One reason Walmart suddenly has taken the action is First Lady Michelle Obama, the poster child for the new initiative. Walmart went so far as to get a quote from her for its press release about Great for You. She said:

 Today’s announcement by Walmart is yet another step toward ensuring that our kids are given the chance to grow up healthy. Just over a year ago, Walmart committed to save shoppers a billion dollars in their cost of fruits and vegetables and the fact that Walmart exceeded this number is a real accomplishment and a milestone in our efforts to support families eating better. In addition, the healthy seal will be another tool for parents to identify the best products for their kids. Giving parents the information they need to make healthy choices is a key piece of solving childhood obesity.

The quality of Walmart food products probably was never an issue for her and her family. Mrs. Obama did not mention it, but she likely was never a regular patron of Walmart. She almost certainly is not now, either.

The Walmart decision matches ones made by other huge American companies that sell food, either fast food or food that people take home to cook. McDonald’s (NYSE: MCD) is the best example. Last summer, the largest fast-food chain said it would offer low-calorie options for children’s meals. McDonald’s also said it would reduce sodium content in some of its food by 15% by 2015.

Stores and fast-food companies have tried to create the illusion that they have only recently gotten the FDA list of food content by product and studies about which food ingredients undermine healthy eating habits. What actually happened is that pressure from the government and public to cut back on the fatty foods that people love most became overwhelming. Some of the blame for unhealthy foods does fall with the customers. But to turn what should have been done some time ago into a press event masks a lack of actions — ones not taken by these companies for years.

Douglas A. McIntyre

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

The drug treats a less common form of the cancer known called systemic ALCL (anaplastic large cell lymphoma).  The ‘more rare’ and ‘rarer’ wording is the key here.  Also, the figure for the treatment used is now being set at $13,500.00.  It is going to take many treatments before the company recaptures what was called more than $500 million in R&D expenses per CNBC data during a company interview this morning.

Seattle Genetics is apparently going to make the drug, again its first commercially available drug, available next week.  The long and short of this is that brentuximab combines an antibody to target the cancer along with the effects of chemotherapy.

We looked for analyst opinion and Bloomberg showed an RBC comment noting that a conservative estimates is that the drug may reach $200 million in two years.  RBC did note that it could be larger.  Canaccord Genuity sent us some data that was much more cautious and it maintained a “Sell” rating and $10 target.

What is going to drive the sentiment here is rather simple… Dollars in versus dollars out against valuations.  The $500 million price tag and the $1.7 billion market capitalization play a part for a drug that could be a $200 million a year drug.  If the drug generates more in sales, then the caution on valuation is going to be less warranted.  Still, this values the one-product company at close to 8.5-times sales and the straight-line math puts a 2-year or 3-year cost recapture period in place.  Then will come the real profits.

The good news is that Seattle Genetics has more than $400 million in cash and liquidity on the books.  That will bolster the company for a while.  Before the effects of this approval, which was mostly expected, Thomson Reuters had estimates of $55.31 million for 2011 sales and $151.76 million for 2012 sales.

In the case of a biotech, we cannot back out a penny of the cash to derive a raw value for the company.  The cash burn and cash cushion is just too deeply required by the investment community to discount the cash from the market capitalization analysis.

If the drug generates even a 50% upside to the RBC target and manages $300 million after a couple or few years on the market without any news of prohibitive side-effects (an unsafe automatic assumption) then the company as it stands today for commercialized product will trade at more than 5-times annual peak sales and that is before the cost recapture time.

While no new treatment has been approved in more than 30 years for this indication, imagine what happens if another drug approval is granted or even if another drug approval looks possible.  The forward value comes under fire.

Here is what else the company has in its pipeline.  Brentuximab has more Phase I to Phase III trials underway for broader aspects in Hodgkin Lymphoma.  More is a s follows:

• SGN-75 for Renal cell carcinoma and non-Hodgkin lymphoma is in Phase I;
• ASG-5ME    for Pancreatic and for Prostate cancers is in Phase I;
• ASG-22ME for Solid tumors is in Phase I;
• SGN-19A    for CD19+ hematologic malignancies is in pre-clinical studies,

The company shows that 11 clinical-stage ADC programs in hematologic malignancies and solid tumors are in pre-clinical to Phase II studies under ADC Collaboration.

Now you know why we refuse to value the cash and liquidity as a discounting mechanism against the market capitalization.  That cash may all be spoken for in current R&D and clinical studies as far as monetary commitments.  The good news is that this will begin to assure much-needed revenues for the company.

Before you consider that this is a bash against Seattle Genetics, it is not.  The problem that exists is that there is only so much a single drug approval can do for the total value of a company.  Shares were up after the news initially, but at 1:00 PM EST the stock is down about 2% and around the $14.70 level.  The 52-week trading range is $11.36 to $21.41.

The old trading adage is “buy the rumor and sell the news.”  This was mostly an expected outcome for approval, so investors and traders are currently following the textbook trade.  No more, no less.

JON C. OGG

Zacks pointed out this morning that the new label is “already being questioned in a federal lawsuit filed by some of the major tobacco companies.”  It noted, Reynolds American Inc. (NYSE: RAI) and Lorillard Inc. (NYSE: LO), are arguing that these warnings are far more prevalent than the brand names on each pack of smokes.  It also said, “All the tobacco giants are experiencing the pressure of the new ruling of FDA.”

Reynolds American and Lorillard have Zacks #2 Rank, which translate to a short-term ‘Buy’ ratings; Philip Morris holds a Zacks #3 Rank, effectively a short-term ‘Hold’ rating.  Earlier this month came a report from Morgan Stanley, where it cut Lorillard’s rating to Equal-Weight and raised Reynolds to Equal-weight.

JON C. OGG

The big winner from “The Munchies” of course would be Pepsico, Inc. (NYSE: PEP) as it owns Frito-Lay, Ruffles, Doritos, Cheetos, and more. Calls to Frank and Paul’s staff were not returned.   How many presidential candidates have co-authored legislation that would effectively legalize pot?

• Here are the states which profit the most from taxing sin (and selling it).
• Also, there was earlier a move for a marijuana technology company for an IPO, although we have not followed this closely of late and that news may have dated by now.
• Also, keep in mind that PROP 19 failed.

The new broad laws covering financial regulation usually fall under the umbrella of what is called “Dodd-Frank” by the public, but this is formally named Dodd–Frank Wall Street Reform and Consumer Protection Act.  If this does actually make it to law rather than just legislation, it would seem that the bill might be called “Pot-Frank.”

JON C. OGG

The images are far more graphic than the image that I took of an advertisement in the Frankfurt Airport in Europe.

We have included each of these images below and they are not exactly ‘pretty’ by any standard.  It is not too shocking, but the tobacco companies are seeing their shares priced lower today.

News just came from Philip Morris USA yesterday that a federal judge in Florida had dismissed a medical monitoring class action case because plaintiffs failed to allege a legally proper claim for medical monitoring.

At what point do courts just stop accepting tobacco cases?  It is not like you can still smoke and think it is not a killer.

Courts can say “You should have known better” or more importantly they can say “Look, we tax the hell out of tobacco and we need the tax revenues.”

Still, these warning labels are ugly enough that you have to winder if it will impact the domestic sales or not.

Shares of each are down while the broad market is up.

Most tobacco stocks have performed well, and they usually offer great dividends for investors.

Altria Group Inc. (NYSE: MO) is down by 0.4% at $27.22 right before the closing bell and its 52-week trading range is $19.53 to $28.13; the dividend yield is listed as 5.6%. Its 2010 sales were $24.363 billion.

Reynolds American Inc. (NYSE: RAI) is down by 0.3% at $38.12 right before the closing bell and its 52-week trading range is $25.62 to $39.87; the dividend yield is listed as 5.6%. Its 2010 sales were $8.932 billion.

Lorillard, Inc. (NYSE: LO) is actually up by 0.4% at $111.61 right before the closing bell and its 52-week trading range is $70.87 to $116.90; the dividend yield is listed as 4.7%. Its 2010 sales were $5.932 billion.

Vector Group Ltd. (NYSE: VGR) is down by 0.55% at $18.20 right before the closing bell and its 52-week trading range is $15.37 to $20.80; the dividend yield is listed as 8.8%.  Its 2010 sales were $1.063 billion.

There is one other consideration, and that is the world of “Good intentions gone awry.”  Pfizer Inc. (NYSE: PFE) makes a smoking cessation drug called Chantix.  This drug has been tied to radical psychotic episodes and now there are fresh warnings about cardiovascular risks which are out.  What do you do when the drug side effects are worse than the cause?

JON C. OGG

What is driving shares is that the FDA Office of Oncology Drug Products is meeting with the company in early June  to discuss the re-submission of its New Drug Application for pixantrone for accelerated approval to treat patients with relapsed or refractory aggressive non-Hodgkin’s lymphoma.

The FDA meeting is after received a response to the appeal announced on May 3, 2011,  Whether or not this leads to an approval is one thing, but the company is now allowed to resubmit its new drug application for approval by the FDA with additional information based on pixantrone’s PIX 301 trial.

The FDA has requested that Cell Therapeutics submit two items… “an additional review of radiographs by an  independent panel and additional information regarding circumstances of stopping the clinical trial prior to achieving the planned accrual to assure reviewers that efficacy assessments were not involved in the decision to stop accrual early.”

Cell Therapeutics is also presenting data on OPAXIO and Tosedostat at ASCO next week, and that may act as an additional share-moving event.

It seems unlikely that another 13.9 million shares will be seen all over again as we saw on Monday without any fresh news hitting the tape, but the market gods may have the determining factor there.  Cell Therapeutics’ shares are indicated down at $2.07 on almost 45,000 shares with about two hours until the market opens.  Shares closed at $2.26 on Monday and the adjusted 52-week trading range after the reverse split is $1.26 to $3.30 and the market cap was about $378 million as of Monday.

JON C. OGG

If you are just seeking an earnings calendar, we highlighted about sixteen of the top earnings with detailed previews we were planning to watch on Monday and Tuesday.

Apple Inc. (NASDAQ: AAPL) may still be somewhat in question but there are two things to watch.  The NASDAQ 100 rebalance will be behind it and there are rumors that a new slate of iMacs will be released early this week.  Shares closed at $350.13 on Friday, making that all but one day with a $350+ closing price this last week.

Berkshire Hathaway Inc. (NYSE: BRK-A; BRK-B) may be in focus a bit still on Monday after the annual shareholder meeting.  The conglomerate disclosed that natural disasters cut its net income in more than half for the first quarter, and we would note that many of those Japan claims may carry over into Q2 and/or beyond.  Buffett said Sokol violated trading ethics and that this was a blow, but he also admitted that mistakes were made by himself in monitoring the situation.  Buffett is expected to give a Monday interview on CNBC, and then hopefully the world will move on past the company.

BJ’s Wholesale Club Inc. (NYSE: BJ) was up last week on word that Apollo was looking at making an acquisition offer.  This company has been in play for some time now and sadly it is getting to the point that a buyer will have to have continued confidence in the economy for years ahead to justify it (at least by our conservative models).  If no additional news is out on this matter on Monday, we would expect to see some of that move from $48 to $51 have to come back in a bit.

Citigroup, Inc. (NYSE: C) closed at $4.59 this week against a 52-week range of $3.53 to $5.15.  This week will mark its last week as a $4 or $5 stock, hopefully forever…. As for its upcoming reverse stock split, Citi gave dates of “effective after the close of trading” on May 6, 2011 and will begin trading split-adjusted at the opening of trading on May 9, 2011.

Ford Motor Co. (NYSE: F) and General Motors Corp. (NYSE: GM) have GM earnings but we first get to see April vehicle sales data on Tuesday.  This can influence the sector, although some of the data may be mostly known now that Ford has reported earnings.

Gen-Probe Inc. (NASDAQ: GPRO) was higher on Friday based on reports that it hired Morgan Stanley to find a buyer.  The AIDS and West Nile drug maker rose over 4% to $82.92 on Friday, but this trades around 35-times this year’s earnings estimates and about 30-times next year’s estimates with a market cap around $4 billion today.

At issue is not whether Makena works as a treatment aimed at preventing premature births which costs the medical system billions upon billions of dollars each year.  The issue is egregious price gouging.  We warned that the company would come under political pressure and consumer pressure due to above and beyond unreasonable price hikes.

Shares of K-V have been hit this week after the FDA said that it would take no action against pharmacies formulating treatments similar to K-V’s Makena based on a valid prescription. 

Senator Tom Harkin joined others this week and it has been said the company tried to stop pharmacies from compounding the drug claiming legal violations.  One of the big issues is that K-V did not fund the initial research for the drug and Hologic transferred the rights to K-V.

The FDA has left some wiggle room here noting that it could reconsider its decision.  That could go either way for the company.  Then last night came word from K-V’s  Ther-Rx subsidiary saying, “We are committed to ensuring that this significant, FDA-approved medication is covered at an affordable cost and accessible to all women who are prescribed Makena.  We are finalizing solutions to the concerns, and will announce them by the end of the week.”

Our own initial call earlier this month was that K-V would yell out a “Do-Over” like you would hear in kid games.  Look at the statement above.  That is about as close to a corporate “Do-Over!” announcement as a company will say. 

We are not sure who made the pricing decision inside K-V for Makena, but chances are that they are responsible for killing what had been an exponential rise in shares.  Getting market exclusivity from the FDA and after having bought the exclusive rights probably does merit at least a significant price hike.  Still, the term being thrown out in the media was a 100-fold price hike.  In today’s world where healthcare is under fire from all directions the company should have known better.

When we first highlighted the problems with an impending backlash, shares had been at $11.99.  Shares closed on Wednesday at $5.65 after having been at $7.11 on Tuesday and at $8.15 on Monday.  The high close last week was $9.95.  In pre-market trading shares are indicated up almost 1% at $5.70 on thin volume.

JON C. OGG

The monoclonal antibody may sound a bit like Provenge from Dendreon Corporation (NASDAQ: DNDN).  It uses the body’s immune system against tumors.  The average life in trials was extended to 10 months from about 6.4 months.  Provenge and its proposed circa-$90,000 regimen cost suddenly sounds cheap after its harsh criticism over drug costs.  Yervoy will cost close to $120,000 for a full regimen of four treatments in a three-month period.  

While the overall survival might not sound like a true life-saver just on the surface, about 20% of patients lived more than two years and some even longer. ipilimumab dates back to Medarex before it was acquired by Bristol-Myers. Bristol-Myers has another potential blockbuster drug on its hands and it actually has a dividend yield of close to 5% at this time. 

A portfolio manager sent something in this weekend that showed some additional interim data regarding Vical Inc. (NASDAQ: VICL). Additional data is due later this year and this portfolio manager has very high expectations for its A-7 study after the Provenge and Yervoy approvals were viewed as having knocked down the barriers to cancer approvals for oncology drugs ahead.

While we had to skim over much more than we would normally eliminate, the market is so far only treating this melanoma approval with a minimal impact.  Bristol-Myers shares are up 0.1% at $27.32.  Oddly enough, Dendreon is up 1.7% at $33.52 and Vical is up 1.6% at $2.54 so far this morning. 
 
JON C. OGG