Merrill
Scenario analysis on Erbitux
FLEX data
Erbitux FLEX data – scenario analysis for IMCL, OSIP, DNA
Phase III Erbitux data in lung cancer (FLEX) will be released at the ASCO cancer
conference in early June, which is likely to affect Imclone, Genentech & OSI
Pharma. The most likely outcome is for the data to positively affect Imclone,
negatively affect OSI, and for Genentech to be mostly unaffected.
Scenario analysis based on Erbitux lung cancer data
The FLEX study, for which top-line results have already been released, will show
a survival advantage for Erbitux+Chemo vs. Chemo alone in the front-line
metastatic lung cancer setting. Our scenarios assume an Erbitux survival benefit
of <6 weeks, 6-8 weeks, and >8 weeks. The magnitude of survival benefit for
Erbitux+ chemotherapy will determine the ultimate effect on IMCL, OSIP, and
DNA shares. Also, the magnitude of Erbitux+cisplatin/Vinorelbine survival vs.
carbo/taxol chemotherapy alone could affect the degree of Erbitux adoption.
IMCL: Estimate $1-10 upside possible on FLEX data
We estimate $1-10 upside is possible on Erbitux lung data at ASCO, with $1-4
most likely. From Imclone’s perspective, depending on how much of a survival
benefit Erbitux provides, the data is likely to result in greater share for Erbitux in
front-line lung cancer. We believe share could increase to 15 - 35% of the
front-line market in 2010, which would increase sales to $406 MM – $1 B in 2010,
or add $1 to as much as $10 to the stock.
OSIP: $1-2 downside possible
We estimate up to $2 downside for OSIP on Erbitux data at ASCO. From OSI’s
perspective, as Erbitux’s share of the front-line setting increases, Tarceva’s share
is likely to decrease in the second-line setting. We expect doctors to be less
willing to use Tarceva immediately after Erbitux because both drugs have a
similar mechanism of action. Thus, we estimate that OSI’s share of the 2nd line
setting could decline by 4 -11%, which could reduce sales by $20 MM - $49 MM
in 2010, net of a modest increase in 3rd line sales. The potential sales hit
equates to $1 – 2 of downside for the stock.
DNA: estimate ~$1 downside in worst case
We estimate minimal downside for DNA on Erbitux data in front-line lung cancer
at ASCO. From Genentech’s perspective, Erbitux is most likely to gain share of
Avastin-ineligible patients, which we estimate is about 60% of the overall lung
cancer market. However, as the survival benefit vs. chemo alone approaches
8 weeks and absolute survival approaches 12 months, which is what Genentech
has shown in the same setting, Erbitux could begin to encroach on the Avastin
market as well. In a worst case scenario, we see $152 MM of potential downside
for Avastin sales, and $49 MM downside for Tarceva due to strong Erbitux data,
which equates to about a $1 of risk to DNA’s stock. |
