Merrill:
Raising estimates on strong execution
OSIP raised full-year GAAP EPS guidance to $1.40 from $1.00, signaling
disciplined expense control and growing diabetes royalties and Ex-US Tarceva
revenues. Also, the dedicated Tarceva salesforce became active only in late
May, and should have a stronger effect on Tarceva revenues going forward. In
addition, we expect Macugen divestiture by YE07 to complete the sales of the eye
business. Finally, we are raising estimates based on firm expense control and
growth driven by diabetes royalties and Ex-US Tarceva revenues. Reiterate BUY.
Dedicated salesforce should boost 2H Tarceva revs
The dedicated Tarceva salesforce was active only one month in 2Q, thus we
expect a stronger effect on revenues going forward. DNA sales reps had
previously split time between Herceptin and Tarceva, but now DNA reps will focus
only on Tarceva. The net effect on the JV profit split is estimated at +$3 mn for
FY2007, and could push JV profitability towards 40% for OSIP.
Expect full Macugen divestiture by YE07
We expect Macugen divestiture by year-end '07 to complete the sale of the eye
business. Although the company is selling its PDGF aptamer program and
Macugen separately, we believe OSIP will find a buyer by year-end. OSIP will
retain ~$140 mn in Macugen non-operating losses (NOLs), but we look for the
company to efficiently divest the eye business and re-focus efforts on diabetes
and oncology development.
Raising estimates on expense control, revenue growth
We are raising our estimates based on higher EPS guidance, a better Tarceva JV
conversion factor, higher license and milestone revenues, and lower R&D and
SG&A expenses. Our non-GAAP EPS (ex-options) estimate rises to $1.79 from
$1.49 in '07, to $1.80 from $1.72 in '08, to $1.63 from 1.58 in '09, and to $2.06
from $2.01 in '10. |
