Wednesday, October 04, 2006

Calls of Note Part 2

- Merrill Lynch is out with a curious little note on Genentech (NYSE:DNA) saying NDC, a third-party prescription data provider, restated Avastin, Herceptin, and Rituxan sales data to significantly below that which was previously reported by NDC for April through August 2006. If the new data are correct then Genentech's cancer drugs could meaningfully miss consensus and firm's estimates in 3Q. However, the firm cannot identify a fundamental reason for such substantial weakness even with two fewer selling days in 3Q, which will hurt sales by only 4%. Thus, while they now believe there is a greater chance for sales weakness in 3Q, they believe the NDC data may be overstating the downside risk to sales estimates.

ML estimates there is one fewer selling day in 3Q06 as compared to 2Q06. In addition, because of changes to Genentech's distribution network, the company has stated that there will be another lost selling day. Thus, with 49 total selling days in 3Q06 vs. 51 in 2Q06, they estimate a 4% effect on sales, which would not be enough to explain a miss of the magnitude suggested by the revised NDC data.

They await further clarity and reiterate Buy rating.

Notablecalls: There are severals firms out there today with positive comments on DNA. I do think this note from ML outweighs them all. Think we will see some weakness in DNA today.

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