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The next generation of biotech blockbusters
Denosumab, Ipilimumab, Goliumumab, Motavizumab - FierceBiotech
The 2007 rate of new biologic approvals was slow, with only a handful of drugs squeaking through FDA review. But the pace is set to pick up in 2008. According to IMS Health, these biologics could receive FDA approval this year if they don't hit any stumbling blocks. Each of the drugs on this list has the potential for over a billion dollars in sales if all goes according to plan. These four drugs are the next generation of biologic blockbusters that could offer real breakthroughs for patients--and add significant cash to their developers' bottom lines.
Motavizumab - AstraZeneca's MedImmune
Denosumab - Amgen
Golimumab - Johnson & Johnson's Centocor
Ipilimumab - Bristol-Myers Squibb, Medarex
10 Biotechs in Stem Cells that Could Profit Under the Democrats - Seeking Alpha
by: Ketan Desai posted on: June 01, 2008
about stocks: ASTM / ATHX / BHRT / CUR / CYTX / GENZ / GERN / OSIR / STEM
Democrats and stem cells -- a budding romance. Pundits opine that this will be the year of the Democrats, at least as far as Congress is concerned. Conventional wisdom holds that pharmaceutical stocks suffer under the Democrats due to concerns over pricing and liberal drug importation.
However, one subset that may do well under the Democrats is biotechnology companies that deal with stem cells. This is based on the rationale that Democrats may be more favorably inclined to this line of therapy than Republicans since they are not as opposed to stem cells.
Stem cells are progenitor cells that, at least in theory, can differentiate into any cell type in the body. This ability to become whatever is needed is an invaluable resource where regeneration of the original tissue or organ is important. Examples include intra-articular tissues for osteoarthritis, heart muscles for heart failure or heart attacks, and neural tissues for various neurological disorders including Parkinsons Disease.
There are two sources of stem cells: adults and embryos. There are several differences between adult stem cells [ASC] and embryonic stem cells [ESC]. Embryonic stem cells are pluripotential, meaning that they can differentiate into any cell type. This makes them an excellent starting point, but can lead to problems if cells differentiate into unwanted tissue. For example, stem cells implanted into the brain of an Alzheimers patient could differentiate into muscle or bone instead of neural tissue (giving new meaning to the phrase bone head or muscle head, but I digress). However, unregulated and uncontrolled proliferation of embryonic stem cells could lead to cancer--something that concerns the FDA and clinicians alike.
In contrast, adult stem cells are mutlipotential, differentiating along their lines of origin. So neural ASCs would only form neural tissue, though not always the exact neural tissue required. Another difference is that ASCs, unlike ESCs, cannot proliferate for long periods outside the body without differentiating. This limits manufacturing options for ASC, but not for ESC.
The table below lists the status of some ASC companies:
Aladgaen, not listed above, is an ASC company in the clinic, and is about to file an IPO. I was not able to obtain sufficient information on it - hence it is not listed above.
Some companies involved in ESC research include:
Of the companies mentioned above, Osiris (OSIR) is the most advanced, with marketed products, a deal with Genzyme (GENZ), a large grant from the Department of Defense for acute radiation sickness, and a marketing deal for osteocel. It has done better than most other stem cell companies that have lost up to 70% of their value over the past year. Still, Zacks rates it a hold.
Before buying any company, one must do one's own due diligence. Important factors to take into account include ASC versus ESC, technology, cash reserves, burn rate, stage of development, and management. Pay particular notice to management - a bad management team can destroy a good product. It is particularly important in this industry, so look at what the management has done in the past and how successful they were at it before they became senior management at the company you're considering. My picks to consider seriously would include OSIR and ASTM.
Disclosure: I have consulted for Athersys in the past. In order to avoid a conflict of Interest I have not included it in my picks to consider seriously.
Wall St. takes a fresh look at biotech, and likes what it sees
4:00 AM, July 23, 2008
In their hunt for a winning growth-stock formula for 2008, some investors have been heading back to the laboratory -- the biotech lab.
Biotech shares already were off to a surprisingly strong start in the third quarter even as the rest of the market was sinking. Then came Roche Holding’s offer on Monday to buy the 44% of Genentech Inc. it didn’t already own, for $89 a share.
The bid sent shares of the South San Francisco-based biotech giant up 15% to $93.88 on Monday, as Wall Street bet on a higher offer. More important for the industry, the offer further boosted interest in biotech issues across the board.
One key attraction: the companies’ potential for sales and profit growth despite the deteriorating economy.
Biotech "is pretty insulated from the economy," notes Karen Andersen, who tracks the industry for investment research firm Morningstar Inc. in Chicago..
Eric Schmidt, a biotech analyst at Cowen & Co. in New York, said that even before the Roche offer for the rest of Genentech, investors had recently begun to pay more notice to biotech shares.
"I think this is the first time in about three years that we’ve gotten calls from generalist investors" asking about the stocks, he said. "I think they’re looking for visible earnings growth."
Not a bad idea, given the recent disappointment from the other tech -- the computer realm. Google Inc.’s second-quarter earnings made no one happy on Wall Street. Apple Inc. sounded less upbeat about near-term growth. Texas Instruments Inc. bombed with its results.
Genentech, by contrast, on July 14 raised its full-year earnings estimate to a range of $3.40-$3.50 a share, from a previous range of $3.35-$3.45. The company earned $2.59 a share in 2007.
Many biotech shares made only modest progress in 2006-2007. The 20-stock BTK index gained 15.5% over the two years, underperforming the 20.3% rise in the Nasdaq composite index.
Meanwhile, sales and earnings have continued to grow rapidly at profitable players such as Biogen Idec Inc., Celgene Corp., Genzyme Corp., and Gilead Sciences Inc.
Many other biotech firms still are in the red, of course. But the hope for blockbuster drugs to emerge from the industry’s labs is ever present. And that’s more exciting than what’s going on at the major drug companies, which continue to suffer from generic competition and depleted new-product pipelines.
Investors even have turned back to one-time biotech industry star Amgen Inc., which has had its own growth worries of late. Shares of the Thousand Oaks-based company have rebounded 24% since June 13, to $54.60 on Tuesday.
Despite Amgen’s challenges, "They’re not going to earn less than $4 a share" this year, Schmidt said. And there's always the possibility of a takeover bid from a bigger, growth-needy drug firm, such as Eli Lilly & Co.
Two of Schmidt’s favorite companies: Cephalon Inc., a developer of drugs to treat cancer and central nervous system discorders; and Imclone Systems Inc., which has the anti-cancer drug Erbitux.
Andersen also likes Imclone as well as Amgen. Among early-stage companies, she likes Alnylam Pharmaceuticals Inc., which is working on drugs that could interfere with disease-causing genes.
Wall St. takes a fresh look at biotech, and likes what it sees | Money & Company | Los Angeles Times
Article : The Paradox of Biotechnology Value Investing Genetic Engineering & Biotechnology News - Biotechnology from Bench to Business
Jul 1 2008 (Vol. 28, No. 13)
The Paradox of Biotechnology Value Investing
Assessing Worth Could Be More than Just Conjecture if the Right Tools Are Used
David Sable, M.D.
On the surface, biotechnology and value do not have much in common. Biotech companies lack predictable cash flows and calculable margins of safety; the sector is one of the market’s most volatile. Early-stage biotech companies are really two businesses: product developers and money raisers. They convert raw material—in this case intellectual property—into marketable products after a long stepwise process of clinical trials and regulatory decisions. In order to exist for years without profits and with minimal or no revenues, these firms sell equity on a regular basis, hoping that progress in clinical development and favorable market environments will raise their stock price.
Cutting-edge IP is only one piece of a biotech success story. Not allowing the company to fall into the black holes of illiquidity and preventing poor risk management or imprudent management of the underlying assets is equally or more important during the company’s early stages.
To some, these have become attractive investments. Success stories like Genentech, Celgene, and Gilead Sciences generate spectacular gains. Further, biotech provides regularly scheduled catalysts. Clinical trial results and FDA decisions, biotech’s surrogate activists, force the market to regularly revalue these stocks.
Can stock in these companies be considered true investments and not just speculation, though? For those of us with backgrounds in the life sciences, backgrounds that may provide an edge in the due-diligence process, biotechnology may be the most appropriate addition to a portfolio.
Of course the sell side is happy to provide valuations, price targets, and buy recommendations. Analysts typically discount a peak earnings estimate years in the future at a steep but arbitrary discount rate. This layering-on of estimate on estimate gives analysts the freedom to justify any arbitrary value he or she wishes.
The idea is to find a way to apply value-investing principles in this nontraditional sector. In Value Investing: From Graham to Buffett and Beyond, Bruce Greenwald provides a three-step framework for valuation. First, value the real assets on the balance sheet. Second, determine the earnings power of the company at the moment of the calculation. Third, add a provision for growth, deeply discounted.
Biotech valuation is simpler. Since most development-stage biotech firms have no revenue, much less income, valuation is only a balance-sheet exercise. Start with the IP: if the company ceased operations and locked the patents and data in a vault, how much would another biotech or pharmaceutical company pay for those assets? Add some provision for the cash on hand and derive a valuation.
There are two situations where this valuation is something other than a guess. Type one is where the enterprise value of the company is less than zero. One can evaluate whether the value of the noncash assets is more than nothing. Type two is when the market tells us what an informed buyer would pay for a similar asset.
Each Sunday night the investment bank Rodman and Renshaw publishes a report on the state of the public biotech market, including a list of those companies whose market capitalization is less than the cash on the balance sheet. The March 1 report lists 29 public companies trading below cash, 21 of which had zero debt. These less-than-cash market caps can put a zero value on still-viable assets: e.g., a legitimate drug discovery platform, a revenue stream from collaborations, or an earlier stage pipeline of product candidates.
This “is this worth more than nothing” category yields a group of companies needing further study. In this case the margin of safety derives from the educated investor’s confidence that the asset under development is legitimately worth something. Investors able to understand the underlying science and the clinical relevance and verify the quality of the clinical trial design can assess these cases in a systematic, nonspeculative manner.
Of course, no trial or regulatory decision is entirely predictable. The prudent biotech investor will choose to handicap only a small number of the ultralow or zero-value companies that he or she finds.
An example is Medicinova, a company that in-licenses drugs from Japanese companies and develops them. On March 1, the firm had a market cap to net cash ratio of 0.58 and reportedly sufficient cash to fund its clinical trials for two years. Its two lead compounds each demonstrated proof of concept and targeted large clinical indications. Unfortunately, an ill-advised road show to test the waters and maybe raise an extra year of cash coupled with the recent market downturn dropped the share price from $8 to $3.50 over the past five months, even as additional validating clinical data was reported. Clearly the Medicinova assets are worth much more than nothing.
Sangamo Biosciences provides a good example of comparative-worth valuation. The company is developing zinc finger transcription factor technology that can be used for human therapeutics, protein manufacturing, and agriculture. It has research partnerships with Sigma-Aldrich in reagent production, Genentech and Amgen in protein manufacturing, and Dow Agrosciences in agriculture. At the same time, Sangamo retains 100% ownership in all human therapeutics programs including those in diabetic neuropathy, cancer, HIV, and stem cell amplification.
To calculate Sangamo’s worth, discounting future earnings is an exercise in futility. A comparative analysis, however, shows that a similar company was recently acquired by Merck. For analytical purposes, it is assumed that zinc finger transcription factors will be as valuable a tool for drug development in the coming decades as RNAi. Sirna, one of several companies that are developing RNAi technologies, was acquired in 2006 for $1.1 billion. The largest remaining independent RNAi company, Alnylam, has a market cap of $1.2 billion. Both Sangamo and Alnylam have drugs in mid-stage development, although Sangamo’s pipeline is broader.
To reach a comparative worth, lets consider the value of zinc finger transcription technology, in other words Sangamo’s market cap, which is $476 million. Now consider RNAi technology: $1.1 billion that Merck paid for Sirna plus a $1.2 billion market cap for Alnylam plus the market cap of several smaller RNAi companies. Sangamo’s market cap of $476 million appears cheap. Factoring in the $81 million in cash and the projected cash burn of $26 million, one can make the case for Sangamo Biosciences as a biotech value stock.
Value investors have approached biotech from other angles as well. Some have sought hidden asset, high-margin, cash flow-generating businesses buried behind losses from R&D. Over the past two years activist investors have targeted Ligand Therapeutics, NABI Biopharmaceuticals, and Protein Design Laboratories and have tried to monetize their revenue streams.
There is value to be found in biotech, but biotech is not true value investing. Still, to those of us drawn to the sector because our backgrounds in basic or clinical science may give us an edge, the principles of value investing provide a framework for investment decisions that even value-investing guru Benjamin Graham might recognize.
David Sable, M.D., is the portfolio manager of the Special Situations Life Sciences Fund. The author’s fund has long positions in Medicinova and Sangamo Biosciences. Email: DSable@ssfund.com.
Analysts: Big Biotech will grow despite economy - FierceBiotech
November 26, 2008 — 10:42am ET | By Calisha Myers
Although they've fallen from the record highs posted in August, biotech stocks aren't as risky as many fear--or expensive, says a report by Barron's. Not surprisingly, Big biotech is doing better on Wall Street than their smaller counterparts, but they're also doing better than the broader stock market and will continue to grow. Barron's report has a number of analysts touting Big Biotech's resilience: "The biggest companies will grow profits irrespective of what happens in the economy," says Evan McCulloch, manager of the Franklin Biotechnology Discovery Fund. "At a time when growth rates elsewhere are decelerating or turning negative, there is a sense of certainty with these companies."
Another analyst with Standard & Poor's Equity Research says Big Biotech stocks could climb as much as 15 to 20 percent annually for the next three to five years. Will Muggia, chief investment officer at Westfield Capital Management, concurs: "(Big Biotech) are some of the only companies right now that I am confident will grow earnings year over year."
Recognizing this, pharma has been eyeing biotechs with promising pipelines. Roche continues to court Genentech, while Eli Lilly managed to snatch up ImClone right from under Bristol-Myers Squibb.
Of course, there are some risks. Big Biotech has fared well despite rising unemployment rates and reports that patients are beginning to cut back on their meds. But worsening unemployment could eventually hurt even AIDS and cancer drugs, Barron's reports. And as Obama has made healthcare a top concern on his agenda, there may be new legislation for generics and pricing controls on the horizon.
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