Ende is exercized about the denseness of some of his colleagues - bolding is Ende's:
OSI Pharmaceuticals, Inc.
Update; Selling Overdone; Reiterate BUY Rating
Tarceva data was presented at ASCO and while we expected some selling on the
news, we believe that the magnitude of the selling is unwarranted. Some investors
today were concerned about 3 issues:
4. A brokerage was claiming that Tarceva is going to be facing stiff competition
because it and Iressa are like Coke and Pepsi. But, as compared to Iressa,
Tarceva has demonstrated a clinically significant survival benefit while Iressa
has not. Ask a simple question if a family member was in need of lung cancer
treatment, which would you chose? That is an important point and we think
we know what most doctors would choose.
5. Another brokerage claimed that data showed patients without prior treatment
did not show a survival benefit and that this would limit the market. But the
data for previously untreated patients is totally irrelevant for 2 reasons.
Almost all of the patients in the US get front line chemotherapy and Tarceva
wouldn’t be used in this setting, it would be used in the 2nd and 3rd line
settings. Also, only 34 patients of the 750 in the study did not get prior
treatment so the statistics do not even work in such a small sub-population.
6. Investors are disappointed that there was no upside surprise to the
expectations. Our view is that investors should look beyond what we think is
minutia. The data is so compelling in our view that the only thing that really
matters here is that the drug will be filed with the FDA in the summer,
approved with a broad label in early 2005 or even sooner and the drug is
likely to launch with sales beating expectations.
• Also, we expect data later today in the afternoon as well as tonight
that we think is going to convince investors that the drug’s benefits
are broad based and that mutations do not matter for survival.
• Besides FDA filing in mid-04 and approval in early 2005, we expect OSI to
become only one of a couple of biotech companies to launch a new product in
2005, provide upside to estimates, and turn profitable in the near-term; thus,
we believe that OSI should trade at a premium to the group.
We are reiterating our BUY rating and would be aggressive buyers of the stock
here. Our price target of $108 is based on a premium multiple of 45x (1.6x
growth of 28%) our 2006 EPS estimate of $2.41. The key risk is unanticipated
non-approval of Tarceva, which we believe has a very low likelihood. Other risks
include lower than expected Tarceva sales due to lower pricing, greater
competition or limited reimbursement.
Eric J. Ende, M.D.
FlashNote available.
OSIP; $75.20; C-1-9
Buy
Volatility Risk: High
12-Month Price Objective:
$108.00 (07-Jun-2004)
EPS (Sep): 2003A -$4.02; 2004E -
$4.18; 2005E -$0.48
P/E (Sep): 2003A NM; 2004E
NM; 2005E NM |
