SSB report: AMGN and NPSP's Cinacalcet Receives FDA Approval
March 8, 2004
* The FDA approved AMGN and NPSP's Sensipar (cinacalcet)for the treatment of secondary hyperparathyroidism (SHPT)
in patients with chronic kidney disease on dialysis and
hypercalcemia in patients with parathyroid cancer (a form
of primary HPT). Sensipar was granted orphan drug
status.
* The company indicated that they received an approvable
letter for Sensipar in the indication of SHPT in
pre-dialysis patients and primary HPT. Full approval in
these indications would have been an upside surprise at
this time. Amgen will begin shipping the drug within the
next few weeks.
* Cinacalcet is also under regulatory review in Europe,
Australia, Canada, and New Zealand.
* We estimate this product represents a multi-hundred
million product with peak sales above $500MM. Our
Cinacalcet sales estimates are $50MM for FY04 and $145MM
FY05. NPSP receives a royalty of 10% on Sensipar sales.
OPINION
The Food and Drug Administration (FDA) approved Amgen and NPS
Pharmaceuticals' Sensipar (cinacalcet) for the treatment of secondary
hyperparathyroidism (SHPT) in patients with chronic kidney disease on
dialysis. In addition, Sensipar was approved for the treatment of
hypercalcemia in patients with parathyroid cancer (a form of primary
hyperparathyroidism). The company indicated that Sensipar was granted orphan
drug status. According to Amgen, they received an approvable letter for
Sensipar in the indication of SHPT in pre-dialysis patients with chronic
kidney disease and in the indication of primary HPT. Full approval in these
indications would have been an upside surprise at this time given the limited
data set. The company plans to conduct additional studies in these patients
to expand the safety database to obtain final approval. According to the
Sensipar label, frequent monitoring of calcium levels is recommended, as a
significant number of patients being treated with Sensipar were associated
with the development of low serum calcium levels. In our opinion, this is not
a significant issue to prevent usage of Sensipar. Amgen indicated that they
will begin shipping the drug within the next few weeks.
The timing of this approval is in-line with the formal PDUFA response
deadline of March 8. As a reminder, Amgen completed the BLA filing under the
FDA's Fast Track designation in early September 2003 and was granted a
Priority Review designation. Cinacalcet is also under regulatory review in
Europe, Australia, Canada, and New Zealand.
Market Opportunity: In our view, Cinacalcet offers the option of inhibiting
parathyroid hormone (PTH) production in a more direct manner and therefore,
has the potential to offer a new approach in the management of bone disease
in patients with renal disease. Secondary hyperparathyroidism is a
physiological response to failing kidneys that affects 85%-90% or
approximately 300,000 dialysis patients in the U.S. As renal function
deteriorates, the body is unable to maintain proper levels of calcium and
phosphorus in the blood, or serum. To compensate, parathyroid glands enlarge
and produce increased amounts of parathyroid hormone (PTH) in an attempt to
increase calcium and decrease phosphorus levels in the blood. High doses of
vitamin D are often used to attempt to lower elevated levels of PTH in
patients. Symptoms of secondary hyperparathyroidism may include bone loss,
bone pain, soft tissue calcification and chronic, severe itching. It is
estimated that there are an additional approximately 800,000 patients in the
U.S. characterized as pre-dialysis patients, many of whom also suffer from
SHPT. Patients with parathyroid carcinoma have a rare, serious cancer of the
parathyroid gland resulting in excess secretion of PTH, a form of primary
HPT. According to the company, approximately 500 patients develop
parathyroid carcinoma each year.
Amgen has indicated that it expects a gradual sales ramp for the product upon
market launch given the challenging reimbursement environment for Medicare
patients. In particular, Amgen has indicated that intravenous vitamin D is
widely used to treat SHPT as it is reimbursed under current Medicare policy,
while oral medications are not. However, with the recently approved Medicare
bill, oral-based medications will begin to be reimbursed under this plan in
2006, which will benefit the use of Cinacalcet. We estimate this product
represents a multi-hundred million product with peak sales above $500
million. Our Cinacalcet sales estimates are $50 million for fiscal 2004 and
$145 million for fiscal 2005. NPS Pharmaceuticals will receive a royalty
payment of 10% on product sales of Cinacalcet.
Competition - Vitamin D sterols: As mentioned, from a competitive
standpoint, the current standard of therapy for the treatment of secondary
hyperparathyroidism (SHPT) associated with chronic renal failure is vitamin D
therapy. A widely used form of vitamin D is Abbott's Zemplar (paricalcitol
injection), which was the first vitamin D analog approved for SHPT associated
with chronic renal failure in 1998. Based on the clinical trial data,
Cinacalcet is expected to be positioned primarily as an add-on therapy to
current agents or as an alternative to vitamin D in those patients
irresponsive to vitamin D therapy for the treatment of SHPT. The issue with
chronic administration of vitamin D therapy is that by decreasing the
absorption of calcium and phosphorus, an increase in the risk of
hypercalcemia, hyperphosphotemia and elevated calcium x phosphorus product
(Ca x P) develops. This can lead to calcification of soft tissues, joints,
blood vessels and internal viscera (myocardium, lung, liver and kidney) that
can lead to cardiovascular disease and other complications. Furthermore,
prolonged administration of high doses of vitamin D is associated with
adynamic bone disease, in which there is less active bone turnover and can
lead to enhanced risk of hypercalcemia and fracture. Signs and symptoms of
vitamin D intoxication that is associated with hypercalcemia include
headache, somnolence, nausea, vomiting, constipation, muscle and bone pain.
Vitamin D therapy is typically contraindicated in patients with elevated
Ca2+, P and Ca x P product.
CINACALCET BACKGROUND
Cinacalcet, is a small molecule compound called a calcimimetic as it act on
calcium receptors located on the surface of parathyroid cells and lowers the
secretion of parathyroid hormone. In our opinion, Cinacalcet will play an
important role in enabling physicians to achieve the new K/DOQI guideline
targets for serum levels of intact PTH, calcium (Ca), phosphorus (P) and Ca X
P product in more effectively managing kidney disease. Specifically, these
guidelines set aggressive goals in managing calcium levels in the range of
8.4-9.5 mg/dL, phosphorus levels in the range of 3.5-5.5 mg/dL, calcium x
phosphorus product to less than 55 mg2/dL2 and intact parathyroid hormone
levels to 150-300 pg/mL in Stage 5 chronic kidney disease (dialysis)
patients. These guidelines highlight that clinical evidence has demonstrated
that inadequate control of these factors can lead to bone disease and
vascular calcification that can impair quality of life and cause premature
death in these patients. These target goals are challenging as data
indicates that only 19% of patients currently achieve these benchmarks and
typically do not remain within these targeted ranges over time.
In that regard, based on clinical data, Cinacalcet is the only therapy to
address all of these metabolic factors simultaneously. The data from 3
pivotal Phase III studies, which were in over 1,100 dialysis and predialysis
patients, were comprehensive, exceptionally consistent and demonstrated
strong and clear evidence on the ability of Cinacalcet to rapidly reduce iPTH
levels and simultaneously impact calcium-phosphorus product. Specifically,
the detailed pivotal Phase III data demonstrated that a higher proportion of
patients, approximately 36-48%, receiving Cinacalcet with standard therapy
(i.e., phosphate binders, vitamin D) achieved iPTH levels within the targeted
K/DOQI guidelines (i.e., less than or equal to 250 pg/mL) as compared to
patients receiving standard therapy (approximately 4-5%). Furthermore,
patients receiving Cinacalcet with standard therapy also achieved clinically
relevant reductions in calcium-phosphorus product (13-17%), calcium (6-8%)
and phosphorus (7-10%) while patients receiving standard therapy alone
remained at baseline levels. The primary side effects were gastrointestinal,
including nausea and vomiting, which were transient and appear to be
manageable with food intake. The efficacy results with Cinacalcet were noted
when administered with or without vitamin D and regardless of the phosphate
binder type used. Long-term data demonstrated sustained benefits (sustained
control of parathyroid hormone (PTH)) over two years without any elevations
in Ca x P.
VALUATION AND RISKS -- COMPANIES DISCUSSED
Amgen (AMGN--$62.46; 1M)
Valuation
With the potential for robust product sales and earnings, we believe Amgen
should trade at least on par to our coverage universe of large-cap biotech
companies. Our target price target of $90 per share is based on applying an
approximate PEG ratio of 1.4x, which is generally in line with the group
average (approximately 1.3-1.4x, by our analysis) for our coverage universe
of large-cap biotech companies to our 2005 EPS estimate of $2.85. We
estimate that this is equivalent to a P/E multiple in the low 30s, generally
in line with the group average of the high-20s to low-30s. We find AMGN is
also currently trading towards the low end of its historical trading P/E
range of 19.2-67.7x (over the past 5 years). We believe the stock should
trade at least at the mid-point of this historical range.
We have also applied a second valuation approach utilizing an analysis of
residual earnings. In other words, the value of the equity is assessed by
adding the present value of the residual earnings plus the book value of the
company. Residual earnings is defined as the earnings stream remaining after
accounting for the required return on investment, and is determined by
subtracting the multiple of the required return on investment times the book
value from projected earnings per year.
Using this analysis for Amgen, we calculated a book value per share of $15.85
and assumed a time horizon of three years. Our estimate for the discount
rate is 9.0%, which assumes a beta of 1.00 for AMGN, a market risk premium of
5.0% and a risk free rate of 4.0%. In addition, we assumed a constant growth
rate of 7.5% for the biotech industry. Using this approach, we arrive at a
target price of approximately $90 per share.
Risks
We rate Amgen Medium Risk due to the moderate predictability of the company's
financial results, strong cash flow, low debt-to-earnings ratio (16%), and
moderate stock price volatility compared to other large-cap biotechnology
companies. Key risks we see to Amgen achieving our valuation target include
the following: any delay in clinical development or regulatory approval of
developing products could have a material impact on the company's earnings.
From time to time, the Centers for Medicare/Medicaid Services (CMS) proposes
the limitation of reimbursement for hospital outpatient drugs, such as
Epogen, Aranesp, Neupogen and Neulasta, and other products which could limit
the pricing and use of these drugs. Additionally, if sales for key products
such as Aranesp, Neulasta, Epogen, Neupogen or Enbrel fail to grow, shares
would likely be impacted. Manufacturing constraints on Enbrel would also
likely have a negative impact on Amgen. Furthermore, any adverse court
rulings on its patent litigation with Aventis/Transkaryotic Therapies could
have a negative impact on the stock.
NPS Pharmaceuticals (NPSP--$31.70; 1S)
Valuation
In order to value the company, we have utilized a discounted earnings
analysis and applied a discount rate and PE multiple that we believe is
representative of a high growth biotechnology company, to a projected EPS
estimate for the company. Our financial model assumes that NPS will obtain
profitability in fiscal 2007 and forecast EPS of $2.18 in fiscal 2008. Our
target price of $43 per share is based on applying a P/E multiple of 45-55x
and a discount rate of 25%-30%, applied to the fiscal 2008 EPS forecast. We
believe this multiple is appropriate when one examines historically what
investors have been willing to apply on biotechnology companies following
major product launches and with robust EPS growth prospects.
A second approach that we have utilized is a relative valuation analysis. We
believe that NPS could be compared to other biotechnology companies that have
Phase III clinical programs that target large market opportunities (e.g.,
Amylin Pharmaceuticals (AMLN), CV Therapeutics (CVTX), Genta (GNTA), ICOS
(ICOS), and Neurocrine Biosciences (NBIX)). Based on this analysis, on a
comparable basis, we estimate that shares of NPS could be valued at
approximately $43 per share representing a market capitalization of
approximately $1.6 billion in line with the average for this group of
comparable companies. We believe NPSP should trade at least in line with
this comparable group of companies.
Risks
We believe a Speculative Risk rating is warranted for NPS given the material
impact clinical results with Preos are likely to have on the shares and the
high volatility of its shares. Risks to NPS achieving our valuation target
include the following: The company's current revenues are derived from
collaborative partnerships, as it has no marketed products. We anticipate
the company to continue to incur losses in the foreseeable future with
profitability not projected until fiscal 2007. Any delays or failure to gain
regulatory approval of the company's most advanced product candidates, Preos
(ALX1-11), Cinacalcet (AMG 073) or Teduglutide (ALX-0600), will likely have a
negative impact on the shares of NPS. In addition, delays in the clinical
development or lack of efficacy of other product candidates will likely
negatively impact the shares. As the company currently does not have any
sales or marketing infrastructure, NPS is dependent upon its current
corporate partners to support the development of certain programs, such as
Cinacalcet with Amgen.
I, Elise Wang, hereby certify that all of the views expressed in this
research report accurately reflect |
