In this short write up, the following bio-pharmas may see large price movements to the up-side in the short term. Each one of these stocks have shown considerable momentum over the last few weeks, with most of them trading near their 52 week highs. 2 of them are strong buy-out candidates with one having strong buy-out rumors associated with it.
I feel careful consideration should be given to each one of these stocks by investors/traders to decide whether or not they wish to take advantage of the momentum these stocks currently have.
GlaxoSmithKline (NYSE:GSK) announced last Friday that it extended its tender offer to acquire all of the outstanding shares of Human Genome Sciences (HGSI) for $13.00 per share in cash to 5:00 p.m. New York City time on Friday, 29 June 2012.
The HGSI Board of Directors responded not too long after, rejecting GSK's unsolicited $13.00 per share tender offer after determining in consultation with financial and legal advisors, that the GSK offer price is inadequate and does not reflect the value inherent in HGSI. I agree with the HGSI board here and feel the company has a speculative worth much higher, more in line with $15 to $20 a share, or roughly $3.5B to $4.0B
GSK has to understand that the institutions, management, and retail shareholders will never agree to tender their shares at $13 as for one reason, the current stock price of HGSI is higher than the offer price, closing last Friday at 13.32 Up 0.09 (0.68%). GSK has around $9B in cash so I can understand why it does not want to spend over 1/3rd of it to acquire a company for basically one drug, BENLYSTA.
BENLYSTA is an investigational human monoclonal antibody drug and the first in a new class of drugs called BLyS-specific inhibitors. Belimumab blocks the binding of soluble BLyS, a B-cell survival factor, to its receptors on B cells. Belimumab does not bind B cells directly, but by binding BLyS, belimumab inhibits the survival of B cells, including autoreactive B cells, and reduces the differentiation of B cells into immunoglobulin-producing plasma cells. BLyS is a naturally occurring protein which was discovered by HGSI in 1996.
HGSI and GSK are already partners with this drug, and its prospects look outstanding. On August 2006, HGS and GSK entered into a co-development and commercialization agreement under which HGS conducted the BENLYSTA Phase 3 trials, with assistance from GSK. The companies shared equally in Phase 3/4 development costs, sales and marketing expenses, and profits of any product commercialized under the agreement.
On March 9, 2011, the FDA approved BENLYSTA for the treatment of adult patients with active, autoantibody-positive systemic lupus erythematosus who are receiving standard therapy.
HGSI also has a very promising pipeline of other experimental drugs that I feel places the value of the company as I mentioned before, at $15 to $20 a share, or roughly $3.5B to $4.0B. GSK is sandbagging in my opinion here, and if they will not make a higher offer, I expect an even larger pharma to step up to the plate with a higher offer soon.
Amylin Pharma (AMLN) and Alkermes (NASDAQ:ALKS) announced on Saturday June 9th, results from an analysis of seven randomized clinical studies demonstrating that patients treated with their partnership drug, BYDUREON™ (exenatide extended-release for injectable suspension), the first and only once-weekly treatment for type 2 diabetes, experienced improvements in A1C, fasting glucose, weight and pulse pressure, regardless of baseline body weight. These findings are being presented at the 72nd Scientific Sessions of the American Diabetes Association in Philadelphia.
In the clinical data analysis, more than 1,700 patients were stratified in quartiles by baseline body weight. Results showed that A1C reduction and weight loss were comparable across all quartiles (A1C: 1.4-1.5 percentage points; weight: 2.5-2.8 percent). A1C is a measure of average blood sugar over three months.
The above news seems to suggest the clinical data analysis of BYDUREON is an effective treatment for type 2 diabetes patients across a range of body weights. I think this is interesting since diabetes often tends to effect people who are deemed to be 'overweight' more than people who are considered to be nominal weight. I feel both of these companies are on to something here and investors/traders should take a closer look at both of these stocks. ALKS appears to be coming off a head and shoulders bottom, and AMLN continues to experience up-side momentum ever since it turned down a $3.5 billion takeout offer from Bristol-Myers Squibb (NYSE:BMY).
Since Arena Pharma (NASDAQ:ARNA) announced the public offering of 11,000,000 shares of its common stock, offered at a price to the public of $5.50 per share, the pps has appreciated over $1.00 higher, closing last Friday's trading session at $6.62 Up 0.20(3.12%).
The gross proceeds to Arena from this offering came in at $60.5 million, before deducting underwriting discounts and commissions and other estimated offering expenses payable by Arena. Arena has stated it will use these proceeds to get ready to market Lorcaserin, the company's controversial weight loss drug, which I expect to receive approval from the FDA on or before the June 27th PDUFA date for Lorcaserin. The FDA stated the weight loss passed FDA standards for efficacy and the drug did not have cancer risks based on clarifications in the data. The advisory panel recommended that post marketing studies regarding potential heart valve issues be completed by the company.
Basically, Lorcaserin may gain approval at any time between now and June 27th, so I would not recommend anyone hold the stock short, as you will likely be burned for doing so. Arena has begun to make the transition from a developmental pharma to a full fledged big revenue generating one.
At the annual Obagi Medical Products (NASDAQ:OMPI) shareholders meeting, shareholders overwhelmingly voted against ratifying its shareholders Rights Plan, also know as a "poison pill," by a 2 to 1 margin. The proposal by management was carefully considered and recommended by a leading proxy advisory firm, Institutional Shareholder Services, but still nonetheless, voted down. The buzz I am hearing is that the larger shareholders of the company want it sold for around $19-$20 a share and wish to deal directly with bidders for their company. By defeating the poison pill, bidding companies can now directly negotiate a deal with the shareholders and by-pass management all-together.
Management holds 0.67% of the company stock, which is next to nothing in ownership. The buzz is that the larger shareholders became suspicious of management's intentions here to perhaps hold on to their high paying jobs and benefits by refusing to even listen to acquisition offers for the company. Personally, I believe Obagi is worth around $27 a share. At a price of $20 a share, the company's price to acquire it would be around $345M. Obagi did $118M in revenue last quarter alone, ($90M gross profit) and its skin care products are catching on with women more and more as each day passes. Therefore I feel the break-up value of the company is around $20 a share, but the majority shareholders have the right to tender their shares at any price they wish to accept.
Traders and investors in Obagi should take note that deals and/or offers on the table are normally announced pre market on Mondays and Fridays. The rumor I keep hearing is that a deal with the shareholders is in place for around $20 a share, so I expect to hear something very soon. I believe the due diligence that can prolong these deals was completed months ago.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. My family trust is long OMPI; I hold no shares in my account.