Leg: Trimeris Upgrading to Hold...For Now
July 19, 2004
RATING: H/3
PREVIOUS: S/3
Edward H. Nash ehnash@leggmason.com (212) 247-4615
Robert S. rsgilliam@leggmason.com (212) 247-4639
Price (07/16/04) $12.29
FY Ends: Dec
S&P Index (07/16/04) 1,101.39
52-Week Range $55 - $13
Market Cap.($mm) $271.6
Shr.O/S-Diluted (mm) 22.1
Enterprise Val. ($mm) $204.1
Avg Daily Vol (3 Mo) 255,605
LT Debt/Total Cap. 0.0%
Net Cash/Share $3.56
Book Value/Share $2.67
Target Price NA
* We are upgrading our rating on shares of Trimeris from Sell to Hold.
* We continue to believe that Trimeris' long-term prospects are bleak, however,
in our opinion, all negative news is currently priced into the stock.
* On April 26, Trimeris expanded the distribution channel of Fuzeon to include
retail and specialty pharmacies across the U.S. Fuzeon was previously
available only from a sole distributor (Chronimed).
* In the short-term, Trimeris should benefit from the expanded distribution for
two reasons. Primarily, the expanded channels should allow for more efficient
distribution of drug. Secondly, we anticipate 2Q04 U.S. Fuzeon sales to
benefit by as much as $10 million to $14 million due to wholesaler stocking.
* In addition, Trimeris' initiatives to improve patient compliance and drug
uptake seem to be having the desired effect. Recent IMS script trends show
that Fuzeon uptake has been increasing in the recent months.
* We estimate Trimeris will report 2Q04 U.S. and worldwide Fuzeon sales of
$31.5 million and $42.0 million, respectively.
* Despite the near-term improvement in Fuzeon scripts, we believe that the high
COGS, significant marketing expenses, and patient aversion to Fuzeon will
continue to limit demand in the long-term.
* Conversations with top prescribing HIV physicians at the World AIDS
Conference confirm our thesis that the competitive landscape faced by Fuzeon
remains extremely difficult.
Investment Conclusion
Despite the improvement in Fuzeon scripts, Trimeris continues to face a
plethora of challenging issues including: minimal sales of its sole product
Fuzeon, a dwindling cash position, and the lack of a pipeline. In our opinion,
the lackluster demand for Fuzeon is a result of the convergence of many issues,
including: a salvage patient population that may not be as large as initially
expected, physician hesitation to prescribe Fuzeon to patients for fear that
they will not be compliant, and patient aversion to Fuzeon therapy due to its
twice daily subcutaneous dosing regimen. When these issues are combined with
the high production costs (we estimate COGS are currently greater than 50%) and
the exorbitant price of the drug, the result has been a very challenging Fuzeon
launch, despite the excellent safety and efficacy data of the drug. Please see
our model (attached) as we have adjusted many of our revenue and EPS estimates.
Patient Script Trends
Recent IMS data show that patient scripts are growing at approximately 900-
1,100 new patients per month (see Exhibit 1). It appears that Roche/Trimeris
initiatives to increase Fuzeon use are beginning to take effect. However,
patient dropout rates continue at approximately 750 per month. We attribute
this high patient dropout rate to the injection site reaction and the difficult
dosing regimen of the drug. While we are certain that a core patient population
does exist that will use and benefit from Fuzeon, we believe that patient
compliance and dropouts will continue to plague Trimeris. |
