ML on NPSP
NPS Pharmaceuticals (NPSP;
$23.24; C-1-9) Comment Available
Forteo Strength May Indicate Big Market Opportunity
12-Month Price Objective: $36.00 (11-Jun-2003)
Volatility risk: High Market cap: $816mil
Dec03E d$3.55 04E d$2.92
GAAP EPS: 2003E d$4.61; 2004E d$2.92
• We believe that investors have ignored recent sales
strength of Eli Lilly's (LLY; $62.88; B-2-7) Forteo, an
osteoporosis drug of the same class as NPS's Preos.
Forteo sales could indicate a major market opportunity
for Preos. According to NDC data, Forteo sales are
$1.5 MM per week, translating into an annual run rate
of $78 MM just 7 1/2 months into the launch.
• Based on NDC data, there has been an increase in the
percentage of prescriptions written by internal
medicine doctors, indicating that a much broader
population of physicians is now prescribing the drug.
Thus, sales strength could continue.
• Strong growth has occurred despite a challenging
marketing environment in which there is a lack of data
using Forteo with other osteoporosis drugs, there are
FDA marketing restrictions, and there are physician
concerns regarding a black box warning of
osteosarcoma risk based on rat studies.
• During the next few years, we expect combo data and
greater comfort with the drug class's safety profile to
improve physician adoption further.
• Preos' market opportunity is large with ~1.5 MM
people experiencing osteoporosis fractures each year.
Importantly, by the time Preos enters the market in
mid-2005, Lilly will have likely penetrated just a
small fraction of the market with Forteo, thus we
expect that Preos could garner significant sales despite
reaching the market 2 1/2 years after Forteo. We
continue to believe that worldwide Preos sales could
surpass $500 MM.
• There are multiple key catalysts expected during the
next 6 - 9 months including Preos data at a major bone
conference in September, an NDA filing for
Cinacalcet within a couple months, phase III data for
Cinacalcet in November at a major nephrology
conference, phase III data for Preos in 1Q04 and an
FDA filing of Preos by mid-2004.
• In spite of the risk that rat toxicology studies may
exhibit osteosarcoma much the same way that Forteo
rat studies did, we believe that an impressive list of
key catalysts and a continuation of strong Forteo sales
trends will push NPS' stock higher. We would use
recent weakness and investor apathy as a buying
opportunity.
• Based on our NPV model, we believe that the current
pipeline represents about $36 per share (the basis of
our price objective). Risks for the stock include
clinical trial failures, the fact that Eli Lilly is about 18
months ahead of NPS with the development of its
Forteo, and failure to partner Preos. Amgen (AMGN;
$69.05; C-1-9) also has full control over the
development of Cinacalcet.
(E. Ende) |
