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Rod Raynovich
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Rod Raynovich is an entrepreneur and executive with a focus on life science companies and medical technology trends.He has over 35 years executive experience including Abbott and JNJ and has been involved three successful start-ups. Before starting Raygent and other companies he was also a... More
My company:
Raygent Capital
My blog:
Raygent.com,Rayno Life Science
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  • Hot Biotech Sector: Mid-Caps Have Both M&A And Pipeline Premiums

    Valuations Step-Up With More Deals

    Prior to the acquisition of Pharmacyclics (NASDAQ:PCYC) by Abbvie (NYSE:ABBV) for $20B, the top price paid for an emerging biotech company was in the $10B range. Two additional companies among the mid-caps were acquired in prior years: Cubist by Merck in December 2014 and Onyx by Amgen in 2013. M&A has been a major driver of biopharmaceutical stocks and the buyout of Syngeva (NASDAQ:GEVA) by Alexion for $8.4B last week showed that there is a lot of value in pipelines that fit with the acquirer. Financial engineering began with "roll-up"companies created by strategic acquisitions such as Activis plc (ACT) and fortified by so-called "inversion deals" whereby a company's headquarters could be moved to a lower tax domicile such as Ireland (17% vs 35% in U.S.) or Luxembourg.

    Another serial acquirer is Valeant Pharmaceuticals (NYSE:VRX) created by the acquisition of Bausch and Lomb, Medicis and Warner Chillcott but failed in a merger with Activis in 2013. Both Activis and Valeant have been very profitable to shareholders with 2 year returns of 200% for ACT and 300% for VRX. But ACT and VRX are growth companies that have exploded through financial engineering with synergies in marketing and sales, cuts in corporate expenses and favorable tax advantages.

    The success of these deals and others has caused more companies to aggressively look outside for sales growth. But the biotech model is unique in that the deals are for earlier clinical stage products and new relatively unproven technology.

    Large cap pharma has always looked to biotech for pipeline and technology and that has recently hit a new level with the $700M deal for Rare Disease Drugs that Sanofi (NYSE:SNY) agreed to pay Alnylam Pharmaceuticals (NASDAQ:ALNY) for access to rare disease drugs utilizing RNAi technology.

    In previous posts we summarized some of the additional factors driving this dealmaker mentality.

    • Strong demand for new products and R&D pipeline. Competition for deals and technology.
    • Plethora of companies being funded bring more opportunities for "recombination".
    • Low interest rates and debt market liquidity. Easy money courtesy of the FED.
    • Revenue growth trumps earnings.
    • Pipelines are getting generous valuations with a low risk mentality.

    In October of 2013 we compared the valuation models of emerging biopharmaceutical stocks from an M&A perspective and all of these stocks but two, Ariad (NASDAQ:ARIA) and Seattle Genetics (NASDAQ:SGEN) have beat the market. The following four companies within the mid-cap list have had huge returns and are included among the Rayno Mid Cap Portfolio Picks. Our top ETF pick the First Trust NYSE Arca Biotech FBT up 16% in 2015 is up 16% YTD.

    Rayno Mid Cap Picks -2015 Performance

    Alkermes (NASDAQ:ALKS) Up 0.3% YTD

    Celldex (NASDAQ:CLDX) Up 41.75% YTD

    Seattle Genetics Up 24.9% YTD

    Vertex (NASDAQ:VRTX) Up 12.7% YTD

    Here is a complete list of all Rayno Biopharmaceutical Portfolio Picks. Two companies among our picks that were acquired: Cubist had a 4.9X return and Pharmacyclics had a 6.7X return since added to the portfolio. The challenge now is to find new mid-cap picks.

    Below find a list of well-known mid-caps that have strong pipelines and technology in oncology, orphan/genetic diseases and cystic fibrosis. The latest frothy market area is rare diseases so look for more M&A but valuations are now a bit stretched in what is a niche market.

    Our next biopharma review will be in the immunotherapy and CAR-T area where companies without Phase II data now have multi-$B valuations.

             
    CompanyTickerPrice 5/12Market Cap2015 RevP/SBV/ShPerform 
      $$BEst $B  %YTD 
             
    AlkermesALKS58.738.850.6513.439.590.3 
    AlnylamALNY106.59.560.05717312.1617.33 
    BiomarinBMRN12119.40.80324.1815.4533.95 
    Celldex Ther.CLDX25.92.550.037688441.75 
    Clovis OncologyCLVS85.82.950.013n/a9.7753.3 
    IncyteINCY10518.730.58131.7-0.2443.6 
    MedivationMDVN124.29.690.83311.66.0224.7 
    PumaBioPBYI2046.2n/an/a3.877.78 
    Seattle GeneticsSGEN40.134.960.32816.71.724.9 
    VertexPharm*VRTX129.530.2126.74.089.25 
    *FDA news 5/12        
             
             
    ETFFBT118.53.31   16.15 
             
    Cubist Pharm.CBST101.99.51106.312/14 deal4.9X return
    OnyxxONXX123.690.8717.51.1410/13 deal 
    PharmacyclicsPCYC256.619.51.1226.7310.953/15 deal6.7X return

    We have no positions in any of the above stocks.

    Tags: ALNY, PBYI
    May 14 10:08 AM | Link | Comment!
  • Surveying The Damage With Rayno Life Science Stocks...2015 YTD

    Biotech Bounce-Caution on New Positions

    IBB up 2% at 340 support level

    Most biotech stocks are green as of early trading on May 1. Although the sector has taken a beating since April 23 most ETFs and funds are outperforming the market year to date up more than 10%. As we posted earlier this week the reversal began near the IBB top last Friday and headed south all this week. The XBI hit a double top in the $240 range and could not break through to new highs. Earnings from both Biogen Idec (NASDAQ:BIIB) and Celgene (NASDAQ:CELG) were good but the growth rate disappointed investors. Gilead Sciences Gilead Sciences Chart and News (NASDAQ:GILD)), our top large cap pick, is helping the market today up 4.3% with outstanding earnings and revenue growth announced yesterday.

    Here are a few of the speculative excesses of 2015:

    • Arduro BioTech (ARDO) an April 16 IPO priced at $17 soaring to $49 now down 40%.
    • Juno Therapeutics (NASDAQ:JUNO) hit $65 in mid April and is now at $44 down 15.8% YTD.
    • Kite Pharma (NASDAQ:KITE) a clinical stage CAR-T company soared to $89 in January and is now at $50.

    The biotech bull market has been damaged but life science stocks should outperform in 2015 because the key drivers remain intact: M&A, revenue growth, molecular medicine/genomics and relative insulation from macro events. Nonetheless the manic momentum mode of this six-year-old bull has been curbed.

    Review again our Trends to Watch in Biotech from 2/13. All five points are relevant to this correction.

    Here is a brief summary of 2015 performance including most of our picks:

    ETFs Compared To Funds April YTD

    FBIOX up 11.23% at $236.82, IBB up 10% at $333.66, XBI up 10.66% YTD at $206.33

    Rayno Large Cap Motif

    Alexion (NASDAQ:ALXN) off 8.5% YTD at $169

    Amgen (NASDAQ:AMGN) off 0.87% YTD at $157.9

    Biogen off 3.94% YTD at $379.9

    Gilead Sciences (GILD) up 6.63% YTD at $100.5

    Regeneron (NASDAQ:REGN) up 11.5% at $457.5

    Roche ADR (OTCQX:RHHBY) up 5.56% at $35.9

    Rayno Mid Cap Motif

    Alkermes (NASDAQ:ALKS) down 5.45% at $55.37

    Clovis Oncology (NASDAQ:CLVS) up 43.5% at $80.36

    Seattle Genetics (NASDAQ:SGEN) up 6.88% at $34.44

    Vertex Pharm (NASDAQ:VRTX) up 3.77% at $123,3

    Cubist and Pharmacyclics were both acquired.

    Recent Small Cap Picks

    CLDX, FCSC, FMI, GLYC, RXDX all up YTD except RXDX.

    Disclosure: I am long FBIOX, GILD, RHHBY as core holdings. Long FCSC and RXDX as trades.

    (click to enlarge)

    Tags: GILD
    May 01 3:52 PM | Link | Comment!
  • Biotech Buzz Is Broken

    Sentiment Shift-Correction Underway

    Red Tape Prevails On 4/29 as of 12:45p Trading

    XBI down 1.6% at 213.7, IBB down 0.8% at 341.75

    Green Rayno Picks: ALXN, BIIB, CLDX, FCSC

    Many market pundits seemed shocked at the vicious biotech sell-off. But if you look back over the past six years of this biotech bull market there have been several downdrafts. The current sell-off looks exactly like the correction in the early spring of 2014 after the Q1 mini-bubble. Volatility is the norm.Institutions dominate this market and they are taking profits.Review our recent article on trends in the market and keep in mind that sentiment and momentum are key. Moreover valuations for multi-$B biopharma mid-caps are historically high and difficult to measure except on a relative basis. The speculative fever in "immune-oncology" and CAR-T stocks is broken for example JUNO and KITE are now down YTD.

    Some signposts for market direction are:

    • Strength in NASDAQ which hit a high on 4/27 up 6.5% YTD.
    • News or themes that reinvigorate sentiment.
    • Data will be forthcoming from the ASCO Meeting a month away.
    • Healthcare sector leadership up 6.8% YTD.
    • Positive earnings from larger cap biopharmaceuticals- Gilead (NASDAQ:GILD) and Regeneron (NASDAQ:REGN).

    Analysts hate to hear this-technicals rule in the meantime. The bull market is intact but it is time to be cautious. The sector is still up 15% YTD but 10% off highs of just one week ago! We would hold core life science positions and bring cash to the 10% level until the tape improves.

    Tags: IBB, XBI
    Apr 29 12:51 PM | Link | Comment!
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