Feuerstein's Biotech-Stock Mailbag

The big news this week was Takeda's $9 billion acquisition of Millennium Pharmaceuticals (MLNM Quote). The deal, or rather my perceived coverage of it, prompted a complaint from Rod R.

"So Adam, the biggest biotech rally in many months, like up 3% or better, and you have nothing to report? Maybe the hedgies are looking for virgin territory? It certainly deserves commentary. Got nothing?"

Rod, you need to subscribe to RealMoney, our subscription site! I was posting there all Thursday, discussing the Millennium takeout and the broader effect on the biotech sector.

In last week's Mailbag, I talked about the recent strength in the biotech sector, so clearly, the acquisition of Millennium, especially at a significant premium, helps further improve sentiment, if nothing else. Much of Thursday's gains in the sector, however, were given back Friday due to the broader-market pummeling.

For those without access to RealMoney (huh?), here's what I had to say this week.

Takeda is paying about 16 times 2008 (expected) sales of $570 million to buy Millennium. On a trailing basis, Takeda paid just under 17 times '07 sales. That's a big sales multiple either way you look at it. (Looking even further ahead, it's 13 times '09 sales expectations, still a hefty multiple.)

Millennium does have net operating losses, so I assume that brings down the "real" price a bit -- by how much, I'm not sure. As with the AstraZeneca (AZN Quote)-MedImmune deal of 2007, which was also seen as pricey, overseas buyers appear to have no problem spending big to buy a piece of the U.S. biotech pie.

Naturally, the Takeda-Millennium deal will get tongues wagging about who's next in biotech to get bought out. Is a 50% takeout premium the new comp? What about 16 times sales?

If that's the case, and I don't really think you can count on it, U.S. Big Pharma, handicapped by the weak dollar and poor credit markets, will have a tough time matching up against their overseas competitors.

But maybe foreign drug firms really want our U.S. biotech assets, just like foreigners used to crave our commercial real estate and were willing to pay top dollar and then some.

All of this should be good news for investors in small- and mid-cap biotech stocks. Short-sellers have had their way with these companies this year, so perhaps the Millennium deal is enough to scare them a little bit.

Last week, I threw a bunch of potential M&A stocks out there, but of course, I didn't mention Millennium, which just continues my dismal track record for prognostication. But why not just forge ahead: If you use the Millennium sales multiple, or something even a bit lower, and apply that to stocks like Onyx Pharmaceuticals (ONXX Quote), United Therapeutics (UTHR Quote) or ImClone (IMCL Quote) -- all potential takeover targets -- you get some really big numbers.

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Onward. Did everyone see the historic news out of Antigenics (AGEN Quote) this week? The company received approval in Russia for Oncophage, its kidney cancer vaccine. This is the first approval for any cancer vaccine in the world. Wow! (And yes, I'm wearing my snarky pants.)

Of course, readers want to know what I think about Antigenics. Sandy P. writes: "Adam, you've been skeptical about cancer vaccines, but isn't this Antigenics approval in Russia a good thing? Why wouldn't the FDA approve Oncophage?"

The Russian approval of Oncophage is nonsense. The vaccine doesn't work, which was shown quite convincingly when the phase III study failed. Of course, that didn't stop Antigenics from fishing around the data for something positive in order to keep the company's lights on (and the CEO's paychecks rolling in).

This is the oldest biotech trick in the book, and the story always ends badly. The only twist here is the Russian approval, which Antigenics managed to parlay into some nice publicity last week. CNBC couldn't help itself, serving up steaming piles of Antigenics hype to the uninformed masses. And then you get misguided, hilarious columns like the one written by Michael Shulman for Seeking Alpha. Read it for comic relief.