Contrarian Stock Market Investing News - Featuring Bargain Stocks » biotech

The $100 Million Lottery Ticket

Dr. George Huang — Fri, 30 May 2008 14:17:26 +0000

In 2007, the Maryland lottery had a record year. It pulled in more than $1.5 billion of revenue… $50 million went toward running lottery operations, $110 million to retailers, $500 million to the state, and winners collected the remaining $900 million.

That $900 million prize pool might sound like a lot. But as a whole, ticket buyers are basically trading in dollar bills to get $0.60 back. That doesn’t sound like a good trade to me. And when you throw in the odds of any particular individual winning – from 1 in 9 on the best scratch-offs to 1 in 175 million on the Mega Millions – the prospect looks even worse.

To consistently make money, the key is to risk capital only when the odds and payouts properly compensate you for the risk you take. The risk of losing your money on the lottery is so great, even huge jackpots don’t adequately compensate you.

Don’t think just because you don’t play the lottery you aren’t taking on those odds… Right now, buying into one industry is like putting your retirement on the Mega Millions…

As my colleague Rob Fannon has mentioned, the world’s largest drugmakers are about to lose billions in sales as their big-name drugs go off patent. So now, instead of streamlining their own research operations and rebuilding their pipelines, Big Pharma is buying up “lottery tickets,” hoping for a quick fix.

Let me show you what I mean…

Last week, Lundbeck, a large Danish drug company specializing in brain diseases, bought a $100 million lottery ticket from U.S. biotech Myriad Genetics. The name on that ticket is Flurizan, Myriad’s Alzheimer’s drug.

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Lundbeck agreed to pay Myriad $100 million upfront, $250 million in milestone payments, and 20%-30% royalties for the European rights to sell Flurizan. That’s nearly twice what any other pharmaceutical company has paid for worldwide rights on a similar drug.

Flurizan isn’t even approved for commercial sale. In fact, so far the drug has practically failed its clinical trials…

In a Phase II trial of approximately 200 Alzheimer’s patients, Flurizan was marginally better than the sugar pills used as a control. But Myriad sliced and diced the data and found in mild Alzheimer’s patients, Flurizan outperformed the placebo. Scientifically speaking, this interpretation is hogwash.

But it was enough to prompt Myriad to go straight into two large Phase III trials. The data from one of those trials is due.

Essentially, Lundbeck gave Myriad $100 million on the off chance the Phase III trials turn out to be positive next month.

Lundbeck’s shareholders should be outraged. My calculations show the Flurizan trial has less than a 30% chance of success… 50% if you want to be very generous. On top of that, for the bet to pay off for Lundbeck (after subtracting expenses and more payments to Myriad), Flurizan needs to generate more than $1 billion in sales. That’s unlikely considering the marginal benefits Flurizan has showed so far.

Judging from those odds, Lundbeck is likely out its $100 million.

Lundbeck isn’t alone. As Rob explained, just about every Big Pharma company is willing to throw millions around, buying rights to drugs with slim chances for success and hoping to hit the billion-dollar jackpot. But if you’ve ever bought a lottery ticket, you know how this story ends…

Some of these biotech “lottery tickets” will turn out to be winners, but most of them will turn out to be foolish bets by desperate players. If you’re investing in Pfizer, GlaxoSmithKline, Merck, AstraZeneca, or their peers, you should know they’re playing the lottery with your money, taking on way too much risk for the potential reward.

But there is an upside… Maryland lottery retailers, remember, made $110 million taking on absolutely no risk. Even when Flurizan fails, Myriad Genetics has a healthy diagnostics business it can fall back on… plus Lundbeck’s $100 million in the bank.

So my advice is to buy the lottery ticket retailers – biotech companies with drugs in late-stage trials. They make money no matter the odds on the tickets… And judging by the Myriad deal, ticket prices just went up.

Good investing,

George Huang

P.S. Myriad shareholders have made about 40% from the stock’s lows this year, so it’s too late for us to profit on Lundbeck’s spendthrift ways.

But I just told readers of my S&A FDA Report about one tiny company holding two $50 million “lottery tickets.” I expect a buyer the next 12 months. Click here to read more.

Source: The $100 Million Lottery Ticket

The 10 Hottest Global Profit Opportunities to Follow for the Next 18 Months

Contrarian Profits — Fri, 09 May 2008 13:40:38 +0000

For the first time in modern history, the US economy finds itself back with the masses, flying coach instead of first class. These shocking facts say it all:

From 2005 to 2010 alone, worldwide wealth will soar from $118 trillion to more than $200 trillion — with the newly capitalist markets of Asia and Europe accounting for the biggest share.
Over the next 25 years, America’s share of the worldwide economic pie will slip from 28% to 24%…
While during that same stretch Asia’s share of the global market will almost double — meaning it will account for a whopping 55% of the global economy by 2030.

Money Morning managing editor William Patalon III has put together are 10 that hottest profit opportunities in the global capital markets at different times over the next 12 months or more.

1) Cash in on the Cash Barons: Sovereign wealth funds from China and the Middle East are pouring billions into stocks too many investors would rather ignore.

2) Energize With Energy: Energy will be a recurrent theme in the months to come – and not just in terms of oil and gasoline. Crude oil will remain in the forefront of the profit plays to come. But that’s not all: Alternative energy opportunities such as uranium and so-called “green energy” investments will benefit from soaring prices for conventional energy sources. When it comes to these profit plays, it will pay to keep all your bases covered.

3) Buy into Buyouts: Mergers and acquisitions, management buyouts and private-equity deals helped fuel the record run in the U.S. stocks in the first half of 2007. The subprime-mortgage mess and ensuing credit crisis will make it tougher to do deals in the next 12 months, but the choicest buyouts still will get done.

4) Build With Biotech: This isn’t your father’s biotech sector. No longer are we talking only about the “Big Pharma” drug-development firms. Some of the biggest players are now trying to solve the world’s food and fuel shortages – with some notable successes. With special, more-environmentally friendly herbicides and higher-yielding, genetically engineered crop seeds, these companies have already engineered big increases in sales and profits – and there’s a lot more to come.

5) Home in on Housing: Housing’s down, but it’ll never be out. The turnaround is still some time off, but this sector isn’t going to go away. It’ll take careful and patient investing to profit here, but keep the sector on your radar screen – if for no other reason than to use it as a barometer for the rest of the currently moribund U.S. economy.

6) Invest in Income: Studies show time and again that income is key to any portfolio’s success. And those same studies show that if you call the dividend play during a bearish market, your portfolio will easily beat “the spread” – in this case, the market averages as measured by the Standard & Poor’s 500 Index and Dow Jones Industrial Average. And if you can’t decide between stocks or bonds for income, don’t flip – our report covers both sides of the coin.

7) Hit the “BRICs:” BRIC is a Goldman Sachs Group Inc. (GS) acronym for “Brazil, Russia, India and China.” Three of the four – Brazil, India and China – are not to be ignored in the months to come. After the wild ride Chinese stocks have provided in recent months, too many U.S. investors are ready to give up on the Red Dragon. Don’t make that mistake. We’ve seen some life in China’s stock market in recent days, and there will be plenty of ways to profit from that emerging economic colossus, some of which involve only moderate risk. [To find out how you can obtain a free copy of investing guru Jim Roger’s new bestseller, “A Bull in China,” which details investing strategies for that burgeoning market, please click here].

Go for Gold: The yellow metal has enjoyed a record run. And it’s subsequently dropped back. But don’t let that disappoint you: With global demand for commodities of all kinds soaring, there’s plenty of yardage left on this play. Besides, if inflation escalates as many experts expect, gold will provide a terrific portfolio hedge.

9) Couple up With Commodities: The gangbusters global growth that’s causing gold and crude oil prices to “go long” is having the same effect on such commodities as wheat, corn and soybeans. Even Jim Rogers says the global demand for commodities is only going to escalate, meaning this is a play you can call now with a high degree of confidence and score again and again.

10) Don’t Give up on the Greenback: The U.S. dollar has been sinking against virtually every other major currency, a trend that could well continue for some time to come. That doesn’t mean you should ignore the greenback. Run a reverse and look for ways to profit on its pain. Not only will you score now, you’ll be focused in and ready to profit when playing field changes and the U.S. greenback reverses course on its own run for the end zone.

The 10 Hottest Global Investment Trends to Follow for the Next 18 Months

William Patalon III — Wed, 07 May 2008 18:41:07 +0000

There’s an old Wall Street adage that tells us that “the trend is your friend.” And there’s a witty bit of wisdom we’ve developed here at Money Morning to help guide our readers and us that says: “Go global or go home.”

Combine those two and you’ll discover that you’ve got yourself one very strong investing strategy – if you choose the right trends, that is.

Surprisingly, that’s nowhere near as difficult as most investors think. All you have to do is to look around you, and study the forces that are at work in the markets each day. If you do that on a consistent basis, you’ll soon discover that no matter what kind of “trick play” the financial markets throw at you, you’ll be able to side-step the tackle attempt, will avoid being thrown for a loss – and will actually end up scoring some hefty profits for your portfolio.

To show you what I mean, let’s take a quick look at the markets right now…

The New World Disorder

For decades, America’s Wall Street was the financial center of the world, if not the universe. That New York-centric viewpoint was so pervasive that one of the most-recognizable investment aphorisms to emerge was the ubiquitous: “When Wall Street sneezes, the rest of the world catches a cold.”

But as we’ve all seen during the wild markets we’ve had to navigate of late, that’s not true any longer – and may never be again.

For the first time in modern history, the U.S. economy finds itself back with the masses, flying coach instead of first class. We’ve all heard the statistics.

For instance:

From 2005 to 2010 alone, worldwide wealth will soar from $118 trillion to more than $200 trillion – with the newly capitalist markets of Asia and Europe accounting for the biggest share.
Over the next 25 years, America’s share of the worldwide economic pie will slip from 28% to 24%…
While during that same stretch Asia’s share of the global market will almost double – meaning it will account for a whopping 55% of the global economy by 2030.

But those are just statistics. A confluence of powerful forces is responsible for those changes. So let’s take a look at some of the global trends that are the actual catalysts behind those numbers.

Key among them:

The emergence of such new economic heavyweights such as China and India, which are now competing for the capital, the jobs and the business contracts that U.S. companies for decades had almost all to themselves.
The perfection of new telecommunications technologies that are making national boundaries largely irrelevant from a business standpoint, while also enabling global corporations to shift labor and capital wherever it’s needed around the world.
The emergence of new capital sources; in particular, the so-called “sovereign wealth funds” – the massive state-run pools of investment capital that are now operating like venture capital funds with a worldwide reach.
A global credit crisis – which grew out of a U.S. housing-market bubble – that continues to wreak havoc on the U.S. economy and the U.S. dollar.
An unprecedented escalation in global energy and commodity prices that, combined with the weak U.S. greenback, is allowing inflationary forces to take hold in the American market for the first time in nearly three decades.Taken at face value, such trends are terribly unsettling for U.S. consumers and investors alike. And the unease in this country is growing at an alarming rate. Believe me, we here at Money Morning know that as well as anyone. As our team of global investing experts beats the bushes in search of new trends and new investing opportunities to bring your way, we hear these concerns voiced over and over again.We certainly understand folks being worried. After all, with change comes uncertainty. And uncertainty can breed worry, if not fear.For those of you who are understandably fearful, I’ll ask you to consider one other longtime Wall Street adage: With change comes opportunity.

Global Profit Opportunities Abound

With all the global changes we see, we also see plenty of opportunity – especially for U.S. investors. While I understand if many investors can only see a burly group of blockers standing between them and the profits they’d dearly love to lock in, we here at Money Morning see a playing field that’s wide open all the way to the end zone.
All you have to do is call the right plays – by picking the right trends. Here are 10 that are worth watching – and capitalizing on – as they play out in the global capital markets at different times over the next 12 months or more.

Cash in on the Cash Barons: Sovereign wealth funds from China and the Middle East are pouring billions into stocks too many investors would rather ignore.

Energize With Energy: Energy will be a recurrent theme in the months to come – and not just in terms of oil and gasoline. Crude oil will remain in the forefront of the profit plays to come. But that’s not all: Alternative energy opportunities such as uranium and so-called “green energy” investments will benefit from soaring prices for conventional energy sources. When it comes to these profit plays, it will pay to keep all your bases covered.

Buy into Buyouts: Mergers and acquisitions, management buyouts and private-equity deals helped fuel the record run in the U.S. stocks in the first half of 2007. The subprime-mortgage mess and ensuing credit crisis will make it tougher to do deals in the next 12 months, but the choicest buyouts still will get done.

Build With Biotech: This isn’t your father’s biotech sector. No longer are we talking only about the “Big Pharma” drug-development firms. Some of the biggest players are now trying to solve the world’s food and fuel shortages – with some notable successes. With special, more-environmentally friendly herbicides and higher-yielding, genetically engineered crop seeds, these companies have already engineered big increases in sales and profits – and there’s a lot more to come.

How to Sell What Big Pharma Will Pay Any Price to Buy

Dr. George Huang — Fri, 18 Apr 2008 14:05:57 +0000

The Japanese have gone on a shopping spree. In the last six months, two of Japan’s biggest drugmakers in have scooped up two midsized U.S. biotech firms at nothing short of whopping valuations. This international binge bodes well for us biotech investors.
Last week, the biggest Japanese pharmaceutical company – Takeda Pharmaceuticals – shook the biotech world, paying close to $9 billion to acquire Millennium Pharmaceuticals. The multibillion-dollar price tag represented a 53% premium to Millennium’s previous closing price. Even more startling, Takeda’s outlay translates to 15 times Millennium’s projected sales this year. (Most good midsized biotech companies sell for seven to nine times sales.)

The Takeda-Millennium deal comes on the heels of another Japanese biotech buyout at the end of last year. Japan’s fourth-largest drug company – Eisai – picked up U.S.-based MGI Pharma for 10 times sales. Apparently, MGI had multiple suitors. It’s safe to assume that Eisai was willing to cough up enough cash to win out.

Both the Millennium and MGI Pharma buyouts highlight the point my colleague Rob Fannon and I have been making repeatedly: Biotech investors are right where they want to be because large drug companies are desperate to acquire biotech assets.

These companies face no other choice with expiring patents, empty pipelines, and tons of cash. The massive premiums on these two Japanese deals prove that certain companies are willing to pay any price to get their hands on biotech drugs.

Heck, there’s even consolidation within the biopharma space. New Jersey-based Celgene, a leading cancer biotech company, acquired fellow biotech Pharmion last November for $3 billion, a 46% premium.So what does it mean for investors? The pool of midsized to large biotech companies with real revenues is rapidly shrinking. With so many mid-cap biotech companies being bought out, even the Wall Street Journal speculates this particular biotech segment may be a lucrative oasis during volatile times.

Here’s how you can get in ahead of the windfall: Search for biotechs with existing or near-term product revenue, a rich pipeline, and an experienced management team. I prefer companies with revenue of at least $200 million or companies with potential blockbusters (sales of $1 billion or more) in Phase III testing. The pipeline should hold at least two drugs in early stage clinical trials. Lastly, management should have experience developing and selling drugs, with emphasis on their track record in dealings with the FDA.

Right now, many biotech companies with market caps between $1 billion and $5 billion fit the description. Start your search there.

Good investing,

George Huang

P.S. I’ve developed a proprietary trading strategy to identify the best biotech acquisition targets with limited to no downside risk. We’ll get to participate in this latest wave of merger mania no matter where the money is coming from.

But the real beauty of this trading strategy is that we won’t have to wait for a large buyout to take place. My approach offers several different exit scenarios, which should net us about 75% a year. Click here to read more.

Last Chance to Get in on This No-Brainer Biotech Trade

Dr. George Huang — Fri, 11 Apr 2008 18:23:51 +0000

Back in December, I told you the bleak story of Neurocrine Biosciences (NBIX). A week earlier, the company had received a crushing blow from the FDA, dished out in a notorious “approvable letter.” Approvable letters are the FDA’s way of turning a “yes/no” decision on a new drug into a “maybe.” In other words, the drug is “approvable,” so long as the drug’s maker meets certain conditions.

In the case of Neurocrine’s insomnia drug, Indiplon, the FDA wanted additional animal studies, plus two more clinical trials, which would have cost the company as much as $50 million. To be honest, the new requests were preposterous. But this isn’t the first time the FDA has moved back the goalposts on a drugmaker…

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Back in May 2006, Neurocrine received its first approvable letter for Indiplon, prompting its Big Pharma partner, Pfizer, to cut ties. The stock dropped from $50 per share down to $20. News of the second approvable letter this past December once again sent shareholders running…

In December, I said the FDA would never approve Indiplon. Still, Neurocrine was not worthless. The company had about $4.50 in cash per share, more than 92% of its market cap.

In addition, Neurocrine had a pipeline full of innovative compounds. Its drug for endometriosis (a disease of the uterus) was in Phase IIb clinical trials. And GlaxoSmithKline was collaborating on drugs for anxiety and irritable bowel syndrome, both in Phase IIa testing.

But before I was willing to jump into the stock, two things needed to happen:

1. Neurocrine management had to show some resolve, take Indiplon behind the woodshed, and kill it.

2. The stock needed to get a bit cheaper to provide investors a larger margin of safety.

Both things happened in a hurry…

Long-time CEO Gary Lyons resigned in January – less than a month after sending pink slips to half of the company’s employees. Chief Operating Officer Kevin Gorman took the post and immediately won me over on his first conference call:

“There are no expenditures in our budget for Indiplon going forward…” Indiplon is no longer a threat to the company’s coffers.

The stock popped up in the news, then traded back down to around $4.50 per share – our fair-value estimate – making Neurocrine a true bargain.

One San Francisco-based biotech hedge fund I admire – the Biotech Value Fund – jumped in. The firm scooped up more than 2 million Neurocrine shares during February and March at an average cost of $5 per share.

If you bought in February, when Neurocrine qualified as a “no-brainer” trade, you’re already up about 15%. And I firmly believe that Neurocrine will trade above $8 per share within the next 12 months, a return of roughly 50% on the year.

The Neurocrine story exactly fits the bill for trades I will be featuring in my newsletter, the S&A FDA Report.

Based on our eight-year study, buying the best stocks after they’ve been hit with an FDA setback returns an average of 75% in a year. I’m confident Neurocrine will follow suit.

Good trading,

George Huang, PhD

P.S. If you’d like to learn more about how to find these profitable situations, months before the market reacts, click here.