Merrill - wish they'd told me this before I lost 30 cents on a short on Friday
Short term trading opportunity
We believe there may be a short-term trading opportunity in IMCL due to
potentially excessive negative sentiment around near-term Erbitux sales and the
potential for positive phase III data from the front-line colorectal or pancreatic
cancer study, which we do not believe is reflected into the stock.
Upgrade to NEUTRAL; Short-Term Trading Opportunity
We are upgrading ImClone to NEUTRAL from SELL; we also see a short-term
trading opportunity. Our upgrade is based on valuation, 4Q Erbitux sales that could
meet consensus despite weak NDC & IMS data, & the near-term release of phase
III Erbitux data (1st-line colorectal & pancreatic cancer). But, we remain concerned
about Erbitux’s long-term sales potential due to competition from Vectibix.
Lower-End of Valuation Range
IMCL is trading toward the low end of our break-up value range of $25-$30 based
on Erbitux sales, net cash, the pipeline & manufacturing assets. But, if Erbitux
pricing declines & share loss accelerates then we estimate valuation could fall to
the low $20s.
4Q Erbitux Sales Could Meet Consensus
We believe Erbitux sales could meet consensus of $180 MM despite weak NDC
and IMS prescription data. While we believe Amgen’s Vectibix is capturing share
in the colorectal cancer market, Rx data may be overstating the capture rate. We
are raising our 4Q Erbitux sales estimate to $181 MM from $169 MM.
Phase III Data Coming, but sales may remain under pressure
We expect phase III Erbitux data for colorectal cancer in 1Q07 & pancreatic
cancer in 2Q07. While neither is likely to meaningfully accelerate sales, positive
data could boost the stock, slow share loss & stabilize sales. But, Erbitux sales
are likely to remain under pressure due to Vectibix’s similar efficacy, more
convenient dosing, fewer side effects, lower price, & Amgen’s marketing muscle. |
