Thoratec UPDATE BUY  Target: US$36.00



US$31.19 BUY 
Target: US$36.00

Thoratec manufactures medical devices used for
circulatory support, vascular graft applications, and blood
coagulation testing. Thoratec’s ventricular assist device
(VAD) systems are currently marketed in the US and
internationally for use as a bridge to heart transplant and
for recovery of the heart after open-heart surgery. The
company has the only VAD currently FDA-approved for the
destination therapy indication.
All amounts in US$ unless otherwise noted.

Life Sciences — Biomedical Devices and Services
Investment recommendation
We remain positive on the long-term growth potential of the
LVAD market, owing to the size of the TAM (40k+ patients in US
alone), low penetration level (10%E in US/Europe; <5%E in
Japan) and next-generation technology coming down the pipe
(HMIII and MVAD), which we think will drive strong double-digit
growth in this duopolistic market for years to come. We continue
to favor Heartware common (HTWR : NASDAQ : $73.53 | BUY),
but reiterate our BUY on THOR as well. Owning both, while not
likely to elicit out-sized returns in the near term, could very well
do so over the next 12-18 months, in our opinion.
We are increasing our target to $36 from $30, reflecting not only
increasing optimism about the VAD market and THOR’s next-gen
pipeline (HM3, HM-PHP), but also to account for an uptick in the
mean small-cap comp group’s 2015 EV/sales multiple (3.7x
currently vs. 3.4x previously – ex-outliers).
Investment highlights
 Our 2016 estimates call for revenue growth of 4.7% to
$486M, gross margin expansion to 71%, and pro-forma EPS
growth of 4.8% to $1.35.
 For 2016, we estimate THOR’s US VAD revenue will grow
about 1% to $359M, but model faster OUS VAD sales growth
of 11% to $125M.

Actavis BUY Target Price $ 300

ACT : NYSE : US$250.38
Target: US$300.00

Actavis is an integrated global pharmaceutical company
that develops and markets both brand and generic drugs.
With the acquisition of Forest, it has transformed itself
into a formidable brand/generic hybrid pharmaceutical
company with a truly global scope.
All amounts in US$ unless otherwise noted.

Life Sciences — Specialty Pharmaceuticals
Investment recommendation
Actavis announced a great Q3 and raised guidance. Revenue beat our
numbers by $34M, and EPS beat us by $0.15 and consensus by $0.08.
We like the stock on its own merits now with the durability provided by
the Forest products but are becoming increasingly concerned that it’s
getting caught up in the market euphoria that might create a situation
where it would overpay for Allergan.
Investment highlights
Synergies already materializing. Breaking the results into Actavis and
Forest components – revenue from Forest products were +14.7% Y/Y
and the Actavis base business was +33.2% Y/Y. As the integration
accelerates and strong performance continues, we don’t see why Actavis
would continue to have a Spec Pharma cellar multiple, and hence are
looking for both an expansion and continued upward earnings revisions.
Salix or Allergan or something else? Although no names were obviously
disclosed, most questions were aimed at deciphering the next
acquisition target: 1) strategic rationale is more important than EPS
(which we find fascinating given there’s virtually zero strategic fit
between Actavis and Allergan); 2) prefer friendly deals as hostiles result
in loss of human capital; and 3) maintain 3.5x leverage.
We use a standard DCF for our raised $300 target, based on a 10%
discount rate and terminal growth of 2.6%. Risks include: failure to
integrate Forest; undue pricing in US generics; and/or failure to obtain
FDA approvals for the seven key Forest products.

Radius Health Raising Target Price to $ 30

RDUS : NASDAQ : US$23.11
Target: US$30.00

Radius is a biotechnology company focused on
discovering, developing, and commercializing drugs for
endocrine disorders. Its wholly owned lead asset is
abaloparatide, in Phase 3 for treatment of
postmenopausal osteoporosis.
All amounts in US$ unless otherwise noted.
Life Sciences — Biotechnology
Investment highlights
$1.7B Seragon acquisition advantageous to RAD1901
Roche’s recent ~$1.7B acquisition of Seragon for its early-stage SERD
(ARN-810) suggests healthy interest in the SERD area, including
RAD1901. We also believe RAD1901’s potential to cross the blood brain
barrier could be an advantage vs. current therapies. Additionally,
RAD1901 may avoid the uterine cancer and bone loss risk associated
with AIs or tamoxifen, possibly permitting RAD1901 to earlier treatment
settings in hormone receptor positive metastatic breast cancer (MBC).
RAD1901 early, but could address ~$1.4B market in MBC
Analysis shows RAD1901 has potential to penetrate the ~$850M
hormone receptor positive MBC population and ~$540M MBC + brain
metastases market. We do not include RAD1901 in our valuation given
its early stage, but believe continued positive data could contribute to
long-term upside for RDUS.
Recent Phase I update at EORTC conference promising
New highlights from the Phase I MTD trial for RAD1901 showed
suppression of ER signals via PET scans after only six days of dosing, a
move forward towards initiating a 1b clinical trial, possibly starting
YE14. We expect top-line data from the Phase I MTD trial YE14 at
SABCS and results from the 1b trial in MBC presented at ASCO in 2015.
Raising price target to $30 from $26
We are raising our price target to $30 from $26 given prior market
expansion for injectable non-bisphosphonate drugs. We believe
abaloparatide will have better efficacy data compared to Forteo, which
could expand the market.

We are raising our US peak sales estimate to ~$820M vs. ~$650M previously.

SAGE Therapeutics BUY Target Price $40

SAGE : NASDAQ : US$29.05
Target: US$40.00

SAGE Therapeutics is a development/clinical stage
biopharmaceutical company founded in 2010 that is
focused on developing and commercializing drugs to
treat central nervous system (CNS) disorders where no
effective or FDA approved options exist.
Life Sciences — Biotechnology
Investment highlights
Estimate $980M US peak sales for SAGE-547
We estimate $980M US peak sales from ~13,300 SRSE patients,
representing 55% of total super refractory status epilepticus (SRSE)
patients and 13.8% of all ~96,000 patients treated for status epilepticus
in the hospital. We assume a cost of ~$75,000 per patient annually,
which we believe is appropriate for the hospital setting given these
patients are critically ill and are on last lines of therapy.
SAGE-547 has clear mechanism of action
SAGE-547’s mechanism is well understood, upregulating GABA at two
synapses (α1 and α 4) while current therapies only hit GABA at α1
receptor. We believe this gives the drug an advantage over other
therapies because the dual interaction can potentiate stronger GABA
duration, leading to improved seizure control.
Current therapies remain ineffective
Current therapies remain ineffective in controlling SRSE (response rates
<40%) or have intolerable side effects, giving SAGE-547 a low risk of
penetrating in this market. Additionally, we want to emphasize the
severity of this disease where patients in the ICU carry a mortality risk
of close to ~50%, making this an area of high unmet medical need.
Expect positive SAGE-547 weaning data in December
We expect positive data for SAGE-547 when patients are weaned off
drug and brought out of coma in December for at least n=10 patients.
Previous data suggested resolution of SRSE in 9/10 patients, whereas
new data will discuss weaning patients off drug and reversing coma

Exact Sciences Update Target Price Now $23

EXAS : NASDAQ : US$21.04 BUY 
Target: US$23.00

Exact Sciences Corporation is a molecular diagnostics
company focused on the early detection and prevention
of colorectal cancer. It is developing a patient-friendly,
stool-based (sDNA) test known as Cologuard, for the early
detection of colorectal pre-cancer and cancer. The
company is based in Madison, WI.
All amounts in US$ unless otherwise noted.

Life Sciences — Biomedical Devices and Services
Investment recommendation
We reiterate our BUY rating on EXAS following yesterday’s conference
call hosted by EXAS and the Mayo Clinic, which announced it is the first
healthcare system to adopt Cologuard. While the deal is a positive, we
think the bigger opportunity is the likelihood for additional systems to
come onboard as the publicity raises awareness among primary care
doctors. We raise our price target to $23 from $21.
Investment highlights
 Mayo Clinic endorsement a positive. EXAS will begin shipping
Cologuard tests to Mayo Clinic next week, gradually as doctors order
on behalf of patients (not one large order from the Mayo Clinic). We
expect additional systems will come on line, most likely after the
company obtains its preliminary Medicare reimbursement amount
by end of August/early September (no change to timing).
 National coverage decision. Following the prelim. reimbursement
amount, look for a comment period, followed by a final national
coverage decision by end of October/November. At that time, all
individuals in the US age 65+ would be covered under Medicare.
 USPSTF “A” or “B” decision mitigates private payor risks. We
expect USPSTF will grant Cologuard an A or B rating by the end of
2015; thus, under the ACA, Aetna’s “no coverage decision” of
Cologuard will not be meaningful by end of 2015, in our view.
 Divide and conquer. Management is wasting no time, dividing and
conquering initial phases of commercializing Cologuard: meeting
with payors, raising awareness with KOLs, and developing its
marketing strategy, among other critical launch activities


DXCM : NASDAQ : US$38.21
Target: US$48.00

DexCom is a medical device firm focused on pioneering
technologies for the continuous monitoring of glucose
levels in people with diabetes. The company has received
FDA approval for its short-term continuous glucose
monitoring system (CGMS), the DexCom STS system, and
in June 2007 gained approval for its second-generation
STS Seven system.

Life Sciences — Biomedical Devices and Services
Investment recommendation
We reiterate our BUY rating following strong Q2/14 results that came in
well above our and consensus estimates. Demand for the Gen4 system
continues, with pediatric sales demonstrating the potential to be a strong
lever for growth throughout 2014. Specifically, pediatrics accounted for
25-30% of new patient additions in the first full quarter of sales and are
expected to grow as the company further penetrates the pediatric
endocrinology market. Lastly, the JNJ/Animas VIBE SAP in the US and
DexCom Share both present potential upside to current estimates in the
Investment highlights
 Q2/14 results were well above our/Street estimates with product
revenues of $58.2M, up 64% Y/Y, well above our $51.7M estimate.
 Both durable revenues (~$17.5M) and consumable sales (~$40.7M)
beat our estimates of $14.6M/$37.1M, respectively.
 Product GMs of 67.9% were up Y/Y and beat our 66.6% estimate.
 2014 guidance was raised with product revenues now expected in the
range of $220M-$235M (~40%-50% growth Y/Y), up from $205M-
$225M previously.
We are increasing our price target to $48.00 from $40.00. We base our
valuation on an 11.8x EV/sales multiple applied to our 2015E revenue
estimate of $301.0M.


ALR : NYSE : US$34.75
Target: US$45.00

Alere is the largest provider of rapid point-of-care (POC)
diagnostic products and the second largest disease
management franchise. Its product line-up includes areas
such as infectious disease, cardiology, oncology, drugs of
abuse, and women’s health. The company operates
through three business segments — Professional
Diagnostics Products, Consumer Diagnostics, and Health
Management — while addressing more than 100

Life Sciences — Biomedical Devices and Services
Investment recommendation
Alere reported an ugly Q2 that missed our/Street expectations on both
the top and bottom line. While admittedly the company is on a slower
path to operating improvements than we were expecting, we believe an
Alere under new management is better positioned to unlock shareholder
value by divesting noncore assets and paying down debt. Reiterate BUY

Investment highlights
Empowering Namal. For the first time, interim CEO Namal Nawana
has been empowered by the board to drive change and will now be
tasked to oversee asset divestitures. While we expect ongoing slow
growth in the short term, we believe the company’s strategy is
sound and will likely take through 2015 to fully realize the changes.

A strong divestiture message. Alere announced it plans to divest HM
by the end of 2014, which helps eliminate an albatross around the
board’s neck and better enables the company to focus on its core.

Ugly Q2. Q2 Adj. EPS of $0.42 missed our/Street’s $0.58. Revs of
$738M (-3%) missed our $750M/Street’s $747M

Pipeline. On a positive note, ALR filed CLIA waiver for influenza and
looks to commercialize the first CLIA-waived MDx flu test in time for
the 2014-2015 flu season