Weekly Healthcare Note: Intuitive Surigcal, Abbott Labs, Pfizer & Medtronic

The past week was handful of events for the pharmaceutical sector. Intuitive Surgical (NYSE:ISRG) stock plummeted more than 10% after a scathing report from an influential short selling research firm Citron Research. Meanwhile, Abbott Labs (NYSE:ABT) has had reasons to cheer as Humira’s two potential competitors faced setbacks in recent clinical trials while  rumors made the rounds that the world’s largest drug maker Pfizer (NYSE:PFE) could lay off as many as 600 employee, about 20% of its total 3,000 primary care sales representatives. Medical devices maker Medtronic (NYSE:MDT) was in the news for recording impressive results in clinical trials for its hypertension device Symplicity.

Intuitive Surgical

Intuitive Surgical was in the news mostly for wrong reasons. A research firm Citron Research released a report attacking Intuitive Surgical while setting a target price of $250-350, a significant discount to the current market price. The research firm cited a growing number of lawsuits (with some of them being quite disturbing) and lack of clinical evidence to support its claims. ^[1]  Such was the impact of the scathing report that the stock was down almost 10% in three consecutive trading session. While lawsuits are not new for any healthcare company, the claims in lawsuits filed against Intuitive Surgical, if proven true, have the potential to hurt the medical device maker to a great extent.

We are currently analyzing the report and will provide further update on the matter. We, last week, launched the coverage of Intuitive Surgical with a price estimate of about $600 for the company’s stock, which is about a 20% premium to the current market price (Read Intuitive Surgical New Coverage: $600 Price Estimate)

See our complete analysis of Intuitive Surgical.

Abbott Labs

Last week, two potential competitors of Humira, the highest-selling drug of Abbott, hit roadblocks in clinical trials for their rheumatoid arthritis drugs. Eli Lilly unexpectedly decided to terminate one of the three phase III studies of its RA experimental drug, Tabalumab, due to lack of efficacy. AstraZeneca’s investigational oral drug Fostamatinib also failed to match Humira in a mid-stage study even as it will move ahead with late stage trials. We expect revenues from Humira to gradually decline beginning 2014 and until 2017 as competition, mainly from oral pills, penetrates the market (Humira, a TNF inhibitor, is an injectable drug). However, If expected competition continues to meet similar failures as mentioned earlier, Humira may actually be able to see further growth in sales than we expect until the patent expires. Read our note Abbott: Potential Upside As Humira Competitors Face Setbacks for more insights.

See Full Analysis For Abbott Labs here

Pfizer

According to news reports, Pfizer is said to be trimming its primary care sales representative staff by almost 20% as 600 employees could be let go in already announced next round of lay-off. ^[2] The move doesn’t surprise us the drug maker strives to manage its costs in a flurry of patent expiries of mainly primary care drugs like Lipitor. Pfizer lost patent protection for its once mighty drug Lipitor in Nov 2011, putting at risk about $10 billion even as it is slated to lose another $10 billion in next 2-3 years due to upcoming patent expiries. Due to these patent expiries, the company took several other measures including increase its focus on core pharma business and improve pipeline along with reducing staff. We already anticipate a near term decline in its SI&A costs (which contains employee salaries) due to these factors. We believe, that Pfizer’s job cut spree will stop here and the company will have to turn to recruitment process once it receives much awaited FDA approval for its blood thinning drug Eliquis (Read Pfizer’s Eliquis Vies For FDA Approval With Encouraging Results In Recent Study). However, if our expectations prove wrong, there could be an upside to our price estimate.

See Full Analysis For Pfizer here

Medtronic

Medtronic (NYSE:MDT) last week reported one-year results from its Symplicity HTN-2 study for its renal denervation device (a radiotherapy-based system to treat high blood pressure), Symplicity, which is a part of cardiovascular franchise in our model. According to the results, hypertensive patients experienced a significant drop in blood pressure without any safety issues like device-related adverse events, late vascular complications or major declines in kidney function. ^[3] This comes amidst growing competition in a huge potential market as rivals catch up with Medtronic and could strengthen the medical device maker’s bid to secure FDA approval for new generation devices for hypertension. Please read our note Medtronic: Good Symplicity Test Results But FDA Approval Not Close for full insights.

See our complete analysis of Medtronic

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1. Has the Halo Been Broken on Intuitive Surgical ?, Citron Research, Dec 19  2012 [↩]
2. Pfizer Said to Fire 20% of U.S. Primary-Care Sales Force, Bloomberg, Dec 19 2012 [↩]
3. One-Year Results from the Symplicity HTN-2 Randomized Controlled Trial Published in Circulation, Medtronic, Dec 17 2012 [↩]