Warburg Dillon Read initiating coverage on BXM with a BUY RATING and 12-month price target of $32/share.
SUMMARY:
We are initiating coverage of Biomatrix with a Buy rating and a 12-month price
target of $32, or 20 times our 2001 EPS estimate of $1.60. Biomatrix has emerged
as a vertically integrated biopharmaceutical company on the success of its lead
product, Synvisc, which is a novel and cost effective treatment for
osteoarthritis, a disease that costs the U.S. healthcare system an estimated $29
billion annually. We estimate that Synvisc revenue will accelerate by more than
30% per year to $91 million in 2000 and $119 million in 2001, and with gross
margins expected to widen by over 200 basis points in 2000, we believe the P/E
multiple, currently 38% below BXM's forecast growth rate, should expand.
HIGHLIGHTS:
*Synvisc sales are expected to grow by over 30% annually. We estimate that in
1999, Synvisc's second full year in the U.S., end sales reached over $120
million. The company's U.S. marketing parner, Wyeth-Ayerst, is initiating a million. The company's U.S. marketing parner, Wyeth-Ayerst, is initiating a
large-scale promotional campaign for Synvisc in 2000 including DTC advertising,
which could drive sales to new levels. With new data highlighting the efficacy
and economic benefits of Synvisc treatment expected to be released in February,
we estimate Biomatrix could realize about $91 million in Synvisc revenue in 2000
and $119 million in 2001, up 33% and 31%, respectively.
*We believe BXM shares are undervalued. Well off its high of $45 per share in
1999, Biomatrix now trades at a 38% discount to its forecast growth rate, and a
30% discount to our specialty pharmaceutical universe on a P/E basis. In our
opinion, the shares are now trading primarily on fundamental performance rather
than news flow and momentum, as in the first half of 1999. We believe that sales
of Synvisc will increase substantially in 2000 driven by a new marketing
campaign and data that further demonstrates the efficacy and cost/benefits of
the product. The increase in sales, along with wider margins should result in
robust earnings growth and an expanding P/E multiple, in our view. Our 12-month
price target is $32, or 20 times our 2001 EPS estimate of $1.60.
*200-250 basis point margin expansion expected in 2000. We believe the gross
margin on product sales could expand by over 200 basis points in 2000, due to
higher volumes and other manufacturing efficiencies, with continued gross margin expansion in subsequent years. Additional efficiency is expected to be picked up
at the operating level, as R&D and SG&A costs are forecast to rise more slowly
than sales. |
