Biotech Forum Daily Digest: Bristol-Myers On The Block? Biotech Continues To Roll

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Includes: ABEO, AET, AGEN, AGN, AMAG, ANTH, BMY, CI, GILD, HUM, INCY, NVS, NVTA, PFE
by: Bret Jensen

Summary

The biotech sector continues to chug along and is up more than six percent so far in the month of February as M&A activity continues to pick up.

Tuesday saw some speculation that several drug giants were "kicking the tires" on Bristol-Myers Squibb, which would be more than a $100 billion transaction if it happened.

All the other notable news, events and analyst ratings from across the sector as well as a Spotlight feature on Abeona Therapeutics.

"A good politician is quite as unthinkable as an honest burglar."― H.L. Mencken

H.L. Mencken

Biotech continues to have a very strong month of February and was up over another one percent in trading Tuesday. We have seen more than a six percent rise in the main biotech indices over the past two weeks. A key driver of the recent rise is increased M&A activity in the sector. Tuesday, rumors swirled around Bristol-Myers Squibb (NYSE:BMY). According to the StreetInsider, Roche, Pfizer (NYSE:PFE), Novartis (NYSE:NVS) and Gilead Sciences (NASDAQ:GILD) are thought to be "kicking the tires."

If there is fire behind this smoke, this would be more than a $100 billion acquisition and the biggest purchase since the previous administration's Treasury Department derailed the ~$150 billion merger of Allergan (NYSE:AGN) and Pfizer last April. Such a move would also boost the "animal spirits" across the sector. Acadia Pharmaceuticals (ACAD), my favorite mid-cap buyout candidate in the biotech sector, was up another over six percent on Tuesday as M&A speculation definitely seems to be picking up this month.

Acadia was one of my "Two Must-Have Biotechs For 2017" offered up a month ago. The shares have lived up to that headline so far and I still believe the company will not be a standalone entity by the end of the first half of this year.

Note: To get these Biotech Forum Daily Digests as soon as they are published, just click on my profile, hit the big, orange "Follow" button, and choose the real-time alerts option.

Small biotech Agenus (NASDAQ:AGEN) perked up some six percent in trading yesterday and announcing a change in the longstanding collaboration deal with much bigger Incyte (NASDAQ:INCY). The partnership will now transition from co-funded development and profit-sharing to royalty-bearing for Agenus, who will receive 15% of global net sales in addition to a $20 million milestone payment. Incyte will be responsible for clinical development and commercialization activities. Incyte will also buy 10 million shares in Agenus at $6.00 a share under a Stock Purchase Agreement. Even after Tuesday's rally, Agenus sports a share price just under $4.40 and has a market capitalization of approximately $360 million.

Cigna (NYSE:CI) formally terminated its merger agreement with Anthem (NASDAQ:ANTH) yesterday. Cigna is is also seeking a $1.85 billion reverse termination fee, along with additional damages of more than $13 billion "which includes the lost premium value to Cigna's shareholders caused by Anthem's willful breaches of the Merger Agreement." The only ones that will make out in this fiasco are the lawyers as this looks like it will take many quarters or years to resolve. With unknowns around whether and how the Affordable Care Act will be repealed and replaced, 2017 looks like a year of uncertainty for the major health insurers. Aetna (NYSE:AET) and Humana (NYSE:HUM) also ended their merger pursuit Tuesday but on much more amicable terms.

To the relief of the industry, Marathon Pharma, which has immediately ran into backlash for an $89,000 price tag on a drug just approved for Duchenne muscular disorder, has decided to "pause" its launch. The company recently received FDA approval for Emflaza earlier this month. However, this drug has been available for decades in Europe and carries an approximate $1,000 annual price tag in the U.K. The last thing either the pharma or biotech industries need right now is another high profile "drug price gouging" example.

Benchmark upgraded the shares of genetic testing firm Invitae (NYSE:NVTA) to a Buy. Its analyst also raised his price target from $8.50 previously to a still conservative $11.00 a share. This small cap has moved quickly from $7.50 a share when we did a very positive profile on it in late December to touching $10.00 a share on Tuesday. I still think this small cap equity has considerable upside and provides exposure to the genetic testing market which should grow from just over $3 billion in annual sales to $8 billion to $10 billion over the next five to seven years.

Analysts have soured on AMAG Pharmaceuticals (NASDAQ:AMAG) so far in 2017. Cantor Fitzgerald issued the fifth straight "HOLD" rating so far in 2017 with a $24.00 price target, just above where the shares are currently trading. Makena is the main source of the company's growth and cash flow but loses orphan drug status in February 2018. The company announced in early January that it was discontinuing the comparative pain study for an autoinjector that was supposed to be the main differentiator between Makena and generics. Jefferies broke the analyst streak early this morning by reiterating its Buy rating and $40 price target.

Incyte also saw considerable analyst activity yesterday with four analyst firms (BMO Capital, RBC Capital, Jefferies and Cowen & Co) reissued Buy or Outperform ratings. However, I don't know why RBC bothered given their price target of $123 a share is exactly where the shares of this oncology concern already trade. The stock is up some 50% over the past six months and might be due for a pause absent a buyout bid in my opinion. Any acquisition would likely have at least a $30 billion price tag.

Note: New analyst ratings are a great place to begin your due diligence, but nothing substitutes for deeper individual research in this very volatile sector of the market. Many of the small-cap names highlighted in "Analyst Insight" will eventually appear in the "Spotlight" section, where we do deeper dives on this type of promising but speculative small-cap concerns.

In today's Spotlight feature, we look at a small cap biotech concern called Abeona Therapeutics (NASDAQ:ABEO) which came public in late 2014. Let's take a quick look at it on behalf of a Biotech Forum member who wanted a bit more information on this "Tier 4" biotech stock.

Company Overview:

Abeona Therapeutics is a Dallas based clinical-stage biopharmaceutical company. The company is focused on developing gene and plasma-based therapies for life-threatening rare genetic diseases. The stock currently has a market capitalization of just over $200 million and the shares sell for just over $5.00 apiece. This is very volatile stock with a 52-week high of over $9.00 a share and a 52-week low near $2.00 a share.

Pipeline:

The company has myriad candidates in its pipeline, the most advance are the following.

AB0-101 & ABO - 102:

These compounds are target at two versions of Sanfilippo syndrome and are in Phase I/II testing. The next data readout will be for AB0-102 which should hit before the end of this quarter. The company received Fast Track designation from the FDA for ABO-102 in October. ABO - 101 has Orphan drug designation in the US. Rare pediatric disease designation.

EB -101:

This compound is targeting epidermolysis bullosa {EB}. Abeona enrolled the first patient in a Phase 2 trial for EB-101 in late September

ABO - 201 & 202:

Compounds targeting treating Juvenile Batten Disease. Based on strong pre-clinical results, two additional programs are expected to begin Phase I/II by the end of 2017.

Analyst Commentary & Balance Sheet:

The analyst community is quite positive on Abeona and the current median analyst price target on the stock is just north of $16.00 a share. So far in 2017, Jefferies has initiated the shares as a Buy on January 6th with a $11.00 a share price target on "favorable risk/reward ahead of data readouts in the first half of 2017". Two weeks later Maxim Group reiterated their Buy rating and $14.00 a share price target. Early last week, H.C. Wainwright reissued their own Buy rating with a $20.00 a share price target. The company ended the third quarter with just over $30 million in cash & marketable securities on the balance sheet. It then did a secondary offering in November that brought in just under $40 million in additional funding. The company seems set for funding for the near term as a result.

Outlook:

The company has an early stage and diverse pipeline of rare disease treatment candidates. It has put funding concerns to rest for the time being with a recent secondary offering and is well thought of in the analyst community. That said, it is still an early developmental "Tier 4" biotech concern and has some recent litigation that bears watch as well. I plan to take a stake of a few shares and put Abeona on my "watch list" and purchase a larger stake if/when it advances a drug candidate {s} to Phase III development.

Thank You & Happy Hunting

Bret Jensen

Founder, Biotech Forum

Disclosure: I am/we are long AGEN,AGN, GILD, NVTA.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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