June 21, 2016
By Mark Terry, BioSpace.com Breaking News Staff
In theory, a company’s stock price is supposed to represent the value of the company. But anyone who’s spent any time investing or watching stocks knows that there are numerous factors that affect stock prices, not all of which are an accurate reflection of the company’s value. Cory Renauer, writing for The Motley Fool, takes a look at five biotech companies that he feels are suffering from market overreactions and undervaluations.
Foster City, California’s Gilead is Renauer’s first company. Much has been made about the company’s hepatitis C drugs and stalling sales, although for all that they still dominate the market. Or, as Renauer writes, “Overall sales of Gilead’s hepatitis C drugs have flatlined, but its recent price of about seven times this year’s earnings estimates is silly for several reasons: The easiest to understand is its 14.3 percent earnings yield (earnings divided by price) is a few points above the S&P 500’s historical average. This means earnings could remain flat into eternity and you would still beat the broad market holding this stock.”
But there’s a real possibility Gilead isn’t done with the HCV market. With six primary strains of hepatitis C viruses, the U.S. Food and Drug Administration (FDA) is deciding the fate of Gilead’s combination pill to treat all of them later this month.
And yesterday the company announced data from four pre-clinical and Phase I studies that evaluated GS-9883 (bictegravir) in HIV. The drug is also in a Phase III trial as part of a single tablet regiment in combination with tenofovir alafenamide (TAF) and emtricitabine (FTC) for HIV-1.
Ionis Pharmaceuticals , headquartered in Carlsbad, California, has lost about 60 percent of its market value this year, most recently when GlaxoSmithKline pushed back a Phase III trial with IONIS-TTRrx for transthyretin-related amyloidosis.
But that study is probably only delayed and is generally expected to continue after results of a Phase II trial, as well as another ongoing trial. In addition, Ionis has two drugs, plazomicin, an antibiotic, and custirsen, a cancer drug, in late-stage trials with various partners. It also has 12 other drugs in its pipeline in Phase II trials and six drugs in Phase I trials.
Cambridge, Massachusetts-based Biogen , despite dominating the multiple sclerosis (MS) market, has lost about 40 percent market value in the last year. Renauer writes, “The market reaction to the slowdown of Biogen’s once-rocketing multiple sclerosis pill, Tecfidera, was harsh but somewhat warranted. However, I think the reaction to the more recent trial failure that hacked about $10 billion off the company’s market cap was overdone.”
Biogen is ambitious, and it’s currently gambling on some very high stakes areas, including Alzheimer’s disease. Most recently, on June 8, its anti-LINGO-1 (opicinumab) to repair nerve damage caused by MS, failed a Phase II clinical trial. There are some hints the drug may have shown effectiveness for something else, perhaps optic nerve lesions, which were one of the key characteristics the study evaluated.
Renauer writes, “Biogen is trading at about 12.5 times this year’s sales estimates. That’s ridiculously cheap for a company that recently reported first-quarter earnings-per-share growth of 27 percent over the same period last year.”
Celgene , headquartered in Summit, New Jersey, is Renauer’s fourth pick, and in this case he seems to believe the company is “able to punch above its weight … through a mind-boggling array of collaborations and outright acquisitions,” as opposed to being undervalued for some recent failed trial or pending patent expiration. The company depends a lot on Revlimid, which was first approved in 2005, but the drug is expected to hit about $6.7 billion in sales this year, an increase of 15.5 percent from 2015.
Otherwise, Celgene has 18 late-stage trials that are going to crank out data over the next two years. The company is generating about $11 billion this year, but seems on track to hit over $21 billion in total revenue by 2020. “Given the growth expected over the next several years, and the myriad of earlier-stage pies Celgene has its fingers in,” writes Renauer, “its recent price of less than 20 times this year’s expected earnings is just silly.”
And finally, Portola Pharmaceuticals , headquartered in South San Francisco, California, has a lot counting on its drug betrixaban, an experimental factor Xa inhibitor for venous thromboembolism (VTE). There are two big competitors out there, Johnson & Johnson ’s Xarelto and Bristol-Myers Squibb ’s Eliquis, but neither drug is approved for the exact same indication Portola is shooting for.
After a slightly disappointing clinical trial in March, the company’s market cap dropped by about $650 million, but has recovered a lot of that since.
Renauer writers, “While an approval for this indication would set the company’s factor Xa inhibitor apart from its Big Pharma peers, Portola has another drug under review at the agency that could also be a big hit.”
That drug, Andexxa, is an antidote for some of the bleeding side effects caused by factor Xa inhibitors.
