Replies to post #113567 on Biotech Values

[DewDiligence]

The run rate is probably much closer to $750m/$800m at this point.

Cowen’s Eric Schmidt just wrote a “quick take” report estimating that NVS’ 4Q10 end-user Lovenox sales were $200-225M, which is consistent with my run-rate estimate in #msg-59286675. FWIW

[10nisman]

I think you're going to be surprised. Channel stuffing probably had a minor effect on the 4th quarter results. The run rate is probably much closer to $750m/$800m at this point.

How could channel stuffing not have had a major effect on Q4 performance? Sales declined from $292 million on 2/3 of a quarter to $170 million for a full quarter while percentage scripts increased throughout Q3 and Q4. Either there was a massive decline in sales price (which makes no economic sense) or channel stuffing had a material impact on Q4 performance. There could have been a minor impact on sales from treatments getting deferred until 2011. Q4 mL sales would have likely been 20-35% higher had they not been pushed into Q3. What else could reasonable explain Q3 vs. Q4 performance?

10nis

[zipjet]

I think you're going to be surprised. Channel stuffing probably had a minor effect on the 4th quarter results. The run rate is probably much closer to $750m/$800m at this point.

I can't figure it out. DD's analysis is as good as any.

But just for purposes of argument, let's say jbog is right this time.

Assume the scripts data is also right.

Then it seems clear to me that Sandoz marketing needs to turn to the hospital/institutional sector. We knew that was tougher. But the question remains whether sole-generic will last long enough to make it worth doing.

:-)

ij

[dewophile]

I think you're going to be surprised. Channel stuffing probably had a minor effect on the 4th quarter results

if you think destocking was minimal in Q4, then the monthly end user sales come to 170/3 = 56.67M per month. if you assume they hit this run rate right out of the gate after launch (which we know did not happen at the retail level based on script data - and retail accounts for a non-trivial amount of total sales (35% or so), then end user sales in Q3 were 113M. that means there was still 292-113 = 179M in inventory at end of Q3. This equates to 179/56.67 = 3.15 months or 13.5 weeks of inventory. so for your assumption to be correct NVS must be maintaining this same level of inventory at the end of Q4.

i don't think NVS is maintaining 13+ weeks inventory. In fact, I think destocking accounted for close to a month's worth of sales in Q4. Here's how i do the math:

Q3 end user sales about 140M (65M first 39 days and 75M next 30 days*), leaving 292-140 = 152M in the channel
Q4 end user sales 240M, of which 170 sold to wholesalers and booked, and 70M drawn down from inventory, leaving 152-70=82M worth of stock in the channel, or just over 1 month's worth of inventory (240M/3=80 per month in Q4)

this equates to a run rate of 960M annually, which is consistent with a 40% market share discounted 15% from 2009 US lovenox sales (2,800M x .85 x .4 x .25 = 238M). i think this estimate is even a tad conservative since NVS hinted they may be slightly above 40%, and we know the lovenox market grew in volume from 2009



*calculated using script sales over the quarter, with assumption that scripts account for 35% of total sales and hospital sales stable after 1 week post launch