Spectrum Heeds Biotech's Golden Rule: BioBuzz
Irvine, Calif. (
) -- The first rule of biotech: You do not talk about biotech.
Oh wait. That's the first rule of
Fight Club
. Sorry. Let's try that again.
The first rule of biotech: Raise money when you can get it, not when you need it.
That's an important rule, and one that
Spectrum Pharmaceuticals
(SPPI) - Get Report
followed last Friday when it raised another $50 million in a registered direct offering of shares and warrants priced at $7.55.
The knee-jerk reaction to this deal was to get angry. Why the #$%&% are these $%^$& raising money and diluting shareholders now?!? Spectrum is supposed to be on a roll. The company just received expanded approval for its lymphoma drug Zevalin and is awaiting FDA action on another smallish cancer drug. This is not the time to kill the stock's momentum by raising money, right?
Understandable sentiment, but Spectrum did the right thing in grabbing another $50 million at market value. Yes, the stock is a bit weaker today as a result, but the stock was in a downtrend anyway since Zevalin's approval earlier this month. Investors are a bit skeptical about Spectrum's ability to turn the
moribund Zevalin into a growth driver
.
With the new cash, Spectrum has about $150 million in the bank. It now has the freedom to spend what it needs to market Zevalin, with cash to spare. And who knows what will happen in the future? If the early Zevalin sales reports aren't great, the stock could drop further, making it more difficult to raise money later.
No one likes it when a smallish drug or biotech company raises money and dilutes shareholders -- again. But that's the nature of the business. Spectrum is paying heed to Biotech Rule No. 1. Deal with it.
BioCryst and the Financially Limber Analyst
(At 1:06 PM EDT)
What happens when a sell-side analyst needs to keep a stock rating and price target intact, but the business outlook for the company he's covering just took a dive? Well, the analyst simply uses some creative accounting. Call it valuation acrobatics.
Leerink Swann's Joe Schwartz used some nifty tricks Tuesday to retain his market perform rating and $10 price target on
BioCryst Pharmaceuticals
(BCRX) - Get Report
, despite announcing
disappointingly small government request order
for its flu drug peramivir Monday.
Schwartz's old $10 price target for BioCryst was based on a one times price-to-sales multiple on an assumed $394 million peramivir stockpiling order in the third quarter.
On Monday, BioCryst made it clear that a $394 million order for peramivir wasn't on the way, so Schwartz removed that revenue from his model and replaced it with $6 million in peramivir stockpiling revenue for the fourth quarter. (That's about half of what Schwartz thinks BioCryst could get from the government under the request for proposal just issued.)
So, $6 million in new peramivir revenue minus $394 million in old peramivir revenue equals a $388 million revenue shortfall in Schwartz's BioCryst financial model. Jeepers, you'd think it would be tough for the analyst to keep his $10 price target or his market perform rating with a huge projected revenue shortfall like that, right?
No sir! Schwartz simply adds new long-term peramivir revenue that wasn't in his model before and changes his valuation method. Presto! A new $10 price target!
"We have adjusted our valuation methodology by adding royalties on Japanese sales and 65% probability-adjusted seasonal flu sales in the US," writes Schwartz in his note to clients today. "We assume a 5x Price/Sales multiple based on 2015 worldwide probability-weighted sales of $103.4MM discounted back at 15.0%. We account for $1/share in cash and $2/share for platform value."
Which comes first: the chicken or the egg? Or in this case, Scwhartz's price target or his BioCryst financial model? Sounds like some
, to me.
BioCryst shares were down 3.7% to $9.15 in recent trading.
Dendreon Hot Going into Thursday's Investor Meeting
(At 10:24 AM EDT)
Dendreon
(DNDN)
shares are up 24% in the past week, closing Monday just shy of $30, as the company preps to address investors and analysts at a meeting Thursday morning in New York City.
Provenge, the company's prostate cancer immunotherapy (vaccine), will be the big focus of the investor gathering, of course.
Dendreon has been guiding towards a fourth-quarter approval re-filing of Provenge with the Food and Drug Administration, so unless the company's been burning the midnight oil, I wouldn't expect to hear anything different Thursday. Of course, any indication that Provenge's regulatory timeline is slipping would be a negative.
A deal for a Provenge marketing partnership in Europe would definitely get investors excited were it to be announced at the meeting, but again, it's probably a bit early for that. Words investors don't want to hear: "We've decided to go it alone in Europe."
Dendreon is likely to spend most of the three-hour meeting discussing commercial plans for Provenge. The nuts-and-bolts logistics of Provenge treatment -- from the patient's blood draw to the manufacturing of the personalized vaccine at the New Jersey plant to its shipment via air back to the doctor's office and administration to the patient -- is unique in cancer therapy and something the company probably still needs to get investors comfortable with.
Company executives should also discuss sales projections for Provenge.
I'd expect to hear a lot of talk about Provenge manufacturing, including timelines for the expansion and approval of the New Jersey facility, as well as build-out plans for the new plants outside Atlanta and greater Los Angeles.
Finally, expect discussion about future clinical trials, both with Provenge and more broadly, with the company's immunotherapy technology platform. Can Dendreon repeat the clinical success of Provenge in prostate cancer in other tumor types?
Dendreon is trading just above $30 today.
Allos' Big FDA Date Thursday
Thursday is also an important day for
Allos Therapeutics
(ALTH)
. The FDA is expected to make its approval decision on the company's lymphoma drug Folotyn.
I'm on record predicting a Folotyn approval Thursday. Does that make me nervous? My palms are sweating, so yes, it does. The FDA's advisory panel meeting on Sept. 2 was contentious (as I documented
) but approval was recommended by a strong 10-4 vote.
If there is a delay in approval, it may be due to the relatively short amount of time between the advisory panel and Thursday's approval decision deadline. Let's hope there isn't anything more serious.
Allos shares are up about 8-9% since the advisory panel vote. I expect the stock to trade higher on approval, but not by a huge amount given the
over whether or not the company's current valuation prices in Folotyn sales revenue already.
Citi Calls the AMAG Bottom
It looks like Citibank analyst Yaron Werber called the bottom (at least a near-term one) in AMAG Pharmaceuticals when he
on Sept. 10.
Since then, the stock is up 18%.
-- Reported by Adam Feuerstein in Boston
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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