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Biotech Roundup: Pfizer, ImClone, Novacea


...there is still money to be made in Pfizer.


Kudos to Professor Phil Erlanger for pointing out the spring biotech seasonality play. Right on cue, biotech bounces. I'm seeing big-time bounces in some stocks, focused again on the smaller end of the biotech sector. From my specific viewpoint, days like today when big biotech is down 1% and small biotech is up are music to my ears. More please.

The Buzz today is replete with mega-macro concepts of deflation, hyperinflation, liquidity injection, Fed policy, etc. In addition to this, we're also all about specific stocks. That's particularly true in biotech which, while not trading independently of all macro issues, certainly wobbles within its own peculiar orbit. This macro stuff is important as it helps inform how quick your trigger finger is and how much risk you are willing to take on, but you can't let it paralyze your decision-making.

I am fascinated by the apparent retooling underway at the White House. I'm under no illusion that it is anything more than window dressing, but to have such a visible shakeout this close to the 2006 elections is interesting. Understanding politics is much like investing in that bits and pieces of information coalesce into an overall thesis. The shakeout, DeLay's resignation, horrific polling for the GOP, dissension within the party on key issues like immigration, candidates running away from the White House, etc. are all informative. I'll go back out on my limb here and reiterate my expectation for the Dems to gain significant ground in the Senate and the House. I will not be surprised if the Dems gain the majority in one or both. I don't think this will affect our foreign policy much (which appears to be Wall Street's main political worry), but it likely means gridlock for domestic policy as it will shortly be all about the 2008 presidential elections. One wild card is that a Democrat-controlled Congress is less likely to extend the dividend tax cuts. I'm fine with that because I argued it was a dumb way to spur the economy way back before it was passed (think what $80B directed to small businesses would have accomplished instead). Some have opined the loss of that tax cut guts the market rally and plunges us into a bear market. I disagree, though there will be significant losses in some sectors. After an adjustment period, I think it means N's strongly over S's and even more gains for smaller-cap stocks.

Most Thursday nights I can be found, with other members of our Entrepreneur's Network, at the Main Street Ale House in Bothell. Several of those in attendance are accomplished individual investors. By that I mean they have an understanding of risk management and how Wall Street works atypical of their young years. That's a long preamble for my actual point, which is one of these folks asked about Pfizer (PFE) as an investment going forward. I told him I believed Wall Street was still in denial about the effects of the Zocor expiration (which is June 23), and that denial would come to an abrupt end in about six months. In the meantime, I said, I think there is still money to be made in Pfizer because Wall Street seems very attracted to the drugmaker space and especially to Pfizer. It's simply a matter of making sure you aren't the greatest fool when the statins hit the fan.

I had a long conversation with another independent researcher this week about whether ImClone (IMCL) was a takeout candidate. I'm very skeptical on this, and have been for some time. Only big pharma has the cash to do a takeout of ImClone's $3B market cap at even a marginal premium. Big pharma isn't likely to do that because the economics of the Erbitux deal with Bristol Meyers (BMY) make that unworkable. Bristol is the obvious and most-mentioned candidate, but they have been vocal in their lack of interest in acquiring ImClone. Given these realities, my opinion has been ImClone wouldn't be bought. This fella I was talking to then posed the question whether some other biotech might do it in a merger transaction. Perhaps some company with a comparable stock price, good pipeline, and for whom the cash flow from Erbitux would be attractive? "That," I said, "makes more sense." Color me skeptical still, but I can see a Compaq + HP (HPQ) desperation-type merger as a possibility at least.

MedImmune (MEDI) was clobbered off their recent quarterly report. One increasingly predictable response to such events in the biotech space is an increase in rumors that the company will be acquired. I actually think MedImmune has some interesting stuff in their pipeline. Hey, what about MedImmune merging with ImClone? (That's intended as humor, by the way).

I've been writing for quite some time about how pharma needs to acquire products to replenish their bare R&D pipelines and account for sales shortfalls from expiring patents and "unsafe" drugs. In the last 6 months, this idea has taken on a life of its own and is being used to justify mega mergers. Let's be crystal clear here: All the big pharma and biopharma company executives have said there will be no mega-mergers. Pfizer said their sweet spot was between $1-6B for acquisitions. Others have proffered similar numbers. Acquisitions will happen, they just won't be monsters like some have been saying recently.

Speaking of Pfizer… In February, the company held an R&D/Analyst Day. We reported in several forums that Pfizer said they would be inlicensing a late-stage product that would become their final NDA for 2006. Despite the fact we clearly noted this would be an inlicense and not an acquisition, our reports spawned a bit of a frenzy of speculation about who Pfizer would "buy" next. I call your attention to Pfizer release from April 13 where they acquired the overactive bladder drug fesoterodine from Schwarz Pharma AG. This satisfies Pfizer's goal of inlicensing a product with a 2006 NDA since an NDA for fesoterodine was already filed earlier this year. Pfizer will do more acquisitions and licensing deals, but you should not expect them to be for products that will file an NDA in 2006.

Omrix Biopharma (OMRI) was supposed to price its IPO at $15-17, which was reduced yesterday to $12. It went IPO earlier today at $10. Par for the course with biotech IPOs.

I was pinged by several people concerning my comments that the Novacea IPO looked interesting. Novacea showed interesting efficacy in a Phase III trial of Calcitrol (DN-101) in combination with Taxotere in men with prostate cancer. Because the company only has run one Phase III trial (and the FDA likes two) and due to a statistical issue with the analysis, they've decided to run a confirmatory Phase III. DN-101 is an engineered form of Vitamin D, whose raw form was recently shown to be useless for cancer treatment in a very large study. Nevertheless, some of the more influential oncologists are mentioning DN-101 often and have signed up to work on this trial. It's the buzz around DN-101 and Novacea I find "interesting" and I don't want anyone to equate "interesting" with "good investment." Biotech IPOs all have one common characteristic – you can always buy them cheaper later. Even beyond that, I don't see the DN-101 program as a slam dunk. If Novacea comes out and if you decide to participate, be careful.

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