Good overview....REGN is near the end of the article....
"UBS Warburg Executive Director is very excited about Regeneron Pharmaceuticals' pipeline
67 WALL STREET, New York--October 8, 2001--The Wall Street Transcript has published an in-depth (3,000 words) interview with Andrew Gitkin, Executive Director at UBS Warburg, in which he examines the outlook for the sector and shares specific stock recommendations. This interview is part of a 673-page conference issue featuring 7 analyst interviews and 187 healthcare CEO interviews.
TWST: What do you include in your coverage area?
Mr. Gitkin: I focus on small and mid-cap biotech companies, from the $200 million market capitalization up to around $3.5-$4 billion. Our equity research team has developed a number of themes applicable to these companies, which makes sense because there are so many different types of small/mid-cap biotech stocks. For example, one moment you could be talking about an antiviral company, and the next moment you're talking about a central nervous system company. Also, the small and mid-cap companies tend to specialize by therapeutic category unlike some of the larger cap companies that may have their hands in a number of different buckets.
Accordingly, we have developed specific expertise in oncology - cancer companies - central nervous system companies, and cardiovascular companies. In addition to focusing on those three therapeutic categories, we have also established an expertise in gene therapy and cell therapy technological platforms as well. Going forward, we will venture into other areas such as, for example, antiviral. But for the most part, those are the main areas we cover.
Around those themes I have developed a universe of coverage that currently consists of eight stocks. Over the next six months or so, our coverage should grow to 15-16 companies. So we're very much in a growth mode. Geoffrey Harris, the other senior analyst who follows biotech stocks, predominately focuses on about 14 of the large cap biotech stocks.
Taken together, UBS Warburg provides a broad and deep level of coverage for the biotech sector because you have two separate teams focusing on different components of that industry.
TWST: As you talk to your clients and to the investment community, what are they looking for in biotech stocks?
Mr. Gitkin: Investors consistently look at a number of characteristics. One of those is whether or not the technological platform that the company is operating from is validated, and whether or not it is easily leverageable. They look for some proof that the technological platform will work and that it can be leveraged into more than just one disease indication. If you can move a technology into three or four disease indications, you are mitigating the risk of failure into any one indication.
Another important characteristic is capital. This is especially important in the small and mid-cap companies because most of those companies are losing money, burning cash, and frequently have to tap either the public or private markets in order to raise capital to continue their development activities. So it's critical that investors pay close attention to the balance sheet. We advise investors to only invest in small and mid-cap companies that have at least three years of cash on hand. Typically you hear the cutoff being two years, but we like to be a bit more conservative than the average. Even when we're that restrictive with our capital requirements, there are still a number of very solid companies that have three years of cash on hand.
Management is very important for small and mid-cap stocks. They don't have much of a track record, so they need to have a compelling management team that can really lead the company to the next level. That's unlike some of the larger companies that can rely somewhat on their track record - those that have products, cash flow and earnings. With the small and mid-cap companies, a lot of times you're investing in management as much as you are in the company.
Investors also need to look at the immediate clinical pipeline. If a company is only in Phase I or Phase II or really early stage clinical trials, it might be a bit too early to invest in some of the small/mid-cap names. We like to stick with companies that have at least reported Phase II data, or have products that are currently in Phase III. That helps to reduce some of the product risk in the investment.
Completing that basic list is collaboration. A lot of these companies do not have products on the market. They are really concept stocks to some extent and, to the extent that they have collaborations with larger and more reputable pharmaceutical companies or biotechnology companies, that represents a validation of the underlying technology and products.
TWST: Are there consolidators that might be focused on the companies you have under your coverage?
Mr. Gitkin: One of the common denominators expressed by these companies is that they all have very, very good product prospects that are either on the market or, more often than not, in Phase III. So certainly to the extent that larger biotech or pharmaceutical companies are looking to buy or inlicense late stage products, a number of my companies should be on their radar screen.
However, it is important to note that a lot of them are burning substantial amounts of cash, and it may be difficult for some of the potential suitors out there to handle the dilution that may come along with such an acquisition. I'm inclined to believe that, more often than not, we're going to see inlicensing types of deals and collaborations as opposed to wholesale/outright acquisitions.
TWST: Is there a company in your coverage that is on the cusp, given that a set of circumstances could surpass current expectations?
Mr. Gitkin: One of the companies I would like to highlight is Regeneron Pharmaceuticals (REGN). We currently have a hold rating on that stock, and while we believe the company has a very high quality management team and a very good scientific platform, we do have some concerns regarding their lead product Axokine.
Axokine is an injectible drug that is currently in Phase III trials for the treatment of severe and morbid obesity. While we believe that the drug works, we are concerned with the high levels of patient attrition that the company has experienced in their clinical trials thus far. A high level of patient attrition could compromise their Phase III results, and in doing so delay approval of this drug. We believe the attrition rate is related to the difficulty of the delivery system - it's an injectible.
Even longer term we are somewhat concerned that this drug, while it appears to work and we believe it will be successful, may be not as successful as the company is anticipating. We believe that an injectible delivery mechanism may not be as warmly received by clinicians and patients alike in the obesity market as compared to an orally active product, particularly since there are products on the market right now that are orally active.
Behind Axokine, the company has a number of exciting products, one of which is an Interleukin (IL) trap that could potentially be used in arthritis. They also have a VEGF inhibitor, which could be used in a number of oncology indications. The problem is that these other pipeline products may get overlooked if there is a potential Axokine disappointment.
So while we're very excited about their pipeline, it's hard for us to reflect that excitement in our rating until we can get some more color on the potential and future of Axokine.
This interview is part of a 673-page Third Annual UBS Warburg LLC Healthcare Conference Issue and this interview is available through The Wall Street Transcript .
The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations." |
