Bio-Pharma Watch List: 2 Week Report Card

by: StockMatusow

On 2/22/12, I wrote an article with some biopharma picks on my watch list that I thought could move higher. In this article, I will add some extra commentary on the original picks, see how the picks have panned out so far, and give myself an honest self-grade on the picks.

I have also added a new small-cap bio pharma to the list that I feel is worth a strong look. I will present in depth information on this company in my next article.

Let's see how my prior watch list picks are doing 2 weeks later:

Spectrum Pharmaceuticals (SPPI) 2/21/12 pps: 12.93. 3/9/12 pps: $12.76

Original opinion: Strong Buy

I remarked in my prior article that I feel Spectrum has a long term winning business model, and nothing has changed my opinion of this. The current drop in pps is quite attractive in my opinion, and should provide a satisfying entry point for aggressive investors to take advantage of. Longer term investors might want to take a serious look at Spectrum, as the pps might see a year end price near $20 a share. I strongly feel Spectrum has a real shot to be a mega-pharma in the long term, and might see stock prices well north of $50 a share in 3 to 5 years.

Spectrum released its Q4 11 and year end report on 3/1/12. Analysts expected Spectrum to report a profit of 28 cents per share, but the company missed, reporting $0.13 per share in earnings.

However, excluding costs relating to stock-based compensation and other special items, the company stated it actually earned 24 cents per share, closer to consensus opinion, but still missing the target. Revenue rose 56 percent, to $53 million from $33.9 million.

I expected revenues to come in slightly below estimates, but I did not expect earnings to do the same. I believe what we are seeing with Spectrum is in part, the costs of aggressive marketing for Zevalin. I think analysts did not quite figure this into their estimates for the Q4 2011 earnings and revenues.

Zevalin sales are slowing down, which is to be expected, and the drug may have reached peak market penetration. In my opinion, this should not concern Spectrum long term investors because of the Spectrum business model; aggressively seeking out drugs created by small pharmas, acquiring the small pharmas cheap, getting those drugs FDA approved, then turning around and aggressively marketing the drugs. I expect Spectrum to continue this business model as I believe it is a long term winning one, notwithstanding the company has an excellent CEO.

With the earnings miss, Spectrum's stock price has been struggling as short sellers are in control of the stock at this time. I expect this to change over time, and still believe Spectrum is a very good long term investment. With Spectrum, investors need to make sure they do not over margin themselves with their shares as the price action can be very volatile. Long term investors should not sweat the current pps action in my opinion as the stock will eventually receive correct valuation. We need to remember the stock has had a huge run in the last year, so a pause was and is to be expected.

My self grade for Spectrum: C, but I do expect this company and it's stock to be a great long term winner. If you are solvent enough to ride out the stock price down turns, and even buy the dips, you should be heavily rewarded in due time.

Antares Pharma (AIS) 2/21/12 pps: $2.63 3/9/12 pps: $2.94, after hours last trade: $3.10

Original opinion: Strong Buy.

On 3/9/12, Antares made an official 52 week high of exactly $3.00 on the nose. Earnings are due out this morning at 8 A.M Eastern. After talking to people who are involved with trading desks, their consensus earnings estimates seems to be $0.04 a share, but be advised, professional market makers want this stock and will likely attempt to take out stops, so I expect a wild ride with the stock price in today's trading session. If you are in Antares for the long term, I would not advise selling your shares, as you may be chasing the price to get back in.

In a prior article of mine, I remarked that Antares has generated some recent buyout speculation, as the company announced the hiring of John "Jack" Howarth as Vice President of Corporate Affairs/investor relations on Feb.27th. Howarth has a history of being directly involved in company buy-outs as we can see below:

  • Oct 2007 Alphapharma hires Howarth VP of Investor Relations
  • Nov 2008 King acquires Alphapharma
  • June 2009 King hires Howarth VP of Investor Relations
  • Oct 2010 Pfizer acquires King
  • Feb 2011 Antares hires Howarth VP of Investor Relations

It is easy to see a clear pattern with the companies Howarth has been involved with. There is no question in my mind that Antares will be bought out in the next year, and I speculate Pfizer (PFE) is the suitor, based on no small part on the Antares hire of Howarth. I closely watch Antares trade daily on level 2, and I have been seeing a trading pattern that indicates the stock is being accumulated via short selling to a strong bid. This normally occurs with a company's stock has strong handed longs who refuse to sell their shares at the current levels. Accumulation is attempted by first buying to raise the price, and then abruptly lowering it to shake out the "weak hands." When this fails in part, accumulation is attempted by selling short to their own bids, suppressing the price, but accumulating at the same time.

When accumulation is satisfied at a certain price level, they buy to cover their shorts, raising the price in steps, and accumulate more via the 2 above methods. In part this is what causes the bull signals to appear on the charts as I have remarked about Antares before and successfully predicted price moves on.

I suggest the best way to combat these activities as an Antares long is to set a good to cancel order (GTC) of around $20 a share and let it sit indefinitely. While some brokers will still allow short against your GTC order, most do not. By doing this, you will make it as hard as possible on short sellers to potentially manipulate the stock price.

Before anyone reading this thinks I am into some conspiracy nonsense, please note that I have seen this many times when a company is being targeted for acquisition. I am giving you my honest opinion with the experience I have in the stock market. Fund managers who might be reading this article, ask around and do the due diligence and see what you find. Antares has a ton of short sells and massive flash trading lately, as indicated by FINRA. You can click on the preceding link to get the AIS reported short sales and actual volume of shares changing hands and see for yourselves.

If investors are willing to wait a bit and ride out what will certainly be strong manipulation attempts to shake longs out, you should be rewarded with a nice buy out premium, within in a year or so. It is hard for me to give an exact estimate of what the buy-out will be, but I speculate it will be over 1 billion dollars, or $10.00 a share.

My official prediction for Antares: Buy out coming in 6 to 15 months.

My self grade on Antares: A+

Idenix Pharmaceuticals (IDIX) 2/21/12 pps: $12.11. 3/9/12 pps: $11.16

Original opinion: Medium buy

I listed IDIX as a "medium buy" in my original article, and that recommendation has not worked out at all. This was a bad call by me as I should have been more focused on the stock's short interest. IDIX released its 2011 10k on 2/24/12, and the stock price has been steadily declining since.

For the fourth quarter ended December 31, 2011, Idenix reported total revenues of ($0.7) million, compared to total revenues of $2.4 million in the fourth quarter of 2010. In the fourth quarter of 2011, the Company recorded a charge against revenue related to the impact of the stock subscription rights of Novartis Pharma AG (NVS).

The Company reported a net loss of $18.1 million, or a loss of $0.18 per basic and diluted share, for the fourth quarter ended December 31, 2011, compared to a net loss of $16.2 million, or a loss of $0.22 per basic and diluted share for the fourth quarter ended December 31, 2010.

On the same day, Brean Murray, Carret & Co. analyst Brian Skorney widened his loss estimates for Idenix saying Hepatitis C pipeline progresses but future development strategy appears risky. The brokerage maintained a "Sell" rating and $3 target price on shares of IDIX. Skorney believes the direction towards IDX184 combination studies in 12-week durations poses significant risk of failure and substantial timeline delays if efficacy proves lackluster.

I should have stuck with my original call on IDIX where I said to stay away from it or short it. I need to do a better job explaining a short term buy versus a mid to longer term buy/sell.

My self grade for IDIX: F

I recently found a bio-pharma that I have included on my watch list that I have done due diligence on, and believe has strong upside potential:

Acadia Pharma (ACAD) 3/9/12 pps: $1.60

Acadia is a biopharmaceutical company that focuses on drug discovery and clinical development of novel treatments for central nervous system disorders. The company has an impressive portfolio of four product candidates:

Pimavanserin, in Phase III clinical development as a treatment for Parkinson's disease psychosis.

AGN-XX/YY, in Phase II for chronic pain.

AC-262271, a product candidate in Phase I for glaucoma in collaboration with Allergan Allergan (NYSE:AGN), as well as AM-831, a product candidate in IND-track development in collaboration with Meiji Seika Kaisha, Ltd.

Acadia is also developing two preclinical programs in the area of Parkinson's disease. Institutions hold a substantial 55% position in the company. This is very rare to see this kind of institutional ownership in a stock selling under $5 a share.

I am somewhat excited about this company considering the current price level and lower float of around 30 million shares. Obviously, this company is a risky investment, but not as risky as others, considering its lower market cap of $84.48M and Outstanding share pool of 52.80M. If we put Acadia up against a company like Biosante (BPAX), which currently sells for $0.74 a share, has a market cap of $81 million with 110.01M shares outstanding; I see Acadia as a far better value with far more promise, potential, and stock price upside.

I see Acadia as a far better value with far more promise, potential, and stock price upside. Acadia does not dump convertible warrants on the market as Biosante has been doing, so this is another plus. Look for my follow-up feature article on Acadia to come out some time today as well.

My opinion on Acadia: Strong buy.

Disclosure: I am long AIS.

Additional disclosure: This article is intended for informational and entertainment use only and should not be construed as professional investment advice. Always do you own complete due diligence before buying and selling any stock.