PHGUF: The Rabbit in the Hat; Initiating Coverage with a Buy Rating
We are initiating coverage of Pharming with a Buy rating and a $0.35 price target. The key investment driver for Pharming is its innovative transgenic animal platform for production of complex recombinant proteins for therapeutic use. With an E.U.-approved product and late stage development in the U.S. and several international partners, Pharming represents a potentially significant value proposition, in our view.
Event
Pharming's key attribute, in our view, is its unique platform using the milk of transgenic animals (rabbits) for low cost production of complex human-like proteins, difficult to manufacture through other methods, to be utilized as replacement therapy in rare therapeutic indications.
Pharming's first drug, Rhucin (recombinant C1 Inhibitor) is commercialized in the E.U. in collaboration with SOBI for hereditary angioedema (HAE). Rhucin is in a Phase III study in HAE in the U.S., projected to complete in 2H12, conducted under SPA in collaboration with Santarus (SNTS - Buy - $4.87). We are optimistic about Rhucin's approval chances in the U.S. and believe that the drug is poised to take over a significant share of the HAE market, given its low COGS allowing for competitive pricing, its safety, convenience, and potentially higher efficacy.
We project peak sales of Rhucin of $150 million in the U.S. by 2019 and estimate that the future stream of cash flows from milestones and royalty payments will support Pharming's efforts to continue growing its pipeline, starting with the next product candidate, recombinant Factor VIII in hemophilia. We view Pharming as an upcoming player in the orphan disease field as it could represent an attractive supply-side partner for the increasing number of biopharma companies focused on developing biological treatments for rare diseases as well as the anticipated market for biosimilars.
Action
We assign a $0.35 price target and Buy rating for Pharming. The company's strategy to expand geographies through collaborations and to develop therapies for rare diseases will bear fruit over the long term, in our opinion. Given the pricing power of orphan drugs and the expanding markets in these indications due to better diagnoses, we believe that Pharming is well-positioned for commercial success.
