piper:
KEY POINTS:
We expect strong performance from small-mid cap biotech companies in 2006
based on new product launches, several companies emerging into profitability,
advancement of new pipeline products, and continued interest from large cap
biotech and pharma companies in licensing and acquisition.
Near-term catalysts include the following:
AUXL " Data from six-month Testim study in diabetic patients (mid-06);
Initiate Phase III trial for Dupuytren's and Phase IIb trial for Peyronie's
(2Q06-3Q06)
CTRX " Data from competitor UTHR on inhaled remodulin trial (mid-06); Update
on I-Neb uptake (1Q06); Data from open label extension study of STEP trial
(1Q06).
CVTX - FDA action date for Ranexa (January 27)
GNTA " FDA action date for Genasense in CLL (June 29), EU action on Genasense
filing in melanoma (2H06)
INCY " Initiation of DFC Phase IIb/III study (1Q06); Initiation of Phase I
trial for CCR5 inhibitor for HIV (1Q06); Initiation of Phase I/II trial for
sheddase inhibitor in cancer (1H06); Initiation of Phase I studies for CCR2
compound for multiple sclerosis (2H06).
MNKD " FDA action date for Exubera (January 27); First Phase III data for
Technosphere Insulin (mid-06)
2006 Top Small Cap Pick: CVTX. We highlight CVTX as our top small-cap pick for
2006. CVTX has an upcoming FDA action date for Ranexa on January 27, and we
expect approval with a 2Q06 launch. We remain confident in our peak sales
estimate of $350+ million for Ranexa and believe that there could be upside
from other applications of Ranexa beyond refractory angina and from Aceon,
CVTX's recently in-licensed, branded tissue specific ACE inhibitor for
hypertension.
RISKS:
There are a number of risks associated with the biotechnology industry,
including clinical, development, regulatory, political, and reimbursement
risks.
Auxilium- Market Perform
PJ Estimates (Millions except EPS)
4Q 2006
U.S. Testim $12.5 $59.5
EPS ($0.36) ($1.26)
AUXL (TBA): Piper EPS ($0.36) vs Street ($0.34). We project 4Q U.S. Testim
sales of $12.5 million, up from $10.8 million in 3Q. The Testim story remains
one of growing market share in a low-growth market. Testim market share
increased to 13.7% in November, up from 12.9% in October, and Testim Rx for
the first two months of 4Q are up 11% sequentially. Our 4Q05 $12.5 million
Testim sales estimate includes a 6% price increase taken in October and
assumes ~9% Q/Q growth. We acknowledge that IMS Rx trends are slightly higher
than our current estimate. Also, Testim market share has increased among
primary care physicians (PCP) and specialists. Specifically, Testim market
share in the PCP segment grew to 13.0% in November, up from 12.0% in October
and September, and up from 8.0% in January. These trends suggest that
Oscient's PCP sales force, which was fully trained at the end of May, is
beginning to have a positive impact in the key PCP market, although we are
uncertain if the pace of these gains is robust enough to meet our long-term
projections for Testim sales. Market share among among endocrinologists and
urologists is robust at 15.4% and 19.6%, respectively, and continues to grow.
However, year-to-date, the overall testosterone replacement therapy (TRT)
market has been flat with 1.7% Y/Y growth. We believe that TRT expansion is an
important factor for future Testim growth and achieving our outer year
estimates, and we will continue to closely monitor IMS data.
Near-term milestones for Auxilium include: 1) Data from a six-month study of
Testim in 140 men with diabetes (mid-06); 2) Testosterone transmucosal film to
enter Phase III trials (1Q06); 3) AA4500, a collagenase in development, to
enter Phase III for Dupuytren's (2Q06); and 4) AA4500 to enter Phase IIb for
Peyronie's (2Q06-3Q06).
Corcept—Market Perform
CORT (TBA): Piper ($0.25) vs. Street ($0.25). CORT is expecting data from its
Phase III trial of Corlux in psychotic major depression (PMD) in 2H06, and if
positive, we would project Corlux launch in PMD in 2008. While PMD is the lead
indication, CORT is also expecting data from its Phase II trial of Corlux in
Alzheimer's disease in 1Q06. As a reminder, CORT announced that it was closing
the trial at 50% of expected enrollment as centers were unable to recruit
patients at a reasonable rate (see note 9/27/05). A positive outcome from this
study would represent upside to our current projections for Corlux. We believe
that data from both programs represent high-risk, high-reward outcomes.
CoTherix- Outperform
PJ Estimates (Millions except EPS)
4Q 2006
Ventavis $11.8 $56.7
EPS ($0.25) ($0.69)
CTRX (TBA): Piper EPS ($0.25) vs Street ($0.31). Our 4Q Ventavis sales
estimate is $11.8 million, up from $8.4 million in 3Q. As a reminder, CTRX
raised its 2005 sales guidance on its 3Q call to $20-$23 million, implying $8-
$10 million in 4Q sales, which we had previously noted is likely conservative.
Just accounting for the sales run-rate from the number of patients exiting 3Q,
we estimate 4Q sales should be higher than $8-$10 million guidance for 4Q, let
alone any additional sales from new starts. In addition, the other potential
factors that would alter our analysis, such as compliance and attrition,
appear to be tracking favorably in the company's market research. Although we
recognize that the holidays in 4Q, as well as anticipation of the new portable
nebulizer, may have dampened new patient adds in 4Q, we estimate 4Q Ventavis
sales of $11.8m, above the high end of the company's guidance range. 2006 will
likely be a pivotal year for CTRX in that competitor UTHR is expected to have
data from its ongoing trial of inhaled Remodulin (IR), which we believe could
mature by mid-2006. We expect an update on trial enrollment from UTHR on its
4Q call. Data from the TRIUMPH trial will be important to assess the
competitive landscape, both the potential for UTHR to pursue an expedited
regulatory strategy by filing with a single study and the overall efficacy/
safety/convenience profile of IR vs. Ventavis. We will be monitoring the
competitive situation closely, as a shift in favor of UTHR in the race between
IR and CTRX's strategy to improve the delivery profile of Ventavis could
represent a risk to our long-term sales assumptions and investment thesis.
Near-term milestones include. 1) Update from competitor UTHR on inhaled
Remodulin trial enrollment (1Q06); 2) Update on I-Neb uptake (1Q06); 3)
Initiation of Vision trial testing a combination trial of Revatio (sildenafil)
and Ventavis with the potential to reduce inhalations to 4 times a day (1Q06);
4) Data from open label extension study of STEP trial (1Q06); 5) Results from
trial using I-Neb with shorter Ventavis inhalation times (2006); 6) Data from
the UTHR trial of inhaled Remodulin (mid-06); and 7) Possible in-licensing of
new compound.
CV Therapeutics—Outperform
PJ Estimates (Millions except EPS)
4Q 2006
Ranexa NA $32.2
EPS ($1.31) ($4.63)
CVTX (TBA): Piper ($1.31) vs. Street ($1.40). CVTX is one of our top small-cap
picks for 2006. CVTX submitted its amendment to the New Drug Application (NDA)
for Ranexa for resistant angina in July, and with a 6-month review, we expect
approval by January 27 and launch in late 1Q06-early 2Q06. At this stage, we
believe that approval is largely priced into the stock, although there could
be the potential for upside if the FDA grants a favorable label. Our primary
label question centers around the safety profile for Ranexa and how strong the
warning language will be for QTc prolongation and syncope.
We believe that the real controversy with CVTX is primarily related to the
commercial prospects for Ranexa. We continue to believe that Ranexa's key
differentiating attribute is its lack of blood pressure or heart rate lowering
effects, which are limitations of currently available agents when used in
combination. Ranexa's lack of hemodynamic effects makes it an ideal
combination agent for patients who require more aggressive medical management.
We remain confident in our peak sales estimate of $350+ million for Ranexa as
a second- or third-line anti-anginal and believe that there could be upside
from other applications of Ranexa beyond refractory angina and from Aceon,
CVTX's recently in-licensed, branded tissue specific ACE inhibitor for
hypertension.
Near-term milestones include: 1) FDA action date for Ranexa (January 27); 2)
Launch of Ranexa (March); 3) Data safety monitoring board review of the MERLIN
outcomes study for Ranexa (1Q06); 4) Completion of enrollment of 6,500
patients in the MERLIN study (2Q06); and 5) Data from MERLIN (year-end 06 or
early 07).
Genta- Underperform
PJ Estimates (Millions except EPS)
4Q 2006
Genasense NA $9.2
EPS ($0.08) ($0.07)
GNTA (TBA): Piper EPS ($0.08) vs Street ($0.08). GNTA provided an update to
investors on its regulatory submissions for Genasense earlier in January (see
note 1/5/06). Genasense is currently under review at the EMEA for metastatic
melanoma and at the FDA for chronic lymphocytic leukemia (CLL). GNTA completed
the new drug application (NDA) for Genasense in chronic lymphocytic leukemia
(CLL) on December 29, 2005, setting up a review date for acceptance of the
application in mid-February, and a June 29 FDA action date. We continue to
believe that the risk-reward profile for Genasense in CLL remains highly
controversial, given the lack of progression-free survival, overall survival
or well-defined quality of life benefits in the Phase III trial. In Europe,
GNTA is seeking approval for Genasense in melanoma, the indication that was
originally turned down by an FDA panel in 2004. The EU application contains
revised data from a new audit of patient outcomes by a blinded panel of
reviewers, extended followup, and a subgroup analysis of patients with normal
LDH in which a survival benefit was noted favoring the Genasense arm. We
believe that this is a high-risk regulatory strategy. Finally, Genta continues
to pursue partnership discussions for Genasense. We believe a solid
partnership with good economics could help validate Genasense and help fund
operations beyond 2006, when we expect Genta would otherwise need to raise
additional funds. A partnership and/or regulatory approval for Genasense may
cause us to re-evaluate our investment thesis on GNTA.
Incyte— Market Perform
INCY (TBA): Piper ($0.30) vs. Street ($0.32). Incyte will initiate a new Phase
IIb trial of DFC (formerly Reverset) by the end of February. This trial will
randomize 250 patients at over 100 centers to receive either 200 mg DFC or
Glaxo's 3TC on top of an optimized background regimen. The primary endpoint
will be the proportion of patients achieving at least a 1 log reduction at 24
weeks, with a key secondary endpoint of median viral load reduction. A
recently presented analysis of the first Phase IIb study suggests that median
viral load reductions could be a better signal of the drug's efficacy, rather
than the standard calculation of mean viral load reductions. The new 204 trial
will explore the positive trends seen in the Phase IIa trial in patients
taking 200 mg DFC and not taking concomitant 3TC/FTC. If the outcome is
positive, Incyte confirmed with the FDA that it may be able to use the results
as one of the registration trials and therefore conduct only one additional
Phase 3 trial, which could save on future burn rate. Incyte predicts
enrollment for the study will be completed by mid-06 with top-line data by
year-end 2006 or early 2007. We continue to project a launch for DFC in 2010.
Based on recent conversations with INCY management, we believe that further
follow-up of patients in the open-label extension study of DFC has not yielded
new cases of serious pancreatic enzyme elevations. At this stage, there are
over 50 patients who have been treated for more than 1 year and another 50
patients with over 8 months of exposure. We will be monitoring the data for
pancreatic enzyme elevations closely, as any cases of pancreatitis could
materially affect our DFC thesis.
We are increasingly encouraged by the company's progress in building a
pipeline beyond DFC. In particular, we believe that INCB9471, the CCR5
inhibitor for HIV, could emerge as the next critical asset in INCY's pipeline,
given recent setbacks for pharma-developed CCR5 inhibitors in late-stage
studies and the potential for an early readout of efficacy with this program.
The first clinical studies with INCB9471 will begin in 1Q06, and the company
anticipates the initiation of proof-of-concept Phase IIa monotherapy studies
in 2H06. We expect the company will provide an update on this program and
others, including a first look at its novel diabetes program, on its 4Q call
in February.
Near-term milestones include: 1) Initiation of Study 204, the FDA mandated
Phase IIb trial of DFC (Feb); 2) Initiation of Phase I trials for the CCR5
inhibitor for HIV (1Q06); 3) Update on novel diabetes program (1Q06); 4)
Initiation of a Phase Ib/IIa study of the sheddase inhibitor in cancer (1H06);
5) Presentation of Phase I healthy volunteer data for the sheddase inhibitor
at ASCO (2Q06); 6) Completion of Study 204 enrollment (mid-06); 7) Initiation
of Phase I trials for INCY's proprietary CCR2 inhibitor in multiple sclerosis
(2H06); 8) Initiation of a Phase IIa study for the CCR5 inhibitor (2H06); and
9) 24-week data from Study 204 (year-end 2006-early 2007)..
MannKind— Outperform
MNKD (TBA): Piper ($0.66) vs. Street ($0.60). The next major catalyst for MNKD
is the January 27 FDA action date for Exubera, Nektar/Pfizer/Sanofi's inhaled
insulin. Exubera had a positive panel meeting (see note 9/9/2005), and we
expect approval or an approvable letter. FDA approval of Exubera will help to
clarify the regulatory pathway for other inhaled insulins in development, like
MNKD's Technosphere Insulin (TI). Separately, we note that recent results from
the European fixed-dose Phase IIb trial of Technosphere Insulin (TI) (see
today's note 1/17/06) showed no changes in pulmonary function tests, severe
hypoglycemia or weight gain. We view these outcomes as highly encouraging, as
it increases our confidence that TI has a potential best-in-class profile of
the inhaled insulins currently in development. We continue to expect data by
mid-2006 for MNKD's first EU Phase III trial (Study 014), which has enrolled
280 Type 2 diabetes patients and is comparing TI to rapid-acting insulin in a
background of basal insulin.
Near-term milestones include. 1) FDA approval of NKTR/PFE's Exubera, the first
pulmonary insulin expected to market (FDA action date is Jan 27); 2) Exubera
prescription data (1H06); 3) MNKD clinical data presentations for Technosphere
Insulin (TI) (spring/summer 2006); 4) Top-line Phase 3 TI trial results (mid-
2006); and 5) potential for TI partnership announcement (2006).
Trimeris—Underperform
| |4Q05 |2006 |
|U.S. Fuzeon Sales|$31.8 |$151.0|
|WW Fuzeon Sales |$54.3 |$256.0|
|EPS |($0.02)|$0.18 |
TRMS (10/18): Piper EPS ($0.02) vs. Street ($0.04). Our U.S. Fuzeon sales
estimate for 4Q is $31.8 million, up from $28.4 million in 3Q, and our
worldwide Fuzeon sales estimate is $54.3 million, up from $48.9 million. Our
4Q U.S. Fuzeon sales estimate assumes 11.9% growth in end-user demand, after
stripping out the 5% price increase taken in October. November IMS
prescriptions for Fuzeon were 4,118, down 3.2% from prescription levels
recorded in September/October and the first month-over-month decline since
July. Assuming flat December prescriptions, 4Q Fuzeon prescriptions are
tracking up only 2% sequentially. This slower-than-expected prescription
growth suggests potential downside to our 4Q estimate of $31.8 million. Ex-US
sales of Fuzeon are difficult to predict. Over the last 4 quarters, ex-US
Fuzeon sales have grown on average approximately 10% sequentially. Our 4Q ex-
US sales estimate assumes an 11% Q/Q increase.
One of the key questions for future growth of Fuzeon is the impact of the
introduction of new salvage agents. In 2006, we should see the introduction of
darunavir (formerly TMC114), the new protease inhibitor from JNJ (approval
expected by mid-2006). The short-term bull theory for TRMS centers around data
generated from multiple trials showing that these new salvage agents have the
best outcome when combined with Fuzeon, given the synergistic impact of
combining two or three active agents in a regimen. We remain cautious on the
potential for new salvage agents to accelerate Fuzeon usage: (1) we have not
seen this occur empirically with the launch of Boehringer Ingelheim's new
protease inhibitor, Aptivus, in June 2005, where increasing Aptivus
prescriptions in 4Q have not translated into an equal increase in Fuzeon
prescriptions; (2) data from the two JNJ studies of darunavir show different
outcomes in the Fuzeon subgroup, with one trial demonstrating a smaller
improvement in virologic outcomes. In our discussions with JNJ, we believe
that JNJ will try to subtly dissociate its marketing message for darunavir
away from combination usage with Fuzeon. Longer-term, we also remain concerned
that any increased Fuzeon sales from clinical trial usage may erode as these
new salvage agents are introduced.
As a reminder, TRMS received an approvable letter from the FDA for the
inclusion of information for the needle-free Biojector 2000 (a needle-free,
carbon dioxide-powered injector) into the Fuzeon label in November (see note
11/28/05). The FDA requested additional information from the ongoing WAND
trial, a cross-over trial comparing the Biojector with the usual needle-
syringe system, with data expected in 2H06. As such, we would project a 2007
launch for the Biojector device and do not expect any impact in 2006. We also
note that TRMS and Roche recently advanced two new fusion inhibitor candidates
into preclinical testing. Both peptides, TR-291144 and TR-290999 are distinct
compounds derived from the HR2 sequence of HIV and are targeted for once
weekly dosing. TRMS received a $2.5 million milestone payment from Roche. Data
from early preclinical studies of these peptides will be presented in
February. We remain unclear on the strategic rationale for this investment and
await further details on the clinical profile and the potential development
cost for these candidates.
Finally, this is the third quarter that the JV with Roche will likely reach
profitability. We expect the collaboration to continue to be profitable going
forward over the near-term and intermediate-term, based on modest North
American Fuzeon sequential sales growth (6%-7% per quarter for 1H06) and flat
quarterly selling and marketing expenses. Increased profitability for the
collaboration in our model is dependent on continued Fuzeon sales growth and
secondarily on gross margin improvements and reductions in the absolute dollar
spend for Fuzeon selling and marketing expense. We project Trimeris will cross
into profitability as a company in 2006, but this is dependent on flat
operating expenses and continued growth in Fuzeon sales. We remain cautious on
the multiple to apply to these sales and EPS in deriving a valuation for TRMS,
given the challenging operating margins for Fuzeon, the potential competitive
risks over the next 3-5 years that could erode sales and profitability, and
the lack of a clinical stage pipeline to sustain long-term growth.
Near-term milestones include: 1) Data from WAND trial comparing Biojector with
usual needle-syringe system (2H06); 2) Approval of JNJ's darunavir (mid-06).
Company Price Targets & Risks:
AUXL- Our $5 price target is based on a 25x 2010E EPS, discounted at 25%.
Risks include, but are not limited to, 1) slower-than-expected Testim sales,
2) future generic competition, 3) lack of market growth, 4) failure to extend
Testim IP, and 5) pipeline failures.
CORT- Our $5 price target is based on a 25x 2011E EPS, discounted at 45%.
Risks include but are not limited to: 1) negative data from Phase III trials
of Corlux in psychotic major depression; and 2) financing risk prior to
profitability.
CTRX- Our $20 price target is based on a 30x 2010E EPS, discounted at 25%.
Risks include but are not limited to: 1) competition from inhaled Remodulin,
and 2) setbacks in developing a more convenient Ventavis delivery.
CVTX- Our $34 price target is based on a 40x 2010E EPS, discounted at 30%.
Risks include but are not limited to: 1) failure to achieve Ranexa sales
estimates, 2) inability to expand Aceon managed care coverage, and 3) clinical
risk in label expansion for Ranexa.
GNTA- No target price. Risks include but are not limited to: 1) Non-approval
of Genasense in CLL in the U.S. and/or in melanoma in the EU; 2) financing
risk; and 3) inability to find a new partner for Genasense.
INCY- Our $7 price target is based on a 35x 2013E EPS, discounted at 35%.
Risks include but are not limited to: 1) enrollment delays; 2) higher-than-
expected pancreatic side effects with DFC; and 3) negative CCR2 data.
MNKD- Our $20 price target is based on a 35x 2012E EPS, discounted at 35%.
Risks include but are not limited to: 1) failure to achieve TI partnership, 2)
safety/efficacy issues with TI, 3) delay in clinical trial enrollment or
filing of NDA, 4) financing risk, 5) allegations of manufacturing problems
with TI, and 6) litigation risk.
TRMS- Our $11 price target is based on a 20x 2009E EPS, discounted at 30%.
Risks include but are not limited to: 1) lower-than-expected Fuzeon demand; 2)
higher-than-expected costs for Fuzeon manufacturing or marketing, 3) new
competition from oral salvage HIV drugs in the pipeline, and 4) lack of
pipeline development.
Related Companies:
AUXL: 5.97 CORT: 4.05 CTRX: 10.22 CVTX: 23.93 GNTA: 1.94 INCY: 5.31 MNKD:
15.99 TRMS: 11.80
Important Research Disclosures
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Analyst Certification - Thomas Wei, Senior Research Analyst
The views expressed in this report accurately reflect my personal views about
the subject company and the subject security |
