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Biotech / Medical : Sepracor-Looks very promising -- Ignore unavailable to you. Want to Upgrade?

To: A.J. Mullen who wrote (4254)	3/8/2000 8:51:00 AM
From: Ed Ajootian	Respond to of 10280

Investment Opinion: 03/06/00 at $124 5/16 We rate SEPR a STRONG BUY for the following reasons: * In our view, certain compounds developed by Sepracor could have a major impact in the treatment of common respiratory illnesses, especially in the $2.5 billion antihistamine category. The company's first product, Allegra, has been licensed to Hoechst Marion Roussel, which launched it worldwide to replace Seldane. * Sepracor received a considerable amount of publicity when it signed a deal with Eli Lilly (LLY) for the rights to R-fluoxetine, an improved version of Prozac, Lilly's top-selling drug, for an estimated $90 million, not including royalties on future sales. We believe this program is of great developmental importance to Lilly, as Prozac's patents expire in 2003. However, we await clearance of the agreement by the Federal Trade Commission, an event that will trigger the payment to Sepracor of $21 million in milestone payments. * SEPR's worldwide development and marketing partner, Schering-Plough (SGP), has filed for approval in the U.S. and Europe for SEPR's desloratadine (DCL) an improved version of Claritin--the world's top-selling antihistamine. We anticipate U.S. approval late in 2000 with SEPR receiving estimated royalties of $6M. Claritin sales are estimated to be $4B in 2003. We forecast that SGP will launch DCL in 2001 and switch Claritin users to DCL in order to protect its franchise from generic competition. * More than 15 abstracts were presented on SEPR's DCL, Xopenex, norastemizole, and formoterol at this past weekend's American Academy of Allergy, Asthma, and Immunology meeting. The majority of the data focused on DCL, Sepracor and partner Schering-Plough's second-generation Claritin. We believe the data indicates that DCL is a safe, well-tolerated, and potent H1 receptor antagonist. Partner Schering-Plough has filed an NDA for DCL, and we anticipate approval in late 2000. Head-to-head chamber study data appear to indicate that SEPR's norastemizole has a superior onset of action (OA) compared to Schering's currently marketed Claritin. More specifically, norastemizole has 20-minute OA compared to Claritin's 140 minutes. Xopenex Grand Symposia and additional clinical data could be incrementally positive to marketing efforts for the prdouct. * Our new $150 price target is derived using a 20 revenue multiple to our 2003 revenue estimate, discounted back at 20%. We believe this multiple is reasonable given commercial biotech names are trading at a mean revenue multiple of estimated 2000 revenue between 20-25. In addition, given the significant revenue expansion potential in Sepracor's model in the 2002 to 2007 timeframe, we believe this multiple could potentially be conservative. Given the exceptional performance of SEPR shares YTD, we are removing the Single Best Idea designation. Prudential Securities Incorporated and/or its officers or its employees may have positions in any security of this issuer. Prudential Securities Incorporated makes a market in this security. ********************************************************* Maybe this Pru guy is the new "hammer" for SEPR, and the fact that he removed it from the SBI designation contributed to the carnage yesterday. At least he stepped up to the plate and raised his price target.