2 Biotechs Absolutely Crushing It

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Big moves in biotech today as a rebuffed takeout attempt led to an instant double, and one of the larger players in the space soared on great drug results.

First let's jump on Human Genome Sciences (NAS: HGSI) , which was up 100% this morning, making it an instant double on news of a buyout from GlaxoSmithKline (NYS: GSK) . Glaxo makes sense as an acquirer, since the two companies have a close relationship thanks to lupus drug Benlysta and pipeline products darapladib and albiglutide. What is surprising is the price Glaxo is offering -- $2.6 billion. More stunning is that HGS thought the offer was inadequate! Human Genome Sciences' management didn't just look a gift horse in the mouth; they sucker-punched it.

To date, Benlysta is a flop, registering a mere $25.7 million in sales last quarter. HGS isn't expecting to turn a profit until 2014 at the earliest. Because of these difficulties, HGS's shares were trading at just one quarter of their 52-week high, but not everything that's cheap is a bargain, and paying roughly 25 times annualized sales is cause for concern. Glaxo might be able to ramp sales by bringing Benlysta fully in house, but I wonder whether this is more about the two shared drugs in the pipeline than Benlysta or once-rejected anthrax treatment raxibacumab. Both darapladib and albiglutide are currently in phase 3 trials, and the markets for cardiovascular disease and type-2 diabetes are significantly larger than lupus. If these trials are going well, thae acquiring HGS would be a much more expensive proposition once the results are public.


Perfectly illustrating that point is Gilead (NAS: GILD) , which was up 15% today after disclosing results for its Hepatitis C drug GS-7977. While a 15% pop may pale against Human Genome Sciences' overnight double, Gilead's massive $40 billion market cap makes the actual dollar gain 2.5 times more impressive. Gilead has a lot riding on its Hep-C pipeline after its $11 billion purchase of Pharmasset, an attention-grabbing move that saw intensified interest after Bristol-Myers Squibb (NYS: BMY) bought Inhibitex at a 163% premium.

The results today came from a combination of GS-7977 and Bristol's daclatasvir, which showed a 93% cure rate, better than GS-7977 and ribavirin alone. This supports the theory that future Hep-C treatment will involve a cocktail approach, similar to the strategy Gilead pioneered with HIV treatment. Bristol is "very interested" in a team-up, while Gilead is playing hard to get, hoping one of its internal candidates can replace Bristol's contribution -- but at the end of the day, whatever tie-up generates the best results is going to be the one available for patients.

The current standard of care is Vertex's (NAS: VRTX) Incivek, and logic would dictate a negative reaction on concerns that Vertex's reign will be short-lived, but shares are up 3%. Vertex also reported results showing that Incivek completely cured a subset of patients with a specific genotype within 12 weeks. Those types of results could keep adoption of the next-gen drugs at bay, even if they are easier on patients to take. And if cocktails are the future, strong efficacy may get Vertex included in the mix.

All of the uncertainty brings big moves to biotech stocks, but investors looking for explosive growth don't need to look any further than a health-care company poised to disrupt the current standard of care with its already approved product. Wall Street hasn't found this small-cap stock yet, but you can, by downloading our special free report, "Discover the Next Rule-Breaking Multibagger." Don't miss out on this limited-time offer and your opportunity to invest in before the market catches on. Access your report -- it's totally free.

At the time this article was published David Williamsonholds no position in any company mentioned. Check out hisholdings and a short bio.Motley Fool newsletter serviceshave recommended buying shares of GlaxoSmithKline, Gilead Sciences, and Vertex Pharmaceuticals. The Motley Fool has adisclosure policy. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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