Biotech Stock-Picking: Incyte, Celgene

TheStreet.com's Adam Feuerstein says, "Biotechnology is one of the few investment sectors where stocks can literally double overnight."

So how much do you know about investing in biotech stocks?

Get up to speed with the following insights and advice from TheStreet.com.

From Incyte's Rheumatoid Arthritis Pill Promising:

An experimental pill from Incyte ( INCY)reduced symptoms in rheumatoid arthritis patients, according to results from a small phase II study presented Sunday Oct. 26 .

These results put the efficacy of INCB18424 generally in line with a current class of injectable RA drugs known as tumor necrosis factor-alpha inhibitors, or TNF-alpha inhibitors.

TNF-alpha inhibitors as a class generate billions of dollars in sales annually and include drugs like Johnson & Johnson's ( JNJ) Remicade, Abbott's ( ABT) Humira and Amgen ( AMGN) and Wyeth's ( WYE) Enbrel.

"The holy grail in RA has been an oral drug with robust efficacy, a favorable side effect profile, and durable response," wrote JPMorgan analyst Cory Kasimov in a research note to clients.

Read the full version of Incyte's Rheumatoid Arthritis Pill Promising.

From Biotech Earnings Preview: A Place to Hide?:

According to the Credit Suisse biotech team, prescription data suggest that the large-cap biotech sector isn't due to repeat the strength seen in the second quarter, in part due to seasonality, raised expectations, and the foreign exchange rate.

"That said, we expect some companies to beat and with the economic outlook increasingly dim, we believe investors will again turn to biotech as a defensive sector," Credit Suisse writes.

Celgene ( CELG), Biogen Idec ( BIIB) and Gilead ( GILD) are among the names most likely to beat for the quarter.

Read the full article. (Update: Biotech Sector Got It Right Last Quarter)

From Celgene Profit Swells:

... the drugmaker reported that third-quarter profit rose 251% on gains made through an acquisition and higher sales of its cancer drugs.

The Summit, N.J.-based drugmaker on Thursday reported profits of $136.8 million, or 29 cents a share in the third quarter, compared with net income of $38.8 million, or 9 cents a share, in the year-ago period.

Higher sales of Celgene's cancer drugs bolstered the company's earnings performance. Sales of Revlimid totaled $343 million in the quarter, an increase of 72% compared with the prior-year period.

On its earnings conference call, Celgene management said Revlimid's performance in Europe, where the multiple myeloma drug is still being rolled out across various countries, was strong even with negative foreign currency effects. In the U.S., Revlimid prescription volume increased more than 7% quarter over quarter despite a typically slow summer and increased competition from Velcade, another multiple myeloma drug marketed by Japanese drug maker Takeda.

Read the full version of Celgene Profit Swells.

From Biogen Earnings Rise, Surpass Estimates:

The company said Tuesday that it earned $207 million, or 70 cents a share, in the third quarter, versus a year ago profit of $119 million, or 41 cents a share.

The company garnered $573 million in worldwide sales from multiple sclerosis drug Avonex.

Analysts had predicted $528 million in sales from Avonex...

Read the full version of Biogen Earnings Rise, Surpass Estimates.

From Amgen Boosts Forecast; Shares Advance:

Amgen beat earnings expectations, fueled by better-than-expected sales of anemia drugs Aranesp and Epogen.

The company reported $845 million in worldwide sales of Aranesp, up from $818 million in the third quarter of the year prior. However, U.S. Aranesp sales were lifted by $54 million thanks to an accounting change.

...without the change, U.S. sales would have declined 12%. The drop, which was slightly offset by price increases, reflects the damage done to demand by regulatory, reimbursement and label alterations.

Without the help of favorable foreign-exchange rates, Amgen said international sales of Aranesp decreased 2%. All told, worldwide sales of Aranesp, excluding the accounting change and benefit from foreign exchange, dropped 8% year over year.

Amgen reported $634 million in sales of Epogen, while analysts had expected $610 million. Amgen said the 7% increase year-over-year increase was due primarily to an increase in the product's sales price, beneficial changes in wholesale inventory levels and revised estimates of dialysis demand.

Read the full version of Amgen Boosts Forecast; Shares Advance.

From Genzyme Misses Product-Sales Estimates:

The company reported a third-quarter profit of $119.6 million, or 42 cents a share, down from $159.3 million, or 58 cents a share, in the year-ago quarter.

Analysts, on average, had expected $1 a share, with revenue of $1.18 billion. The overall sales shortfall, though slight, came as Genzyme was just shy of consensus expectations for its biggest sellers.

Biotech Select The company reported $171 million in sales from Renegel and Renvela, missing the $174 million that had been anticipated. Genzyme reported $309 million in revenue from Cerezyme, below expectations for $320 million, and it garnered sales of $126 million from Fabrazyme vs. a target of $129 million.

Read the full version of Genzyme Misses Product-Sales Estimates.

Plus, don't miss Genzyme Garners FDA Panel's Nod

They Just Don't Get Lilly! (Video, Oct. 24)

Marek Fuchs pontificates about why there were two sets of bad earnings-good earnings headlines about Eli Lilly ( LLY) -- from the same news sources.

To watch the video, click the player below:

From Genentech Profit Rises on Strong Sales:

On a GAAP basis, the company earned $731 million, or 68 cents a share, compared with $685 million, or 64 cents a share in the comparable 2007 period.

Genentech reported adjusted profit of $863 million, or 81 cents a share, compared with $778 million, or 73 cents a share, in the year-ago quarter. Revenue rose to roughly $3.4 billion from $2.9 billion over 2007.

Investors are expected to focus on a potential buyout by Roche OTC ticker: RHHBY . Genentech rejected a bid in July from the Swiss pharma company, which has yet to respond.

Read the full version of Genentech Profit Rises on Strong Sales.

From DNA Summary: Big Three Shows Strength:

Overall, I Ben Thomas think it was a solid quarter and will retain my positive view on the company Genentech . I have no idea if the Roche deal will go through, and if so, at what price, but I think the company is doing well on a standalone basis.

Read the full version of DNA Summary: Big Three Shows Strength ( RealMoney access required).

Update: Roche Reaffirms Genentech Offer

From Genentech Investors Monitor Avastin Study:

Several interim analyses of the phase III study, which is testing Avastin as an adjuvant therapy in patients with colon cancer, have been conducted already. None have resulted in strong enough data to stop the study.

The next scheduled examination of the data will occur this quarter, Sue Desmond-Hellmann, Genentech's president of product development, said Tuesday Oct. 14 . At that point, Genentech will determine whether to release the results or indicate instead that the trial will proceed. If the findings this quarter aren't unequivocally in Avastin's favor, the review will continue to a final analysis, currently expected in mid-2009, according to the company.

Right now, Avastin is approved as a treatment for patients with colon, lung and breast cancers. U.S. sales totaled $2.3 billion in 2007 and almost $2 billion through the first nine months of this year.

But adjuvant use of Avastin in patients undergoing successful colon cancer resection surgery could tack on another $5 billion in sales, according to one estimate from the analysts at Cowen & Co.

Read the full version of Genentech Investors Monitor Avastin Study. (Update: Genentech to Continue Avastin Trial)

TheStreet.com BioTalk: Big-Cap Breakdown (Video, Oct. 19)

Adam Feuerstein and Elizabeth Trotta discuss what to make of big-cap biotech in a bad market. To watch the video, click the player below:

Plus, don't miss this video on TheStreet.com TV: TheStreet.com BioTalk: DNA, GILD (Oct. 11: Feuerstein and Trotta prepare for the start of biotech earnings season.).

From Gilead Beats Targets on Strong Drug Sales:

Gilead exceeded analysts' third-quarter top- and bottom-line expectations as sales of its HIV-fighting drugs surpassed estimates, and the company announced an accelerated $750 million share-buyback plan.

The company said it earned $504 million, or 52 cents a share, in the quarter, compared with $398.3 million, or 42 cents a share, in the year-ago period. Factoring out certain items, the company reported a profit of 55 cents a share, up from 45 cents a share a year earlier.

Spending on research and development increased 34% year over year to $188.1 million, while selling, general and administrative expenses rose 9.3% to $189.2 million. Analysts had expected Gilead to spend about $174 million on R&D and $179 million on SG&A.

Read the full version of Gilead Beats Targets on Strong Drug Sales.

From GILD Summary: Lots of Life:

Truvada sales increased 34% year over year to $549 million (about $20 million above my estimate).

Atripla sales increased 77% year over year to $428 million due to strength in U.S. and successful European launch (about $15 million above the Street estimates).

Viread sales increased 5% to $156 million (about $5 million above consensus).

Read the full version of GILD Summary: Lots of Life ( RealMoney access required).

From Pfizer Settles Pain Drug Cases for $894M:

Pfizer ( PFE) said Friday Oct. 17 that it has agreed to pay $894 million to resolve claims that pain drugs Bextra and Celebrex caused heart attacks and strokes.

The pharmaceutical giant said the payment will settle all of the personal injury cases, consumer fraud cases and state attorneys' general claims regarding its non-steroidal anti-inflammatory Bextra, which was taken off the market in 2005.

Read the full version of Pfizer Settles Pain Drug Cases for $894M.

From PFE Preview: Deep Value Dose:

Pfizer is a mature drug company, and its heyday of 12% to 15% earnings growth based on one or two key drugs such as Viagra is probably over. Similar to peers... it is basically a manager of a large portfolio of medications of varying sizes and profitability. The sum total is quite impressive: Consensus earnings estimates are for 55 cents a share on $12 billion of sales in the third quarter and $2.15 a share on $48 billion of sales for all of 2008.

Read the full version of PFE Preview: Deep Value Dose ( RealMoney access required).

From Biotech Mailbag: Lessons From Clinical Trials:

Craig P. writes, "Do you know if Ariad Pharmaceuticals ( ARIA) used uncontrolled studies in their Phase II trials of deforolimus?"

The phase II study of deforolimus in sarcoma patients did not contain a control arm. This study of 212 sarcoma patients resulted in a 29% response rate and median progression-free survival of 15 weeks. Again, there was no control arm for comparison, but historical median PFS rate for these patients is around seven weeks, according to a recent research note from Susquehanna Financial Group.

Will these encouraging results translate into a win for the ongoing phase III study of deforolimus? We won't likely know until 2009 or 2010; enrollment in the study isn't scheduled for completion until the second half of 2009. I last wrote about Ariad in June.

The lack of a control arm in the phase II study is a definite knock against Ariad and would cause me worry. In the company's defense, however, deforolimus is an MTOR inhibitor, a class of cancer drug with a proven track record ( Wyeth's ( WYE) kidney cancer drug Torisel is an MTOR inhibitor), so perhaps this is a mitigating factor in Ariad's favor.

Read the full version of Biotech Mailbag: Lessons From Clinical Trials.

From Biotech Mailbag: Study Boosts ImmunoGen:

From Alex S.: "Why, and under what circumstances, would a company release important Phase III trial data only after they submit a new drug application for their product?"

I can't think of one, Alex, and I'd be very wary of any company that claims it can't release or discuss phase III data prior to a Food and Drug Administration submission.

This is a stunt that my old nemesis Introgen Therapeutics ( INGN) tried a few years ago. On a quarterly conference call, management insisted that the FDA frowned upon companies presenting phase III data publicly before filing the data with regulators.

That's utter nonsense. Did the FDA get mad at Genentech when it presented breakthrough Avastin colon cancer data to thousands of cancer researchers in the spring of 2003 -- before filing for approval?

No.

Read the full version of Biotech Mailbag: Study Boosts ImmunoGen.

From Vertex Falls on Cystic Fibrosis Drug Study:

Another small study of Vertex Pharmaceuticals' ( VRTX) experimental cystic fibrosis drug released Monday showed that the drug, VX-770, improved lung function and was safe.

VX-770 works by improving the function of a particular gene that is known to cause cystic fibrosis when defective.

The downside to VX-770 is that it may only work for a very small percentage of cystic fibrosis patients who have this specific gene mutation.

Read the full version of Vertex Falls on Cystic Fibrosis Drug Study. (Related: Vertex Cystic Fibrosis Drug a Game-Changer)

From Don't Get Burned by the Next Cell Genesys:

Cell Genesys ( CEGE)is done. In the ashes of the biotech firm's blowup, however, there are important investing lessons to learn.

The end for Cell Genesys came Thursday after an independent futility analysis found the company's GVAX prostate cancer vaccine had little chance of success.

With little else on its plate, the company's future is bleak. The stock is now valued at pennies per share and shareholders have lost everything.

I spent a good bit of time last March responding to readers incredulous that I could doubt the GVAX prostate cancer vaccine. In response to one such email, I wrote the following:

"If you remember one rule about biotech investing, or more specifically, one rule about investing in biotech oncology stocks, it's that you should never (never!) trust phase II data from uncontrolled studies.

Print that out. Place next to your computer. Memorize."

Well, it turns out that the stupendously positive phase II data on GVAX Prostate was completely worthless.

Read the full version of Don't Get Burned by the Next Cell Genesys.

From Onyx Attractive, but Issues Remain:

Kent P. asks:

"Is there any hope for Onyx Pharmaceuticals ( ONXX)?

Remember 2007? Onyx was the best-performing biotech stock of the year.

Here's what's happening: Nexavar is a very good cancer drug, but most of the sales growth in liver cancer (and to a much lesser extent, kidney cancer) is coming from Europe and Asia. That's a problem because Onyx doesn't seem to have very good visibility into those markets, especially Asia.

Investors get nervous when companies can't tell them with reasonable detail how their key products are performing. In this market, a case of nerves equals sell.

Read the full article.

From Dendreon's Got Miles to Go With Provenge:

At the interim analysis, prostate cancer patients treated with Provenge Dendreon's ( DNDN) vaccine had a 20% reduction in the risk of death compared with patients treated with a placebo. This certainly looks like Provenge is helping these patients, and if so, the odds that Provenge will be a winner next year (when the final analysis of the study is announced) have increased.

To declare victory at the final analysis, Provenge must reduce the risk of death by 22% compared with placebo. Looks like a slam dunk, doesn't it? Provenge is already at 20% and only needs to get to 22%. Easy!

Not so. Yes, the odds that Provenge will win next year have increased, but there is still a lot of failure risk here. I covered the Dendreon short in the model portfolio, but I wouldn't consider going long the stock at this time.

Biotech Select I could bury you under bio-statistical mumbo jumbo to explain all this, but I'll spare you the misery and instead employ a sports analogy.

Read the full article.

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This article was written by a staff member of TheStreet.com.