From Alan Abelson's column in Barrons, re IDPH & BGEN:
Probably good for a Monday morning gap up.
Doc
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LATE LAST YEAR, WE RAN a blurb in these sacred columns on Larry Feinberg, who runs Oracle Partners, a hedge fund specializing in health care. At the time, Larry had come off a rough patch of subpar performance, in contrast to his splendid long-term record. Nothing daunted, he retooled, putting in place some formulaic disciplines, and confidently predicted he'd get his touch back. And, boy, did he ever!
In the second quarter, Oracle posted a spectacular 43.2% net gain. Quite a cut above the 12.4% rise in the Dow, 14.9% advance in the S&P 500, the meager 7.7% increase in S&P's Healthcare Index and even the 29% gain in the biotech sector as a whole.
We buzzed Larry to give him our congrats and, while we were at it, see what he liked. IDEC, was his response, a company he cited in his cheerful second-quarter report to his limited partners. IDEC Pharmaceuticals is not an especially popular biotech, as its stock action strongly suggests: The shares are selling around 35 and change, down from a high last year of over 70.
There are two knocks on the stock: IDEC is pretty much a one-drug company; the one drug is Rituxan, used to treat a form of lymphoma. And it plans to merge with Biogen, which Larry says is perhaps the least-liked of the biotechs. Larry made a small fortune in IDEC, buying 10% of the company back in '98 at under $4 a share and selling it three years later at $65. Recently, he bought back stock at around the present price.
The conventional wisdom on the Street, he says with just the slightest trace of glee, is that the merger is a big mistake for fast-growing IDEC, saddling itself with slow-growing Biogen. The Street, Larry insists, is all wet: IDEC's zooming growth is showing signs of slowing, while Biogen is on the verge of sharply accelerating growth. Moreover, Biogen, which is No. 1 in multiple sclerorsis therapy, has a promising pipeline of new drugs, notably a new anti-inflammatory, Antegen, now completing Phase III trials. He thinks the combo-to be called Biogen IDEC -- will make an exciting entity, with major stakes in two important therapeutic areas: neurology and cancer.
The merger is supposed to be completed late this quarter or early next, and the consensus estimates are that Biogen IDEC should earn $1.55-$1.65 next year.
And according to Larry, it's onward and upward after that, with results aided by significant operating savings (he reckons them at around $300 million) and reduced capital-spending needs.
If Biogen's anti-inflammatory turns out to be turns out to be as big a winner as he expects, he's looking for the stock to double in, oh, a year, year and a half.
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