Should Pfizer buy Wyeth?

Pfizer has reached the top of the pharmaceutical ladder in large part thanks to mega-acquisitions. The Warner Lambert acquisition most notably brought Lipitor which Pfizer grew into a $ 12 billion brand. The acquisition of Pharmacia brought a more diversified portfolio, although Celebrex felt to reach full blockbuster status because of post-marketing safety issues.
Yet, despite a $ 7+ billion budget, Pfizer’s R&D productivity has remained dismal, with no blockbuster or not even enough product launches to replace Lipitor when it loses its patent starting in 2010. Bigger was not better in pharmaceuticals, or at least it was not sustainable.
Under the new CEO Jeffrey Kindler, Pfizer promised to re-invent itself, targeting specialty areas and re-deploying its legendary mass marketing approach into a more focused customer-centric communication.
Wyeth has a gone the same trajectory, although from a smaller revenue base, building specialty mega-brands, such as Arthritis biological drug Enbrel and pneumoccocal vaccine Prevnar. Wyeth’s oncology pipeline is also particularly promising, in particular breast cancer drug neratinib (HKI 272) which has the potential to reach over $ 3 billion in sales.
Analysts like the Pfizer-Wyeth combination, because it strengthen the Biotech portfolio of Pfizer. At $ 50 a share, or $ 65 billion valuation, Wyeth is still considered a good buy.
The official agreement to merge could come as early as next week. Once a gain, Pfizer will buy its way in, but doubts remain that this will transform its corporate culture and make a more nimble company with a productive R&D.

Biotech Winners of 2008 and Early 2009 Outlook

Biotech proved to be a defensive investment with the Dow Jones Biotech Index up 4% in 2008 while the overall DJ Market Index was down 39%. The NASDAQ Biotech Index resisted better at -16% than the overall NASDAQ Market Index which fell 42%. No less than four Biotech companies figured among the top 10 Gainers of 2008 on Wall Street.

Vertex (NASDAQ:VRTX) was the top performer on the NASDAQ 100, up 27 % at $30.15, on the promise of its $ 75,000 a year treatment for Hepatitis C and a robust and well partnered portfolio.

Genentech (NYSE:DNA), boosted by revenue growth of its blockbuster portfolio and Roche’s offer to acquire 100% of the company, was up 24% at $ 89 a share.

Amgen (NASDAQ:AMGN) was up 24% on the promise of denosumab, an osteoporosis drug awaiting FDA approval, which reduces spinal fractures in post-menopausal women and is expected to reach peak sales of $ 2 billion.

Celgene (NASDAQ:CELG), now a fully integrated global bio-pharmaceutical company, was up 20% at $ 55.28, on continued growth of Revlimid and the integration of the Pharmion acquisition.

Gilead (NASDAQ:GILD) was up 11% at $ 51.14, on strong sales of its robust HIV portfolio.

Among the Mid caps, a special mention goes to ViroPharma (NASDAQ:VPHM), up 63.7% at $13.02.

ViroPharma continues to maintain strong sales of Vancomycin, still without generic competition, is moving forward with phase III trials for Camvia, its promising treatment for CMV infections and completed the $688 million acquistion of Lev Pharmaceuticals, giving it access to Cinryze, a treatment for hereditary angioedema, approved by the FDA in 2008.

Clearly, Big-Cap Biotech is a winner, replacing Big Pharma as a defensive investment. It is still growing fast. It is also much less vulnerable to generics, even if bio-similar legislation, increases competition for the more mature Biotech products.

Mid-Cap Biotech, with a combination of revenues and pipeline, is also well positioned for 2009, both as an acquisition target for pipeline-hungry Pharma and as a selective acquirer of smaller public and private biotech companies looking for a safer heaven in a challenging capital raising market.

Just like every year, Investors and Executives will convene at the JP Morgan Healthcare Conference to be held January 12-15, 2009 at the Westin St Francis in San Francisco, CA.

More insights to come soon!

Will the VC Liquidity Crisis put a Stop to New Venture Financing?

The second quarter of 2008 has been dry for Venture Capitalists. No IPOs, only very few M&A exits. Actually just one is Biotech: the acqusition of Xanthus Pharmaceuticals by Antisoma plc for $ 53 million.

If we include the first quarter of 2008, there were only 5 venture backed IPOs yielding a meager $ 283 million, versus $ 6.3 billion for 70 million in the fisrt half of 2007. Disclosed Venture backed M&A deals went from 169 down to 120 and the total investor value from $ 8.5 billion down to $ 6 billion during the same period. This is a 42% drop in deal value.

It is unclear how long the Tech Crunch will last. For some sectors , bootstrapping or reaching out to angel investors may be a way to get started. It is much more concerning for new ventures in the Biotech sector, which require more capital and have a longer road to revenues. Let’s hope that VCs will look beyond the short term economic outlook and remember that most Biotech investments require a 5+ year vision, long enough for a turnaround of the economy.

Biotech beats the Stock Market in 2nd Quarter

Biotech companies defied the gravitational pull of the global capital markets during the second quarter, as some of the major biotech indices finished in positive territory while other financial benchmarks declined.
The BioCentury 100 Index ended the quarter up 3.7%. The NASDAQ Biotechnology and AMEX Biotechnology indices also were up on the quarter, posting gains of 1.6% and 0.1%, respectively. The NASDAQ Composite Index was up 0.6%, while the AMEX Pharmaceutical Index was down 1.5%, the S&P 500 was down 3.2% and the Dow Jones Industrial Average lost 7.4% in the quarter.

source: BioCentury

Myriad Genetics to Refocus on Molecular Diagnostics and Personalized Medicine

Myriad Genetics (NASDAQ:MYGN) is ending its venture into drug development. Its Alzheimer’s drug, Flurizan, did not show benefits in phase III, barely a surprise following unconvincing Phase II trials. Fortunately for Myriad Genetics, it has already recouped the $ 68 million invested in phase III thanks to an agreement selaed last May where Lundbeck paid $ 100 million for Flurizan European rights.
Myriad’s lead compound is now Azixa (MPC-6827). The apoptosis-inducing compound is in Phase II testing to treat glioblastoma multiforme (GBM), melanoma with brain metastases and non-small cell lung cancer (NSCLC) with brain metastases. Myriad received exclusive rights to Azixa from EpiCept (NASDAQ:EPCT),
Discontinuation of Flurizan will allow Myriad Genetics to show a profit of $ 0.35 per share on 2009 sales of $ 315 million according to analyst consensus. On June 30, MYGN was down 5% at $45.52 a share and market cap was $ 2.03 billion.
However, as “personalized medicine” becomes increasingly prevalent, companies like Myriad Genetics are likely to be winners, enjoying rapid growth and high profitability.

Is Takeda overpaying by offering $ 9 billion for Millenium?

Takeda is offering almost $ 9 billion for Cambridge, MA based Millenium Pharmaceuticals. This is a 53 % premium on yesterday’s closing price. Millenium’s only commercial drug is Velcade, which competes with Celgene’s Revlimid. Recent favorable clinical trials are supporting a sustained revenue growth of at least 20% for Velcade. Johnson & Johnson is marketing Velcade outside of the US and co-promoting in the US.

However with only 6 years patent life left, the value of Velcade is probably in the $ 2-3 billion range based on discounted cash flow calculations. That leaves a $ 6+ billion valuation for the early pipeline – no product is beyond phase II. This is very high but maybe a similar situation to AstraZeneca beefing up its biologics capability and pipeline through the $ 15 billion acquisition of Medimmune.

Big Pharma, including Takeda- with Prevacid and Actos patent expiring soon- is facing a huge cliff in the early 2010s and betting on specialty products and biotechnology. With more deals to come,  valuations for quality biotech companies should fare well in a depressed stock market.

Pharma edges its political contributions between Dems and Republicans

According to the Center for Responsive Politics, Pharma edges its 2008 political contributions between Democrats and Republicans. This is a departure from the last 15 years where Republicans have always been favored. It is interesting to note that GSK, Abbott, Schering Plough and Novartis in that order continue to lean Republican while Johnson & Johnson and Roche make 2/3 of their contributions to Democrats.

While pro-business, former Bain Capital top exec, Matt Romney was an early favorite, McCain ambiguous statements toward Pharma, have had the industry hedge its bets toward Democrats. Obama slightly leads Clinton among Democrats.

Healthcare Policy will clearly continue to be high on the agenda of candidates in a year where recession fears and reality make voters very responsive to promises of better health coverage. We shoud therefore expect the debate to heat up and hope the industry can be pro-active in supporting realistic solutions.