Teva Could Be Seeking Mega-Cap Status (TEVA, PFE, NVS, MRK, SNY)
Teva Pharmaceutical Industries Limited (NASDAQ: TEVA) is slowly becoming one of the biggest drug makers in the world. This morning the company is up on the news that it won the bidding process to acquire German generic drug maker Ratiopharm GmbH. The price tag: 3.6 billion Euros, or about $5 billion today in a cash and debt deal. Had this been 2009, the price tag would have been closer to $6 billion in the Euro currency.
Ratiopharm is a top generic drug maker in Germany and Pfizer Inc. (NYSE: PFE) was supposed to be one of the other bidders as it has not frowned upon having generic drugs of its own. Ratiopharm had about 750 drugs and a solid pipeline.
Teva is now one of the top drug companies in the world with most operational sales in North America and in Europe. Teva’s last big transaction was Barr Pharmaceuticals Inc. for about $7.46 billion. The company said this deal will allow growth in Germany, as well as higher growth markets in Spain, Italy and France.
Usually companies buying other companies suffer a drop on dilution concerns. Not Teva. Shares are up 4% after the open and the $62.58 price hit today was not just a 52-week high. That marks an all-time high. Its $55 billion market cap is still far from the mega-cap status of the $100 billion mark. But there are only a handful of companies there at that level of a mega-cap status. Pfizer Inc. (NYSE: PFE), Novartis AG (NYSE: NVS), Merck & Co. Inc. (NYSE: MRK) and Sanofi-Aventis (NYSE: SNY) are all among those which have a $100 billion market cap and higher.
The last date you have to go back to see a TEVA stock double is December 2006 when the stock was just under $30.00. Calling for stocks to double yet again is tricky and that is not quite our intent here. But if the company continues to make acquisitions, the market cap can get there without the stock needing to double.
Teva has shown that it likes to do deals. Analysts are looking for 10% organic earnings growth ahead as the Thomson Reuters estimate for 2010 is $4.55 EPS versus $5.04 EPS in 2011. That is not considering the effects of this merger, and the deal is expected to close late this year.
As far as other top drug companies, here is how Teva’s $55 billion market cap compares:
- Pfizer Inc. (NYSE: PFE) $138.9B
- Novartis AG (NYSE: NVS) $124.7B
- Merck & Co. Inc. (NYSE: MRK) $118.6B
- Sanofi-Aventis (NYSE: SNY) $101.6B
- GlaxoSmithKline plc (NYSE: GSK) $95.9B
- Abbott Laboratories (NYSE: ABT) $84.6B
- AstraZeneca plc (NYSE: AZN) $64.9B
- Bristol-Myers Squibb Company (NYSE: BMY) $44.5B
- Eli Lilly & Co. (NYSE: LLY) $39.8B
JON C. OGG
More Drug and BioHealth Dividends (MRX, WCRX, AMGN, MRK, PFE, PPH, BBH)
Medicis (NYSE: MRX), a specialty pharmaceutical company in treatments of dermatological and aesthetic conditions, has the talk going again about dividends in the drug and biotech sector. The company declared a quarter-end cash quarterly dividend of $0.06 payable on April 30, 2010 for holders of record at the close of business on April 1, 2010. This dividend hike is a 50% increase versus the previous $0.04 dividend and the last hike was in March 2008. But what is more important than Medicis is that this brings up the focus on dividends in both the pharma sector and potentially in the biotech sector.
Many investors have seen scores of dividend hikes since the end of December, which is the yardstick for a vote of confidence issued by a company. We have noted two more dividend candidates which are not currently paying dividends:
- Amgen Inc. (NASDAQ: AMGN) as the world’s largest independent biotech stock;
- 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. Here is a full dividend analysis we gave earlier on the sector.
So far Amgen is opting for share buybacks right now and it has not indicated that it will pay a dividend.
The two key ETF products we use to follow the biotech/drug sector are the Pharmaceutical HOLDRs (NYSE: PPM) and the Biotech HOLDRs (NYSE: BBH). Both have irregular dividends and he biotech is far more sporadic than the pharma HOLDR.
More dividends coming!
JON C. OGG
Winning from Boosting Good Cholesterol (RVXCF, RVX, PFE, AZN, MRK)
BioHealthInvestor usually sticks to US companies or at least sticks to ADRs for investors. But sometimes there is a much larger bit of data either north of the border or in Europe. There is a company called Resverlogix Corp. which trades in Canada under the ticker ‘RVX’ and the stock also trades in the US on the Pink Sheets under the ticker ‘RVXCF.’ The stock is soaring today after Bloomberg gave a very positive article highlighting the merits of the company’s RVX-208. This potential drug candidate is targeting atherosclerosis in acute coronary syndrome patients. The target is to raise HDL levels to effectively reverse arterial plaque buildup. The company noted that there are approximately 350 million patients that require treatment for atherosclerosis.
We wanted to take a look at the potential for this drug candidate outside of what the article has to offer. Resverlogix is a clinical stage Canadian company which currently has no real products. The company has been public since late 2004. It has traded well under $5.00 and at ome point briefly rose to north of $20 per share in 2007.
Late in February, the company officially activated the first site for the ASSURE 1 trial and commenced enrollment of patients for dosing of RVX-208. This is the second Resverlogix Phase 2 clinical trial, led by Cleveland Clinic, and it will examine and evaluate this oral small molecule therapy for the treatment of atherosclerosis in patients with acute coronary syndrome.
As per the trial data:
This IVUS study is comprised of 15-20 US sites will dose approximately 120 ACS patients on standard of care therapy and examine lipid effects by RVX-208 compared to placebo control. In half of the patients a change in atherosclerosis will be assessed, i.e. change in plaque volume and plaque composition. The primary objective of this study is to determine the 3 month effect of RVX-208 on change in the plasma levels of ApoA-l in patients with a recent ACS event who require coronary angiography versus placebo. The secondary objectives for this study include assessing the safety and tolerability of the drug through evaluation of adverse events as well as to evaluate the effect of RVX-208 on other lipid parameters.
Here is the catch, and the ultimate factor which makes this a potential Holy Grail… Most cholesterol medications today are used as preventative medicine rather than just for treating those who have already had a stroke or heart attack or those who already have severe blockage. Statins and other lipid lowering agents account for billions and billions of dollars per year in revenues for Big Pharma. If this drug is ultimately approved for preventative measures the sky is the limit.
AstraZeneca (NYSE: AZN) has Crestor; sales of Crestor are forecast to reach $6.5 billion in 2013, up from $4.5 billion in 2009, per Thomson Reuters.
Pfizer Inc. (NYSE: PFE) has Lipitor; Lipitor brought in approximately $11.4 billion in revenue in 2009.
Merck & Co. (NYSE: MRK) has Vytorin; Annual worldwide sales for 2009 were $2.2 billion for ZETIA and $2.1 billion for VYTORIN.
The statin market is also coming under some generic pressure.
There are risks here. Many have tried this HDL raising tactic and targeting plaque. None of the existing drugs have effectively proven to be the ultimate plaque-eater. Pfizer has so far spent billions. This is a hopeful treatment but it is going to be some time before the results of a larger study are known and it will be far longer before the side effects are known.
Stay tuned.
JON C. OGG
Biotech Implosion: Medivation, Alzheimer’s Beats Drug (MDVN, PFE)
Medivation, Inc. (NASDAQ: MDVN) is the next biotech implosion. The company’s highly awaited Phase III study on its Alzheimer drug called Dimebon did not meet expectations. It failed to meet primary and secondary endpoints. The problem is that this was hitting 52-week highs yesterday.
The company did note that a separate Phase 3 safety study demonstrated Dimebon’s tolerability when used alone or in combination with approved Alzheimer’s Disease medicines. Just one more problem… if it doesn’t work it doesn’t matter how tolerable it is. In some cases the placebo group even did better on the sugar pill, which is perhaps the worst endorsement a company can get.
Pfizer Inc. (NYSE: PFE) is also indicated lower this morning as well as it was Medivation’s partner on Dimebon for the Alzheimer’s treatment. Shares are indicated down about 1% on the news. Keep in mind that Pfizer has at least one other study in later stages in the fight against Alzheimer’s.
The real hit is in Medivation. Share sare down almost 70% at $12.55 on almost 5 million shares as of 8:28 AM EST. The prior 52-week trading range was $13.36 to $40.49.
Medivation had a market cap of $1.35 billion at yesterday’s closing bell. Its most recent balance sheet showed north of $200 million in cash and investments. It is now going to need every last of that cash.
This is one of those instances where everything failed to flag this. Analysts had been positive, the charts and 52-week trading range were indicating a green light being likely, and there was not a huge imbalance between puts and calls in options trading.
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
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
Disappointment & Delay in Diabetes War (MNKD, LLY, NVO, PFE)
MannKind Corp. (NASDAQ: MNKD) is getting to learn more and more about disappointment, and the rumors and speculation that MannKind would not get its Afresa reviewed on time by a January 16 cut-off date turned out to be true. Afresa is designed to deliver a fast acting inhalable insulin that is supposed to be more effective than the injected products and it would put the company in competition for insulin with Eli Lilly & Co (NYSE: LLY) and Novo Nordisk (NYSE: NVO) for their insulin delivery. Pfizer Inc. (NYSE: PFE) discontinued its Exubera as an inhalable insulin, which is part of the reason for such a negative bias around MannKind’s Afresa.
MannKind’s Alfred Mann noted that the FDA has not yet completed its inspection of the insulin manufacturing facilities of N.V. Organon, a third-party supplier to MannKind; and he also noted that (to its knowledge) all other FDA inspections of third-party suppliers and clinical trial sites are complete and that there are no pending answers to any FDA questions or other deliverables due on MannKind’s part. And by the way, the FDA has accepted the name to now be AFREZZA as the trade name versus AFRESA before. MannKind has not yet been informed about the expected timing for the agency’s final determination on the NDA, which will be provided in an Action Letter.
We had hinted at this possible delay and speculation against MannKind during the week when we noted that the diabetes and insulin wars were about to heat up.
There was a big wave of selling at the end of the day. There have been rumors and reports that the FDA may not meet its deadline, so we won’t blatantly say that this was leaked out first. Still, the drop-off was at least something to be noticed, and you can see below the very active options trading and in the open interest for the JAN-2010 and FEB-2010 CALLS and PUTS.
JAN-2010 CALLS & PUTS
CALL$ Volume OpInt
7.50 5,370 24,648
10.00 1,971 23,608
PUT$ Volume OpInt
5.00 1,195 8,329
7.50 741 8,677
FEB-2010 CALLS & PUTS:
CALL$ Volume OpInt
5.00 2,961 8,845
7.50 1,960 18,475
10.00 8,307 38,668
12.50 771 17,132
15.00 1,035 11,626
PUT$ Volume OpInt
5.00 4,659 15,259
7.50 4,192 14,017
10.00 2,163 12,100
JON C. OGG
Diabetes & Insulin War About To Heat Up (MNKD, LLY, NVO, PFE, BMY, AZN, GERN)
MannKind Corp. (NASDAQ: MNKD) has not gone without its critics over the company’s inhaled insulin. The company has an upcoming review that will be a make or break event for the company. The company is about to face a potential do or die test next week as the FDA is set to decide the fate of the company’s inhaled insulin. MannKind’s Afresa is designed to deliver a fast acting insulin that is supposed to be more effective than the injected products. This would put the company in competition for insulin with Eli Lilly & Co (NYSE: LLY) and Novo Nordisk (NYSE: NVO) for their insulin delivery.
One of the biggest hurdles MannKind faces is that inhaled insulin products have been tried and tested by others, and they have failed or have fallen far short of the expectations set ahead of time. Pfizer Inc. (NYSE: PFE) discontinued its Exubera as an inhalable insulin.
- Lexicon Pharmacueticals (NASDAQ: LXRX) had a favorable Phase I reaction late last year in type 2 diabetes mellitus.
- These companies are all also fighting for their part of that next $170 billion market opportunity.
- Bristol-Myers Squibb (NYSE: BMY) and AstraZeneca (NYSE: AZN) already received FDA approval for Onglyza as an adjunct to diet and exercise to improve glycemic control in adults with type 2 diabetes.
- Geron Corporation (NASDAQ: GERN) is still a ways off for the stem cell angle here compared to its other stem cell endeavors, although you never know when stem cell companies will make periodic announcements.
The FDA is set to make a ruling on Afresa’s approval by January 16, which means that the JAN-2010 CALL options may or may not expire before such ruling is made. The FDA can always delay, and some reports hint at a later date now.
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Quest For 10-Baggers in BioHealth in 2010 (JAZZ, TRGT, VNDA, DNDN, HGSI, CGEN, BNVI, QCOR, ACHN, PSDV, ATHX, SNSS, AVNR, BIOD, ALXA, CTIC)
If one thing was noticed in biotech stocks, or BioHealth stocks as we often say, it was that investors, traders, and speculators all piled into the chase for the next ten-bagger late in the year. When you have as many biotech and BioHealth stocks that ran over 1,000% in 2009 that is only to be expected…. hence the 10-bagger comments. We had many biotech and biohealth shares rally from their lows significantly this year, with companies such as Jazz Pharmaceuticals, Inc. (NASDAQ: JAZZ), Targacept, Inc. (NASDAQ: TRGT), Vanda Pharmaceuticals, Inc. (NASDAQ: VNDA), Dendreon Corp. (NASDAQ: DNDN), and Human Genome Sciences, Inc. (NASDAQ: HGSI) all being in or having been in the 10-bagger club this year.
But late in 2009 we started seeing an onslaught of low-priced stocks with small cap or micro-cap values running rapidly higher on news. In some cases these faded, and in some not. We saw the traders run up shares of Compugen Ltd. (NASDAQ: CGEN), Bionovo, Inc. (NASDAQ: BNVI), Questcor Pharmaceuticals, Inc. (NASDAQ: QCOR), Achillion Pharmaceuticals, Inc. (NASDAQ: ACHN), pSivida Corp. (NASDAQ: PSDV), Athersys, Inc. (NASDAQ: ATHX), Sunesis Pharmaceuticals, Inc. (NASDAQ: SNSS), and AVANIR Pharmaceuticals, Inc. (NASDAQ: AVNR) on news late in 2009. Also covered as potentials for this are Biodel Inc. (NASDAQ: BIOD), Alexza Pharmaceuticals, Inc. (NASDAQ: ALXA), and Cell Therapeutics, Inc. (NASDAQ: CTIC).
We have reviewed each of these and given a synopsis for each to see if these could be the 10-baggers for 2010.
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