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Biotech / Medical : Centocor ( CNTO ) -- Ignore unavailable to you. Want to Upgrade?

To: TraderXx who wrote (873)	12/21/1998 11:06:00 PM
From: Barry Cartwright	Read Replies (1) \| Respond to of 965

RATING: Buy Change: None 12-Mo. Target: $52 VIEWPOINT Centocor shares dropped 10% yesterday and nearly 20% in the last two weeks on anxiety about Remicade sales and reduced sales estimtes from one of the strong bulls on the stock at another brokerage - estimates that were well above company guidance. While we share some of the caution about initial Remicade demand, we think the magnitude of the decline overlooks the strong product fundamentals for ReoPro and the contributions to Remicade growth in 1999 from sources other than domestic demand in Crohn's disease. We also believe that the negative emotion surrounding the stock misreads details of the revenue guidance from the company. Having spoken at length with several members of Centocor management yesterday, we feel assured that the product fundamentals for ReoPro and Retevase are very sound and that Remicade sales are on track. The current negative sentiment has created unwarranted concern about every aspect of Centocor's business and we view this as an opportune time for investors to build a position in Centocor. We reiterate our Buy rating on Centocor shares with a price target of $52. IMPORTANT POINTS 1. Remicade demand remains difficult to estimate - in the absence of data, negative anecdotes have prevailed. Because Remicade is administered in a hospital or infusion center, prescription data is not picked up by sources such as IMS. Demand is therefore impossible for investors to monitor on a week to week basis. We have spoken with several clinicians at large academic hospitals in the last few days and there are certainly not an overwhelming number of Crohn's patients on Remicade at this point - several hospitals are just developing protocols for administering the infusions. We would keep in mind that this is a new therapeutic modality for Crohn's disease and we think it's unrealistic to expect untoward enthusiasm from physicians for what is initially a very small number of eligible patients. Also, keep in mind that not all of the eligible patients are waiting in a physicians office for treatment. As their symptoms become more acute, they will visit their physician - until then they are outpatients on oral drugs. In summary, we think the anecdotes, including ours, represent a small sample size and that a slow start for Remicade is already taken into account in forecasts. 2. The market has overlooked other sources of Remicade growth in 1999. Our 1999 sales forecast for Remicade includes a contribution of about $9 million in Centocor's share of Schering-Plough# sales in Europe and another $39 million from domestic sales of Remicade in rheumatoid arthritis. We see no reason to alter these forecasts. We have never been proponents of the idea that the Crohn's market was an enormous market or that label expansion in Crohn's was inevitable. We do, however, believe that Remicade will be approved in rheumatoid arthritis and will take the lions share of the Medicare market in RA. Concerns about the achievability of Centocor guidance of $120 - $160 million of Remicade revenues in 1999, we think, overlook these other contributions. 3. The company reiterated its guidance to us yesterday. Centocor reiterated its 1998 revenue and earnings guidance yesterday at an investor conference in New York. We spoke with management shortly after their presentation and were reassured that ReoPro sales growth is strong and that there has been no change in the fundamentals for any product. In fact, Retevase market share has continued to increase despite a very strong marketing push by Genentech to stabilize its market share. In estimating yearly revenues, we would point out that Centocor closed it sale of the diagnostics business and, as a result, will not recognize a full quarter of diagnostics revenue. We think some may have misinterpreted guidance of $315 in Centocor revenue as a signal of weak ReoPro or Remicade sales. During our call with management yesterday, we spoke with the project team leader for Remicade and he assured us that our conversations with academic physicians were not representative of demand in the broader market.