Pharmaceutical researchers are now working on 861 medicines for cancer. Many are are in development involving innovative research on using existing medicines in new ways with many clinical trials proceeding .
The medicines in development—all in either clinical trials or under FDA review including: 122 for lung cancer, the leading cause of cancer death in the United States; 106 for breast cancer, which is expected to strike more than 180,000 American women each year; 103 for prostate cancer, which is expected to kill more than 28,000 American men each year; and 70 for colorectal cancer, the third most common cancer in both men and women in this country. Additional medicines target brain cancer, kidney cancer, leukemia, ovarian cancer, pancreatic cancer, skin cancer, and others. (Source PhRMA).
Bottom-Line: Despite progress, cancer remains the second leading cause of death by disease in the United States, exceeded only by heart disease. In 2008, some 565,650 Americans were expected to die of cancer—more than 1,500 people a day. Obama has made healthcare a top concern on his agenda as part of this year’s economic stimulus package with the federal government increasing funding to the National Institutes of Health by $10 B.
Covidien, plc, a Dublin, Ireland medical device and pharmaceutical maker but with its U.S. headquarters in Mansfield, Mass. announced an agreement to acquire Aspect Medical Systems (ASPM) of Norwood, Mass. Covidien will pay $12.00 in cash per Aspect share for a total of approximately $210 M, net of cash and short-term investments acquired. The transaction, which will take the form of an all cash tender offer followed by a second-step merger is subject to customary closing conditions, including receipt of certain regulatory approvals and is expected to be completed by the end of calendar 2009 (Business Wire).
Founded in 1987, Aspect has been recognized as a pioneer and global market leader in brain monitoring, with 2008 revenues of $99 M. Aspect’s Biospectral Index™ (BIS™) technology — became the first clinically proven and commercially available direct measure of the effects of anesthetics and sedatives on the brain. Aspect developed proprietary technologies that directly measure these effects and ultimately improve the quality and cost effectiveness of patient care. BIS technology was designed to reliably gauge the precise amount of anesthetic medication required by each patient.
ASPM had closed at $7.67 on Friday, 9/25/09 and has risen 55+% since the announcement. Covidien will provide the scale and resources to accelerate growth of BIS and other Aspect products. A former competitor and comparable, Physiometrix, also a Mass. company had been acquired by Hospira in 8/05 for approximately $23 M in cash plus the repayment of the company’s bank debt of approximately $1 M.
Aquisitions seem to be lifting investor confidence and enthusiasm as the market heads into earnings season.
All agree that small-cap healthcare companies – if they are to survive – need access to capital. Referencing previous financing and structures posts: these events could be a sign of a broader market recovery as I-Banks ramp-up their capacity and capability in restructuring, advisory and underwriting. Large and small investment banks such as: Wells Fargo, Bank of America Merrill Lynch, Centerview Partners, Jefferies & Company, Morgan Joseph, Thomas Weisel Partners and Leerink Swann have hired bankers amid expectations of financing activity.
Pharma’s biotech acquisitions over the past few months have also renewed interest in the sector as patent protection and new drug introductions are declining. Bankers think that M&A will boom … but, I might “slightly” disagree as more partnering, joint-ventures, licensing deals and option agreements will be initiated as – “why buy the cow when you can ‘license’ the milk” thinking pervades Pharma … which minimizes risk.
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I keep reiterating, research coverage is still the starting point of an investment decision. It’s extremely time consuming for the buy-side, individual investors and retail brokers to research small-cap stocks that trade under $1-2.00; there are just too many risk factors associated with “penny-stocks”!
There is a recovery – but, CEOs need to better focus their VISIBILITY. As the market rebounds uncovered companies are subject to depreciated attraction for financing when compared with their analyst covered peers. Are analysts publishing insightful recommendations or just … fulfilling a follow-up … if that or … is it just about fees and commissions?
Attracting investors is the momentum driver for any share price appreciation. Investors need to be stimulated, reassured and enlisted. Independent research identifies and validates share pricing insight or forward reference points. In this market, reviews should include detailed survival or sustainability benchmarks, a stated valuation model including its peer group comparison. Catalysts and milestones in relation to peers are most important as investors need to understand forward-looking recommendations.
Bottom Line: Individual investors and retail brokers are doing more … and more of their own research. Ultimately, the acid test of research performance is an appreciating share price that – opens – doors to “All” investors. There is a lot of money on the sidelines and there is no quick fix for an investment; but, consistent, quarterly coverage builds confidence, legitimizes sustainability and positions valuations for market upticks and needed financing.
Another financing vehicle is being utilized by small-cap healthcare companies: the Standby Equity Distribution Agreement (SEDA). This relatively new “mechanism” is another … alternative to the traditional PIPE, Registered Direct Offering (RDO) or secondary offering to assist small publicly-traded companies raise additional capital by selling new stock without making a formal market offering.
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In today’s capital markets; this old but new (usage) capital-raising rage has many small-cap healthcare companies filling their coffers after finding that public equity (PIPE) offerings are limiting due to their “current” stock price circumstance.
- Registered Direct securities offerings (RDOs) raise capital from investors groups. The issue has been avoiding the depreciating pricing that usually accompanies a PIPE offering provideing investors with registered stock that is immediately tradable and liquid. PIPEs tend to have sales and timing restrictions. This RDO process uses a single-purpose registration statement if a company does not have a shelf registration or if the company already has a shelf registration statement on file with the SEC. Since RDOs are targeted to institutional investors; they are less likely to be subject to SEC review,
- An RDO involves a better timing or distribution process as a company’s stock is usually “shorted” by hedge investors upon filing of PIPE registration statements. The SEC has also relaxed eligibility requirements for issuers to NOT sell more than 33% (one-third) of its public float over any period of 12 calendar months. Since there is no illiquidity risk being borne by investors; RDOs usually price at a lower discount-to-market than PIPEs,
- RDOs are most usually common stock, issuance although issuers may sell other types of securities, including convertible notes or warrants or combinations with each other,
- The RDO is a “hybrid” transaction that fits the “current” market conditions by cash starved companies providing a timely, confidential and efficient financing alternative. However, an RDO is “STILL” a “public offering” under the securities laws, which makes it possible to allocate shares to retail investors with immediate liquidity that trade on a “when issued” basis,
- A short sample of companies utilizing RDOs: GNBT,VRUS, CVM, CYTK, INO, NBY, OGXI, CYCC, BPAC, RNN, OXGN, GTF, GNVC, EMIS, CTI, BPAX, PTN , HYTM, TSX:CJB and more.
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The stock market and overall economy are still depreciated; but, this sector is holding up better as there are signs that drug companies and biotechs seem to be recession resistant. Regulatory constraints are still the event driver (with about 23 major decisions due in the next few months) of this sector as many biotechs are still struggling to stay alive. One important factor is increasing merger activity; another reason to like healthcare smaller cap stocks as larger drug firms “should” be looking to acquire biotechs to augment their pipelines and diminishing patent protection.
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I get calls and e-mails re where to begin, whether one should invest, what should be bought and I state investing in this sector has a high degree of risk. Understand the sector by reading and garnering/surfing the web re the industry could lead you to individual companies. The biotech sector can be volatile day-to-day but can be expected to show the best returns over the next few years.
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In my 7/16/09 blog, I wrote described company “x” in “How does one anticipate the pitfalls of sustainability” as I was left scratching my head about yet another biotechnology Chapter 11 bankruptcy or should I have been? I hate to dwell upon negativity but, I had thought they might emerge a smaller but less encumbered company. Dash that thought!
- However, a bankruptcy court judge has now approved a deal for Cary, N.C.-based Cornerstone Therapeutics Inc to acquire the commercial rights to the antibiotic Factive from bankrupt Oscient Pharmaceuticals Corp. Cornerstone (Nasdaq: CRTX) will purchase the Factive assets for $5 M cash plus additional compensation for purchased inventory and royalties (Boston Business Journal). Oscient filed for Chapter 11 bankruptcy in July, after battling a series of financial and scientific woes as well as withdrawing their application with European regulators to market Factive as a therapy for certain strains of pneumonia and bronchitis. In May, they had also received word that its patents protecting its high-cholesterol medication, Antara, would be challenged by a generic drug maker.
What bothers me the most is that Oscient’s bankruptcy filing indicated thousands of unsecured creditors to which it owes tens of millions of dollars. Where was the oversight?
