MGI Pharma Shares Offer 'Very Good Buying Opportunity'
Peter Kang, 09.28.05, 4:00 PM ET
Prudential Equity Group maintained an "overweight" rating on MGI Pharma (nasdaq: MOGN - news - people ) after the drug company tightened sales guidance for Aloxi, a cancer pain treatment.
Citing changes in reimbursement methodology and lower overall volumes, MGI Pharma trimmed the 2005 forecast to a range from $250 million to $260 million, down from a forecast for $260 million. Aloxi is a nausea treatment for patients undergoing chemotherapy and is MGI Pharma's lead product.
"Investors took this slight change rather dramatically and traded the stock down to what appears to us as a very undervalued level (versus a nearly flat market), as judged by forward price-to-earnings and price-to-earnings growth," said Prudential. "The question appears to be whether Aloxi will continue to grow in 2006 and beyond. We think the answer to that question is 'yes' and therefore think the stock's sell-off creates a very good buying opportunity."
Sales growth of Aloxi will continue in 2006, Prudential said, since the injection is the only drug in its class to be approved for the treatment of delayed chemotherapy-induced nausea and vomiting (CINV) and also beat market share leader Zofran in a head-to-head trial for acute CINV. In addition, MGI is set to benefit from its partnership with health-care network US Oncology, which administers about 10% of all chemotherapy regimens, according to Prudential. Zofran is marketed by GlaxoSmithKline (nyse: GSK - news - people ).
The research firm reiterated a $36 price target on the stock. "MGI Pharma appears to be undervalued for a growth story with near-term catalysts and an impressive pipeline," said Prudential. "We would argue, for a company that has growth potential for its leading products, the stock is very undervalued," it said.
In addition, Prudential said MGI Pharma shares have a handful of catalysts on the horizon, including a decision from the Food and Drug Administration in regard to Dacogen. "As we have said before, we believe the possibility of an approval is high after the FDA issued an approvable letter to the company," said Prudential. The firm added that approval of the drug has not been priced into the stock. Dacogen is a treatment for myelodysplastic syndrome (MDS), a precursor to leukemia.
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