The down grade has been reported all over the place, here's Ende's fulltext:
OSIP; $81.00; C-1-9 to C-2-9
EPS (Sep): 2003A -$4.02; 2004E -$3.74; 2005E -$1.89
P/E (Sep): 2003A NM; 2004E NM; 2005E NM
GAAP EPS (Sep): 2003A -$4.87; 2004E -$3.74; 2005E -$1.89
GAAP P/E (Sep): 2003A NM; 2004E NM; 2005E NM
OSI Pharma and Genentech announced that its phase III trial testing Tarceva in 2nd/3rd line
lung cancer reached its primary endpoint of improving survival versus best supportive care
and it hit key secondary endpoints as well.
We are downgrading OSI to Neutral from BUY based on price. We are cautioning investors
not to get overly aggressive even though investors may feel compelled to compare the results
and the drug’s potential to Avastin.
(1) We have not yet seen the magnitude of the survival benefit, although it should be
released in early June at ASCO. The actual benefit will determine if the results are
clinically meaningful and will affect product pricing and market penetration.
(2) The study was performed versus best supportive care and NOT versus current standard
of care, which is Taxotere or Iressa. Thus, it is not possible to say that Tarceva is better
than Taxotere and Iressa.
(3) Pricing for Tarceva is a big unknown because Iressa, which is a very similar drug, is
already priced at only $4,500 per patient. Importantly though, Tarceva showed a
survival advantage while Iressa did not, which should allow for higher pricing. But, the
magnitude of the benefit will determine actual pricing.
(4) We believe that data using a new diagnostic marker test may be released shortly in a
major medical journal. If the marker correlates response rate to survival and it can
identify patients that are most likely to respond, the marker could reduce the size of the
overall market for this class of drug to 10% - 15% of NSCLC patients.
We expect the drug to be filed with FDA during 3Q04 and launched in early 2005.
Assuming no diagnostic marker test, we project peak sales in the US for lung cancer of
around $950 MM and $750 MM internationally. Genentech and OSI will split profits 50/50
in the US and OSI will receive a low 20 percent royalty internationally. |
