BioWatch: Biotechs With 50% Implied Upside (GENZ, CEPH, ALNY, DNDN, GERN, HALO, VVUS)

Biotech is about to become even less of a diversified sector due to mergers and acquisitions. Genzyme Corporation (NASDAQ: GENZ) and Cephalon Inc. (NASDAQ: CEPH) will end up accounting for about $30 billion in combined market caps being removed from the sector.  What we wanted to do was to look at the biotech companies which are still favored by analysts with the most implied upside.  We kept the focus to the larger players rather than those simply with the most upside because some are thinly covered and have very small market capitalization rates.

Our screen was looking for roughly 50% upside or more to the consensus analyst price target at Thomson Reuters.  We also screened out extreme small cap names and those which are too thin in volume.  We came up Alnylam Pharmaceuticals, Inc. (NASDAQ: ALNY), Dendreon Corporation (NASDAQ: DNDN), Geron Corporation (NASDAQ: GERN), Halozyme Therapeutics, Inc. (NASDAQ: HALO) and VIVUS Inc. (NASDAQ: VVUS).  There were actually enough in the $200 million to $1 billion range that we’ll probably have another list tomorrow.  Thomson Reuters has a consensus price target of $17.94 but a median price target of $15.00.  The analyst field is also very mixed here and the coverage looks a bit stale by our count.  The lower target still implies upside of more than 55%.

Alnylam Pharmaceuticals, Inc. (NASDAQ: ALNY) is fresh off news that it won a $10 milestone payment from Takeda in Japan on part of its gene silencing drug collaboration.  Alnylam transferred its RNA technology and it stands to win up to $1 billion ($140 million or so collected so far) if all milestones and targets get reached.  With shares at $9.65, its 52-week trading range is $8.79 to $17.59 and its market cap is almost $410 million.

Dendreon Corporation (NASDAQ: DNDN) was surprising to see on the list of implied upside targets despite its Provenge which has been approved for prostate cancer.  Shares are already up big from before its approval, but they are also considerably from highs.  The revenue stage has not yet gone into full tilt as production is being ramped up through 2011 and into 2012. At $36.17 its 52-week trading range is $25.78 to $57.67 and its market cap is about $5.2 billion.  Thomson Reuters has a consensus price target of $54.50, implying upside of just over 50%.  Bristol-Myers’ recent approval has helped this class of drugs which use the body’s immune system to fight cancer back in favor. Shares were around $33.00 on Friday versus $36.17 today.

Geron Corporation (NASDAQ: GERN) is the king of stem cells in America as far as the investor community is concerned.  Analysts have an average price target of $10.13 but the median target is actually $8.00.  At $4.98, this still represents about 60% implied upside to the lower target and more than 100% to an average target.  The 52-week range is $4.37 to $6.40 and its market cap is roughly $641 million.  Again, the analyst crowd is very far apart here on expectations.  Another risk to consider is that the company conducts secondary offerings on and off as it needs to raise cash to fund its expensive R&D pipeline.  This stock tends to pop around stem cell study news and presentation results being given at key conferences.

Halozyme Therapeutics, Inc. (NASDAQ: HALO) is about six-weeks past news that it and partner Roche announced the first patient received subcutaneous MabThera (rituximab) as an anticancer biologic in a Phase 3 registration trial using Enhanze technology.  This was the second Roche cancer medicine after Herceptin to enter a Phase 3 registration study as part of the Halozyme-Roche collaboration. The clinical trial also triggered a milestone payment of $5 million to Halozyme. At $6.76 its 52-week trading range is $5.79 to $9.11 and its market cap is $685 million.  Thomson Reuters has a consensus price target of $10.80, implying upside of about 60%.  We would note that the consensus price targets are rather far apart here and no major analyst calls have been seen in some time.

VIVUS Inc. (NASDAQ: VVUS) has one of the more promising obesity drug candidates.  At $6.36 its 52-week trading range is $4.69 to $13.68 and its market cap is about $520 million. Thomson Reuters has a consensus price target of $9.36, implying upside of more than 47%. Just be advised that this ‘more promising’ notes has severe caveats.  The FDA doesn’t seem to endorse anything related to obesity treatments due to side effects and safety profiles.  The reason there is so much implied upside is because there are those who are fighting over whether or not VIVUS will win full FDA approval.

Stay tuned for another screen of other biotech-related shares in BioHealth for Thursday as there are many others with large implied upside ahead.  As always, do your own due diligence when it comes to “Wall Street Research” and always understand what you are investing in.  Speculative biotech stocks aren’t exactly for widows and orphans.

JON C. OGG