CS: Biotechnology Market Weight M. Aberman
Biotech: Q109 Preview - Healthcare Reform A Headwind But Quarter Looks Fine
• Politics Weighing on Sector: Coming into the year, we expected large cap biotech to remain defensive in the face of continued
bad economic news. This thesis was working well until President Obama unveiled his budget and strong commitment to
healthcare reform. While the limited specifics in the budget do not seem onerous, the fear of "generic biologics", pricing
pressure and potential increased tax rates has resulted in under-performance. Memories of the "HillaryCare" era are also
keeping many investors on the sidelines. That said, we think the quarter is shaping up to be relatively good and we are
hopeful that some of the Genentech acquisition dollars will remain in biotech and give the sector a boost. The bottom line is
that we have not given up on our sector, although we recognize the political headlines may continue to provide a negative
headwind.
• AMGN: Quarter looks in-line; pending clinical data more important. IMS trends suggest that Amgen's base businesses could
come in lighter than our expectations. However, price increases could offset some weakness. Further, we believe investors
will come to Amgen after the quarter as they position for both Vectibix Phase III data in 2Q09 and denosumab data in
oncology in 3Q09.
• BIIB: Avonex Price Increase Should Help; Tysabri the focus. The base business will be aided by an aggressive Avonex price
increase but investors will be most interested in the patient additions for Tysabri, where we remain cautious.
• CELG: Quarter difficult to predict, but valuation attractive. We have always found predicting the quarters for Celgene difficult
(IMS does not track Revlimid well, growing ex-US sales). That said, the recent weakening of the US dollar should help the
company and we believe the long term growth should support a multiple higher than the current 16x 2010 consensus EPS.
• GILD: IMS data suggests HIV should deliver; CVTX deal continues to weigh. According to our analysis of the IMS data,
despite two fewer selling days, Gilead's HIV sales should come in at to slightly above consensus. While we continue to
believe in the HIV franchise, the acquisition of CVTX has increased the importance on the upcoming Darusentan DAR-311
data, which are expected in May at a medical conference and could prove controversial depending on the safety data.
• ALXN: Quarter is a relatively low comp. While we have no particular insight into the quarter, the consensus estimate of $5
million of QoQ sales growth is the lowest since launch. With the US dollar not strengthening over the quarter, we think
expectations set a relatively easy comp for Alexion. |
