Pharmaceuticals
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PFE $30
07 Oct 2024 |
Something finally awakens Pfizer shares: an activist investor
We have been Pfizer (PFE $30) bulls for some time, but that has not always been an easy position to defend. After having such great success with its Covid therapies, CEO Albert Bourla embarked on an acquisition program in an effort to create a powerful pipeline of new cancer drugs, but that effort has faced a number of recent setbacks. The company also faced criticism for its inability to crack the weight loss drug market, sitting on the sideline as competitors Eli Lilly (LLY $900) and Novo Nordisk (NVO $118) brought blockbuster drugs to the market. Now, one activist investor has seen enough, and news of his firm's stake in the company is buoying the share price. Jeff Smith's Starboard Value has taken a $1 billion position in Pfizer, and has reached out to former CEO Ian Read to assist in a turnaround effort. Both Read and former CFO Frank D'Amelio had expressed interest in the effort, though they subsequently reiterated their support for both the CEO and the current board. The news of the investment was enough to push Pfizer shares up 4% at market open this past Monday. Read was quite successful in leading the firm during his tenure (2010-2018), and he hand-selected current CEO Bourla. What has been so frustrating about the languishing share price is our belief in Albert Bourla. We applaud the company's strategic focus on oncology drugs, and expect its recent $43 billion acquisition of global biotech firm Seagen to—eventually—pay off handsomely. When an activist investor takes a sizable stake in a company, tumult often ensues as an internecine struggle plays out. This battle may be a bit more "constructivist," however, based on the players involved. No Carl Icahn or Bob Eiger egos in this case. We are relatively upbeat by the move, and look forward to evaluating what transpires as a result. Pfizer is an American pharmaceutical giant, with a strong balance sheet, an effective long-term strategy, and a nearly 6% dividend yield. With this new tactical move by Starboard, now could be a good time to put some money to work in the company. We own Pfizer within the Penn Global Leaders Club. |
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PFE $59
MRK $76 |
Huge news in the fight against the pandemic: FDA clears two at-home Covid treatments
(23 Dec 2021) First it was Pfizer's (PFE $59) Paxlovid, then it was Merck's (MRK $76) molnupiravir, developed in partnership with Ridgeback Biotherapeutics. In the same week, the FDA gave us the news we have been waiting for: two at-home, anti-Covid therapies have been given emergency use authorization for use by Americans who have tested positive for the disease. In clinical trials, Pfizer's Paxlovid reduced the risk of Covid-related hospitalization or death by an impressive 89% if taken within the first three days of symptoms appearing; that percentage is reduced just one point—to 88%—if taken within the first five days. Despite lackluster results on Merck's antiviral treatment, which has been show to reduce hospitalizations and deaths by 30%, the FDA narrowly granted authorization to that treatment as well. Pfizer's treatment consists of three pills twice daily for five days (30 pills), while Merck's therapy consists of four pills twice daily for five days (40 pills). In a related story, France has cancelled a pre-order it had in for Merck's drug based on the disappointing trial results. While it will take time to ramp up production of Pfizer's Paxlovid, the Biden administration has already placed an order for ten million courses of the treatment. Pfizer is a member of the Penn Global Leaders Club. |
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PFE $51
XBI $117 IBB $153 |
Pfizer lab studies show third dose of vaccine (the booster) effectively neutralizes the omicron variant of disease
(09 Dec 2021) Futures went from negative to positive on Wednesday after pharma giant Pfizer (PFE $51) announced that its lab studies have shown a third dose of the company's Covid-19 vaccine, otherwise known as the booster shot, effectively neutralizes the highly-transmissible omicron strain of the disease. Uncertainty about and fear over the strain helped wreak havoc on markets over the prior two weeks. Researchers at the New Jersey-based firm observed a massive drop in effectiveness of just two doses of the vaccine against this latest strain, yet those who received the booster showed a restored level of protection. Nonetheless, Pfizer continues work on an omicron-targeted shot which may be ready as soon as early spring. More good news: it now appears that the current variant spreading throughout the world, despite its rate of transmission, is less virulent than prior strains, meaning fewer deaths and hospitalizations. On the heels of the Pfizer test results, Cantor Fitzgerald reiterated its Overweight rating on the company and $61 price target on the shares, noting that "...Pfizer's vaccine sales for Covid-19 remain underappreciated by the Street." We couldn't agree more. Presently, there are some real bargains in the pharmaceutical and biotech space. It is as though investors believe that the entire industry rests on what happens next with respect to Covid-19. Meanwhile, the pipeline of therapies being developed for other life-threatening diseases and maladies has never been deeper. IBB, a cap-weighted ETF of biotech companies, is down 1% on the year, while XBI, an equal-weighted basket of 188 biotechs (and our preferred vehicle in the space) is down over 17% year-to-date. That smells like opportunity. |
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PFE $48
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Pfizer vaccine gets full FDA approval
(24 Aug 2021) We opened our Pfizer (PFE $48) position within the Penn Global Leaders Club during the bloodbath market day of 09 Mar 2020—the session in which the Dow dropped 2,014 points, or 7.79%. The dark specter of the pandemic seemed to hit home that day: we had very few tests available, no real therapies, and no sign of a vaccine on the horizon. Now, nearly eighteen months later, our investment in Pfizer has paid off handsomely, over 200 million doses of the company's highly-effective vaccine have been administered within the United States alone, and the drug just received formal approval from the US Food and Drug Administration. The approval, which is the first given for any Covid vaccine by the FDA, will undoubtedly encourage more Americans to receive the double dosage and embolden more companies to mandate vaccines for workers. Sadly, we believe the China-borne virus, through its various mutations, is here to stay. That is bad news for the world, which has already endured so much without even an acknowledgement, let along an apology, from the Chinese Communist Party. Meanwhile, researchers at Pfizer already have a booster shot in the wings, and continue to work on new therapies to combat the emerging variants of the disease. While the FDA has yet to approve the booster, the Israeli Health Ministry has issued its findings: the third dose "significantly improves protection from infection and serious illness...compared to those who received two shots." Meanwhile, China's top disease control official, in a shockingly candid moment, admitted that the country's own Sinovac vaccine has shown disturbingly-poor results. A dangerous comment for a man in his position—and location. There has been such a focus on Pfizer's Covid vaccine that the company's deep pipeline has almost been an afterthought for investors. We re-added Pfizer to the PGLC (we removed it when the skilled Ian Read stepped down) in 2020 not only due to its share price hit, but also because Albert Bourla was proving to be a skilled leader in his own right. Pfizer continues to be one of our highest-conviction, long-term holdings. Unlike so many others in the industry, it is anything but overvalued right now. Consider the shares' dividend yield, which is over twice as large as the 10-year Treasury yield, icing on the cake. |
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LLY $234
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More exciting news on the Alzheimer's front
(24 Jun 2021) For such a horrible and deadly disease which hasn't seen much progress on the therapies front over the past two decades, researchers may finally be rounding the corner with respect to Alzheimer's. Last week was the exciting news that Biogen's (BIIB $351) aducanumab (trade name Aduhelm) had been given the green light by the FDA; now, the organization has granted breakthrough therapy designation to Eli Lilly's (LLY $234) Alzheimer's therapy donanemab. This designation will speed along the drug's approval process, the application for which Lilly plans to submit later this year. Despite the naysayers' multi-faceted complaints about these drugs, the FDA is doing the right thing by allowing them to go forward. These positive rulings will help speed along the development of other drugs to treat the disease, and ultimately the exorbitant prices for the therapies will fall. The FDA has smoothed the way for pharma and biotech companies to pump increased R&D spending into the category, giving hope to the families of the six million Americans suffering with this horrendous condition. We continue to overweight the Health Care sector and a number of industries within the space. On the back of stunning advances in medical technology, we can expect to see a biotech and pharma boom over the next decade, with new therapies for diseases which have stymied researchers for decades. The greatest threat to this boom would be increased government regulatory control over the industry, but we see that as an unlikely scenario. We hold a number of health care companies and ETFs in the Dynamic Growth Strategy, Penn Global Leaders Club, and Penn New Frontier Fund. |
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AZN $58
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AstraZeneca has another fail
(18 Jun 2021) Precisely one quarter ago we were writing of AstraZeneca's (AZN $58) vaccine fail—due to blood clot complications among some recipients—and management's unswerving denial that there was anything wrong with the drug; even hinting that a political hit job was in play. European countries went from halting the vaccine's use, to (under pressure) resuming its use, to halting it once again. This quarter the Swedish/UK conglomerate is facing yet another setback: its antibody drug is proving to be just 33% effective in preventing symptomatic Covid-19 in those exposed to the virus. Meanwhile, both Regeneron and Eli Lilly each have successful antibody cocktails already in use under emergency authorization. The US had already ordered 700,000 doses of the AstraZeneca therapy for delivery this year, while the UK had ordered one million doses. Odds are strong that the US will ultimately cancel the order, and it will be fascinating to watch what the company's home country ends up doing with respect to the one-million-dose order. We are constantly on the lookout for strong pharmaceutical stocks and sound international companies in which to invest. Unfortunately, AZN doesn't fit the bill—in our opinion—for either category. Meanwhile, AZN shares are trading as if both therapies have been a rousing success. |
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PFE
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Just another example of why this company is underrated: Pfizer's Covid pill should be out by year's end
(27 May 2021) By definition, we believe in all 100 or so investments within the five Penn Wealth strategies; put another way, if we lose faith, we have no qualms jettisoning any of them. That said, at any particular point in time we have our favorites. Typically, these are companies in which we see something dynamic going on, but ones that seem to be flying under the radar of the Street. Penn Global Leaders Club member Pfizer (PFE $38) is a perfect example. We believe this company, which also happens to have a fat 4% dividend yield, is the global benchmark for the pharmaceuticals industry. As if it weren't enough that Pfizer has the most effective vaccine for Covid on the market (which it developed in record time), it now plans to have a pill for the treatment of the deadly virus on the market before the end of the year. Currently in a phase 1 clinical trial, this protease inhibitor (a protease is an enzyme which allows the virus to break down proteins so it can make copies of itself and multiply) could be taken at home by those having positive test results, effectively treating the disease and helping to keep patients out of the hospital. The first protease inhibitor was approved by the FDA a generation ago to treat HIV. As for the various strains of the disease, Pfizer believes the therapy, currently known simply as PF-07321332, should effectively tackle all of them with strong efficacy. Pfizer has a healthy balance sheet, a strong drug pipeline, a top-tier sales force, and a simply great R&D team. Let others follow meme stocks that are infinitesimally overvalued (i.e., really worth nothing), we will stick with beautiful workhorses like Pfizer. When the next correction comes, washing the silliness away, this 172-year-old stalwart will still be standing. |
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AZN
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Vaccine Spring: All along, there was only one Covid-19 vaccine we said we would not take
(15 Mar 2021) Long before the world knew anything about the Wuhan-borne virus which would rapidly escalate into a global pandemic, we were highly bullish on American pharmaceutical and biotech companies. The more politicians bashed these companies, which create the life-saving medications hundreds of millions of people use annually, the angrier we got. If these politicians had their way, cutting-edge research and development within the pharmaceutical industry would take a major hit—as would the overall health of Americans. Before we work ourselves into a lather once again, let's focus on the incredible progress researchers at these firms made with respect to uncovering a vaccine for the pandemic. With Manhattan Project-like speed, the men and women at these pharma and biotech companies developed, tested, produced, and delivered highly effective therapies to prevent the deadly disease (535,000 Americans have died from Covid as of this writing). While we would feel comfortable receiving the Pfizer-BioNTech (PFE/BNTX), Moderna (MRNA), or Johnson & Johnson (JNJ) vaccines, we have held serious reservations about one company's efforts from the start. Since early testing began, AstraZeneca PLC's (AZN) vaccine seemed to generate more questions than it answered, and we didn't like the answers management was doling out. Thankfully, the AZN vaccine was never approved for emergency use in the United States, as it was in Europe. Now, three major European countries, Germany, France, and Italy, are joining a rapidly-growing list of nations which have suspended the vaccine following reports of blood clots in the legs and/or lungs of a number of recipients. True to form, the company quickly blasted the suspensions, claiming that the percentage of those vaccinated who developed clots were in line with what could be expected within the general population. It should be noted that a number of those coming down with the conditions resided in younger age groups; i.e., below the age these maladies would typically develop. The company's objections were reminiscent—at least to us—of their response following the questionable trial results. There never seemed to be a sense of "let's make absolutely sure of this..." so much as "nothing to see here, move along." And that makes us uncomfortable. A lot of nations now seem to feeling ill at ease with the company's vaccine as well. AstraZeneca was the result of a 1999 merger between Sweden's Astra and the UK's Zeneca Group. Pfizer's partner BioNTech, it should be noted, is based in Mainz, Germany. We own Pfizer in the Penn Global Leaders Club, and it remains one of our highest-conviction buys. |
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MRK
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Lackluster Merck shuts down its Covid-19 vaccine effort
(25 Jan 2021) We are bullish on the Health Care sector in 2021, but we remain bearish on one particular drug giant: Merck (MRK $80). CEO Ken Frazier seems to be—in our opinion—a lackluster leader simply going along for the ride. The latest piece of evidence supporting our bearish stance came on Monday morning, when the $200 billion drug manufacturer announced it would be shutting down its Covid-19 vaccine effort due to poor trial results. The company said it will retool its vaccine manufacturing facilities to produce antiviral therapies for patients suffering from the disease, one of which could be available for use in the middle of the year—about the time the vaccines should be kicking in. We look at Merck's drug pipeline and see a dearth of therapies in late-stage trials. While most analysts see MRK shares hitting $100 within the next twelve months, we see more growth opportunities in our Penn Global Leaders Club holdings: Pfizer (PFE), GlaxoSmithKline (GSK), and Bristol-Myers Squibb (BMY). We also hold a number of higher-risk biotechs in our Penn New Frontier Fund, to include Biomarin (BMRN), Vertex (VRTX), and Nektar Therapeutics (NKTR). |
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AZN
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For the third week in a row, good vaccine news drives the market higher
(23 Nov 2020) Two weeks ago it was Pfizer (PFE). Last week it was Moderna (MRNA). This week, AstraZeneca (AZN $55) became the third drugmaker to drive the market higher with news of a successful Covid-19 vaccine trial. Initial analysis of the company's Phase 3 clinical trial showed its candidate, which is being developed with the University of Oxford, was as much as 90% effective in preventing infection from the virus after both of the doses were administered. Meanwhile, Regeneron (REGN $537) became the second company (Gilead was the first with remdesivir/Veklury) to receive Emergency Use Authorization from the FDA for its therapy to treat the virus. Unlike Veklury, which is typically administered once a patient is hospitalized, Regeneron's therapy is designed to be used to help prevent Covid-19 victims from deteriorating to the point in which they need to be hospitalized. The remarkable progress to eradicate this deadly virus continues to impress. Investors have been paying a lot more attention to the vaccine developers than they have the the biotech companies making actual therapies to treat the disease. We think that's a mistake. Both Gilead (GILD $60)—which is in the Penn Global Leaders Club—and Regeneron look cheap from a valuation standpoint. |
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VTRS
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Pfizer shareholders get an early Christmas gift: Viatris
(20 Nov 2020) Pfizer (PFE $37) has completed its spinoff of the firm's Upjohn business, combining it with Mylan NV to form Viatris, Inc (VTRS $17). The newly-formed pharma company, $20 billion in size, will be largely led by Pfizer executives and will focus its efforts on generic and biosimilar compounds. Shareholders of Pfizer, a member of the Penn Global Leaders Club, will receive 0.125 shares of Viatris for every one share of PFE owned. So far, the deal has already paid off: shares are up 21% from the basis price. The generic drug market is huge, and Viatris is an immediate leader in the space. We believe the shares are worth $25, nearly a 50% upside from where they are currently trading. |
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PFE
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The markets were just waiting for a vaccine breakthrough, and Penn member Pfizer delivered
(09 Nov 2020) After the past several Mondays leading into this week, we almost dreaded taking a look at the futures. At first glance, we couldn't believe our eyes: the Dow was up in excess of 1,500 points and the S&P was trading higher by about 160 points—5%+ gains for each. We fully expected a vaccine breakthrough in November, and had been positioning portfolios for the "re-opening" trade, but even we didn't expect the markets to show this level of enthusiasm. Our Park Hotels and Resorts (PK $14) position, for example, opened up 36% on the day, while Nordstrom (JWN $16) and Six Flags (SIX $30) were trading over 20% higher. Not far behind was the catalyst for this massive move: Pfizer (PFE $40), which we opened in the Penn Global Leaders Club on the 9th of March as the Dow was falling 2,014 points in one session, was trading higher by 15% after announcing a 90% effectiveness rate in its Covid vaccine. The news the world was waiting for finally came to fruition. How good is 90%? Considering the flu vaccine has a 40-60% efficacy rate, and vaccines which have eradicated diseases in the past were between 90% and 95% effective, this is a major breakthrough. Pfizer CEO Albert Bourla didn't mince words in his comments to the press: "It is a great day for humanity." We agree. It didn't take long for the cynics and naysayers to remind everyone that it would take months and months to roll out this vaccine to the public (what a depressing life a cynic must lead), but this is truly a historic breakthrough. Light is now visible at the end of the tunnel, and markets had every reason to celebrate. |
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AZN
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AstraZeneca's novel approach: a combination vaccine and treatment
(25 Aug 2020) AstraZeneca (AZN $36-$57-$65), Britain's $150B drug powerhouse, has begun testing an exciting new therapy: AZD7442 is designed to not only prevent Covid-19, but also serve as a therapy for those already afflicted with the virus. The drug uses a combination of two monoclonal antibodies (mAbs), harvested antibodies made by identical immune cells which specifically bind to that substance, to create a cocktail to fight off and guard against a specific infection. The Phase 1 clinical trial, which is now underway in the UK, is being funded by the US Department of Defense and the Biomedical Advanced Research and Development Authority (BARDA). Leading infectious disease scientists have endorsed this mAb approach, which has been used successfully in the treatment of a number of cancer types. If the AZD7442 trials go as hoped, expect the therapy to receive fast-track designation by the FDA. Based on current valuations, shares of AZN may seem expensive, but success with AZD7442 could propel them higher. |
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PFE
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US government places massive vaccine order with Pfizer
(22 Jul 2020) Earlier in the week we reported that shares of Penn member Pfizer (PFE $38) were spiking due to the British government's order for 30 million doses of its yet-to-be-approved Covid-19 vaccine. The US government just upped the ante, ordering 100 million doses from the company for a price of $1.95 billion. In addition to that order, it also acquired the right to buy 500 million additional doses. These governments would not be placing billion dollar orders for a therapy unless they felt very confident in the drug's ultimate success in trials. In the case of Pfizer's drug, divide the amount paid by the number of doses and we come up with a per-dose cost of $19.50, though the Department of Health and Human Services has announced that Americans will not be charged to get the vaccine once it is approved. It is absolutely feasible that these vaccines could hit doctors' offices by December. When that happens, watch the economy launch once again. |
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PFE
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Penn Member Pfizer jumps on vaccine news, UK contract for doses
(20 Jul 2020) We added drug giant Pfizer (PFE $28-$37-$43) back into the Penn Global Leaders Club on 09 March, during the session we referred to as "bloodbath day" in our purchase notes (the Dow dropped 2,014 points, or 7.79% on that day). The $206 billion pharma company was trading up Monday morning as it entered into an agreement, along with partner BioNTech (BNTX $94), to provide 30 million doses of its Covid-19 vaccine candidate to the United Kingdom subject to its clinical success and regulatory approval. Under the joint firms' BNT162 program, at least four mRNA (messenger RNA) vaccines—each representing a unique target antigen/mRNA combination—are being tested, with the expectation that at least one will produce neutralizing antibodies in the immune system equal to or greater than those produced naturally in patients who have recovered from the virus. Two of the versions were granted "fast-track" designations by the FDA last week based on positive early results. Relatively low dose studies have been so encouraging that the British government decided to enter into the agreement. Pfizer is shooting for regulatory approval as early as October, and the joint venture is expecting to produce 100 million doses by the end of the year, and over one billion doses by the end of next year. Pfizer has a P/E ratio of 12, and a dividend yield of 4.2%. |
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AZN
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AstraZeneca shares jump thanks to its exciting new lung cancer drug
(01 Jun 2020) As UK-based drugmaker AstraZeneca (AZN $36-$54-$57) prepared to unblind the latest study of its lung cancer drug Tagrisso, expectations were high. The process of unblinding, or disclosing to participants and the study group who received the actual therapy and who received the placebo, was already two years ahead of schedule based on the seemingly overwhelming effectiveness of the drug. As the results were evaluated, one thing became clear: the expectations were set too low. Two years after surgery, 89% of lung cancer patients who received the Tagrisso were cancer-free, versus 53% of those given a placebo. Researchers at the firm calculate that the drug cuts the risk of disease recurrence or death of patients with forms of early-stage non-small cell lung cancer by 83%. AstraZeneca reported sales of $3.2 billion for the drug—which was approved by the FDA five years ago—last year, but that figure is now expected to rise substantially based on these remarkable results. AZN generated income of $1.3 billion last year on $24.4 billion in revenue. Is AZN a bargain for investors? With its P/E ratio of 94, it seems expensive—even with the great Tagrisso news. |
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SNY
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Sanofi walks back "US-first" comments after French backlash
(15 May 2020) French pharma giant Sanofi (SNY $38-$48-$52) is all over the COVID-19 virus. The company is working on a vaccine with Glaxo (GSK), a potential treatment (Kevzara), and a home diagnostic kit for the malady. While there are no guarantees the vaccine will ultimately be effective, the company is already retrofitting its manufacturing facilities to pump out hundreds of millions of doses in preparation for success. The French people may be applauding the work of their homegrown company, but the CEO's comments about who would get the vaccine first caused outrage in the country. Making note that the US bankrolled the lion's share of vaccine research done by Sanofi, CEO Paul Hudson said that the US would be the first country to receive the vaccine. Now, after a meeting with French President Emmanuel Macron, the company is backtracking on those comments. A spokesman for the firm issued an amended statement saying that, "there will be no particular advance for any country...." The French drugmaker is using an existing therapy designed for influenza, adding a Glaxo ingredient, and applying it to the new virus which causes the COVID-19 disease in the body. The candidate vaccine is slated for clinical trials later this year. Sanofi is a $118 billion drug manufacturer with over $40 billion in annual sales, strong cash flow, and a 3.71% dividend yield. |
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PFE
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Pfizer begins human testing for coronavirus vaccine in US
(05 May 2020) On the 9th of March, as the Dow was in the midst of falling 2,014 points in one session, we were busy picking up unfairly beaten-down stocks for the Penn Global Leaders Club. American pharmaceutical powerhouse Pfizer (PFE $28-$38-$45) was a member of that group. While we didn't hit the exact bottom (shares dropped to $28.49 on the market bottom day of 23 Mar), the holding has steadily gained ground ever since, and we see plenty of growth ahead. To that end, Pfizer announced that it would begin human trials in the US on its potential coronavirus vaccine, BNT162. In a joint program with German drugmaker BioNTech, Pfizer has advanced this vaccine from pre-clinical studies to human trials in a matter of four months—a seemingly impossible feat. If the trials are successful, Pfizer said it hopes to produce millions of doses of the vaccine by year-end, and hundreds of millions of doses in 2021, according to Dr. Mikael Dolsten, the firm's chief scientific officer. Pfizer has a p/e ratio of 13 and a dividend yield of nearly 4%. |
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GILD
FTSV |
Gilead's acquisition of Forty Seven should give its cancer-fighting efforts a nice boost. (04 Mar 2020) We added $95 billion drugmaker Gilead Sciences (GILD $61-$75-$79) to the Penn Global Leaders Club last April at $61.71 per share, right near its 52-week low at the time, because we liked management's commitment to becoming a leader in the oncology space. That investment has paid off nicely thus far, and the company continues to ramp up its effort. To that end, Gilead just announced that it would acquire immuno-oncology firm Forty Seven Inc (FTSV $6-$94-$95) for $4.9 billion, which will bring highly promising cancer treatment magrolimab into its clinical mid/late stage pipeline. Magrolimab, a monoclonal antibody in clinical development for the treatment of several different cancer types, has been granted Fast Track status by the FDA. Gilead has been one of the few stocks bucking the recent downturn thanks to its efforts in creating a COVID-19 vaccine. In 2019, Gilead earned $5.4 billion on the back of $22.5 billion in revenues. With its healthy pile of cash, an 18 P/E ratio, a 3.36% dividend yield, and a commitment to becoming the world's leading cancer-fighting company, there is a lot to like about GILD shares.
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EQRx
TEVA |
The next big wave in knock-off drugs might not be generics, exactly. (13 Jan 2020) They're known as "me too" drugs—compounds that copy the biological function of existing drugs, but which have a different enough molecular structure (which differentiates them from generics) to avoid patent infringement. Of most importance to patients: these drugs may cost as little as 20% of the therapy they are emulating; considering some of these treatments cost hundreds of thousands a year, that is a big deal. One new startup in particular, EQRx Inc, backed by private equity funding from the likes of Andreesen Horowitz and Google Ventures (now "GV"), plans to bring nearly a dozen of these "me too" drugs to the market relatively soon. While the typical drug costs around $2 billion to develop, EQRx believes they can cut those costs to under $400 million apiece, mainly by utilizing new technologies to increase efficiencies in the lab. While companies such as EQRx will face backlash on a myriad of fronts, from well-established competitors to the FDA to insurers and PBMs, their model may just usher in a new, simpler pricing structure and lower overall costs for patients. While EQRx is not publicly traded, an interesting generic drug play right now might be Israeli-based Teva Pharmaceuticals Industries (TEVA $6-$9-$20), the largest generic drug manufacturer in the world, which is trading more than 50% off of its 52-week high.
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MDCO
NVS |
Novartis will buy The Medicines Company for nearly $10 billion, sending the latter's shares up nearly 25%. (25 Nov 2019) One year ago, The Medicines Company (MDCO $16-$84-$84) was a $1.6 billion small-cap pharma outfit selling for $16.69 per share. Now that $205 billion drug giant Novartis (NVS $73-$91-$95) has taken an interest in the New Jersey firm, it is worth nearly $8 billion and is trading at $84 per share. In fact, MDCO shares spiked nearly 25% on Monday morning after Novartis announced its intent to buy the firm for $9.7 billion in an all-cash deal. It's a risky bet for the Switzerland-based drugmaker, as MDCO has essentially become a one-drug wonder—its cholesterol-lowering treatment Inclisiran will be submitted to the FDA for (hopeful) approval before the year is up. This deal came to fruition not because of a skilled management team at The Medicines Company; it came about because activist biotech investor Dr. Alex Denner, founding partner and chief investment officer of Sarissa Capital Management, got involved. Denner saw a bloated firm with ineffective management chasing unprofitable avenues. After taking considerable control of the company, he "persuaded" MDCO to reduce its board from 12 to 7 directors and begin selling off unprofitable units. In the end, it was left with Inclisiran—and a fat offer from Novartis. Activists can be very detrimental to a company and its shareholders (we won't mention any names, but they should be obvious to our regular readers), or they can be extremely beneficial. Alex Denner is directly responsible for MDCO shareholders becoming about 400% wealthier in their position over the course of one year. Now that's impressive, irrespective of what happens to Inclisiran at the FDA.
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MNK
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Mallinckrodt may be the latest "victim" in the opioid crisis as shares fall 40% after-hours on possible bankruptcy news. (04 Sep 2019) We put the word "victim" in quotation marks because, of course, the real victims in the opioid crisis are the individuals who became addicted and their family members who had to suffer along with them. Mallinckrodt PLC (MNK $2-$2-$34) is a specialty and generic drugmaker, spun off from Covidien (which was subsequently purchased by Medtronic) back in 2013. As recently as June of 2015, the company had a market cap of $15 billion and a share price of $125. Now, the company is a shell of its former self, with a market cap of $172 million and a share price of $2. The company lost about 40% of its remaining market cap after Bloomberg reported that the company is exploring its options; read that as bankruptcy. What happened? Mallinckrodt is in the pain management business, and the number one tool in its pain management toolkit has been prescription opioids like Hydrocodone and Oxycodone. Incredibly, the St. Louis-based and Ireland-headquartered company was responsible for nearly 40% of the opioids prescribed between 2006 and 2012, based on DEA database records. With the army of lawyers standing at the gates to get their fair share from the opioid lawsuits, we don't see any way for MNK to come out of this. Hence, the "considering all options" comment from management. Johnson & Johnson recently lost its opioid case in the state of Oklahoma and was ordered to pay $572 million. You can bet that this ruling was the tip of the iceberg. Other companies in the hot seat (besides MNK) are Purdue Pharma, Endo Int'l (ENDP), Teva Pharmaceuticals (TEVA), and Allergan (AGN).
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JNJ
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A judge hands down a $572 million ruling against Johnson & Johnson, and the stock soars 5% after hours. (26 Aug 2019) That headline may cause a case of cognitive disconnect, but considering what the state of Oklahoma was seeking, the judgment could certainly be considered a win for Johnson & Johnson (JNJ $121-$131-$149). The case revolves around America's opioid epidemic, with Oklahoma arguing that J&J both enticed and misled physicians in an effort to sell more "magic pills," as the state put it. The state claimed that J&J told docs that the risk of addiction by patients was around 2.5%, when in reality it was much higher. The judge bought the argument, but balked on Oklahoma's request for $17 billion in punitive damage, questioning the legitimacy of the data used to come up with that figure. Most Wall Street analysts had been baking in a $1 billion to $2 billion award, thus the after-hours pop in the share price. Johnson & Johnson will appeal the ruling. We don't currently hold JNJ in any of the Penn strategies, but we still hold shares for clients due to the enormous unrealized capital gain. While we would not recommend buying at this level, we wouldn't rush out and sell shares (especially in a taxable account) either.
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ABBV
AGN |
Pharmaceuticals giant AbbVie to buy Allergan for $63 billion. (25 Jun 2019) It was three years ago that Pfizer (PFE) walked away from its $150 billion deal to buy Botox-maker Allergan (AGN $114-$163-$197) after the acquisition was effectively killed by an administration trying to shine a light on tax inversions. Now, almost three years to the month later, Allergan is poised to be acquired by drugmaker AbbVie (ABBV $74-$66-$100) in a $63 billion deal. The offer, which equates to $188.24 per share, represents a 45% premium to Allergan's prior-day close. Why is AbbVie, with its $100 billion market cap, willing to pay so much? The company wants to take a dominant position in the aesthetics (i.e. beauty) market, and last year Allergan projected the value of its aesthetics division would double—to $8 billion—by 2024. In addition to Botox, Allergan owns the CoolSculpting fat-freezing systems, Jevederm (dermal filler), and a number of other beauty treatments. As for the competition, last year Allergan acquired Bonti Inc., which makes a shorter-acting variation of Botox. Making a move was smart for AbbVie, which is in the process of losing its patent on the world's best selling drug—Humira—in Europe right now, and in the US within the next four years. AbbVie investors were a little rattled by the price tag, pushing shares down 16% and through their 52-week low, but Allergan shareholders (obviously) cheered, with AGN shares trading up 26%. Keep in mind that Pfizer was willing to pay $150 million for Allergan just three years ago. We love the deal, and applaud CEO Rick Gonzalez's courage. Furthermore, we love the fact that Allergan's skilled CEO, Brent Saunders, will hold an AbbVie board seat.
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PFE
ARRY |
Pfizer enhances its cancer drug lineup with acquisition of Array BioPharma. (18 Jun 2019) Three years ago, Boulder, Colorado-based Array BioPharma Inc (ARRY $13-$46-$47) was a $500 million small-cap biotech trading for roughly $3 per share. On Monday, following Pfizer's (PFE) announcement to buy the firm for $48 per share in cash, Array was suddenly worth $11 billion. What spurred Pfizer, which holds position #1 in the Penn Global Leaders Club, to pay a premium to pick up Array? It is all about the firm's cancer drug research and its innovative approach to developing targeted cancer therapies. In addition to selling a number of drugs that target skin cancers, Array also currently has a therapy for colorectal cancer in Phase 3 trials. Colorectal cancer is the second leading cause of cancer deaths in the US, with an estimated 140,000 new cases projected for 2019. Pfizer already has proven expertise in fighting breast and prostate cancers, so this move will add diversity to its lineup. Despite the hefty premium paid, we love Pfizer's move to acquire Array. The $240 billion pharma giant has a strategic goal of becoming the most viable cancer-fighting drug company in the world, and the growth in its product pipeline buttresses that goal.
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BMY
CELG |
Bristol-Myers Squibb to buy biotech Celgene in $74 billion deal. (03 Jan 2019) Going into the trading day, biotech firm Celgene (CELG $59-$88-$110) was valued at $46.5 billion. All of that changed with Bristol-Myers Squibb's (BMY $47-$48-$70) $74 billion plan to buy the firm. Under the terms of the deal, BMY will pay CELG owners $50 in cash for each share of the company they own, along with a 31% stake in BMY after the deal closes. We hate to lose another great publicly-traded biotech firm, but the deal makes great sense for Bristol. The merged entity will have nine blockbuster drugs, with each bringing in over $1 billion in sales annually. Considering BMY's annual revenue has been in the $20 billion range, that is huge. This acquisition is part of an overall strategy at the company to beef up its oncology business—last year it bought cancer drug developer Juno Therapeutics in a $9 billion deal. Bristol-Myers Squibb is in the Penn Global Leaders Club as a "pharmaceuticals" holding. This deal is a great example of why we are constantly looking for up-and-coming biotech companies to buy within the Penn New Frontier Fund (we currently hold four biotechs in the portfolio).
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PFE
GSK |
Pfizer and Glaxo to create world's largest seller of over-the-counter drugs. (20 Dec 2018) Earlier this year, we discussed soon-to-be-former CEO Ian Read's plan to split Pfizer (PFE $33-$42-$46) into three distinct parts—one being the Consumer Healthcare Unit which makes and markets over-the-counter medications. Ever since that idea was hatched, Pfizer has had something else in mind: selling that unit altogether to focus on the more lucrative prescription drug market. British drugmaker GlaxoSmithKline plc (GSK $35-$37-$42) relies on its OTC business for about 25% of revenues (versus 7% at Pfizer), but Read came to them with an offer they couldn't refuse—merging both companies' respective units into one, creating the largest non-prescription drug seller in the world. Product lines would include familiar names like: Advil, Tums, Centrum, Chapstick, Sensodyne, Boost, and Abreva. The new company will, more than likely, be listed on the London Stock Exchange, with GSK owning roughly two-thirds of the entity and Pfizer owning the other one-third. We have competing thoughts on this deal. Pfizer, which is currently in the Penn Global Leaders Club, will lose a consistent money-maker to focus on its riskier (by nature) prescription drug business. The same goes for Glaxo. We will further outline the positives and negatives of the move in the next issue of The Penn Wealth Report.
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PFE
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(Holding Update: Penn Global Leaders Club) Pfizer's dynamic CEO to step down from that role in 2019. (05 Oct 2018) We are placing pharmaceutical giant Pfizer (PFE $33-$45-$45) on watch after a CEO we have highly touted, Ian Read, announced that he would be stepping down from that role at the company in early, 2019. Chief Operating Officer Albert Bourla will take over the position. Pfizer skillfully navigated some turbulent waters during Read's eight year tenure, and he helped the company build an impressive pipeline of drugs. Bourla also has an impressive resume during his 25 years at the company, but it still makes us a bit nervous. One upside: Read will take on the role of executive chairman of the board after he steps down from his CEO position.
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TEVA
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Teva pops 8% on FDA approval of migraine drug. (17 Sep 2018) Israeli drugmaker Teva Pharmaceutical Industries (TEVA $11-$25-$26) seems to be on a comeback tear. After bottoming out at $10.85 per share last November, the $25 billion company has clawed back to within a dollar of its 52-week high. The latest surge came after news that the FDA had approved the company's injection for the preventative treatment of migraines. Ajovy will cost around $600 per monthly injection and be available in pharmacies sometime in early October. Teva still has a long way to go to regain its multi-year high of $71 per share, which it hit back in the summer of 2015.
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PFE
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Company Profile: Pfizer Inc.
In a bold strategic move, CEO Ian Read is splitting Pfizer into three distinct parts; here's what that means for investors. (Members: Read the story in the Penn Wealth Report by selecting the button) |
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LLY
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Eli Lilly jumps after earnings, decision to spinoff animal health unit; we don't buy the spin. (24 Jul 2018) There were a couple of catalysts for drugmaker Eli Lilly's (LLY $74-$90-$90) spike in early trading on Tuesday: a strong second-quarter earnings report and the decision to spin off the company's animal health unit, Elanco. On the earnings front, the $97 billion health care company posted a 9% increase in revenues (to $6.36B in Q2) and earned $1.50 per share. After special charges recorded in the quarter, however, LLY actually lost $260 million, or $0.25 per share. As for the spinoff of Elanco Animal Health, they are only going to offer 20% or less to the public, and they will divest themselves of the rest of it through a "tax-efficient transaction."
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JNJ
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Johnson & Johnson adds fuel to rally with earnings beat
(17 Apr 2018) Think back to the 1980s. If you could have owned only one stock for the long haul, what would it have been? General Electric? AT&T? If we had to answer that question today, it would probably be our most persistent member of the Penn Global Leaders Club, Johnson & Johnson (JNJ $121-$132-$148). Alex Gorsky's pharmaceutical behemoth just hit another home run in the form of the company's first-quarter earnings report. J&J notched $20 billion in sales for the first three months of the year—a 13% increase over last year, and $2.06 per share in adjusted profit—also a 13% year-over-year increase. Two big bright spots in Q1 for the $355 billion pharmaceutical company (which also happens to be the world's largest biotech firm) were blood-cancer treatments Imbruvica and Darzalex. J&J has been trimming back its medical device unit recently, and the company just received an offer of $2.1 billion for its LifeScan diabetes platform from a private-equity firm. |
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BMY
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Penn Member Bristol-Myers Squibb (BMY $51-$63-$66) forges higher on earnings, drug trial
(05 Feb 2018) Penn Global Leaders Club member Bristol-Myers Squib (BMY $51-$63-$66) was bucking the market's downward pressure in early trading as the $104 billion drugmaker reported strong earnings, and a successful late-stage cancer trial. Q4 revenues were up 10.5% (to $5.4B) from the same quarter in the previous year, with key product sales (Opdivo, Eliquis, Orencia) all gaining momentum. The company's Opdivo/Yervoy combo trial for late-state lung cancer met its primary progression-free survival (PFS) goal in a Phase 3 clinical trial. We maintain our fair value price of $75 per share on BMY. |
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Technology
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Lookout conspiracy theorists, the first "digital pills" have just been approved by the FDA
(28 Nov 2017) Anyone following the news on a regular basis is aware of the massive opioid drug problem in the United States. With that as a backdrop, this story will probably send shivers up the spine of anyone living "off-the-grid" to avoid the long tentacles of government. The US Food and Drug Administration just approved the first "digital pill," which will notify health care professionals when a medication has been digested. The first iteration of this new technology is called Abilify MyCite, which attaches a tiny, digestible sensor—about the size of a grain of sand—onto the drug. At this stage, the sensor simply communicates with an external device like an app on a phone or a wearable patch, but how long until it (the sensor) can send a signal to someone further away? Cool or scary? We say both. |
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NVS
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Novartis to buy Advanced Accelerator Applications to boost its oncology portfolio
(30 Oct 2017) Swiss-based pharma powerhouse Novartis (NVS $67-$81-$87) wants to build up its pipeline of oncology drugs as generics continue to chip away at its blockbuster blood cancer drug Gleevac, which lost its patent protection last year. It is ponying up nearly $4 billion toward that effort with its bid to buy French biotech Advanced Accelerator Applications (AAAP $24-$81-$81). AAA's sweet spot lies in the promising area of radio-pharmaceuticals—therapies which carry radioactive substances directly to targeted tumor cells. Novartis had to make a move, as its Gleevac drug generated almost $5 billion per year in revenue before its patent protection expired. That amounts to roughly 10% of annual income. |
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IPXL
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Impax Labs and Amneal Pharma to merge, creating 5th largest generics maker
(17 Oct 2017) Publicly-traded Impax Laboratories (IPXL $8-$17-$26) and privately-held Amneal Pharmaceuticals have agreed to an all-stock merger, creating the 5th largest US generics drugmaker. Under the terms of the deal, Amneal’s private investors will own about 75% of the new company, with IPXL shareholders holding the rest. IPXL dropped about 15% on the news. Read the rest of the story in this Sunday's Penn Wealth Report, Vol. 05, Issue 03. |
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TXMD
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04. Under the Radar: TherapeuticsMD
(09 Oct 2017) TherapeuticsMD (TXMD $4-$5-$8) is a $1 billion small-cap pharmaceutical company specializing in the development, sales, and marketing of prescription and over-the-counter medical products for women. Specifically, the Boca Raton-based firm is developing three advanced hormone replacement products designed to both alleviate the symptoms and reduce the health risks associated with menopause-related hormone deficiencies. The company made news this week as it rang the bell at the Nasdaq following its decision to leave the New York Stock Exchange for the more appropriate (for their industry) exchange. |
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TEVA
NVO |
Teva Pharmaceutical jumps 22% on selection of new CEO
(11 Sep 2017) The world’s largest generic drug maker, Teva Pharmaceutical (TEVA ($15-$19-$53), still has a long way to go to get back to its previous base of around $30 per share, but the stock popped 22% Monday morning after the company announced it had found its new CEO. Kare Schultz, the former COO of Novo Nordisk (NVO $31-$49-$49), will take the helm of Teva sometime in early 2018. He has his work cut out for him: the stock has fallen nearly 50% since the start of the year. We remain gun-shy, as we never did get that double-digit gain we were looking for when we bought the company in the Intrepid Trading Platform (stopping out at a loss). For the brave investor, however, the company sure seems to be a deep, deep value play at $18.78 per share. |
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JNJ
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(18 Jul 2017) Penn stock Johnson & Johnson has stellar quarter; raises guidance for year
Penn Global Leaders Club member Johnson & Johnson (JNJ) raised its profit forecast for 2017 after reporting better-than-expected earnings for the quarter. The company had sales of $18.84 billion, with $3.83 billion flowing down as net earnings. JNJ just completed its $30 billion (yes, billion) acquisition of Swiss biotech company Actelion, and looks to make a handsome profit from the company's new line of drugs. Additionally, both the consumer products (think Band-Aid and a huge number of other brands) and the medical device (think operating room devices) divisions outperformed as well. Truly a stalwart holding in the Club. |
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CTLT
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Stock of the Day, 07 Jul 2017. Founded in 2007, Catalent, Inc. (CTLT) is a $4.5 billion mid-cap growth company in the non-invasive (don't break the skin) industry. Despite its relatively small size, the company operates in 33 locations across five continents and delivers 70 billion doses annually for almost 7,000 customer products. Think of the critical middle link in the chain between the big pharma companies and the patient—this Kansas City-based company builds the delivery system (oral or inhaled) that gets the drugs inside the patient, as well as helping to streamline the FDA approval process for companies. Get these statistics: CTLT works with 87 of the top 100 pharma companies, 24 of the top 25 biotechs, 22 of the top 25 generic drug companies, and 21 of the top 25 consumer health companies. Shares are currently selling for $35.57, and the company is actually turning an annual profit.
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AZN
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(01 May 2017) FDA approves AstraZeneca's bladder cancer drug. The Food and Drug Administration has given the green light to British pharma giant AstraZeneca's (AZN $26-$30-$35) new drug to treat advanced bladder cancer. Imfinzi (im fin ZEE) is part of a new generation of immuno-oncology drugs which use the body's own immune system to fight the disease. Perhaps the biggest market for this particular drug, also known as durvalumab, lies in the treatment of lung cancer, and the company believes it could ultimately be a billion dollar blockbuster. Better yet, let's find a cure. AstraZeneca has a very reasonable P/E of 11, and earned $3.5 billion in income on $23 billion in sales last year. It remains on our watch list for entry into the Global Leaders Club, but we don't want to knock out any current pharma companies from the strategy to make room just yet.
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LLY
INCY ABBV |
(17 Apr 2017) Eli Lilly, Incyte drop on FDA rejection of arthritis drug. Shares of both Eli Lilly (LLY $64-$86-$87) and biotech firm Incyte (INCY $68-$141-153) were hammered at the open on Monday after the FDA rejected, at least for now, a potential billion dollar blockbuster rheumatoid arthritis drug the two had been working on. Lilly was off about 5.6% in pre-market trading, while Incyte was hit harder—off over 12%—on the ruling. Both companies said they will fight the decision on the drug baricitinib (BEAR ih cih teen ub), which Wall Street believes can generate $1 billion in sales by 2020. AbbVie's (ABBV $55-$64-$68) Humira, for rheumatoid arthritis, is the world's best selling drug, with $16 billion in sales in 2016. The price on Humira, however, has skyrocketed from less than $700 per syringe in 2008 to $2,200 today, a 215% increase in less than a decade.
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(22 Feb 2017) Icahn takes stake in Penn member Bristol-Myers Squibb. Activist investor Carl Icahn has taken a stake—size unknown—in Penn Global Leaders Club member Bristol-Myers Squibb (BMY $46-$55-$77), perhaps with the ultimate aim of attracting a takeover offer. This comes on the heels of another activist investor, Jana Partners, forcing changes to the company's board of directors and a $2 billion stock buyback. As for a potential sale of the company which pioneered the development of immunotherapies to fight cancers, only a small handful of companies could afford the $100 billion price tag. Although still on the leading edge of cancer research, BMY has seen nearly one-third of its value vaporize after its lung cancer immunotherapy Opdivo failed to beat chemotherapy in trials last year. We remain bullish on the company, and would prefer it remain independent.
Pfizer/Allergan Deal Makes a Lot of Sense
(06 Apr 16) UPDATE: Obama's Treasury Department nixed the Pfizer/Allergan deal for political reasons—to use it as a tool to demonize tax inversions. Here's an idea: how about lowering our corporate tax rate to the same level as the rest of the civilized world? That doesn't fit the administration's template.
(29 Nov 15) About a year ago, AllerganAGN was waging battle against a hostile takeover bid by the Death Star of drug companies, ValeantVRX, and their Darth Vader CEO, the Rubenesque Michael Pearson. Today, they are in the midst of a merger with PfizerPFE that, if completed, would make the combined firm the largest drug company in the world. This time around, all of the participants in the room are supportive of the deal, and it makes wonderful sense.
Critics are clamoring that Pfizer, a New York-based pharma giant, is simply undertaking the deal to take advantage of Allergan’s lower tax rate (the deal would be structured in a way that has the much smaller AGN actually buying the larger PFE). True, Allergan pays the Irish corporate tax rate of about 12.5%, versus America’s highest corporate tax rate in the civilized world—35%. And true, the US is one of the few countries that taxes profits on US-based companies, even if those profits were generated in Timbuktu. But the real synergy from this deal comes from the combination of two very complimentary corporate cultures.
With a market cap of $202 billion, Pfizer is a powerhouse in the drug industry. But its pipeline of new drugs faces stiff competition, while its existing lineup, which includes the likes of Celebrex, has faced an ongoing patent cliff that will continue into the next few years. The company has made some good strategic moves over the past few years, like picking up Wyeth in 2009 and Warner-Lambert in 2000, but these “peer” mergers have caused some problems that this deal should largely avoid.
Specifically, when two major drug companies combine, the R&D departments are typically thrown into chaos. This was the case with the two previous Pfizer mergers, as each respective organization brought in its own researchers, scientists, protocol, and culture. Feathers are inevitably ruffled as the R&D pieces of the puzzle are forced to fit together and work as one. In the case of Allergan, a massive and unwieldy research beast does not exist. Instead, the firm has a more innovative and nimble team in place. And that is precisely what the 165-year-old Pfizer desperately needs.
What Pfizer brings to the table is a world-class marketing team with very deep pockets. When the deal finally gets done, Allergan will suddenly have access to all corners of the globe for its 40 or so branded pharma products, to include BOTOX. Just as the product lineups appear to mesh well, so do the corporate cultures and C-suite executives. Pfizer’s CEO, Ian Reid, will be the CEO of the new company, while Allergan’s Brent Saunders will be the COO.
While Saunders is not the type of deleterious financial engineer that Michael Pearson is, he has a masterful mind for business operations. He will probably lead an exciting move by the newly-formed drug giant within the next few years: a division into two distinct parts—one slow-growing, dividend producing entity; and a second, high-growth, cutting edge biotech firm. Assuming the deal gets approved, expect dynamic new drug launches by the team within the next few years.
(Reprinted from next Sunday's Journal of Wealth & Success, Vol. 3, Issue 47.)
(OK, got it. Take me back to the Penn Wealth Hub!)
Valeant is not a Drug Company—it is a Financial Engineering Firm with Pearson Playing the Phony Wizard
(21 Oct 15) I still have the Edward Jones research report, saved as a powerful reminder, listing the firm’s rationale for its “Strong Buy” rating on WorldCom. We all know what ultimately happened to the latter—CEO Bernie Ebbers is still in the pokey, shareholders were out every dollar they invested, and one of the nation’s largest and most revered auditing firms was in ruins (by their own hand, it should be noted). But not everyone remembers the scam Ebbers was pulling that led to his demise.
The former phys ed major, born into the family of a traveling salesman, was an initial investor in LDDS, the Long Distance Discount Service, Inc. As CEO of LDDS, he acquired over 60 different telecom firms, ultimately changing the name of LDDS to WorldCom. He was staying one step ahead of the financial cops by jumping from stone to stone, sucking each one dry of its cash. Ultimately, it was the government’s nixing of his deal to buy Sprint that allowed the fraud to finally catch up to him.
Replace the word “telecom” with “biotech,” and things seem eerily similar to what Pearson is doing at ValeantVRX, buying drug company after drug company, and focusing on the balance sheet of the prey rather than the drug pipeline. While we don’t accuse Pearson of the clearly illegal activities of Ebbers, Citron Research is, indeed, claiming accounting fraud. In fact, the company dares to mention the name “Enron” in its coverage.
The result on Valeant’s share price has been disastrous. The stock has fallen an incredible 66% in short order, dropping 40% on the day following the report.
Much like WorldCom or Enron in their heyday, Valeant had been one of the sweetheart stocks of the decade, rising from $13 per share in 2010 to $263 in August of this year. It is interesting to note that many financial firms recently had—or still have—a strong buy rating on the company.
The saddest part of this entire adventure isn’t about shareholders; it is about the patients who rely on lifesaving new drug development. (Reprinted from the Journal of Wealth & Success, Vol. 3, Issue 41.)
(OK, got it. Take me back to the Penn Wealth Hub!)
Mylan’s Bizarre Letter to Teva
(28 Apr 15) In an odd, rambling letter not worthy of an executive, Mylan NV Executive Chairman Robert Coury issued a nasty rebuke of Teva’s unsolicited bid to buy the firm. In the 3,216-word letter, Coury called Teva’s corporate culture “dysfunctional,” and went on to say that the company is “poorly performing and troubled.” Sources claim that Teva stock is often referred to as “toilet paper” inside the bowels of Mylan’s headquarters.
Teva issued a response outlining its rationale for the proposed merger, but not addressing any of the personal swipes at the company. Were Teva to buy Mylan, it would create the world’s largest generic drug maker, with more than $30 billion in sales in 145 countries.
Pictured above is “musician” Tino Coury, son of Mylan’s chairman. Records show that Coury regularly flies the company’s jet—the size of a regional airliner—to his son’s rock concerts around the country, courtesy of Mylan shareholders. More privileged TFB—Trust-Fund-Babyism. (Reprinted from the Journal of Wealth & Success, Vol. 3, Issue 18.)
(OK, got it. Take me back to the Penn Wealth Hub!)
Merck Raises Earnings Guidance
(28 Apr 15) Penn Global Leaders Club (PGLC) member MerckMRK didn’t need any lame excuses about a stronger dollar hurting its overseas sales. Quite the opposite—the firm raised its guidance for the year after it reported good earnings for the first quarter. The $162 billion American drug giant now expects EPS of about $3.45, up from its previous estimate of $3.35 per share.
In response to increasing generic competition, Merck made a strategic decision to develop more drugs in rapidly developing fields such as oncology, diabetes, and anesthesia. This prescient move by management has allowed Merck to back away from the rocky cliffs of patent expiration; a move that other major drug companies seem unwilling to make.
We purchased MRK last year in the PGLC at $54.57 and still consider it to be in a buy range. (Reprinted from the Journal of Wealth & Success, Vol. 3, Issue 18.)
Ackman and Pearson's Unholy Alliance
Bill Ackman. Activist investor and hedge fund manager known for causing trouble for boards of directors. Lost a ton of money betting on former JC Penney loser Ron Johnson, and a ton more trying to put Herbalife out of business. (Not to defend Herbalife; they may well be what he says they are.)
J. Michael Pearson. CEO of Valeant Pharmaceuticals. Big blowhard. Doesn't believe in producing drugs, just in buying successful drug companies and slashing their research and development budgets. Jettisons cancer research for acne cream--it costs less to develop the latter. Take the drugs, scorch the earth (and people) which created them, and laugh all the way to the bank. Wants to build one of the largest pharmaceutical companies in the world by the end of 2016, solely by the aforementioned strategy.
What happens when these two paragons of virtue team up? Nothing good.
An enormous wall typically exists between activist investors and corporate executives, as the two are natural enemies. Pearson, however, is much more aligned with the mentality of a Bill Ackman than that of an Alan Mulally or a Jack Welch. He is interested in getting to the bottom dollar in whatever fashion necessary, no matter what carnage is left in the wake. This is why it came as no surprise to us when we heard that Ackman and Pearson were teaming up on what will ultimately be a hostile takeover bid for Botox-maker Allergan, Inc.
What is so unseemly about this love affair is not just the personalities involved, it is Bill Ackman's nearly 10% stake in Allergan, which he began ramping up in April. Unless collusion can be proven, we must just assume that Pearson approached a "major shareholder" in the company. Interestingly, Ackman's shares are now held in a jointly-owned venture between Pershing Square (Ackman's company) and Valeant.
Allergan should have seen this coming and taken the appropriate defensive measures, but the game is now set. It will end with Ackman and Pearson standing on one side of the net, while patients and employees try to fend off volleys on the other side. We would wait for the white horse of government (that is hard to write with a straight face) to come riding in, but based on Ackman's lofty campaign donation to New York Attorney General Eric Schneiderman, we aren't holding our breath. Despite the long odds, we know which side of the court we are rooting for.
(06 Apr 16) UPDATE: Obama's Treasury Department nixed the Pfizer/Allergan deal for political reasons—to use it as a tool to demonize tax inversions. Here's an idea: how about lowering our corporate tax rate to the same level as the rest of the civilized world? That doesn't fit the administration's template.
(29 Nov 15) About a year ago, AllerganAGN was waging battle against a hostile takeover bid by the Death Star of drug companies, ValeantVRX, and their Darth Vader CEO, the Rubenesque Michael Pearson. Today, they are in the midst of a merger with PfizerPFE that, if completed, would make the combined firm the largest drug company in the world. This time around, all of the participants in the room are supportive of the deal, and it makes wonderful sense.
Critics are clamoring that Pfizer, a New York-based pharma giant, is simply undertaking the deal to take advantage of Allergan’s lower tax rate (the deal would be structured in a way that has the much smaller AGN actually buying the larger PFE). True, Allergan pays the Irish corporate tax rate of about 12.5%, versus America’s highest corporate tax rate in the civilized world—35%. And true, the US is one of the few countries that taxes profits on US-based companies, even if those profits were generated in Timbuktu. But the real synergy from this deal comes from the combination of two very complimentary corporate cultures.
With a market cap of $202 billion, Pfizer is a powerhouse in the drug industry. But its pipeline of new drugs faces stiff competition, while its existing lineup, which includes the likes of Celebrex, has faced an ongoing patent cliff that will continue into the next few years. The company has made some good strategic moves over the past few years, like picking up Wyeth in 2009 and Warner-Lambert in 2000, but these “peer” mergers have caused some problems that this deal should largely avoid.
Specifically, when two major drug companies combine, the R&D departments are typically thrown into chaos. This was the case with the two previous Pfizer mergers, as each respective organization brought in its own researchers, scientists, protocol, and culture. Feathers are inevitably ruffled as the R&D pieces of the puzzle are forced to fit together and work as one. In the case of Allergan, a massive and unwieldy research beast does not exist. Instead, the firm has a more innovative and nimble team in place. And that is precisely what the 165-year-old Pfizer desperately needs.
What Pfizer brings to the table is a world-class marketing team with very deep pockets. When the deal finally gets done, Allergan will suddenly have access to all corners of the globe for its 40 or so branded pharma products, to include BOTOX. Just as the product lineups appear to mesh well, so do the corporate cultures and C-suite executives. Pfizer’s CEO, Ian Reid, will be the CEO of the new company, while Allergan’s Brent Saunders will be the COO.
While Saunders is not the type of deleterious financial engineer that Michael Pearson is, he has a masterful mind for business operations. He will probably lead an exciting move by the newly-formed drug giant within the next few years: a division into two distinct parts—one slow-growing, dividend producing entity; and a second, high-growth, cutting edge biotech firm. Assuming the deal gets approved, expect dynamic new drug launches by the team within the next few years.
(Reprinted from next Sunday's Journal of Wealth & Success, Vol. 3, Issue 47.)
(OK, got it. Take me back to the Penn Wealth Hub!)
Valeant is not a Drug Company—it is a Financial Engineering Firm with Pearson Playing the Phony Wizard
(21 Oct 15) I still have the Edward Jones research report, saved as a powerful reminder, listing the firm’s rationale for its “Strong Buy” rating on WorldCom. We all know what ultimately happened to the latter—CEO Bernie Ebbers is still in the pokey, shareholders were out every dollar they invested, and one of the nation’s largest and most revered auditing firms was in ruins (by their own hand, it should be noted). But not everyone remembers the scam Ebbers was pulling that led to his demise.
The former phys ed major, born into the family of a traveling salesman, was an initial investor in LDDS, the Long Distance Discount Service, Inc. As CEO of LDDS, he acquired over 60 different telecom firms, ultimately changing the name of LDDS to WorldCom. He was staying one step ahead of the financial cops by jumping from stone to stone, sucking each one dry of its cash. Ultimately, it was the government’s nixing of his deal to buy Sprint that allowed the fraud to finally catch up to him.
Replace the word “telecom” with “biotech,” and things seem eerily similar to what Pearson is doing at ValeantVRX, buying drug company after drug company, and focusing on the balance sheet of the prey rather than the drug pipeline. While we don’t accuse Pearson of the clearly illegal activities of Ebbers, Citron Research is, indeed, claiming accounting fraud. In fact, the company dares to mention the name “Enron” in its coverage.
The result on Valeant’s share price has been disastrous. The stock has fallen an incredible 66% in short order, dropping 40% on the day following the report.
Much like WorldCom or Enron in their heyday, Valeant had been one of the sweetheart stocks of the decade, rising from $13 per share in 2010 to $263 in August of this year. It is interesting to note that many financial firms recently had—or still have—a strong buy rating on the company.
The saddest part of this entire adventure isn’t about shareholders; it is about the patients who rely on lifesaving new drug development. (Reprinted from the Journal of Wealth & Success, Vol. 3, Issue 41.)
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Mylan’s Bizarre Letter to Teva
(28 Apr 15) In an odd, rambling letter not worthy of an executive, Mylan NV Executive Chairman Robert Coury issued a nasty rebuke of Teva’s unsolicited bid to buy the firm. In the 3,216-word letter, Coury called Teva’s corporate culture “dysfunctional,” and went on to say that the company is “poorly performing and troubled.” Sources claim that Teva stock is often referred to as “toilet paper” inside the bowels of Mylan’s headquarters.
Teva issued a response outlining its rationale for the proposed merger, but not addressing any of the personal swipes at the company. Were Teva to buy Mylan, it would create the world’s largest generic drug maker, with more than $30 billion in sales in 145 countries.
Pictured above is “musician” Tino Coury, son of Mylan’s chairman. Records show that Coury regularly flies the company’s jet—the size of a regional airliner—to his son’s rock concerts around the country, courtesy of Mylan shareholders. More privileged TFB—Trust-Fund-Babyism. (Reprinted from the Journal of Wealth & Success, Vol. 3, Issue 18.)
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Merck Raises Earnings Guidance
(28 Apr 15) Penn Global Leaders Club (PGLC) member MerckMRK didn’t need any lame excuses about a stronger dollar hurting its overseas sales. Quite the opposite—the firm raised its guidance for the year after it reported good earnings for the first quarter. The $162 billion American drug giant now expects EPS of about $3.45, up from its previous estimate of $3.35 per share.
In response to increasing generic competition, Merck made a strategic decision to develop more drugs in rapidly developing fields such as oncology, diabetes, and anesthesia. This prescient move by management has allowed Merck to back away from the rocky cliffs of patent expiration; a move that other major drug companies seem unwilling to make.
We purchased MRK last year in the PGLC at $54.57 and still consider it to be in a buy range. (Reprinted from the Journal of Wealth & Success, Vol. 3, Issue 18.)
Ackman and Pearson's Unholy Alliance
Bill Ackman. Activist investor and hedge fund manager known for causing trouble for boards of directors. Lost a ton of money betting on former JC Penney loser Ron Johnson, and a ton more trying to put Herbalife out of business. (Not to defend Herbalife; they may well be what he says they are.)
J. Michael Pearson. CEO of Valeant Pharmaceuticals. Big blowhard. Doesn't believe in producing drugs, just in buying successful drug companies and slashing their research and development budgets. Jettisons cancer research for acne cream--it costs less to develop the latter. Take the drugs, scorch the earth (and people) which created them, and laugh all the way to the bank. Wants to build one of the largest pharmaceutical companies in the world by the end of 2016, solely by the aforementioned strategy.
What happens when these two paragons of virtue team up? Nothing good.
An enormous wall typically exists between activist investors and corporate executives, as the two are natural enemies. Pearson, however, is much more aligned with the mentality of a Bill Ackman than that of an Alan Mulally or a Jack Welch. He is interested in getting to the bottom dollar in whatever fashion necessary, no matter what carnage is left in the wake. This is why it came as no surprise to us when we heard that Ackman and Pearson were teaming up on what will ultimately be a hostile takeover bid for Botox-maker Allergan, Inc.
What is so unseemly about this love affair is not just the personalities involved, it is Bill Ackman's nearly 10% stake in Allergan, which he began ramping up in April. Unless collusion can be proven, we must just assume that Pearson approached a "major shareholder" in the company. Interestingly, Ackman's shares are now held in a jointly-owned venture between Pershing Square (Ackman's company) and Valeant.
Allergan should have seen this coming and taken the appropriate defensive measures, but the game is now set. It will end with Ackman and Pearson standing on one side of the net, while patients and employees try to fend off volleys on the other side. We would wait for the white horse of government (that is hard to write with a straight face) to come riding in, but based on Ackman's lofty campaign donation to New York Attorney General Eric Schneiderman, we aren't holding our breath. Despite the long odds, we know which side of the court we are rooting for.