Replies to post #97960 on Biotech Values

[DewDiligence]

Bad news for GSK: Two New Studies Cite Avandia Heart Risk

http://online.wsj.com/article/SB10001424052748703964104575334570859778764.html

›JUNE 28, 2010, 6:28 P.M. ET
By ALICIA MUNDY And JENNIFER CORBETT DOOREN

Two new studies released Monday said the diabetes drug Avandia is unsafe, heating up a controversy about a drug linked in a number of studies to an increased risk of heart attack and heart failure.

The reports were presented in the Journal of the American Medical Association and its sister publication, the Archives of Internal Medicine. They come two weeks before an important Food and Drug Administration meeting on Avandia's safety. In releasing the papers together, a JAMA spokeswoman said the editors "hope the peer-reviewed scientific studies will have some impact on the FDA's discussions about the safety of this medication."

The studies also coincided with the American Diabetes Association's annual meeting in Orlando.

Avandia manufacturer GlaxoSmithKline PLC said in a statement that the drug, which lowers blood glucose, is safe and effective. Glaxo said it looks forward to a "rigorous scientific discussion" about the new studies at the FDA meeting.

One study in JAMA is an update of a 2007 analysis of the clinical trials done on Avandia by Steven Nissen, a cardiologist at the Cleveland Clinic. The original analysis was based on 42 studies involving Avandia and showed a 43% increase in the risk of heart attacks. The new analysis looks at 56 clinical studies, including a Glaxo-funded study known as Record, and shows an increased heart attack risk of 28%. If the Record study is removed from the analysis, the risk of heart attacks rises to 39%.

The second study, published in the Archives of Internal Medicine, was led by FDA drug-safety scientist David Graham, and looked at the outcomes of nearly 230,000 Medicare patients who were treated with Avandia or Actos, a similar drug made by Takeda Pharmaceutical Co. The study looked at a combined endpoint of heart attack, stroke, heart failure or death and found that patients taking Avandia had an 18% increased risk compared to those taking Actos.

Dr. Graham has argued that it should be withdrawn from the market.

"I think these studies ought to weigh heavily on the advisory panel," Dr. Nissen said in an interview.

An analysis of data from a third study, called Bari 2D and funded by the government, didn't show cardiovascular risks. The results, which haven't been peer-viewed and published yet, were released early at the diabetes conference in response to the JAMA studies.

FDA Deputy Commissioner Joshua Sharfstein said Drs. Nissen and Graham have been asked to present their findings to the panel of experts when it meets for two days at the FDA in July. "They are making an important contribution to the discussion of the safety of Avandia," said Dr. Sharfstein, adding that the agency is taking the Avandia issue seriously.

The Avandia debate has widened a battle inside and outside the FDA about how it deals with information on a drug's safety, particularly involving a product already on the market. Pharmaceutical companies are closely following the Avandia controversy in Washington.

Scientists such as Dr. Graham, as well as congressional critics and outside researchers, say the FDA insists on too high a standard for withdrawing a drug from the market. They say the FDA should have a separate drug safety division independent of the drug-approval section.

In an interview, Dr. Graham said his FDA superiors "demand proof beyond a reasonable doubt that a drug is dangerous before they pull it. That is unreasonable, and not in the public health interest." Dr. Graham was an early critic of Vioxx, the Merck & Co. painkiller that was pulled from the market in 2004.

The head of the FDA's drug division, Janet Woodcock, has defended Avandia's safety and said its benefits still outweigh its risks. The FDA is now reviewing its drug approval and safety procedures.

A draft of Dr. Graham's study was reported in early June by several publications including The Wall Street Journal. JAMA said it bent its usual rules against publishing results that have appeared elsewhere because it didn't think Dr. Graham was responsible for the leak. The final study was peer-reviewed and revised.

The American Heart Association said in a statement that while the JAMA report didn't involve a clinical trial, it "deserves serious consideration." The medical group recommended that patients over 65 years old who are taking Avandia discuss the new findings with their physicians.

Avandia's safety came under renewed attack in February in the wake of a Senate Finance Committee report that was highly critical of both the FDA and Glaxo's handling of Avandia's potential cardiovascular impact.‹

[joethdo]

Excellent as always!

Thanks!

[jbog]

Which are the most attractive Big Pharma?

I'd definitely vote for your NVS and ABT as being #1 and #2, but I'd probably add MRK and BMY as my #3 and #4.

[mcbio]

Re: attractive Big Pharma (NVS/AZN)

Still, I would avoid SNY and GSK because I think investors are underweighting the potential loss of exclusivity of Lovenox and Advair, respectively.

As a fellow MNTA long, I obviously agree with you that it probably makes sense to avoid SNY. For the same reasons, I can see why NVS would be attractive given the link to Sandoz.

That leaves the five “pure play” pharma companies: MRK, AZN, LLY, AMGN, and BMY.

I'm not speculating on whether or not it's the best bet, but I do like how AZN isn't the least bit afraid to partner with small-cap bio on interesting projects. I like the AZN deal with RIGL for R788 as potentially one of the first oral RA treatments to market. There's also the deal with TRGT for the depression drug that has shown good results to date, along with several related CNS programs. AZN also partnered with ARRY several years ago on ARRY's first gen MEK inhibitor. All told, AZN seems to have their pulse on the more interesting biotech programs IMO; they obviously could use a better success rate going forward from these interesting partnerships.

[DewDiligence]

JNJ Acquires MEND for $23.40/sh in Cash

[That’s a bare 6% premium to MEND’s closing price on Friday. JNJ says the deal is expected to be “slightly dilutive” to GAAP EPS, which I interpret to mean an EPS hit of less than $0.05 per quarter once the deal closes.]

http://finance.yahoo.com/news/Johnson-amp-Johnson-Announces-prnews-2254436238.html?x=0&.v=1

›Johnson & Johnson Announces Definitive Agreement to Acquire Micrus Endovascular

Combination of Neurovascular Businesses to Advance the Treatment of Stroke
prnewswire

Monday July 12, 2010, 8:30 am

NEW BRUNSWICK, N.J. and SAN JOSE, Calif., July 12 /PRNewswire-FirstCall/ -- Johnson & Johnson (NYSE:JNJ) and Micrus Endovascular Corporation (Nasdaq: MEND), a global developer and manufacturer of minimally invasive devices to address hemorrhagic and ischemic stroke, today announced a definitive agreement whereby Micrus Endovascular will be acquired in a cash for stock exchange.

Under the terms of the agreement, Micrus Endovascular stockholders will receive at closing $23.40 for each outstanding Micrus Endovascular share. The value of the transaction as of the anticipated closing date is estimated to be approximately $480 million, based upon Micrus Endovascular's 20.5 million fully diluted shares outstanding.

The boards of directors of Johnson & Johnson and Micrus Endovascular have approved the transaction, which is subject to clearance under the Hart-Scott-Rodino Antitrust Improvements Act, similar regulation in other countries, Micrus Endovascular stockholder approval and other customary closing conditions.

Micrus Endovascular will join Codman & Shurtleff, Inc., the neuro device business of the DePuy Family of Companies within Johnson & Johnson. Codman and Micrus Endovascular offer innovative and complementary technologies for treating cerebral aneurysms responsible for hemorrhagic stroke. The Codman neurovascular portfolio includes bare platinum coils, vascular reconstruction devices (VRDs) and access devices. Micrus Endovascular, solely focused on the neurointerventional market, is a leader in enhanced bioactive coils and a pioneer in the development of new technologies to improve the treatment of ischemic stroke and aneurysms. The combined business of Codman and Micrus Endovascular will provide a strong suite of solutions for hemorrhagic stroke, with many promising products in development for ischemic stroke.

"The merger represents an important strategic move in the neuro device space for us and a significant step forward in the delivery of technologies for the prevention and treatment of stroke," said Michael Mahoney, Company Group Chairman for the DePuy Family of Companies. "Together, Codman and Micrus Endovascular will offer clinicians and their patients a full range of stroke treatments and the potential to impact the condition in ways that could not be realized by either company alone."

"Stroke is a significant cause of death and disability around the world. At Micrus Endovascular, we are dedicated to developing innovative approaches to treating stroke and improving the outcomes of people impacted by this condition," said John Kilcoyne, Chairman and CEO, Micrus Endovascular. "By joining forces with Codman & Shurtleff, we believe we could have an even greater impact on treating this condition that accounts for one out of 18 deaths in the U.S."

According to the National Stroke Association, stroke is the third most common cause of death and the leading cause of serious, long-term adult disability in the U.S. Each year, approximately 795,000 people in the U.S. experience a stroke. The majority of victims (87%) have an ischemic stroke, which occurs when arteries are blocked by blood clots or other deposits or narrowed due to atherosclerosis; others experience a hemorrhagic stroke, which occurs when a brain aneurysm bursts. The cost of stroke is estimated to be a staggering $73 billion annually in the U.S. alone.

Upon closing, the transaction is expected to be breakeven to slightly dilutive to Johnson & Johnson's 2010 earnings per share. The transaction is expected to close in the second half of 2010.

About Codman & Shurtleff, Inc.

Codman & Shurtleff is a global neuroscience and neurovascular company that develops and markets a wide range of products and solutions for the diagnosis and treatment of neurological disorders including chronic pain management, adult and pediatric hydrocephalus, neuro critical care, aneurysm and stroke prevention and management. Codman & Shurtleff is part of the DePuy Family of Companies within Johnson & Johnson. The DePuy Family of Companies has a rich heritage of pioneering a broad range of products and solutions across the continuum of orthopaedic and neurological care. These companies are unified under one vision – Never Stop Moving™ – to express their commitment to bring meaningful innovation, shared knowledge and quality care to patients throughout the world. Visit www.depuy.com for more information.

About Micrus Endovascular

Micrus Endovascular develops, manufactures and markets implantable and disposable medical devices for use in the treatment of cerebral vascular diseases. Micrus Endovascular products are used by interventional neuroradiologists, interventional neurologists and endovascularly trained neurosurgeons to treat both cerebral aneurysms responsible for hemorrhagic stroke and intracranial atherosclerosis, which may lead to ischemic stroke. Hemorrhagic and ischemic stroke are both significant causes of death and disability worldwide. The Micrus Endovascular product lines enable physicians to gain access to the brain in a minimally invasive manner through the vessels of the arterial system. Micrus Endovascular's proprietary, three-dimensional microcoils anatomically deploy within the aneurysm, forming a scaffold that conforms to a wide diversity of aneurysm shapes and sizes. Micrus Endovascular also sells stents, balloon catheters, access devices such as guide catheters, microcatheters, guidewires and accessory products used in conjunction with its microcoils. For more information, visit www.micruscorp.com.‹

[DewDiligence]

Why buy ABT rather than JNJ? If you like cursory analysis, this video is for you—it even has some gratuitous thigh close-ups:

http://www.thestreet.com/_yahoo/video/10809310/health-care-archrivals-abbott-vs-jnj.html

[DewDiligence]

JNJ Needs More Than a Band-Aid

[In a setback not discussed below, JNJ had to suspend enrollment, due to a deficient catheter, in the NEVO II trial testing JNJ’s Nevo stent (acquired from Conor) vs ABT’s Xience. The suspension will delay the potential approval date of Nevo, which is JNJ’s only hope to become a leading player once again in drug-eluting stents.]

http://online.barrons.com/article/SB50001424053111904502004575562152641849826.html

›The health-care products giant's quarterly results weren't nearly as good as they might first appear

OCTOBER 19, 2010
By TERESA RIVAS

Not everything is okay at JNJ.

Tuesday morning, the health-care products titan Johnson & Johnson (ticker: JNJ) reported that third-quarter earnings rose 2.2%, to $3.42 billion, or $1.23 a share, up from $1.20 a share in the year-earlier period, and ahead of the $1.15 per-share profit analysts had predicted.

However, revenue fell 0.7% to $14.98 billion, just shy of the Street's expectations of $15.2 billion.

The company raised its full year forecast by a nickel, and now expects to earn between $4.70 and $4.80 a share, though this is mostly due to currency exchange trends.

Investors were looking for a more robust outlook, however, and sent the shares down $1.15, or 1.8%, to $62.71 in early afternoon trading.

We think the market is right to be skeptical.

Some investors will seemingly always love JNJ, thanks to its well established brand name, diversified product line and healthy 3.4% yield. And for those who own it for the long haul, today's news may well be seen as a buying opportunity.

However, we expect the stock to move little in the near future thanks to some disappointing trends highlighted by the quarter.

For starters, the eight-cent per-share surprise isn't as impressive as it seems on the surface. As Leerink Swann Research analyst Rick Wise explained, "outperformance…was primarily driven by higher other/interest income and a lower tax rate, which added six cents and seven cents to earnings per share, respectively.

Excluding these factors, reported EPS would have looked more like $1.10 vs. the $1.23 JNJ reported." (The upside to other income came largely from the sale of its breast-care business.)

Thus the earnings outperformance, like the company's currency-inspired increased guidance, shows that underlying fundamentals are not driving the improved numbers.

Gross margins, which exceeded 30% previously, slipped to 29.4% in the quarter, and CFO Dominic Caruso acknowledged that the company was still feeling the effects of a sluggish economy and high unemployment, as patients continue to delay elective medical procedures.

Not surprisingly, U.S. sales were soft in the quarter, coming on the heels of several embarrassing recalls of over-the-counter medications and implants, the largest of which involved more than 136 million bottles of children's liquid medicines found to have traces of metals and greater concentrations of active ingredients than normal.

Wise notes that it's too early to tell if there has been any lasting damage to the brand after the series of recalls. Sales at the company's consumer division came in more than $200 million below his estimates, which "could potentially signal some systemic damage to JNJ's brand name in light of the…recalls and negative publicity."

Morningstar analyst Damien Conover notes that while he expects sales in consumer and device divisions to recover, "the turnaround will probably take several quarters."

In addition, Conover noted that operating costs were higher than expected in the quarter, due to manufacturing issues, and he expects "operating costs will remain elevated through the first half of 2011." He also doesn't expect that "the company will sustain the low tax rate [which added to this quarter's beat] for the remainder of the year."

There are other looming concerns as well, as JNJ (and its peers) have begun to pay for changes mandated by health care reform. This comes as budget gaps have caused European countries to slash spending on their national health care programs, creating greater pricing pressure.

Trading at 12.5 times earnings, the stock looks attractive, so some investors with longer investment horizons may buy this dip. However, it's unlikely that the stock will meaningfully advance until it can prove that it has moved beyond the recalls' pall, lethargic consumer demand, and larger macro headwinds.‹

[DewDiligence]

Morningstar says NVS and ABT are the most attractive Big Pharma:

http://www.minyanville.com/businessmarkets/articles/pharmaceutical-companies-drug-makers-biotech-stocks/12/3/2010/id/31507

Hmm… I wonder if the Morningstar author read #msg-51791410.

[DewDiligence]

PFE—Today’s Barron’s has a short piece with the right Rx for boosting the share price materially. How? Financial engineering and, especially, leveraging the balance sheet more aggressively:

http://online.barrons.com/article/SB50001424052970204650204576003802213136870.html

Pfizer might spin off or sell some higher-value businesses, including animal health, consumer health and infant nutritionals. These businesses command a premium valuation of at least 15 times earnings, about double Pfizer's current P/E. By selling or splitting them off, Pfizer could retire a significant number of shares. These divisions could be valued at $27 billion, or some 20% of Pfizer's market value of $135 billion.

…The company generates about $20 billion in annual cash from operations, and sets aside $13 billion for dividends, capital expenditures and debt reduction… Pfizer has begun buying back stock following a hiatus after its $68 billion purchase of Wyeth in 2009, but the purchases have been modest so far, at $1 billion in 2010.

A more aggressive buyback of $5 billion to $6 billion annually in the next five years could lift the company's profit to more than $2.60 a share by 2015… An even bigger buyback program of $8 billion to $9 billion annually could lift profit to almost $2.90 a share by 2015.

Even if the P/E were to remain somewhat depressed, a sustainable annual EPS of $2.90 would justify a much higher share price than where PFE is trading today.

The whole point of the WYE acquisition—which many observers missed—was to boost EPS by leveraging the balance sheet. There is more work to be done in this regard, IMO, and the new BoD may be more inclined to do it.

[DewDiligence]

Factoid: AZN has (by far) the lowest P/E of any Big Pharma. The low P/E may be deserved, however:

http://www.bloomberg.com/news/2012-01-20/astrazeneca-may-rethink-aversion-to-big-deals.html

Many people think AZN grossly overpaid for MEDI a few years ago.