OptionsHawk.com pointed out to us that there was a huge increase in refiners options trading in Sunoco Inc. (NYSE: SUN), Valero Energy Corp. (NYSE: VLO), Frontier Oil Corp. (NYSE: FTO) and in Tesoro Corporation (NYSE: TSO).

General Electric Co. (NYSE: GE) is starting to see some elevated options trading as well ahead of tomorrow’s earnings.

Google Inc. (NASDAQ: GOOG) is seeing increased options trading ahead of earnings, which was actually more active on a fully leveraged basis than the stock was.

International Business Machines Corp. (NYSE: IBM) is seeing increased options trading ahead of earnings.

Pfzer Inc. (NYSE: PFE) is seeing elevated stock trading on the Wyeth (NYSE: WYE) closing due to indexers like the S&P 500 and Russell adding shares, and we are seeing it in the call options as well.

As a reminder, OCT-2009 options expiration date is tomorrow, and all “out of the money” with an October expiration will expire with a value of ZERO.

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JON C. OGG
OCTOBER 15, 2009

There were some serious additions in Q2 in the financial sector to its portfolios.  The tech sector saw some mixed changes, while the drug and consumer changes looked lower.  There was a surprise cut in a key conglomerate and a huge add to one of the Battlestar Galactica coffee stocks.

Of the larger changes to its top holdings in financial stocks, FMR’s major large changes were all additional stakes being taken.  WELLS FARGO & CO (NYSE: WFC) was listed as $6.05 billion via 249.45 million shares, a gain of roughly 36 million shares. J.P. MORGAN CHASE & CO INC. (NYSE: JPM) was worth $5.44 billion from a stake of almost 159.6 million shares, a gain of over 7.1 million shares. BANK OF AMERICA CORP. (NYSE: BAC) was listed as $4.17 billion via a stake of 315.9 million shares, but that is effectively a doubling in size of shares from its Q1 reporting.  GOLDMAN SACHS GROUP INC. (NYSE: GS) was listed as a $3.44 billion stake via 23.35 million shares, a gain of roughly 7 million shares of stock. MORGAN STANLEY (NYSE: MS) was a stake worth some $2.5 billion via some 87.8 million shares, also more than double its previous shares listed.

APPLE INC. (NASDAQ: AAPL) is one of its top few holdings at $5.96 billion, and this was a gain of more than 10% to 4,59 million shares. MICROSOFT CORP. (NASDAQ: MSFT) was a huge gain by almost one-third of its stake to some 163 million shares of stock worth a reported $3.87 billion. ORACLE CORP. (NASDAQ: ORCL) was listed as being worth some $2.79 billion via 130.3 million shares, a gain of about 15.3 million shares.  IBM (IBM) was worth $1.00 billion via 9.62 million shares, but this is after a drop of roughly 4.3 million shares.

There was an increase in the leading networker and a decrease in its top up-coming rival.  CISCO SYSTEMS INC. (NASDAQ: CSCO) was worth $2.82 billion via some  151.45 million shares, a gain of over 20 million shares. JUNIPER NETWORKS INC. was a stake listed as worth $1.36 billion via almost 57.8 million shares, but this was a drop of over 11.6 million shares.

There was no serious conviction nor any serious directional change in energy via the majors, but again this was just a change in the largest positions.  EXXON MOBIL CORP. was worth $3.33 billion via 47.7 million shares, a drop of over 11 million shares.  CHEVRON CORP. (NYSE: CVX) was listed as being worth $2.41 billion via 36.3 million shares, a gain of more than 5.2 million shares. ROYAL DUTCH SHELL PLC (NYSE: RDS-B) was the big change.  That stake was worth $1.00 billion via 19.8 million shares, but that was after it boosted its stake by over 13.6 million shares.

Of the big changes in medical and drugs, it looks like there was a cut in directional change.  PFIZER INC. was a stake worth $2.96 billion via 197.4 million shares, which was more than 26 million shares above the rest.  PROCTER & GAMBLE CO. was a stake worth $2.76 billion via 54.1 million shares, a drop of almost 10 million shares. JOHNSON & JOHNSON (NYSE: JNJ) was worth $2.59 billion via 45.6 million shares, a drop of 7.9 million shares. MERCK & CO INC. was worth $1.21 billion via a stake of 43.48 million shares, but that looked to be down by more than 12 million shares.  WYETH (NYSE: WYE) was the unwanted step child in the group as the 24.89 million shares stake worth $1.12 billion, but the drop was significant as it was down from over 47 million shares a quarter before.  EXPRESS SCRIPTS INC. (NASDAQ: ESRX) was the big gain in the healthcare sector.  The $1.52 billion stake was from 22.1 million shares of stock, but this was a gain of more than 6.9 million shares.

We saw a directional change in the two largest telecom players.  FMR added to its
VERIZON COMMUNICATIONS INC. (NYSE: VZ) stake worth $2.22 billion via some 72.56 million shares, a gain of roughly 10.12 million shares.  AT&T INC. (NYSE: T) was a smaller stake of shares worth $1.65 billion via some 66.82 million shares, a decrease of more than 25.8 million shares.

There was a huge cut, and a rather surprising one, in one of the conglomerate stocks.  GENERAL ELECTRIC CO. (NYSE: GE) was listed a stake worth some $1.43 billion via more than 122.4 million shares, but that is a drop of roughly 50 million shares of common stock from one quarter to the next. UNITED TECHNOLOGIES CORP. (NYSE: UTX) was worth $1.24 billion via a 23.9 million share stake, a gain of more than 2.56 million shares.

There was a huge gain in a miscellaneous food and retailer stock.  FMR boosted its stake in STARBUCKS CORP. (NASDAQ: SBUX) by more than 100% to almost 75.3 million shares worth $1.04 billion as of the end of the quarter.

Be advised that this was from the filing and was of the Fidelity Management & Research Company, and does not include shares transferred or hedged or otherwise not available to be seen in that subsidiary.  There are other Fidelity subsidiaries that were not counted in this tally and it is never possible to know if these positions were temporary changes or if they were broad portfolio changes.

JON C. OGG
AUGUST 17, 2009

Bristol Myers Inc. (NYSE: BMY) plans to spend $2.4 billion to buy partner Medarex Inc. (Nasdaq: MEDX). It will get a great deal beyond the cancer monoclonal antibody that developed together.

The Medarex pipeline has substantial value.

The monoclonal antibody ipilimumab is by far the main reason that Bristol pulled the trigger. It is currently in Phase III trials for both metastatic melanoma and hormone-refractory prostate cancer.

Last month, the U.K.’s Independent reported that patients that took a single does of ipilimumab in a trial obliterated their prostate cancer. The paper called the research a “shock breakthrough.” Researchers took the unusual step of releasing case details ahead of the drug trial in which the patients took part, mostly because the recovery of those patients was so surprising. One metastatic patient apparently had a tumor the size of a golf ball. It shrank enough to be surgically removed and the patient made a full recovery.

There could be no bigger potential cancer market for a monoclonal antibody than prostate cancer. It is the largest potential cancer market with 192,280 cases diagnosed each year, according to the National Cancer Institute — more new cases than even breast cancer.

With ipilimumab, Bristol has picked up a candidate that has the potential to become a drug in not only advanced prostate cancer, but also non small-cell lung cancer and melanoma.

The other potential products in the Medarex pipeline that show promise include MDX-1106, a fully human IgG4 antibody in patients with refractory solid tumors including non-small cell lung cancer, colon cancer, melanoma, or prostate cancer. It’s in early stage trials, but so far has shown anti-tumor activity. In the future, it may be something that Bristol tests as a combination therapy along with ipilimumab.

One additional big candidate that Bristol would own if the deal gets shareholder approval would be MDX-1100, which recently went through a Phase II study in rheumatoid arthritis. The drug met its primary endpoint; full data is expected later this year.

While rheumatoid arthritis is a crowded market with market leader Humira from Abbott Laboratories Inc. (NYSE: ABT) Johnson & Johnson’s (NYSE: JNJ) Remicade and Amgen Inc. (NYSE: AMGN) and Wyeth’s (NYSE: WYE) Enbrel, there is promise with any new arthritis drug that shows safety and efficacy.  The CDC projects that the number of people age 65 or older who have arthritis or chronic joint symptoms will nearly double from 21.4 million in 2001 to 41.4 million in 2030, as more people are living longer.

Shareholders may balk at the high price Bristol plans to pay for Medarex. But there are likely to be few questions about the strength of the Medarex pipeline, or that Bristol Myers is the natural acquirer given the strength of their partnership.

Mike Tarsala

Safety and efficacy data are critical to drug candidates. But what really makes a potential drug attractive is strong top-line data, a new biotech-based treatment, and a massive potential market.

With help from Thomson Pharma and our own backlog of coverage, BioHealthInvestor.com, a 247wallst.com website, sought to find the most promising biopharmaceutical candidate from both biotech and pharmaceutical companies in each of the top 10 most prevalent medical conditions in the U.S.

To do so, we reviewed data and Thomson Pharma revenue projections for 745 prescription drugs. We started by identifying the top sellers in each of the top 10 conditions, then looked at promising candidates that threaten to one day supplant the market leaders.  All of these challenger treatments can lead easily to a blockbuster drug status, meaning annual sales of $1 billion or more.

Click here for the top 10 medical conditions, sales estimates for the top drugs, and the up-and-coming biotech-based candidates:

1. CHOLESTEROL FIGHTERS:

Exercise. Lose weight. Avoid trans fats. Sound familiar?  Millions in the U.S. already have tried those things to some degree their bad cholesterol still is not at reasonable levels. It’s why cholesterol-lowering agents are the No. 1 type of prescribed medication in the U.S., and are expected to generate $27.4 billion in sales this year, according to Thomson Pharma estimates.

Cholesterol-lowering agents are arguably the top U.S. lifestyle drug. An American Journal of Medicine article in June suggested that Americans have worse health habits than they did 18 years ago. Waistlines are expanding. Physical activity has decreased, and so has healthy eating. It’s why doctors are apt to prescribe cholesterol-lowering drugs such as statins to patients as young as their late-20s. The drugs have been shown to cut cholesterol, and thereby reducing the risk of heart disease.

In the future, even patients with normal cholesterol levels may be prescribed statins. An American Heart Association study in November showed that AstraZeneca’s (NYSE: AZN) statin Crestor dramatically cut deaths, heart attacks and strokes in patients that had fine cholesterol levels, but high levels of a heart disease-related protein.

There are about 34 million people in the U.S. that would benefit from taking statins to cut their heart attack and stroke risk, the AHA says. But that number could potentially increase by another 10 million if the new data were to be adopted into the association’s guideline.

The class-leading drug is Lipitor from Pfizer Inc. (NYSE: PFE), with about 41 percent of the market, and expected sales of about $11.2 billion this year. Other heavyweights include Crestor, with projected sales of $4.9 billion, and Merck’s cholesterol eating non-statin, Zetia, with projected sales of $2.1 billion.

The Potential Blockbusters:

The up-and-coming cholesterol-lowering candidate to watch is a potential biopharmaceutical from Aegerion Pharmaceuticals called Lomitapide. It is a small molecule drug that works to reduce blood levels of cholesterol and triglycerides by limiting the production of lipoproteins from the intestine and liver.

Privately held Aegerion Pharma released interim Phase III data for Lomitapide in June. Among patients studied, Lomitapide reduced bad cholesterol by 44 percent. Interestingly enough, Aegerion entered into collaboration with Pfizer Inc. (NYSE: PFE) and the University of Pennsylvania for a cross-license relationship covering a range of patents related to the use of microsomal triglyceride transfer protein inhibitors.
2. INSULIN AND DIABETES TREATMENTS:

The U.S. Centers for Disease Control says that $116 billion was spent on treating diabetes in the U.S. in 2007. And because it’s a disease where a quarter of the 23.6 million affected are unaware that they have it, sales of these treatments may soon climb under proposed health care reform plans.

For many who have it, diabetes requires insulin or other daily medications. Expected 2009 spending on those drugs is $23.3 billion, according to Thomson Pharma data, second only to cholesterol-fighting drugs.

The vast majority of Americans diagnosed with the disease have Type 2 diabetes, a condition where insulin levels rise because the body fails to properly use it. Over time, the disease can cause malfunctions of the eyes, kidneys, nerves and heart. It’s a main reason diabetes is the seventh-leading cause of death.

Daily medications are a fact of life for the majority of patients with Type 1 diabetes, which used to be called juvenile diabetes. And it is creating billions in profit for drug companies that treat patients with Type 2 diabetes, as well.

Leading diabetes drugs include several long-acting insulins. Once-weekly dosing is a huge opportunity, considering the daily needle-pricks required for many with both Type 1 and Type 2 diabetes. The best-seller is the Sanofi-Aventis (NYSE: SNY) drug Lantus, with expected revenue in 2009 of more than $4 billion. Yet the current drug to beat for long-lasting insulin may be from Novo-Nordisk (NYSE: NVO), following recent data that showed a potential link to cancer risk among Lantus patients.

The Potential Blockbusters:

The true up-and-comer, however, may be an inhalable biopharmaceutical insulin candidate from Mannkind Corp. (Nasdaq: MNKD) called Afresa. It’s true that inhalable insulin has been under development for a long time that has had issues from the start. But MannKind shares recently posted a new 52-week high on Afresa study data. In a late-stage study, the Valencia, Calif.-based company said Afresa’s performance was shown to be comparable to injectable insulin.

Expectations are rising that Mankind may soon secure a worldwide marketing and development partner for Alfresa, and that it likely will be an approved product by next spring.

One possible partner might be Pfizer Inc (NYSE: PFE), which started switching its Exubera inhaled-insulin patients to MannKind’s experimental product. The companies had been partners until Pfizer pulled Exubera from the market in 2007 after showing poor sales.

3. BLOOD PRESSURE

High blood pressure has become the norm for U.S. seniors; two-thirds of Americans age 60 or older have the condition. It’s one of the most prevalent health plagues in the country, affecting men and women equally.

Overall, 29 percent of adults age 18 or older have hypertension, including about 7 percent of those who do not know they have the condition, according to the CDC. And 68 percent of those with the condition are taking medications to bring their BPs down. It’s why spending on blood pressure meds is expected to top $21.4 billion this year, according to Thomson Pharma data.

High blood pressure boosts the risk of heart attack, heart failure, stroke, and kidney disease. On the other hand, a common factor for those over 80, worldwide is normal or low blood pressure.

The CDC’s facts and figures do not include an additional 28 percent of the U.S. adult population that has pre-hypertension, a diagnoses that raises the chances of a person developing high blood pressure.

The top-selling blood pressure drug is Novartis AG’s (NYSE: NVS) Diovan. It is expected to post 2009 sales of about $5.9 billion, according to Thomson Reuters data. But that number could fall dramatically when the pill’s patent expires in 2012. The other big high-blood pressure treatment is Merck & Co. (NYSE: MRK)’s drug Cozaar, with expected sales this year of about $4.4 billion. Its patent is set to expire in 2010.
The Potential Blockbusters:

Although some concerns have been raised about its side effects, especially at high doses, the up-and-coming candidate to watch for high blood pressure is a biopharmaceutical from Gilead Sciences Inc. (Nasdaq: GILD) called Darusentan.

In May, the company announced data from one of its two Phase III clinical trials of the candidate in patients with resistant hypertension. The drug showed significant improvements in both systolic and diastolic blood pressures vs. placebo. Provided the second Phase III study backs up the efficacy data and raises no new safety concerns, the drug could receive FDA approval as early as 2011.

4. IMMUNE SYSTEM BOOSTERS/SUPRESSANTS

One giant category of drugs that covers everything from vaccines to anti-rejection transplant drugs is called immunomodulators — drugs that either stimulate or suppress the body’s immune system.

A growing number of the immunomodulators in development are biopharmaceutical compounds, such as recombinant proteins and peptides, monoclonal antibodies, and vaccines that are being used to fight multiple types of conditions and diseases, including some types of cancer.

The biggest drugs in the category are designed at least partially as a treatment for arthritis, the leading cause of disability in the U.S, and one that affects more than half of seniors. The CDC projects that the number of people age 65 or older who have arthritis or chronic joint symptoms will nearly double from 21.4 million in 2001 to 41.4 million in 2030, as more people are living longer.

About $20.7 billion is expected to be spent on immune system modulators in 2009, a number that is expected to grow as the number of treatments that work with the body’s immune system increases.

One of the top immune system suppressants — and the top-selling immunomodulator overall — is the Abbott Laboratories Inc. (NYSE: ABT) drug Humira, which works to shut down the body’s inflammatory response for patients with arthritis and Crohn’s disease. It was created using a particular type of human immune cell, which was a clone of a single parent cell. Popular competing drugs are Johnson & Johnson’s (NYSE: JNJ) Remicade, with expected sales of about $4.3 billion this year, and Amgen Inc. (NYSE: AMGN) and Wyeth’s (NYSE: WYE) Enbrel, with expected sales of about $3.4 billion.

The Potential Blockbusters:

The company to watch in immunomodulation is Array Biopharma Inc. (Nasdaq: ARRY), which has five total MEK inhibitor candidates, and two that could eventually find markets in both cancer and rheumatoid arthritis — ARRY-162 and ARRY-300.

The furthest along of the two early candidates is ARRY-162, which is now in a Phase II trial in 200 patients with rheumatoid arthritis. So far, the candidate has been well tolerated and with no patients that discontinued the study due to an adverse event. The efficacy data in that trial is expected to be released in September, an event that’s a likely catalyst for the company’s stock.

Meanwhile, ARRY has a Phase I of ARRY-300 in rheumatoid arthritis under way, and in mid-July filed an investigational new drug application for ARRY-162, in anticipation of a Phase I cancer trial.

5. ASTHMA

One type of trauma that will get you in to see an emergency room doctor than most any other is an asthma attack. The reason is simple: breathing is the most critical necessity of life.

The CDC says that about 7.3 percent of adults and 9.1 percent of children have asthma, the most common respiratory disease other than sinusitis. In 2004, the most recent CDC data available, some 4.2 percent of people in the U.S. had at least one asthma attack. The disease leads to nearly 2 million emergency room visits a year, and tens of thousands of missed days of school and work.  It’s the reason that about $20.2 billion will be spent on asthma medications in the U.S. this year, according to Thomson Pharma.

The most commonly prescribed asthma drug is GlaxoSmithKline’s (NYSE: GSK) Advair, with projected sales of $7.4 billion. It works to boost lung function by opening restricted airways and tamping down inflammation. Another popular drug is Merck & Co’s (NYSE: MRK) Singular, which helps to block genetic signals that trigger airway constriction.

The Potential Blockbusters:

Perhaps the asthma drug to watch is fluticasone furoate, developed by GlaxoSmithKline, in partnership with Theravance Inc. (Nasdaq: THRX). The two companies are working on a potential follow-up to Advair.

Glaxo and Theravance announced results of three separate Phase IIb studies of the candidate across a range of eight doses in more than 1,800 patients. Fluticasone furoate was effective in all but the lowest dose tested. Only the highest dose showed a statistically significant boost in a side effect typical of its type of inhaled steroid. A Phase III trial could start early next year.

6. ANTIPSYCHOTICS

Mental illnesses might not be top of mind when it comes to a list of top medical conditions. Yet one in four adults in the U.S. has a diagnosable mental disorder in a given year. About 6 percent have a serious mental illness, according to the National Institute of Mental Health.

One of the top mental illnesses being treated with prescription drugs is bipolar disorder, a disease that can cause extreme mood swings, from infrequent manic highs to more common depressive lows. It is the leading mental health diagnosis that contributes to lost work productivity. The median age for the disease’s onset is 25 years, which is why many with bipolar disorder are on antipsychotic medications for most of their adult lives.

Nearly $16.7 billion will be spent in the U.S. this year on medications to treat mental illnesses including bipolar disorder, according to Thomson Pharma. The top drug in the category is the bipolar disorder drug Seroquel, made by AstraZeneca plc (NYSE: AZN), with expected sales of $5.4 billion, accounting for about a third of all antipsychotic drug sales. The No. 2 drug in the category is Eli Lilly & Co.’s (NYSE: LLY) Zyprexa, for treating bipolar disorder and schizophrenia. Expected sales this year are $4.6 billion.

There are other potential markets for drug manufacturers, and for some drugs already in the category. Mental illnesses that may require antipsychotics include major depressive disorder, anxiety disorder, panic disorder, and obsessive-compulsive disorder. Many affected by mental illness have multiple disorders and phobias.

The Potential Blockbusters:

There are a number of seemingly promising antipsychotic drug candidates, but one at the top of the list is paliperidone palmitate for treating schizophrenia. The drug is being developed by Johnson & Johnson (NYSE: JNJ), with NanoCrystal technology from Elan Corp. (NYSE: ELN).

The FDA in August 2008 asked for more data on the drug before allowing it on to the U.S. market. But it has not asked for additional trials. The drug was effective in studies, with only 10 to 15 percent of patients relapsing, vs. 40 percent in the placebo group.

The main advantage of paliperidone palmitate could be in its delivery. It’s an injection taken once monthly, which in theory could make it much easier for schizophrenics to stay on their medications.

7. HEARTBURN DRUGS

Heartburn, or acid reflux, is very common, very uncomfortable, and a condition that can lead to more serious medical conditions if left untreated. It’s why $13.1 billion will be spent this year on a particular class of prescription acid reflux medications, according to Thomson Pharma data.

Roughly 60 million adults report suffering from acid reflux at least once a month, according to the American College of Gastroenterology. And about 20 percent of those people develop a more serious condition associated with immune system weakness and a higher esophagus cancer risk.

The most common prescription treatment for acid reflux is a class of drugs called proton pump inhibitors. They work to block the production of stomach acid that causes heartburn. Unlike fast-acting medications like over-the-counter antacids, proton pump inhibitors take much longer to work, but they offer long-lasting relief.

The top prescription heartburn treatment by far is AztraZeneca plc’s (NYSE: AZN) “purple pill” Nexium, with 2009 expected revenue of about $5.6 billion, and more than 40 percent market share. The No. 2 is Takeda Pharmacetical’s Prevacid, with roughly 17 percent share, and projected revenue of about $2.2 billion.

The Potential Blockbusters:

There appear to be few significant near-term challengers on the horizon to the Nexium; the drug does not start coming off patent until 2015. But one company with a candidate that could be a contender is Orexo AB, with its OX17 proton pump inhibitor. It is being developed for the treatment of gastro esophageal reflux disease, the most serious form of acid reflux. It combines two substances in an effort to provide both long-lasting and fast-acting heartburn relief.

In a Phase II trial last year, OX17 quickly proved effective in working fast and continuing to work to reduce stomach acid.  Earlier this year, Orexo signed an exclusive development deal with a yet-to-be-named partner. The company expects to announce a licensing deal for its OX17 program this year, as well.

8. ANTI-CANCER ANTIBODIES:

Cancer kills about 1,500 people a day in the U.S., more all conditions other than heart disease. And according to the American Cancer Society, it accounts for nearly one of every four deaths.  That said, there are more than 3 times the number of cancer survivors in the U.S. today than in 1970, largely due to advances in anti-cancer antibodies that are prolonging lives. About $13 billion will be spent on the drug class this year, according to Thomson Pharma.  There are many targeted cancer treatments, so our focus is on cancer treatments which have been indicated to have a broader use.

Modern cancer treatments are antibodies that target tumor cells, and have far less of an impact on healthy cells. The scientific names of all drugs in the class end in the letters “mab”, for monoclonal antibodies. Most either bind to tumor cells and release toxins, or work at the cellular level to halt the growth of tumors.

The most popular drug in the class is owned by Roche’s (RHHBY) Genentech in Herceptin, which blocks chemical signals that can stimulate breast cancer growth. Expected sales are $4.4 billion in 2009. Breast cancer is the No. 1 cancer in women, with an expected 192,370 cases this year, according to the National Cancer Institute.

The second-best selling cancer drug is Genentech’s Avastin also now under Roche after it acquired Genentech, which is used to shut off the blood supply in cancer cells that have spread to other parts of the body. It’s approved in small-cell lung cancer, as well as colon and breast cancers. Expected sales this year are about $3.2 billion.

The Potential Blockbusters:

The monoclonal antibody candidate to watch is a candidate from Eli Lilly (NYSE: LLY) via its recently acquired ImClone Systems and its IMC-1121b, which is in an ongoing Phase III trials and might some day be a rival to Herceptin for breast cancer treatment. It’s designed to block a signaling pathway that’s key to new blood vessel formation in growing tumors. It aims to stunt tumor growth by starving off the blood supply. The candidate had favorable safety and efficacy data in an early trial. It may have potential to also treat melanoma, renal and liver cancers.

There are many potential interesting anti-cancer candidates and/or new drugs, including Genentech’s breast cancer candidate Omnitarg. But the reason IMC-1121b is of particular interest is that it targets patients that cannot receive Herceptin. It also represents a bold move for ImClone if it can move into an area of biopharma where Roche’s Genentech now dominates.

9. ANTI-CLOTTING DRUGS

Blood clots are a leading killer. The CDC says about 350,000 to 600,000 Americans have a clot or one that leads to a pulmonary embolism each year, and that at least 100,000 people die as a result.  The trouble with clots is that half the people who have them do not know it; they find out when they start having chest pains labored breathing, a rapid heart rate, and seek emergency medical attention.

Anti-clotting drugs are expected to be a $10.9 billion enterprise this year, according to Thomson Pharma estimates. One main reason is that it is often prescribed as a preventive measure to those most prone to a clot, such as people who have had recent surgery, or ones that have had an artery blockage in the past, and need to be especially careful to avoid clotting.

The top name in the anti-clot game is Bristol Myers’ (NYSE: BMY) Plavix, with expected revenue of $9.5 billion this year, making it the No. 2 prescription drug in the U.S., second only to Lipitor. Plavix has about 86 percent market share. There are few noteworthy challengers, but one Ono Pharmaceuticals in Japan, with a drug called Limaprost, marketed as Opalmon.

The Potential Blockbusters:

The contender here is Eli Lilly & Co. (NYSE: LLY) with its Effient, which was approved in July 2009. It was more effective than Plavix in preventing heart attacks.

The trouble is that it also is more likely to cause problems with dangerous and sometimes fatal bleeding. As a result, Effient carries a strong black box warning. The label recommends against its use in patients with a history of heart attack or stroke. And it’s not generally recommended for anyone over age 75.  Plavix may be the older drug, and it even may be less effective, according to the study data. But it carries no such warning.

10. MULTIPLE SCLEROSIS

Unlike most diseases in the top 10, multiple sclerosis is a killer only in its most severe forms. The chronic disease affects the brain, nerves and spinal cord can affect muscle coordination and speech, making basic activities like walking and talking extremely difficult.  In its most severe form, it can cause paralysis, blindness, tremors and extreme fatigue.

About 400,000 Americans have MS, and every week about 200 people are diagnosed, according to the National Multiple Sclerosis Society. About $9.5 billion will be spent this year on prescription medications to help patients deal with MS symptoms, according to Thomson Pharma data.

The two top names in MS drugs are neck-and-neck, each with 2009 estimated sales of about $2.5 billion about 26 percent market share. One is Avonex, an immunomodulator made by Biogen Idec Inc. (Nasdaq: BIIB). It seeks to slow progression of physical disability and reduces the number of relapses by helping to limit the body’s immune response and limit damage to nerve cells. The other is generic manufacturer Teva Pharmaceutical Inc.’s (Nasdaq: TEVA) Copaxone, also an immunomodulator.  Biogen’s TYSABRI, its other MS treatment on the market, has been hamstrung due to the number of PML incidents that prompted the company to even pull TYSABRI off the market for a period.

The Potential Blockbusters:

Biogen Idec is the multiple sclerosis leader, and the candidate to watch from them is called PEGylated interferon beta-1a. The company announced earlier this month that it is enrolling patients in a global Phase II study for it, testing the safety and efficacy of bi-weekly and once-monthly injections.

Early-stage clinical trials suggest that the new candidate has the potential to offer less frequent dosing without compromising efficacy, which would be an advance over many existing drugs, including others from Biogen.  The Phase III study will examine if, over time, treatment with PEGylated interferon beta-1a can slow disease progression and lead to a decrease in the number of T2 hyperintense brain lesions commonly seen in MS patients.

-Mike Tarsala

Reuters:   A GM (GM) bankruptcy is seen as nearly inevitable.

Reuters:   American Express (AXP) will cut 4,000 jobs.

Reuters:   Obama will unveil aggressive car fuel standards.

Reuters:   Madoff trustee sues Fairfield Group for $3.5 billion

Reuters:   Mail blue collar workers are losing ground in employment and compensation.

Reuters:   US home-builder sentiment rose to an eight month high.

Reuters:   AMD (AMD) sees a profit by the end of the year.

Reuters:   Sony Ericsson wants to raise $135 million.

Reuters:   Agricultural leaders see free trade as a buffer against recession.

Reuters:   Some big banks will apply to repay TARP funds.

WSJ:   Nine hundreds small and medium sized banks face $100 billion in losses from real estate.

WSJ:   Blackrock (BX) has been approved to buy toxic bank assets with access to public money.

WSJ:   Farms are starting to feel the credit pinch.

WSJ:   Google (GOOG) is starting to sift through data to tell who may quit the firm.

WSJ:   Small firms are waiting for the credit thaw.

WSJ:   Credit card firms are preparing for new government regulations.

WSJ:   A decline in the cost of drilling is helping energy firms with shrinking margins.

WSJ:   Canadian banks have an eye on US lenders.

WSJ:   Vodaphone’s (VOD) net dropped on write-downs.

WSJ:   An alternative to energy chips may be available.

WSJ:   New taxes loom to pay for an overhaul of healthcare.

WSJ:   HP’s (HPQ) printing business may turn in bad results.

WSJ:   Oil moves toward $60 and OPEC cuts are unlikely.

WSJ:   Hedge funds at cutting fees to get new money.

WSJ:   US states are joining suits over a potential  Wyeth (WYE) fraud.

WSJ:   The new Toyota (TM) Prius will fight for market share against the Honda (HMC) Insight.

WSJ:   Chrysler is extending buyout offers to employees.

WSJ:   HP and Dell (DELL) are struggling to show they can make profits in a tough environment.

WSJ:   Kirkorian’s share in MGM (MGM) is dropping.

NYT:   Cerdit card companies will turn to their best customers to make more money.

NYT:   Home Depot (HD) is preparing for continuing weakness among its customers.

NYT:   The amount that the government gets for warrants from TARP investment will determine who taxpayers will do

NYT:   Starbucks (SBUX) expects it message to spread through social networks.

FT:   Lehman is seeking a probe into assets sold to Barclays (BCS).

FT:   Vodafone will speed up cost cuts.

FT:   Companies face higher hedging costs for fuel.

FT:   China and Brazil may replace the dollar and use their own currencies for trade.

Bloomberg:   Berkshire Hathaway (BRK.A) is cutting back its stock repurchases to save cash.

Douglas A. McIntyre

Short selling is among the most controversial investment practices and has been blamed for sharp sell-offs in the stocks of a number of large companies, especially financial firms. Governments in both the US and other developed countries are considering banning or seriously restricting the practice of short selling. When financial stocks were dropping rapidly late last year, taking short positions in some banks and brokerage stocks was actually forbidden.

There are a limited number of stocks which consistently have short interests above 50 million shares. They are the shares in companies that short sellers move in and out of the most often.

The reasons that theses stocks are so heavily shorted is a combination of their trading volume, their numbers of shares outstanding, and their susceptibility to big price swings caused by news and rumors.

The ten favorite stocks for short sellers are a combination of financial, tech, conglomerate, auto, and big pharma companies–a sign that when Wall St. bets against companies it has no favorite sectors.

The top ten stocks for short sellers:

1. General Electric (GE) used to be a fairly stable company with a fairly stable stock price. Problems with earnings, missed forecasts, and speculation about the health of its financial services division have made GE’s stock volatile and sensitive to rumors. As of April 15, the short interest in GE dropped 6% compared to the measurement two weeks before to a total of 197 million shares. Over that period, GE traded an average of 136 million shares a day, so the short interest is tiny compared with the hvolume. For short sellers, that is a big plus. High trading volume lets them get in and out of GE shares with ease. And, GE’s stock is volatile for a mega-cap company. Since the beginning of the year, the share of the conglomerate have been as high as $17 and as low as $5.87. For a firm with a market value of $128 billion, trading in that big a range is extraordinary.

2. Citigroup (C) is the most shorted stock in America. As of April 15, the bank had a short interest of 1.237 billion shares. Its trading volume average of the prior two weeks was 532 million shares a day. Citi has an extraordinary 24% of its float sold short, a sign that a huge number of investors are willing to gamble against the share price. Citi’s stock is subject to wild swings, in part because the short sellers in the company’s shares have been “squeezed” more than once this year–forced to cover when the banks had good news. That covering magnified the rebound in Citi’s share price. Citi is a “rumor a day” stock. Recently, the market has speculated about the fate of the bank’s CEO, Vikram Pandit, whether the firm will have to raise money because of government stress tests, and whether the bank can maintain the earnings it posted for the first quarter. So far this year, the stock has traded in a range of $7.46 to $.97, a short seller’s dream.

3. AIG (AIG) is another stock which has traded in the pennies since the beginning of 2009, even though it was the premier insurance company in the world just four years ago. Shares short in AIG fell 3% during the most recent period to 278 million, against an average daily volume of 125 million shares. Eleven percent of the financial firm’s float is now sold short. AIG’s stock can more up or down 15% on any given day based on information about whether the government will have to add to its $13o billion commitment to the firm and news about its desperate attempts to auction off its divisions to get money back to taxpayers. The stock is remarkably volatile. It has been as low as $.33 and as high as $1.74 since the beginning of the year.

4. Ford (F) had 113 million share sold short as of April, an extraordinary drop of 53% since two weeks before that. The stock was up 47% to $4.04 over that period which wiped out a number of short positions. Since then, the shares have moved even higher on earnings and analyst upgrades and change hands at more than $5. Ford trades  a tremendous 121 million shares a day. Any news about the potential bankruptcy of GM (GM) or Chrysler moves Ford’s stock due to concerns, among others, that a liquidation of either of those firms could bring down parts suppliers that serve the entire industry. The monthly release of domestic unit sales also pushes the stock up and down.

5. Pfizer (PFE) may be the best proxy for the fortunes of large US pharmaceutical companies. It has a market cap of more than $88 billion and annual revenue of almost $50 billion, making it the largest drug company in the world. It is in the midst of buying rival Wyeth for $68 billion and is cutting staff and costs rapidly as some of its most profitable drugs lose their patent protections, a problem across the entire industry. Pfizer has a short interest of almost 174 million shares. and average daily trading volume of 54 million shares. Pfizer traded at over $17 at the beginning of the year, fell to $11.62 at the beginning of March and has recovered to $13.17 since then.

6. Gannett (GCI) is the largest newspaper company in the US which makes it the subject of constant speculation and financial media interest. Its short interest as of April 15 was 63.8 million shares, down 7% from two weeks earlier. The company has a very high 28% of its float sold short, which is equivalent to six trading days of volume based on the current daily average. As concerns about the fate of the newspaper industry mounted, Gannett’s shares plunged from over $9 in mid-January to $1.85 in mid-March. Two weeks ago, Ariel Investments announced that it had increased its investment in Gannett from 4.8% of the company to 12.5%. That puzzled Wall St because of the bleak future the industry faces. The news about Ariel caused the stock to rally from $2.69 to $4.06 in four days, which probably pushed a number of short sellers out. Weak earnings knocked the stock back down to $3.09 giving those gambling against the firm some renewed hope.

7. Sirius XM (SIRI) has been a favorite of short sellers for years. Once considered among the most promising growth stocks in America, its debt problems nearly forced it into Chapter 11. Liberty Media put $530 million into the satellite radio company just days before it would probably have gone bankrupt and got 40% of Sirius and along with debt for the capital. The company’s stock began the trading year at $.12 and fell to $.05 in early February on concerns that it might fold. Since then, the shares are up over 8x to $.43. There were almost 167 million shares sold short in Sirius as of April 15, down 8% from two weeks earlier, but it would take six days of trading at average volume to cover that short interest so there is still a lot of money wagering that the stock will drop.

8. Level 3 (LVLT), the broadband infrastructure company, has also been at the top of short selling lists for years. It has a float of close to one billion shares which makes taking a short position in the stock fairly easy. Average trading volume per day is 10 million shares. As of April 15, there were 122.9 million shares sold short, down 13% in two weeks. Level 3 has two factors that short sellers love. It has awful financial prospects and a volatile share price. At the end of the last quarter, Level 3 had $6.3 billion in debt and almost no operating income. The company is constantly trying to restructure its balance sheet, is facing a number of shareholder class action suits, and its shares swing up and down rapidly. In early January, Level 3 traded at $1.49. It dropped to $.57 in mid-March and has nearly doubled since then.

9. Microsoft (MSFT), the most shorted large tech company traded on any U.S. exchange, is a nearly ideal way to bet against software. It has dominant global market share in PC, server, and enterprise products used by large companies and governments. Microsoft is no longer considered a growth stock by Wall St., but it remains one of the most impressive corporate cash flow machines in the world. Microsoft’s ongoing battle with Google (GOOG) over search and desktop software keeps it in the headlines regularly, and its quest to get control of Yahoo!’s (YHOO) search engine operation has gone on for a year. Microsoft had a short interest of 88.4 million shares as of April 15 down 10%. The company has almost 9 billion shares outstanding and trades 68.7 billion shares a day. Microsoft (MSFT) traded at almost $21 in early January but fell to $14.87 in early March, a remarkable drop for a company with a market cap of $185 billion.

10. Intel (INTC) is the stock to short for the hardware industry just the way Microsoft is for investors betting against software. The shares in largest maker of chips in the world rises and falls on sales information about PCs and servers. Its expansion into less expensive and less powerful chips for netbooks and other portable devices may drive significant revenue growth once the economy begins to recover. Shares sold short in Intel as of April 15 were over 80 million, down 15%. Intel’s positive remarks about sales in the PC market in its most recent earnings release  may have driven some short sellers out of their positions. Intel shares are up 30% from a one-year bottom in late February. Intel trades heavily with an average volume of 72.7 million shares a day.

Douglas A. McIntyre

Allergan has now just crossed over the 10 million share mark and shares are up 11.7% at $48.23.  In today’s world of the market whip-around and the world of M&A, we won’t be shocked if Allergan denies the rumors saying they would rather be an acquirer.  Nor would we be shocked if the company halts or just says “No Comment!” in response to this.

Jon C. Ogg
March 24, 2009

A few very large deals have been done recently. Most were first proposed several months ago. They were likely to work because they were what investment bankers call “strategic.” Usually that means that the two companies involved are in the same business. They see “synergies” which involve things like taking the R&D geniuses from the acquiring company and putting them in the same room with their counterparts from the firm being acquired. Working together may set off the creative sparks that drive new discoveries. Or, they may not. The real but hidden definition of the word “synergy” is firing lots of people. The recently closed marriage between Dow Chemical (DOW) and Rohm and Haas (ROH) was about firing people. Pfizer (PFE) bought drug company Wyeth (WYE) for the same reason. Being in the pharmaceuticals business is not what it used to be. Blockbuster drugs face competition. Keeping hundreds of research scientists around is expensive.

Roche recently bought Genentech (DNA), a company in which it was already the largest shareholder. That deal was not just about firing. Biotech operations like Genentech are the next generation of pharma companies. Roche wants in on that action. It had the tremendous advantage of only having to buy part of the shares in Genentech. Aside from getting customers and new products, Roche got control of the whole company and merely had to acquire 44% of the shares.

M&A may be coming back. Not the kind of M&A that is about firing but the kind where the excuse for the buyout is more positive than layoffs. And, the impetus for the move up in M&A activity is probably that the stock market has been going higher recently.

IBM (IBM) is in talks to buy server company Sun (JAVA). Sun has had a difficult time making it all alone. It sits in fourth or fifth place in terms of market share. Giants like Hewlett-Packard (HPQ) top that list. Sun has no chance of ever making it to one of the top three spots. The company has already fired thousands of people, so it is lean, maybe too lean to grow. IBM has been watching Hewlett-Packard become a more formidable competitor. And, Cisco (CSCO) recently said it would get into the high-end server business. The number of huge companies that want a piece of IBM’s business seems to be growing.  IBM gets new technology by buying Sun, but, more importantly, it gets Sun’s market share.

Sun’s stock is way down. Before the rumor about an IBM deal hit the news, Sun traded at $5, less than a third of its 52-week high. What was lost in the commotion about the buyout was that Sun’s shares had moved from $3.84 to $5 in just six trading days. Most of that increase was due to the rally in the overall market. And, if the market keeps going up, the price of potential acquisitions is going to get more expensive, even if the underlying businesses of the targets has not changed.

Companies that want to get bigger or round out their portfolios of businesses have probably been on the phone with their investment bankers in the last two weeks. It may be the first time that some bankers have gotten a client call in a year. There is a rush to look at targets now, because if the market moves up another 10% or 15%, a lot of companies that were cheap will get expensive.

Time Warner (TWX) may not be planning to buy CBS (CBS), although it would make some sense. If a deal like that was on Time Warner’s mind, CBS has gotten 29% more expensive in the last five days. If Exxon Mobil (XOM) wants to buy Chevron (CVX), the price is up 9% in five days.

Cheap is getting expensive. The environment for M&A may not be as safe as it was two years ago, but the targets have begun to cost more.

Douglas A. McIntyre

• Big Lots (BIG) Raised to Buy at Soleil.
• Corning (GLW) Raised to Buy at Collins Stewart.
• Digital River (DRIV) Raised to Buy at Deutsche Bank.
• Duke Energy (DUK) Raised to Outperform at Credit Suisse.
• Kohl’s (KSS) Raised to Buy at BofA Merrill.
• Methanex (MEOH) Raised to Outperform at CIBC.
• Pfizer (PFE) Raised to Buy at UBS.
• Suntech Power (STP) Raised to Market Weight at Thomas Weisel.
• Travelers (TRV) Started as Outperform at Oppenheimer.
• Wyeth (WYE)  Raised to Buy at UBS.

JON C. OGG

Reuters reports that the US is launching a $75 billion plan to help troubled holders of US mortgages.

Reuters reports that the Fed says the near-term outlook for the economy has darkened.

Reuters writes that sever Merrill executives were told they must appear before the NY attorney general.

Reuters writes that Google (GOOG) will let its cash “pile up.”

Reuters reports that Venezuela seized a unit of Cargill.

Reuters reports that YouTube and Universal are near a deal on music video.

Reuters reports that WellPoint will put its benefits unit up for sale.

The Wall Street Journal reports that The Supreme Court ruled Wyeth (WYE) could be sued in state court over an allegedly defective product.

The Wall Street Journal reports that the bailout could help one out of nine homeowners.

The Wall Street Journal reports that GE (GE) hit an 18 year low.

The Wall Street Journal reports that Taiwan will consolidate its chip firms.

The Wall Street Journal reports that Germany has created at $126 billion fund to help corporations.

The Wall Street Journal reports that the Administration is rethinking tax hikes.

The Wall Street Journal reports that Obama will target the defense industry for wasteful government spending.

The Wall Street Journal reports that the US is weighing its car emissions policy.

The Wall Street Journal reports that Lenovo will push PCs in rural China.

The Wall Street Journal reports that pension funds and endowments are facing even greater losses.

The Wall Street Journal says Nvidia (NVDA) is thinking about going after some Intel (INTC) businesses.

The Wall Street Journal reports that CNNMoney will bulk up video.

The Wall Street Journal writes that the UK is moving into a protectionist mode.

The Wall Street Journal writes that February retail sales likely declined.

The Wall Street Journal reports that “Old debt is still fouling consumer and bank balance sheets, and the TALF won’t do much to erase it.”

The Wall Street Journal reports that The Hartford may sell its life insurance unit to Sun Life.

The Wall Street Journal reports that small business is fighting layoffs.

The New York Times reports that China outlined a new stimulus package

The FT reports that Barclays (BCS) is being questioned about certain Lehman funds.

The FT reports that China has targeted 8% GDP growth this year.

The FT reports that investors are worried GE (GE) will lose its “Triple-A” rating.

The FT reports that Singapore says it invested in US banks too early.

Bloomberg reports that the Bank of England may cut rates to close to zero.

Bloomberg reports that the head of the European Central Bank is worried that its actions cannot save a faltering economy.

Bloomberg writes that JPMorgan (JPM), Wells Fargo (WFC), and Bank of America (BAC) may face Moody’s ratings cuts.

Bloomberg reports that Microsoft (MSFT) may have trouble selling new versions of Window into the netbook market.

Douglas A. McIntyre