Optimism And A Blockbuster Patent Cliff Lineup In Biotech - Michael Yee - RBC Capital Markets
November 22, 2010 - The Wall Street Transcript has just published Biotechnology & Pharmaceuticals Report offering a timely review of the Biotechnology sector. This Special Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.
Michael Yee brings more than nine years of sell-side equity research experience to RBC Capital Markets' biotechnology research platform. He won the 2010 Institutional Investor biotechnology "Best Up-and-Comer" analyst award. He joined RBC Capital Markets in 2005, after working at WR Hambrecht + Co, where he also covered biotechnology. Mr. Yee has previously worked at Deutsche Bank Securities and Thomas Weisel Partners LLC, covering life science tools companies from 2001 to 2004.
TWST: What are the major themes in the sector?
Mr. Yee: I'll speak to the broad biotech themes. I think there are three things that are weighing on people's minds. Number one, M And A is something that is always going on in the sector and that is certainly not going to stop anytime soon, and we have seen certain precedent transactions.
Number two, I think that what we saw this year was a testament to what biotech is all about. And what I mean by that is we will have over the 12 to 18 months a wave of new blockbuster drugs that could really change the paradigm or standard of care for a number of diseases, and I think that's what the heart of biotech is really all about. Three examples that I'd point out to you that constitute as real game changing therapies, either from Phase III data or because they were proved, would be Dendreon's Provenge for prostate cancer, which is the first therapeutic cancer vaccine approved for prostate cancer this summer; Phase III data from Human Genome's Benlysta, which would be - if approved by the end of this year - the first lupus treatment in 50 years; and Telaprevir from Vertex (VRTX), which will be a game-changing drug for hepatitis C that not only significantly improves chances of a cure but also significantly shortens the duration of treatment. So those are three multibillion-dollar blockbuster treatments that all happened this year, which I think goes to the heart of what biotech is all about. And although the market as a whole and the biotech sector sort of went through some ups and downs this year, I think the root of it is that novel discovery of blockbuster drugs are still going on right here in biotech.
TWST: Another stock you've talked about recently is AMGN. What about that one?
Mr. Yee: People have been bearish on Amgen over the last one to two years because it's core business EPO will be going under some changes over the next one to three years, and that is from reimbursement changes from bundling in the dialysis center, potential label changes by the FDA and from the potential for biogeneric EPO starting in 2013-2014. While people have been bearish on that, we think that it may not be as bad as people think, and I think that they could actually post upside to EPO over the next one to two years, given where the Street is modeling this business.
Secondly, I think that Amgen has a very impressive new drug in Prolia, which is a $1 billion type of opportunity in osteoporosis and $2 billion opportunity in bone cancer, which could be approved in that setting by the end of November. What people should realize is that there is significant more upside, $500 million or more, from a Phase III clinical trial testing this drug in the prevention of bone mets, which is slowing the spread of prostate cancer to the bones, and we'll get that data by the end of the year. But if that's positive, that would grow Denosumab from a potential $3 billion drug to $3.5 billion to $4 billion over the next five to 10 years. I think therefore, there are still upside opportunities for Amgen that the Street's not considering.
TWST: In addition to those two, are there other stories you like in your coverage right now and why?
Mr. Yee: The two I would point you to would be Human Genome and United Therapeutics. For HGSI, I like the stock. I think that they will get approval for Benlysta for the treatment of lupus by the end of this year. I believe that - with our conversations with doctors and rheumatologists who treat lupus - this is a significant unmet medical need. There will be strong penetration of this drug; it's a chronic treatment, it will have a high price point, and I think that this a potential $2 billion to $3 billion drug over the next five years. I think that this will be a potential takeout candidate from either the likes of J And J (JNJ), Abbott, Amgen or Roche (RHHBY.PK), who all have rheumatology franchises where Benlysta could fit into.
On United Therapeutics, I think that they have been doing an excellent job with their core franchise drugs Remodulin and Tyvaso in pulmonary hypertension, and there is significant upside from a new formulation of the drug in an oral form called oral Remodulin, and that data is coming out potentially mid-2011, which would be the first oral formulation of their drug, which essentially could double their market opportunity. I think that the stock could go at $75 or higher from that data, and that study will be positive in mid-2011.
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