Medx Downgrade by UBS
Risk appetite has normalized – taking a more neutral stance
[From the Yahoo message board - trusted source].
Small-cap discount has narrowed as risk appetite returns
Share prices for the majority of our small-cap biotechnology coverage universe have recovered from depressed levels earlier this year as risk appetite and liquidity returned to the market. Year-to-date, our small-cap coverage universe has outperformed our mid-cap and large-cap biotechnology coverage (+39.3% vs. +3.7% & -7.4%, respectively).
Taking a more neutral view on the small and mid-caps
With risk appetite returning to more ‘normal levels’ we feel the relationship between fundamental values and share prices is more appropriate and are taking a more neutral view on the sector in general. Within our coverage universe we have seen significant share price appreciation on many stocks in the absence of meaningful data or news, and based on valuation we are downgrading MEDX (from Buy to Neutral) and ARQL (from Neutral to Sell).
Still buys in the small-caps
Within our small-cap universe we are maintaining Buy ratings for ARRY, CRME, DYAX, INCY and PLX. For INCY and ARRY, we continue to believe that outlicensing of assets can relieve potential financing overhangs and lead to share price appreciation, while for CRME we think a share-buy back will return value to shareholders. PLX and DYAX are approaching pivotal clinical and regulatory decisions in 2H09 and we have a positive bias on the outcomes for these events.
Medarex Inc.
Investment Thesis
We believe that Medarex’s lead product (ipilimumab—a fully human monoclonal antibody for the treatment of metastatic melanoma) has significant potential in a very difficult disease indication. Although there is still risk around this product, we believe that at current levels, Medarex’s share price is appropriately valued and rate the shares as Neutral.
Final proof of concept results from the Phase 2 ulcerative colitis trial (2H09). Following a recent DMC interim analysis, MEDX will complete the trial as planned. We expect the company
will announce top-line results from this trial in the second half of this year.
Ipilimumab nears the end-game in melanoma...other cancers to follow. 2009 becomes a pivotal year for assessing the potential of ipilimumab in metastatic melanoma with top-line OS data expected in 4Q09. We believe the data from earlier studies suggest there is a reasonable likelihood the data will be positive on this measure. Ipilimumab is also being evaluated in adjuvant melanoma, lung cancer and a prostate
cancer trial is expected to initiate in 2009.
Valuation and Rating
We utilize a risk-adjusted NPV sum-of-the-parts model as we believe this better reflects the cash requirements for the development of each product. Additionally, we are downgrading shares of MEDX to Neutral from Buy (and raising our price target from $8.25 to $8.75) as we believe the company’s risk/reward profile is balanced. |
