Four large healthcare companies are preparing to spin off certain business units over the next 12-18 months and that could be good news for investors. Typically the stocks of newly independent health-care companies have tendencies to outperform the general market, according to Mike Bailey, director of research at FBB Capital Partners.
FBB Capital Partners is based in Bethesda, Md., and has about $1 billion in assets under its umbrella. Bailey discussed all four planned spinoffs in an interview on Sept. 13.
Bailey said he did not really advise clients to hold shares of companies before they spun off the health-care units. “We would probably keep it simple, for tax reasons, and just buy the spun-off companies,” he said.
Of course, after each spinoff is completed, analysts will have a better feel for each independent company’s growth prospects as well as standard measures of value, including price-to-earnings and price-to-sales.
Here are his specific comments about the four companies and the units they plan to spin off.
Healthcare Stock Eli Lilly (LLY) and Elanco (ELAN)
Eli Lilly LLY announced plans to shed about 20% of its Elanco Animal Health business for between $20 and $23 a share, a deal that could raise up to $1.66 billion. The life-sciences leader has previously put plans in place to sell the entire stake later, and Bailey commented that he expects that to happen in 2019.
Zoetis ZTS is a competitor of Elanco and was spun off by pharma trailblazer Pfizer PFE in February 2013, first traded for $31.50 a share. The shares closed at $88.79 on Sept, 12.
Bailey explained that when Pfizer announced its strategy to spin off Zoetis, he didn’t take advantage of the opportunity, and “it seems now that Pfizer was lowballing expectations” for the unit.
While saying it was too early to give an investment opinion about Elanco, he called the industry fundamentals for animal health care “attractive” and added: “If they can copy what ZTS has done, with margin expansion and a few deals, you probably have potential upside. There is certainly a case that Elanco can do what Zoetis did.”
Healthcare Stock Novartis (NVS) and Alcon (ACL)
Novartis said that it too plans to spin off assets; specifically its Alcon eye-care business during the first quarter of 2019. Alcon will be based in Switzerland, like its parent company.
Analysts expect the company to be valued around $20 billion. Novartis spent a total of roughly $50 billion to buy the current Alcon unit, including an Ophthalmology pharmaceutical business that won’t be included in the spun-off company. The new Alcon will be a consumer staples play with stock multiples that are “pretty high,” Bailey said. But the high multiples would be supported by “steady growth,” he said, and Alcon has a good reputation for making high-quality devices.
“High quality, low competition, high barriers to entry and pretty good fundamentals” make for “a pretty good business,” he said.
Healthcare Stock Danaher (DHR) and its dental business
When Danaher DHR, announced a plan to spin off its dental business in a tax-free transaction to be completed during the second half of 2019, investors were happy. Shares rose 4.5% that day.
Unlike the other three parent companies that Bailey discussed, Danaher is a stock that FBB Capital Partners actually holds for its clients. Bailey said, “We would own Danaher with or without the dental spinoff,” but he added that he has “higher conviction” for Danaher after the spinoff is completed.
“I have been following Danaher closely for a number of years, and dental has always been ‘around the corner’ for improvement, and they have had a tough time making it work,” he said.
Healthcare Stock General Electric (GE) and GE Healthcare
General Electric GE, also has plans to spin out its health-care unit via a two-step process that starts with a public offering of about 20% of the company by the end of 2019. After that, the remaining 80% “will be distributed tax-free to our shareholders through a spin or split,” GE CEO John Flannery said during a conference call on June 26.
After holding shares of GE for a number of years, FBB Capital Partners sold late in 2017. “At the time, it seemed healthcare and aerospace were two of the better-performing divisions,” Bailey said.
He also said he would “probably wait for the spinoff” to consider purchasing shares of an independent GE Healthcare, rather than purchasing shares of GE before the spinoff.
Biotech Stocks To Watch In June: Cara Therapeutics (CARA) & Intellia Therapeutics (NTLA)
Among biotech companies, the competition between Cara Therapeutics Inc (CARA) and Intellia Therapeutics Inc (NTLA) has been an intriguing one. The two companies had been on the same level as far as the market cap goes during most of the year so far.
But Cara has now pulled ahead by as much as $150 million following positive data from its lead product candidate. That being said, it is also important to keep in mind that if an investor is looking at a long term investment, then the disparity in market cap between the two companies is a minor. Here’s a look at the pros and cons of Cara and Intellia.
Cara Therapeutics (CARA)
Cara Therapeutics is currently on the rise. Its lead product candidate Korsuva injection delivered highly encouraging results in its Phase 3 trial. It’s now believed that it would not be long before Cara has its first product on the market.
It is meant for the treatment of moderate-to-severe chronic kidney disease-associated pruritus. According to reports, the results were great. Another late-stage test is going to be conducted soon. The results could be announced by the end of this year. If Korsuve is approved, then it will be marketed by Fresenius Medical Care and Vifor Pharma Group.
Cara has entered joint ventures with those companies to market the product in the United States, Japan, and South Korea. An oral version of Korsuva is also in the pipeline and could prove to be another important development.
Intellia Therapeutics (NTLA)
Intellia Therapeutics (INTA) is involved in creating CRISPR gene editing therapies. It is a segment that has a lot of promise in the future. Even though the company is some years away from having anything on the market, the promise of gene editing therapy is exciting. So much so that Intellia has already found partners in big-ticket firms like Regeneron and Novartis.
Intellia is expected to file for FDA approval for the clinical study into its lead product NLTA-2001 in 2020. It is meant for the treatment of transthyretin amyloidosis, an uncommon genetic disease. Studies into the products have proven to be promising so far. The company is also working on a product to treat myeloid leukemia.
Now when it comes to choosing between Cara and Intellia, experts believe that the former could a better company. It’s already on the verge of having an approved product on the market. Intellia, on the other hand, is likely to be some years away from winning approval.
4 Security Penny Stocks To Watch
As Threats Arise, Security Stocks Take Center Stage In 2019
With the Federal Reserve’s meeting coming, the general market is bracing for anything. Meanwhile, penny stocks are continuing to climb at absurd rates. Trading penny stocks as of late has brought many investors fruitful profits and they look to continue this trend. Here are some security penny stocks to watch for the remainder of June 2019:
Security Penny Stock #1
Liberty Defense Holdings (SCAN.V)
Market Cap: $46.404M
Liberty Defense Holdings Ltd. (SCAN.V) is a security company looking to take the industry into the next century. Liberty’s HEXWAVE product is a 3-dimensional scanning device that can detect weapons and threats of any kind. The product can do this both with speed and discretion ensuring privacy for citizens.
Liberty signed a Memorandum of Understanding with the soccer team FC Bayern München to beta test HEXWAVE in their arena. They join an ever-growing list of places that have signed MOU’s to beta test Liberty’s product. This MOU expands its ability to comply with and test the market requirements for their product internationally.
“The reception to our HEXWAVE product has been fantastic and we are excited about working alongside FC Bayern Munich, a team that is a household name in both Europe and North America, […] Our ability to deploy in both indoor and outdoor settings, with covert and overt applications, sets us apart and has also been driving increasing interest from the market.”Bill Riker, CEO of Liberty
Security Penny Stock #2
Magal Security Systems (MAGS)
Market Cap: $101.371M
Magal Security Systems Ltd. (MAGS) provides security solutions both online and physical. Some services provided include identifying potential security problems, integrating new systems, and custom designs for any type of security needs.
Recently, Magal received a $5.5 million contract for its advanced perimeter intrusion detection system. The system prevents people from illegally crossing border fences and walls.
Dror Sharon, CEO of Magal, stated, “Magal is a world leader in perimeter intrusion technologies. Our growing wins of orders such as this – providing sensors for active international borders, is due to the decades of experience that we have in providing systems that have more than proven themselves in-the-field.”
Security Penny Stock #3
Rekor Systems (REKR)
Market Cap: $27.502M
Rekor Systems Inc. (REKR) is a company that has developed surveillance technology to enhance public safety, banking, and traffic management. Primarily, the company takes their advanced software, which utilizes machine learning and upgrades IP cameras to the next level. This reduces the cost when collecting highway tolls and helps manage traffic congestion.
Throughout June, Rekor Systems has been gaining recognition and application across the US. On June 3rd Rekor obtained a contract to start deploying its Mobile LBR-2 vehicle recognition systems. After this deployment on the 3rd, the LPR-2 system North Carolina law enforcement placed an order. On June 12th, Colorado highway authorities chose Rekor’s cloud system called NUMERUS to read enhance their license plate reading.
Security Penny Stock #4
BIO-key International (BKYI)
Market Cap: $18.03M
BIO-key International Inc. (BKYI) is a security technologies company that is pushing past the limits of fingerprint scanning. BIO-key provides a plethora of finger scanning products that provide security for your computer, hard drive, and the government. They have a partnership with Microsoft to develop biometric sign-in for Windows 10.
The company recently announced that a foreign defense ministry ordered more BIO-key deployment for secure access to Microsoft applications.
“We were delighted that such a capable and prestigious technology team determined that BIO-key met their security and scalability requirements and have now made follow-on investments to grow their user base. Defense Ministries are constant targets of cyber-attacks, and we are glad to help them step up authentication to the highest assurance with NIST-verified accuracy and FIPS compliance.”Jim Sullivan, SVP of BIO
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