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Biotechnology
Relative Biotech Stock Trades
Relative Trade Ideas For Our Large Cap Neutral-Rated
Biotech Stocks
We expect large caps to outperform small caps even in the context of a weak biotech
tape. Thus, we wanted to provide a few relative trade ideas for the Neutral-rated large
caps under our coverage. We expect better relative performance from GENZ & BIIB
during the remainder of ‘06 as compared to AMGN and DNA.
GENZ: Undervalued with Multiple Drivers
GENZ has gotten inexpensive due to concern about potential competition from a
small private company. We expect GENZ share to rise as the limited nature of
the competitive threat becomes clearer, revenues re-accelerate in 2H06 due to a
foreign exchange benefit, Renagel sales benefit from Medicare Part D, and
Myozyme is launched.
BIIB: Tysabri Launch Upside, But Weak Long-Term Growth
BIIB could perform well in the near-term due to a better than expected re-launch
of Tysabri. But, longer-term, we believe reduced Rituxan profits will significantly
impair the company’s long-term growth rate.
AMGN: Inexpensive, But CERA is 12-Month Overhang
AMGN’s stock has gotten inexpensive on a historical basis at just 17x ‘07E EPS,
providing solid long-term value. But, we believe the stock may be a near-term
value trap due to limited potential for upside to estimates, few pipeline catalysts,
increased competitive threats, and the CERA patent case overhang.
DNA: Growth Priced In; But Risk to Long-Term Growth
DNA’s long-term growth rate, forecast at 23%, and potential for estimate upside is
already priced into the stock, in our view. But, longer-term reimbursement/pricing
pressure and competitive threats could put the long-term growth rate in jeopardy.
We expect new data at ASCO to highlight the competitive risks.
MEDI: Benefit from Gardisil, But Synagis Under Pressure
MEDI could rise in the near-term due to a positive FDA panel on May 17th for Gardisil,
an HPV vaccine for cervical cancer, and could be further helped by data from a phase
III study for Numax in 3Q06. But, the stock could exceed fair value on any near term
strength given reimbursement pressure for Synagis & peak EPS potential of only $1.40.
GILD: Price Reflects Slowing Earning & Revenue Growth
GILD’s growth rate could dramatically slow in the intermediate term as Tamiflu
sales flatten & decline by ‘08, HIV franchise sales growth slows due to the law of
large numbers & the pipeline fails to produce meaningful new products. But, at
21x ’07E EPS, GILD’s stock reflects the risk of slowing earnings & revenue
g rowth, in our view. |
