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JMP COMMENTS ON FEW BIOTECHS TODAY



Strong Buy
JMP Biotechnology – Industry Overview "Green Flag for Biotechs... ALTH top pick....Expect strong Folotyn launch, Market Outperform, $20 Price Target

JMP SECURITIES Jan 21, 2010


Biotechnology – Industry Overview

Biotechnology

The Green Flag Has Been Waved

o 2010 off and running with biotech providing opportunities to outperform. Last week the healthcare sector began the year with updates from many large- and small-cap names. The week has increased our conviction that 2010 will see broadened interest in the space favoring both larger-cap revenue and earnings-driven growth stocks (of which we identify only CELG in our current coverage) and small-cap stocks with transformational clinical data or regulatory filings. In this note we review the companies to which we look to for leading stock price performance in 2010 and the catalysts we expect on the way. Our top picks coming out of last week are Celgene in the large-cap space, Allos, BioCryst and Vivus in the small-cap therapeutic space and Genomic Health in the personalized medicine space.

Celgene, CELG, $58.02, Market Outperform, $73 Price Target
o Strong Revlimid guidance and positive results from IFM-0502 set up a year of leading performance among large-cap peers. Celgene remains our top pick in the large-cap space based on peer-leading growth expectations and an underappreciated pipeline with multiple value-driving catalysts in 2010. We expect Celgene to deliver top and bottom (non - GAAP) line growth of approximately 20% and 25%, respectively. Growth will largely be driven by Revlimid, which is expected to grow by up to 29% to $2.2bil in 2010 sales. We believe the projections for Revlimd growth can be met, if not exceeded, with increased market share and duration of therapy resulting from further data presentations from MM-015 and IFM-0502 trials. In the pipeline we expect multiple catalysts for multiple programs in 2010. The company has historically dedicated above peer average resources to R&D (as a percentage of revenues), and we expect this commitment to continue and to show further success. Celgene is currently conducting 20 Phase III/pivotal trials for marketed and development programs, and 12 compounds are currently in clinical development. For pomalidomide we expect the initiation of pivotal trials in both multiple myeloma and myelofibrosis.

We expect the initiation of the Phase III program for apremilast in psoriasis and psoriatic arthritis.


Allos Therapeutics, ALTH, $7.83 Market Outperform, $20 Price Target

o Expecting a good start with 4Q09 FOLOTYN sales and much more to look forward to. Our diligence with physicians and market data indicate that FOLOTYN sales in 4Q09 are tracking to meet or slightly beat expectations. Our estimate for the quarter is $2.7MM compared to Street consensus of $2.5MM. We view this as an early signal of a positive launch and, furthermore, have heard no chatter of reimbursement push back. We expect sales to continue to ramp in 1H10 as the sales force continues the full commercial launch of the drug. Additionally, we anticipate preliminary
results from the Phase II trial in non-small cell lung cancer (NSCLC) to be released in 1H10. Prior to data release we look to learning more details on what level of detail we expect from the top line results and when we may learn of further updates from the trial. Recall that the trial enrolled approximately 200 patients comparing FOLOTYN to Tarceva in second- and third-line NSCLC, in patients who are current or past smokers. The primary endpoint is overall survival, and secondary endpoints include progression-free survival and response rate. Given the multi-arm design of the trial and relatively low power, as it was intended only to provide a signal of activity, we expect the data to require some interpretation and not to be of “registrational path” clarity. Further catalysts for Allos in 2010 include initiation of a Phase III maintenance trial for FOLOTYN in PTCL patients who have demonstrated a response to a CHOP regimen, initiate clinical program for FOLOTYN in CTCL, continue enrollment into Phase II trial for FOLOTYN in NHL patients, and submit the EU regulatory application for FOLOTYN in PTCL. We reiterate our Market Outperform rating and 12-month price target of $20, which is derived by applying a 30x multiple to our 2013 EPS estimate of $1.00, discounted at 15%.

BioCryst, BCRX, $7.81 Market Outperform, $15 Price Target
· A busy week of announcements headed by the first global approval of peramivir. In our view the most important announcement last week was that of the approval of peramivir in Japan. The news came well ahead of our timing assumption of mid-2010 approval and represents upside to our projections for worldwide peramivir sales in the seasonal flu setting. More importantly, in our view, this rapid approval (less than three months review period) enhances our conviction for the drug both in the US and globally and, we believe, could reduce both regulatory and commercial risk in the US and Europe. The company also announced partnerships in several geographies, for example with Merck Serono in Europe, Russia and Canada, which indicates to us the ongoing potential demand for peramivir as an emergency use rescue medicine in the ongoing H1N1 swine flu pandemic. Additionally, BioCryst announced the completion of enrollment in the pivotal trial for forodesine in CTCL. We view this news as important, as it should remind investors that the company is “more than just a flu company”. We believe BioCryst’s pipeline programs and platform technology can further attract attention from investors, both institutional and strategic. Data from the CTCL trial are expected to be available in 2H10. Further catalysts in 2010 include continued enrollment in to US Phase III program for peramivir, potential emergency use orders in partnered and non-partnered countries, forodesine data in CLL by YE10, and data from BCX-4208 both as a monotherapy treatment for gout in 2Q10 and in combination with allopurinol in 4Q10. Our $15 price target is derived from both a risk-adjusted sum-of-the parts analysis of peramivir and forodesine revenue as well as by relative valuations of comparable companies.

Genomic Health, GHDX, $17.40, Market Outperform, $30 Price Target
· Anticipating continued growth from ODx in breast cancer with increasing pipeline visibility. Since the company pre-announced revenues for 4Q09 on January 7th, GHDX shares have declined by 4.1%, compared to an increase of 1.3% for the NBI. Although at first glance revenues appeared to miss consensus estimates by approximately $2MM, revenues for the quarter were negatively impacted by ~$2.5MM due to delayed payments from two insurance companies. The majority of these payments have now been received and will be reported as revenues in 1Q10. We do not view the delayed payments as concerning or an indication of future trends. The number of OncotypeDX tests delivered continued to show consistent growth (6% Q/Q), and we remain confident in our 2010 estimates, for which we project Y/Y revenue growth of 27%. We also anticipate that the company will achieve profitability on a GAAP basis by mid-2010. Additionally we continue to look forward to the launch of the colon cancer test later this quarter. In our view, the colon product will provide drivers for GHDX shares as we gain information on the adoption curve. We maintain a conservative stance on the launch of this test and, as such, currently do not include revenue from colon in our model. We continue to see Genomic Health as a very compelling value opportunity emerging in the personalized medicine space, particularly as it broadens its product offerings in the context of its rise to profitability.

Vivus, VVUS, $9.54, Market Outperform, $18 Price Target

o Looking for a transformational year in obesity. Following the Qnexa NDA submission in the last week of 2009, we expect to hear little from the company in terms of its interactions with the FDA until a likely advisory panel in the fall. We expect the 120-day safety update to include data from the recently announced sleep apnea trial and blinded data from the ongoing extension study (OB- 305) of the Phase III CONQUER trial. In contrast, we do expect multiple data presentations further highlighting the benefits of Qnexa beyond weight loss throughout the year. In 1H10, possible data presentations are possible at the American College of Cardiology annual meeting in mid-March and the American Diabetes Association scientific sessions in June. We also look forward to publication of the Phase III obesity trials ideally in a leading peer-reviewed journal(s). The key catalysts for the year will obviously be a likely advisory panel and PDUFA date in 2H10. Additionally, last week Vivus provided formal guidance that it intends to submit the regulatory application for Qnexa in Europe in 2H10. For the avanafil program, we expect the release of results from the second Phase III trial in erectile dysfunction in mid-2010, followed by results from the final efficacy trial and the safety trial by the end of the year. Our $18 price target is derived by assigning a 30x multiple to our 2014 diluted EPS projection of $1.67, discounted at 30% per year.

UPDATES FROM ADDITIONAL COVERED COMPANIES

Alexza, ALXA, $2.60, Market Outperform, $12 Price Target
The key catalyst for Alexza is the PDUFA date for Staccato loxapine (AZ-004) for the treatment of patients with agitation in patients with schizophrenia or bipolar disorder, which we expect to be approximately October 14th, 2010. The company is continuing to progress partnering activities for AZ-004.

Arena, ARNA, $3.36, Market Perform
With the NDA for lorcaserin now submitted, we do not expect any material updates on the NDA review process in 1H10. We anticipate incremental data presentations at ADA, as well as upside from potential publications of the BLOOM and BLOSSOM trials. The key catalyst for the stock will be a likely FDA advisory panel in the fall and PDUFA date for lorcaserin in late October. We continue to believe that a financing is a risk, increasingly so if the NDA review is subject to a minimal (three-month delay).

Cadence, CADX, $10.11, Market Outperform, $15 Price Target
We continue to expect approval of Acetavance at the upcoming PDUFA date in February. Management is, prudently in our view, providing little color on the ongoing review process or interactions with the FDA. We also believe that management is making good progress in setting expectations for the launch curve with the biggest hurdle being formulary acceptances, which will be even more challenging over summer months.

Cytokinetics, CYTK, $3.01, Market Outperform, $11 Price Target
Cytokinetics will continue to progress development of its skeletal muscle activator, ‘357, with multiple opportunities to demonstrate evidence of efficacy in the next 12 to 18 months. We also look to unexpected upside in terms of strategic interest in the oncology franchise.

Orexigen, OREX, $7.01, Market Outperform, $16 Price Target
Based on our conversations with management we have increased confidence that the guidance for filing the Contrave NDA in 1H10 is conservative, and we believe the submission is weeks, not months
away. We expect data presentations from the Phase III program at ADA followed by key catalysts of an advisory panel in 2H10 and potential approval by YE10.

Rockwell Medical, RMTI, $7.28, Market Outperform, $11 Price Target
Results from the Phase IIb trial for SFP in dialysis patients are expected later in 1Q10. We expect these results to be positive and anticipate substantial valuation appreciation for RMTI shares on this news.
This data set will be important in finalizing the Phase III plans for SFP, for which clarity should be gained at an end of Phase II meeting with the FDA in 2Q10.

Sangamo Biosciences, SGMO, $6.17, Market Outperform, $15 Price Target
Sangamo provided a clear outline for expected catalysts in 2010 for both the therapeutic and nontherapeutic programs. In our view, value can be driven to SGMO shares through the therapeutic programs, where we do not believe that the Street has high expectations for success. There are multiple opportunities this year to demonstrate the potential efficacy of these therapeutics and elucidate paths to approval. The most important of these are data presentations from the Phase II trial for SB-509 in ALS and the Phase I trial for SB-728 in HIV, as well as initiation of a Phase IIb trial for SB-509 in moderately severe diabetic neuropathy. Progress in the therapeutic programs will be supported by continued growth of revenue from non-therapeutic commercial collaborations where Sangamo is making efforts to illustrate the potential of these opportunities despite the challenges of this unique business model. To date Sangamo has received a total of $72MM from the non-therapeutic partners ($32MM Dow; $41 SIAL), and we note that it receives royalties and sublicensing fees of 10.5% from SIAL and minimum annual payments of $25MM from Dow