Leg still negative on TRMS :
New CEO Can't Change Fuzeon's Delivery Method: Downgrading
2004-10-07 08:40 (New York)
Trimeris, Inc. NASDAQ:TRMS
New CEO Can't Change Fuzeon's Delivery Method: Downgrading to Sell
October 7, 2004
RATING: S/3
PREVIOUS: H/3 Edward H. Nash ehnash@leggmason.com (212) 247-4615
Robert S. Gilliam rsgilliam@leggmason.com (212) 247-4639
IV, CFA
Price (10/06/04) $15.05 FY Ends: Dec 2003 2004 2005
S&P Index (10/06/04) 1,142.05 Revenue($mm)
52-Week Range $28 - $11 Previous Est. NM NM NM
Market Cap.($mm) $329.6 Earnings EPS (Net)
Shr.O/S-Diluted (mm) 21.9 1Q $(0.75)A $(0.46)A NE
Enterprise Val. ($mm) $187.6 2Q $(0.84)A $(0.37)A NE
Avg Daily Vol (3 Mo) 262,461 3Q $(0.77)A $(0.32)E NE
LT Debt/Total Cap. 0.0% 4Q $(0.70)A $(0.23)E NE
Net Cash/Share $3.05 Fiscal Year $(3.07)A $(1.38)E $(0.39)E
Dividend ($) $0.00 Previous Est. $(3.07)A $(1.36)E $(0.39)E
Yield (%) 0.0% EV/Revenue NA NA NA
Book Value/Share $1.96 P/E NM NM NM
Target Price NA Note: We have not had revenue estimates.
All relevant disclosures and certifications appear at the end of this
report.
* We are downgrading our rating on shares of Trimeris from Hold to Sell.
* Trimeris' shares have increased more than 42% since the recent 52-week lows
reached in August. We attribute the rally to increased investor optimism
following the announcement that a new CEO, Steven D. Skolsky, had joined the
firm.
* In our opinion, the recent run-up in shares of Trimeris is unwarranted, and
underlying fundamentals lead us to believe fair value is closer to the mid-
single-digits than it is to current levels.
* We continue to believe that, although there has been a recent uptick in
Fuzeon scripts, long-term underlying demand for Fuzeon will remain weak.
* 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.
* We estimate Trimeris will report 3Q04 U.S. and worldwide Fuzeon sales of
$27.8 million and $39.9 million. Our 3Q04 loss share estimate is $0.32.
* Cash reserves continue to be major concern. Trimeris ended 2Q04 with $66.9
million in cash and cash equivalents.
* Numerous issues remain. Patient dropout remains a major issue, as does the
high COGS and marketing expenses that are required to support sales of the
drug. We estimate that the Roche/Trimeris collaboration will not reach break-
even until a $120 million run-rate of U.S. sales is reached.
Investment Conclusion
Despite the mild 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).
A New CEO Won't Change Patient Aversion to Fuzeon Injections
In early September, Trimeris announced that it appointed Steven D. Skolsky to
the position of Chief Executive Officer. Dr. Dani Bolognesi has remained with
the company in the capacity of Chief Scientific Officer and Vice Chairman of
the Board of Directors. While we are disappointed to see Dr. Bolognesi step
down, we are comforted by the fact that he will remain with the company in a
senior management position. Although the addition of Steven Skolsky to the
management team could bring positive changes to Trimeris, unfortunately, the
one change that could benefit the company most (a change in the formulation/
delivery method of Fuzeon) is not something that can scientifically altered by
replacing the CEO.
Patient Script Trends
Recent IMS data show that weekly patient scripts since the beginning of 2004
have modestly increased (see Exhibit 1 ). It appears that Roche/Trimeris
initiatives to increase Fuzeon use are beginning to take effect. However,
patient dropout rates continue to cause concern. 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.
Exhibit 1: Total WeeklyFuzeon Scripts
Source: Legg Mason and IMS Health
Potential Upcoming Events/Milestones
* 3Q04 Conference Call, October 21, 2004
* Selection of next-generation fusion-inhibitor drug candidate, 4Q04
Company Description
Trimeris, Inc. is a biopharmaceutical company headquartered in Durham, NC, that
discovers and develops fusion inhibitors for the treatment of HIV. The company
recently received FDA approval for its lead compound, Fuzeon. Fuzeon is the
first in a new class of antiretrovirals known as fusion inhibitors. Trimeris'
collaborator for the development and commercialization of its technology is
Roche. Fusion inhibitors represent a fourth class of drugs currently available
for the treatment of HIV.
I, Edward Nash, certify that the views expressed in this r |
