Headline: Biotechnology: Profiting from companies that develop cancer therapeutics
Author: CA Butler,PhD/E.Ende,MD(212)526-4410
Company: CLTR, IDPH, IMNX, ENMD, CRXA, ONXX, Lgnd, SUGN, KDUS, ARIA
Country: IND CUS
Industry: BIOTEC
Today's Date : 02/27/98
* We are on the cusp of an oncology drug market boom. The cancer drug market
is set to expand as new therapeutic agents which are more efficacious and less
toxic than today's choices enter the market.
* The cancer drug market will expand as the world's population ages and cancer
becomes more prevalent. Relaxation of FDA regulations should speed products
to market. And, greater demand for quality cancer drugs will increase the
size of collaborations.
* Please reference Cancer: Emerging Therapeutic and Diagnostic Technologies
produced by Lehman Brother's Global Health Care Equity Research Team. The
comprehensive report describes how investors may profit from the emerging
oncology trend.
* In this report, we initiate coverage of Coulter Pharmaceuticals (CLTR, $21
1/8, 1-Buy), Immunex Corp. (IMNX, $58 1/16, 2-Outperform), Entremed, Inc.
(ENMD, $11 3/4, V1-Venture) and resume coverage of IDEC Pharmaceuticals (IDPH,
$44, 2-Outperform).
* In addition to the new ideas, we provide updates of Corixa Corp. (CRXA, $8
3/8, 1-Buy) and Onyx Pharm.(ONXX, $6 7/8, 2-Outperform). We will host a
conference call for investors at 11:00 EDT today to discuss the above thesis
(dial-in 800-869-6642).
------------------------------------------------------------------------------
INTRODUCTION
Twenty-five years after former President Nixon declared a war on cancer, the
medical community has still not offered a cure. An immense amount of research
dollars have not yet resulted in a drug which is capable of treating the
deadly disease. However, research has produced a much greater understanding
of cancer's cause and pathophysiology. This knowledge has allowed researchers
and clinicians to develop innovative methods of potentially treating and
diagnosing the disease. As a result, many exciting new therapies and
diagnostic products loom on the horizon which may finally mark the turning
point in Nixon's war.
Cancer: Emerging Therapeutic and Diagnostic Technologies is the final product
of a research initiative put forth by Lehman Brother's Global Health Care
Equity Research Team. The comprehensive report describes how investors may
profit from the emerging oncology trend. It begins by describing our
investment thesis of oncology drug market expansion coupled with a loosened
FDA regulatory environment and continues by describing the rise in oncology-related
collaborations. The report explains present understanding of how
cancer develops, current and future oncology treatment options, cancer
diagnostics, specific cancer types and concludes with an interview with
Charles McDonald, MD, the president elect of the American Cancer Society. The
industry analysis is followed by individual company research reports in which
we initiate coverage of Coulter Pharmaceuticals (CLTR, $21 1/8, 1-Buy),
Immunex Corp. (IMNX, $58 1/16, 2-Outperform), and Entremed, Inc. (ENMD, $11
3/4, V1-Venture), resume coverage of IDEC Pharmaceuticals (IDPH, $44, 2-
Outperform), and provide updated information of Corixa Corp. (CRXA, $8 3/8, 1-
Buy) and Onyx Pharmaceuticals(ONXX, $6 7/8, 2-Outperform).
INVESTMENT THESIS
The American Cancer Society estimates that in 1997, in the US, 1.4 million new
cases (excluding basal and squamous cell skin cancer) of cancer will be
diagnosed and 560,000 people will die from malignant disease. Cancer is the
second leading cause of death in the US behind heart disease. One in four
deaths result from cancer. In the US, men have a 50% chance while women have
a 33% probability of developing the disease in their lifetimes. The National
Cancer Institute estimates overall annual costs for cancer at $104 billion;
$35 billion for direct medical costs, $12 billion for morbidity costs (cost of
Headline: Biotechnology: Profiting from companies that develop cancer therapeutics
Author: CA Butler,PhD/E.Ende,MD(212)526-4410
Company: CLTR, IDPH, IMNX, ENMD, CRXA, ONXX, Lgnd, SUGN, KDUS, ARIA
Country: IND CUS
Industry: BIOTEC
Today's Date : 02/27/98
* We are on the cusp of an oncology drug market boom. The cancer drug market
is set to expand as new therapeutic agents which are more efficacious and less
toxic than today's choices enter the market.
* The cancer drug market will expand as the world's population ages and cancer
becomes more prevalent. Relaxation of FDA regulations should speed products
to market. And, greater demand for quality cancer drugs will increase the
size of collaborations.
* Please reference Cancer: Emerging Therapeutic and Diagnostic Technologies
produced by Lehman Brother's Global Health Care Equity Research Team. The
comprehensive report describes how investors may profit from the emerging
oncology trend.
* In this report, we initiate coverage of Coulter Pharmaceuticals (CLTR, $21
1/8, 1-Buy), Immunex Corp. (IMNX, $58 1/16, 2-Outperform), Entremed, Inc.
(ENMD, $11 3/4, V1-Venture) and resume coverage of IDEC Pharmaceuticals (IDPH,
$44, 2-Outperform).
* In addition to the new ideas, we provide updates of Corixa Corp. (CRXA, $8
3/8, 1-Buy) and Onyx Pharm.(ONXX, $6 7/8, 2-Outperform). We will host a
conference call for investors at 11:00 EDT today to discuss the above thesis
(dial-in 800-869-6642).
------------------------------------------------------------------------------
INTRODUCTION
Twenty-five years after former President Nixon declared a war on cancer, the
medical community has still not offered a cure. An immense amount of research
dollars have not yet resulted in a drug which is capable of treating the
deadly disease. However, research has produced a much greater understanding
of cancer's cause and pathophysiology. This knowledge has allowed researchers
and clinicians to develop innovative methods of potentially treating and
diagnosing the disease. As a result, many exciting new therapies and
diagnostic products loom on the horizon which may finally mark the turning
point in Nixon's war.
Cancer: Emerging Therapeutic and Diagnostic Technologies is the final product
of a research initiative put forth by Lehman Brother's Global Health Care
Equity Research Team. The comprehensive report describes how investors may
profit from the emerging oncology trend. It begins by describing our
investment thesis of oncology drug market expansion coupled with a loosened
FDA regulatory environment and continues by describing the rise in oncology-related
collaborations. The report explains present understanding of how
cancer develops, current and future oncology treatment options, cancer
diagnostics, specific cancer types and concludes with an interview with
Charles McDonald, MD, the president elect of the American Cancer Society. The
industry analysis is followed by individual company research reports in which
we initiate coverage of Coulter Pharmaceuticals (CLTR, $21 1/8, 1-Buy),
Immunex Corp. (IMNX, $58 1/16, 2-Outperform), and Entremed, Inc. (ENMD, $11
3/4, V1-Venture), resume coverage of IDEC Pharmaceuticals (IDPH, $44, 2-
Outperform), and provide updated information of Corixa Corp. (CRXA, $8 3/8, 1-
Buy) and Onyx Pharmaceuticals(ONXX, $6 7/8, 2-Outperform).
INVESTMENT THESIS
The American Cancer Society estimates that in 1997, in the US, 1.4 million new
cases (excluding basal and squamous cell skin cancer) of cancer will be
diagnosed and 560,000 people will die from malignant disease. Cancer is the
second leading cause of death in the US behind heart disease. One in four
deaths result from cancer. In the US, men have a 50% chance while women have
a 33% probability of developing the disease in their lifetimes. The National
Cancer Institute estimates overall annual costs for cancer at $104 billion;
$35 billion for direct medical costs, $12 billion for morbidity costs (cost of
lost productivity), and $57 billion for mortality costs. Treatment of breast,
lung, and prostate cancers account for over half of the direct medical costs
or more than $17.5 billion.
We are on the cusp of an oncology drug market boom. The cancer drug market is
set to expand as new therapeutic agents which are more efficacious and less
toxic than today's choices enter the market. Cancer will likely become more
prevalent as the demographics of the world's population shift towards older
age. Better drug regimens will allow cancer patients to live longer causing
the disease to become more of a chronic condition thus increasing the
prevalence further. In addition, better diagnostic tests and screening
techniques will result in a greater number of treatable cancers. We project
the oncology drug market to expand accordingly from $5.8 billion currently to
$7.8 billion in 2000 and $18.8 billion in 2010. As the FDA loosens its
regulations regarding the oncology drug approval process, we estimate that
cancer drugs will be brought to market 1 1/2 to 2 1/2 years faster while
associated pre-launch costs decrease by $48 - 67 million per drug. We believe
that investors have not fully recognized the impact of a growing market
coupled with a less restrictive FDA and more lucrative oncology-related
collaborative partnerships. For example, after taking into account faster
approval times, lower development costs and less risky cash flows, we estimate
that for an average drug with peak sales of $500 million and 7 years until
launch the NPV is between $26.5 million and $33.9 million higher than when
current FDA regulatory approval assumptions are used. Moreover, more
favorable partnerships could add an average of $5.2 million in value per deal.
In addition, larger growth assumptions augment pipeline values by increasing
an average drug's peak sales. Therefore, we believe that the value of certain
types of cancer drugs in company pipelines are not being fully discounted and
priced into equity shares.
Companies developing drugs which are able to target cancerous cells
specifically while leaving normal cells unscathed, should provide the best
opportunity for participating in the expansion of the oncology drug market.
These are companies that are focused on specific aspects of molecular oncology
and signal transduction, cancer vaccines, angiogenesis inhibitors and
monoclonal antibodies. While not all companies focused on the above will
profit from the emerging trend, those that have the broadest, most applicable
technology base should benefit. We believe that the following companies fit
this profile. In the molecular oncology area, we favor Ligand (LGND, $14
13/16, 1-Buy), Sugen (SUGN, $13 7/8, 1-Buy), Cadus (KDUS, $7, 2-Outperform),
Onyx Pharmaceuticals, Tularik (private company), Signal Pharmaceuticals
(private company) and Ariad Pharmaceuticals (ARIA, $4 7/16, V1-Venture). In
cancer vaccines, we believe that Corixa has the best technology base. In
angiogenesis inhibitors, we favor Entremed. Finally, in monoclonal
antibodies, we believe IDEC Pharmaceuticals and Coulter Pharmaceuticals are
the most favorably positioned. |
