Seeking Alpha: Progress At Synergy Pharmaceuticals, But Not Enough To Really Please Investors

Synergy Pharmaceuticals (NASDAQ:SGYP) continues to be an unusual little biotech with almost as many weaknesses or concerns as strengths. On one hand, you have a company with what could be a best-in-class drug that addresses a market that may include millions of people in the U.S. alone. On the other hand, the drug will be second-to-market and may have difficulty differentiating itself, to say nothing of the difficulties of developing the market as a whole and securing good reimbursement.

Synergy shares have risen almost 20% since my last article on the company, but not without spending most of the intervening time down about 20%. Management has possibly secured enough cash to get its lead drug to market, but the company still needs a partner (or a buyer) and that financing didn't come cheap. The prospective dilution of the financing takes my fair value down, but the shares still look undervalued with two catalysts on the way that could improve the risk-adjusted fair value by almost 30%.

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Progress At Synergy Pharmaceuticals, But Not Enough To Really Please Investors

Seeking Alpha: Ironwood Has Plenty Of Market-Development Work Ahead

Biotech investors love to speculate on the basis of what a drug could generate in future sales, but relatively few of them have the patience to stick it out and support a company as it transitions from an R&D enterprise to a commercial enterprise. In cases like Ironwood (NASDAQ:IRWD) where the company has a lot of market development work to do, patience can be even thinner.

To be fair to Ironwood, the shares have done quite well over the past year (up more than 50%), but over the trailing five years the shares are up just 5% (during a red-hot biotech market). For Ironwood to work well as a stock from here, management has to deliver on its efforts to drive patient and physician awareness and that's no easy task when a large proportion of the market can arguably be suitably managed with diet modifications or cheap OTC and generic options. While the potential is here for Ironwood shares to be worth considerably more in a few years' time, I think the potential rewards and risks are pretty well balanced right now.

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Ironwood Has Plenty Of Market-Development Work Ahead

The Motley Fool: Why Valeant's Offer Is Unlikely to Move the Needle

In the real world, if you ask a person out and they not only tell you "no" but then proceed to offer a multipage summary of all of your failings (at least in their eyes) and why they would be better off alone than with you, it's usually safe to say that it is time to move on. While corporate finance is part of the real world (allowing for liberal definitions of "real"), it certainly doesn't take the same view on rejection – while Allergan (NYSE: AGN  ) has, in so many words, told Valeant (NYSE: VRX  ) to drop dead and take its unsolicited offer with it, Valeant remains undeterred and has come back with yet another offer.

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Why Valeant's Offer Is Unlikely to Move the Needle

The Motley Fool: Can Valeant Continue This Growth?

Canada's Valeant Pharmaceuticals (NYSE: VRX  ) is a good example of what can be done when a company chooses to go its own way and zig while others zag. In an industry that had becoming increasingly skittish about mergers and acquisitions as a growth driver, Valeant has done about 60 deals in the last six years. In an industry that is increasingly spinning off divisions and focusing on "core operations, Valeant management is willing to go wherever opportunity takes them – prescription drugs, devices, OTC, and branded generics.

The potential merits of Valeant's approach certainly have not gone unnoticed, as the shares have nearly doubled over the past year. Valeant's uncommonly aggressive use of leverage does add some risk to the story, but the company has used its balance sheet to build very sizable franchises in dermatology, eye care, and aesthetics, and the opportunity to launch a "merger of equals" and leverage better operating and tax efficiency could propel the shares further.

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Can Valeant Continue This Growth?

Investopedia: Valeant Works Its Mojo With Medicis

It seems pretty obvious that once a company figures out a winning formula, it ought to stick with it. Acquisitions have definitely done a lot to build and boost specialty pharmaceutical company Valeant (NYSE:VRX). Now the company is going to the well again to acquire Medicis (NYSE:MRX). While there's always a risk that Valeant will eventually bite off more than it can chew, this deal looks like a winner from the get-go.

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http://www.investopedia.com/stock-analysis/2012/Valeant-Works-Its-Mojo-With-Medicis-VRX-MRX-AGN-JNJ0907.aspx

Seeking Alpha: Shedding A Little Light On Under-Followed DUSA Pharmaceuticals

There are certain dusty corners of biopharma where most investors just don't look all that often, and eye care and skin care are high on the list. While the addressable markets are well short of what investors expect from areas like oncology or autoimmune disease, the relative lack of competition can make these profitable niches. As under-followed ISTA Pharmaceuticals (ISTA) recently rode a limited roster of products to a worthwhile takeout price, investors may want to consider DUSA Pharmaceuticals (DUSA) for similar potential.

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Shedding A Little Light On Under-Followed DUSA Pahrmaceuticals

Seeking Alpha: ISTA Pharmaceuticals Gets The Bid It Wants

I have to give credit where credit is due - ISTA Pharmaceuticals (ISTA) management stuck to its guns, remained patient, and ultimately got a much better deal for shareholders. With a solid deal in hand from Bausch & Lomb, ISTA management has given shareholders a pretty happy ending.

A Little Bit Of History Repeated
ISTA Pharmaceuticals has given shareholders a rollercoaster ride over the past couple of years. Shares rocketed up from mid-2010 to early 2011, only to erode again on fears of generic competition for Bromday. When Remura failed its clinical trials for treating dry eye (around August of 2011), the stock lost about half of its value and stayed in the dumps for most of the year as institutional investors fled a story with few near-term catalysts.

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ISTA Pharmaceuticals Gets The Bid It Wants

Seeking Alpha: Okay, ISTA Management, It's Time To Step Up

Successfully repelling an unsolicited bid is, and should be, a mixed blessing for any company. In the case of ISTA Pharmaceuticals (ISTA) and Valeant (VRX), it's pretty clear that Valeant was attempting to exploit investor fatigue and pessimism with a low-ball bid. Now that Valeant has retreated, it falls on management to show that they can deliver on that value that they claim Valeant (and, by implication, the broader stock market prior to the bid) failed to recognize.

Valeant Steps Away
Valeant had always said that its $7.50/sh bid for ISTA had a lit fuse attached (an expiration date of January 31), and management decided to pull it a day early. Management at Valeant claimed that this was due to a "lack of progress." But the reality is that ISTA was doing exactly what it said it would do - shopping around for a better offer.

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Okay, ISTA Management, It's Time To Step Up

Investopedia: The Salix Story Keeps Improving

Investors have a solid dozen investment options in Big Pharma and hundreds of biotechs to choose from, but the specialty pharmaceutical space has always been a little thin. That gives Salix Pharmaceuticals (Nasdaq:SLXP) a little bit of scarcity value - it has excellent growth credentials but also some of the security that comes with patents and the requirement for rivals to go through the FDA approval process.

One Drug to Lead the Way  
One of the problems with specialty pharmaceutical companies like Salix, Forest Labs (NYSE:FRX), and Endo Pharmaceuticals (Nasdaq:ENDP) is that they're often highly dependent on a very small number of drugs. For Salix, it's Xifaxam - a non-systemic antibiotic that works especially well in the GI system. Xifaxam is approved for traveler's diarrhea and hepatic encephalopathy (where it has orphan drug status) and currently contributes about two-thirds of the company's sales.

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http://stocks.investopedia.com/stock-analysis/2012/The-Salix-Story-Keeps-Improving-SLXP-FRX-ENDP-NKTR0118.aspx

Investopedia: 2011 In Review - Pharmaceuticals

When considering the performance of the pharmaceuticals sector, an investor is almost always challenged with the question of definitions. Simply put, what exactly is a pharmaceutical company and where are the lines between "biotech," "specialty pharmaceutical," "generic," and regular ol' pharmaceutical companies? (For related reading, see Evaluating Pharmaceutical Companies.)

Leaving aside the issue of nomenclature, and acknowledging that there is some subjectivity involved in who is included or left out, this was actually a fairly strong year for the sector. True, fewer people are seeing the doctor, high unemployment means fewer people on insurance rolls, and overall health care spending has not been very strong. Nevertheless, the market has warmed to these stocks, as the iShares Dow Jones U.S. Pharmaceuticals ETF (ARCA:IHE) has handily beaten the market this year and risen by a solid mid-teens percentage.

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http://stocks.investopedia.com/stock-analysis/2011/2011-In-Review---Pharmaceuticals-FRX-NVS-VRX-BMY1229.aspx

Investopedia: Medicis May Not Stay Independent

There are a lot of interesting talking points to take from Medicis Pharmaceutical's (NYSE:MRX) latest earnings report. The company certainly does deserve praise for how it has managed potential generic threats to Solodyn, as well as arguably maximizing what it could from its LipoSonix business. Looking ahead, there is certainly the possibility that Medicis can become a more formidable competitor to Allergan (NYSE:AGN), but shareholders may want to consider the likelihood that Medicis will be folded into a larger pharmaceutical company in the not-so-distant future.

So-So Results for the Third Quarter  
Although there was no glaring problem area for Medicis, this quarter, it was still not all that strong. Revenue rose about 4%, and came in basically at the bottom end of the range. Growth in the core acne business was light (below 1%), while non-acne revenue rose 12% on strong unit sales of Restylane and Dysport.

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http://stocks.investopedia.com/stock-analysis/2011/Medicis-May-Not-Stay-Independent-MRX-VRX-AGN-JNJ-WCRX-TEVA-SLTM-IPXL-MYL1110.aspx

Investopedia: Covidien's Image Starting To Change

For most of its time as an independent company, Covidien (NYSE:COV) has struggled to change a Wall Street perception that it was a slow-growth collection of unimpressive assets, sullied in part by a parent company that for years preferred to drain cash from the business rather than reinvest. Opinions and perceptions are slow to change, but with some dynamic acquisitions, new products, and strong performance relative to peers, it may be time to change the tune on Covidien. 


A Very Good Third Quarter
Disappointingly sluggish core surgery results from Johnson & Johnson (NYSE:JNJ), Stryker (NYSE:SYK) and Bard (NYSE:BCR) made it seem likely that Covidien would have a fairly unimpressive third quarter. Covidien, though, actually delivered solid results.

To be fair, this is a relative evaluation. Reported revenue growth of 14% looked nice, but constant currency growth was a more modest 9% and organic growth was an even more modest 4%. Nevertheless, with 4% constant currency growth in devices, Covidien looked like a share gainer this quarter. The company's pharmaceutical business (down 4% constant currency) and medical supply (up 2%) were less impressive. 



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http://stocks.investopedia.com/stock-analysis/2011/Covidiens-Image-Starting-To-Change-COV-JNJ-SYK-BCR-CSII-BDX-VRX0803.aspx

Investopedia: Teva And Cephalon Solve Each Other's Problems

Whenever companies announce a deal, managements try to paint it as a great move for each shareholder group. Experience says that is rarely the case, but Teva Pharmaceuticals' (Nasdaq:TEVA) acquisition of Cephalon (Nasdaq:CEPH) really could be a case where that is true. This deal solves significant, but different, problems for each company.

The Terms Of The Deal
Unlike Valeant's (NYSE:VRX) attempt at a hostile bid (or its thus far unsuccessful attempt to find a friendly agreement with Cephalon's board), Teva pursued a friendly offer and both boards agreed to it unanimously. Teva will acquire Cephalon in an all-cash deal that pays Cephalon shareholders $81.50 - 12% more than what Valeant had offered. The deal amounts to about $6.8 billion for Teva, which will have to raise debt for the bid.

Not Great, But Better
Cephalon shareholders may still grumble at the terms of the deal. After all, less than six times trailing EBITDA and about two times trailing revenue is not an exciting premium. What's more, in recent memory Pfizer (NYSE:PFE) paid for more for King and Abbott (NYSE:ABT) paid for Kos.


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Investopedia: Valeant Offers A Princely Sum For Cephalon

The news Tuesday evening that Cephalon (Nasdaq:CEPH) had received a bid was not all that surprising. Cephalon had long been a fixture on analysts' short-lists of biotech/specialty pharma companies that could be sellers in M&A transactions. To see the bid come from Valeant (NYSE:VRX), though, was surprising as few people had talked about this pharma company as an active bidder in high-value deals. 

That said, and while the deal is far from a sure thing at this point, this deal makes quite a bit of sense and may be the best opportunity for Cephalon shareholders to get value for some time.  

The Terms of the Deal 

After what appears to be weeks of frustrated attempts to strike a friendly deal, Valeant went public with an unsolicited bid of $5.7 billion for Cephalon. This deal would deliver $73 a share in cash to Cephalon shareholders, an amount that Valeant would fund with debt from Goldman Sachs (NYSE:GS).

All in all, it does not look like a bad bid for Cephalon. It represents a 24% premium to Cephalon's prior close, and a 12% premium to the consensus analyst price target on the shares (for the very little that those are often worth). The deal also represents an EV/EBITDA of just under five and a forward P/E of over eight on 2011 earnings and almost 13 on 2012 earnings.

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http://stocks.investopedia.com/stock-analysis/2011/Valeant-Offers-A-Princely-Sum-For-Cephalon-VRX-CEPH-FRX-PFE-ENDP-SLXP-WRCX0331.aspx

Alexza Gets A "No" From The FDA

Gotta love the FDA these days, don't you? I always thought the initials stood for "Food and Drug Administration" but apparently I was wrong; FDA now means "Forget Drug Approvals" (or perhaps "F*ck Drug Applicants" for those suitably inclined...).
 
Alexza Pharmaceuticals (Nasdaq: ALXA) is the latest company to run afoul of the agency's safety obsession, announcing the receipt of a complete response letter for its submission for Staccato Loxapine (aka Adusuve) - a fast-acting inhaled drug to deal with acute agitation in patients with severe schizophrenia and/or bipolar disorder. This is a relatively serious and common problem, and the existing therapies are tricky - it is not easy to give a shot to an unwilling patient, nor make them swallow a pill.

According to Alexza, and its partner Valeant (NYSE: VRX), the FDA was concerned about some safety issues seen in early Phase 1 studies and the absence of a "human factors study" for how people might use the technology.

The safety issues basically relate to some short-term changes in lung function seen immediately after administering the drug. Gee... an inhaled drug alters lung function upon use? I'm shocked! What's more, none of Alexza's late-stage studies showed any worrisome adverse respiratory effects - short-term issues occurred, but they either resolved themselves promptly, or could be handled with a normal asthma inhaler. 

Now, a word on the human factors study ... Basically, the FDA apparently wants some sort of study to see what happens when Staccato Loxapine is put into the hands of the Ralph Wiggum's of the world .Will they stick it up their nose? Perhaps they will try to administer it in their ears, or become confused and think it's an exciting new suppository formulation.

I don't mean to be flippant, particularly, for those Alexza shareholders getting hammered today, but I'm getting a little fed up with how the FDA runs these days. A human factors study could have been requested years ago, and I frankly think its ridiculous to just assume that the people who will administer this (mostly orderlies and nurses in in-patient mental treatment facilities and perhaps prisons) can't figure it out with proper training. 

I am not a doctor, and I am not intimately familiar with the specifics of Alexza's safety data, so perhaps there is a legitimate reason for concern. Even still, I can't help feel that the FDA has become actively hostile towards the pharmaceutical industry and new drug applications. This is not the first time that I've seen the agency spring a "gotcha" on a company - asking for an additional trial that could have been requested years ago, or taking issue with data from early studies. I mean, if those Phase 1 safety studies were so problematic, why did the agency allow them to progress to Phase 3?

Hell, the company even ran additional safety studies in special populations, and the FDA didn't see the need for a panel meeting. 

So, what now for Alexza?

I've been interested in this biotech for a while, as I thought loxapine would be an interesting niche drug and a good test case for the company's inhalation technology. Now, though, I do not know what to think. The company froze development on migraine formulations that look interesting, but will require a lot of money to develop. Can Alexza raise those funds now (either through partnership or capital raising) with the FDA putting them on ice?

And what about that fast-acting insomnia compound (AZ-007)? The FDA is arguably even more paranoid about insomnia drugs, so who knows what sort of clinical trials they will demand from Alexza.

With cash on hand and effective technology, the stock probably has a floor somewhere in the $1.00 - $1.50 region. I think the stock is worth more than that, but the company will not be getting those milestones from Valeant any time soon and who knows what sort of supplementary studies ALXA will have to agree to perform.

If you really want to live wild, I can understand buying these shares on today's inevitable crushing decline. After all, the freaking drug *WORKS* and I do believe these safety issues can get ironed out. If you cannot handle a LOT of risk and uncertainty, though, it may be better to step aside at least until the company can lay out what it has to do to convince the FDA to grant approval.