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Biotech / Medical : analysts and calls -- ML

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From: tom pope	9/1/2006 12:20:32 PM
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GSK - I wouldn't call GSK oversold GlaxoSmithKline Company Update; Upcoming DREAM data a potential catalyst Avandia DREAM data at EASD on Sept 15th could be catalyst Presentation of the DREAM study, investigating the effect of GSK's Avandia's on the prevention of diabetes onset in pre-diabetic patients, is expected at the EASD (European Association for the Study Diabetes) annual meeting on Sept 15th. In our view, the data could act as an important catalyst for GSK shares, which have become oversold lately, as it could potentially open up a significant new market opportunity for Avandia. We believe the study has a high likelihood of meeting its primary endpoint, based on data from previous clinical trials but see limited downside from a negative or mixed outcome. Inclusion of the data on the Avandia label could add $1.4bn to existing '12E sales forecasts and 3-4% to EPS. Buy. Pre-diabetes a $15bn addressable market There are currently no marketed therapies for pre-diabetes. Should Avandia achieve appropriate labeling, it could be the first agent indicated for the prevention of diabetes onset in pre-diabetes patients. We estimate this could represent a global addressable market of c$15bn based on a population of 7m high-risk patients out of a total pre-diabetic population of 41m. Hurdles to penetrating market; $1.4bn upside to 2012E However, even if the DREAM data is positive, we believe that substantial hurdles to accessing the pre-diabetes market exist and we and therefore estimate realistic upside to 2012E sales forecasts of c$1.4bn representing 3-4% potential uplift to EPS. Key hurdles include: 1) Physician perception of superiority of Avandia relative to other therapies (e.g. lifestyle/metformin); 2) Low diagnosis and treatment rates expected in pre-diabetics; 3) Numerous labeling and marketing challenges and 4) Avandia's side effect profile (weight gain, oedma) a deterrent to early usage in the context of the low severity of the disease.

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