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.
Seattle Genetics (SGEN) Kills Study And Share Price
Seattle Genetics (SGEN) is down 14% to $11.31 on news that it has discontinued the SeaGen MARINER clinical trial based on a determination that the trial would be unlikely to meet its primary endpoint of superior complete response rate in the dacetuzumab combination arm as compared to the placebo combination arm. The SeaGen MARINER trial was a randomized, double-blind phase IIb clinical trial of dacetuzumab or placebo in combination with Rituxan® (rituximab) plus ifosfamide, carboplatin and etoposide (R-ICE) chemotherapy for patients with relapsed or refractory diffuse large B-cell lymphoma (DLBCL). The trial was closed based upon a recommendation by the Independent Data Monitoring Committee (IDMC) following a pre-specified interim analysis conducted on Friday, October 2, 2009. As a result of the closure, dacetuzumab will no longer be provided to patients enrolled on the trial.
Douglas A. McIntyre
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
Seattle Genetics' Boosted Secondary… Takeover Defense? (SGEN, BMY, MEDX, BAY, CRGN, PGNX, AZN)
Seattle Genetics, Inc. (NASDAQ: SGEN) is one of those companies in the world of biotech and biohealth which some have believed would be an ultimate takeover target. The issue is that some companies either do not have enough funding on their own to secure a deal under the terms they would prefer. Other companies want to grow and thrive on their own in the quest to become the next mega-blockbuster producer on the block. So the news of an offering of common stock from Seattle Genetics, Inc. would now put the company in the second category, or so it may seem.
Seattle Genetics priced a secondary offering of 11,000,000 shares of common stock at $10.75 per share. The gross proceeds from the sale are expected to be approximately $118.2 million and should close on or about August 17, 2009. The good news is that all of the shares in the offering are being sold by Seattle Genetics. The other bit of good news is that the demand must have been strong. The announcement was made Monday that it would sell 9 million shares, yet this pricing is for 11 million shares.
The company said that the use of funds will be used to fund R&D, including manufacturing activities and clinical trials for its proprietary product candidates, build-out of a commercial infrastructure and for general corporate purposes, including working capital.
The company also has a very high profile group of companies as the underwriters.
J.P. Morgan and Goldman Sachs are the joint book-running managers; Needham, Oppenheimer, RBC Capital Markets, and William Blair are all listed as the co-managers of the offering. The underwriters have a 30-day option to purchase up to 1,650,000 additional shares of common stock to cover over-allotments.
Back in July this stock was under $10.00. Then came several developments. It reported earnings, Bristol-Myers Squibb (NYSE: BMY) announced the acquisition of Medarex (NASDAQ: MEDX), then the company announced the initiation of Phase II trials of brentuximab vedotin (SGN-35) for lymphoma. Then this week came the announcement that Seattle Genetics had achieved a milestone under its antibody-drug conjugate (ADC) collaboration agreement with MedImmune, LLC, a wholly owned subsidiary of AstraZeneca, after MedImmune’s initiation of a phase I clinical trial of MEDI-547 for solid tumors.
Seattle Genetics has an exclusive worldwide collaboration agreement with Roche’s Genentech for the development and commercialization of dacetuzumab (SGN-40). Under the agreement, Genentech paid us $60 million upfront, and has agreed to pay potentially more than $800 million in milestones and escalating double-digit royalties starting in the mid-teens on annual product sales. In addition, Genentech funds research, development, manufacturing and commercialization costs. Seattle Genetics also has an option for co-promotion rights on dacetuzumab in the U.S.
The company has licensed its antibody-drug conjugate (ADC) technology to Genentech, Bayer (NYSE: BAY), CuraGen Corp. (NASDAQ: CRGN), Progenics Pharmaceuticals Inc. (NASDAQ: PGNX), Daiichi Sankyo, AstraZeneca’s (NYSE: AZN) MedImmune, and Takeda’s Millennium. These collaborations all involve upfront cash payments, milestones and royalties on net sales of products incorporating Seattle Genetics’ ADC technology. The licensees are responsible for development, manufacturing and commercialization of any ADC product candidates that result from the collaborations.
Another deal is in place as a co-development agreement with Agensys, a wholly-owned subsidiary of Astellas Pharma. In this the companies will jointly develop ADC products where Agensys provides proprietary targets and monoclonal antibodies to be utilized with Seattle Genetics’ proprietary ADC technology. The companies share research and development costs on up to two ADC products, and share equally in any profits.
Shares closed down over 7% at $10.99 in anticipation of the secondary offering and the stock’s 52-week range is $6.81 to $13.40. The company has been public since 2001 and has spent the bulk of the time from early 2007 to now trading in a range of $8.00 to $12.00. Its market before the effects of any secondary offering was $947 million after Tuesday’s drop. SGEN is also a stock with a high short interest: in mid-July it had over 5.5 million shares in the short interest, about 13.9 days worth of average trading volume.
This is still very much a research and development stage company. Analysts are only looking for about $38 million in revenues for 2009 and about $54 million in revenues in 2010. Until its products are closer to commercialization, losses are expected well beyond this year and next.
JON C. OGG
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
BioHealth Analyst Cautious/Negative Calls (BIIB, ESRX, GENZ, MHS, SGEN)
These are some of the downgrades and negative or cautious calls being seen in the biotech and medical-health sectors this Thursday morning:
- Biogen-IDEC (NASDAQ: BIIB) Started as Hold at Deutsche Bank.
- Express Scripts (NASDAQ: ESRX) Cut to Neutral from Buy at UBS.
- Genzyme (NASDAQ: GENZ) Started As Hold at Deutsche Bank.
- Medco Health Solutions (NYSE: MHS) cut to Neutral at UBS.
- Seattle Genetics (NASDAQ: SGEN) Started as Neutral at UBS.
You can see the list of positive calls and upgrades here.
Jon Ogg
June 19, 2008
BioHealth Analyst Cautious/Negative Calls (BIIB, ESRX, GENZ, MHS, SGEN)
These are some of the downgrades and negative or cautious calls being seen in the biotech and medical-health sectors this Thursday morning:
- Biogen-IDEC (NASDAQ: BIIB) Started as Hold at Deutsche Bank.
- Express Scripts (NASDAQ: ESRX) Cut to Neutral from Buy at UBS.
- Genzyme (NASDAQ: GENZ) Started As Hold at Deutsche Bank.
- Medco Health Solutions (NYSE: MHS) cut to Neutral at UBS.
- Seattle Genetics (NASDAQ: SGEN) Started as Neutral at UBS.
You can see the list of positive calls and upgrades here.
Jon Ogg
June 19, 2008
Latest from 247Wallst.com- Latest from VSInvestor
- Top Day Trader Alerts (AIG, BPAX, C, DVN, ICO, TEAR)
- Top Day Trader Alerts (AEO, AIG, C, FACT, FNM, FRE, SOLR, ITMN)
- Russell 2000 Top Performers Since the Crash (ATSG, AXL, ARM, BZ, CKEC, CTIC, CNO, GPRE, HGSI, LZB, PIR, PWER, PMI, UIS, VNDA)
- Top Day Trader Alerts (CSCO, CNAM, NBG, FSLR, JSDA, DRYS, FEED, BWEN, FMD)
- DryShips… Rumors of a Rumor (DRYS)
