Trubion Pharmaceuticals Inc. (TRBN)

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Competition and Pipeline Concerns for Trubion
Friday March 14, 2:54 pm ET
By Grant Zeng, CFA

Trubion Pharmaceuticals, Inc. (NasdaqGM: TRBN - News) is a clinical stage biopharmaceutical company focused on discovery, development and commercialization of protein therapeutics using its small modular immuno-pharmaceutical (SMIP) technology. However, we are concerned about substantial competitions Trubion will face in the RA and B-cell cancer markets. Trubion's weak pipeline is another reason that we rate its shares a Hold. We are optimistic with the company's SMIP technology and the two candidates TRU-015 and TRU-016 discovered using this technology.

We are also impressed by the collaboration agreement with Wyeth (NYSE: WYE - News) with respect to its lead drug candidate TRU-015 and related product candidates. The alliance not only provides much needed cash to advance its pipeline, but also validates the company's technology and research efforts. However, we are very concerned about fierce competition the company will face in the RA and B-cell cancer markets. Both candidates TRU-015 and TRU-016 will face substantial competition from both big pharma and giant biotech companies like GSK, Novartis, Genentech, Amgen, as well as emerging biotech companies such as Genzyme and Biogen Idec. We are also concerned about the company's weak pipeline and cash position.

Except for TRU-015 (phase II) and TRU-016 (phase I), Trubion has no other meaningful candidates under both pre-clinical and clinical development. If there is something wrong with TRU-015, the company has little to fall back on. We see a balanced risk/reward profile for Trubion at this point. We maintain our Hold rating on Trubion's shares with a price target is $8.50. We arrive at our price target of $8.50 by using 11x P/S ratio, multiplied by our estimated revenue of $25 million in 2009 and discounted at 25% for one year assuming outstanding shares of 25 million. This 11x P/S ratio is slightly lower than the biotech industry average P/S ratio of 15x. This is warranted because of the early stage of its pipeline.