From the March 2013 issue of Research Magazine • Subscribe!

Optimal Opportunities

Promising drug pipelines continue to support the results of pharmaceutical and other health-care companies.

Chris Schott, CFA
JPMorgan
212-622-5676
christopher.t.schott@jpmorgan.com

While Actavis (ACT) narrowed its 2013 guidance expectations in the wake of an unexpected Concerta approval, the company is still poised to post close to 30% EPS growth and potentially double-digit annual EPS growth through 2016. Additionally, the company’s more diversified portfolio should allow one-time, one-product events like competition on Concerta or Adderall XR, among other events, to not have an adverse effect on Actavis’ overall growth profile. As such, we believe Actavis has one of the best growth profiles in the industry and reiterate our Overweight rating on ACT shares. 

While we are modestly reducing our 2013 Actavis EPS estimates to reflect higher spending levels, we see a number of potential upside drivers to results that are not reflected in our current estimates. These include higher than expected Concerta sales (if another competitor is delayed to the market), Pulmicort upside … and incremental product launches beyond Pulmicort. In addition, we continue to believe Actavis’ $100-million synergy target for 2013 is beatable.

Charles C. Duncan, Ph.D.
Piper Jaffray & Co.
212-284-5025
charles.c.duncan@pjc.com

We are initiating coverage on Inovio Pharmaceuticals (INO) with an Overweight rating and 12-month price target of $1. Inovio is developing a novel DNA-based vaccine platform, utilizing proprietary electroporation technology to create robust immune responses. 

Inovio’s vaccines have demonstrated provocative immune responses in early studies against multiple non-viral oncology targets (prostate, leukemia, breast, lung), as well as several infectious diseases HIV, HCV, HPV, and the flu. 

Our near-term valuation considers only the U.S. opportunity we view in VGX-3100, Inovio’s lead candidate for treating cervical dysplasia (HPV). 

We recommend risk-tolerant investors to initiate or add to positions in INO shares in anticipation of positive Phase II data in HPV, as well as what we expect to be further clarity from Phase II data for HCV and leukemia, both by YE13, with interim HCV data possible this quarter. These additional data points should serve to validate the breadth of the platform.

Edward Nash
Cowen and Co. 
646-562-1385
edward.nash@cowen.com

Inovio (INO) reported 3Q12 financial results on Nov. 7. The company reported a loss per share of $0.05 as compared to our estimate of a loss per share of $0.03. Inovio ended 3Q12 with approximately $15.2 million in cash, cash equivalents and short-term investments, which we believe will take them through 3Q13. Inovio’s $23 million National Institute of Allergy and Infectious Disease contract is a testament of its platform technology. 

Phase II interim data for leukemia and hepatitis C vaccine programs will be reported by the end of 2012 by collaborators. Based on clinical successes thus far and the potential for a proprietary electroporation based delivery system addressing sizable markets, we remain bullish on Inovio and reiterate our Outperform rating.

Karen Andersen, CFA
Morningstar
312-384-4826
karen.andersen@morningstar.com

Roche Holdings (RHHBY) reported 2012 results that were roughly in line with our expectations, as the firm’s core EPS of 13.62 Swiss francs per share came in only slightly below our 13.76 Swiss francs estimate. 

Roche expects 2013 sales growth at constant currencies to rise a similar 4% level as they did in 2012, which could prove conservative given the accelerating sales growth in 2012 (6% growth in the fourth quarter at constant currencies). 

Our 2013 core EPS estimate of 14.65 Swiss francs implies roughly 8% earnings growth for the year, which is in keeping with the firm’s relatively vague guidance (to exceed top-line growth). However, we do expect to slightly raise our fair value estimate as we roll our assumptions forward by one year.

Revenue grew to 45.5 billion Swiss francs in 2012, representing 4% growth at constant currencies, with pharmaceuticals growing 5% to 35.2 billion Swiss francs and diagnostics growing 4% to 10.3 billion Swiss francs. 

 

Steve Scala, RPh, CFA
Cowen and Co.
617-946-3923
steve.scala@cowen.com

[In mid-December,] Cowen hosted Roche’s Chief Executive and discussed strategy and the outlook. Highlights from the meeting are below:

Increased focus on Central Nervous System (CNS) [unit]. Roche is allocating more resources to CNS, as they believe they may be able to make significant advances in this therapeutic category. Trials are proceeding with crenezuamb in early stage and mild-to-moderate Alzheimer’s disease and with gantenerumab in prodromal Alzheimer’s disease. Roche believes that biomarkers to identify earlier detection are vital to the ultimate success of Alzheimer’s disease drugs. 

Emerging markets remain an opportunity: Roche sees emerging markets as a large opportunity, with China adding as much as 500 million Swiss francs to top-line growth annually. Management is piloting a tiered-pricing strategy to maximize the value of their products in individual regions. Herceptin currently appears well positioned at the high-end of the price range. Diagnostics are a key driver of growth as China continues to build infrastructure.

 

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