My nomination for most undervalued stock in the biotechnology segment: Celgene (CELG). Celgene provides a double dose of growth potential: further growth of its currently approved therapies and a rich pipeline with some therapies closing in on FDA approval and commercialization.
Consider Celgene's Q2 earnings reported last week. Revenue was $1.18 billion, up 4% sequentially from $1.13 billion, and up 38% from $852.7 million in the year-earlier quarter. GAAP Net income was $279.2 million, up 9% sequentially from $255.6 million and up 80% from $155.4 million year-earlier. GAAP EPS (earnings per share) were $0.59, up 9% sequentially from $0.54 and up 79% from $0.33 year-earlier. Non-GAAP EPS was $0.89 per share.
Most of this rapid growth was based on a single therapy, Revlimid for multiple myeloma (MM) and myelodysplastic syndromes (MDS). The rate of growth fluctuates, but expansion is largely international now, with Russia, China and Brazil still ahead. In addition various clinical trials have indicated Revlimid will be beneficial in other types of cancer. Revlimid is in Phase III trials for CLL (chronic lymphocytic leukemia), NHL (non-Hodgkin lymphoma) and prostate cancer.
Based on that alone, one might expect Celgene's stock price to be 30 to 50 times earnings per share. As I write you can buy Celgene for $58.12 per share. Even using the lower, GAAP number ($0.59 x 4 quarters = $2.36 per year), the PE ratio right now is under 25 times earnings. Non-GAAP EPS ($0.89 x 4 = $3.56) reads out at a 16.3 ratio.
But Revlimid, and other already-approved therapies Vidaza, Abraxane, and Thalomid, are just part of the story. Thalomid is ancient and has declining revenues, but Abraxane for breast cancer is ramping. Abraxane is also in clinical trials for treating lung, pancreatic, bladder, skin, and ovarian cancers. Vidaza for multiple myeloma grew revenues 23% y/y, and has a lot of room to grow with global launches.
Earlier in the pipeline Celgene displays depth-of-field. Of course most pre-clinical drugs don't make it through all the clinical phases and FDA approval; there will be some losers. Celgene's pipeline is so broad and important you could write a book about it.
In Oncology/Hematology we have pomalidomide in Phase III trials for myelofibrosis and nearing the end of Phase II for multiple myeloma. There is Amrubicin, in Phase III for small cell lung cancer. In Phase II we also have ACE-011 for CIA and ABI-008 for prostate cancer. In Phase I we have Tork Inhibitor and ABI-009, both for solid tumors. There are two additional pre-clinical ABI variants for solid tumors.
In inflammation and immunology we have Apremilast in Phase III and JNK CC-930, CC-11050 and PDA-001, as well as more Apremilast indications, in Phase II.
Beyond that Celgene lists over a dozen agents in discovery and pre-clinical phases.
Of course, what will affect Celgene's stock price soonest are the late stage candidates. The first big movers is likely to be expanding the label for Revlimid to first-line (initial) treatment of multiple myeloma. The second would be Abraxane for non-small cell lung cancer, with FDA submission in second half of 2011 and a decision likely in the first half of 2012.
In general it is a very good time to invest in biotechnology, even given the known risks. Gilead, Celgene, and Biogen Idec are cash cows that also have unrealized value in their pipelines. Small, risky biotechs aren't commanding the high premiums they used to, which is good because many of their drug candidates don't work out. With the larger biotechs when a drug candidate fails, it is disappointing and the stock can lose some momentum, but cash flow can be used to buy and develop more candidates, or buy back stock, or even (hopefully some time soon) start paying out a dividend, which is the true gold standard for value-conscious investors.
See also www.celgene.com
Keep diversified!
Showing posts with label lung cancer. Show all posts
Showing posts with label lung cancer. Show all posts
Tuesday, August 2, 2011
Tuesday, December 14, 2010
Onyx Pharmaceuticals Clinical Trial Overview
I listened to the Onyx Pharmaceuticals (ONXX) presentation to analysts today. It mainly reported on Onyx's therapeutic pipeline. I have covered Onyx in more depth elsewhere (see my Onyx Pharmaceuticals ONXX page); here I am just recording my immediate impressions from the presentations.
Carfilzomib for multiple myeloma data seems to be excellent. Carfilzomib could become the drug of choice for MM patients. Revenues could begin in late 2011, but would more likely be a 2012 story (they already got a large milestone payment from Ono Pharmaceutical in Japan).
In addition to extending Nexavar (Sorafenib) for liver cancer, there are three main targets for Nexavar: breast, lung, and thyroid cancer.
The breast cancer results seemed somewhat marginal to me. With the right subtype target, they should be able to get results good enough for FDA approval, but it is not a sure thing. A big Phase III trial is about to get underway, which will give everyone a much better view.
The lung cancer results seemed fairly solid, again with the best chance of success being based on subtype identification. I would give Nexavar a better-than-average chance of approval based on data available so far.
The best data appeared to be for thyroid cancer. Here we have a good combination of a lack of any good therapy availability to date and the method of action of Nexavar working out well for the most common type of thyroid cancer. I would bet this indication will be approved.
In the short run, the biggest impact on the stock would come from the approval of reimbursement for Nexavar for liver cancer in South Korea. Liver cancer is far more common in Asia than in the U.S. or Europe (over 10 times as common), so the bulk of the global profits will eventually come from Japan, Korea, and China. China has approved prescribing Nexavar, but not reimbursement for the costs. The Korean approval won't take effect until January 1, so it won't effect Q4 2010 revenues.
My overal impression is that the Onyx stock I own is now very underpriced, but that is based on future trial results, FDA approvals, and marketing successes, so making stock purchases on that assumption involves pretty much risk.
Onyx stock (ONXX) ended the day up $1.04 or 3.1%, at $34.54.
See also Onyx Pharmaceuticals site
Carfilzomib for multiple myeloma data seems to be excellent. Carfilzomib could become the drug of choice for MM patients. Revenues could begin in late 2011, but would more likely be a 2012 story (they already got a large milestone payment from Ono Pharmaceutical in Japan).
In addition to extending Nexavar (Sorafenib) for liver cancer, there are three main targets for Nexavar: breast, lung, and thyroid cancer.
The breast cancer results seemed somewhat marginal to me. With the right subtype target, they should be able to get results good enough for FDA approval, but it is not a sure thing. A big Phase III trial is about to get underway, which will give everyone a much better view.
The lung cancer results seemed fairly solid, again with the best chance of success being based on subtype identification. I would give Nexavar a better-than-average chance of approval based on data available so far.
The best data appeared to be for thyroid cancer. Here we have a good combination of a lack of any good therapy availability to date and the method of action of Nexavar working out well for the most common type of thyroid cancer. I would bet this indication will be approved.
In the short run, the biggest impact on the stock would come from the approval of reimbursement for Nexavar for liver cancer in South Korea. Liver cancer is far more common in Asia than in the U.S. or Europe (over 10 times as common), so the bulk of the global profits will eventually come from Japan, Korea, and China. China has approved prescribing Nexavar, but not reimbursement for the costs. The Korean approval won't take effect until January 1, so it won't effect Q4 2010 revenues.
My overal impression is that the Onyx stock I own is now very underpriced, but that is based on future trial results, FDA approvals, and marketing successes, so making stock purchases on that assumption involves pretty much risk.
Onyx stock (ONXX) ended the day up $1.04 or 3.1%, at $34.54.
See also Onyx Pharmaceuticals site
Sunday, September 7, 2008
Celgene to Grow Rapidly
Celgene (CELG) is a pharmaceutical company, usually seen as a biotechnology company, known for selling Revlimid, a derivative of thalidomide for the treatment of multiple myeloma. Earlier this year Celgene completed the acquisition of Pharmion, which sold thalidomide in Europe for the treatment of multiple myeloma. Celgene also markets Alkeran, which has been used to treat multiple myeloma since 1962, and Vidiza for MDS (myelodisplastic syndrome). It no longer markets Focalin and Ritalin, having sold the rights to Novartis.
Celgene has a very high price to earnings ratio, listed at almost 50 at the close of trade Friday, September 5, 2008. Very few companies have PE's like that in this market. But Celgene's Q2 revenues were up 34% from Q1 and up 64% from year-earlier. Part of that increase was due to the acquisition of Pharmion, but Pharmion itself was growing revenue rapidly before it was acquired.
The excitement is due partly to continuing good clinical results both for currently approved drugs in new (or at least varying) indications and for Celgene's extensive pipeline. Before getting carried away, keep in mind the usual risks for drug companies. The discovery of previously unknown side effect (or adverse reaction) can cause a drug to be pulled from the market or restricted in its use. Even approved drugs will not sell well if insurance companies refuse to reimburse for them. And anything in the pipeline can fail to become profitable due to a failure in the market or expenses exceeding revenues, or competitive pressures.
Ambrucin is leading the list for new future profit generation at Celgene. According to Celgene, "Ambrucin has demonstrated substantial clinical efficacy in the treatment of small cell lung cancer. Amrubicin is a potent topoisomerase II inhibitor and is being studied as a single agent and in combination with anti-cancer therapies for a variety of solid tumors, including lung cancer." Ambrucin was given Fast Track status by the FDA last week. While many experimental drugs get Fast Track status, Ambrucin is already being used to treat lung cancer in Japan, so marketing it in the United States should happen relatively soon.
On August 21, 2008, Celgene announced "VIDAZA (azacitidine) received expanded U.S. Food and Drug Administration (FDA) approval to reflect new overall survival achieved in the AZA-001 survival study of patients with higher-risk myelodysplastic syndromes (MDS). This expanded indication supplements the 2004 FDA authorization of VIDAZA as the first therapy approved in the U.S." Vidaza is also being launched in Europe, which should add substantially to Celgene revenues once it ramps up.
Revlimid has shown good results in trials for CLL (Chronic Lymphocytic Leukemia) and NHL (non-Hodgkin Lymphoma), but approval from the FDA probably won't be possible until late 2009 or 2010.
All of this is on top of the continued expansion of Revlimid for multiple myeloma into more national markets, in particular into Asia.
Revenue growth tends to come in spurts in companies introducing new drugs because each nation has to approve the drug and then approve national health care reimbursement. So you can't just draw a straight line from a prior quarter or a prior year's quarter and say how fast revenues will grow. Stock prices tend to overreact to accelerations and decelerations.
So Celgene is probably best for investors with a good long investment horizon.
I own some Celgene stock.
Keep in mind that there is always risk (as Fannie Mae and Freddie Mac investors just learned), so keep diversified!
More data:
My Celgene page
Summary of Q2 2008 Celgene Analyst Conference
www.celgene.com
Celgene has a very high price to earnings ratio, listed at almost 50 at the close of trade Friday, September 5, 2008. Very few companies have PE's like that in this market. But Celgene's Q2 revenues were up 34% from Q1 and up 64% from year-earlier. Part of that increase was due to the acquisition of Pharmion, but Pharmion itself was growing revenue rapidly before it was acquired.
The excitement is due partly to continuing good clinical results both for currently approved drugs in new (or at least varying) indications and for Celgene's extensive pipeline. Before getting carried away, keep in mind the usual risks for drug companies. The discovery of previously unknown side effect (or adverse reaction) can cause a drug to be pulled from the market or restricted in its use. Even approved drugs will not sell well if insurance companies refuse to reimburse for them. And anything in the pipeline can fail to become profitable due to a failure in the market or expenses exceeding revenues, or competitive pressures.
Ambrucin is leading the list for new future profit generation at Celgene. According to Celgene, "Ambrucin has demonstrated substantial clinical efficacy in the treatment of small cell lung cancer. Amrubicin is a potent topoisomerase II inhibitor and is being studied as a single agent and in combination with anti-cancer therapies for a variety of solid tumors, including lung cancer." Ambrucin was given Fast Track status by the FDA last week. While many experimental drugs get Fast Track status, Ambrucin is already being used to treat lung cancer in Japan, so marketing it in the United States should happen relatively soon.
On August 21, 2008, Celgene announced "VIDAZA (azacitidine) received expanded U.S. Food and Drug Administration (FDA) approval to reflect new overall survival achieved in the AZA-001 survival study of patients with higher-risk myelodysplastic syndromes (MDS). This expanded indication supplements the 2004 FDA authorization of VIDAZA as the first therapy approved in the U.S." Vidaza is also being launched in Europe, which should add substantially to Celgene revenues once it ramps up.
Revlimid has shown good results in trials for CLL (Chronic Lymphocytic Leukemia) and NHL (non-Hodgkin Lymphoma), but approval from the FDA probably won't be possible until late 2009 or 2010.
All of this is on top of the continued expansion of Revlimid for multiple myeloma into more national markets, in particular into Asia.
Revenue growth tends to come in spurts in companies introducing new drugs because each nation has to approve the drug and then approve national health care reimbursement. So you can't just draw a straight line from a prior quarter or a prior year's quarter and say how fast revenues will grow. Stock prices tend to overreact to accelerations and decelerations.
So Celgene is probably best for investors with a good long investment horizon.
I own some Celgene stock.
Keep in mind that there is always risk (as Fannie Mae and Freddie Mac investors just learned), so keep diversified!
More data:
My Celgene page
Summary of Q2 2008 Celgene Analyst Conference
www.celgene.com
Wednesday, February 20, 2008
Onyx (ONXX) Nexavar Trial and Q4 results
Onyx had its analyst conference yesterday. In addition to going over results from the fourth quarter of 2007, management talked and answered questions about the stopping of the Phase 3 trial of Nexavar combined with chemotherapies for lung cancer patients. See my Onyx Pharmaceutical analyst conference summary for notes on what management said and the questions asked by analysts.
But what you really want to know is, following the plumetting of the stock price from about $46 to about $32 on following the announcement of the cancellation of the trial, is the stock now overvalued or undervalued?
At this moment's price of $31.16, market valuation is near $1.7 billion. What would you get if you bought the whole company.
Nexavar is marketed through a partnership agreement with Bayer. Total sales made by Bayer in Q4 were $125 million. After R&D and market deveopment costs, however, Onyx is only owed $4.4 million by Bayer. It seems trivial, but only recently has Bayer started owing Onyx money instead of the other way around. Onyx spent an additional $22 million on its own. It has a lot of cash, $470 million at the end of the quarter, and generated interest income of almost $6 million on that.
All told the net loss, including non-cash stock compensation for employees, was $11.7 million.
So subtracting the cash from the market valuation gives you about $1.2 billion, which is what the market says is today's value for potential future profits. But remember the market is not magic, it is made up of the trades of a bunch of fallible people.
The near term is easier to see than the long term. In 2008 many nations will begin allowing patients with liver cancer to take Nexavar. So sales will continue to ramp. Management thinks that for 2008 the company may be cash-flow positive. What that means is that non-GAAP net income may be positive, but that GAAP net income, which includes non-cash charges like stock options for employees, may not be.
So here's why the stock is hard to put a simple valuation on: you have to guess what other cancers besides renal and liver cancer will benefit from Nexavar. And it costs money to prove such matters. The FDA not only is very specific in its cancer approvals (it may approve a drug for one type of lung cancer, but not another), but it also may specify stages that a drug can be tried at. Primary drugs are used when the cancer is first discovered; secondary drugs when the primary drugs have failed.
There are over 200 clinical trials going on with Nexavar at this time. Not all of them are paid for by Onyx or Bayer. Some are being done by independent cancer researchers. They cover the gamut of Nexavar's promise: some are for primary use. Some for secondary. Some in combination with other drugs. Some alone. And it is being tried on a variety of types, notably breast cancers and lung cancers.
Given the complexity of the conditions we lump together under the word "cancer," it should not be surprising that Nexavar works better on some cancer types than others. Even for the approved types, kidney cancer and liver cancer, some patients respond better than others.
While the non-small cell lung cancer trial that had to be discontinued was one that doctors, patients, and investors all had great hope for, it is just one failure in a large array. It should not have had such a large effect on the stock price, in itself. Still, we should assign some possibility that it presages a pattern of failure.
But it does make you think about the cost of research compared to the potential profits if Onyx gets permission to market Nexavar for more than its current applications.
In the short run Onyx and Bayer would be more profitable to just stop doing research and instead sell into the improved markets. But a rational investor should favor ongoing research if it is strategic. Nexavar probably has a long run ahead of it. It is running through fog, but it has already proven itself for two cancer types.
So I think Onyx stock is undervalued. 2008 Nexavar sales should cover R&D costs. With so many trials underway, in 2009 or so we should be seeing some data that lets us know how extensible Nexavar's benefits will be.
I don't own Onyx Pharmaceuticals at this time. I do have a small portfolio of other biotechnology companies.
Keep diversified!
More data:
Onyx web site
My Onyx main page
My biotechnology research guide page
But what you really want to know is, following the plumetting of the stock price from about $46 to about $32 on following the announcement of the cancellation of the trial, is the stock now overvalued or undervalued?
At this moment's price of $31.16, market valuation is near $1.7 billion. What would you get if you bought the whole company.
Nexavar is marketed through a partnership agreement with Bayer. Total sales made by Bayer in Q4 were $125 million. After R&D and market deveopment costs, however, Onyx is only owed $4.4 million by Bayer. It seems trivial, but only recently has Bayer started owing Onyx money instead of the other way around. Onyx spent an additional $22 million on its own. It has a lot of cash, $470 million at the end of the quarter, and generated interest income of almost $6 million on that.
All told the net loss, including non-cash stock compensation for employees, was $11.7 million.
So subtracting the cash from the market valuation gives you about $1.2 billion, which is what the market says is today's value for potential future profits. But remember the market is not magic, it is made up of the trades of a bunch of fallible people.
The near term is easier to see than the long term. In 2008 many nations will begin allowing patients with liver cancer to take Nexavar. So sales will continue to ramp. Management thinks that for 2008 the company may be cash-flow positive. What that means is that non-GAAP net income may be positive, but that GAAP net income, which includes non-cash charges like stock options for employees, may not be.
So here's why the stock is hard to put a simple valuation on: you have to guess what other cancers besides renal and liver cancer will benefit from Nexavar. And it costs money to prove such matters. The FDA not only is very specific in its cancer approvals (it may approve a drug for one type of lung cancer, but not another), but it also may specify stages that a drug can be tried at. Primary drugs are used when the cancer is first discovered; secondary drugs when the primary drugs have failed.
There are over 200 clinical trials going on with Nexavar at this time. Not all of them are paid for by Onyx or Bayer. Some are being done by independent cancer researchers. They cover the gamut of Nexavar's promise: some are for primary use. Some for secondary. Some in combination with other drugs. Some alone. And it is being tried on a variety of types, notably breast cancers and lung cancers.
Given the complexity of the conditions we lump together under the word "cancer," it should not be surprising that Nexavar works better on some cancer types than others. Even for the approved types, kidney cancer and liver cancer, some patients respond better than others.
While the non-small cell lung cancer trial that had to be discontinued was one that doctors, patients, and investors all had great hope for, it is just one failure in a large array. It should not have had such a large effect on the stock price, in itself. Still, we should assign some possibility that it presages a pattern of failure.
But it does make you think about the cost of research compared to the potential profits if Onyx gets permission to market Nexavar for more than its current applications.
In the short run Onyx and Bayer would be more profitable to just stop doing research and instead sell into the improved markets. But a rational investor should favor ongoing research if it is strategic. Nexavar probably has a long run ahead of it. It is running through fog, but it has already proven itself for two cancer types.
So I think Onyx stock is undervalued. 2008 Nexavar sales should cover R&D costs. With so many trials underway, in 2009 or so we should be seeing some data that lets us know how extensible Nexavar's benefits will be.
I don't own Onyx Pharmaceuticals at this time. I do have a small portfolio of other biotechnology companies.
Keep diversified!
More data:
Onyx web site
My Onyx main page
My biotechnology research guide page
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