3/30/09 j birchenough
Investment Conclusion
We are maintaining our Neutral rating on the US Biotech group but highlighting a potential near-term trading opportunity for mid and
large cap names heading into 1Q09 results. Recent weakness from healthcare reform proposals appears overdone and we expect nearterm
upside with uncertainty on House and Senate Bills out of the way and with strong 1Q09 performance anticipated in the near term
likely to distinguish biotech from other sectors. Roche's acquisition of Genentech will likely have investors getting ahead of expected fund
flows to other profitable biotech names and with M&A as a rapidly emerging theme we expect greater upside from profitable mid cap
companies. While maturing growth for large cap biotech names remains an overhang we believe that mid cap growth and pipeline
progress offer strategic flexibility and our top picks remain CELG, GENZ and AMGN on the large cap side with ONXX and CEPH on the
mid cap side.
Summary
?? With focus likely to rotate to large cap earnings performance we believe that 2009 guidance was largely conservative and designed to be
exceeded. Most concern in 1Q09 has been focused on AMGN trends, in particular for legacy products like Aranesp, however company
feedback suggests continued stability in 1Q09 and we expect focus to remain on D-Mab mBC data in early 3Q09. CELG shares have
been under most pressure in 1Q09 with strong Velcade performance raising questions regarding Revlimid trends, however company
feedback has suggested continued momentum in 1Q09 and we expect estimates to be met at a minimum. Finally, with both GENZ and
BIIB having guided to EPS CAGRs of 20% and with both companies hosting investor updates over the preceding week we were most
impressed with the GENZ update and continue to have concerns regarding BIIB's MS franchise. For GENZ it would appear that
manufacturing deficiencies delaying Lumizyme (Myozyme 2000L) approval have been addressed and with re-inspection readiness
expected this week we expect approval within 3 months. BIIB's focus on market research for Tysabri was less impactful in our opinion
with Neurologist feedback suggesting slippage to a 3rd line option.
?? Focus on the small-mid cap side remains on potential for further M&A activity and we continue to believe that profitable or near profitable
mid-cap product growth opportunities are likely of greater interest than unprofitable development stage small caps. Following our
Barclays Capital Healthcare Conference we continue to highlight ONXX and CEPH with topline growth in oncology, potential for margin
expansion and multiple pipeline catalysts as common themes. For the week ahead we expect most focus on metabolic disease
companies with FDA panel review of GLP-1 agonist liraglutide having implications for AMLNs existing GLP-1 Byetta and late stage
weekly version exenatide LAR. Overall, we view the risk reward proposition for AMLN as unfavorable with downside risk to <$10 and
upside potential to $16 and with positive recommendation or focus on pancreatitis risk for the class as more likely negatives for AMLN.
We also expect considerable focus on ARNA with imminent BLOOM study data for lorcaserin in obesity where again we see an
unfavorable risk reward proposition. With precedent data from Orexigen and Vivus suggetitng limited sustainable upside on success and
with likely persistent and unresolved questions on heart valve risk and neuropsychiatric assessment we see limited upside to positive
data but considerable downside risk to negative data. Comparability to Meridia suggests that results could come up short and we believe
that FDA scrutiny of dropouts could impact acceptability of LOCF data anyhow.
March 30, 2009
Biotechnology
Market Commentary/Strategy
Catalysts Ahead- Focus on AMLN and ARNA
Sector View:
New: 2-Neutral
Old: 2-Neutral
Americas
Healthcare
Biotechnology
??
Equity Research
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LARGE CAP BIOTECH
Amgen (AMGN 1-Overweight, Sector 2-Neutral)
AMGN has re-emerged as a product growth story with stabilization of ESA sales trends, less restrictive final labeling than expected for
Aranesp in cancer and with positive fracture data for denosumab in phase III FREEDOM study in women with post-menopausal
osteoporosis (PMO). Further upside potential exists from denosumab in cancer as well as pipeline progress highlighted at our recent
Barclays Capital Healthcare Conference.
Key Opinions
• Operating results for 1Q09 are difficult to predict given poor correlation between IMS tracking data and actual results historically – with
most focus on pipeline development, and denosumab in particular we see limited downside to 1Q09 results and greater upside if results
come in ahead of expectations – Management update at our Barclays Capital Healthcare Conference suggests expectations for
continued growth of all legacy products, with the potential exception of Aranesp, in 2009 – More recent update suggests
stability of Aranesp trends in 1Q09
• Guidance for relatively flat EPS growth in 2009 appears appropriately conservative given challenges to topline growth in the US but is
likely to be exceeded given continued ex-US growth, OPEX flexibility and potential pricing leverage – expect EPS guidance of $4.75-
5.00
• Business Review Meeting in late 2008 highlights P&L flexibility with significant pricing leverage for legacy products, OPEX cushion and
balance sheet strength allowing for aggressive share repurchase
• Final labeling for Aranesp in cancer was better than expected in our opinion with no cancer specific limitations, no absolute contraindication
to use in earlier stage I-II patients with curative intent and in particular with physician discretion maintained at Hgb levels
>10g/dl to avoid transfusion – Management update at our Barclays Capital Healthcare Conference suggests that the Risk
Evaluation and Mitigation Strategy (REMS) for Aranesp will ultimately dictate whether there is a further decline in Aranesp use
(10-15%) although at present oncologists appear to be interpreting the label conservatively and we are doubtful that further
weakness will emerge
• While AMGN has suggested that it will not pursue a reconsideration of the restrictive CMS National Coverage Decision (NCD), the
reimbursement policy remains out of step with current clinical practice guidelines as well as final FDA labeling and should ultimately be
revised – with 60% loss in Aranesp sales we do not believe that a termination threshold of 10g/dl is sustainable and expect oncology
groups to continue to push for greater physician discretion.
• The decision by United Health to maintain existing ESA reimbursement guidelines allowing physician discretion in the disputed Hgb
range of 10-12g/dl suggests upside potential to current concerns regarding broad ESA restrictions – we would note in particular details
in the United Health decision that would suggest that private payers may not be prepared to follow further FDA labeling restrictions and
recent CMS actions.
• Full detail of phase III FREEDOM study for denosumab in post menopausal osteoporosis (PMOP) was better than expected and
suggests an approvable drug with significant commercial differentiation – feedback from physicians at ASBMR suggests that superior
mode of delivery to Reclast, potential lower acquisition cost burden, favorable side effect profile and potency at the hip should
differentiate favorably – 68% fracture risk reduction at the L-Spine is at the high end of the 50-70% range for bisphosphonates and the
0.7% 3-year fracture rate at the hip is unprecedented and below that expected for normal age matched controls.
• Upcoming phase III data for denosumab in preventing skeletal related events (SRE) in patients with bone metastases should
demonstrate a favorable trend over Zometa given prior positive head-to-head data in phase II and mechanistic advantages Oncologist
feedback has suggested that denosumab could be a standard of care in breast cancer if just comparable to Zometa
• Data at ASCO 2008 for denosumab in Giant Cell Bone Cancer as well as competitor data from Zometa in metastatic breast cancer
should lend support for both a direct anti-tumor effect of denosumab as well as support for the importance of the bone
microenvironment in cancer metastases – more recent data publication suggesting a critical role for RANK in seeding of bone
metastases and a potential anti-VEGF role for denosumab provides further support for an anti-cancer role for denosumab
• Vectibix could re-emerge as a major competitor to ImClone’s Erbitux with recent attention on KRas testing as a guide to greater drug
activity and with results from 2 phase III CRC trials expected in 2009.
Equity Research
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• Further pipeline visibility is expected in 2009 with data expected from phosphate binder AMG-223, asthma drug AMG-317,DPP-IV
inhibitor AMG-222, VEGF multi-kinase inhibitor motesanib and a novel TRAIL antibody for cancer – we believe that AMGN has one of
the deepest pipelines in biotech and with recent success of denosumab and Nplate should start to command a greater premium
multiple for its pipeline, more in line with peers like DNA.
Biogen IDEC (BIIB 2-Equal weight, Sector 2-Neutral)
BIIB fundamentals remain weak with flat prescription trends for Avonex, expected loss of EU Rituxan contribution beginning in 2009 and
with re-emergence of PML cases for Tysabri – Prospects for further PML cases are expected to weigh on BIIB shares in the near term.
• With BIIB making the decision to remain independent and reiterating guidance for a 15% revenue CAGR, 20% EPS CAGR, 4 new
product approvals and 100,000 patients on Tysabri, we believe that significant fundamental risk exists to BIIB meeting these high
expectations
• Stabilization of Tysabri trends have yet to occur with continued decline in new patient starts in 4Q08 - As of YE08 37,600 patients
were on Tysabri globally, with 21,200 patients on Tysabri commercially in the US and 16,900 patients on Tysabri commercially in
international markets. Net weekly patient additions in the US have fallen to 54 vs. 131 in 3Q08 and BCS estimate of 114 while EU
net weekly additions have fallen to 123 vs. 146 in 3Q08 and BCS estimate of 130 – visibility on recovery of trends is poor
• Future Rituxan growth remains challenged with saturation of its primary NHL market and with safety issues in rheumatoid arthritis
limiting the drug to a niche role – while there has been some suggestion of Rituxan expansion in autoimmune disorders we believe
that anti-Rituxan antibodies and concerns regarding PML will severely limit adoption of the drug
• Expiration of EU royalty rights with Rituxan will begin in 1H09 and likely proceed over a period of 12 months with some of the
largest countries dropping out first– given dependence of BIIB growth on ex-US trends we view this as a significant under
appreciated challenge to growth beyond 2008
• With Tysabri as the remaining growth driver for BIIB we remain concerned regarding 5 recent cases of confirmed PML – With > 24
suspected cases reported since launch in the US we believe that at least 1 new case per month is being worked up for PML and
expect an increase in suspected cases, greater scrutiny of existing patients on Tysabri and more tentative initiation of new patients
to result from the recent confirmed cases in Europe
• Market research from 4Q08 presented at the recent R&D day and suggesting improved risk-benefit perception as well as
intention for increasing Tysabri use, particularly in the 2nd line, is not supported by actual 4Q08 physician behavior where
new patient starts fell to 177/week from 277/week – Neurologist feedback suggests that Tysdabri is likely to remain a 3rd
line option following failure of serial disease modifying therapies and recent publication by UCSF of data supporting
efficacy of serial ABCR therapies should reinforce this view
• Immune reconstitution syndrome following plasmapharesis in 1 of 3 recent confirmed cases of PML suggests a further concern in
patients treated for suspected cases of PML highlighting risk beyond the PML itself – we understand that in recent conference calls
concerning confirmed PML that immune reconstitution syndrome was a key focus and as such expect this to be an issue ahead
• Pipeline prospects remain questionable following failure of baminercept for RA and with emerging competition to Lixivaptan in
patients with hyponatremia – updates on BG12 and PEG-Avonex at the recent R&D day were encouraging, however phase II
data for BG12 appears underwhelming relative to emerging oral alternatives and placebo control design of the PEGAvonex
trial could extend enrollment over 2 years much like the case for BG12 – experience with extended release
interferon in HCV withy Albuferon warrants caution where uncoupling of adverse events from enhanced
pharmacokinetics may be difficult
Equity Research
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Celgene (CELG 1-Overweight, Sector 2-Neutral)
CELG retains multiple drivers of long term earnings growth with continued frontline penetration of Revlimid in Myeloma, global expansion of
Revlimid and Thalomid and following recent failure of Vidaza competitor Dacogen in MDS.
• Conservative 2009 EPS guidance of $2.05 to $2.15 was not unexpected and should provide a base to beat and raise consistently
through 2009 and as such we are maintaining our BCS 2009 EPS estimate of $2.20
• Drivers of future growth include potential for Revlimid frontline market share expansion in the US beyond its current 25% level,
extended Revlimid dosing duration beyond the average 10 month level, and EU market expansion with early launch restricted to
75% of the addressable market - – Update at our Barclays Capital Healthcare Conference suggests continued momentum in
Revlimid market share gains and extended dosing duration in 1Q09
• Revlimid utility as a maintenance agent is gaining broader acceptance as successive data publications highlight improving
response rates beyond a year of continuous therapy, with a doubling of initial responses after 2 years of dosing – maintenance
data expected in 2009 could provide further impetus for extended Revlimid use following stem cell transplant
• VISTA data for Velcade is unlikely to adversely impact Revlimid opportunity in frontline Myeloma given relative barrier of twice
weekly infusion – hematologist feedback suggests that high CR rates from Velcade merely reinforced existing beliefs and should
continue to niche the drug in the smaller opportunity of younger patients considering stem cell transplant (SCT) while leaving the
larger elderly, non-transplant opportunity for Revlimid
• Recent failure of Vidaza competitor Dacogen in the large EORTC sponsored phase III MDS trial should give CELG dominant MDS
market share in the US and market exclusivity in the EU – we have recently raised our peak sales estimates for Vidaza to $750M
from $428M and would suggest further upside potential in the event of MDS market expansion
• Concerns regarding potential corporate tax rate changes in the US with tax applied at the gross margin level are overdone given
growing ex-US revenue base and CELG ability to reincorporate in a lower tax jurisdiction – Update at our Barclays Capital
Healthcare Conference suggests that 2/3 of CELG revenues will come ex-US over the next 5 years and that 9 of 10 criteria
are already met for reincorporation in Switzerland if necessary
• While introduction of a generic Thalomid may seem inevitable we would highlight a 30-month stay extending to November 30, 2010
and limited apparent progress in the patent litigation with Teva/Barr as suggesting low likelihood of generic entry prior to YE`10 –
Update at our Barclays Capital Healthcare Conference highlighted orphan drug protection on Thalomid for Multiple
Myeloma and likely restriction of any generic Thalomid to ENL with a rigid risk management program likely to prevent offlabel
substitution in Myeloma
• Extension of Medicaid and Medicare rebates to 22% from 17% remains a potential overhang of proposed healthcare reform,
however we expect impact to be limited – Update at our Barclays Capital Healthcare Conference suggests that impact of
extended Medicare rebates would be 2.5M in 2009 and $10M in 2010
• Following the prior acquisition of Pharmion there has been concern that CELG might do another acquisition that is not so accretive,
however update at our Barclays Capital Healthcare Conference suggests a commitment to avoiding dilution with any
acquisition and product opportunities in Europe seem to be a focus
Equity Research
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Genzyme (GENZ 1-Overweight, Sector 2-Neutral)
We believe that GENZ shares are oversold following the recent complete response letter for Lumizyme in adult onset Pompe disease and
expect -483 manufacturing observations to be addressed in <6 months and to support re-acceleration of GENZ earnings.
• We believe that 2009 EPS guidance of $4.58 is conservative given continued ex-US growth of enzyme therapeutics and with
potential for expansion of renal, biosurgery and oncology businesses in the US
• Attractively valued at 12x 2009E EPS estimate and 10x 2010 EPS estimate in particular given current guidance for 5-year EPS
CAGR of 20% which we believe is more credible than that for peers like BIIB
• Cerezyme model of growth likely to be replicated with Fabrazyme and Myozyme and management seems sensitive for need to
provide better visibility
• Earlier than expected 1Q09 EU approval of Myozyme 4000L should support 550 incremental patients in 2009 with resultant sales
increase of $180M from $306M to $488M – we believe that a 2 month earlier EU approval for 8000L supply should offset a 3-6
month delay in approval of 2000L supply for the US
• Complete response letter for Lumizyme (Myozyme 2000L) has created concerns regarding manufacturing deficiencies at the
Allston, MA plant which we believe are overdone – Management feedback at our Barclays Capital Healthcare Conference
suggests that 36 separate audits occurred in 2008 with only 1 other -483 deficiency letter and that issues raised in the
Allston plant letter are straightforward, unrelated to product or process but rather process controls, have been already
addressed to FDA satisfaction in 9 of 16 observations and have been further addressed in a 1600 page filing with FDA
recently –the Office of Compliance appears motivated to resolve Lumizyme issues rapidly
• Further Management update at its recent Investor Roundtable suggests that other -483 observations have been fully
addressed and that the Allston plant will be ready for re-inspection by April 1 with re-inspection expected anytime
• Mixed vote from CRDAC panel on pre-dialysis phosphate binder use is likely to result in qualified label expansion for stage IV
patients but unlikely to impact existing practice guided by KDOQI recommendation for stage III and IV patients – recent approval
of Renvela in Europe with both dialysis and pre-dialysis claims could be a leading indicator off what to expect in the US
• Approval of Renvela provides a more attractive option for off-label pre-dialysis stage III/IV use with lower propensity for metabolic
acidosis which can compound renal osteodystrophy – we expect Renvela to roughly double GENZ phosphate binder sales given a
comparable opportunity with 300,000 stage IV patients
• Updated 3-year Campath data in MS with 70%+ reduction in relapses and accumulated disability and actual improvement in mean
disability represents major competitive threat for BIIB particularly given less onerous monitoring – we expect completion of phase
III enrollment by YE08 with potential 1-year data by YE09
• Mipomersen opportunity remains under estimated given the potential for premium pricing and access to a broader high risk lipid
population than currently assumed under HoFH development
Equity Research
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MID CAP BIOTECH
Amylin Pharmaceuticals (AMLN 2-Equal weight, Sector 2-Neutral)
We expect AMLN share price performance to continue to lag peers on continued pancreatitis concerns – we believe that weakness has
been warranted given clear association between Byetta and pancreatitis, specific FDA concerns regarding severe cases of hemorrhagic
pancreatitis, potential for blackbox warning and inevitable impact on Byetta prescriptions as well as exenatide LAR regulatory risk.
• Flat sales trajectory for Byetta likely to continue given PCP hesitancy, DPP-IV competition and limitations of positioning for weight
loss on long term compliance – absence of traction with intensified sampling, new messaging and direct to consumer (DTC)
advertising highlights the barrier at the PCP level, likely driven most by time/resource constraints around education for new
products/injectables – 3% decline in 1Q09 TRxs highlights ongoing tentativeness towards new patient prescribing which now
seems to be lagging patient attrition
• Upcoming April 2 FDA panel review of once daily competitor liraglutide provides an unfavorable risk reward given downside risk to
both a positive panel recommendation as well as any focus on pancreatitis as a class issue – positive recommendation would
introduce a more convenient competitor with head-to-head superiority data while negative recommendation could highlight future
regulatory risk to exenatide LAR
• Recent FDA advisory regarding 6 severe cases of hemorrhagic pancreatitis with 2 patient deaths likely to further increase PCP
tentativeness around Byetta prescribing and could result in more precipitous decline in prescription trends – recent IMS
prescription data suggests early signs of decline in new prescriptions (NRxs)
• Recent monotherapy data suggesting HbA1c reduction of 0.7-0.9% unlikely to position Byetta favorably against 1.4% reduction
described in the metformin label – potential blackbox warning regarding pancreatitis risk is likely to further blunt any monotherapy
impact and risk remains to monotherapy approval given heightened FDA concern regarding pancreatitis risk – we believe that
likelihood of monotherapy approval in 1H09 is <50%
• HbA1c lowering of 1.9% demonstrated with Exenatide LAR in DURATION-1 is difficult to generalize given outlier result with Byetta
BID 1.5% HbA1c reduction – ultimately Exenatide LAR data appear to position the drug no differently than current positioning of
Byetta BID with preferential use in refractory patients with HbA1c >9%
• Recent NIH diabetes study results suggesting a 3/1000 patient year excess risk of death with intensive blood sugar lowering in
those at higher cardiovascular risk could further temper primary care physician (PCP) enthusiasm for aggressive blood sugar
lowering with exenatide LAR
• FDA unlikely to maintain line extension designation for Exenatide LAR given differential PK/PD and clinical data and we expect
FDA to request additional data to define safety of Exenatide LAR, particularly given recent pancreatitis warning for Byetta
• Recent characterization of GENZ’s Myozyme at larger scale as a distinct product requiring separate BLA should raise similar
questions as to similarity of product for exenatide LAR between commercial scale and prior intermediate scale given that there is
no clinical data supporting the safety/efficacy of exenatide LAR produced at commercial scale in Ohio
• FDA letter to diabetes drug IND holders requesting meta-analysis of clinical data to rule out 80% increase in cardiovascular risk
could be problematic if a line extension designation is not maintained for exenatide LAR given limited patient numbers from
DURATION-1 and dependence on >4000 patients worth of Byetta safety data – While AMLN and partner LLY have recently
confirmed a favorable CV risk profile for Byetta with relative risk of 0.70 and upper 95% CI bound of <1.8 we remain skeptical that
exenatide LAR filing will be able to rely on this data
• Suspected pancreatitis association with Byetta is particularly problematic for Exenatide LAR given self-perpetuating nature of
pancreatitis, necessity for immediate discontinuation of potential associated drugs and inability to do so with extended half life
Exenatide LAR
• Further risks to Exenatide LAR include suboptimal dose form with 23 gauge needle and inconvenience of drug reconstitution,
challenges of manufacturing scale up and emerging competitive visibility for Liraglutide, Syncria and BIM-51077 – Final liraglutide
phase III LEAD data seems to confirm superiority to Byetta in treatment naïve patients and should position liraglutide as the short
acting GLP-1 of choice
• While strategic options remain following activist shareholder involvement we believe that recent pancreatitis concerns will likely
temper enthusiasm of strategic partners that may be more apt to take a wait-and-see approach to Byetta trends and LAR
regulatory review
Equity Research
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Cephalon (CEPH 1-Overweight, Sector 2-Neutral)
Better than expected launch of novel alkylator Treanda for NHL should provide longer term visibility on CEPH growth and support a multiple
expansion from current depressed levels. While prescriptions for lead wakefulness drug Provigil remain relatively flat we see upside
potential from continued pricing flexibility and launch of approved next generation product Nuvigil in mid-09.
• Flat prescription growth for Provigil and fentanyl products likely due to sales force re-alignment and should pick up in 2009 with
further upside potential from recent price increase for Provigil and given the precedent with 70%+ price increase with Actiq in 2006
ahead of Fentora market entry – recent price increase supports an incremental $150-170M in pre-tax income not contemplated by
current Street estimates – 3% increase in TRx and 8% price increase in January should have Provigil 1Q09 sales coming in
ahead of expectations
• Uncertainty regarding likely pace of initial Provigil-to-Nuvigil switch provides an opportunity into initial Nuvigil 3Q09
launch given high percent of self pay patients likely to switch to a lower price alternative – potential for category
expansion has also been under-estimated given potential of upcoming OSA + co-morbid depression data to support a
move back into the psychiatrists office with an on-label message and with 2Q09 jet lag data likely to support a substantial
new market opportunity at the PCP level
• Top-line guidance for 2009 of roughly 15% growth is conservative given pricing discretion and incremental contribution from Amrix
and Treanda
• Paragraph IV Certification and ANDA filing by Watson for a generic Fentora is unlikely to impact CEPH’s business for many years
given recent FDA tentativeness towards generic approval of potent rapid acting opioids and increasing focus on risk management
programs – failure of Barr Labs (Teva) to gain Actiq ANDA approval after >49 months is evidence of this tentativeness and we
expect supply agreement with Barr Labs (Teva) to expire in September 2009 without ANDA approval
• Potential upside opportunity from projected 25% 3-year EPS CAGR, Amrix launch, and Treanda data – Amrix positioning as once
daily Flexeril without the sedation is highly leveragable given 40% market share for Flexeril generic – Recent new patent issuance
covering difficult to replicate formulation of Amrix should extend visibility to 2023 from 2010 and represents a major event for CEPH
with Amrix in a position to exceed Provigil blockbuster status
• ANDA acceptance by FDA for a generic Amrix will be followed by a 30 month stay and should be put in perspective relative to the
difficulty of formulating a once daily cyclobenzaprine – as with other ANDA filings we expect that generics are seeking concessions
in a settlement as opposed to having conviction in actually circumventing patents and given CEPH success in handling generic
challenges we would not assume generic entry until >2012
• Recent FDA review of expanded labeling for transmucosal fentanyl brand Fentora was more constructive than expected with both
panel members and FDA representatives recognizing the unmet need of non-cancer breakthrough pain (BTP) and expressing
significant enthusiasm for CEPHs innovative risk management program – While panel voted 14-3 against approval of expanded
labeling it is clear that with greater patient exposure to the new RiskMap that CEPH has a very real opportunity to gain label
expansion approval
• Treanda opportunity in hematology could approach $1bln and seems more tangible following NCCN guidelines for use in NHL and
in combination with $2.8bln drug Rituxan – feedback from Fox Chase and other large cancer centers suggests a preference for
Treanda over CHOP and CVP in NHL with absent hair loss, lower neutropenia, overall better tolerability, comparable efficacy and
greater economic incentives for use – update at our Barclays Capital Healthcare Conference suggests that Treanda sales
trends have reaccelerated in February and are currently on a $200M run rate
• Update on Treanda at the recent NCCN annual meeting in Hollywood, Florida suggests that Rituxan + Treanda should replace
Rituxan + CHOP and key opinion leaders (KOLs) seem focused on final Rummel study data expected at ASH 2009 with particular
focus on PFS data where RT is expected to be superior to RCHOP – additional use in Myeloma was also highlighted at the NCCN
meeting
Equity Research
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Human Genome Sciences (HGSI 2-Equal weight, Sector 2-Neutral)
ACHIEVE study data for Albuferon in HCV has been disappointing with numerically lower rates of sustained virologic response (SVR) than
market leader Pegasys and with higher rates of severe pulmonary adverse events (AEs) and discontinuations due to adverse events.
• Positive results for Albuferon from ACHIEVE 2/3 are tempered by numerical trends favoring Pegasys, inferior efficacy in patients
from Asia (SVR of 79.8% vs 95.5%) and higher discontinuation rates (4.8% vs 3.6%) – more recent results from ACHIEVE 1 are
similar with 48% vs 51% SVR rate and with higher rates of pulmonary infection and severe pulmonary events
• With the data monitoring committee (DMC) recommending dose modification to 900mcg from 1200mcg in the Albuferon phase III
ACHIEVE 1 and 2/3 studies due to excess severe adverse pulmonary events at the higher 1200mcg dose we would highlight
higher rates of pulmonary AEs in phase II at 900mcg ( cough 24% vs 13% with Pegasys, dyspnea 9% vs 5% with Pegasys) as
continued cause for concern
• Recent data for PEGIntron suggesting a more optimized profile with weight based dosing at lower levels suggests that fixed dosing
of albuferon may be inadequate and will certainly receive significant FDA scrutiny
• Lymphostat B phase III trials (BLISS-52, 76) carries substantial risk given limited cushion from phase II data and limitations of
subset analysis underlying selection of ANA positive patients – Recent absolute failure of potent anti B-cell therapy with Rituxan
increases risk to Lymphostat where B-cell effects are believed to be more modest although upcoming LUNAR data for Rituxan in
Lupus Nephritis may provide greater validation for anti-B cell therapy in a more homogenous patient group
• Recent randomized phase II data for TRAIL antibody mapatumumab was disappointing and suggested no incremental response
rate benefit when added to Velcade in patients with advanced multiple myeloma – PFS data is expected to follow suit
Equity Research
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Onyx Pharmaceuticals (ONXX 1-Overweight, Sector 2-Neutral)
We continue to believe that 2009 EPS of $1.65 is achievable and should support multiple expansion given significant room for further topline
growth as well as potential margin expansion.
• Nexavar results in 4Q08 were better than expected with strong top-line guidance to $850-875M in 2009 and >$1B in 2010
highlighting significant ex-US opportunity in HCC
• Global HCC opportunity of $4.5bln appears to have been underestimated with current estimates largely ignoring broader EU and
Asian opportunity – Nexavar roll-out across >70 countries for RCC provides a guide to similar expansion potential for HCC
• Recent feedback from large treatment centers suggests that US HCC incidence of 20,000 is underestimated, could increase 4-fold
over the next 10-years, and is being treated increasingly in the community with Nexavar since approval – recent uptick in US
Nexavar sales suggests success at targeting a second wave of potential HCC prescribers beyond oncologists, including
gastroenterologists
• Feedback from EU HCC sites suggests increasing use of Nexavar with utility in both Pugh A and B patients – in Germany, Italy
and UK specifically estimates suggest Nexavar as an option in roughly 35% of newly diagnosed and >50% of refractory patients
each year
• Aggressive investment in expanded Nexavar development is reasonable in the near term and should ultimately provide a return
given broad activity of the drug and demonstrated synergy with chemotherapy – ONXX shares could benefit however from a more
cogent explanation regarding the rationale for individual investments and better transparency on clinical trial progress specifically
and we expect new CEO Dr. Tony Coles to provide such transparency
• Phase III data in melanoma should come by mid-09 following completion of enrollment in early 2Q08 – a near doubling of PFS in a
randomized phase II should provide a reasonable guide for expectations in phase III – while prior PRISM study failure in 2nd line
melanoma has resulted in a heavy discount into 1st line results we would suggest that unusually high placebo PFS is evidence of
enrollment bias in 2nd line “survivors” that will not be present in frontline patients
• Our prior roadshow with new CEO Dr. Tony Coles suggested potential upside to increasing use of Nexavar as a bridge to
transplant and concurrent with chemo-embolization in earlier stage patients, significant costs associated with Nexavar free drug
programs in the EU and Asia and sensitivity to achieving JV profitability
• ONXX management update at our Barclays Capital Healthcare Conference highlighted for the first time Nexavar margin
expansion as a driver in 2009 with aggregate expenses down from $540M in 2008 – additional focus on accelerating
markets suggested that incremental growth in 2009 will come from other territories beyond Japan with 50% of Europe still
available as well as South Korea and Taiwan
• In-licensing of pre-clinical next generation Alimta anti-folate product removes the overhang of near term deal dilution and at the
same time diversifies long term risk away from Nexavar
• Second deal for JAK2 inhibitor from S*BIO provides further opportunity for tiered investment in future pipeline, diversifies risk away
from Nexavar development in additional indications and maintains near term earnings power with Nexavar
Equity Research
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OSI Pharmaceuticals (OSIP 2-Equal weight, Sector 2-Neutral)
We remain concerned regarding flat Tarceva sales in the US as well as potential competition from Erbitux, Zactima and return of Iressa in
2009 and believe that upside potential from the SATURN maintenance study has been over-estimated.
• Lack of growth for Tarceva in the US and recent flattening of Tarceva trends in Japan and Europe suggest that a low end multiple
of 10x forward EPS and 2-3x sales may be more appropriate for OSIP shares
• Positive SATURN study results were expected given relatively low bar of improving PFS but are unlikely to impact Tarceva trends
given absent survival data – As with prior maintenance studies for Alimta, Taxotere and Gemzar we expect limited impact on
Tarceva sales trends as most physicians remain skeptical of maintenance treatment and characterize the approach as early 2nd
line use with no impact on actual patient numbers – we expect SATURN survival data by mid-year and based on prior Iressa
maintenance results expect no impact on overall survival (OS)
• Frontline NSCLC FLEX data could also raise concerns regarding 2nd line use of Tarceva in patients failing a frontline EGFR
targeted regimen although with most Tarceva use for 3rd line use we expect impact to be limited
• iPATH data for iressa in frontline NSCLC unlikely to have substantial impact on Tarceva frontline use given pre-selection of Asian
patients with light smoking history and existing use already for that group of patients – a 36% rate of successful mutation analysis
in the trial also highlights the difficulty with genotypic analysis and we expect phenotypic characterization to continue to
predominate
• Data presentation at the recent NCCN meeting in Hollywood, Florida suggests that KRAS testing will limit use of EGFR tk inhibitors
in NSCLC and that use in pancreatic cancer could become similarly restricted
• While failure of Zactima to demonstrate superiority to Tarceva in the phase III ZEST trial eliminates a potential overhang we
believe that with impending ZEPHYR data in 3rd line NSCLC significant competitive risk remains
Regeneron Pharmaceuticals (REGN 1-Overweight, Sector 2-Neutral)
Most focus for REGN remains on potential pipeline catalysts for VEGF-TRAP in oncology as well as age-related macular degeneration
(AMD). While overall timelines for phase III data for both indications remains extended to 2010 we believe that data for VEGF-TRAP in
symptomatic malignant ascites (SMA) could provide a catalyst in 2009 and potential path to earlier market approval.
• With most attention on VEGF-TRAP phase III development and with a relative lack of visibility in 2009 and early 2009 we expect
increasing interest in REGN shares in 2H09 in anticipation of phase III data flow in both oncology and eye disease expected in
2010 – recent acquisition of DNA by Roche should have a redistribution of funds favoring antibody companies like REGN
• Approval of IL-1 TRAP Arcalyst (rilonacept) for Cryopyrin-Associated Periodic Syndromes (CAPS) could support peak global sales
of $100mln at a premium price of $250,000 per patient year – we estimate a $4/NPV and as such believe that prior reaction to
Arcalyst approval understated the products potential, particularly given potential upside opportunity from the IL-1 TRAP in gout and
opt-in for REGN on NVS’s IL-1 antibody -885
• Positive data for rilonacept in allopurinol induced gout suggests an 81% reduction in flares, in-line with the 70-80% benefit
demonstrated for Colchicine – Data should be reproducible in phase III but differentiation from Colchicine will be key
• Antibody collaboration with SNY with equity investment at $26/share and 50:50 profit split on pre-clinical compounds highlights the
value of REGNs VelocImmune antibody platform with targeting of both validated targets like IL-6 as well as exciting novel targets
like DLL-4 also being pursued by DNA
• VEGF-TRAP for anaplastic astrocytoma (AA) and Glioblastoma multiforme (GBM) appears just as active as Avastin in an
indication where DNA is pursuing an accelerated phase II filing – while concern emerged at ASCO regarding lower 6 month PFS
rates than in earlier Avastin studies we believe that cross-study comparisons can’t be made for time dependant endpoints where
sicker patients and time lag bias often affect results
• VEGF-TRAP in oncology appears at least comparable to Avastin with 8% response rate in refractory Ovarian cancer in line with 3-
8% response rates for similar Avastin trials
• Recent phase II data for VEGF-TRAP in AMD suggests comparability to Lucentis with potential for less frequent dosing and lower
immunogenicity – recent updated 48 week data suggests better durability of visual acuity improvements over the longer term with
improvements of 5.4-9 letters as compared to 0.5-2 letters with Lucentis in the SAILOR study
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Theravance (THRX 2-Equal weight, Sector 2-Neutral)
While THRX shares have bounced from lows following surprising telavancin panel recommendation we believe that an incremental NPV of
$4/share is fully reflected in current share price and that likely restrictive label, slow launch as well as extended timelines and development
risk for the Next Generation Advair (NGA) will likely limit further upside potential.
• Surprising positive panel recommendation for telavancin use in cSSSI will likely yield to a protracted label negotiation over panel
concerns regarding QTc prolongation, excess renal events and pregnancy risk – risk management program for each could be
involved and we do not expect FDA action before mid-09
• With vancomycin generic broadly used, limited description on VISA and VRSA and with other alternatives available in cubicin and
Zyvox we expect restrictive telavancin labeling to be a major impediment to early uptake
• While telavancin prospects could be better in hospital acquired pneumonia (HAP) we expect hospital formulary inclusion to take
considerable time and for telavancin to be reserved for use in vancomycin failures
• Assumptions for next generation Advair timelines and market potential appear aggressive given potential delays beyond YE11 and
with both generic and branded competition in that time frame
United Therapeutics (UTHR 1-Overweight, Sector 2-Neutral)
While UTHR shares may be volatile into the April 30 PDUFA date for inhaled Remodulin given recent focus on potential delay around
device requirements several lower risk catalysts exist subsequently, including tadalafil PAH PDUFA and Remodulin inhaled EU approval
and could support upside potential.
• UTHR valuation appears compelling at only 14.5 x 2010 GAAP EPS Consensus of $4.60 and could rally sharply on ultimate
approval of inhaled Remodulin or progress with oral Remodulin
• Continued sales growth for IV Remodulin should provide downside support in the near term and with >20,000 patients diagnosed
with PAH and with only 3000 patients receiving IV Remodulin additional room for growth exists
• With highly statistically significant results for inhaled Remodulin (p<0.006) in terms of 6 minute walk distance (6MWD) improvement
and with cardiorenal division familiarity with the Remodulin molecule risk to approval timelines appears restricted to device
approval - human factors studies will be critical and UTHR appears confident in sufficiency of a single study to confirm ease of use
of the device and adequacy of directions for assembly, disassembly and cleaning
• Approval of the inhaled Remodulin OptiNeb device in Europe and existing use with inhaled iloprost should reduce regulatory risk
for inhaled Remodulin in Europe where timelines remain on track for a decision by YE09 with earlier launch of a named patient
program in the event of earlier US approval
• Incremental tadalafil opportunity in PAH could approach $100M in the US with 80% margins supporting substantial earnings
contribution - broad use of tadalafil for ED and prior approval of Viagra under the brand Revatio should make tadafil approval
relatively straightforward
ZymoGenetics (ZGEN 2-Equal weight, Sector 2-Neutral)
Following approval of Recomthrom (rThrombin) as a surgical hemostat focus has shifted to commercial launch which we continue to believe
will be limited by lack of perceived need, competition from JNJ and P&T committee sensitivity to acquisition cost.
• RECOTHROM launch remains disappointing, as expected, with perception of unmet need limited, significant hospital formularly
sensitivity to acquisition cost and insufficient differentiation from Bovine Thrombin
• Atacicept failure in lupus nephritis and prior failure of potent B-cell modifier Rituxan in SLE suggest limited value to future
development
• With activity of IL-21 in RCC difficult to interpret PEG IFN-lambda remains the sole value driver for ZGEN with management
expressing enthusiasm ahead of EASL and following recent large partnership deal with BMY
Equity Research
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SMALL CAP BIOTECH
Acadia Pharmaceuticals (ACAD 1-Overweight, Sector 2-Neutral)
We believe that ACAD shares are attractively valued below cash levels following the unexpected failure of clozapine metabolite ACP-104 in
the phase IIb schizophrenia trial – financing risk remains a key consideration with cash runway limited to 1H10 and as such we believe that
non-dilutive financing in the form of partnership milestones could provide significant catalyst for ACAD shares.
• ACAD appears well positioned in a $15 billion-plus antipsychotic market, based on Phase II results for pimavanserin (ACP-103) in
schizophrenia defining a new treatment paradigm as add-on therapy to atypical antipsychotics
• Undervalued based on our product NPV analysis, which arrives at a risk-adjusted value of $10 per share for U.S. sales and royalty
opportunities alone for pimavanserin (ACP-103) in Parkinson’s Disease Psychosis (PDP) alone
• We see significant further upside potential on partnership opportunity for pimavanserin in schizophrenia and progress with the
Phase III Parkinson’s disease psychosis (PDP) program for pimavanserin into 3Q09 data
Arena Pharmaceuticals (ARNA 2-Equal weight, Sector 2-Neutral)
With focus on upcoming BLOOM study data expected in late March we believe that weight loss benefits seen in phase II will be insufficient
to provide upside and that downside risk exists to any differences in AEs, SAEs and drug discontinuations . In our view, valuation gap with
ACAD is significant despite more pressing financing needs for ARNA with questionable cash runway to YE09.
• We remain relatively unimpressed by the 7-pound average placebo-adjusted weight loss established for lorcaserin in Phase II and
would advise a wait-and-see approach regarding heart valve effects, as well as new onset seizure and neuropsychiatric risks –
with 12 week weightloss with lorcaserin described as similar to that for Meridia and with Meridia phase III trials unable to
demonstrate efficacy results that meet current FDA guidance recommendations at 52 weeks we believe that risk exists to efficacy
results as well
• We would also note criticism of last observation carry forward (LOCF) by statisticians that could be better represented at any future
lorcaserin review and would highlight FDA emphasis on assessment of drop outs as an important supplementary efficacy
assessment that could be more important in real world affects of the drug
• We do not believe that a 12-month valve assessment is sufficient to allay theoretical concerns of either investors or potential large
pharma partners, given the uncertainty on baseline valve dysfunction rates, intra-patient variability, and time course for actual druginduced
valvulopathy
• In addition, with a single new onset seizure in only 100 patients treated with lorcaserin 20mg in Phase II, we believe that investors
should wait for more mature patient exposure data to rule out this potential drug effect as well as other adverse CNS effects –
formal results from neuropsychiatric testing in BLOOM as well as specific abuse liability data is not expected to be released until
later and will likely result in a persistent overhang irrespective of efficacy results
• Failure of insomnia drug candidate APD125 in phase II and expected program discontinuation removes a potential future value
driver and more importantly eliminates an important source of non-dilutive financing – with <1 year of cash we believe that
partnership of pre-clinical assets will be critical to bringing in new sources of cash but expect upfront payments to be small
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Ariad Pharmaceuticals (ARIA 1-Overweight, Sector 2-Neutral)
Focus for ARIA remains on potential catalysts for mTOR inhibitor deferolimus in its broadening program in oncology. While data from newly
initiated phase II trials is unlikely in the near term, we continue to view ARIA as a top tier oncology company heading into YE09 SUCCEED.
• While we believe balance sheet risk remains an issue for all development stage biotechs in the current capital market environment
ARIA maintains at least 2 years of cash with multiple options for non-dilutive financing including partnership of -534, potential restructuring
of partnership terms with Merck, access to $200M in R&D advances beginning by YE10 and potential affirmation of jury
verdict by appellate court in April in favor of patent infringement claims against LLY worth $65M upfront and $35/year
• Attention at the annual NCCN meeting in Hollywood, Florida highlights the potential of mTOR inhibition across multiple cancers
and in combination with multiple agents - Recent positive data for a 2nd mTOR inhibitor, RAD-001, in renal cell cancer (RCC)
provides further validation for mTOR as a target in difficult to treat cancers and should reduce ultimate technical risk with
deferolimus (AP-573) in the ongoing sarcoma phase III SUCCEED trial with 2nd interim data expected by YE09
• We believe that likelihood of success is high relative to other development stage oncology companies, based on guidance from
molecular markers, support from partner Merck, and broadening development to include endometrial, prostate, lung, and breast
cancer, as well as combinations with Erbitux and other targeted therapies – update at our Barclays Capital Healthcare
Conference suggests a meaningful update at AACR for deferolimus in KRAS mutant NSCLC patients
• We anticipate further potential upside on resolution of NF-kB patent litigation with LLY (estimated NPV of $2.50) and heading into
Phase I data for Gleevec resistance drug -534 by ASH 2009
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Array Biopharma (ARRY 1-Overweight, Sector 2-Neutral)
While data flow in 2008 was relatively light for ARRY development stage candidates, we expect significant data flow over the next 12
months with proof-of-concept data expected from 5 separate programs.
• Eight of the ten drugs that will be in the clinic are wholly owned by ARRY, and given recently favorable economics on earlier stage
pipeline deals, we expect shareholders to benefit from potential out-licensing, partnership, and/or M&A
• Positive data at ACR for ARRY-797 support comparability to higher dose Celebrex in a model of acute dental pain and should
position the product favorably for upcoming studies in ankylosing spondylitis (AS) and rheumatoid arthritis (RA)
• Additional upside potential from phase II data for MEK inhibitor ARRY-162 in Rheumatoid Arthritis (RA) and erb-B2/EGFR inhibitor
ARRY-543 in metastatic breast cancer (mBC) with data expected in 2H09
Cardiome Pharma (CRME 1-Overweight, Sector 2-Neutral)
We have recently upgraded CRME on what we believe are improved prospects for Kynapid IV approval and realization of strategic options
around oral vernakalant following positive panel review for related rhythm control drug dronedarone and with specific guidance provided by
panel members on labeling around patient subpopulations.
• Approvable letter for Kynapid IV announced on August 11 suggests that FDA has focused on substance of cautious FDA panel
comments as opposed to final positive vote – with increased scrutiny of product safety and with specific focus on Kynapid effects in
patients with CHF we believe that dronedarone panel recommendations for restrictions on acute decompensated heart failure use
and avoidance of use in NYHA class III and IV patients should provide guidelines for FDA to complete labeling for Kynapid IV
• While CRME has had difficulty in meeting expectations around strategic options for its atrial fibrillation franchise we believe that
positive panel recommendation for an oral rhythm control agent in dronedarone should draw in increased large pharma interest
• We believe that FDA acceptance of a reduced time to cardiovascular hospitalization dominated endpoint is particularly
encouraging as CRME approaches end of phase II discussions on oral vernakalant
• We have to acknowledge that management credibility remains an issue following years of over promising and under-delivering but
are encouraged by lack of promotion coming from the company which seems to indicate that it is execution time – we expect
progress to occur rapidly over the next several months or not at all
Genomic Health (GHDX 2-Equal weight, Sector 2-Neutral)
Primary focus remains on ultimate FDA regulatory action on IVDMIAs and implications for Oncotype DX. While inclusion of Oncotype DX in
NCCN guidelines has suggested broadening acceptance of the test service as a standard of care we would note that FDA and NCCN have
diverged in other situations such as use of ESAs. We believe that draft guidance suggesting a differential burden of proof for chemo-benefit
claims could place payer agreements at risk which depend on these claims.
• Fairly valued at 4 x 2009 sales estimate as compared to 4.5x median sales multiple for profitable biotech peers – lower barriers to
entry and potential regulatory risk suggest that GHDX should trade at a discount to therapeutics companies
• While 4Q08 results suggest strong growth from 4Q07 we would note that sequential growth has slowed from an incremental +1950
tests billed in 1Q08 and +1250 tests billed in 4Q07
• While inclusion in ASCO and NCCN guidelines are clearly positive, in our view, we do not expect an immediate increase in the rate
of adoption for Oncotype DX with awareness of the test already very high
• In addition, with ASCO highlighting additional tests in development and guidelines encouraging patients to enroll in clinical trials
that focus on the use of additional tumor markers, we continue to expect credible competition will likely eventually emerge
• QUASAR validation study for 18-gene Oncotype Dx assay for stage II CRC suffers from multiple limitations including overall benefit
of IFL in QUASAR, difficulty of withholding chemo in this patient population and lack of biologic rationale for the gene markers –
expert feedback suggests limited incremental opportunity for Oncotype DX in CRC given satifaction with current diagnostics like
microsatellite instability
Equity Research
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ISIS Pharmaceuticals (ISIS 1-Overweight, Sector 2-Neutral)
We believe that ISIS is approaching an inflection in value over the next 12 months with expanding clinical pipeline, key safety data for lead
lipid lowering drug mipomersen and with phase III data for mipomersen expected in 2009.
• ISIS offers a rare combination of dominant therapeutic platform ownership, broad pipeline opportunity, and compelling lead product
growth potential - We view upside potential for ISIS shareholders given recent acquisition and deal premiums for antibody and
RNAi technologies
• With current focus on lead lipid-lowering drug mipomersen (ISIS 301012) we believe that nearer term opportunity in HoFH patients
could be expanded to broader apheresis market as well as other very high risk markets – we expect product labeling and ultimate
commercial use to follow phenotypic profile as opposed to genotypic profile with multi-billion dollar opportunity
• With mipomersen liver safety remaining as a gating factor to broader product success we would highlight the recent liver imaging
study results presented at the November AHA meeting as supporting a benign profile – primate data would suggest potential for
reversal of fatty and liver and we expect study results in diabetics to provide further visibility in 1H10
• Solid balance sheet with >$650M in cash at YE08 and cash flow positive structure in 2009 differentiates ISIS favorably from
development stage peers and allows for greater retention of value on pipeline products
NPS Pharmaceuticals (NPSP 2-Equal weight, Sector 2-Neutral)
Additional support for Gattex low dose hypothesis in SBS is encouraging as are proof-of-concept data NPSP558 in hypoparathyroidism,
however timelines for full validation are extended and balance sheet risk remains an issue, in our opinion.
• NPSP balance sheet has improved with $106M in cash at the end of 2008 and reduction in cash burn to $40-46M from prior
guidance of $45-50M – cash burn could increase in 2009, however, with initiation of phase III trials for Gattex and -558 and with
$15M in auction rate securities balance sheet risk should be considered
• Growth in Sensipar royalties from Amgen could drive future value with >$100M in royalties estimated at peak, however with royalty
rights not returning to NPSP until 2012 and with an outstanding ANDA filing it is difficult to asses present value for the asset
• Gattex subset analysis seems to suggest some degree of activity in short bowel syndrome however given failure of the primary
endpoint and retrospective nature of subsequent data analysis we believe that risk remains to the confirmatory phase III
• Expert feedback on -558 (formerly Preos) for hypoparathyroidism appears positive however market opportunity is difficult to assess
and relevance of Ca++ normalization as a driver of adoption beyond current Ca++ supplementation remains unclear
Rigel Pharmaceuticals (RIGL 1-Overweight, Sector 2-Neutral)
RIGL shares appear oversold following R788 data presentation at ACR where phase II efficacy and safety data was no different than prior
top-line data release and where prospects for partnership in 2009 remain high.
• While we will ultimately want to see radiographic responses from future trials with R788, phase II results in RA are comparable to
or better than those that have been demonstrated by anti-TNF agents (e.g. Enbrel) and appear to even exceed phase II data for
Pfizer's oral Janus kinase 3 (JAK3) inhibitor, CP-690,550, which were the best reported to date for a small molecule
• Timing of R788 partnership depends on optimization of upfront payments and with current prospective partners offering discounts
of roughly 30% to those targeted by RIGL (roughly $150M) timelines for partnership will likely extend beyond phase IIb data in July
• With phase IIb safety data as a potential gating factor to improved economics from prospective partners we understand that HTN
signal seen in earlier phase II experience is less pronounced and that no outliers with major BP excursions have been seen in
R788 treated patients - weekly BP monitoring with dose reduction and anti-hypertensive treatment appears effective in treating BP
rises and no cardiac events have been seen in patients experiencing BP rises on R788
• Recent phase II data for R788 in non Hodgkins Lymphoma suggests substantial activity in a subset of patients with consitutively
activated syk kinase activity and RIGL suggested at our Barclays Capital Healthcare Conference that progress has been
made in identifying a biomarker for such patients with data expected to be presented at the upcoming AACR meeting
• Recent initiation of a phase III monotherapy study for competitor CP-690,550 following prior proof-of-concept data in combination
with methotrexate highlights tolerability issues for the combination and introduces risk into the unvalidated monotherapy trial
Equity Research
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Synta Pharmaceuticals (SNTA, 2-Equalweight, Sector 2-Neutral)
With failure of the SYMMETRY phase III trial for elesclomol in melanoma and with excess mortality associated with the drug focus for the
company will have to rotate to cash preservation and development of earlier stage assets for oncology and immunology where visibility is
currently poor, in our opinion.
• Failure of elesclomol in the SYMMETRY phase III trial for melanoma was absolute and we see no prospects for resurrection of a
credible development effort here with excess mortality associated with the drug
• While prior futility analysis suggested no obvious problems with the trial only a few months earlier we believe that event rates
accelerated in late 2008/early 2009and that a truer picture of the drug emerged on the final analysis
• Earlier stage programs with HSP90 inhibitor -9090, apilimod and CRAC channel agents provide for potential future value creation
although timelines to meaningful data are extended and cash preservation will likely be key
• Recent success with JNJs IL-12 antibody ustekinumab in demonstrating superiority to anti-TNF Enbrel should provide further
support for SNTAs IL-12 small molecule program with apilimod although timelines for development appear somewhat unclear |
