The pharmaceutical industry is entering a period of substantial change in 2009. Most of the names in the industry are facing significant patent challenges in the years to come. U.S.-based firms are facing foreign exchange headwinds, as well. Revenue growth is non-existent, and earnings growth is being driven primarily by mergers, cost-cutting and share buybacks. Knowing that investors rarely pay-up for this type of manufactured earnings growth, we struggle to see a broad-based out-performance for the large-cap pharmaceutical sector in 2009.Valuations, however, are attractive, with several of the largest players trading at PEs below 10x, including: Pfizer (PFE, 7.5x), Eli Lilly (LLY, 8.1x), Merck (MRK, 8.3x), Sanofi (SNY, 7.5x), AstraZeneca (AZN, 7.6x) and GlaxoSmithKline (gsk, 9.3x) based on our fiscal 2009 estimates. Attractive valuations, along with big dividend yields, should protect investors against significant downside risk even if the economy continues ...

In a Schedule 14A proxy statement filed on May 20, 2009 Merck & Co. (MRK) disclosed that it had received notification from Johnson & Johnson's (JNJ) Centocor subsidiary of its intention to terminate, through arbitration, the distribution agreement with Schering-Plough Corp (SGP) for Remicade and golimumab (Simponi). As we detailed in prior reports and blogs, we had expected some sort of challenge from J&J, so the recent news comes as no surprise.In March 2009 Merck and Co. and Schering-Plough announced a merger agreement whereby the companies would combine in a deal currently valued at approximately $48.8 billion. The deal was structured as a "reverse-merger" with Schering-Plough being the surviving entity. Merck believes that the "reverse-merger" structure will avoid triggering a change-of-control provision in Schering-Plough's agreement with J&J relative to rights to Remicade and golimumab.J&J discovered both compounds and licensed ex-U.S. marketing rights ...

We highlight Osiris Therapeutics, Inc. (OSIR) and Genzyme Corp. (GENZ).Osiris Therapeutics, Inc. (OSIR) reported financial results for the first quarter 2009 on May 7, 2009. Total revenues in the quarter were $12.7 million, up from $0.4 million for the same period for 2008, and slightly above our forecasts of $11.8 million.Revenues include the recognition of $10.0 million in amortized license fees from Genzyme Corp. (GENZ) and $2.6 million related to the contract with the U.S. Department of Defense. The company reported net income of $14.8 million, or $0.45 per share for the quarter. This figure is comprised of losses from continuing operations of $7.9 million, or $0.24 per share, and income from discontinued operations of $22.7 million, or $0.69 per share.Osiris exited the first quarter with $55.0 million in cash and $79.7 million in accounts receivable. Working capital totaled $123.5 ...

Highlights include Osiris Therapeutics, Inc. (OSIR) and Genzyme Corp. (GENZ).Management Halts Phase III Crohn's Trial Due to Design FlawOn March 27, 2009, Osiris Therapeutics (OSIR) announced it was stopping its phase III clinical trial program testing Prochymal for the treatment of acute Crohn's disease (CD) due to a design flaw in the trial that was allowing for significantly higher-than-expected placebo response rates.The decision was made after the trial's final scheduled interim analysis showed that 1 of the 2 Prochymal dose arms had crossed a futility boundary (would not achieve statistical significance).As a reminder, Osiris' phase III CD program consisted of 2 trials, and induction program (S-603) followed by a maintenance program (S-610). The Study-603 "Induction" program was targeted to enroll 270 patients and randomize into three arms, one-high dose Prochymal, one low-dose Prochymal and placebo.After 28 ...

Sometime during the middle of the year, Genentech (DNA) shareholders are going to get $95 in cash for each share of Genentech stock they own. In total, nearly $47 billion in funds are expected to be returned to biotechnology investors.We've come up with an effective "basket approach" to re-deploy those funds back into the biotech sector -- in search of the next Genentech.Antisense Makes a Lot of SenseFor a little over $13, investors can pick up one share of Isis Pharmaceuticals (ISIS). Isis is the market leader in antisense technology.We've made it no secret in the past -- we are big fans of antisense. We view the drug discovery engine fueled by Isis' antisense technology very similar to the power of Genentech's recombinant DNA and monoclonal antibody technology breakthroughs of the 1980's. Antisense drugs are still in their infancy, ...

Highlighted stocks include Arena Pharmaceuticals (ARNA), CV Therapeutics (CVTX), Osiris Therapeutics (OSIR) and AMAG Pharmaceuticals (AMAG). Know Your Options When Investing in Biotechnology Stocks Investing in biotechnology stocks is certainly not for the timid or weak at heart. Stocks in the industry trade with perhaps the highest volatility in the market and move based on binary events. The ultimate of binary events for a biotech stock is the release of important phase III data or a decision by the FDA. Knowing that after you purchase a biotech stock you may either be very right or very wrong at some point thereafter, perhaps no sector lends itself to the usefulness of options better than biotech. We have 2 strategies that may be helpful to clients. The first is on stocks we rate Hold but have big binary events coming in the next

...

Here we discuss Osiris Therapeutics (OSIR) and Genzyme (GENZ).This morning, Osiris Therapeutics (OSIR) release two positive press releases on the company's leading pipeline candidate, Prochymal. As a result, the shares are bucking the negative overall market trend.The first announced a successful pre-Biologics License Application (pre-BLA) meeting with the U.S. FDA for Prochymal regarding use in the treatment of graft-versus-host disease (GvHD). The BLA filing, which is expected to be the first of its kind for a stem-cell product, will include data from two ongoing phase III programs in GvHD -- one in steroid refractory patients and another in acute disease.Osiris and the FDA have agreed upon the proposed content and structure for the BLA, which will be filed in a electronic Common Technical Document (eCTD) format, allowing for parallel submissions in areas outside the U.S. The agency also approved the ...

The following is a bio-stock catalyst report covering a trading calendar of regulatory events & key clinical trial results through early 2008 on major bio-stocks: