ImClone Systems Inc. (NASDAQ: IMCL) had good results today, with shares closing up 6.7% at $67.94. The biotechnology company rejected Bristol-Myers Squibb (NYSE: BMY)'s offer to buy the remaining 83% of the company at $60 a share, saying it is considering a buyout offer worth $70 per share from an unidentified large pharmaceutical company. It seems that chairman Icahn has been busy.
To be sure, I was one of the skeptics when the billionaire investor last rejected BMY's offer, as was my colleague Doug McIntyre. But if this new offer is for real, then I must admit I underestimated him. Apparently, he "has been in talks with the chief executive of the pharmaceutical company that made the new offer, which would be worth about $6.1 billion." ImClone said it has not decided if the offer is adequate -- talk about playing hard ball all the way.
Bristol-Myers is ImClone's partner in selling its only product, the colon and head-and-neck cancer drug Erbitux. Analysts believe this would force BMY to offer $70 as well. A partnership between BMY and ImClone makes sense strategically. But I guess it all depends on who is the other pharmaceutical company BMY is competing with. Many pharma companies are losing sales to generic companies as their drugs go off patent, and without having much in the pipeline, but enough cash on their hands, any of them could be an interested buyer.
Some specific names mentioned by analysts include Sanofi-Aventis (NYSE: SNY), GlaxoSmithKline PLC (NYSE: GSK) and possibly AstraZeneca PLC (NYSE: AZN). Germany's Merck KGaA, which already sells Erbitux in some countries outside North America, is another likely candidate, as is Pfizer Inc. (NYSE: PFE), which has been trying to expand its portfolio of oncology drugs.
It's interesting that negotiations with the other company have been kept so tight, except for the price of course. BMY wins either way -- even if it can't get ImClone -- as it still holds 17% of BMY shares. Icahn, of course, would be a big winner too. Other options ImClone has been entertaining was spinning off the Erbitux division into a separate firm. The parent company would focus on developing drugs in its pipeline.
SNY opened this morning at $35.59. So far today the stock has hit a low of $35.28 and a high of $35.84. As of 11:55, SNY is trading at $35.52, up $1.99 (5.9%). The chart for SNY looks bullish and S&P gives SNY a positive 4 STARS (out of 5) buy ranking.
For a bullish hedged play on this stock, I would consider a December bull-put credit spread below the $32.50 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 19.0% return in just three and a half months as long as SNY is above $32.50 at December expiration. Sanofi would have to fall by more than 8% before we would start to lose money. Learn more about this type of trade here.
Goldman upgraded shares of BP Plc (NYSE: BP) to Buy from Neutral on valuation as they believe the recent pullback provides an attractive entry point.
VF Corp. (NYSE: VFC) was raised to Outperform from Neutral at Credit Suisse citing its acquisition platform and international growth. The company's target was increased to $100 from $88.
Deutsche Bank upgraded shares of Tenet Healthcare (NYSE: THC) to Buy from Hold and increased its target to $8.50 from $7 to reflect increased confidence in the company's ability to beat expectations over the next 12 months and reduce its net debt.
US Steel (NYSE: X) was raised to Sector Outperformer from Sector Performer at CIBC.
FedEx (NYSE: FDX) may be in talks to buy its rival European rival TNT, according to a report from the Financial Times. TNT shares have jumped 25% in Europe.
General Electric Co. (NYSE: GE) announced Monday it will supply parts for Gulfstream Aircraft Corp.'s G650 business jet in a deal worth potentially more than $100 million. Separately, GE said it would develop with Safran SA a new line of fuel efficient jet engines to compete with United Technologies Corp. (NYSE: UTX) Pratt & Whitney.
Apple Inc. (NASDAQ: AAPL) may have sold as many as 425,000 of its new 3G iPhones in the first three days after the handset made its debut, in line with projections and despite serious technical and activation problems. Apple and AT&T (NYSE: T) sold a combined 225,000 in the U.S. Gene Munster of Piper Jaffray & Co. predicts Apple will sell 4.08 million this quarter.
"You can invest for all the right reasons and still get the wrong result," notes long-standing turnaround stock expert George Putnam, referring to the poor performance of the pharmaceutical sector in recent years.
Here, in his industry-leading The Turnaround Letter, he offers a fascinating review of 10 leading drug stocks which he now believes offer a combination of growth potential at "pretty cheap" valuations. Here is his overview.
"In 2000 and 2001, when the Internet boom was becoming a bust, many smart investors turned away from technology stocks and put their money into drug stocks. How could you go wrong with the big pharmaceutical companies?
"Demand for their products was growing as the population aged. These companies had huge research and development programs that seemed to keep cranking out new blockbuster drugs. And most of them had great balance sheets, with many paying handsome dividends.
"Much of this reasoning has been borne out in the intervening years. Many large drug manufacturers have rung up substantial revenue gains over the last decade. So what's happened to the big drug stocks? With few exceptions they have gone sideways or down – in some cases down a lot.
After hitting a one-year high of $54.64 in January, the stock hit a one-year low of $40.51 in March. This morning, GSK opened at $43.76. So far today the stock has hit a low of $43.57 and a high of $44.01. As of 12:30, GSK is trading at $43.78, down $0.71 (-1.6%). The chart for GSK looks bullish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bearish hedged play on this stock, I would consider a July bear-call credit spread above the $47.50 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in eight weeks as long as GSK is below $47.50 at July expiration. Glaxo would have to rise by more than 8% before we would start to lose money. Learn more about this type of trade here.
Deutsche Bank cut Anheuser-Busch Companies Inc (NYSE: BUD) to Hold from Buy on valuation following the recent rally spurred by takeover speculation. The firm believes the reported $65/share cash takeover offer by Inbev requires aggressive cost reduction and could harm the brands.
Morgan Stanley downgraded shares of GlaxoSmithKline Plc (NYSE: GSK) to Underweight from Equal Weight as they see risk to Street expectations for a U.S. Cervarix approval in 2009.
Almost everyone these days has encountered cancer in one way or another. While the rate of cancer incidence has stabilized to declined since the early 1990s and, with newer and better treatments as well as early detection, cancer death rates have also declined, the war on cancer is still far from won.
It is no surprise, then, that a few days ago, IMS Health (NYSE: RX) -- a provider of market intelligence to the pharmaceutical and healthcare industries -- said that cancer drugs sales will nearly double by the year 2012. Assuming a compound growth rate of 12-15% a year, sales will grow from $48 billion in 2008 to $80 billion by 2012.
The main contributors to growth, according to the study, are an increasing number of patients on chemotherapy, not just in major markets but in emerging markets, too, as well as longer treatment periods for growing numbers of patients. Also fueling growth are the increased use of targeted therapeutic agents, along with first-time innovations coming to the market. Expensive new biotechnology drugs, and the increasing use of combination therapies that contribute to the exploding cost of treatment will also fuel cancer drugs sales growth.
The overall pharmaceutical market grew at a 6.4% pace in 2007, meaning that with its double-digit growth rate, the cancer drug market -- today contributing 17% to global pharmaceutical sales -- will only represent a greater proportion and emphasis. Of course, there will be factors moderating growth, such as drugs losing exclusivity and financial constraints of payers.
Cancer-fighting drugs can reach the market twice as fast as the average medicine, and companies can charge as much as $50,000 for a single course of treatment. It is no surprise then that with more and more drugs coming off patent many pharma companies are turning their attention to cancer. But can it save them?
In a move to help turnaround its troubled business, General Electric Company (NYSE: GE) will sell or divest its appliance division, and could expect to receive between $5B and $8B for the unit, according to the Wall Street Journal. Potential buyers appliance makers BSH Bosch & Siemens Hausger of Germany and Haier Group of China, as well as private equity firms and Controladora Mabe, GE's partner in Mexico.
The Wall Street Journal also reported that Comcast Corporation (NASDAQ: CMCSA) will acquire Plaxo, a networking Web site, in an effort to increase its range of services. Terms of the deal were not disclosed.
To help improve its Ask.com search engine, the Wall Street Journal reported that IAC/InterActiveCorp (NASDAQ: IACI) will buy the Lexico Publishing Group, which owns Dictionary.com, Thesaurus.com and Reference.com.
WEB SITES:
Citing the New England Journal of Medicine, Bloomberg reported that migraine headache medicines, including Merck & Co Inc's (NYSE: MRK) Maxalt and GlaxoSmithKline Plc's (NYSE: GSK) Imitrex caused potentially fatal reactions in at least 11 people. The Journal said people using "triptans," an older class of migraine drugs, could develop serotonin syndrome, which may cause fever, shock, vomiting and rapid heartbeat.
Day one of the two-day FDA Anesthetic/Life Support Drugs & Drug Safety/Risk Management Advisory Committees meeting: Purdue Pharma's NDA for Oxycontin.
Anadarko Petroleum (NYSE:APC) to report Q1 earnings; conference call Tuesday at 10:00am.
Tuesday, May 6
Day two of the two-day FDA Anesthetic/Life Support Drugs & Drug Safety/Risk Mgmt Advisory Committees meeting: Cephalon's (NASDAQ:CEPH) sNDA for Fentora.
Molson Coors (NYSE:TAP) to report Q1 earnings; conference call at 12:00pm.
GlaxoSmithKline (NYSE: GSK) shares are trading higher after the Food and Drug Administration approved GSK's Advair Diskus 250/50 for the reduction of exacerbations in patients with chronic obstructive pulmonary disease (COPD). Advair is now the only FDA-approved treatment for the reduction of COPD exacerbations. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on GSK.
After hitting a one-year high of $58.33 last May, the stock hit a one-year low of $40.51 in March. GSK opened this morning at $44.51. So far today the stock has hit a low of $44.42 and a high of $44.85. As of 12:35, GSK is trading at $44.61, up 0.50 (1.1%). The chart for GSK looks bullish and steady, while S&P gives the stock a neutral 3 Stars (out of 5) Hold rating.
For a bullish hedged play on this stock, I would consider an August bull-put credit spread below the $37.50 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in just three and a half months as long as GSK is above $37.50 at August expiration. GSK would have to fall by more than 15% before we would start to lose money. Learn more about this type of trade here.
GSK hasn't been below $40 at all in the past year and has shown support around $42.50 recently. This trade could be risky if one of the company's drugs runs afoul of the FDA, but even if that happens, that position could be protected by support the stock might find just above $41, where it bottomed out in March.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in GSK.
Stock futures indicated a higher start earlier this morning following solid results from internet bellwether Yahoo late Tuesday. As earnings reports have started coming out this morning, though, stock futures have started to reverse direction.
Other than many earnings reports on tap today, investors may look at U.S. oil inventories when out later today after reaching nearly $120 a barrel (10 cents shy) Tuesday. Analysts expect supplies declined in the past week. So far oil has moved somewhat lower today, but remained near $118 a barrel.
U.S. stocks tumbled Tuesday following some disappointing results from several tech and consumer stocks. The Dow industrials dropped 104 points, or 0.82%, the S&P 500 fell 12 points, or 0.88%, and the Nasdaq Composite lost 31 points, or 1.29%.
Despite many upcoming earnings reports, investors will likely continue to focus on Yahoo! (NASDAQ: YHOO), which has reported strong results, beating analyst estimates on both the top line and bottom line. Still, the results weren't phenomenal, or uncovered any surprising issue that might show it could fare better on its own. Yahoo! has until Saturday to accept Microsoft (NASDAQ: MSFT)'s takeover offer of $31 a share or face a proxy fight. Microsoft has already said it wouldn't raise its offer, but of course, nothing is certain at the moment. YHOO shares are down about 0.8% in premarket trading.
MOST NOTEWORTHY: AbitibiBowater, GlaxoSmithKline, AstraZeneca and Capital One were today's noteworthy downgrades:
Lehman downgraded AbitibiBowater (NYSE: ABH) to Equal Weight from Overweight citing dilution from the recent $350M convertible offering, cost pressures, and a more cautious outlook near-term for pulp markets.
JP Morgan cut GlaxoSmithKline (NYSE: GSK) and AstraZeneca (NYSE: AZN) to Underweight from Neutral on long-term earnings growth concerns.
Keefe Bruyette lowered Capital One (NYSE: COF) to Underperform from Market Perform to reflect the company's credit outlook.
OTHER DOWNGRADES:
Nokia (NYSE: NOK) was downgraded to Neutral from Buy at UBS and to Underweight from Overweight at JP Morgan.
Textron (NYSE: TXT) was cut at Credit Suisse to Neutral from Outperform.
.gif){kind=logo}
.gif){kind=logo}
.gif){kind=logo}
Almost everyone these days has encountered cancer in one way or another. While the 
Stock futures indicated a higher start earlier this morning following solid results from internet bellwether Yahoo late Tuesday. As earnings reports have started coming out this morning, though, stock futures have started to reverse direction. .gif){kind=logo}
Yogi is right: Ninety percent of this (economics) game is half-mental
Is the market always right?
Comfort Zone Investing: How this all might play out
