The Micromet deal is valued at $11.00 per share.  This was a 33% premium to the prior close and shares closed up 32% at $10.94.  The prior 52-week range was $4.13 to $8.90.  Unfortunately for M&A arbitrage players, this deal offers no real upside in an arb-spread and it seems unlikely that a higher bid is coming based upon its share price never having gone above $11.00 today.  That buyout is on the heels of a deal signed last year where Amgen agreed to an upfront payment for a discovery and development deal.  Amgen is indicated around $69 after turning in 3% sales growth after the close.

Avila Therapeutics is a developer of covalent drugs in cancer and this $925 million buyout from Celgene is a cash and stock deal with $350 million of the total coming in cash.  This company has AVL-292 as a inhibitor now in Phase I studies.  Celgene shares are around $72.65 and are also with striking distance of a 52-week high ($75.11).

It is interesting that with two deals already having been announced in the last 24-hours that the iShares Nasdaq Biotechnology (NASDAQ: IBB) ETF was down by almost 1% at $114.71 on a day when there were two deals on the heels of another large premium acquisition this week.

JON C. OGG

Life Tech noted that the Ion Proton™ Sequencer is designed to decode a human genome in one day for $1,000.00 and it is being exhibited now through this Friday.

As a reminder, Life Technologies was created by the combination of Invitrogen Corporation and Applied Biosystems, Inc.  The company’s website for this product description notes:

Powered by Ion Torrent™ semiconductor chip technology, the Ion Proton™ Sequencer is the first benchtop next-generation sequencer to offer fast, affordable human genome and human exome sequencing. Powered by the next generation of semiconductor sequencing technology and offering a similar single-day workflow to the Ion PGM™ Sequencer, the Ion Proton™ Sequencer promises to change the way scientists look at genomics.

Now for the big question… Why do they have to tack on all the extra years on the backside of life?  This news does not bring about the cure for cancer, but it is one step closer to personalized medicine and treating each patient individually rather than just based upon a broader protocol.

JON C. OGG

Amgen’s current dividend is 2.3%, which is rather high for a biotech stock. It also should be noted that the $64.00 price is above the stock’s old former rangebound levels of $50.00 to $60.00. Pfizer currently yields 3.7%, but that is about to rise to closer to 4%, and Merck yields about 4.50% after its dividend hike.

The question for 2012 is simple: Which biotech stocks will be among the second waves to initiate paying a dividend? By our count, these are the biotech outfits that might entertain following Amgen’s dividend path: Biogen Idec Inc. (NASDAQ: BIIB), Celgene Corporation (NASDAQ: CELG), Alexion Pharmaceuticals, Inc. (NASDAQ: ALXN), Cubist Pharmaceuticals Inc. (NASDAQ: CBST), PDL BioPharma, Inc. (NASDAQ: PDLI), Regeneron Pharmaceuticals, Inc. (NASDAQ: REGN), and Vertex Pharmaceuticals Inc. (NASDAQ: VRTX).

We would have evaluated the chances of Gilead Sciences Inc. (NASDAQ: GILD) initiating a dividend, but this $11 billion proposed buyout of Pharmasset, Inc. (NASDAQ: VRUS) is likely to keep Gilead tied up for quite some time.

Alexion Pharmaceuticals, Inc. (NASDAQ: ALXN) is close to all-time highs above $70 and is now worth a whopping $13.2 billion. Estimates are $1.30 EPS for 2011 and $1.66 EPS for 2012, making this one have a much higher valuation while it is still rapidly growing. Some investors may expect that it could start paying out a dividend, but it is too soon by our take today, even with a $445 million balance of cash and liquidity with almost no long-term debt.

Biogen Idec Inc. (NASDAQ: BIIB) has estimates of $5.89 EPS in 2011 and $6.31 EPS in 2012. The company had only about $3 billion in cash and investments at the end of September versus a current market cap of about $27 billion. 2011 was the year that investors decided to give up on worrying about the very rare PML cases in TYSABRI, and that allowed Biogen shares to rise almost 60% in 2011. If Biogen decides to get off the no-dividend bandwagon soon, we would only look for an initial payout of $1.00 on an annualized basis for a while.

Celgene Corporation (NASDAQ: CELG) may still be too new of an earnings story to start expecting a dividend. The earnings estimates are $3.80 EPS in 2011 and $4.51 EPS in 2012. With almost $2.6 billion in cash and investments, its market cap is larger than Biogen’s at $30 billion.

Cubist Pharmaceuticals Inc. (NASDAQ: CBST) managed an incredible breakout year as its drugs treat hospital-borne infections, with nearly a 100% share price gain in 2011. The market cap is now about $2.45 billion, and it had nearly $1 billion in cash and liquidity before a recent $221 million acquisition versus about $450 million in long-term debt. Cubist probably could start to pay a dividend if it wants to, but the company has decided to be an acquirer rather than hoarding cash or going defensive. Chances are that it may need to hold on to its cash while it absorbs Adolor and anything else it is considering.

PDL BioPharma, Inc. (NASDAQ: PDLI) has been a dividend payer from its patent royalties, but some payments have been one-time payments until its most recent $0.15 payout for each of the past four quarters. The company also recently forecast a 5% revenue drop and investors are already braced for lower royalty payments. The company recently lost its CFO after only about three years on the job and we really do not like to see CFOs leave biohealth companies. Estimates are $1.18 EPS for 2011 and $1.38 EPS in 2012, but it has about $225 million in cash and liquidity versus a market cap of $867 million. The company may just stick with its current payout structure’s high yield as is until (or if) it can secure another large patent license.

Regeneron Pharmaceuticals, Inc. (NASDAQ: REGN) is worth some $5.1 billion or so in market capitalization and is fresh off the news that it settled with Genentech over U.S. opthalmic sales of the eye drug EYLEA with a patent case still brewing, but with Regeneron agreeing to pay out $60 million if sales reach $400 million and it will pay royalties out as well. With cash and liquidity of near $500 million at then end of September we think it is a bit premature to ask this one to start shelling out its cash to shareholders yet, considering it is still expected to have a wide loss in 2012.

Vertex Pharmaceuticals Inc. (NASDAQ: VRTX) is so far off of highs now that it seems unlikely investors are expecting much on the dividend front. The company is back on the path of growth after some changes and stumbles, and now its market cap is almost $7 billion. With this one it just feels too soon to expect any dividends in reality. We could analyze all we want, but its new revenue growth is challenged by a cash balance of just over $800 million versus $400 million in long-term debt. What is interesting is that Vertex’s $0.30 EPS expected for 2011 is expected to be $4.55 EPS in 2012. It had a loss of $3.77 EPS in 2010. Maybe after another year or so we can evaluate its future dividend strategy.

After reviewing the great biotech sector’s larger components, it sure does not sound like many other than Biogen Idec Inc. (NASDAQ: BIIB) are really new prime-time dividend candidates for 2012, other than the high payout of PDL BioPharma, Inc. (NASDAQ: PDLI).

JON C. OGG

Our screen process did not limit the scope to positive earnings, but we did use a minimum market valuation of $1 billion to avoid the smaller and even more speculative names in an already speculative sector.  The companies are all expected to rise 20% more and include the following stocks tied to biotech and the biohealth sectors: ARIAD Pharmaceuticals, Inc. (NASDAQ: ARIA); Dendreon Corporation (NASDAQ: DNDN); Gilead Sciences, Inc. (NASDAQ: GILD); Human Genome Sciences, Inc. (NASDAQ: HGSI); Illumina, Inc. (NASDAQ: ILMN); Incyte Corporation (NASDAQ: INCY); Jazz Pharmaceuticals, Inc. (NASDAQ: JAZZ); Life Technologies Corporation (NASDAQ: LIFE); and Theravance, Inc. (NASDAQ: THRX).

Unfortunately, some of these are biotech implosions where companies have run into problems. Others are pre-revenue and could be tomorrow’s drug giants in cancer and other indicated treatments.  Some may even be acquired.  We have included the current share price and recent price history, as well as based the implied upside upon the consensus price target objective from Thomson Reuters.  Recent fundamental data and color has been added on each if applicable.

There are also the ETF products via the iShares Nasdaq Biotechnology (NASDAQ: IBB) and the SPDR S&P Biotech (NYSE: XBI).  The iShares variation trades at $104.30 and its 52-week range is $83.96 to $110.02.  Gilead (and Pharmasset) would be the largest implied holding of the iShares ETF with almost 16% weighting combined.  The SPDR variation trades at $66.48 and its 52-week range is $47.01 to $75.17. The SPDR also only contains ARIAD (and Pharmasset) of the biotechs with the most implied upside below. 

ARIAD Pharmaceuticals, Inc. (NASDAQ: ARIA) currently trades around $12.50, has a market cap of about $1.65 billion, and the Thomson Reuters consensus price target of $15.91 leaves an implied upside of about 27%.  Its 52-week trading range is $5.04 to $13.50 and 2011 has been a year where the company’s share price has come close to challenging the prior highs from 1999 to 2000. It is still pre-revenue for the most part and losses are expected to continue at least through 2012.  ARIAD is focused around oncology and its shares are up from a $10.42 per share offering of almost 25 million shares that raised nearly $250 million for the company.  This was one of the good secondary offerings that allows the company to raise development and commercialization funds without becoming dependent solely upon a single partner.

Dendreon Corporation (NASDAQ: DNDN) is another implosion story due to lower adoption rates of PROVENGE for prostate cancer, although some are hoping and expecting that the new reimbursement rates (and physician clarity) may help the company regain some of its lost footing.  At $7.58, the market cap is barely $1.1 billion and the $11.05 Thomson Reuters price target leaves an implied upside of over 45%.  To show just how bad this one has gone, the 52-week trading range is $6.46 to $43.96.

Also Read: Small Caps With 50% Upside in 2012

Gilead Sciences, Inc. (NASDAQ: GILD) recently traded at $39.88 and it is one of the biotech giants with a market cap of about $30 billion. THe 52-week trading range is $34.45 to $43.49 and the Thomson Reuters consensus price target of $48.86 leaves an implied upside of 22.5%. The last time Gilead was above $50.00 was in early 2009.  Gilead is somewhat surprising to see on the list considering its controversial $11 billion acquisition of Pharmasset when that target acquisition is not expected to generate sales for at least another year.  The company has new HIV medication that is helping to boost the value but the company is diversifying to include more target markets.

The category of stocks under $1 billion in market capitalization is called by Credit Suisse as the Ultimate Small Caps, and Credit Suisse’s Favorite Ideas are in the following. If applicable, we added in the implied upside, the market capitalization rates, and other color.

Pinnacle Entertainment (NYSE: PNK), in hotels, restaurants & leisure with a $600 million market cap, has an outperform rating, and its $15.00 price target versus a $9.66 target today implies 55% upside.  What is interesting is that the Thomson Reuters consensus is actually even higher at $16.06.

Codexis, Inc. (NASDAQ: CDXS), with a $202 million market cap in biotechnology, has a price target of $25.00 on its Outperform rating.  Keep in mind that the stock was at $10.41 when it was added to the list in June versus $5.63 today.  It is hard to trust exponential gains expectations.  To prove the point, the consensus price target is $12.17 today.

VIVUS Inc. (NASDAQ: VVUS), with an $804 million market cap in pharmaceuticals, was commented on this morning even though it was already on the list after being added only on June 14, 2011.  At $9.00 after a drop of over 13% this morning makes for a questionable target.  The prior $15.00 would imply about 66% upside if it can remain in place. Before the effects of any analyst changes this morning, the Thomson Reuters consensus price target is only $11.33 and the 52-week high is $11.48.

Sycamore Networks, Inc. (NASDAQ: SCMR), worth about $520 million in communications equipment, has a price target objective of $37.00 from Credit Suisse.  That is up double from the $18.00 price today and still up 75% from when it was added to the favorite ideas list in June.

JON C. OGG

For all practical purposes, ARIAD is in the pre-revenue stage of operations.  As far as the full details of the funding, the capital raise will allow ARIAD to “continue treatment and follow-up of patients in the pivotal PACE trial of its investigational pan BCR-ABL inhibitor, ponatinib, in patients with chronic myeloid leukemia (CML) or Philadelphia-positive acute lymphoblastic leukemia (Ph+ALL) and, subject to further patient follow-up and data analysis in this trial, to file for marketing approval of ponatinib in the United States and Europe in the middle of 2012.”

An additional note on the funding is tha the money will allow ARIAD to continue its efforts for the commercialization of ponatinib in the United States and Europe.  The new funds should also allow for additional clinical trials of ponatinib, including a Phase 3 clinical trial in newly diagnosed CML patients, clinical trials of ponatinib in Japan, completion of the Phase I/II trial of its investigational dual inhibitor of anaplastic lymphoma kinase and epidermal growth factor receptor called AP26113.  Another potentiality is the funding (dependent upon the outcome of the trials) of a pivotal trial of AP26113 in patients with non-small cell lung cancer.

J.P. Morgan Securities, Cowen & Co., and Jefferies are the joint book-running managers; co-managers are listed as BMO Capital Markets, Leerink Swann, Oppenheimer & Co., and also Rodman & Renshaw.  These underwriters will be granted a 30-day option to purchase up to an additional 3.225 million shares as an overallotment option. 

ARIAD shares are actually up 3.45% at $10.78 and the 52-week trading range is $4.45 to $13.50.  Usually shares fall on secondary offerings hurt stocks, but this one had already been discounted.  This $10.42 price is down from as high as $11.75 just as recently as last week.  Before the effects of the offering, ARIAD’s market capitalization is $1.4 billion.

If ARIAD shares remain higher like this, it is almost certain that the overallotment will be exercised by the underwriters.  If so, then the gross proceeds before underwriting fees will be more than $257 million in new capital raised.  As of September 30, 2011, the company had a mere $86.3 million in cash on the books and its total liabilities were $73.9 million.

JON C. OGG

If you go back to the highs from earlier this year based upon its new lupus drug’s great hopes, the stock is now down close to 75% from those highs.  Technically, a double in the stock would still not the stock back to its highs.

After increased short selling and after more tepid of a market responses to its lupus treatment, it seems that Human Genome will not turn a profit until 2014.  The report’s angle is based upon a wider doctor support in 2012 and a slight increase in demand.

The problem is that doctors have been slow in recommending Benlysta for lupus patients because the drug is relatively expensive against prior drugs which have been on the market for 40 years or more.  Doctors also say that the reimbursement process for Benlysta has been both challenging and time consuming. That is about to change in 2012 and that is the key driving force behind why Human Genome Sciences could double per Barron’s.

What is interesting is that the Thomson Reuters consensus price targets still has enough old price targets that have not been adjusted to the much lower current prices that the analyst field is already calling for a double in the stock and then some.  At $7.54, the Thomson Reuters consensus price target is above $18.00 today.

After having raised funds and with having a solid partnership under its belt, Human Genome Sciences should have enough capital to get it to profitability by 2014.  This is a blockbuster drug potentially and that could easily help out in the company’s valuation of $1.5 billion today.

JON C. OGG

Now the company has news out that it has agreed to sell its royalty interest related to intellectual property licensed to Merck & Co. Inc. (NYSE: MRK) associated with VICTRELIS under the Schering unit for $125 million in cash.

VICTRELIS is a treatment for chronic hepatitis C as a protease inhibitor. The press release noted that the royalty interest was acquired by CPPIB Credit Investments Inc., a wholly-owned subsidiary of CPP Investment Board (CPPIB).

The intellectual property related to VICTRELIS was co-developed by Corvas International, Inc. and Schering and, was acquired by Dendreon in July 2003.  The transaction is expected to close in December 2011.

The move is aimed at strengthening its cash position and to enable the company to further invest in its core business initiatives.

Dendreon shares are flat at $8.80 and its market cap is currently $1.3 billion.  To show how bad this one has been, Dendreon’s 52-week trading range is $6.46 to $43.96.

JON C. OGG

Canaccord Genuity’s specialty pharma analyst Randall Stanicky believes that generics will have 60% market share in 2012.  How the pie is divided is still subject to uncertainty and the analyst sees three possible scenarios:

• Scenario 1 – base case: Watson Pharmaceuticals (NYSE: WPI) and Ranbaxy both launch.  Under this scenario, it has no changes for Watson, Teva, and Mylan and it sees no surprises across the supply chain “where strategies and impact are well vetted.”
• Scenario 2 – modest surprise: TEVA is involved, most likely via a deal with Ranbaxy. Stanicky is not convinced that generic Lipitor is TEVA’s “mystery” product but he continues to see it as an opportunity. This could offer modest upside to TEVA, although the call noted that a generic Lipitor is likely a June 2012 event for TEVA.
• Scenario 3 –  Other less likely scenarios include (1) Ranbaxy’s ANDA is rejected by FDA (or relinquished by Ranbaxy) and others come in; Mylan and TEVA would see an earlier benefit while WPI would be negatively impacted or (2) Ranbaxy is “parked” by the FDA, in which case WPI would benefit both by being alone on the market while TEVA and MYL could see delay to market (we have a hard time seeing the FDA allowing this given focus here.

As far as what others expect from Pfizer, two weeks ago brought a Leerink Swann downgrade where Pfizer was cut to “Market Perform.”  All in all, Thomson Reuters shows a consensus price target objective from analysts as being $23.36.  At $19.35 today, Pfizer’s 52-week range is $16.27 to $21.45.

Teva Pharmaceutical Industries Limited (NASDAQ: TEVA) has been battered enough this year that this would be a big deal for its stock if there was a blowout win coming its way.  Instead, shares are only up 0.6% at $38.51 while its 52-week range is $35.00 to $57.08.  It would be up more if everyone thought this was a win for Teva.  Watson Pharmaceuticals, Inc. (NYSE: WPI) is up 3% at $67.80.

JON C. OGG

No underwriters were listed in the shelf offering and the company’s market cap is $411 million before the effects of this offering.

USE OF PROCEEDS: We will retain broad discretion over the use of the net proceeds from the sale of the securities offered hereby. Unless otherwise indicated in any prospectus supplement, we intend to use the net proceeds from the sale of the securities under this prospectus for general corporate purposes, which may include research and development, capital expenditures, working capital, and general administrative expenses. We may also use a portion of the net proceeds to acquire or invest in businesses, products and technologies that are complementary to our own, although we have no current plans, commitments or agreements with respect to any acquisitions as of the date of this prospectus….

As of September 30, 2011, Sequenom had more than $101 million spread out among is cash, cash equivalents, and short-term and long-term investments.  Long-term debt is only $11.67 million and total liabilities were only $42.1 million.

Sequenom shares are down over 3% at $4.01 after closing at $4.14 yesterday.  Be advised that the 52-week range is $3.95 to $8.71, so this is very close to a potential capital raise when shares are back at their weakest level in some time.

FULL SEC FILING

JON C. OGG