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
InterMune Volatility Compression (ITMN)
InterMune Inc. (NASDAQ: ITMN) has shown some very interesting options trading, and the trading looks to be a bet against all that huge volatility we have seen.
Joe Kunkle of OptionsHawk.com noted:
- ITMN with a 2,000X4,000X2,000 contract butterfly call spreads at the March $25/$30/$35 strikes. This trade bets on volatility to collapse, which will happen after the March 9th FDA meeting on it’s lung drug pirfenidone, given priority review for treating the chronic lung disease idiopathic pulmonary fibrosis, a disease impacting around 200,000 people in the US and Europe. Lazard Capital feels there is more than a 50% chance the drug gets approved, and has a $25 target for shares. However, the FDA may require post-approval studies for indications of effectiveness. It also sees shares doubling to $30 , currently trading at $15. The trade cost a debit of 50 cents, and offers profit from $25.50 to $34.50 in shares, with max profits at the $30 body strike, which offers around an 800% return. Implied volatility stands near 250% ahead of the event, and the straddle is pricing in around a 55% move in shares. Another large trade today was a buyer of 4,000 March $20 calls at the $2.55 offer. 20,996 calls and 3,348 puts have traded on the day, 8X average call volume.
It is just past noon and InterMune shares are down 4.1% at $14.70 on 975,000 shares. The 52-week range is $10.48 to $18.14 and the average stock volume is about 760,000 shares.
Just last week we saw comments from the company. Chairman and CEO Dan Welch noted, “Fourth quarter and recent events have been highlighted by the very important developments related to the regulatory progress of pirfenidone for the treatment of patients with idiopathic pulmonary fibrosis, or IPF. Our NDA for pirfenidone was granted Priority Review status on January 4, and is scheduled to be discussed at an FDA advisory committee meeting on March 9, 2010. If approved by the FDA, pirfenidone would be the first approved medicine for the approximately 100,000 Americans who suffer from this terrible disease. Regarding Europe, we currently expect to submit a Marketing Authorization Application (MAA) for pirfenidone in the European Union in the current quarter.”
JON C. OGG
InterMune Volatility Bets Through the Roof (ITMN)
We noted last week that there had been some extra options activity over in InterMune, Inc. (NASDAQ: ITMN) ahead of a date-review decision. Today saw excess trading in the stock, and explosive trading volume in both the put and call options as traders made their volatility bets for a binary trading event scheduled for March 9. The stock traded over 3.4 million shares versus 683,000 shares on average. The stock closed up 5.7% at $16.50 and the 52-week trading range is $10.48 to $19.12. We do not care about the FEB-2010 options as they are before the date, but MAR-2010 options expiration date is on March 19, 2010.
CALL Volume OpInt Last
15.00 1,755 5,074 $5.40
17.50 14,991 7,596 $4.50
20.00 8,065 2,863 $3.70
22.50 2,375 158 $3.00
PUT$ Volume OpInt Last
10.00 6,610 541 $1.85
12.50 1,745 1,101 $2.70
15.00 3,521 2,136 $4.00
We’ll save on the technical jargon, but the closest speculative volatility bet being long the closest CALL and PUT effectively puts this stock having to go above $27.00 or below $5.50… The combined premiums are roughly $9.50, up almost $5.50 from when we looked ta this last week. Keep in mind that those are major price changes from what was seen last week and those spreads should compress over the coming days…. barring any real new news.
Joe Kunkle of OptionsHawk.com pointed this one out last week and gave a brief heads-up alert on this one again.
Keep in mind that there is a huge discrepancy over analyst price targets as this is a battleground stock with many bears and many bulls on both sides of the fence. To show just how active the bets are for and against this one…. it had 6.425 million shares listed in the short interest based upon the settlement date of January 15, 2010.
The company announced this morning that the FDA Pulmonary-Allergy Drugs Advisory Committee (PADAC) is scheduled to discuss the company’s New Drug Application (NDA) for pirfenidone on March 9, 2010.
This covers InterMune’s investigational drug candidate for the treatment of patients with idiopathic pulmonary fibrosis, a uniformly fatal disease that affects about 100,000 Americans. More than 30,000 new cases are diagnosed annually. The company even noted that this has a higher mortality rate than colorectal cancer, breast cancer or prostate cancer, but noted that there are currently no approved medicines to treat IPF.
JON C. OGG
InterMune Sees Pre-Event Options Activity (ITMN)
InterMune, Inc. (NASDAQ: ITMN) is up today despite the soft markets. This would actually make this the third day of gains in a row. The options trading continues to be very bullish, as shares gain 3% and implied volatility pops another 4% today. There is options trading building up here as well.
The Company recently raised cash through a 5 million share issuance. It’s key drug pirfenidone was granted fast track status at the FDA in early January, 6 month review period. It treats IPF, a fatal lung disease. Data is expected in the first from Phase2b studies of RG7227 plus SOC, for HCV.
Today there was a buyer of 2,500 March $17.50 calls at the offer on wide spreads, and now a 1,250 contract March $17.50/$15 bullish risk reversal trades for a 5 cent credit.
On Wednesday implied volatility spiked 16% higher and calls traded 3-times average with 3,000+, buyers in out-of-the-money March $17.50 and $20.00 calls. On the day 6,200 calls traded, 6X average. On a 50/95 bid-ask spread a trader bought more than 800 March $20 calls at 80 cents, 50% out of the money, extremely bullish. InterMune has a 12.6% short float, 9.8 days to cover. March implied volatility is 102% compared to Feb of 55%, while April is 155%, so traders are positioning for a catalyst.
Today call volume is approaching 6,000 once again.
Joe Kunkle, OptionsHawk.com
Bill Gates, Small Biotech's New Biggest Investor (ALTH, AMAG, RDEA, ARYX, AUXL, BMRN, ETRM, INCY, ITMN, MAPP, OREX, VRUS, REGN, SGEN, VRTX, XNPT)
Late yesterday came the 13-F quarterly filing from the Bill & Melinda Gates Foundation Trust. Bill and Melinda have invested in drugs and research before, as well as dug companies, but there was a slew of biotech stocks in their quarterly holdings. Some of these are cancer winners, while others may seem random. Below we have broken these out by company and size of the position in dollars (M for million; K for thousand) as well as the number of shares.
ALLOS THERAPEUTICS INC. (NASDAQ: ALTH) $3.090M; 500,000 shares
AMAG PHARMACEUTICALS INC. (NASDAQ: AMAG) $1.839M; 50,000 shares
ARDEA BIOSCIENCES INC. (NASDAQ: RDEA) $2.165M; 210,386 shares
ARYX THERAPEUTICS INC. (NASDAQ: ARYX) $1.635M; 480,799 shares
AUXILIUM PHARMACEUTICALS INC. (NASDAQ: AUXL) $2.062M; 74,400 shares
BIOMARIN PHARMACEUTICAL INC. (NASDAQ: BMRN) $1.295M; 104,856 shares
ENTEROMEDICS INC. (NASDAQ: ETRM) $81K; 59,700 shares
INCYTE CORP. (NASDAQ: INCY) $1.02M; 435,700 shares
INTERMUNE INC. (NASDAQ: ITMN) $1.807M; 109,900 shares
MAP PHARMACEUTICALS INC. (NASDAQ: MAPP) $98K; 46,524 shares
OREXIGEN THERAPEUTICS INC. (NASDAQ: OREX) $36K; 13,900 shares
PHARMASSET INC. (NASDAQ: VRUS) $821K; 83,641 shares
REGENERON PHARMACEUTICALS (NASDAQ: REGN) $492K; 35,500 shares
SEATTLE GENETICS INC. (NASDAQ: SGEN) $34.718M; 3,521,088 shares
VERTEX PHARMACEUTICALS INC. (NASDAQ: VRTX) $2.729M; 95,000 shares
XENOPORT INC. (NASDAQ: XNPT) $2.517M; 130,000 shares
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