Lehman's analysis
lehman.com
Headline: Incyte: Acquires Synteni & Announces Extension of Pfizer Agreement
Author: Matthew Murray, PhD 212-526-5689
Rating: 2
Company: INCY,HYSQ,AFFX,PFE
Country: COM CUS
Industry: BIOTEC
Ticker : INCY Rank(Prev): 2-Outperform Rank(Curr): 2-Outperform
Price : $36 1/2 52wk Range: $45-21 Price Target: $44
Today's Date : 12/24/97
Fiscal Year : DEC
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EPS 1996 1997 1998 1999
QTR. Actual Prev. Curr. Prev. Curr. Prev. Curr.
1st: -0.20A 0.09A 0.04A - -E - -E - -E - -E
2nd: -0.16A 0.17A 0.08A - -E - -E - -E - -E
3rd: -0.02A 0.25A 0.12A - -E - -E - -E - -E
4th: 0.02A - -E - -E - -E - -E - -E - -E
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Year:$ -0.36A $ 0.74E $ 0.37E $ 1.45E $ 0.66E $ 2.04E $ 0.92E
Street Est.: $ 0.39E $ 0.40E $ 0.74E $ 0.75E $ 1.03E $ 1.00E
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Price (As of 12/22): $36 1/2 Revenue (1997): 85.0 Mil.
Return On Equity (97): N/A Proj. 5yr EPS Grth: N/A
Shares Outstanding: 24.8 Mil. Dividend Yield: N/A
Mkt Capitalization: $905.2 Mil. P/E 1997; 1998 : 98.6 X; 55.3 X
Current Book Value: $5.69/sh Convertible: - -Debt-
to-Capital: 1.0 % Disclosure(s): C
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* Incyte announced that Pfizer has agreed in principle to renew its
subscription to Incyte's genomic database. The original agreement was signed
in July97 and had an estimated value of $25 million.
* This renewal is important because both of the first two subscriptions that
were set to expire this year have now been renewed. This gives us much
greater confidence that Incyte's 17 other subscribers will likely renew their
three year subscriptions as well.
* Separately, Incyte announced that it will acquire Synteni, a privately-held
BioChip company with a DNA array technology. We believe that this acquisition
by the market leader in selling genomic information validates the DNA array
technology.
* The transaction is expected to be completed mid-Jan 98, where-by Incyte will
issue 2.2 million shares for all outstanding Synteni stock. Based on today's
market price the price-tag is about $80 million.
* We maintain our investment rating of Outperform, with a 12-month target
price of $44 which is based on a 50x P/E multiple off our 2000 EPS estimates
of $1.39 and using an annual discount factor of 25%.
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The announcement that Pfizer has agreed in principle to renew its subscription
to Incyte's database of genomic information removes a large risk factor that
had been looming over the stock. Shorts had been arguing for weeks that if
Pfizer failed to renew its database subscription that this would lead the
Street to assume only a 50% renewal rate for Incyte's subscribers.
(Pharmacia/Upjohn earlier this year renewed the other subscription that was
set to expire this year.) Had this been the perception, the shorts argued,
the stock's price would have suffered because of the reduced likelihood that a
large percentage of Incyte's other 17 database subscribers would renew. With
this renewal rate risk removed, the stock surged by 3 1/2 points yesterday.
However, this point gain essentially only makes up the loss of 3 5/8 that the
stock suffered on Monday following the positive announcement of a 19th
database subscription by Rhone-Poulenc. Therefore, we would buy the stock
based on this announcement because we don't think that it is fully reflected
in the stock price.PHARMACEUTICAL COMPANY SUBSCRIPTIONS TO INCYTE'S GENOME DATABASE
Pfizer LifeSeq database 7/94
Pharmacia & Upjohn LifeSeq. Renewed, added LifeSeq FL
Atlas/GeneAlbum/ZooSeq(5/97) 12/94
Novo Nordisk LifeSeq database 8/95
Hoechst AG LifeSeq database (renewed 3/97) 10/95
Abbott labs LifeSeq. Added PathoSeq 12/96)
LifeSeq FL 12/95
J&J LifeSeq database 1/96
Roche Holding LifeSeq database 4/96
Zeneca LifeSeq, PathoSeq databases 6/96
BASF LifeSeq database 7/96
Schering AG LifeSeq database 7/96
Monsanto LifeTools, added (10/97) LifeSeq FL
Atlas GeneAlbum/Patho/ZooSeq 9/96
Eli Lilly LifeSeq, LifeSeq FL,
PathoSeq databases 12/96
Genentech LifeSeq database 1/97
Bristol-Myers Squibb LifeSeq database 2/97
ARIAD LifeSeq database 3/97
Glaxo LifeSeq database 5/97
SmithKline PathoSeq microbal database 9/97
NV Organon LifeSeq database, LifeSeq GeneAlbum 10/97
Rhone-Poulenc LifeSeq, PathoSeq databases 12/97
In a separate announcement, Incyte announced that is was acquiring a
privately-held BioChip company called Synteni. We believe that this
acquisition of a DNA array technology company by the industry leader in
selling genomic information validates the use of this technology to generate
large volumes of genomic information. Synteni has a DNA array technology that
uses a clone spotting technology to monitor the expression level of genes in
different cell types. Although similar to the DNA array technology at
Affymetrix and Hyseq, we believe that the technology at these companies offers
much more precise genomic information in that their chips can monitor the
expression levels of any gene, as opposed to only those that have been spotted
onto the chip. Furthermore, we believe that Hyseq's technology has the unique
ability of being able to sequence DNA. This is Incyte's second acquisition of
a company with DNA array technology. Previously, the had acquired a company
called Combion that has developed a piezoelectric GenejetTM technology.
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BUSINESS DESCRIPTION: Incyte is a biotech company that sells access to its
database of genomic information to pharmaceutical companies for use in drug
discovery.
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Disclosure Legend: A-Lehman Brothers Inc. managed or co-managed within the
past three years a public offering of securities for this company. B-An
employee of Lehman Brothers Inc. is a director of this company. C-Lehman
Brothers Inc. makes a market in the securities of this company. G-The Lehman
Brothers analyst who covers this company also has position in its securities. |
