Aegerion Pharmaceuticals

English: Logo of the U.S. Food and Drug Admini...

English: Logo of the U.S. Food and Drug Administration (2006) (Photo credit: Wikipedia)

AEGR : NASDAQ : US$41.69
BUY 
Target: US$54.00

COMPANY DESCRIPTION:
Aegerion is a biopharmaceutical company focused on the development and commercialization of treatments for patients with severe lipid disorders. Its lead therapeutic is Juxtapid, an oral small-molecule inhibitor of MTP approved in the U.S. and currently pending regulatory review in the E.U. for treatment of patients with homozygous familial hypercholesterolemia (HoFH).

RAISING PRICE TARGET TO $54


Following a top- and bottom-line beat, AEGR provided metrics on the first ~15 weeks of the Juxtapid launch and described the “accelerated” trajectory of 75 U.S. and ex-U.S. named-patients on drug (Brazil and Turkey) and scripts (>185 to date; ~9/week at week 6; ~13/week now). As a result, we continue to believe that guidance of 250-300 patients on drug by YE13 and $15M-$25M in FY13 revenue is conservative, but model for 273 and $25.5M, respectively (we assume 33 patients on drug entering April, 75 entering May [no additions] and 95 in June) until we get clarity on the trajectory post Q1. In addition, we believe a key overhang from AMGN’s AMG 145 data has been removed given the ~19% LDL reduction (vs. 40% for Juxtapid) as it is not a key competitive threat. We look to a positive CHMP decision in Q2/E.U. approval in mid-2013 as the next catalysts.
Launch details are all favorable: AEGR is seeing a higher-than-expected interest from cardiologists who have “a meaningful” number of HoFH patients, and is optimizing marketing for these practices. AEGR also indicated greater confidence on the 3K HoFH patients in the U.S. given launch experience, and will provide dropout (“very encouraging”) and compliance rates on future calls. On the payor front, AEGR has met with >100 payors and is surpassing internal pre-auth timeline metrics. The company is appealing negative payor decisions – rejections are due to paperwork or lack of payor policy. AEGR expects to give turnaround time for scripts on the Q2 call (guided to ~4-5 mo. in Jan).
E.U. approval on-track for mid-2013: AEGR likes the odds of E.U. approval (~60 days post-CHMP opinion in Q2). The company does not expect an oral explanation will be required and was pleased with the Scientific Advisory Group meeting (similar to FDA AdCom).
 Q1 financials, 2013 guidance: Q1 GAAP EPS of $(0.64) was better than consensus of $(0.71) and CGe of $(0.73) due to higher revenue ($1.2M vs. consensus of $630K) and lower GAAP R&D expense ($5.8M vs. CGe of $8.0M). AEGR exited Q1 with $140.7M and provided OpEx guidance (ex-stock-based comp) of $95M-$105M (we model for $96.2M)

Anacor Pharmaceuticals

Atopic dermatitis

Atopic dermatitis (Photo credit: Wikipedia)

ANAC : NASDAQ : US$7.29
BUY 
Target: US$13.00

COMPANY DESCRIPTION:
Anacor is a biopharmaceutical company focused on novel small molecule therapeutics derived from its boron chemistry platform. Its lead product candidate is tavaborole, a topical antifungal currently in Ph3 clinical
development for treatment of onychomycosis (fungal nail infection). In addition, Anacor is developing AN2728, a topical anti-inflammatory for treatment of atopic dermatitis. ANAC also has R&D partnerships with GSK,
LLY, and MRX.

Investment recommendation


Reiterate BUY, increasing target to $13 from $8 on more upside to AN2728 potential in AD after proprietary MD opinions on Phase 2b. We
see ANAC’s AN2728 for atopic dermatitis as a major value driver for
shares going forward. Tavaborole, ANAC’s Phase 3 topical antifungal for
toenail fungus (onychomycosis), may be approvable, but efficacy rates
lower than a competitor will likely limit market potential. We are raising
our target to $13 from $8 in part on increased peak market share and
peak sales as well as increased chance of success.
Investment highlights
 After speaking to dermatologists on their opinions of the March
AN2728, we believe there is major upside to our previous estimates.
We have increased peak market share to 25% from 20%, as well as increasing AN2728’s chance of success from 40% to 50%.
 Dermatologists we have spoken with think there is a strong suggestion that AN2728 could be stronger than Elidel and Protopic.
While noting there is no head-to-head data, they believe the Phase 2b very strongly suggests that AN2728 results in more symptom relief than either Elidel or Protopic.
 Safety and reimbursement will remain as two major levers of AN2728’s opportunity. Pricing will also be key, and MD’s do not think the drug’s better profile will justify a higher price.

Sarepta Therapeutics Target $ 47

English: Logo of the .

English: Logo of the . (Photo credit: Wikipedia)

SRPT : NASDAQ : US$35.85
BUY 
Target: US$47.00

COMPANY DESCRIPTION:
Sarepta Therapeutics is a biopharmaceuticals company that is focused on the discovery and development of unique, first-in-class therapeutics for the treatment of lifethreatening rare and infectious diseases. Lead product candidate eteplirsen, a phosphodiamidate (PMO) morpholino antisense oligomer for the treatment of Duchenne muscular dystrophy (DMD), is currently in Ph2 trials.

Investment recommendation


Initiating with a BUY, $47 target on eteplirsen’s potential for rapid, broad uptake driven by clean safety and good efficacy in Duchenne muscular
dystrophy (DMD), a huge unmet need. SRPT’s lead candidate, eteplirsen (ETE), induces skipping of exon 51 to restore production of functional
dystrophin, whose absence is responsible for DMD pathology. We think ETE has a chance of accelerated approval, making it to market faster than
competitor, Prosensa. Even if it doesn’t, we think ETE’s safety profile would allow it to rapidly assume majority market share if Prosensa’s compound is well established at the time of launch. We conservatively model no accelerated approval, and our $47 target is based on pNPV analysis.
Investment highlights
Eteplirsen: Skipping of exon 51 with a morpholino clearly restores dystrophin production with excellent, likely best-in-class safety with strong evidence of impressive efficacy. While the safety database is limited, we think eteplirsen binding, chemistry and metabolism support continued clean safety. Eteplirsen has shown clear, placebo-controlled ability to restore dystrophin production (the defect behind DMD).
 The accelerated approval decision: major near-term stock driver even if we think competitive data, eteplirsen safety are the REAL value drivers.
We think, rationally, ETE deserves accelerated approval, but the decision rests with FDA, a bureaucratic agency. Patient pressure to accelerate rare disease drug development may be offset by negative congressional scrutiny on drug safety. We think a stock bet on ETE accelerated approval
is a bet on the progressiveness/edginess of FDA (which we are not willing to make) rather than ETE potential. Even without accelerated approval,
we think ETE will ultimately become the market leader in DMD, driven by safety. Revenues would be delayed in this case, but only by ~1 year, and
our peak market share assumptions are the same in either case.
 We expect expedited development for follower drugs for exons 45, 53 and 50, expanding the PMO treatable population by ~20%.

Impax Laboratories : POTENTIAL FOR EVENT-DRIVEN UPSIDE

Image representing Impax Laboratories as depic...

Image via CrunchBase

IPXL : NASDAQ : US$15.29
HOLD 
Target: US$20.00

COMPANY DESCRIPTION:

Impax Laboratories (IPXL) is a global pharmaceutical and drug company that develops, produces and markets generic and branded pharmaceutical products. It has two operating segments, Global Pharmaceuticals and Impax Pharmaceuticals, which develops brand products to treat Alzheimer’s, ADD, and MS, among other diseases.

We leave our rating unchanged absent better visibility into an event but have taken a closer look at various upside triggers.
 A strategic or financial buyer emerges. The asset is attractive, and our analysis considers several potential suitors both strategic and financial. While it’s not clear that IPXL is a willing seller (potentially a big hurdle but not insurmountable), there is precedent for prior M&A involving companies with manufacturing challenges (we’ve taken a close look at Andrx which serves as an interesting example).
 An activist shareholder(s) gets involved. The current shareholder list (per last update) doesn’t call out any obvious activist funds but a lot of
volume has changed hands. Questions remain around desired changes beyond what management is doing (i.e., value creation beyond a sale), but a history of activism in the space exists (i.e., MYL).
 IPXL pulls the trigger on M&A. This could be good or bad depending on the asset. IPXL continues to search for assets, with its ~$6 per share in cash and no debt (~40% of equity cap). There are several acquisition needs, but we think focus on another CNS brand asset to leverage the footprint ahead of the Rytary launch is high.
 Sum-of-the-parts (SOTP) should set a floor. Our updated SOTP analysis implies NPV support of ~ $19 from cash (~$6), Adderall XR (~$1), base business (~$4.50), Zomig (~$1.50) and Rytary (~$6) – we think Rytary is being discounted heavily given lack of visibility at this point. Pipeline and infrastructure remain as  an upside option.

Actavis PULMICORT WIN POSITIVE FOR ACT

ACT : NYSE : US$92.46
BUY 
Target: US$102.00

COMPANY DESCRIPTION:
Actavis (formerly Watson Pharmaceuticals) is an integrated global pharmaceutical and drug company that develops, produces and markets generic, brand and biological pharmaceutical products, specifically focused on urology and women’s health.

ACT announced a win in the much-awaited Gx Pulmicort litigation allowing a generic launch against AstraZeneca’s Pulmicort (~$1 billion sales). The court ruled on non-infringement of the ‘834 patent and invalidity on the ‘603, which implies that Apotex will also likely launch (and possibly an authorized generic), joining TEVA which is currently the only generic on the market. The debate here was that TEVA assumed status quo in 2013 guidance (no competition), while ACT assumed a positive decision and launch (i.e., new competition).

While the decision was largely considered a toss-up, our forecasts for both companies reflected an ACT launch. As such, we’re leaving estimates for both unchanged though expect Street EPS to gravitate to the high and low end of guidance for ACT and TEVA, respectively. Bottom line: more good news for ACT, and for TEVA this is a negative and the realization of a well understood risk. Reiterate BUY on ACT, remain HOLD on TEVA.
Positive for ACT – raising target to $102: The Pulmciort news follows a string of positive product announcements and adds ~$0.13 of EPS (or +2%) to ‘13E (for 3 quarters) with full year follow-through to 2014. We assume a 4-player market with 75% price discount and 25% share. While this was technically in guidance, the recent launch of Gx Suboxone was not, leaving significant upside potential to EPS and perhaps more importantly this removes for many what had been an unwanted binary risk.

Our $102 ACT target is based on 11.0x P/E and 10.0x EV/EBITDA applied to our 2014 forecasts (where we’re 4% above consensus).
Negative for TEVA – no change to $45 target: This is TEVA’s largest generic product at close to $500 million in sales (~ $0.18 in EPS). We estimate a ~$0.10 hit this year (-2% to EPS) for 3 quarters and greater in 2014 softened by what is likely elimination of the royalty back to AZN. We think the guidance range can hold though EPS is now likely toward the lower end. Our $45 TEVA target is unchanged and still based on 9.0x P/E and 7.5x EV/EBITDA applied to 2014. See our 3/17 note “Closer look at stock strength ahead of upcoming news flow” for detail.

Mylan LOWERING TARGET TO $32

English: Logo of the .

English: Logo of the . (Photo credit: Wikipedia)

MYL : NASDAQ : US$28.70
HOLD 
Target: US$32.00

COMPANY DESCRIPTION:
Mylan, Inc. (MYL) engages in the global development,marketing and producing of generic and brand pharmaceutical products. It operates two segments, Generics and Specialty, with branded drugs such as EpiPen Auto-Injector, Performist Inhalation Solution, and antiretroviral (ARV) drugs.

Our early March downgrade to HOLD was in part related to growing concern around the EPIPEN franchise. While broader concerns over an AB-rated generic EPIPEN in September 2015 remain a meaningful risk, current TRx trends are tracking below our forecast and as such we’ve revisited our forecast. We’re lowering EPIPEN sales for 2013E through 2016E with the result a 2-4% reduction in EPS now pegging us below consensus.

We’re lowering our price target consistent with the EPS cut from $33 to $32 – no change to HOLD rating.

 EPIPEN TRx growth trending negative. We now model flattish TRx growth through 2015 (from ~low to mid single digits) with 15% annual price increases (unchanged). Recently launched brand competitor Auvi-Q continues to pick-up incremental share with no signs thus far of overall market growth. Push-back will point to tough comps over last year due to seasonality, which at least in part likely explains the magnitude of the negative trend, but for now we believe trends suggest a more conservative outlook.


 With contribution expected to accelerate to close to 30% of EPS this year (~22% in 2012), debate around potential competition is likely to pick up. As EPIPEN becomes a bigger part of the P&L, focus will shift to (1) how much EPS is at risk and (2) how MYL plans to backfill it. Per prior settlement TEVA can enter in September 2015 with FDA holding the key to whether or not an AB-rated product will be approved. We think uncertainty here could weigh on the stock.


Valuation reasonable, but we still prefer ACT for more near-term catalysts. Our $32 target is based on ~10x P/E and 8.5x EV/EBITDA
multiple on our 2014 pro forma forecasts. MYL currently trades at 9.4x 2014E EPS, which is a slight discount to ACT and should keep support in the stock assuming forecasts hold.

Omeros Corporation Q 4 Update

Left knee arthroscopy

Left knee arthroscopy (Photo credit: Bekathwia)

OMER : NASDAQ : US$4.09
BUY 
Target: US$13.00

COMPANY DESCRIPTION:
Omeros is a biopharmaceutical company focused on products for inflammation and central nervous system disorders. Omeros has multiple products in clinical development and a rich preclinical pipeline. Lead product OMS103 is in Phase 3 studies to evaluate improvement in functional outcomes post arthroscopic ACL reconstruction.

Investment recommendation


Reiterate BUY, $13 target on potential of OMS302 in cataract surgery, OMS103 in meniscectomy. OMS302 is in development for pupil dilation maintenance in lens surgery, where dilation is key for lens placement and recovery. 302 is OMER’s second Pharmaco-Surgery asset after OMS103, now in Ph3 for meniscectomy surgery. Our $13 target is based on pNPV analysis.
Investment highlights
 Commercialization planning underway for OMS302 in lens replacement surgery; NDA in Q2/13, MAA in mid-2013. We think OMER may seek
accelerated approval based on unmet need. The marketing plan currently revolves around a KOL base, as OMER believes a typical community MD will be guided by KOL opinion. OMER is currently recruiting KOLs in a clinical advisory capacity: 30 are onboard with only a month of outreach. OMER intends to recruit ~80 KOLs, which we think could be leveraged on the commercial front on approval. Reimbursement research and  stablishment of payor codes (e.g., HCPCS, SCOD, or pass-through systems) is ongoing.
 A second Ph3 trial of OMS103HP in meniscectomy is to begin mid-‘13; we expect a VAS-AUC post-op pain primary endpoint, based on Ph2 data. In the first Ph3, OMS103HP missed the KOOS primary endpoint, but hit the prespecified secondary VAS-AUC post-op pain endpoint (p=0.0003). OMER noted the primary endpoint in the next trial will be pain, with a secondary endpoint looking at opioid sparing (which may hit significance). A second trial of the same design is slated to start in H2/13. Each trial will be “substantially” smaller (we think 30%+) than the first KOOS-based Ph3 trial.
 OMS824 moving into Ph2 trials in Huntington’s Disease; MASP-2 program to enter the clinic in mid-2013, and GPCR work is leading to partnerable candidates. OMS824 was well tolerated in Ph1 trials, and a Ph2 is slated to start H2/13. INDs for MASP-2 and PDE7 compounds are on track, with both slated to enter the clinic this year. Early-stage work with GPR17 agonists shows promising potential for remyelination.

AcelRx Pharmaceuticals

Clinical trials 05

Clinical trials 05 (Photo credit: Sanofi Pasteur)

ACRX : NASDAQ : US$5.24
BUY 
Target: US$9.00

COMPANY DESCRIPTION:
AcelRx Pharmaceuticals is a specialty pharmaceutical company focused on the development and commercialization of innovative therapies for the treatment of acute and breakthrough pain. AcelRx’s lead product, ARX-01, is designed to provide patient-controlled analgesia (PCA) and overcome the issues currently encountered with IV PCAs.

We’ve taken another look at the stock post the recent Phase III data read, meetings with management, and the Q4/12 update call. We continue to
see long-term potential for AcelRx’s Sublingual Sufentanil NanoTab PCA System (ARX-01) for treatment of post-operative pain in the hospital
setting. With the positive Phase III data set in hand (abdominal study) the path from here still holds several key catalysts for ACRX, including one
last pivotal Phase III study read-out for ARX-01 (placebo-controlled in major hip and knee surgery) expected in Q2/13, an NDA submission in
Q3/13, and potential for an ex-US partnership to come anytime.
Additionally, ARX-04 (break-through battlefield pain) funded by the DoD should also have top-line Phase II results in Q2, where focus thus far has
been limited. ACRX continues to trade at a significant discount to our ARX-01 NPV, which we don’t think will hold. Reiterate BUY rating and $9
target.
Model update – no change to our underlying ARX-01 assumptions We are making some modest changes to R&D and SG&A spend in our model going forward, and our EPS estimates from 2013-2017E are now ($0.61), ($0.49), $0.02, $0.61 and $0.96. Our assumptions around an early 2015 ARX-01 US launch with peak 2022 US sales of $577 million are importantly unchanged, which is where focus is likely to begin to pick up. Current cash position of ~$60 million exiting 2012 should provide  run-way into Q3/14, with the potential for an ex-US partner likely to help bridge the gap of any cash needs.
Valuation attractive as stock trades at discount to our ARX-01 NPV
Our $9 target is based on an equal-weighted 17.0x P/E on our 2017 EPS risk-adjusted forecasts discounted back and NPV on the full and partnered
RoW ARX-01 opportunity using a 26% WACC that can move lower.

Insmed

Cystic fibrosis manifestations

Cystic fibrosis manifestations (Photo credit: Wikipedia)

INSM : NASDAQ : US$6.83
BUY 
Target: US$12.00

COMPANY DESCRIPTION:
Insmed is focused on developing novel, targeted inhaled therapies for the treatment of serious orphan lung diseases. Its lead product candidate is Arikace, a liposomal formulation of FDA approved antibiotic, amikacin.

Investment recommendation


Initiating coverage with BUY rating, $12 target on Arikace potential in two orphan indications: cystic fibrosis (CF) P. aeruginosa and nontuberculous mycobacteria (NTM) lung infections. INSM’s lead candidate Arikace is a liposomal formulation of potent, FDA approved antibiotic amikacin. We expect positive data from an EU Ph3 trial of Arikace vs. current SOC TOBI (inhaled tobramycin) in CF patients (mid-2013) and a US Ph2 trial evaluating Arikace in NTM lung infections (data expected Q4/13). NTM is a larger market than CF with no approved therapies and may provide a quick path to market and premium pricing for Arikace. Our $12 target is based on pNPV analysis.
Investment highlights
 Potential to address unmet need: orphan status, accelerated approval for NTM could give Arikace fast path to US market. We estimate ~50k patients suffer from NTM infections in the US, making it a larger indication than CF. NTM causes significant morbidity and mortality, and there are no approved drugs to treat it. Arikace’s Ph2 NTM trial is currently enrolling (data expected Q4/13), as is a 25-patient compassionate use program. With GAIN Act QIDP status and good Phase 2 data in an orphan unmet need, INSM believes good data from the Ph2+extension could be enough to file an NDA in 2014.
 ~80% of adult CF patients have chronic P. aeruginosa infection; current Tx options are cumbersome and don’t prevent declines in lung function; if Arikace can stabilize FEV as Ph2 suggests, it’s a home run. TOBI (inhaled tobramycin, Novartis) is the current SOC for CF PA infections. Chemical properties of tobramycin prevent it from fully penetrating mucus present in CF lungs where bacteria reside, limiting its efficacy; its use is still associated with declines in lung function from infection-associated lung damage.
 Arikace’s formulation allows it to penetrate into human macrophages (where NTM infections live) and into thick, CF mucus/biofilm to target bacteria. Arikace is a liposomal formulation of the approved and commonly used aminoglycoside antibiotic amikacin. A lipid bilayer (liposome) shell facilitates delivery to areas (inside cells, mucous/biofilm) where standard antibiotics don’t penetrate. Arikace has the potential to be the first effectiive Tx for NTM and an improvement over current inhaled antibiotics for CF.

Valeant Pharmaceuticals International Inc.

Valeant Pharmaceuticals

Valeant Pharmaceuticals (Photo credit: Wikipedia)

VRX : NYSE : US$73.33
VRX : TSX
BUY 
Target: US$83.00

COMPANY DESCRIPTION:
Valeant is a specialty pharmaceutical focused on dermatology, branded generics, and neurology indications in the US, Canada, Latin America, Europe and South East Asia. The company continues to grow through strategic acquisitions highlighted by the $2.6 billion acquisition of Medicis. In 2010, Valeant Pharmaceuticals International and Biovail Corporation completed a merger to form a single Canadian-based specialty
pharmaceutical company.

Investment recommendation


Valeant has agreed to acquire Obagi Medical Products (OMPI:Nasdaq) for $19.75 per share or ~$365 million. We believe that Obagi’s aesthetics
and skin therapeutic products are a good fit with Valeant’s large dermatology franchise. Given Valeant’s efficient tax structure, its strong
position in dermatology, and its core strength in integrating acquisitions (and driving synergies), we believe that this deal has a high probability
of completion. The Board of Obagi has approved the transaction.
Investment highlights
 Valeant again flexes its integration muscle. Valeant expects that this acquisition will be immediately accretive to cash EPS and sees a cost
synergy run rate of $40 million within six months of closing.
 More value in Medicis than originally believed. Now that Medicis is largely integrated, management recently indicated that it sees additional upside potential from this acquisition. Valeant expects to update its financial guidance on its Q1/13 call.
 M&A remains active. Obagi is a medium-sized acquisition for Valeant, in line with our expectations for smaller deals in the nearterm.
Nonetheless, management has discussed the idea of a ‘merger of equals’ that could potentially alleviate balance sheet constraints. We expect that speculation on this front could continue to buoy the stock.
Valuation
We value Valeant based on a DCF model using a WACC of 8.2% and a terminal growth rate of 1.0%. We have updated our model to include this acquisition and, as a result, we are increasing our 12-month target price to US$83.00 (from US$79.00), which supports our BUY recommendation.

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