Cramer can throw a lot of information at you in a typical “Mad Money” segment, so let me break down Monday’s B block into easily digestible bites.
Biotech conference season is upon us, and, unlike earnings season, it’s a highly tradable event.
Companies will convene to discuss their latest research, whether on new drugs awaiting Food & Drug Administration approval or old drugs hoping to be blessed for new indications.
Keeping a close watch will be two groups: investors looking for potential buys, and big pharma companies looking to bolster their weak pipelines with an acquisition. Given the flood of patent expirations on its way, those pipelines are looking weaker than ever, so a little M&A action could be more likely than usual this season.
All week Cramer will spotlight this industry, which he calls “the business of hope.” But “hope” for two reasons: one, because these companies are researching cures for the world’s deadliest diseases; and two, they represent “the most upside and, yes, the greatest takeover potential,” he said.
“It may seem callous to focus on the moneymaking aspects of life-saving therapies,” Cramer said, “but my job is, in the end, to teach you how to use the stock market to supplement your paycheck. And sometimes the companies on the forefront of fighting these diseases are also the ones bringing profits to their shareholders. And that’s what you and I are looking at.”
First up, orphan drugs.
These are treatments for diseases so rare that only a couple of thousand people in a country may suffer from them. And because they do affect such a small segment of the population, governments—at least the US and European Union—use tax incentives, patent protections, marketing rights and even subsidies to companies that develop drugs to fight them.
Orphan drugs were protected from President Obama’s new health-care reforms, and they aren’t affected by the EU’s pricing discounts. Speaking of price, the development process is so expected, that the companies that make these treatments can charge exorbitant amounts for the finished product. Genzyme’s a big orphan-drug maker, and it charges an average of between $250,000 and $500,000 a year for its drugs.
The already-high barriers to entry made higher by supportive governments, the incredibly high pricing, the customers who can’t live without these treatments, the lack of competition—these are the reasons both investors and big pharma like orphan drugs. And they’re the reason Cramer does, too.
Now, we already know Sanofi-Aventis put in a bid for Genzyme, so we’re late to that party. So we’re better off trying to find the next takeover target. And Cramer thinks he’s found two possibles in BioMarin Pharmaceutical and Alexion Pharmaceuticals.
BioMarin makes enzyme-replacement therapies for rare genetic diseases, focusing on two specifically: MPS and PKU. In addition to having two treatments for MPS already on the market, Aldurazyme and Naglazyme, the company has another to treat a slightly different variety of the disease in Phase III development. BioMarin also has an FDA-approved PKU treatment, with another expected to enter Phase III development in December or January.
This stock offers two potential catalysts. One, of course, is its conference day on Oct. 19, and Cramer recommends getting in ahead of it. The other, and better, one is the Genzyme takeover. See, BioMarin’s Aldurazyme is marketed through a joint venture with Genzyme. And if that company is finally taken over, then BioMarin might be able to negotiate a better deal for itself.
Alexion’s sole source of revenue right now is Soliris, a therapy for a rare blood disease known as PNH. But the company is hoping to increase its indications to include a rare and lethal kidney disorder, one that could generate as much as $800 million in annual sales by 2015. An update on this research is expected some time in mid-Novemer, which “could be very big” for this stock, Cramer said. Regardless, though, Soliris is growing at 30 percent as it enters new markets, with about $900 million in revenue potential from developed countries alone in the next year or two.
ALXN may be at its 52-week high, but that’s still looking cheap, Cramer said, “as I believe it could earn $5 to $6 a share four or five years down the road.”
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