Weekly Pharmaceutical Notes: Pfizer, Johnson & Johnson, Bristol-Myers Squibb And Roche

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It was a week of new approvals, cancer drug deals and promising clinical trials for big pharmaceutical companies. However their shares, as a whole, did not move significantly and mostly traded in range. While Pfizer (NYSE:PFE) signed a research deal with Merck KGaA for developing a cancer drug, Johnson & Johnson (NYSE:JNJ) entered an agreement with Geron for developing a blood cancer candidate. Bristol-Myers Squibb‘s shares benefited slightly from positive clinical trial results for its lung cancer drug Opdivo. As far as the Swiss pharmaceutical giant Roche Holdings (NASDAQ:RHHBY) is concerned, it was a good week as its blockbuser drug Avastin got the FDA approval for expanded usage.

Pfizer

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The period during which the UK laws don’t allow Pfizer to make another bid for AstraZeneca is coming to an end and the latter continues to flaunt  its promising cancer drug pipeline. It could be speculated that AstraZeneca is trying to entice Pfizer or send positive signals to the market. However, investor hopes may have been dampened by Pfizer’s recent deal with Merck KGaA. Under this agreement, Pfizer will make an upfront payment of $850 million to Merck for development of its experimental drug MSB0010718C. [1] This therapy pertains to the field of immuno-oncology, which is attracting a lot of research dollars lately. Besides the tax benefit that motivated Pfizer’s initial bid for AstraZeneca, getting access to the latter’s attractive cancer pipeline was a key driver as well.

We estimate revenues of around $49.65 billion for Pfizer in 2014 and non-GAAP diluted EPS of $2.15. We maintain a $35 price estimate for Pfizer’s shares, which is more than 15% above the market price. The company’s shares traded in small range during the past week.

Johnson & Johnson

Johnson & Johnson has recently entered a partnership with Geron to develop its blood cancer treatment candidate, Imetelstat. The news sent the shares of Geron up by 40%, which means that for Geron’s investors this is a big deal. As far as J&J is concerned, it is yet another investment that may or may not pay off. For now, the company has agreed to infuse only $35 million upfront, with additional potential investment of up to $900 million contingent on some research and regulatory milestones. [2]

Additionally, J&J is seeking $5 billion in damages from Boston Scientific in relation to the breach of contract by Guidant, which was acquired by the latter. The trial is set to began this week. This could have severe repercussions for Boston Scientific. [3]

We estimate revenues of around $75.20 billion for Johnson & Johnson in 2014 and non-GAAP diluted EPS of $5.77. We maintain a $101 price estimate for Pfizer’s shares, which is more than 5% below the market price. The company’s shares traded in small range during the past week.

Bristol-Myers Squibb

Bristol-Myers Squibb recently announced some promising clinical trials for its lung cancer drug Opdivo. The drug is essentially an immune checkpoint inhibitor. Merck’s study indicated that 41% of the patients treated with Opdivo were alive after 1 year. These patients had the condition of advanced squamous non-small cell lung cancer and were not responding to other therapies.

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. The company’s shares traded in small range during the past week.

Roche

Roche has recently received the FDA approval for its blockbuster drug Avastin for the treatment of platinum-resistant recurrent ovarian cancer. This marks the second approval in the last three months for the drug, which continues to expand its usage to different cancer types. Avastin is already very successful, raking in more than $6.7 billion last year and growing by 6% in the first nine months of 2014. This makes it the company’s biggest selling product, slightly ahead of Herceptin and Rituxan. The recent approvals will add to the Avastin’s sales in the coming quarters, and re-establish Roche’ supremacy in the oncology market. With this recent development, Avastin is now approved for six different cancerous tumor types in the U.S. A Phase 3 study showed that Avastin, when used in combination with chemotherapy, reduced the risk of worsening of platinum resistant ovarian cancer in women by 62% as compared to just chemotherapy. [4]

We estimate revenues of around $52.75 billion for Roche in 2014 and non-IFRS core diluted EPS of $1.98. We maintain a $38.50 price estimate for Roche’s shares, implying a premium of about 5% to the market price. The company’s shares were up slightly during the last week.

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Notes:
  1. Pfizer dampens Astra bid hopes with German Merck cancer deal, Reuters, Nov 17 2014 []
  2. J&J bets up to $935M that Geron’s drug can shake a checkered past, FierceBiotech, Nov 13 2014 []
  3. J&J seeks over $5 billion in damages from Boston Scientific at trial, Reuters, Nov 19 2014 []
  4. FDA approves Roche’s Avastin plus chemotherapy to treat women with platinum-resistant recurrent ovarian cancer, Roche Press Release, Nov 17 2014 []