Weekly Pharma Notes: Bristol-Myers Squibb, Johnson & Johnson, Merck And Roche

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Last week saw some new drug approvals in the pharmaceutical sector. While Merck launched its new anti-PD 1 therapy, Roche got European Union approval for expanded use of its rheumatoid Arthritis drug. Merck’s shares inched higher on the news and Bristol-Myers Squibb saw something similar. The reason could be that the latter is itself contemplating filing for approval for a similar drug this quarter. On that note, we discuss below some key developments related to big pharmaceutical companies over the last week or so.

Bristol-Myers Squibb

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Bristol-Myers Squibb (NYSE:BMY) has sued Merck for patent infringement following the latter’s launch of anti-PD 1 drug Keytruda (pembrolizumab) which has been developed to fight against advanced Melanoma. [1] The drug uses a novel technique, under which it leverages patient’s own immune system to fight against the disease. Bristol-Myers Squibb has been developing its own anti-PD 1 drug nivolumab, and intends to apply for approval this quarter. Immuno-oncology has been one of the key research areas for pharmaceutical companies struggling to find replacement for the blockbuster drugs that have lost their exclusivity in recent years.

We estimate revenues of around $17.5 billion for Bristol-Myers Squibb in 2014 and non-GAAP diluted EPS of $2.07. We maintain a $36 price estimate for BMY’s shares, which is around 30% below the market price.

Johnson & Johnson

Johnson & Johnson (NYSE:JNJ) recently stated that it is accelerating the development of a vaccine against the Zaire strain of the Ebola Virus that has been responsible for the current outbreak in Africa. Currently, there is no cure or vaccine for the virus and the fatality rates remain high. Ebola virus can be transmitted through multiple body fluids including sweat, and therefore it has been difficult for the authorities to contain its spread. The company expects to begin human trials in early 2015, following some promising data in pre-clinical trials. [2]

Additionally, Johnson & Johnson is reportedly looking out for a potential buyer for its Cordis medical devices unit. The deal could fetch between $1.5 billion to $2 billion according to some estimates. [3] The move comes after the company divested its Ortho-Clinical diagnostics unit earlier this year.

We estimate revenues of around $74.4 billion for Johnson & Johnson in 2014 and non-GAAP diluted EPS of $5.53. We maintain a $97 price estimate for J&J’s shares, which is more than 5% below the market price.

Merck

Merck (NYSE:MRK) made headlines by getting FDA approval for its new immuno-oncology drug Keytrunda (pembrolizumab). The company beat Bristol-Myers Squibb in terms of getting the drug market ready, but the latter sued it for patent infringement. The drug will cost roughly $12,500 per month for treatment and targets advanced melanoma that accounts for most of the deaths from skin cancer cases.

We estimate revenues of around $42.9 billion for Merck in 2014 and non-GAAP diluted EPS of $3.42. We maintain a $57 price estimate for Merck’s shares, implying a discount of more than 5% to the market price.

Roche

Swiss pharmaceutical giant Roche Holdings (NASDAQ:RHHBY) has received European Union approval for the expanded use of RoActemra, its rheumatoid arthritis drug. The drug can now be used to treat patients suffering from early rheumatoid arthritis, which could help prevent damage to joints and long lasting disability. [4]

We estimate revenues of around $54.3 billion for Roche in 2014 and non-IFRS core diluted EPS of $2.05. We maintain a $40 price estimate for Roche’s shares, implying a premium of about 10% to the market price.

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Notes:
  1. Bristol-Myers Sues Merck Over Cancer Immunotherapy Patent, Bloomberg, Sep 6 2014 []
  2. Johnson & Johnson to Quicken Development of Ebola Virus Vaccine, The Wall Street Journal, Sep 4 2014 []
  3. Johnson & Johnson to Seek Buyer for Cordis Medical-Device Unit, The Wall Street Journal, Aug 28 2014 []
  4. Roche Gets EU Approval for Rheumatoid Arthritis Drug, The Wall Street Journal, Sept. 8 2014 []