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Biotech / Medical : OSI Pharmaceuticals (OSIP) - formerly Oncogene
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From: tom pope1/11/2007 9:54:15 AM
   of 447
 
Merrill:

Tarceva sales better than reduced expectations
DNA reported U.S. Tarceva revenues of $107mn in 4Q06, above our reduced
estimate of $104mn. In addition, we believe total WW sales could reach $650mn
in 2006, suggesting ex-US sales could be as high as $82mn vs our $76mn
estimate. Because OSI’s stock has been weak on concerns that sales would be
weak with no growth in 4Q over 3Q, the modestly higher than expected US sales
and potential for higher ex-US sales could boost the stock. Maintain BUY.

Ex-US could surprise on the upside
Tarceva sales Ex-US could grow as much as 20% QoQ to $82mn in 4Q06, ahead
of our $76 MM estimate. Pricing was recently secured in Italy, which could
slightly accelerate sales, and support the 33% QoQ growth rate seen during 2Q
and 3Q 2006. We continue to believe Ex-US Tarceva sales are underestimated
and will provide growth during 2007.

OSIP still undervalued on Tarceva, diabetes franchise
We continue to believe OSIP is undervalued for its Tarceva and diabetes
franchises. In 2007 and 2008, additional data should reaccelerate Tarceva
growth. Also, strong Januvia sales should unlock under-recognized value of OSI’s
diabetes franchise and royalties may exceed expectations due to strong DPIV
drug sales. Finally, we expect tighter expense control to allow for solid EPS
growth that could exceed current Street estimates.
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