We are initiating coverage of Accuray (ARAY) with a Buy rating and a 12-month price target of $12.30 or two times our fiscal 2012 revenue per share estimate of approximately $6.15 (approximately $430 million in revenue and approximately 70 million shares post acquisition of TomoTherapy).
We believe that the aging of the population will drive an increase in the number of new cancer cases; we believe that ARAY’s clinical focus on oncology positions the company for significant growth. ARAY’s CyberKnife System automatically tracks, detects, and corrects for tumor and patient movement in real-time throughout the treatment. Potential benefits include shorter treatment times, improved precision, greater radiation exposure to the cancerous tumor, and less radiation exposure to the healthy tissues.
Accuray Incorporated’s (ARAY) [July 26] announcement that it would be offering $75 million in convertible debt coincided with an updated look at the June quarter revenue guidance. For the period, core ARAY revenue is expected to come in relatively in line with both our estimate and the Street, which implies solid pro forma year-over-year growth … of 11 to 13 percent.
We believe the proceeds from the [TomoTherapy] deal are being earmarked for future acquisitions. In our view, management is running the Elekta playbook, only with what many of our contacts in the industry deem to be superior technologies. The company has a great deal of momentum in its core business, and we expect growth acceleration in FY2012 sufficient enough to offset any sluggishness that might remain in the TOMO business.
Karen Andersen, CFA
The long patent life of Roche Holdings’ (RHHBY) portfolio puts it among the biotechs least exposed to generic competition. Patents don’t begin to expire until 2013 — when Rituxan loses protection in Europe — and management is implementing strategies to counteract future competitive pressures that we think will enable the firm to achieve 5 percent five-year earnings growth.
Subcutaneous versions of Roche’s blockbuster antibodies are in the works, which could reduce hospital costs and add to convenience. Novel drugs are in development that could improve on the efficacy of its current products or represent new, personalized treatments for cancer patients.
Roche also has a solid pipeline beyond oncology, including drugs to treat schizophrenia and hepatitis C. With the Genentech integration starting to yield synergies, we think Roche’s drug portfolio and industry-leading diagnostics conspire to create sustainable competitive advantages.