Weekly Healthcare Note: Pfizer, JNJ, Abbott Labs & UnitedHealth

by Trefis Team
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The past week was handful of events for the healthcare sector. First, Pfizer (NYSE:PFE) received much awaited FDA approval for its blockbuster potential blood thinner drug, Eliquis. Healthcare conglomerate Johnson & Johnson (NYSE:JNJ) followed the same with an early FDA nod for its experimental TB drug Bedaquiline or Sirturo. Abbott Labs (NYSE:ABT) started the new year by completing its much touted spin-off into two separate companies. In addition, the company received FDA approval for its next generation Xience Xpedition drug eluting stent (DES). Meanwhile, UnionHealth Group (NYSE:UNH) stock plummeted nearly 5% on Thursday after influential investment bank Deutsche Bank downgraded rating of the company’s shares to hold from outperform.

Pfizer

Pfizer had a big reason to celebrate on new year’s eve as its blockbuster potential blood thinner drug Eliquis received coveted U.S. FDA nod for patients with atrial fibrillation, which is not caused by a heart valve problem. The much anticipated approval adds to recent positive developments around the drug as recently the drug secured Europe and Japan’s approval for expanding the use to non-valvular atrial fibrillation or NVAF (irregular heart beat) patients. The approval will open the much larger U.S. market that has evaded the drug until now and will bring reprieve for Pfizer’s cardiovascular franchise, which is grappling with patent expiry of Lipitor. Pfizer lost patent protection for its once mighty drug Lipitor in Nov 2011, putting at risk about $10 billion in the division.

With addition of new indications like treatment for VTE, acute coronary syndrome (related to the blockage of coronary arteries) etc and Pfizer’s already huge cardiovascular sales force, Eliquis could garner expected peak sales of $3 billion. Read our note Pfizer Secures Coveted FDA Approval For Eliquis for detail analysis.

See Full Analysis For Pfizer here

Johnson & Johnson

Johnson & Johnson also entered 2013 with a major boost as its experimental drug for the treatment of multi-drug resistant TB (MDR-TB), Bedaquilinean was approved by the FDA under its accelerated approval program. The approval was widely anticipated after the drug exhibited strong efficacy in mid-stage clinical trials. The drug will be a part of the company’s anti-Infectives division, which is seeing a near-term decline in revenues due to the Levaquin patent expiry. However, it will be a long way for the drug to reach its potential peak sales as it will have to wait for approvals from other countries, especially developing countries, where TB is more widespread than the U.S. Read our note Johnson & Johnson Updates: Receives FDA Approval For New Tuberculosis Drug for detail analysis.

See Full Analysis For Johnson & Johnson here

Abbott Labs

Abbott Labs was in the news for a variety of reasons. The diversified healthcare company completed its split into two separate publicly traded companies. Abbott Labs is now left with low margin but diversified products like generic drugs, nutritional and medical devices in its portfolio while higher-margin proprietary drugs like Humira, Tricor/Trilipx have been transferred to AbbVie. Our current $67 price estimate for Abbott Labs is for consolidated entity as it does not reflect the split. We will soon update our model on availability of 2012 10-k  form and pro-forma financials. Read our note Abbott Labs Snapshot As AbbVie Begins Trading for more details.

Further, Abbott Labs won FDA approval for its next-generation Xience Xpedition DES. [1] DES is placed into narrowed /diseased coronary arteries and slowly releases a drug to block cell proliferation to prevent arteries from re-narrowing. While Abbott has already been selling Xience Xpedition in Europe, Asia and the Middle East for a while, FDA approval will open the vast U.S. market for the company. In our current model, stents are part of the company’s Vascular franchise, which has been Abbott’s largest contributor to growth of late due to the success of the Xience and Promus coronary stents. Backed by such new products, we expect the company’s overall vascular market share to increase to our expectations of over 17.5% by the end of the Trefis forecast period.

See Full Analysis For Abbott Labs here

UnitedHealth Group

UnitedHealth’s stock took a beating on Thursday after a downgrade from Deutsche Bank (from outperform to hold with reduced target price of $61). The investment bank cited growing price competition for the healthcare insurance provider. [2] This added to negative sentiments around the stock. Recently, in its investor conference, the company expected a continued decline in fully insured commercial customers in 2013, as more businesses are seen covering healthcare costs themselves while they hire the insurer to manage healthcare benefits.

But, we think this downtrend should be temporary as we already anticipate margins pressure in our model due to many employers cutting healthcare benefits in response to market conditions. However, as economic conditions gradually improve we expect employer-sponsored health coverage to increase along with the quality of those plans (which will in turn bring higher premiums).

Further, we believe that the benefits for UnitedHealth from the increase in enrollments from full implementation of Patient Protection and Affordable Care Act (“PPACA”) will outweigh the pressures on pricing and margins. (Read UnitedHealth Well-Positioned Going Into 2013, Stock Worth $69 )

See Full Analysis For UnitedHealth Group here

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Notes:
  1. Abbott Announces FDA Approval and U.S. Launch of Next-Generation XIENCE Xpedition™ Drug Eluting Stent System, Abbott Labs, Jan 03 2013 []
  2. Deutsche Bank Downgrades UnitedHealth to “Hold” (UNH), dividend.com, Jan 03 2013 []
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