General Market Outlook: The market is still in a cautious uptrend. Last week’s action did little to convince the bulls are back. The SP 500 has suffered from 3 distribution days since the follow-through of December 20th. The Nasdaq Composite has suffered from 2 distribution days. These distribution days occurred mostly during the holiday week, thus we will get more insight into the market direction this week, as traders return from the Holidays.
Market Condition: → Cautious uptrend, distribution builds
This post looks at: CELG, BIIB, SLXP
The Technical View: Last week’s light trading volume did not tell us much as to where the market would like to go. However, during this week the SP 500 experienced a stall day (slight pickup in volume with no further price progress) followed by two days of increased volume on the downside. This type of action was not particularly encouraging looking forward. However, one can make an argument that last week’s trading may have been skewed due to the low volume holiday trading. On the positive side most leading stocks did not suffer any great selling, and the SP 500 was able to stay right around its 200 day moving average.
The Nasdaq Composite was able to stay above the 2600 level but still below is 200 day moving average (2660). Thus what we are watching for is how leading stocks perform, and watch to see if any new highs are being made. Also we are watching if the SP 500 can overcome its 200 day moving average (1258), as well as if the Nasdaq can rise above this level (2660).
The Dow Jones Industrials are faring a bit better at 12217, well above the 50 and 200 day moving average, and in fact it looks like the 50 day moving average (11934) is about to cross the 200 day moving average of (11946), a positive sign a “golden cross”.
Fundamental View: Corporate profits are still rich, market is well priced. The SP 500 earnings are forecasted to rise an average of 8.3% according to S&P Capital IQ, vs. a 16% average gain for 2011.
The world is giving the market many things to worry about, European debt issue, possible conflict in Iran, US politicians unable to work together, socialists in the white house preaching class warfare.. you get the picture.
Historically, governments around the world try to meddle in the markets and just cause havoc, just as we have seen in this past financial crisis. It looks like this meddling will continue through regulations and other orders. However, on the positive side, at least in the United States, the free markets and entrepreneurs of US companies have always been able to overcome the government meddling and the US economy has been able to continue to grow. So it is not different this time, take the news with a grain of salt but keep your eyes on the price and volume action of the market and leading stocks.
In this post we are going to look at some biotech and pharmaceutical stocks. This sector has shown some leaders thus far through the action of Questcor (QCOR) and Alexion Pharmaceuticals (ALXN). Medical device maker Intuitive Surgical (ISRG) also acting well. Other big Pharma has acted well as of late Bristol-Myers Squibb (BMY) and Pfizer (PFE) and Amgen (AMGN) also showed some movement. Others we hope to cover in the future are CBST, VPHM, SPPI and ENDP. This week we will look at CELG, BIIB and SLXP.
Stocks that we are looking at does not consititute a buy or sell recommendation. Please refer back to the last few reports as well. As of this writing we are long small positions DG, GNC, CXO, NUAN, CJES, CATM, BIIB, SLXP. We may initiate postions in other stocks mentioned or others, at any time depending on the market environment. Also we may sell existing positions at any time due to market conditions.
Since our follow-through day, at this point we are willing to commit small positions to certain stocks although we still do view the risk being high due recent market action. Please contact us at 1-866-903-1822 for help on this matter.
(CELG) Celgene, develops therapies to treat cancer and immune –inflammatory related diseases by regulating cells, genes and proteins.
The story: There are more than 300 clinical trials at major medical centers using compounds from Celgene. Investigational compounds are being studied for patients with incurable hematological and solid tumor cancers, including multiple myeloma, myelodysplastic syndromes, chronic lymphocyte leukemia (CLL), non-Hodgkin’s lymphoma (NHL), myelofibrosis, small cell lung cancer and prostate cancer. Earlier this fall the European Medicines Agency (EMA) concluded that Revlimid’s benefit for patients with multiple myeloma outweighed its risk. Revlimid is used to treat multiple myeloma after other treatments have failed. Revlamid contributed to $820 million in global sales last quarter, or 66% of Celgene’s total. Celgene has been trying to find broader uses for Revlimid, the EMA’s decision paves the way for Celgene to file application for more Revlimid use. Celgene has a host of other drugs with the other big ones being Vidaza to treat myelodysplastic syndrome and Abraxane to treat breast cancer. Celgene has a development pipeline of 25 phase three clinical trials and around 20 compounds in early preclinical stages.
Recent News : 12/13/2011 2011– Celgene International Sàrl, a subsidiary of Celgene Corporation, (NASDAQ: CELG), announced final results from a phase II investigational study evaluating the combination of REVLIMID® (lenalidomide) and rituximab in 59 patients with relapsed or refractory chronic lymphocytic leukemia (CLL)
10/27/2011 Third-quarter profit rose 33% to $1.02, 7 cents above Wall Street estimates. Revenue jumped 37% to $1.25 billion, just above views for $1.2 billion. Sales of Celgene’s dominant drug Revlimid — which treats blood cancer multiple myeloma — came in slightly under views at $820 million, up 28%.
Fundamentals:
| Quarterly | Sep10 | Dec10 | Mar11 | Jun11 | Sep11 | Dec11est | Mar11est | 2011est | 2012est |
| EPS ($) | .75 | .73 | .83 | .89 | 1.02 | 1.08 | 1.10 | 3.80 | 4.51 |
| EPS %chg | +34% | +18% | +32% | +29% | +36% | +52% | +32% | +36% | +19% |
| Sales ($mil) | 910.1 | 1066.3 | 1125.3 | 1183.2 | 1249.7 | 1300 | 1310 | 4830 | 5400 |
| Sales %Chg | +31% | +40% | +42% | +39% | +37% | +22% | +18.7% | +33.5% | +7.4% |
| No funds | 1653 | 1610 | 1567 | 1567 | 1598 | ||||
| Margins a.t. | 35.8 | 35.1 | 35.9 | 36.4 | 37.5 |
- Last 3 quarters consistent earnings growth of +32%, +29%, +36%
- Last 3 quarters of sales +42%, +39%, +37%
- After tax margins improving from the 35% level to 37.5%
- ROE of 25%
- Fund sponsorship dropped off a few quarters ago up in the most recent quarter
- Strong Forward estimates for 2011 and 2012 +36%, +19%
Technicals: Celgene has basically moved in a choppy fashion for the last two years, it has attempted to breakout many times, but just fails and comes back in. Recently it is now working on a new base above the 60 dollar level, volume has been strong on the right side of the base, we are watching to see if it can breakout past the 68.25 level. So we are watching to see if we can get a volume breakout above this level.
(BIIB) Biogen Idec Inc., develops Treatments for Multiple Sclerosis (MS), Cancer and Autoimmune/inflammatory diseases.
The Story: Search for an effective, safe and tolerable MS treatment has brought a lot of focus on Biogen’s BG-12. Recently its experimental multiple sclerosis drug, BG-12, met its goals in a second, late-stage clinical trial and worked better than Teva Pharmaceutical’s (TEVA) Copaxone, the current leading treatment for multiple sclerosis. The Problem with MS is that no one is really sure what causes MS and why it manifests itself differently in individuals. Although in all patients the immune system attacks the Myelin sheaths (fatty layers around nerve cells) eventually distorting nerve signals and damaging the nerves, producing a variety of symptoms. At this time BG-12 looks very safe management has said it expects to file for FDA approval in the first half of 2012. Analysts estimate sales could peak at $2 billion to $3 billion.
Recent News:
12/9/2011 Biogen Idec (BIIB) was given a top rating by Barclays Capital, which initiated coverage of the biotech firm. In Oct., the firm, which develops treatments for multiple sclerosis, cancer and other diseases, posted better-than-expected Q3 results, but declined to raise conservative guidance
11/29/2011 Biogen Idec (BIIB) received U.S. antitrust clearance to go forward on a deal with Portola Pharmaceuticals to develop and commercialize a drug for the treatment of rheumatoid arthritis and lupus
10/28/2011 The biotech beat Q3 expectations and said its experimental multiple sclerosis drug outperformed the current leading MS treatment in trials. Biogen Idec (BIIB) earned $1.61 a share, above views ($1.51 per share). Revenue rose 11% to $1.31 bil, boosted by its multiple sclerosis drug Tysabri. Higher-than-expected sales of Biogen’s two leading drugs, Avonex and Tysabri, drove the results. Both of them treat multiple sclerosis, and together they account for more than half of the company’s revenue.
Biogen’s full-year guidance was the same as last quarter, except it refined its sales-growth estimate from “low to mid-single digits” to simply “mid-single digits.” Profit guidance, however, appears to be very conservative compared with what analysts expect; EPS is forecast “above $5.70″ while analysts’ consensus is $5.88. Biogen’s next MS drug, BG-12. That product, which unlike the previous drugs is taken orally, has had analysts seeing blockbuster potential. On a conference call with analysts, CEO George Scangos said Biogen plans to file for official FDA approval of BG-12 in the first half of next year.
10/26/2011 The biotech said its experimental multiple sclerosis drug, BG-12, met its goals in a second, late-stage clinical trial and worked better than Teva Pharmaceutical’s (TEVA) Copaxone, the current leading treatment for multiple sclerosis. Biogen Idec (BIIB) reported similar results from a separate clinical trial Fri.
Fundamentals
| Quarterly | Sep10 | Dec10 | Mar11 | Jun11 | Sep11 | Dec11est | Mar11est | 2011est | 2012est |
| EPS ($) | 1.35 | 1.42 | 1.43 | 1.36 | 1.61 | 1.50 | 1.51 | 5.89 | 6.31 |
| EPS %chg | +21% | +18% | +32% | +4% | +19% | +5.6% | +5.6% | +14% | +7% |
| Sales ($mil) | 1175.8 | 1219.1 | 1203.3 | 1208.7 | 1309.9 | 1290 | 1300 | 5010 | 5260 |
| Sales %Chg | +5% | +8% | +9% | 0% | +11% | 5.9% | 7.7% | 6.2% | 5.0% |
| No funds | 1230 | 1184 | 1292 | 1413 | 1453 | ||||
| Margins a.t. | 28.6 | 28.8 | 28.9 | 28.8 | 30.1 |
- Last 3 quarters earnings have been sporadic, +32%, +4%, +19%
- Last 3 quarters of sales have been +9%, 0%, 11%
- After Tax margins have increased from 28.6 to 30.1%
- ROE of 23%
- Fund sponsorship has increased over the last 4 quarters,
- Forward estimates for 2011 and 2013 of +14% +7%
- A lot of faith is being placed in the BG-12 blockbuster potential, as well as other discovery in neurodegenerative disease.
Technicals: Since the pop on news on trials of BG-12 the stock has been consolidating the range lately has been very tight indicating institutional accumulation. The stock can be tested here or we can wait to see how the base develops and if we get any pop out of the base on volume.
(SLXP) Salix Pharmaceuticals develops branded prescription drugs for the treatment of gastrointestinal diseases.
The Story: Salix focuses on niche products in gastroenterology. Xifaxin 200 mg form is used to treat traveler’s diarrhea, Xifaxan 550 mg an (orphan drug) is used to treat hepatic encephalopathy which also gives it seven years of market exclusivity. The company believes this could deliver 1 billion in revenue at their peak in 2017. Most of Salix’s gains this year come from the new Xifaxan indication for hepatic encephalopathy and from growing off-label use of the 550 mg dosage for treating irritable bowel syndrome (IBS). Salix is seeking approval of Xifaxan 550 mg for treating IBS, but in the meantime doctors are using it off label. Estimates are that Xifaxan 550 mg sales from treating IBS could reach $620 million by 2016. Further out, Salix’s management expects peak sales of $2 billion. Credit Suisse estimates that Salix’s revenue from all indications and dosages of Xifaxan will total $370 million this year, up from $250 million in 2010. Of Salix’s $146.2 million in third-quarter revenue, Xifaxan made up $96.7 million, a gain of 48% over last year.
Another important drug is Relistor, which is being developed in a pill form to treat opioid-induced constipation. The drug is now only an injectable, used mostly in hospitals. It generated about $8 million in sales for Salix in the third quarter. The oral form could be used chronically outside the hospital and could potentially have much greater sales. Two new drugs were added by the acquisition of Oceana which include Solesta and Deflux. Solesta is the only nonsurgical FDA-approved treatment for fecal incontinence in adults who fail conservative therapy. Management expects peak sales of more than $500 million, with modest earnings contribution in 2012. Deflux, treats kidney infections in children and logged $26 million in worldwide sales in the first nine months of 2011.
Recent news:
12/20/2011 Salix Pharmaceuticals announced the successful outcome of the Phase 3 trial to evaluate the efficacy and safety of oral methylnaltrexone (Relistor) for the treatment of opioid–induced constipation (OIC) in subjects with chronic, non–cancer pain
12/20/2011 – Salix Pharmaceuticals and Oceana Therapeutics, LLC today closed a transaction whereby Salix acquired all of the outstanding stock of Oceana Therapeutics, Inc., a privately–held global provider of gastroenterology and urology therapeutics.
11/29/2011 the FDA issued guidance believed to keep Xifaxan safe from generic-drug companies.
On 11/17/2011 , a Food and Drug Administration panel issued positive comments on the company’s proposed clinical design study of Xifaxan 550 mg for treating IBS.
Fundamentals
| Quarterly | Sep10 | Dec10 | Mar11 | Jun11 | Sep11 | Dec11est | Mar11est | 2011est | 2012est |
| EPS ($) | .14 | .66 | .34 | .54 | .77 | .92 | .66 | 2.51 | 2.77 |
| EPS %chg | +193% | +608% | +203% | +125% | +450% | +39% | +94% | +264% | +10% |
| Sales ($mil) | 80.6 | 118.5 | 105.9 | 133.2 | 146.3 | 151.99 | 164.5 | 537.82 | 728.28 |
| Sales %Chg | +23% | +69% | +140% | +42% | +81% | +28.3% | +55.3% | +59.6% | +35.4% |
| No funds | 455 | 487 | 470 | 458 | 471 | ||||
| Margins a.t. | 24.7 | 28.4 | 26.1 | 29.3 | 33.3 |
- Last 3 quarters earnings have grow +203% , +125%, + 450%, which will slow down going forward
- Last 3 quarters sales +140%, + 42%, + 81% this will slow as well
- After Tax margins have increased over the last few quarters from 24.7% to 33.3%
- ROE of 12%
- Fund sponsorship has been steady over the last few quarters between 450-480 funds
- Strong forward estimates for 2011 and 2013 of +264% , + 10%
Technicals: SLXP reached a high around 49 1 year ago and has formed a large base since then, recently due to all the news the stock started forming the right side of the base, it already had a breakout on 11/29/2011 recently it staged a buyable gap up on 12/20/2011, thus it is in a buyable range now using the low of the gap up day as a stop.