The company beat earnings at $1.13 EPS and sales rose almost 4% to $16.25 billion; estimates were $1.09 EPS and $16.28 billion in sales from Thomson Reuters.  The company noted that operational sales were up 4.0% and its negative currency impact was only 0.1% as domestic sales fell by 3.4% and international sales rose by just over 10% in the quarter.

For the Fiscal Year 2012, J&J sees earnings of $5.05 to $5.15 EPS and that is a bit shy of the $5.21 consensus target based upon operational growth of down slightly to as high as 5.5% and based upon a negative currency impact of around 2.5%.

J&J’s guidance is weighing on the stock.  Shares are indicated down 0.75% at $64.50 against a 52-week trading range of $57.50 to $68.05 and versus a Thomson Reuters consensus price target of $73.00.

The report has remained better than many may have guessed considering all of the product problems before.  Unfortunately, there is little driving force here that stands out as great opportunity.

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

The news was not as good as it may sound. CMS research showed that:

As such in 2010, the health spending share of the overall economy was unchanged at 17.9 percent. In the past, this share has increased, rising over time from 5.2 percent in 1960.

But, based on the past, the trend is good news.

The primary causes of past increases in health care expenditures were sharp increases in drug costs, the cost of hospital stays and doctor compensation. The government already has shown that, by regulating rises in Medicare reimbursements, private insurance companies use the trend as an excuse to lower their reimbursements. Doctors receive less, and usually then charge less for services. Physicians have argued that this has caused them to struggle financially and that patient care has suffered. But the reduction in compensation may encourage a new wave of physicians who are trained to treat more people for less remuneration.

Hospital costs are driven to a some extent by the number of days people spend in these facilities. Patients with incomes hurt by the recession probably cut the time they stayed in hospitals. There is no sign that this trend has hurt results. That is an indication that regulated length of days in hospitals may work to bring down costs.

The government also has approached the cost of drugs as a major target for price reductions. This is married with private sector activity. Availability of generics have brought down costs. Large retailers like Walmart (NYSE: WMT) have dropped the price they charge for prescription drugs.

CMS did not indicate that its leaders were concerned that health care results were hurt by the low 3.9% growth in health care expenditures. If that is so, there is a strong argument that any effort to maintain this slowing pace is a reasonable goal.

Douglas A. McIntyre

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.

Boston Scientific Corporation (NYSE: BSX) is a bit of a surprise to see as a top pick considering that this company’s stock is not just under $10.00 now… It is barely a $5.00 stock.  The drug-eluting stent share and a recent approval are driving the decision.  The consensus analyst price target from Thomson Reuters is roughly $7.00, implying about 35% upside from here. FULL BOSTON SCIENTIFIC REPORT

Intuitive Surgical, Inc. (NASDAQ: ISRG) is not so interesting as a top pick because of any sort of controversy, but it is interesting as a top pick considering that it is up more than 50% in 2011.  At $440.73 and with a high of $449.06, this stock is trading right at the consensus analyst target price from Thomson Reuters of $440.10. FULL INTUITIVE REPORT

St. Jude Medical, Inc. (NYSE: STJ) may seem like a bottom-fishing pick as shares are down about 40% from the annual highs.  At $33.67, the Thomson Reuters consensus price target has an implied 32% of upside to the $44.38 price target.  Zacks called it better placed against other medical devices stocks in the cardiovascular sector, with positive earnings surprises and healthy revenue growth. FULL ST. JUDE REPORT

Others on the top picks list for 2012 by Zacks are Medtronic, Inc. (NYSE: MDT), Stryker Corporation (NYSE: SYK), Thermo Fisher Scientific, Inc. (NYSE: TMO), and ZOLL Medical Corporation (NASDAQ: ZOLL).

JON C. OGG

While we are expecting a dividend hike again, it seems unlikely that the boost will end up being a large dividend boost.  Pfizer’s current $0.80 per year annualized payout compares to earnings estimates of $2.28 EPS for 2011 and $2.31 EPS for 2012.  In short, Pfizer is not quite paying out 40% of its normalized income.

Drug rival Merck & Co. Inc. (NYSE: MRK) recently announced its first dividend hike in years.  It was actually the first hike since the Vioxx scandal.  That should only keep pressure on Pfizer to go ahead and raise its dividend.

There is a history of its dividend hike coming this time of year, but the payout hike won’t be realized as cash in the bank for investors for another 60 days or so.  The dividend being raised was last announced on December 13, 2010 and previously on December 14 of 2009.

Pfizer noted last year that the move to $0.20 from $0.18 per quarter was roughly an 11% hike.  Pfizer also has a game of catch-up to play as its dividend used to be much higher at $0.32 per quarter before the recession caused many companies to lower their very high yields and before its most recent large M&A deals.

Merck’s dividend hike was 11%.  We will make a prediction for the coming hike: ).22 or $0.23 per quarter.  That will translate to a 10% hike or a 15% hike to the dividend payouts.  The current yield of Pfizer is 3.91% based on a share price of $20.45.  Merck’s dividend was raised to $0.42 from $0.38 per quarter, and that translates to a dividend yield today of 4.72% based upon a current price of $35.55.  The old yield at Merck based upon today’s price would still be 4.27%.

The Merck hike alone will have put pressure on Pfizer to hike its dividend.  A 10% hike to $0.22 would generate a dividend yield of 4.30%.  That would have caught it up to the old Merck payout.  A hike to $0.23 per quarter would generate a current dividend yield of 4.5%. If you follow cause and effect theory, or action and reaction theory, Pfizer’s hike is a must.  The boost would still be under or close to 40% of expected income from operations per share to be paid out.

Are there some risks that Pfizer might not raise its dividend?  Yes, but they are just unlikely to matter.  After Merck made the first jump in its dividend in years, Pfizer almost has to follow suit.  Watson Pharmaceuticals, Inc. (NYSE: WPI) is the local outfit which wins from the recent patent expiration of its blockbuster statin Lipitor, and Teva Pharmaceutical Industries Limited (NASDAQ: TEVA) is set have a generic version of Lipitor after this coming May.  While Pfizer’s market share on the entire Lipitor market may only be 40% of the past, this patent expiration date had been known for years.

Perhaps the biggest risk to ongoing dividend hikes is not just the endless restructurings of Pfizer, but its major acquisition trail.  That effort has been almost endless.  Its acquisition efforts have also given the company a very wide moat of a drug pipeline ahead and it has insulated its share price from the patent cliff.

At $20.45, Pfizer’s market capitalization rate is $157 billion and its 52-week trading range is $16.59 to $21.45. Merck’s $35.55 price generates a market cap of $108.2 billion and the share price compares to a 52-week range of $29.47 to $37.65.

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

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

Large pharmaceutical companies like Johnson & Johnson (NYSE: JNJ), Pfizer Inc. (NYSE: PFE), AstraZeneca plc (NYSE: AZN), Bristol Meyers Squibb Co. (NYSE: BMY), and Merck & Co. Inc. (NYSE: MRK) are also spending less in developing new drugs and there have been calls within the industry to share more information, especially on drugs that have failed trials. High development costs join pricing pressure in Europe, a lack of urgency on this year’s flu season, lower rates of prescription writing, and more competition from generics to weigh on drug company revenue and profits.

We’ve looked at the price targets for J&J, Pfizer, AstraZeneca, Bristol Meyers, and Merck with an eye toward trying to detect value opportunities. All data from Yahoo! Finance, with current prices gathered about noon today.

Johnson & Johnson (NYSE: JNJ) has a median price target of $72.00 from 13 brokers. The current price is $63.03, for a potential upside of $8.97, or 14.2%. The company pays a dividend yield of 3.6% and its forward P/E is 12.02. J&J’s share price has fallen about -2% since our last look at these companies. The company’s list of missteps and mishaps in the past year or so is long enough to have mortally wounded just about any other company. The company has been found liable for some $750 million in health care fraud claims, it has paid a $70 million fee to settle a foreign bribery case, the factory that makes many of its popular over-the-counter brands has been shut down, and it is being sued for selling a faulty hip-replacement device. Despite all that, J&J continues to make a profit, and its median target price rose from its October level of $70.

Pfizer Inc. (NYSE: PFE) has a median price target of $23.00 from 17 brokers. The current share price is $19.02, for a potential upside of $3.98, or 21%. The company pays a dividend yield of 4.1% and its forward P/E is 8.24. Pfizer announced today that it would pay $60 million in the same foreign bribery investigation that cost J&J $70 million last Spring. The company recently got some good news when UnitedHealth Group Inc. (NYSE: UNH) announced that it would charge a lower co-payment for the Pfizer’s Lipitor than it would for generic equivalents. Pfizer lost patent protection on the drug this month, jeopardizing $10.7 billion in revenue from sales of Lipitor. Trying to buy market share by lowering the price of Lipitor might make up some of the loss, but it’s hard to see all the revenue being replaced this way.

AstraZeneca plc (NYSE: AZN) has a median price target of $52.25 from just 4 brokers. The current share price is $44.05, for a potential upside of $8.20, or 18.6%. The company pays a dividend yield of 3.8% and its forward P/E is 7.03. The company’s Crestor drug competes with Pfizer’s Lipitor, but has patent protection until 2016. Crestor also recently bested Lipitor in a trial at the Cleveland Clinic. While Crestor did better at lowering cholesterol levels, the two drugs performed equally on reducing atherosclerosis and clinical events like strokes and heart attacks. Whether that will be enough to justify the hefty cost premium for Crestor over Lipitor and its generics remains to be seen. Adding to the company’s challenges, an anti-depressant jointly developed by AstraZeneca and Targacept also recently failed a late-stage trial.

Bristol Meyers Squibb Co. (NYSE: BMY) has a median price target of $33.50 from 18 brokers. The current share price is $30.29, for a potential upside of $3.21, or 10.6%. The company pays a dividend yield of 4.3% and its forward P/E ratio is 15.08. A diabetes drug jointly developed by Bristol Meyers and AstraZeneca was denied US FDA approval due to increased cancer risk among those involved in the trial. If the FDA doesn’t reverse itself, the fallout from this decision would also likely hit Pfizer, J&J, and other companies working on a similar diabetes drug. The global market for diabetes treatment will nearly triple, to $114.3 billion in the next five years, so there is a lot at stake here.

Merck & Co. Inc. (NYSE: MRK) has a median price target of $40.25 from 16 brokers. The current share price is $34.11, for a potential upside of $6.14, or 18%. The company pays a dividend yield of 4.3% and its forward P/E is 8.91. Merck received 5 approvals for new drugs in 2011, has hopes for 8 further approvals in 2012 and 2013, and claims to have 19 more in late-stage testing. The company already has the best-selling diabetes drug and it continues to work on more diabetes combination drugs as well. The company is still hampered by claims against it for its Vioxx painkiller, which was found to cause heart attacks.

Big pharma faces some big issues, but chief among those is reining in the development costs for news drugs. The company that appears to have done the best job of that, to date, is Merck. Provided that Merck can steer its new drugs through the approvals process, then those efforts at cost control could pay off nicely for investors.

Paul Ausick

The first bit of news is that the $1.18 EPS report was a penny ahead of expectations, but other reports were calling the earnings a miss.  The larger news is of the company’s break-up whereby it will spin off its drug unit.  Zacks has outlined its take on the break-up as well with a current “Neutral” rating. 

There are at least two partnerships which hang in the balance, although this should not change the relationships in any meaningful way on the surface.  Abbott has a partnership with Biogen Idec Inc. (NASDAQ: BIIB) for daclizumab (in phase III) to treat relapsing-remitting multiple sclerosis.  The candidate of elotuzumab, under development with Bristol-Myers Squibb Co. (NYSE: BMY) is in Phase III studies for multiple myeloma. We would not consider any of these partnerships as being at-risk.
 
After the split, Abbott will become two separate public companies: one will be focused on diversified medical products and one will focus on R&D-based pharmaceuticals.

Diversified medical products: will have an estimated $22 billion in sales and it will retain the Abbott Labs-branded generic pharmaceutical, nutrition, diagnostics, and devices operations.

R&D-based pharma: NewCo is yet to be named and sales are estimated at roughly $18 billion.  This is Abbott’s current portfolio of proprietary pharma and biologics.  Products are CReaon, Kaletra, Humira, Lupron, Synagis, and Synthroid.

The tax-free spin-off will be distributed to existing Abbott Laboratories shareholders and is slated to be completed by the end of 2012 as it wants to continue to ensure its growth strategy.

Abbott saw its shares peak in the $58 to $60 range in 2007 to 2008 and things have not yet recovered the former peak.  Still, shares did hit a 52-week high of $55.61 on Wednesday morning and the stock is currently up 4.5% at $54.83 and shares have already traded double the normal volume in less than an hour of trading.

The current consensus analyst price target one-year out from Thomson Reuters is only $58.00.  This break-up aims to go above and beyond that.

JON C. OGG