) --The question of a biotech dividend leads off this week's Biotech Stock Mailbag.
Howard F. asks,
"I noticed your tweet today Thursday on biotechs paying dividends and wanted to hear more about what you think may happen in this situation. Will a dividend in biotech help stock prices or hurt?"
I'm in the pro-dividend camp for large-cap biotech.
, specifically, will both benefit if they announce a dividend policy. Amgen and Gilead can clearly afford to pay a dividend and the move would make both stocks more attractive to a new, deep shareholder base. A dividend would also act as a self-policing collar on management, making it more difficult for the companies to waste cash on risky, dilutive acquisitions but still allow for significant investment in research and drug development.
When you talk to current biotech investors today about big-cap biotech stocks, the number one complaint is lack of confidence in management, largely due to what investors perceive to be poor fiscal stewardship over the use of their capital. If the Amgens and Gileads of the sector were still posting boffo growth every year, investors would probably be satisfied with the status quo. The reality is different. Large-cap biotech is no longer putting up huge growth numbers and R&D productivity is in decline. From afar, investors see bio-similars -- cheap, generic copies of biotech drugs -- as a real threat.
Big Biotech is converging with Big Pharma. The latter group pays dividends, so why not the former?
JP Morgan biotech analyst Geoff Meacham came out in favor of biotech dividends this week, noting that Amgen (No. 5) and Gilead (No. 10) are the only healthcare companies in the top 10 highest market cap healthcare companies that do not yet offer shareholders a dividend.
"Looking more closely at average FCF
free cash flow yields, the 10 largest dividend-paying HC companies have yields of 9.0%, versus 9.9%, 8.6% and 8.9% for Amgen,
and Gilead, respectively (average 9.1%). We think this supports the case that Amgen and Gilead (and to a lesser extent Biogen) should pay a dividend as there is clearly a capacity to do so and several years of share buybacks have generally not been an optimal use of cash," said Meacham in a note to clients Thursday.
Earlier this year, ISI Group biotech analyst Mark Schoenebaum, another pro-dividend guy, conducted an institutional investor survey showing strong support for the idea.
Fifty-seven percent of respondents to Schoenebaum's survey said biotech dividends would create more shareholder value than share repurchases. Sixty-two percent of investors in the survey wanted Amgen to start paying a dividend this year, compared to just 15% who felt a dividend wasn't a good idea. For Gilead, 50% of respondents wanted a dividend policy in 2011 compared to 26% who didn't like the idea at all.
Not everyone wants to see a biotech dividend. For some, returning cash to shareholders in this way represents the white flag of surrender.
"Call me old school but if the best a biotech can do is pay a dividend or buy stock back, what does that say about the return on investment for their R&D efforts", asks
CEO Ron Renaud. "Shareholders should want biotechs to innovate, discover and develop, not become
Fred B. emails,
"Any comments on Cytori Therapeutics' (CYTX) announcement about using fat cells for stem cell regeneration?"
Cytori is a hybrid company in the field of stem cell therapies. On the one hand, stem-cell medicine is still developing and highly experimental -- no one has yet proven definitively that harvesting, manipulating and re-injecting stem cells back into patients can cure disease. Cytori hasn't cracked the stem-cell puzzle yet either, but through a loophole in medical device regulations, the company is able to sell an adult stem-cell harvesting and enrichment device known as the Celution System in Europe and Japan.
That medical device loophole is called a CE Mark. Some investors equate the granting of a CE Mark in Europe to a medical device approval in the U.S. That's not true. A CE Mark is a certification granted by European regulators that says a medical device meets European safety and environmental requirements. Importantly, a CE Mark doesn't require any evidence of efficacy, nor does it allow a company to make claims of a medical benefit.
Confused? Think about it this way. One of Cytori's CE Marks allows it to sell Celution in Europe as a medical device that harvests a patient's own stem-cell enriched fat for re-implantation during breast reconstruction surgery. Importantly, a CE Mark does not allow Cytori to claim that this stem cell-enriched fat harvested using Celution has any regenerative or therapeutic benefit for patients. Cytori can't say that the stem cells it harvests are grafting or growing into new, healthy tissue. Cytori can't say Celution results in healthier, larger or more well reconstructed breasts.
In order to make actual medical claims about stem cells harvested from Celution, Cytori needs to conduct large, well-designed clinical trials that would result in data proving a therapeutic benefit. That burden of proof is no different than any other company developing and seeking approval for new drugs.
So far, Cytori has not done the clinical work necessary to show that its stem cells cure any disease. The company has conducted a few, small studies to date in breast reconstruction, heart attack and heart disease patients, but none of the resulting data come close to clearing regulatory approval standards. Cytori is planning a randomized, placebo-controlled study of Celution-harvested stem cells in patients with acute heart attacks, but results are several years away.
While Cytori works to generate efficacy data on its Celution device, sales based on CE Marks have been minimal and generally underwhelming to date. Cytori announces fourth quarter and 2010 results next week; analyst consensus is $2 million in revenue. Cytori struggles to sell Celution today because without a proof of a real therapeutic benefit, most doctors see no reason to use the device and insurers won't reimburse for the procedure.
It's worth noting, too, that Cytori has run into even more obstacles in the U.S., where regulations around medical devices are much stricter. The company cannot sell Celution here or even seek FDA approval until it runs large clinical studies.
Via Twiter, @riotcookie tweets,
"2morow around 2:30 and 4:30 the CEO of AMRN is talking at a conference.. Any thoughts… bad, good? pleaseeee answer mannnnn!"
I sense tension from the Twitterverse trader crowd (akin to a disturbance in The Force) because
shares are trading under $8. I'm not a trader so I don't share the worries. I use a wide lens to examine Amarin and still like what I see with respect to the company's medicinal-grade fish oil pill AMR101. Lipid-lowering data from the first
and now we wait for results from the second phase III study, ANCHOR, expected in the second quarter.
The ANCHOR study differs in that patients enrolled have "mixed" trigylceride baseline levels (200-500 mg/dl) and are also on statin therapy. This is a patient population about 10 times larger than the patient population targeted in the MARINE study.
can't market its competing "fish oil" drug Lovaza to this mixed patient group because the drug causes LDL elevations. The AMR101 data from MARINE showed no comparable LDL elevations, which if repeated in the ANCHOR study, will be a huge competitive advantage for AMR101 over Lovaza.
William L. asks,
"I have a question about Amylin Pharmaceuticals( AMLN) which I would very much like you to answer. Does the new Bydureon data make it more likely to be rejected by the U.S. Food and Drug Administration?"
No, the data released Thursday compared the efficacy and safety of Amylin's once-weekly injectable diabetes drug Bydureon to
daily injectable Victoza. This is a marketing study, like a consumer taste test between Coke and Pepsi, not a study that should factor into FDA's approval decision on Bydureon.
Amylin was hoping the study would come out demonstrating Bydureon to be more effective at lowering blood glucose levels than Victoza in patients with Type 2 diabetes. To the company's chagrin, the study results showed the opposite. Patients treated with Victoza reduced their blood sugar levels by 1.5% compared to 1.3% for Bydureon-treated patients.
Those results seem close, and they are, but statistically speaking, Bydureon failed to demonstrate "non-inferiority" or equivalent efficacy. In plain English, the study showed Victoza works better at lowering blood glucose than Bydureon.
Amylin's track record demonstrating Bydureon's superiority against other currently marketed Type 2 diabetes drugs was pretty good until Thursday's study versus Victoza backfired. That's why this news was such a major negative surprise and caused Amylin's stock price to slide.
If and when Bydureon does get approved in 2012, the drug still has the convenience advantage of only needing to be injected once a week. Victoza must be injected every day. Bydureon also causes much less vomiting and nausea than Victoza.
Novo Nordisk has to be very pleased with today's data because the company no longer has to worry about Amylin and its partner
marketing Bydureon as the superior diabetes drug. Novo's other big advantage is that Victoza is approved today while Bydureon is still on the shelf. Convincing doctors and patients to switch off a drug that works to try something new will not be an easy task.
With all the uncertainty around Amylin and Bydureon, perhaps
is the safer, smarter way to play potential upside. Alkermes will receive royalties on Bydureon sales but the stock's current price largely discounts, if not ignores completely, the commecial potential of Vivitrol opioid and the company's drug pipeline.
Carl E. asks,
The Jan. 6 data released by Xoma on its
. Treatment with XOMA 052 for three months led to a blood glucose (HbA1c) reduction of just 0.2% compared to an HbA1c reduction of 0.1% for placebo patients.
Going into those phase IIa study results, investors were expecting XOMA 052 to yield an HbA1c reduction in the range of 0.6% to 0.75%.
Xoma is now prepping release of results from a phase IIb study that will treat diabetic patients for six months with either XOMA 052 or placebo. Xoma is under pressure to show that an extra three months of treatment with XOMA 052 results in more significant lowering of blood glucose levels.
Results from this phase IIb study will be announced in the second quarter.
Xoma is also expected to release data on other diabetes and cardiovascular endpoints from the phase IIb study, including fasting blood glucose and c-reactive protein levels. The latter will be most interesting given the data from the phase IIa study showing that XOMA 052 demonstrated a 49% reduction in C-reactive protein, a key marker of inflammation, compared with a 2% reduction in placebo. If Xoma can repeat or improve upon this result over six months, prospects for XOMA 052 in cardiovascular indications may get a bump.
Given the underwhelming diabetes data on XOMA 052 from the earlier study, I'd say expectations for the phase IIb study are rather low.
Gary W. asks, "Now that
has amended its application for MelaFind, do you think the odds for an approval increase?"
Mela amended the MelaFind pre-market application (PMA) to limit the indicated (potentially approvable) use to dermatologists, the company announced Wednesday. Mela said it made this change to the MelaFind PMA in response to concerns aired by dermatologists at last November's advisory panel, which
. These dermatologists were worried about the potential for misdiagnosis of skin cancer if MelaFind were to be used by physicians relatively untrained in detecting or diagnosing skin cancer.
Mela's problem is not assuaging the concerns of dermatologists on its advisory panel but convincing what appears to be a very recalcitrant FDA fixed to its publicly stated position that the current MelaFind PMA is not approvable.
Yes, that was the very clear position of FDA at the advisory panel meeting, regardless of the 8-7 vote in MelaFind's favor.
I suppose that restricting use of MelaFind to trained dermatologists may help a bit but FDA's chief complaint was about the poor diagnostic capabilities of the skin cancer detection device. The agency recommended, or should I say demanded, Mela conduct another clinical trial prior to considering MelaFind's approval. Wednesday's move by Mela to amend the existing PMA, therefore, doesn't go far enough.
Mela did not specify in its statement Wednesday the precise nature of the amended MelaFind PMA. Under FDA rules, a "major amendment" to a PMA -- meaning submission of significant new data or analyses from a new or existing clinical trial -- can extend the review period for another 180 days, according to FDA spokesperson Karen Riley.
"We look forward to working with the Agency
FDA to move the MelaFind PMA application forward," said Mela CEO Joe Gulfo, in a statement. He chose not to provide investors with any relevant information on when to expect a final FDA decision. Phone calls and emails to Mela seeking additional comments were not returned.
--Written by Adam Feuerstein in Boston.
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Adam Feuerstein writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback;
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