Two Companies With Major Biotech Themes: Orphan Drugs (ALXN) and Targeted Cancer Therapy (RGDX)
IBB ($122) Weak Down 1% – 52 Week High of $124
One of our Top Performers in the biopharmaceutical sector Alexion (ALXN $89) took a hit this week and down over 3% today on volume of 2.7M shares, on an article in Mar 26 Barron’s by Neil Martin, “A Pricey One Trick Pony“. Alexion has been one of our best picks up over 500% pre-split since we first recommended it on March 9, 2009.The Barron’s article has concern about the Company’s dependence on one drug Solaris for treating an extremely rare disease called paroxysmal Nocturnal Hemoglobinuria, with Revenues of $1B for 2012, but growing at a slower pace of 36% compared to 40% in 2009-2010. Barron’s says,” There may be no more than 10,000 PNH patients worldwide , but the estimated cost for one patient can be more than $400,000.” EPS for 2011 was $1.38 and EPS 2012E is $1.74 with a PE for 2012 of 54. Alexion has been a major 98% holding of all mutual funds and institutional money managers in the 3 year bull market for biopharmaceutical stocks. Fidelity owns over 21M shares and T.Rowe Price 14M shares. The market cap of ALXN is currently $16.85B compared to $34B for Celgene (CELG $77.5)-est 2012 Revenues of ~$5B, and $8.6B for Vertex ($40.91)-est 2012 Revenues of ~$2.5B. The Barron’s focus on Alexion may cause investors to look at potential risks to the stock given the valuation and pricing model for Solaris.
Response Genetics (RGDX $1.80) took a hit from the $2.00 level, volume of 12k today, as the Company announced lackluster financial performance as expected.Total Revenue for Q4 2011 was $22.6M compared to $21.3M for the previous period in 2010. The pharma client revenue was $10.1M about the same as last year.The Net Loss was $3.9M (0.21 EPS) compared to $1.1M (0.06 EPS) in 2010.ResponseDX Revenues were $12.5M compared to $11.5M in the previous period an increase of 11%.The cash position was $1.7M at year end and the Company raised $7.8M in February 2012. The Company has 25 sales reps in place so look for growth in Response DX from new products and better sales productivity. Response is a turn-around story with a new CEO and we expect better focus on top line sales and new partnerships with major pharmaceutical clients. With the completion of the GlaxoSmithKline (GSK) clinical trial contract the Company needs to find new sources of collaborative revenue to supplement Response DX test revenue.On March 26 the Company announced the appointment of a V.P. of R&D Stephanie Astrow Ph.D. with extensive experience in oncology testing at Quest Diagnostics and Pathway Diagnostics.RGDX has a market cap of $36M and modeling 2012 Revenues of ~$25M+ and 2X sales there is good upside opportunity. The stock was added to the Rayno Life Science Portfolio at a price of $1.50.
Last month we suggested that biotech investors take a little off or look at overweighting with QQQ rather than IBB as tech has been stronger over the past month and the QQQ has the advantage of biotech weighting as well as AAPL. Over one month the QQQ is up 4.74% compared to the IBB up 1.92%.