Six weeks after Federal Reserve Chairwoman Janet Yellen called biotechnology valuations “substantially stretched” the NASDAQ Biotechnology Index (IBB) is setting new records right alongside the S&P 500. It’s easy to poke fun at the Chairwoman’s comments – the IBB is up 8% since the remarks – but we understand where Yellen was coming from. There are certainly some richly valued small-cap biotech stocks; her mistake, perhaps, was painting with such broad strokes –
– now, its crow for Labor Day.
We ate some crow ourselves this week after Roche (RHHBY) agreed to buyInterMune (ITMN) for $8.3B, a 38% premium to the stock’s previous close and +60% from when rumors of an acquisition began swirling earlier in August. Contributing analyst David Phillips explained to PropThink’s Premium subscribers why he didn’t think an acquisition would get done, and outlined a low-risk way to profit on the thesis. Despite the stock running 35%, to $74, the risk-mitigated trade resulted in a manageable 6% loss:
“Admittedly, this caught me off guard. The world’s leading provider of cancer care products is better known for blockbuster oncology drugs like Rituxan and Avastin. In hindsight, however, given that word had trickled out last week that the Swiss-based drug maker had suspended a phase 2 IPF trial of oral Vismodegib, it makes logistical sense that management would look to extend its pulmonary franchise beyond asthma drug Xolair and cystic fibrosis (Pulmozyme) with InterMune’s lead asset, Esbriet (pirfenidone). . . If I had considered seriously that an offer would come in at a 38% premium to ITMN’s Friday close (and 63% higher than Aug. 12 when news of M&A first emerged), I might have gone with a long straddle position. Alas, I am less a clairvoyant than a sane man.”
Ebola stocks are still hot, though for new reasons this week. The DailyMail reported this Wednesday evening that up to four drug companies, including Shire Plc (SHPG) and GlaxoSmithKline (GSK), are stalking Tekmira Pharmaceuticals (TKMR) because of its experimental Ebola therapeutic, TKM-Ebola. Less than 12 hours later, GlaxoSmithKline announced that its own Ebola vaccine could be given to healthy subjects in the UK, Gambia, and Mali by mid-September, with safety trials finished by the end of the year.
Though we continue to like the Tekmira (TKMR) long thesis, Mr. King explained why GSK isn’t going after the company because of its ebola drug. The Daily Mail has a terrible track record of calling acquisitions, and GSK is now prepping an Ebola product of its own. It took a $3.5M grant and external trial sponsors, announced this week, just for GSK to get its own vaccine moving in the clinic; that doesn’t sound like a company willing to put up serious capital to buy an Ebola therapeutic.Read more, including some background on the longterm TKMR investment thesis,here.
Alcobra (ADHD) will report topline results from a phase 3 trial of its lead drug candidate metadoxine by the end of the third quarter. It’s a major event for the small company; a failure would leave Alcobra with little cash and no other pipeline products on which to stand. We’ve been covering Alcobra since late 2013, and this week sent out a trade built around the forthcoming results. The strategy allows for profits of three times what’s being risked on the binary event, an attractive risk/reward skew. Read this commentary, and our deeper research on Alcobra and metadoxine, by becoming a PropThink subscriber. We deliver proprietary and independent research on emerging biotechnology companies, and we define the trade. Your first month is just $49.
