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Stock Name/Symbol: Genelabs Technologies, Inc. (GNLB) Current Price: $13 5/8
Analyst: A. Paul Boni Shares Out: 43.3 MM
Target Price: Raising to $20 from $10 Market Cap: $590 MM
Lupus Data Presented
Reiterating BUY Rating, Raising Price Target to $20
This report reflects current opinions and judgments which are subject to change, and is not an offer or solicitation of an offer to buy or sell any securities. Information has been
obtained from sources we consider reliable but is not guaranteed as to accuracy or completeness. Punk, Ziegel & Company, its partners and/or employees may have a long or
short position in the securities mentioned in this report. ¸ 2000 by Punk, Ziegel & Company. All rights reserved. We make a market in this security.
We are reiterating our BUY rating on Genelabs shares. Data presented this weekend strengthen our
conviction in GL-701 for the treatment of Lupus. While investors were informed of the positive outcome from
the second Phase III trial of GL-701 last November, we now have a more complete profile of the activity of the
drug and its benefits in Lupus patients. We continue to believe that this drug will be approved for marketing in
early 2001, and should achieve United States sales in excess of $100 million.
We are raising our price target on Genelabs shares from $10 to $20 based on the valuation of other
biotechnology companies. Our original calculation of Genelabs? share value was based on the premise that a
drug is worth 5x its revenues. Based on the valuations of other biotechnology and pharmaceutical companies,
which can range as high as 40x-50x revenues (excluding genomics companies) we believe this 5x multiple
does not reflect the value that Genelabs can achieve in the marketplace. Our new price target of $20 per
share implies a value at 10x revenues on GL-701 and still does not include the potential value of its DNA and
RNA regulating molecules, or certain non-core assets which further enhance the value of Genelabs shares.
ú Highly Statistically Significant, Positive Results. As previously reported, patients receiving drug had a
35 percent greater response rate than patients receiving placebo (66% vs 49%), the primary endpoint of
the study. This benefit is highly statistically significant (p=0.005). The ?response? definition represents a
very high hurdle, where patients must improve on each of four different scoring instruments for measuring
Lupus disease (SLEDAI, SLAM, KFSS, VAS), even while receiving standard Lupus care.
ú Consistent Benefit Over a Wide Range of Endpoints. A large number of additional endpoints were
analyzed, and all demonstrate benefits to GL-701 patients over placebo. Other positive benefits of GL-701
include less muscle pain (36% placebo vs. 22% GL-701, p<0.05) fewer nasal and mouth ulcers (23%
placebo vs. 15% GL-701, p=n.s.) and reduced hair loss (20% placebo vs. 15% GL-701, p=n.s.). GL-701
patients had fewer flares (31 vs 41) than placebo patients as well, although this result was not statistically
significant. In a subset of patients where bone density was measured, a statistically significant (p=0.004)
increase in density was observed in patients receiving GL-701. Lupus patients often take chronic steroids, PUNK, ZIEGEL & COMPANY 520 MADISON AVENUE TELEPHONE 212.308.9494
NEW YORK, NY 10022 FACSIMILE 212.308.2203
M O R N I N G M E E T I N G C O M M E N T S
Stock Name/Symbol: Genelabs Technologies, Inc. (GNLB) Analyst: A. Paul Boni
Date: 02/14/00 Page 2 of 2
This report reflects current opinions and judgments which are subject to change, and is not an offer or solicitation of an offer to buy or sell any securities. Information has been
obtained from sources we consider reliable but is not guaranteed as to accuracy or completeness. Punk, Ziegel & Company, its partners and/or employees may have a long or
short position in the securities mentioned in this report. ¸ 2000 by Punk, Ziegel & Company. All rights reserved. We make a market in this security.
PUNK
ZIEGEL &
COMPANY
which can lead to a decrease in bone density. GL-701 patients (without changing their steroid doses) had
a mean increase in bone density (1.83% vs a decrease of 1.78% in placebo patients), as measured using
Dual X-ray Absorptiometry (DXA).
ú Positive Safety Profile. Overall, GL-701 is reported to be well tolerated by patients. Side effects were
consistent with previous studies and are generally mild. Side effects include acne, facial hair growth,
hormonal changes, and changes in lipid levels.
ú Study Design. These data come from the second of two Phase III trials of GL-701 in Lupus patients. Data
were presented at the Eighth International Scientific Conference on Lymphocyte Activation and Immune
Regulation in Newport Beach, California. In a double-blind, placebo-controlled trial, 381 women with Lupus
received 200 mg oral GL-701 or placebo daily for 12 months. As in the first Phase III trial, patients have the
option to receive an additional 12 months of medication in an open-label study, which will provide additional
data on the long-term use of GL-701.
ú Next Steps. Based on these data, as well as the first Phase III study completed in late 1996, Genelabs
has already been informed by the FDA that these data are sufficient for an NDA filing. Genelabs will use a
rolling filing, with the first components to be filed with the FDA in the H1 of 2000 and completion of the
filing in H2 2000. With a fast-track review, we believe marketing approval will be granted in early 2001. In
addition, Genelabs will seek a European marketing partner for GL-701. Several discussions with potential
partners are already underway and we anticipate a partner will be chosen by year-end 2000.
Investment Thesis
We recommend investment in Genelabs based on three areas of value. 1) GL-701 for the treatment of
Lupus: We believe that GL-701 alone justifies a market capitalization for Genelabs of over $880 million (or
$20.38 per share). We believe this product will now generate a stream of positive newsflow, potentially
including a marketing partnership, FDA activity, and product launch by early 2001. 2) Core Technology in
DNA- and RNA-Regulating Molecules: Genelabs has achieved "proof of concept" and has its first two
collaborations for this new technology that generates small molecules that specifically block DNA or RNA.
Potential applications include new drug development and gene target validation, as well as agricultural
applications. 3) Non-Core Assets: Non-core assets include a profitable diagnostics business, holdings in a
Taiwanese affiliate, and license payments for patents held by Genelabs. Using conservative measures of
valuation, we estimate these assets to be worth $15-$20 million. |
