Wyeth (WYE): Speculative play on Alzheimer's

Wyeth (WYE): Speculative play on Alzheimer's
Posted Apr 23rd 2008 12:36PM by Steven Halpern

Regarding his latest new buy recommendation -- Wyeth (NYSEL WYE) -- biotech expert Michael Shulman states, "OK, I know what you're thinking. Wyeth?! It's a lousy big pharma with a stock price that's down 12% in the past 10 years."

Nevertheless, in his ChangeWave Biotech Investor he explains, "I like Wyeth for two very good reasons: It's a great play for the current market, and it's a good speculative play on disease breakthroughs."

"Believe it or not, WYE is a cash-rich big pharma selling below its potential breakup value and it has a very good Alzheimer's disease treatment in its pipeline. The Alzheimer's treatment is the primary reason for this recommendation.

"I've written extensively about Alzheimer's and I've kept an eye on this particular Wyeth drug and the potential it has for success.

"The Wyeth drug in question is a genetically engineered antibody called bapineuzumab. It's the second formulation of a 'vaccine' that showed dramatic improvements in cognition and reduction in brain plaques (as determined by autopsy) in its original formula.


"Unfortunately the first formulation also generated encephalitis (brain swelling) in a meaningful number of patients and the trial was suspended.

"The second-generation product is a passive, versus active, vaccine. It doesn't trigger the aggressive immune response from the body that was the cause, Wyeth believes, of the encephalitis.

"The early Phase II results haven't been published, but they must have been great because the company is already going ahead with a very expensive Phase III trial with 4,100 patients.

"Meanwhile, Wyeth has major marketplace winners such as Enbrel, a $5-billion drug for arthritis and psoriasis, and anti-depressant Effexor with $4 billion in sales. The company also has $3 billion in sales of consumer products such as Advil and Preparation H.

"The company has $22 billion in sales; $3.40-$3.60 in profits per share, giving it a P/E of 3; a 2.5% dividend; more cash than debt; and 72% gross profit margins. It is everything you would expect a big pharma outfit to be -- but up to one-third of revenues now come from biotech products such as Enbrel.

"Make no mistake, however. As far as I'm concerned this investment recommendation is about one drug: bapineuzumab. At this point I believe the possibilities for bapineuzumab (let alone the rest of the pipeline) are not really factored into the stock price.

"If bapineuzumab fails in trial, the stock will take a modest hit -- maybe a few of points -- and if WYE posts strong results in June it will start a stock run that could push it back to the mid-$60s. Anyway we look at it that's a very good risk/reward ratio for a recession-proof, cash-rich company."

Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.