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

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It was another eventful week for pharmaceutical companies studded with acquisition announcements, investors expecting potential bids, alliances and new therapeutic agents getting regulatory approval. There wasn’t a lot of movement in share prices, though, as the events were not too significant. However, S&P Pharmaceuticals Select Industry Index went up slightly last week as Pfizer, Merck and Bristol-Myers Squibb saw their shares inch up. In this report, we present some of the key events over the last week related to the biggest pharmaceutical companies.

Bristol-Myers Squibb

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Bristol-Myers Squibb (NYSE:BMY) received European approval for its Hepatitis C drug Daklinza (daclatasvir) last week. [1] The drug is effective across several genotypes of the disease and has shown cure rates of up to 100% when used in combination with Gilead Sciences’ blockbuster drug Sovaldi. Bristol-Myers Squibb could add significant incremental revenues by targeting roughly 9 million HCV patients in Europe. Most of these patients are infected with genotype-1 of the disease, but that isn’t an issue as Daklinza works across multiple genotypes. For details read Bristol-Myers Squibb Gets European Approval For HCV Drug Daklinza.

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 more than 25% below the market price.

Pfizer

The time gap under the U.K. law, after which Pfizer (NYSE:PFE) can make another go at AstraZeneca’s acquisition, is about to end. Although the company has given no indication that it will make another offer, AstraZeneca’s shares have gone up by more than 9% in the past week, likely on such a possibility. Pfizer failed to match AstraZeneca’s desired price earlier in the year. We believe that the company may not just give up yet considering that AstraZeneca can be a good strategic fit due to favorable tax rate and attractive cancer drug pipeline.

Also, Pfizer’s investigational vaccine against potentially fatal bowel infections has received fast-track status from the FDA. The vaccine is aimed against clostridium difficile infection, which can lead to other serious complications. [2] Targeting yet another disease area, Pfizer last week also announced its partnering with Merck to test a combinational therapy that includes Merck’s pembrolizumab and Pfizer’s crizotinib. [3] The study will be aimed at lung cancer treatment.

We estimate revenues of around $50 billion for Pfizer in 2014 and GAAP diluted EPS of $1.35. We maintain a $34 price estimate for Pfizer’s shares, implying a premium of more than 15% to the market price.

Merck

Besides partnering with Pfizer to test a combinational therapy for lung cancer treatment, Merck (NYSE:MRK) has been in headlines for winning the regulatory approval in the U.S. for its new insomnia drug Belsomra. Unlike previous medicines, Belsomra has lesser side effects. However, the FDA has only approved it in small doses. Consensus estimates suggest that the drug can bring in revenues of more than $300 million in 2017. [4]

We estimate revenues of around $42.9 billion for Merck in 2014 and non-GAAP diluted EPS of $3.42. We maintain a $56.80 price estimate for Merck’s shares, implying a discount of about 5% to the market price.

Roche

Swiss pharmaceutical giant Roche Holdings (NASDAQ:RHHBY) has stated that it will acquire California-based biotech firm Intermune for $8.3 billion. Intermune is involved in the development of drug called Esbriet, which is intended to treat a condition called idiopathic pulmonary fibrosis, which does not have an approved treatment in the U.S. The condition results in lung scarring and mortality. This marks another busy year for pharmaceutical companies. The year 2014 has already seen $87 billion worth of deals according to EvaluatePharma. [5]

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. European Commission Approves Bristol-Myers Squibb’s Daklinza (daclatasvir) Across Multiple Genotypes for the Treatment of Chronic Hepatitis C Infection, Bristol-Myers Squibb Press Release, Aug 27 2014 []
  2. Pfizer Vaccine Candidate Gets FDA Fast-Track Designation, The Wall Street Journal, Aug 28 2014 []
  3. Pfizer, Merck to Team Up on Lung-Cancer Study, The Wall Street Journal, Aug 26 2014 []
  4. Merck Wins U.S. Approval of New Type of Sleeping Pill, Bloomberg, Aug 14 2014 []
  5. Roche to Acquire InterMune for $8.3 Billion, The Wall Street Journal, Aug 24 2014 []