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?
Investors frequently like to chase "hot stocks." While not based on fundamentals, momentum investing does sometimes work as stocks that are "working today" frequently "work tomorrow" as well.
So, as 2008 is 1/6th done, it's time to look back at the highfliers from 2007 and see where they're trading today. As usual, the analysts at Bespoke Investment Group have some good data and charts for us.
In a post, titled "How the Best Have Done," Bespoke analyzes the best performing U.S. stocks of 2007 and tracks them into 2008. The results:
While some solar stocks are down big in 2008 after a huge run-up in 2007, the big winners are heavily concentrated in materials, agriculture, and energy. BPZ Resources Inc. (AMEX: BZP) is the stock on the list that has done the best in 2008 -- rising another 44% so far this year.
Zack Miller is the managing editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund.
The market's continued choppiness/consolidating pattern does not mean there aren't growth stocks out there for high-risk investors, and Onyx Pharmaceuticals is one pharmaceutical company that fits the bill.
Onyx Pharmaceuticals, Inc. (Nasdaq: ONXX) specializes in small molecule technology, a new, promising method that blocks cancer-causing mechanisms in the human body. In collaboration with Bayer Pharmaceuticals, the company develops and markets compounds that inhibit the function, or modulate the activity of the RAS signaling pathway to treat cancer and other diseases.
Analysts believe ONXX's cancer drug Nexaver as a treatment for advanced kidney cancer could be a big winner, with the company gaining FDA approval for the drug in 2005. ONXX is also testing the drug as a possible treatment for other kinds of cancer (liver, skin, and lung cancer). The Reuters F2007/F2008 EPS consensus estimates for ONXX are -$0.52 to $0.97.
Onyx Pharmaceuticals Inc. (NYSE: ONXX), a developer of cancer therapies, were up $2.40 to $51.75 in pre-open trading. ONXX released Q3 Nexavar sales of $105 million, beating Street expectations. Wachovia says, "With the ONXX/Bayer Nexavar joint venture touching profitability two quarters earlier than anticipated, we believe Street expectations for a Bayer acquisition of ONXX." ONXX has projected the next key clinical event will be in the 2nd half of 2008 for Phase 3 non-small cell lung cancer. ONXX over all option implied volatility of 58 is near its 26-week average of 55 according to Track Data, suggesting larger price risks.
[Update: ONXX shares were recently (12:05 p.m.) up $9.02, or 18.28% to $58.37.]
Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.
Wall Street's equity market offers a modest plate this week, with three IPOs and four Secondaries on the docket.
Those deals tentatively scheduled to price include:
IPOs:
Tuesday
Aldabra 2 Acquisition (ALL.U), a 30M-share IPO for this business finance company. Lazard is the lead manager. Filing price: $10.00
Sterlite Industries (SLT), a 125M-share IPO for this India-based metals company. Merrill Lynch, Morgan Stanley and Citigroup are the lead managers. Filing price: $13.85.
Thursday
Care Investment Trust (CRE), an 18.75M-share IPO for this business finance company. Credit Suisse and Merrill Lynch are the lead managers. Filing range: $15.00-$17.00.
On today's Stop Trading segment on CNBC, Jim Cramer said he was shocked that Revlimid from Celgene Corp. (NASDAQ: CELG) was hardly noticed and he thinks it's ready to run here. This down move in Celgene is a mistake according to him. He's sticking with his Onyx Pharmaceuticals Inc. (NASDAQ: ONXX) after they gave positive data at the American Society of Clinical Onclogy ("ASCO") after the company extended the life of liver cancer patients.
My own take on these biotechs is that he's probably sticking with some of these names for too long, although time will be the real judge. Celgene has a P/E ratio north of 200 and is already worth more than $23 Billion in market cap. Onyx is one that is now at new 52-week highs and the reason it hasn't seen the "Post-ASCO" news sale is because some still feel that this could be acquired even though this one is up more than 200% from its 52-week lows. We'll see how this pans out.
Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.
MOST NOTEWORTHY: The cable and satellite sector, Wal-Mart Stores (WMT) and Motorola (MOT) were today's noteworthy upgrades:
Credit Suisse upgraded the cable and satellite sector to Market Weight based on cable's solid long-term strategic position, attractive valuations and expectations that new industry that new industry consolidation will continue. Additionally, the firm upgraded Mediacom Communications Corp (NASDAQ: MCCC) to Outperform from Market Perform and Charter Communications (NASDAQ: CHTR) to Outperform from Underperform.
Wal-Mart Stores Inc. (NYSE: WMT) was upgraded to Overweight from Neutral at JP Morgan, as the firm believes the company has reached an inflection point following the company's plans to cut capital expenditure by around $2.5B and return $15B to shareholders through a buyback program. Wachovia upgraded shares of Wal-Mart to Outperform from Market Perform citing management's plans to slow U.S. store growth, reduce cap-ex and increase share buybacks. Morgan Stanley upgraded Wal-Mart to Overweight from Equal Weight and to Overweight from Neutral at HSBC.
Motorola Inc. (NYSE: MOT) was upgraded to Sector Outperformer from Sector Performer at CIBC World Markets to reflect optimism on the company's product portfolio and margin progress. They believe the company's focus on margins and not share should lead to a higher long-term margin model.
OTHER UPGRADES:
Bear Stearns upgraded Sirius Satellite Radio Inc. (NASDAQ: SIRI) to Outperform from Peer Perform, citing attractive risk/reward, shares of Universal Health Services Inc. (NYSE: UHS) to Peer Perform from Underperform based on expected near-term upside to estimates and Onyx Pharmaceuticals Inc. (NASDAQ: ONXX) to Outperform from Peer Perform.
Merrill Lynch upgraded shares of Moody's Corp. (NYSE: MCO) to Neutral from Sell and shares of Mobile TeleSystems (NYSE: MBT) to Buy from Neutral.
Thomas Weisel upgraded shares of NaviSite Inc. (NASDAQ: NAVI) to Overweight from Neutral citing valuation.
Genentech (NYSE: DNA) is perhaps losing some of its old luster to a newer and fresher group of emerging biotechs. The American Society of Clinical Oncology, or "ASCO," is in the midst of its annual meeting in Chicago, the conference that historically has offered make or break news for many a cancer-focused biotech. In previous years, Genentech saw its stock get huge a boost from all of the possibilities of Avastin as an indicated treatment for multiple forms of cancer.
Unfortunately, the data coming out of these is not good enough to fuel share buying so far. Shares are indicated down 0.7% at $78.97 in pre-market trading (8:55 a.m.) Monday. While this may change later, Genetech's parent, Roche (LSE: ROG), saw its shares fall 1.9% in London.
Avastin has been a great drug for Genentech and for cancer patients alike, but seeing as that Genentech shares have been dead money for 18-months and with the company sporting an $83 billion market cap, investors are left holding the "what's next?" bag.
Shares of Onyx Pharmaceuticals Inc. (NASDAQ: ONXX) are up 6.7% in pre-market trading (9:23 a.m.) and Celgene Corp. (NASDAQ: CELG) shares are trading up over 1.5% on positive data at the ASCO conference.
Jon Ogg is a partner at 24/7 Wall St.; he does not own securities in the companies he covers.
Note: The Daily Option Update is provided by Stock Options Specialist Paul Foster of theflyonthewall.com.
Volatility Index S&P 500 Options-VIX up 1.17 to 10.44.
Applied Materials Inc.-(NASDAQ:AMAT) option prices suggests risk levels below average into EPS.
Applied Materials is expected to report EPS of .27 cents tonight after the close. Stifel Nicolaus has a buy rating with a $23 price target on Applied Materials. AMAT February straddle is priced at .85 above its theoretical value of .47 cents. Applied Materials March option implied volatility of 32 is near its 26-week average of 30 according to Track Data, suggesting larger price fluctuations.
Nvidia Corporation -(NASDAQ:NVDA) option prices suggests risk levels are flat into EPS & Outlook
Nvidia, a designer, developer and marketer of graphic processing units, is expected to report EPS of .42 cents tonight. American Technology Research says "Nvidia is very well positioned entering in 2007 given its favorable exposure to the PC segment entering a large upgrade cycle, favorable exposure to the gaming segment with PS3 ready to ship high volume, and increasing share in the consumer mobile segment." Nvidia February straddle is priced at $2.15, above its theoretical value of 41.49. NVDA March option implied volatility of 45 is near its 26-week average according to Track Data, suggesting reduced risk levels after EPS.
MOST NOTEWORTHY: Hydril Corp (HYDL), Circuit City Stores (CC) and Ford Motor Corp (F) topped today's list of most notable downgrades:
Following the acquisition by Tenaris SA ADS (NYSE: TS), Hydril Corp (HASDAQ: HYDL) was downgraded by Lehman Brothers to Underweight from Overweight, to Peer Perform from Outperform at Bear Stearns and to Neutral from Overweight at JP Morgan.
Circuit City Stores (NYSE: CC) was downgraded to Neutral from Buy on valuation at Goldman Sachs.
Merrill Lynch downgraded Ford Motor Corp (NYSE: F) to Sell from Neutral citing the recent strength of its shares.
OTHER DOWNGRADES:
Alcoa Inc (NYSE: AA) was taken down to Hold from Buy on valuation.
Multi-Fineline Electronix Inc (NASDAQ: MFLX) was downgraded to Strong Sell from Strong Buy at Matrix USA, as the firm believes strong competition is eroding sales growth.
Hansen Natural Corp (NASDAQ: HANS) was downgraded by both Goldman Sachs and JP Morgan to Neutral from Buy on valuation.
Citigroup cut Coca-Cola Enterprises Inc (NYSE: CCE) to Hold from Buy citing the difficult CSD environment, especially relative to Buy-rated Pepsi Bottling Group (NYSE: PBG). The firm considers Pepsi Bottling to be better-positioned than Coca-Cola Enterprises.
Freidman Billings downgraded Onyx Pharmaceuticals (NASDAQ: ONXX) to Underperform from Market Perform on valuation.
On today's STOP TRADING! segment on CNBC, Jim Cramer noted Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) is going up on hopes Bayer AG (ADR) (NYSE:BAY) will buy it after the great cancer news. The Home Depot's (NYSE:HD) strategy was working, but Nardelli bought at the peak and now it wants to sell the business off at the lows. Cramer said he prefers Lowe's (NYSE:LOW). The worst earnings report he has seen is Warner Music Group Corp. (NYSE:WMG) and Cramer said he doesn't think it realizes it's a public company. The residual value of the business is shrinking as it speaks. WMG was at a new 52-week low today. Cramer thinks Nokia Corporation (ADR) (NYSE:NOK) is a low-risk way to play 3G growth.
MOST NOTEWORTHY: Nokia (NOK) and Pfizer (PFE) topped today's list of downgrades.
Prudential downgraded Nokia Corporation (NYSE:NOK) to Neutral from Overweight to reflect what they believe will be a slowing of the handset market in 2007, as well as the company's pending legal battle with Qualcomm (NASDAQ:QCOM).
Following the unexpected halt of Torcetrapib, Pfizer Inc. (NYSE:PFE) was downgraded by a multitude of companies: At Lehman, to Underweight from Overweight; at JP Morgan, to Neural from Overweight; at Merrill Lynch, to Neutral from Buy; and at Morgan Stanley, to Equal Weight from Overweight.
OTHER DOWNGRADES:
Onyx Pharmaceuticals Inc. (NASDAQ:ONXX) was downgraded to Neutral from Overweight at Prudential following the failure of their Phase III melanoma trial.
Alcatel-Lucent (NYSE:ALU) was downgraded to Sector Perform from Outperform at RBC Capital Markets; the firm expects limited near-term revenue momentum from integration risks and internal/external uncertainties.
ThinkEquity downgraded Novellus Systems Inc. (NASDAQ:NVLS) to Accumulate from Buy, as they believe Novellus is no longer deeply undervalued and only expects a gradual margin expansion from here.
MOST NOTEWORTHY: Onyx Pharmaceuticals (ONXX) and CommVault (CVLT) top the list of today's initiations.
Citigroup started Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) with a Hold rating and $22 target as the broker expects shares to be range bound until clarity is given into the company's cancer indications. A bunch firms initiated recent IPO CommVault Systems this morning, including IPO managers First Boston and Goldman Sachs.
Goldman started shares of CommVault Systems, Inc. (NASDAQ:CVLT) with a Buy and $21 target, and added shares to its prestigious Conviction Buy List, as they expect the company to benefit from relationships with DELL and HDS. First Boston is more lukewarm on the name, starting shares with a Neutral rating and the same target of $21. Other firms' imitating the stock this morning was Merrill Lynch with a Buy, and Thomas Weisel and RBC Capital with Outperform ratings.
OTHER INITIATIONS:
Caris initiated three retail names this morning: American Eagle Outfitters, Inc. (NASDAQ:AEOS), Limited Brands, Inc. (NYSE:LTD) and Men's Wearhouse, Inc. (NYSE:MW). The broker favors Limited and Men's Wearhouse with Above Average ratings, thinking inventory and cost management can bring margin expansion. Caris is less excited about American Eagle, starting shares with an Average rating, believing shares are fairly valued at current levels.
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.
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