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发帖数: 2063 | 1 http://www.zacks.com/stock/news/37221/Pharma+and+Biotech+Industry+Outlook+-+July+2010
By: Zacks Equity Research
July 20, 2010 | Comments: 0
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The pharmaceutical industry has witnessed major changes over the past few
quarters, with performance being affected by factors like sluggish
prescription trends, intensifying generic competition and limited late-stage
catalysts. The next five years are expected to reflect a significant
imbalance between new product introductions and patent losses.
According to IMS Health, this is the main reason global pharmaceutical
market growth will be restricted to the mid-single digits (5-8%) through
2014. Over the next five years, products that currently generate more than $
142 billion in sales are expected to face generic competition, including
Lipitor, Plavix and Zyprexa.
At the same time, new products are not expected to generate the same level
of sales as products losing patent protection. With revenue growth stalling
or slowing down, companies have been resorting to cost-cutting and share
buybacks to drive bottom-line growth.
M&A Activity
With most of the big pharma companies already facing or likely to face
patent challenges for their blockbuster products, the companies have been
looking towards mergers and acquisitions (M&A) and in-licensing deals to
make up for the loss of revenues that will arise with key products losing
patent exclusivity.
We saw huge M&A activity over the last few quarters. Major deals include
Abbott Laboratories’ (ABT - Analyst Report) acquisition of Advanced Medical
Optics and the pharmaceuticals business of Solvay Group, Johnson & Johnson
’s (JNJ - Analyst Report) acquisition of Mentor Corp., Pfizer’s (PFE -
Analyst Report) acquisition of Wyeth, the merger between Merck (MRK -
Analyst Report) and Schering-Plough, and Merck KGaA’s acquisition of
Millipore Corporation.
Sanofi-Aventis’ (SNY - Analyst Report) impending acquisition of TargaGen, a
privately-held US biopharmaceutical company, is aimed at boosting its
oncology portfolio. Another big player, Celgene Corp (CELG - Analyst Report)
, is also on an acquisition spree to boost its oncology portfolio. The
company will acquire Abraxis BioScience Inc (ABII) by year-end, having
already acquired the privately-held Gloucester Pharmaceuticals earlier in
the year. Mylan (MYL - Analyst Report) intends to purchase Irish injectable
drug maker Bioniche Pharma Holdings Ltd. shortly.
Elsewhere, companies have been looking towards biotech firms to build their
product portfolios. Prime examples include Johnson & Johnson’s acquisition
of Cougar Biotechnology, Roche’s (RHHBY) acquisition of Genentech, Bristol-
Myers Squibbs’ (BMY - Analyst Report) acquisition of Medarex, Sanofi-
Aventis’ acquisition of Fovea Pharmaceuticals SA, Astellas Pharma’s
acquisition of OSI Pharmaceuticals and Abbott’s acquisition of Facet.
We expect this M&A trend to continue. We also expect a significant pickup in
in-licensing activities and collaborations for the development of pipeline
candidates. Instead of developing a product from scratch, which involves a
lot of funds, pharma companies are going shopping for mid-to-late stage
pipeline candidates that look promising.
Small biotech companies are also game for in-licensing activities and
collaborations. Most of these companies find it challenging to raise cash,
thereby making it difficult for them to survive and continue with the
development of promising pipeline candidates. Therefore, it makes sense for
them to seek deals with pharma companies that are sitting on huge piles of
cash.
We would recommend investors to put their money in biotech stocks that have
attractive pipeline candidates or technology that can be used for the
development of novel therapeutics. Therapeutic areas which could see a lot
of in-licensing activity include oncology, central nervous system disorders,
diabetes and immunology/inflammation.
Emerging Markets
Another recent trend seen in the pharmaceutical sector is a focus on
emerging markets. Companies like Mylan Inc., Pfizer, Eli Lilly (LLY -
Analyst Report), GlaxoSmithKline (GSK - Analyst Report) and Sanofi-Aventis
are all looking to expand their presence in India, China, Brazil and other
emerging markets. Until recently, most of the commercialization efforts were
focused on the U.S. market -- the largest pharmaceutical market -- along
with Europe and Japan.
However, emerging markets are slowly and steadily gaining more importance
and several companies are now shifting their focus to these areas. IMS
Health estimates that these markets will grow 14-17% through 2014, while
major developed markets will grow only 3-6%. Although the U.S. will retain
its position as the single largest market (estimated growth: 3-6% annually
in the next five years), China will soon become the third largest market in
the world.
According to IMS Health, China’s pharmaceutical market is expected to
continue to grow more than 20% annually, and contribute 21% of overall
global growth through 2013. Growth in emerging markets could help stabilize
the base business during the industry’s 2010-15 patent cliff.
OPPORTUNITIES
We are positive on AmerisourceBergen (ABC - Analyst Report) on which we have
an Outperform rating. We believe the company, which posted strong second
quarter fiscal 2010 results, is well-positioned for growth given the strong
performance of its generics and specialty business. Furthermore,
AmerisourceBergen boasts of a robust plasma and vaccine business with strong
revenues expected to flow from it in the coming quarters as well.
In the pharma space, we have a positive outlook on Alcon (ACL - Analyst
Report). We believe Alcon will continue witnessing revenue growth based on
continued international penetration, new product launches and market share
expansion. Pipeline expansion through in-licensing deals and acquisitions
should also add to growth.
Although we have Neutral ratings on names like Johnson & Johnson and Abbott,
we maintain a positive outlook on these stocks given their diversified
revenue base, strong business segments, contributions from recent
acquisitions and impressive late-stage pipeline. We also have a positive
outlook on Bristol-Myers, which has a strong presence in attractive areas
like biologics, cancer and cardiovascular drugs.
In the biotech space, we are positive on names like Gilead Sciences (GILD -
Analyst Report) and Biogen Idec (BIIB - Analyst Report) even though we have
Neutral recommendations on these stocks. Gilead’s HIV franchise has been
helping the company post better-than-expected earnings over the past few
quarters, and we expect this trend to continue. Gilead is looking at
increasing its presence in the Asian market for hepatitis B virus (HBV),
where the infection is quite prevalent. We are encouraged by progress made
by the company with its pipeline.
Biotech companies that could be acquisition targets provide opportunities
for significant returns. Here, we would like to mention two companies that
could be potential take-out targets -- Biogen Idec and Acorda Therapeutics (
ACOR - Snapshot Report). In addition to holding a leading position in the
multiple sclerosis market, we believe Biogen has the best pipeline in all of
biotech and could be an attractive takeover candidate for pharma companies
interested in biologics.
WEAKNESSES
We recommend avoiding names that offer little growth or opportunity for a
take-out. These include companies which are developing drugs that are likely
to face regulatory hurdles. The US Food and Drug Administration (FDA) has
been exercising more caution before granting approval to new products and
several candidates have been facing delays in receiving final approval.
For example, the FDA delayed the approval of Bydureon the lead pipeline
candidate at Alkermes (ALKS - Analyst Report), on which we have an
Underperform rating. In its complete response letter (CRL), the agency asked
co-developers Alkermes, Eli Lilly & Co and Amylin Pharmaceuticals, Inc. (
AMLN - Analyst Report) to finalize the label and provide a Risk Evaluation
and Mitigation Strategy and clarification on existing manufacturing
processes. Following the response to the CRL by the companies, the U.S.
agency has set October 22, 2010 as the target date for deciding on the type
II diabetes candidate.
We believe the final label will contain warnings regarding the risk of
pancreatitis and thyroid cancer, on approval. Furthermore, the candidate
will face intense competition once it enters the market.
We are also negative on Onyx Pharmaceuticals (ONXX - Analyst Report), which
slipped to a loss during the first quarter of 2010 driven by an increase in
operating expenses. Furthermore, the failure of Nexavar to prolong overall
survival in patients suffering from advanced non-squamous non-small cell
lung cancer (NSCLC) in a late stage study is a setback for the company.
We would avoid companies like Eli Lilly & Co. (LLY - Analyst Report) and
Forest Labs (FRX - Analyst Report), which are facing patent expirations on
key products and do not have a solid pipeline to make up for the loss of
revenues that will take place once generics enter the market. Another name
that comes to mind is The Medicines Company (MDCO - Analyst Report) -- our
biggest concern with the stock is that lead product, Angiomax, will most
likely lose patent exclusivity in the U.S. later this year, and the entry of
generics would be devastating for the company.
Meanwhile, we continue to believe Pfizer’s acquisition of Wyeth will create
an even bigger struggling company. Both companies have significant patent
expirations in the years to come, and both have been severely lacking in
their R&D productivity over the past few years. We recommend avoiding these
names.
In the biotech sector, we would avoid Genzyme Corporation (GENZ - Analyst
Report), which has been under a lot of pressure over the past few quarters
following the temporary shutdown of its Allston manufacturing facility due
to contamination problems. Although the company has resumed production at
the plant, we note that the company is still struggling with its supply
schedule. Genzyme took a $175 million charge in the first quarter related to
the consent decree that will be implemented by the FDA for the company’s
manufacturing plant. |
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