidity with revenues from partnership income looking very spotty and also looking like they are in the rear-view mirror. Analysts expect losses in 2010 and revenues of only about $63 million per Thomson Reuters consensus data.
XenoPort will be able to survive without GSK if push comes to shove. But the restless leg syndrome is not an area without controversy. Ask someone with it if they think it is real or not. Then ask one of their younger family members if they think it largely from inactivity or what the RLS patient consumes daily.
This PDUFA date may not seal the fate of XenoPort, but a very positive review will be of help. The stock has a 52-week trading range of $13.36 to $28.33 and a market cap of about $576 million.
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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Human Genome Sciences: Sifting the Good from the Bad (HGSI, GSK, NVS)
Human Genome Sciences, Inc. (NASDAQ: HGSI) is down today after presenting data at the JPMorgan Healthcare conference today. Frankly, it was not really bad data. More important than just ‘another down day’ is that this price action would make for the fifth consecutive trading day on the heels of yesterday’s guidance.
Today’s drop is on the heels of yesterday’s ‘lower guidance’ ahead of key data presentations. Some may try to merely say that after a more than 1,000% return last year that today’s selling is now just because it is a leveraged market-play. Yesterday’s guidance was a disappointment, but if the guidance was really so bad then why was it only down less then 4% on the day? The real issue is that as of now, and for the near-term, is that ‘ongoing good news’ is not likely to be received as good news from the investment community.
First, let’s get yesterday’s news out of the way. The lower guidance on Monday morning ahead of the conference may have been somewhat taken out of context based upon headlines after an analyst downgrade from Goldman Sachs last week based upon valuation. The company noted that $163 million in revenue was recognized from the first 20,000 doses delivered to the Strategic National Stockpiles, but that was completed in April 2009. The company noted that approximately $151 million is expected from a second order for 45,000 doses to be delivered over three years. The company’s goal was for 15,000 doses this year, which has led some to believe that it won’t see an added ramp up in product revenues this year. The problem with this notion is that anthrax is deemed a minimal societal threat at this point, so it is an all or none. If there is a giant anthrax scare, then HGSI cleans up. The company noted, “Even with our expected ramp of investment in commercial build-out and pre-launch manufacturing, we expect to end 2010 with between $840 million and $890 million in cash and investments.”
Second, the ‘ongoing’ aspect above refers to its Benlysta drug application with the FDA as the first new treatment for lupus in more than a generation. The company’s summary was “First Drug for Lupus to Succeed in Phase 3 Trials; On Track for Second Quarter 2010 Submission of U.S. and European Marketing Applications; Potential U.S. Approval Fourth Quarter 2010″ and that offers actually very little for any ramped up instant FDA approval. In short, it is ongoing news. Some have been hoping for an approval of the drug in the earlier part of the first half or even the first quarter. Could this be delayed? Anything is possible out of the FDA.
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Buffett & Berkshire Hathaway BioHealth Stocks (BRK-A, BDX, GSK, JNJ, SNY)
Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK-A) is still a holder of some drug companies and medical devices companies. Here are the Berkshire Hathaway biohealth positions as of September 30, 2009:
- Becton Dickinson & Co. (NYSE: BDX) 1.2 million shares, same as last quarter.
- GlaxoSmithkline (NYSE: GSK) 1.51 million shares, same as before.
- Johnson & Johnson (NYSE: JNJ) was just over 36.91 million shares; Same as last quarter and still well under the 62 million shares at one point in 2008… probably held more as a consumer goods rather than for medical device and drug exposure.
- Sanofi Aventis (NYSE: SNY) more than 3.9 million shares, same as before.
Warren Buffett’s newest full stock holdings in Berkshire Hathaway Inc. (NYSE: BRK-A) are available here.
JON C. OGG
Nabi Biopharma (NABI): Smoke Gets In Your Eyes: A $500 Million Deal?
GlaxoSmithKline Biologicals (NYSE:GSK) and Nabi Biopharmaceuticals (NASDAQ:NABI)) today announced an exclusive worldwide option and licensing agreement for a nicotine conjugate candidate vaccine (NicVAX(), an investigational vaccine for the treatment of nicotine addiction and the prevention of smoking relapse, as well as for the development of a second generation nicotine vaccine. Read more
Do Flu Vaccines Need to Worry About Pain Killers? (GSK, AZN, SNE, NVS)
There is an interesting release out today showing that research from the University of Rochester Medical Center shows an inverse relationship between some of the more common pain killers or relievers and the effectiveness of flu shots. While this does not impact the need for flu vaccines and while this probably won’t impact the sale of flu vaccines by any doses, it does highlight that flu vaccines might not be as effective under a very common circumstance. It also shows how these pain killers might inhibit some of the body’s defenses in general. The study shows that the use of common pain killers to the likes of Advil, Tylenol, and aspirin at the time of a flu shot injection may actually blunt the effect of the shot. It also noted a negative immune system response.
This has been studied for years by a Dr. Richard Phipps and the findings were presented at an international conference on inflammatory diseases. The study data also corresponds to a report in The Lancet from last month by researchers out of the Czech Republic.
The companies most tied to seasonal flu vaccines are large diversified international conglomerates GlaxoSmithKline Plc (NYSE:GSK), AstraZeneca Plc (NYSE: AZN) via MedImmune, and Sanofi-Aventis (NYSE: SNY). Novartis (NYSE: NVS) also recently said that the backlog Of Swine-Flu vaccine orders would be filled by January, but unfortunately that is after many flu contractions will have been seen. It is a flu vaccine supplier.
Again, this won’t likely have any impact on the sales of vaccines that are already in very short supply. But it is important to consider if you are taking a flu vaccine or if you are ill. Particularly so when you consider that many ill and not so ill people take these three pain relieves and pain killers routinely.
JON C. OGG
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
Human Genome (HGSI) Jumps On Takeover Rumors
Shares in Human Genome Sciences (HGSI) rose 16% to $22.14, a 52-week high. There have been rumors that the company will be taken over by a large pharma company.
HGSI has had clinical success with lupus drug Benlysta. Some Wall St. ana
