Several firms are commenting on Genentech (NASDAQ:DNA) after the co reported strong Q4 results and issued optimistic 2007 guidance. Lucentis and Avastin were the starts of the day:
- Morgan Stanley notes top and bottom line performance exceeded both their and Street expectations as Avastin is reaccelerating with the lung cancer approval and Lucentis again came in above expectations (which they expect to moderate through 2008 with longer dose intervals). Firm expects Street numbers will need to increase for the next several years for Lucentis, Avastin, margins and EPS (MS is raising all of these but Avastin, which they raised earlier this week).
A strong top-line quarter should help this stock continue "to climb the wall of worry"; the next major concern will likely be the upcoming AVAIL trial exploring lower doses of Avastin in lung cancer (they continue to expect high dose to win, and the impact if low wins is likely limited since
the patient cap effectively already took breast cancer economics there). Avastin remains the major source of investor dispersion, and they expect lung cancer will drive Avastin growth in 2007 with breast cancer driving 2008 (and adjuvant colorectal cancer potentially driving 2009 and beyond). Firm continues to like this stock as it offers the potential for top and bottom line upside. Reits Overweight. Tgt $96.
- Piper Jaffray notes DNA reported solid 4Q earnings with a recovery in all major cancer franchises and continued growth in Lucentis for its second quarter on the market. Specifically, after a sequential downturn in Rituxan sales in 3Q, Rituxan sales rebounded to $560m vs. PJ estimate of $540m. The company estimates that $125-150m of 2006 sales came from the rheumatoid arthritis indication. Avastin sales were also ahead of firm's expectations at $490m compared with our estimate of $483m. End-user sales were even higher at $499m after adjusting for a $9m reserve taken for the price cap program. Growth was driven by the recent launch of Avastin in lung cancer, and they expect that penetration could continue to increase in this setting in 1H07. As expected, Lucentis sales were $217m, well above PJ estimate of $160m but in line with IMS data. Herceptin sales of $322m showed a rebound in growth after a sequential down quarter in 3Q but were less than estimate of $339m.
Based on 4Q results and 2007 guidance, they are revising their non-GAAP EPS estimates from $2.65 to $2.87 in 2007 and from $3.02 to $3.37 in 2008. Firm's new estimates also include a more aggressive outlook on Lucentis sales and royalties. They are raising their price target from $113 (40x 2008 EPS, discounted at 15% for one-half period) to $118 (35x 2008 EPS). Maintains Outperform.
- FBR is probably the most pessimistic of the bunch saying guidance for 2007 of 25-30% EPS growth is incrementally better than where the Street was already, but the upside seems to be coming mostly from increased sales to Roche to re-fill its Herceptin/Avastin inventory. Though the firm raised their price target slightly to $90 (from $86), and Street numbers will likely rise, the stock seems destined to tread water in a 1H07 that lacks major catalysts. Avastin adjuvant data could be a driver later in 2007.
FBR notes they had thought Genentech would be reporting data from an Avastin adjuvant trial in breast (ECOG2104) in 1Q07, but this has been pushed to December (the San Antonio meeting); they had thought that interim data from an Avastin adjuvant trial in colon cancer could come in 1H, but according to the call, that's a 2H event also. Firm sees little else pipeline-wise that could surprise to the upside.
Notablecalls: Needless to say, I like FBR's comments by far the most. But on the other hand Morgan Stanley also makes sense with their "wall of worry" comments. The stock has done nothing for 9 months and now they guided 2007 up in a pretty convincing way. Not sure I'd want to step in front of this one.
- Morgan Stanley notes top and bottom line performance exceeded both their and Street expectations as Avastin is reaccelerating with the lung cancer approval and Lucentis again came in above expectations (which they expect to moderate through 2008 with longer dose intervals). Firm expects Street numbers will need to increase for the next several years for Lucentis, Avastin, margins and EPS (MS is raising all of these but Avastin, which they raised earlier this week).
A strong top-line quarter should help this stock continue "to climb the wall of worry"; the next major concern will likely be the upcoming AVAIL trial exploring lower doses of Avastin in lung cancer (they continue to expect high dose to win, and the impact if low wins is likely limited since
the patient cap effectively already took breast cancer economics there). Avastin remains the major source of investor dispersion, and they expect lung cancer will drive Avastin growth in 2007 with breast cancer driving 2008 (and adjuvant colorectal cancer potentially driving 2009 and beyond). Firm continues to like this stock as it offers the potential for top and bottom line upside. Reits Overweight. Tgt $96.
- Piper Jaffray notes DNA reported solid 4Q earnings with a recovery in all major cancer franchises and continued growth in Lucentis for its second quarter on the market. Specifically, after a sequential downturn in Rituxan sales in 3Q, Rituxan sales rebounded to $560m vs. PJ estimate of $540m. The company estimates that $125-150m of 2006 sales came from the rheumatoid arthritis indication. Avastin sales were also ahead of firm's expectations at $490m compared with our estimate of $483m. End-user sales were even higher at $499m after adjusting for a $9m reserve taken for the price cap program. Growth was driven by the recent launch of Avastin in lung cancer, and they expect that penetration could continue to increase in this setting in 1H07. As expected, Lucentis sales were $217m, well above PJ estimate of $160m but in line with IMS data. Herceptin sales of $322m showed a rebound in growth after a sequential down quarter in 3Q but were less than estimate of $339m.
Based on 4Q results and 2007 guidance, they are revising their non-GAAP EPS estimates from $2.65 to $2.87 in 2007 and from $3.02 to $3.37 in 2008. Firm's new estimates also include a more aggressive outlook on Lucentis sales and royalties. They are raising their price target from $113 (40x 2008 EPS, discounted at 15% for one-half period) to $118 (35x 2008 EPS). Maintains Outperform.
- FBR is probably the most pessimistic of the bunch saying guidance for 2007 of 25-30% EPS growth is incrementally better than where the Street was already, but the upside seems to be coming mostly from increased sales to Roche to re-fill its Herceptin/Avastin inventory. Though the firm raised their price target slightly to $90 (from $86), and Street numbers will likely rise, the stock seems destined to tread water in a 1H07 that lacks major catalysts. Avastin adjuvant data could be a driver later in 2007.
FBR notes they had thought Genentech would be reporting data from an Avastin adjuvant trial in breast (ECOG2104) in 1Q07, but this has been pushed to December (the San Antonio meeting); they had thought that interim data from an Avastin adjuvant trial in colon cancer could come in 1H, but according to the call, that's a 2H event also. Firm sees little else pipeline-wise that could surprise to the upside.
Notablecalls: Needless to say, I like FBR's comments by far the most. But on the other hand Morgan Stanley also makes sense with their "wall of worry" comments. The stock has done nothing for 9 months and now they guided 2007 up in a pretty convincing way. Not sure I'd want to step in front of this one.
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