Friday, January 26, 2007

Calls of Note Part 1

Merrill Lynch lowers their '07 Genentech's (NYSE:DNA) Lucentis sales est. to reflect Dec. NDC data, which suggests reduced dosing frequency is negatively impacting sales. But, they'd see weakness as a BUYing opportunity despite lower Lucentis sales, concern about Tykerb approval in Feb. & issues related to Roche's low dose Avastin study in lung cancer. Avastin sales have re-accelerated & should continue to grow based on breast cancer approval in '08 and potentially positive data in adjuvant colorectal cancer by YE07.

NDC data for Lucentis sales in Dec. of $65 MM showed a sequential monthly decline from November sales of $75 MM. Firm believes the NDC sales decline reflected less frequent dosing of patients that began therapy several months ago. New patients are typically dosed once per month but after ~3 months, patients are dosed based on need, which they estimate at every three months. A large bolus of patients began therapy during
the drug's first 5 months on the market. But, these patients are beginning to be treated less frequently and new patient starts are not enough to offset the lost revenues.

Firm now expects 1Q07 sales to decline to $187 MM from $217 MM in 4Q06. They reduced their '07 Lucentis sales est. to $710 MM from $906 MM & EPS fell to $2.78 from $2.83.

Notablecalls: Interesting datapoint, Lucentis is too good for its own sake. It is working so well that only rare doses are needed, reducing the revenues. Remember, Lucentis was the source of upside the last qtr, but that may be limited from now on. DNA never gets hit big, but think the call will create some downside.

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