Global Pharmaceutical and Biotechnology Outlook 2012

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Global Pharmaceutical and Biotechnology Outlook 2012

  1. 1. GLOBAL BIOPHARMA OUTLOOK 2012
  2. 2. LARGE-CAP PHARMAVishal Manchanda, B.E., MBA vishal@mpadvisor.comRipple Mehta, B.Pharm, MBA ripple@mpadvisor.comVijayakannan, PhD vijay@mpadvisor.com +1.646.657.3787
  3. 3. Outlook - 2012• Patent Cliff - ~ $50b of patented sales to be genericised – AZN, PFE, NVS, SAN, BMY, LLY to bear the pain• Innovation to foster growth in several therapeutic areas – HCV – Metastatic Melanoma – New Generation Oral Anti-coagulants – Alzheimers – Multiple Sclerosis – GLP-1’s therapy areas• Patent Expiry and Pricing Pressures will intensify M&A activity• LLY, AZN, and BMY would go for deals to fuel their topline 3MP Advisors
  4. 4. Patent Expiry Pressures will be at its Peak 2011 Products Sales going off patent Cum ve ulati Sales in$m Cum veulati C pany om Sales Erosion (2011) 2011 2012 2013 2014 2015 2016 Company Sales Erosion 11-16 as %of 11-16 ($b) 2011 R evenuesLLY 22,225 4,637 6,345 1,069 302 LLY 12,353 56%N O OV 11,831 3,842 914 NO VO 4,756 40%AZN 31,711 1,191 5,725 995 7,538 6,539 AZN 21,988 69%PFE 57,522 13,556 4,317 1,171 2,877 1,268 350 PFE 23,539 41%BM Y 21,398 8,200 1,434 3,908 689 BM Y 14,231 67%SAN 38,286 264 6,845 232 5,632 637 SA N 13,610 36%NVS 48,565 923 8,188 2,703 922 5,665 NV S 18,401 38%M RK 41,018 6,295 1,368 1,670 1,905 407 M RK 11,645 28%GSK 43,328 9,154 589 1,179 GSK 10,922 25%RO G 44,735 1,485 747 649 ROG 2,881 6%Total ($) 360619 22056 49471 14837 23550 16125 8287 134326 37% With growth in Western Markets Crumbling to Patent Expiry Pressures, Will Emerging Markets offer some respite?? 4 MP Advisors
  5. 5. Emerging Market – An Oasis or just a Mirage?• China, so far has been the pillar of Emerging Market Growth for Large Pharma, but it is also giving away to policy pressures – The EDL is expected to double in size, putting pressure on MNC growth – Reimbursement norms to be tightened – Price cuts• Global recessionary pressures have put Emerging market growth forecasts down and should impact the pace of healthcare spending A Select few Large Cap Companies are immune to these pressures and also offer the promise for growth 5MP Advisors
  6. 6. Our Top and Bottom Picks in the Large Cap Space for 2012Top Picks• Roche• GlaxoSmithKlineBottom Pick• Bristol-Myers Squibb 6MP Advisors
  7. 7. Strong double digit EPS growth together with +ve news-flow on late stage pipeline will put Roche back in flavor Positive clinical data on T-DM1 and approval of Pertuzumab will ease concerns related to patent expiry HERA study exploring 2 year adjuvant use of Herceptin versus 1 year Adjuvant use Interim Analysis from DAL-OUTCOME Study, if positive will lead to a run up in the stock price much above our PT of CHF 180 Avastin may add a couple of more indications – Ovarian Cancer, while we will see pivotal data on first line Glioblastoma multiforme, triple negative breast cancer and Treatment through multiple lines in colorectal cancer. The late stage trials are supported by clinical evidence Head to Head study comparing Actemra to Humira – Cross trial comparison suggests non- inferior outcome 7MP Advisors
  8. 8. GlaxoSmithKline – Upgrade to Outperform We anticipate positive data on its Oncology and Respiratory pipeline, which should lead to a revision in long term growth forecasts for GlaxoSmithKline On Tykerb, ALTTO study exploring Tykerb in combination with Herceptin in Adjuvant use in breast cancer will report data and we expect a positive outcome – The indication will add £1b pound in peak sales GSK’s melanoma pipeline (BRAF inhibitor, MEK inhibitor) is best in class and we will see PhIII data On the respiratory pipeline, we expect a positive outcome from a host of studies exploring Relovair and LABA/LAMA FDC in PhIII trials In the rare disease Pipeline Migalastat for Fabry disease is promising and looks better than available treatment options (Repligal and Fabrazyme). Head to head study comparing Migalastat with Repligal and Fabrazyme should also reveal data 8MP Advisors
  9. 9. Bristol-Myers – Bottom Pick Valuations are rich, patent expiry pressures are peaking and pipeline expectations build in more than a bull case We see restricted uptake of Eliquis as we believe Eliquis label in SPAF will be no better than other approved anticoagulants. Patients adequately controlled on warfarin are unlikely to switch as twice daily dosing will be a dampener Yeryoy ramp up has been impressive, but the sales will soon plateau as competitors will enter and physician will be discouraged to use Yer yoy owing to serious side effects and very low response rate. European uptake will be very slow due to reimbursement hurdles 9MP Advisors
  10. 10. Japan Pharma 2012 日本の製薬会社 Summary Of Japan Section From ‘Global Bio-Pharmaceutical Outlook-2012’ Bio- Outlook- 2012’ Top Picks : Chugai, Daiichi Sankyo, Torii, Towa Pos. Invest. Alert: Dainippon Sumitomo Bottom Pick : Eisai Devesh Singh, Pharmacist, MBA Vrunda Shah, CFA, MS (Fin) devesh@mpadvisor.com vrunda@mpadvisor.com +1.646.657.1016 +1.646.657.1016! 10 MP Advisors!
  11. 11. Key Take Away• Drivers to promote generics are likely to intensify generics pick up from April 2012.• 2012 price cuts least affecting foreign cos, while Japanese cos are more exposed largely due higher contribution of long-listed drugs and variation in innovations premium.• Generic growth is inevitable; even after rapid penetration, huge untapped opportunity exists for generic companies.• Innovation will continue to drive growth of Japanese majors while only a few promise positive news flow in next 1-2 years.• Major Japaneses innovators are not targeting generic opportunities – their focus remains on – innovation & going global. But this trend could change in near future.• Hybrid pharma began from 2010; and will start playing major role in reshaping Japanese pharma soon. Daiichi Sankyo currently is the only company in Japan in hybrid pharma.• Consolidation activities in Japan generic will spur: foreign/ non-generic companies have started taking japan generic as one of the growth drivers.• Japanese majors have poured massive ~$50b in acquiring innovation – next 2-3 years will unfold their success potential.• Majority of Japanese pharma cos still struggling with patent expiries; in next 3 years more than ¥900b drugs going to expire.• Despite several odds, Japan pharma offers opportunities for both long & short term investors. 11MP Advisors
  12. 12. Coverage & Top-Picks Market EPS 4yr ROE ROCE EV/EBI Company Rating Price SOS Cap. EV-12 CAGR P/E-12 TP 03/12 03/12 TDA ( ¥b) (11-15) Daiichi Sankyo Outperform 1562 709.0 1107.5 1089.1 4.9 2.3% 10.3% 16.0 5.3 1850 Dainippon Pos. Inv Alert 1141 335.1 382.3 346.8 1050 5.8 7.0% 9.1% 16.5 6.4 Sumitomo Eisai Underperform 870 397.9 346.2 341.3 5.5 6.3% 6.6% 32.2 5.2 950 Takeda Market Perform 3365 285.1 959.4 1033.3 (9.1) 11.6% 11.5% 17.1 6.7 2500 Astellas Market Perform 3770 789.4 2975.9 3345.7 (11.0) 5.8% 8.8% 23.5 7.5 3500 Shionogi Market Perform 3435 470.0 1614.5 1373.1 8.4 7.1% 11.6% 22.9 6.6 3200 Global 6.7% 9.6% 21.4 6.3 Chugai Outperform 1474 544.8 803.0 625.4 11.2 10.8% 15.1% 15.6 6.2 1700 Mitsubishi Tanabe Market Perform 1152 561.4 646.7 511.5 5.4 5.4% 8.5% 16.4 5.6 1350 Kyowa Hakko Market Perform 882 576.5 508.5 428.5 3.5 5.0% 7.7% 16.9 5.3 950 Kyorin Market Perform 1570 74.9 117.6 90.4 0.5 8.7% 12.0% 11.1 4.9 1500 Domestic 7% 11% 15.0 5.5 Towa Outperform 3790 17.2 65.1 71.1 5.4 12.6% 14.7% 10.7 5.5 4100 Sawai Market Perform 8660 15.7 136.0 143.7 10.9 14.1% 14.9% 14.0 7.9 8200 Nichi-Iko Market Perform 1832 30.9 56.6 68.5 12.6 17.2% 22.5% 10.6 6.1 NA Nippon Chemiphar Market Perform 495 38.2 18.9 25.7 36.0 7.9% 10.6% 12.9 7.4 320 Generic 13% 16% 12.1 6.7 Average 9.0% 12.0% 16.1 6.2 Price as on 23rd March, 2012 Source: MP Advisors; Company Reports Opportunities Exist For Both Long & Short Term Investors 12MP Advisors
  13. 13. Segments Specific ‘Key Success Factors’ Segment Key Success Factors Top/Bottom Picks Innovators Domestic focused Low % sale coming from long listed products Late stage R&D – own as well as in-licensed. Chugai, Internationalization capabilities Torii Willingness to consolidate Strong marketing abilities in Japan such that it improves the chances of licensing-in good products Global Higher overseas exposure Daiichi Sankyo, Lower long listed drugs contribution Eisai Rich PhIII pipeline Generics GP1/DP2 Strong marketing infrastructure with sales force and rapport with GP / DP Oral formulations etc. Towa DPC3 Distribution capabilities Injectable facilities, availability of all strengths of drug Cost effectiveness, stable supply 1. General Practitioner; 2. Dispensing Pharmacy; 3. Diagnostic Procedure Combination Source: MP Advisors JP Specific Drivers Will Continue To determine Success 13MP Advisors
  14. 14. Japan Pharma – Market Model Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20Total Rx Market 7,802 8,036 8,277 8,526 8,781 9,045 9,316 9,596 9,883 10,180 Every year new patent % Change 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% expiries keep onNew pt Exp. (¥b) 294.0 387.5 331.9 341.7 195.0 466.0 443.0 522.0 400.0 450.0 increasing potentialTotal Long Listed Products Price Adj 3,358.6 3,712.5 3,970.1 4,272.1 4,125.4 4,550.1 4,629.1 5,104.8 5,096.4 5,495.5 target market forLong Listed drugas as % of Total DO Market 43% 46% 48% 50% 47% 50% 50% 53% 52% 54% generic cos. This leadsTOTAL Market Available for Generics 3,359 3,713 3,970 4,272 4,125 4,550 4,629 5,105 5,096 5,495 to higher genericHospital Market (DPC Affiliates ) opportunity despiteNo of DPC Hospitals 1393 1452 1496 1525 1556 1587 1619 1651 1684 1718 robust generic growth. # of beds in DPC hospt. In Japan (000) 494 504 514 524 534 545 556 567 578 590 Total # of beds in Japan (000) 913 913 913 913 913 913 913 913 913 913 % of total beds in Japan 54% 55% 56% 57% 59% 60% 61% 62% 63% 65%% of total beds in Japan 47% 48% 49% 49% 50% 50% 51% 51% 52% 52% % Change 2% 2% 2% 1% 1% 1% 1% 1% 1% 1%Total NRx generated as % of Total Market 37% 38% 38% 39% 39% 39% 40% 40% 41% 41%Total DPC Market size (available for generics) 1235 1393 1519 1651 1611 1794 1844 2053 2070 2255Drivers of Generics use Increase in DPC Cost saving measures 10% 10% 13% 14% 17% 17% 20% 20% 23% 25% hospitals will be a Due to Co-payment 3% 3% 3% 3% 3% 3% 3% 3% 3% 3% largest Generic growth Others factors 2% 2% 3% 2% 6% 6% 7% 5% 7% 4% catalyst in future.Consolidate impact of all Drivers 15% 15% 19% 19% 26% 26% 30% 28% 33% 32%Total Generics Sales at DPC Hospitals 185.3 208.9 288.7 313.8 418.8 466.5 553.1 574.9 683.3 721.6 % Change 10% 13% 38% 9% 33% 11% 19% 4% 19% 6%DPC Hospt Generics Sales as % of Total sales 2.4% 2.6% 3.5% 3.7% 4.8% 5.2% 5.9% 6.0% 6.9% 7.1% 15% 15% 19% 19% 26% 26% 30% 28% 33% 32% Various growth catalystNon-DPC Market together boost GenericsTotal Non-DPC Market (GPs/Clinics/small hopt/ 2,123 2,320 2,451 2,621 2,515 2,756 2,786 3,051 3,026 3,241 penetration.Total GPs/dipensing/clinics Market 516.6 598.0 717.6 803.7 932.3 1034.9 1210.8 1356.1 1559.5 1715.5 % Change due to Reforms/ Drivers 22.5% 15.8% 20.0% 12.0% 16.0% 11.0% 17.0% 12% 15% 10% % of total Non-DPC generic market 24% 26% 29% 31% 37% 38% 43% 44% 52% 53% % of Total Rx market 6.6% 7.4% 8.7% 9.4% 10.6% 11.4% 13.0% 14.1% 15.8% 16.9% Years from FY 03/12 0 1 2 3 4 5 6 7 8Total Generic market (by value in ¥b) 702.0 807.0 1006.3 1117.5 1351.1 1501.4 1763.9 1931.1 2242.8 2437.1 Despite high growth, % change 19.0% 15.0% 24.7% 11.0% 20.9% 11.1% 17.5% 9.5% 16.1% 8.7% penetration will remainGenerics as % of Total Market 9.0% 10.0% 12.2% 13.1% 15.4% 16.6% 18.9% 20.1% 22.7% 23.9% as low as <12% (by 15 val) in GP/DP marketGP/DP to DPC Market Share Ratio 1.7 1.7 1.6 1.6 1.6 1.5 1.5 1.5 1.5 1.4 by 2016. 14MP Advisors Despite Rapid Penetration, Huge Untapped Opportunity Exists for Generic Companies
  15. 15. Major Japanese M&A in Last 4 Yrs Premium to Acquired Acquisition Cash paid Company 3m. Avg Company date ($b) price. (%) Takeda Nycomed 19-May-11 13.50 NA Takeda Millennium 10-Apr-08 11.00 71.00 Daiichi Sankyo Ranbaxy 11-Jun-08 4.60 50.00 Astellas OSI 17-May-10 4.00 55.00 Eisai MGI 10-Dec-07 3.90 37.48 Dainippon Sumitomo Sepracor 3-Sep-09 2.60 37.86 Shionogi Sciele 1-Sep-08 1.42 57.55 Daiichi Sankyo Plexxikon 28-Feb-11 0.80 NA Hisamitsu Noven 14-Jul-09 0.43 43.00 Taisho Pharma BMY’s Units 16-Sep-09 0.31 NA Eisai AkaRx Inc 18-Dec-09 0.26 NA Nipro Pharma Home Diag. 17-Mar-10 0.18 NA Total Cash Paid 43.00 Source: MP Advisors; Company ReportsMassive Money Poured Overseas Remain Questionable For Most - Takeda Biggest Looser! 15 MP Advisors
  16. 16. Average Price Cuts And Reforms 2012 Yakka-Sa vs. Price CutsPrice Cuts Came As Expected: 25.0 23.1• ~6% overall and Additional price cut for 20.0 off-patent brands 17.8 15.0 % Value 14.5 13.1• Premium for New Drug Development 8.4 will continue in 2012 reforms 10.0 9.7 9.5 6.7 8.4 6.6 6.8 7.0 7.1 6.9 6.3 6.3 5.8 5.0 6.5 5.2 4.4 6.2• Lower price cuts for Original Drugs 4.2 0.0 2012 E 1992 A 1994 A 1996 A 1998 A 2000 A 2002 A 2004 A 2006 A 2008 A 2010 A• High Yakka-sa for Vasodolators (11.6%), Peptic ulcer drugs (10.8%) and Anti- Year allergic drugs (10.5%) Price Cuts Yakka Sa• Foreign cons are least affacted while Source: MP Advisors; MHLW Eisai is most affacted with >11% price cuts 16MP Advisors
  17. 17. Average Price Cuts in 2012 Source: MP Advisors; MHLWMP Advisors Foreign Cos are least affected while Eisai is most affected co. 17
  18. 18. Long Listed Exposure vs. Overseas Sales Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Company Long L As % of DO Sales 43.51 38.61 38.39 34.63 47.79 53.24 52.54 46.83 42.63 35.14 Astellas Overseas Sales % 46.77 45.77 43.49 42.08 39.14 39.66 38.70 39.96 41.93 44.40 Long L As % of DO Sales 32.12 26.80 18.51 22.11 23.93 19.41 16.01 13.34 11.11 9.39 Chugai Overseas Sales % 9.72 9.70 6.25 7.99 10.92 13.49 14.02 14.16 13.83 13.91 Long L As % of DO Sales 28.98 31.81 47.26 52.22 46.35 41.66 37.43 35.14 33.19 Daiichi Sankyo Overseas Sales % 38.6 44.7 50.4 49.4 46.1 49.7 48.2 51.6 53.1 Long L As % of DO Sales 43.13 41.04 71.73 70.01 63.92 61.47 57.93 61.98 58.83 55.54 Dainippon Sumitomo Overseas Sales % 7.31 7.99 7.27 17.80 40.11 36.04 36.38 33.98 29.44 29.35 Long L As % of DO Sales 28.02 26.21 28.69 27.95 42.81 72.55 67.69 65.62 60.16 55.53 Eisai Overseas Sales % 57.30 58.53 64.26 61.56 54.4 44.7 48.1 47.4 49.7 52.0 Long L As % of DO Sales 41.40 39.32 32.81 29.93 29.09 28.15 26.61 25.27 24.01 22.80 Kyorin Overseas Sales % 4.15 3.70 2.75 2.38 2.19 2.00 1.85 1.80 1.67 1.55 Long L As % of DO Sales 68.05 65.11 64.89 71.78 42.79 35.69 38.53 49.22 73.68 46.28 Kyowa Hakko Kirin Overseas Sales % 3.44 4.16 6.32 4.89 5.8 9.4 12.8 13.2 13.6 14.0 Long L As % of DO Sales 65.11 60.68 60.93 58.27 60.03 56.58 55.15 52.34 66.31 67.45 Mitsubishi Tanabe Overseas Sales % 5.81 6.10 5.65 5.20 5.29 5.87 6.32 6.65 6.80 6.57 Long L As % of DO Sales 44.85 39.67 49.65 42.22 38.13 33.38 29.55 25.97 26.68 23.55 Shionogi Overseas Sales % 14.44 15.81 24.65 36.33 36.5 31.0 27.2 25.0 25.0 26.0 Long L As % of DO Sales 14.93 19.31 19.55 23.00 32.91 30.44 37.65 36.43 53.33 52.08 Takeda Overseas Sales % 33.82 49.69 54.86 53.24 49.17 51.26 50.60 50.24 51.04 53.36 Source: MP Advisors; Company ReportsGlobal Cos Increasing Dependence on Domestic Markets + Long Listed Products Makes them Vulnerable to Healthcare Reforms 18MP Advisors
  19. 19. Reforms Promoting Both Generic Penetration and Innovation Reforms That Will Increase The Use Of Generic Drugs Near term impact (0-2 years) Long term impact (>2yrs+) • Higher Dispensing Fee • Patients Co-payment • Prescription Using Generic Name • Freedom To Stock One Generic Brand • DPC Expansion • DPC For Out-patients • Incentive To Physicians • Free Pricing For Generic Drug • Mandatory Approval Of All Strengths • Incentive To Pharmacies For Generics Drugs Availability Reforms That Will Foster Innovation Near term impact (0-2 years) Long term impact (>2yrs+) Reforms That Will Foster Innovation • Increased Number Of Reviewers • Cost Based Pricing • Better Clinical Trials Infrastructure & Support • No Price Cuts During Patent Period • Free pricing of all drugs Source: MP Advisors; MHLW 19 MP Advisors
  20. 20. Reforms to be Implemented From April 2012Reform Description Impact Biggest Beneficiary CompaniesPremium for generics dispensing Further increase in incentive for pharmacist; likely to be Higher generic substitution at dispensing pharmacy in pocket of those who dispensed more than 30% of Sawai, Towa, Nichi-Iko genericHigher bonus points to Hospitals for more Awarding higher bonus point to hospitals using atleast More Rx on generic drugs to generate to get moreusage of generics 30% generics (35 points); Hospital using atleast 20% bonus points awarded points reduced from 30 to 28 points. Sawai, Nichi-IkoHigher discount to new generic launch First generic version set to be min 40% discount to Increasing discount will make generic drugs more branded drug instead of current 30% discount. competitive against long listed drugs All generic companiesReducing the difference in price of Currently there is huge price difference between the two Reducing the gap at lower end will make generic dugsGeneric drugs brands of generics. more competitive to long listed as well as among Towa, Sawai, Nichi-Iko generic drugs.Change in Rx-format Removal of ‘no substitution permitted’ column from Increase generic substitution at pharmacy current Rx format and compulsory writing the generic name of the drug. All generic companiesIncrease in management and guidance fee Points awarded to pharmacies for providing drug history More Rx on generic drugs to generate management and guidance will rise to 41 points, from 30 points at present All generic companiesAbolition of premium for GE dispensing The abolition of the extra two points awarded to Impact negatively to the sales of newly listed genericSource: MP Advisors; MHLWand GE information provision fee pharmacies for dispensing generic drugs and the 15 points drugs for providing drug information All generic companies 20MP Advisors
  21. 21. Revised Incentives For Pharmacies Revised Incentive for Pharmacies Old Generic Rx by Volume 0% - 19% 20%-24% 25%-29% >=30% Before April 2010 Incentives for Pharmacy / NA NA NA ¥40 Patient From April 2010 NA ¥60 ¥130 ¥170 New Effective from (April Generic Rx by Volume 0% - 21% 22%-29% 30%-34% >=35% 2012) Incentives for Pharmacy / NA ¥50 ¥150 ¥190 Patient Difference ¥10 ¥20 ¥20 Source: MP Advisors; Company Reports Generics Investment Thesis:• Increase in incentives for pharmacies has led to a spur in generic sales (~22% increase in FY 03/11)• Pharmacies which currently falls under 25%-29% slab will be encourage to boost their generic uptake to at least 30% to avail higher bonus points. Revised Incentives Will Boost Generics Uptake To New Level 21MP Advisors
  22. 22. Segment Specific ‘Key Success Factors’ Lupin Self/Agencies• All generic companies position Towa themselves into two broad segments and distribution channels M. Sawai Tana be• For Generics, Marketing/Branding Nichi capabilities in GP/Dispensing pharma DPC Iko market, and distribution capabilities Nippo n GP/Dispensing into DPC/large hospitals segment will Kyorin Chemi Pharma phar determine success. Meiji DSE Elmed N.• Near term opportunity lies in Kayaku GP/Dispensing Pharma segments, and Towa & Sawai appeared best positioned to leverage benefits from pro-generic reforms. Wholesalers Positioning of Japanese generics Cos* *Illustrative only Source: MP Advisors, Company Reports 22 MP Advisors
  23. 23. Approaching Generic Opportunities in Next 3 Years FY 03/11 Sales Product Generic name Marketed by in ¥b 2012 Leuplin leuprorelin acetate Takeda 64.3 Nu-lotan losartan MSD 40.08 Paxil Paroxetine GSK 39.35 TS-1 NA Taiho 38.31 Myslee Zolpidem Astellas 31.69 Allelock olopatadine hydrochlorid Kyowa Hakko Kirin 29.23 Seroquel quetiapine Astellas 25.7 Gasmotin mosapride citrate Dainippon Sumitomo 20.06 Arimidex anastrozole AstraZeneca 19.23 Norditropin somatropin(genetical recoNovo Nordisk 17.66 Lantus INSULIN GLARGINE Sanofi Aventis 12.17 Humalog Insulin Lispro Eli Lilly 12.15 Funguard micafungin sodium Astellas 12.11 Total Key Products Expiry in 2012 362.03 2013 Diovan valsartan Novartis 110.59 Remicade infliximab Mitsubishi Tanabe 63.25 Livalo Pitavastatin Kowa 31.54 Loxonin Tape loxoprofen Daiichi Sankyo 22.02 Valtrex Valaciclovir GSK 19.37 Ceredist taltireline Mitsubishi Tanabe 18 Zithromac azithromycin Pfizer 15.29 Taxol paclitaxel Bristol 13.88 Flolan Epoprostenol GSK 11.11 Total Key Products Expiry in 2013 305.06 2014 Blopress Candesartan Takeda 119.93 Allegra fexofenadine Sanofi Aventis 48.66 Glivec imatinib Novartis 38.09 Rituxan Rituxicimab Chugai 24.69 BI Sifrol NA Boehringer 13.1 Oxarol maxacalcitol Chugai 13.06 Mearubik measles & rubella vaccineMitsubishi Tanabe 12.46 Source: MP Advisors Claritin Loratadine Shionogi 10.16 Total Key Products Expiry in 2014 280.14 23MP Advisors Total Key Products Expiries in next three years 947.23
  24. 24. Foreign Companies Entry In Japan Generic Market Foreign Domestic Company Year Comment Company Sandoz Nippon Hexal 2006 First to launch generic recombinant in 2009 Hospira Taiya Yakuhin 2006 Developed injectable generics Lupin Kyowa Pharma 2007 Lupin acquired majority stake in Kyowa pharmaceuticals industries Zydus Nippon Universal 2007 Launched Zydus Pharma Inc. in 2006 and stared Pharma operation with acquisition of Nippon Universal Pharma in 2007 Mylan – 2008 Acquired generic business of Merck Ranbaxy Daiichi Sankyo 2008 Daiichi acquired Ranbaxy Teva Kowa Pharma 2009 Established joint venture GSK JCR Pharma 2009 Signed agreement with GSK for manufacturing Bio-similar, launched generic EPO in Japan Actavis Aska Pharma 2009 Established joint venture PharmaForce Luitpold (Daiichi Sankyo) 2010 Daiichi Sankyo subsidiary acquired PharmaForce, a generic injectable maker in US Sanofi-Aventis Nichi-Iko Pharma 2010 Established joint venture Teva Taiho Pharma 2011 Teva acquired majority stake in Taiho Pharma Dr. Reddy’s Fuji Film 2011 JV announced. Fuji is new in pharma business Lupin India I’rome 2011 Acquired. I’rome has Injectables facility Source: MP Advisors, Company Reports Expect More Consolidation Activities in Coming Days! 24MP Advisors
  25. 25. Investment Ideas -2012 Outperforms : Chugai Daiichi-Sankyo Torii Towa PIA: Dainippon Sumitomo Underperform: Eisai 25MP Advisors
  26. 26. CHUGAI (4519, ¥1,237) – Outperform 2012 Going to Be Happening! Fiscal Year Total % Gross Op. % Op. EV/ Net EPS % PE CFPS PCF (¥ b) Rev. Chg. Margin Profit Chg. Margin EBITDA Profit (¥) Chg. (x) (¥) (x) 2010 A 379.5 (11.5) 57.20 66.2 (19.7) 17.4 6.0 41.4 75.9 (26.1) 16.4 (11.8) (105) 2011 E 394.2 3.9 57.98 71.9 8.7 18.2 5.6 43.6 80.0 5.4 15.5 111.8 11.1 2012 E 416.6 5.7 58.65 82.2 14.4 19.7 4.9 51.6 94.7 18.4 13.1 76.3 16.3 2013 E 430.9 3.4 59.22 88.2 7.3 20.5 4.6 55.5 102.0 7.6 12.2 89.9 13.8 2014 E 449.2 4.2 60.10 100.0 13.4 22.3 4.1 63.2 116.0 13.8 10.7 101.5 12.2 2015 E 471.4 4.9 61.22 115.6 15.6 24.5 3.6 73.3 134.5 15.9 9.2 117.6 10.6 2016 E 498.1 5.7 62.56 135.6 17.3 27.2 3.2 86.1 158.0 17.5 7.9 138.4 9.0 SOS (m): 544.8 Dividend: 40.0 Cash + Inv (¥b): 160.9 4 yr EPS CAGR (12/10-12/14): 11.2 Mkt Val (¥ b): 677.2 Yield (%): 3.22 LT Debt (¥ b): 0.0 4 yr EPS CAGR (12/11-12/15): 13.9 Mkt Val ($ b): 7.96 forex ¥ /$: 80.0 PEG (2011/2011-2015) 1.41 12 Month Target (¥): ¥ 1,500 Investment Thesis: 2012 will unfold a number of important catalysts and bring upside to this ‘least risk carrying company’ of Japan – these are – 1. Data that will claim Actemra’s label expansion and its likely filing for 1st line RA in the US 2. Positive news flow from Roche’s multinational studies, especially around its growing breast cancer franchise i.e. pertuzumab and T-DM1 and their filings in Japan 3. Safe domestic business and sales ramp up of newly launched products in Japan - Mircera (approved April-11, peak sales pot. ¥40b) and Edirol (launch April-11, peak sales pot. ¥15b), and 4. A likely increase of Roche’s stake in Chugai as the basic agreement that prevented Roche from increasing its stake will expire in Oct-12. 26MP Advisors
  27. 27. Upcoming Milestones Price Impact Period Year If Expect Drug Event Description If Neg ation Posi ativ tive e Clinical Head to Head study vs. Actemra 1Q 2012 High Med Positive data Humira (ADACTA study) PhIII data from overseas Clinical T-DM1 EMILIA study 2nd line HER 1H 2012 Low Low Neutral data 2+ BC Metastatic breast cancer HER T-DM1 US filing 2+ second-line based on 1H 2012 High Low Neutral EMILIA study Corporate Roche may increase its stake NA Oct 2012 High Low Positive event in Chugai US approval in mBC HER2+ US Pertuzumab firstline based on PFS data 2H 2012 High Low Positive approval with Herceptin Pertuzumab JP Filing As adjuvant to Herceptin 2H 2012 Med High Positive Actemra US filing DMARD IR first line filing 2H 2012 Low low positive Actemra US filing For SC formulations 2H 2012 High High Positive Tarceva JP Filing Filing for 1st line NSCLC 2H 2012 Med Med Positive Clinical SC vs. IV (SUMMACTA Any Actemra 2012 Low Low Positive data PhIII study) time T-DM1 JP Filing JP filing 1H 2013 Med Med Positive Source: MP Advisors, Company Reports 27MP Advisors
  28. 28. DAIICHI SANKYO (4568, ¥1,466) – Outperform ‘Hybrid Tree’ Is Ready to Give Fruits! Fiscal Year Total % Gross Op. % Op. EV/ Net EPS % PE CFPS PCF (¥ b) Rev. Chg. Margin Profit Chg. Margin EBITDA Profit (¥) Chg. (x) (¥) (x) MAR-11 A 967.5 1.6 70.9 122.3 28.1 12.6 5.4 70.3 99.2 68.0 14.8 158.6 9.2 MAR-12 E 945.4 (2.3) 71.1 114.8 (6.1) 12.1 5.4 20.5 29.0 -70.8 50.6 19.5 75.3 MAR-13 E 1,009.4 6.8 70.6 127.6 11.2 12.6 5.0 69.1 97.4 236.5 15.0 74.0 19.8 MAR-14 E 1,095.2 8.5 70.8 141.7 11.1 12.9 4.7 80.8 114.0 17.0 12.9 126.7 11.6 MAR-15 E 1,133.9 3.5 70.7 150.2 5.9 13.2 4.6 85.1 120.0 5.3 12.2 146.8 10.0 MAR-16 E 1,190.5 5.0 70.9 161.2 7.4 13.5 4.4 90.6 127.9 6.5 11.5 150.1 9.8 MAR-17 E 1,198.0 0.6 70.8 162.2 0.6 13.5 4.3 90.2 127.2 -0.5 11.5 171.4 8.6 SOS (m): 709.0 Dividend: 60.0 Cash + Inv (¥b): 287.95 4 yr EPS CAGR (3/11-3/15): 4.9 Mkt Val (¥ b): 1,039.4 Yield (%): 4.09 LT Debt (¥ b): 227.53 4 yr EPS CAGR (3/51-3/16): 45.0 Mkt Val ($ b): 12.92 forex ¥ /$: 80.0 PEG (3/11 / 3/11-3/15): 3.03 12 Month Target (¥): ¥1,850 Investment Thesis: • R&D attractiveness – Pipeline is full of late stage candidates which will fetch attention in 2012. Edoxaban (Ph III, factor Xa inhibitor, AF), ARQ 197 (Ph III, c-met inhibitor, NSCLC), Denosumab (Approved in JP in 2012, bone metastatase), Vemurafenib (US approval in Aug-11, Approved in EU in 2012, BRAF inhibitor, meladnoma) and CS-8958 (approved in JP, Ph III for prophylaxis anti-influenza) remain growth drivers. • RBXY’s Solid Growth Prospects Beyond Near Term Concerns: 2012-14 brings a number of First-to-File (FTF) opportunities for RBXY, together they translate into $1.2b opportunity and a number of Para IV milestones will again bring RBXY in forefront in 2012. We find that near term concerns are overly built regarding compromised Lipitor generic opportunity and probable FDA penalty (DS made provision of $500m). • Ability to exploit Japanese generic growth – with Daiichi Sankyo Espha, it is the only Japanese major well positioned to encash Japan generic opportunity • Geographic diversity and Revenue Sustainability – DS has major geographic presence which is likely to increase with time; DS is able to maintain ~90% of its current revenue base thru FY 03/17 i.e. excluding R&D pipeline contribution - a feature that most of JP peers lack. • Upside From Onetime Cash Flow: Coming quarters may unfold some agreements with global giants on its PhII onco candidates, global rights of Edoxaban etc. 28MP Advisors
  29. 29. Key Pipeline Candidates Development Drug Class Indications Market Stage Origin code PLX4032 BRAF inhibitor Melanoma EU Approved Plexxikon US Approved Anti-RANKL Bone metastases of JP Approved AMG-162 antibody cancer Amgen Osteoporosis JP Filed RA JP PhI Anti-platelet Acute coronary US/EU P3 CS-747 agent syndrome-MM Prasugrel In-house Acute coronary JP P3 syndrome-PCI Factor Xa Atrial fibrillation US/EU/JP P3 DU-176b inhibitor Venous US/EU/JP P3 In-house thromboembolism ARQ-197 c-Met inhibitor anti-cancer US/EU P3 ArQule Neuraminidase Anti-Influenza US/EU P1 CS-8958 inhibitor In-house JP Approved Anti-DR5 Target tumor cells US/EU/JP P2 CS-1008 In-house antibody PPAR gamma NSCLC US/EU P2 CS-7017 activator In-house JP P1 Anti-HER3 US/EU P2 U3 U3-1287 antibody Pharma Fms/Kit/Flt3-ITD US P2 PLX3397 inhibitor Plexxikon Anti EGFR JP P2 CIMYM DE-766 Bioscience Chymase Atopic Dermatitis US P2 Asubio SUN 13834 inhibitor Pharma 29MP AdvisorsSource: MP Advisors; Company Reports
  30. 30. TOWA (4553, ¥3,395) – Outperform Performance Will Outcast New ‘Mid Term Plan’ Fiscal Year Total % Gross Op. % Op. EV/ Net EPS % PE CFPS PCF (¥ b) Rev. Chg. Margin Profit Chg. Margin EBITDA Profit (¥) Chg. (x) (¥) (x) 03/11 A 46.1 18.2 53.7 9.7 24.6 20.9 4.5 5.8 339.3 26.7 9.8 (271.2) (12.3) 03/12 E 50.2 8.8 53.7 9.9 2.5 19.7 4.4 5.9 342.5 0.9 9.7 (12.3) (270.5) 03/13 E 56.7 12.9 52.5 10.3 3.8 18.1 3.9 6.1 355.5 3.8 9.4 (512.2) (6.5) 03/14 E 61.9 9.1 52.6 11.2 9.1 18.1 3.6 5.9 388.3 9.2 8.6 196.1 17.0 03/15 E 66.4 7.4 52.7 12.1 8.0 18.2 3.4 6.7 419.5 8.0 8.0 459.6 7.3 03/16 E 71.1 7.1 52.8 13.1 8.2 18.4 3.2 7.2 454.3 8.3 7.3 501.9 6.6 SOS (m): 17.2 Dividend: 65.0 Cash + Inv (¥b): 9.5 4 yr EPS CAGR (3/11-3/15): 5.4 Mkt Val (¥ b): 58.3 Yield (%): 1.91 LT Debt (¥ b): 10.4 4 yr EPS CAGR (3/12-3/16): 7.3 Mkt Val ($ b): 0.686 forex ¥ /$: 80.0 PEG (3/11 / 3/11-3/15): 1.35 12 Month Target (¥): ¥ 4,100 Investment Thesis: Mid-Term Plan (MTP) announced on Nov-11 projects single digit revenue growth vis. a vis. larger increase in R&D and depreciation. Our analysis suggests that management has negated key positive components in its MTP and see several reasons why actual results will exceed these projections • In its Assumptions, Towa Does not Expect Any ‘New Major Reform’ Enhancing Generics Uptake In Next 3-Years – our take is that there would be a few ‘major changes’ in April-12 and April-14. • MTP Assumes No Fundamental Reform On NHI Pricing System: Chuikyo’s chemist survey results came after Towa MTP find that current Yakka-sa is ~8.4%. Early signals suggest that general price cuts would be ~6% while there may be additional price cuts on long listed drugs. • Investment Plans – Capex plans indicate good capicity to meet demand in future. • Towa Has always exceeded its MTP: management has been conservative unlike its peers • Besides the above, we find the following catalysts to also support valuation: 1. Acquisition Target 2. Relative Standing vs. Peers on Valuation 3. Healthcare Reforms in April-12: Incentive to Pharmacies, Change in Generic Pricing Policy etc. 30MP Advisors
  31. 31. Reforms to be Implemented in April-2012 and Implications Reform Description Impact Biggest Beneficiary Companies Premium for generics dispensing Further increase in incentive for pharmacist; Higher generic substitution at dispensing Sawai, Towa, likely to be in pocket of those who dispensed pharmacy Nichi-Iko more than 30% of generic Higher bonus points to Hospitals Awarding higher bonus point to hospitals More Rx on generic drugs to generate to get for more usage of generics using atleast 30% generics (35 points); more bonus points Hospital using atleast 20% awarded points Sawai, Nichi-Iko reduced from 30 to 28 points. Higher discount to new generic First generic version set to be min 40% Increasing discount will make generic drugs All generic launch discount to branded drug instead of current more competitive against long listed drugs companies 30% discount. Reducing the difference in price Currently there is huge price difference Reducing the gap at lower end will make Towa, Sawai, of Generic drugs between the two brands of generics. generic dugs more competitive to long listed as Nichi-Iko well as among generic drugs. Change in prescription format Removal of ‘no substitution permitted’ Increase generic substitution at pharmacy column from current Rx format and All generic compulsory writing the generic name of the companies drug. Increase in management and Points awarded to pharmacies for providing More Rx on generic drugs to generate guidance fee drug history management and guidance will All generic rise to 41 points, from 30 points at present companies Abolition of Premium for GE The abolition of the extra two points awarded Impct negatively to the sales of newly listed Dispensing and GE information to pharmacies for dispensing generic drugs generic drugs All generic provision fee and the 15 points for providing drug companies information 31MP Advisors MHLW Source: MP Advisors;
  32. 32. TORII PHARMA (4551, ¥1,462) – Outperform A Bet That Offers Only Upside! Fiscal Year Total % % Gross Op. % % Op. EV/ Net EPS % PE CFPS PCF (¥ b) Rev. Chg. Mgn Profit Chg. Mgn EBITDA Profit (¥) Chg. (x) (¥) (x) MAR-11 A 45.34 6.9 59% 1.85 (69.8) 4% 9.4 0.93 33.0 (74.3) 44.3 8.7 167.1 MAR-12 E 49.26 8.7 59% 1.68 (9.3) 3% 9.2 1.10 38.8 17.5 37.7 28.4 51.6 MAR-13 E 51.66 4.9 59% 2.63 56.9 5% 7.5 1.65 58.3 50.4 25.1 38.7 37.8 MAR-14 E 53.39 3.3 60% 3.32 26.3 6% 6.6 2.05 72.5 24.3 20.2 45.4 32.2 MAR-15 E 59.84 12.1 60% 5.24 57.8 9% 4.7 3.17 111.9 54.3 13.1 78.7 18.6 MAR-16 E 70.64 18.0 61% 6.90 31.7 10% 3.8 4.13 145.9 30.4 10.0 107.8 13.6 MAR-17 E 85.42 20.9 61% 9.53 38.0 11% 2.8 5.65 199.7 36.9 7.3 157.5 9.3 FD SOS (m): 28.3 Dividend: 40.0 Cash + Inv (¥ b): 12.3 5-yr EPS CAGR (11-16): 27.6 Mkt Val (¥ b): 41.1 Yield (%): 2.74 LT Debt (¥ b): 0.1 4-yr EPS CAGR (11-15): 39.3 Mkt Val ($ m): 517.2 forex ¥ / $: 80.0 PEG (11/11-15): 1.6 12-month Target Price (¥): 2,400 Investment Thesis: Our Outperform rating is largely based on gain from expected positive news flow on dalcetrapib (JTT- 705, PhIII -US, CETP modulator, dyslipidemia). It is a Japan Tobacco Inc. (JTT) candidate which is partnered with Roche for global rights (Ex-JP) and aspiring for ‘first in class’ drug for increasing HDL, and carries a multi-billion global potential. Torii being the marketing partner of JTT for pharma in Japan will be selling it and is a natural beneficiary of the dalcetrapib success. It is currently under PhII trials in Japan. Elvitegravir (JTK 303, filed for combination therapy and PhIII for mono-therapy in US/EU, integrase inhibitor, partnered with Gilead, HIV) is next such candidate which will be commercialized in Japan thru Torii (Preparing for registration in Japan). 32MP Advisors
  33. 33. CETP Inhibitors at A Glance 33MP Advisors
  34. 34. CETP Inhibitors at A Glance 34MP Advisors
  35. 35. DAINIPPON SUMITOMO (4506, ¥820) – PIA Latuda Story Is Not Over Yet! Fiscal Year Total % Gross Op. % Op. EV/ Net EPS % PE CFPS PCF (¥ b) Rev. Chg. Margin Profit Chg. Margin EBITDA Profit (¥) Chg. (x) (¥) (x) 03/11 A 379.5 28.1 71.0 30.9 (13.2) 8.1 3.1 16.7 42.0 (20.1) 19.5 (47.0) (17.5) 03/12 E 355.6 (6.3) 71.1 23.3 (24.7) 6.5 4.9 13.6 34.2 (18.6) 24.0 (15.4) (53.3) 03/13 E 353.8 (0.5) 70.6 34.2 47.1 9.7 4.2 19.2 48.3 41.1 17.0 95.1 8.6 03/14 E 343.2 (3.0) 71.6 30.3 (11.3) 8.8 4.6 16.8 42.2 (12.5) 19.4 99.4 8.3 03/15 E 321.5 (6.3) 71.7 34.5 13.8 10.7 5.7 19.3 48.5 14.9 16.9 81.1 10.1 03/16 E 324.1 0.8 71.5 50.4 45.9 15.5 4.4 28.8 72.3 49.0 11.4 77.4 10.6 03/17 E 331.1 2.2 71.6 48.5 (3.8) 14.6 4.5 27.7 69.2 (4.2) 11.9 80.3 10.2 SOS (m): 397.9 Dividend: 18.0 Cash + Inv (¥b): 112.2 4 yr EPS CAGR (3/11-3/15): 3.7 Mkt Val (¥ b): 326.7 Yield (%): 2.19 LT Debt (¥ b): 133.0 4 yr EPS CAGR (3/12-3/16): 20.6 Mkt Val ($ b): 4.1 forex ¥ /$: 80.0 PEG (3/10 / 3/10-3/14): 5.3 12 Month Target (¥): 950.0 Investment Thesis: A number of approaching milestones for its sole catalyst Latuda will unfold positive in the next 6-months and bring additional upside that was built following its US approval in Feb-11 and satisfactory Rx uptake thereafter. • Latuda Rx share since launch indicates its acceptability at psychiatrists’ level that faces limitations with the available anti-schizophrenia drugs. With its manageable extra-paramedical SEs, impressive metabolic SE profile along with its comparable efficacy to leading drugs Zyprexa (Lilly, FY11e US sales ~$2.0b, US pt. ex. Oct-11) and Seroquel (AZN, FY11 WW sales ~$5.7b) is establishing itself as an unavoidable switch option for managing schizophrenia. Latuda’s NRx pick up vs. recently launched anti-schizophrenia drugs also indicate its better acceptability. • Our PIA now looks ahead to positive outcomes from ‘Bi-polar disorder’ trials, where the opportunity is huge (~1.5x to Schizophrenia in value and 2x in growth, chart 2). A number of trials will unfold with their detailed or interim data thru mid-12 and fetch attention. 35MP Advisors
  36. 36. LATUDA : Ongoing Clinical Studies 36MP Advisors
  37. 37. EISAI (4523, ¥3,060) – Underperform ‘HAYABUSHA’ Is Difficult To Achieve! Fiscal Year Total % Gross Op. % Op. EV/ Net EPS % PE CFPS PCF (¥ b) Rev. Chg. Margin Profit Chg. Margin EBITDA Profit (¥) Chg. (x) (¥) (x) 03/11 A 768.9 (4.2) 78.2 113.1 31.4 14.7 5.7 67.4 236.5 68.1 12.9 527.9 5.8 03/12 E 658.9 (14.3) 73.7 99.6 (12.0) 15.1 6.1 63.5 222.7 (5.8) 13.7 397.0 7.7 03/13 E 647.9 (1.7) 74.2 91.4 (8.2) 14.1 6.3 58.1 203.8 (8.5) 14.9 522.8 5.8 03/14 E 595.9 (8.0) 73.7 74.0 (19.1) 12.4 7.0 46.6 163.3 (19.9) 18.6 116.1 26.2 03/15 E 595.3 (0.1) 74.7 76.3 3.1 12.8 6.8 48.1 168.7 3.3 18.0 213.5 14.3 03/16 E 602.1 1.1 74.3 74.7 (2.0) 12.4 6.7 47.1 165.1 (2.1) 18.4 193.8 15.7 03/17 E 611.5 1.6 74.5 77.1 3.2 12.6 6.4 48.7 170.7 3.4 17.8 204.0 14.9 SOS (m): 285.1 Dividend: 150.0 Cash + Inv (¥b): 180.1 4 yr EPS CAGR (3/11-3/15): (8.1) Mkt Val (¥ b): 868.2 Yield (%): 4.93 LT Debt (¥ b): 399.9 4 yr EPS CAGR (3/12-3/16): (7.2) Mkt Val ($ b): 10.85 forex ¥ /$: 80.0 PEG (3/11 / 3/11-3/15): (1.6) 12 Month Target (¥): 2,500 Investment Thesis: Management’s Mid Term Strategic Plan ‘HAYABUSHA’ embarked from April-11, aims to achieve ¥800b sales and ¥200b OP in 03/16 (Annexure 1) – which we find too optimistic. We doubt management’s projections of ~20% ROE and find their expectations from Aricept’s line extension and new products unrealistic. Eisai revenue is slated to drop following key products patent expiry i.e. Aricept and Aciphex (Pt. exp in Nov-10 and May-13 respectively); together they contributed ~¥427b (or ~56% of revenue in FY 03/11). This will lead Eisai’s EPS to fall by ~8% CAGR in 03/11-03/15. Though pipeline looks decent and can bring positive surprises, when seen in contrast to expected value built in current price Eisai does not appear to be a stock offering good risk-return profile. • Pipeline Potential Overly Built: One of its key candidate, Halaven (eribulin, microtubule growth inhibitor, 3rd line metastasis breast cancer) received FDA approval in Nov-10. Following this, Eisai has three late stage candidates – E-2007/ perampanel (Filed, AMPA receptor antagonist, epilepsy), E7080/ lenvatinib (PhIII, VEGF receptor, Thyroid cancer) and MORAb-003/ farletuzumab (PhIII, Humanised IgG1 mAb, Ovarian cancer) ) –None of these will have enough potential to nullify the loss of Aricept and Aciphex even in their best case scenarios. • Domestic Challenges will Surface Soon: 75%+ FY03/12 revenue is long listed and exposed to price cuts and generics threats. A proposed reform for April-12, suggests that premium given for new products developments on some products will be returned, hits Aricept. 37MP Advisors
  38. 38. Key Pipeline Candidates Exp.Product MoA Indication Market Stage Launch US Filed (2012) 2012E2007 (perampanel) AMPA receptor antagonist Epilepsy EU Filed (May-11) 2012 JP PhII 2013MORAb-003 Humanised IgG1 mAb Ovarian cancer US/EU/JP PhIII 2013E7080 VEGF receptor Thyroid cancer US/EU/JP PhIII 2014 Microtubule growthHalaven (E7389) Sarcoma & NSCLC US/EU PhIII / II 2015 suppressorE5564 (eritoran) Endotoxin antagonist Severe sepsis US/EU PhIII 2015 Thrombopoietin receptor IdiopathicE5501/AKR-501 US PhII 2015 agonist thrombocytopenic purpura Thrombin receptorE5555 ACS US/EU/JP PhII 2016 antagonistMORAb-009 Humanised IgG1 mAb Pancreatic cancer US PhII 2016 38MP Advisors
  39. 39. RISING STARS - OUTLOOK 2012Subita Srimal, Ph.D Khyati Thkrar, M.Sc., PGDBM Sanjeev Mishra, MBAsubita@mpadvisor.com khyati@mpadvisor.com sanjeev@mpadvisor.com+1.646.657.3794 +1.646.657.3787 +1.646.434.7588 39MP Advisors
  40. 40. • What is Going Right For the sector?• What Are the Challenges?• Therapy Areas- Witnessing a Turn Around• Value creation: Recommendations RISING STARS - INNOVATIVE RESEARCH DRIVEN UNPROFITABLE COMPANIES 40MP Advisors
  41. 41. “RIGHT” IN 2011 • INCIVEK/ VICTRELIS – HCV - First Protease Inhibitors • Benlysta- Lupus- First Drug after more than two decades –Unmet Need • Yervoy and Zelboraf- mMelanoma- First Drug after more than two decades –Unmet Need • Xa Inhibitors- Bleeding, Cardio- Eliquis, Brilinta, Pradaxa, Xarelto- ACS, DVT – Better Options than Warfarin (old drug) • Soliris - aHUS - Unmet Need • Jakafi- MPN- first time unmet need • Xalkori- NSCLC- ALK+ve - first personalized drug and diagnostic approved together • Adcetris- HL, ALCL - Better Option - More Potent2011 Was a Tribute to Innovation - New drugs for Unmet Needs/ First-in-Class were Approved 41 MP Advisors
  42. 42. Will The Trend Continue in 2012?• Drug Launch in Select Therapy Areas• Oral RA• Genetic Diseases• Anti-obesity• Cancer• Gout• Dyslipidemia 42MP Advisors
  43. 43. SELECT DRUG LAUNCHES: 2012 Expected Drug Launch From Rising Star Companies Approval/ PDUFA Drug Company Indication Date Bydureon Amylin Diabetes type II 28-Jan-12 Vismodegib Roche/ Curis advanced BCC 8-Mar-12 Peginesatide Affymax/ Takeda Anemia in CKD 27-Mar-12 Qnexa Vivus Obesity 17-Apr-12 KALYDECO Vertex Pharma Cystic Fibrosis 18-Apr-2012 Contrave Orexigen / Takeda Obesity 1Q12 UPLYSO Protalix / Pfizer Gaucher disease 1-May-12 Lorcaserin Arena / Eisai Obesity 27-June-12 Ilaris Novartis/ REGN Gouty arthritis 1H12 HyQ (rHuPH20+ Ig) Halozyme/ Baxter Pri immunodeficiency 1H12 Arcalyst Regeneron Gout 30-Jul-12 AMR-101 Amarin MARINE - High 26-July-2012 (T) Ridaforolimus Ariad / Merck Sarcoma/ Osteosarcoma 8-Aug-12 (T) cabozantinib Exelixis Medullary thyroid C 2H12 Kynamro ISIS/Sanofi Ho FH 2H12MP Advisors The Impact Will not Be as Great as in 2011 43
  44. 44. But… Better Drugs For The Patients is not = to the Best Future For the Innovators!MP Advisors
  45. 45. The Challenges?• SALES• REIMBURSEMENTS• PRICING PRESSURE• BETTER DRUGS IN THE MAKING Patent Are Essential But do not Guarantee Longevity or Cash Flow 45MP Advisors
  46. 46. Innovators Suffered … • Devastating in some cases- VRTX, HGSI, DNDN, etc. • Reasons were different for each co.- In some cases it was better data = shorter life span of innovation- IP may give no protection! • Others- High price or ??? • Most cases – the drop followed approval- Investors are uncertain about sales and betting more on “hope” than “reality”? • Testing times ahead in 2012 for INCY, REGN, VRTX, AMRN, SGEN, HGSI, DNDN etc. • So…….? 46MP Advisors
  47. 47. Multiple Options Ahead• Choosing between a shining star and profitability!• Paradigm shift in investing pattern-: Tap Them Young Or mid-late stage• Selective Targeting vs. Pan Drugs – A Dollar ($) war• Hope Delivered but Reality bites- GARAGE SALE= Opportunity?• Technology Platforms will continue to attract 47MP Advisors
  48. 48. Score Card- 2011 TP YoY Hit / Companies Rating Comments (LC) chg (%) Miss/ Ok Initially on robust data in HCV and partnering and Pharmasset NA 441% NA H later on acquisition Current price presents a good investment opportunity as catalysts- uptake of Eylea and clinical Regeneron $70 84% OP H data of its pipeline products will keep the momentum in 2012. Approval of INCIVEK for HCV and unexpected positive data from KALYDECO in cystic fibrosis Vertex $34 62% OP H were the highlights for 1H11. Data from various competitive drugs in HCV lead to decline in latter part of 2011. Drug targets high risk ACS pts and data and Anthera $12 30% OP H safety so far favors high risk reward opportunity Targets niche indication, pivotal trial ongoing. *Micromet $8 23% OP H Value of tech platform not realised. Clinically impressive but may not meet commercial AVEO Pharma $18 19% MP Ok success due to competition. Lack of milestone in 2011. Balanced business model of partnered programs and positive cash flow service Morphosys €23 0% OP Ok segment. Value of tech platform and pipeline should unfold in 2012-13. Lack of milestones and macro condition pulled the ArQule $7 -1% OP Ok stock down. Solely dependent on the success of fostamatinib and Rigel $8 -3% MP Ok no milestones in near term. Approval of Jakafi for MF did not please the Incyte $18 -6% OP Ok investors as concerns on reimbursement, commercial success remain. Slow but steady development. Couple of program Immunomedics $6 -8% OP Ok reached into PhIII. * Price as on the day when we initiated the coverage after Outlook11; PoC = Proof-of-Concept ………….continued ………….continued Dark Red indicates 2011 top picks; Bold are our 2012 Top Picks Source: MP Advisors, Company Reports 48MP Advisors
  49. 49. Score Card- 2011 …continued Hit / TP YoY Companies Rating Miss/ Comments (LC) chg (%) Ok Pipeline lacks critical mass or catalysts which could Galapagos €8 -12% MP Ok move the stock. Return of compounds by GSK Promising PhIIb data but the delays in start of PhIII Ardea Biosci. $28 -20% OP Ok and no partnership announcement lead to decline in 2H11. ISIS $8 -27% MP M No milestones or new prog to drive the company. Question over the patent life of key drug *Amarin $8 -55% MP M overshadows the advantages of marketed options. Though PhIIb of HCV compounds data were *Medivir SEK59 -49% MP M positive, change in management, increasing competition in HCV lead to the decline. MXUS0HC 4.6% MSCI USA/Health Care MXUS0PB -0.4% MSCI US Pharma & Biotech * Price as on the day when we initiated the coverage after Outlook11; PoC = Proof-of-Concept Dark Red indicates 2011 top picks; Bold are our 2012 Top Picks Source: MP Advisors, Company Reports 49MP Advisors
  50. 50. RS- Recommendations for 2012• MITI (acq. By AMGN)• INCY• VRTX• REGN 50MP Advisors
  51. 51. Focus on Therapy Areas in 2012 • Last year was most eventful for HCV, Melanoma, Lupus and Anti Coagulants. • Exciting Data, Approvals, Spectacular Launch and Astounding Acquisitions! GILD-VRUS • This Year Also Started with a Bang for HCV- BMS-INHIBITEX acquisition • Data in HCV “oral IFN free combinations” will decide the wisdom of the “Premium Paid”. • 2012- A year to Remember for Alzheimers – Key PhIII drug data –Make or Break • More oral options in MS and First in RA • Cancer Vaccines- DNDN rose from the graves in 2012 with good sales. Data from other Cancer vaccines will decide whether its “Hope or Hype” • Anti obesity drugs may finally see the light – though with a Narrow Label. • Biosimilars/Better Biologics- Regulatory Pathway- an Evergreen area of interest. 51MP Advisors
  52. 52. Garage Sale-Tech Focus • ALNY • ABLX • ICLL • IMMU • DVAX • IDRA • VNDA Many Trading Close at Their Cash Value! 52MP Advisors
  53. 53. MATURE BIOTECH –WATCH OUT FOR…. • VALUATIONS • SALES/EARNINGS EXPECTATIONS • GENERIC THREAT “Only Green – No Red” – Entering 2012 with High Expectations 53MP Advisors
  54. 54. Score Card- 2011 Hit / Miss/ Companies Target Price YoY chg. (%) Comments Ok World wide sales growth of Soliris in PNH and label expansion. Focus on Alexion $75 74% H orphan and rare diseases make it most eligible of an acquisition target after Genzyme. Increased focus on MS therapy area. Volume growth of Tysabri and sales Biogen Idec $60 69% H growth of Avonex (due to price increase) along with unexpected positive PhIII data from BG-12, an oral MS drug, took the stock to a new high Settlement with Bayer for regorafenib and acquisition rumor. FDA decision of Onyx Pharma $35 32% H not granting priority review in Dec ‘11 for Carfilzomib’s hampered the positive sentiment of investors. Revlimid’s malignancy related issue and generic threat from Natco Pharma Celgene $72 9% H overweigh the sales ramp up + Japan launch of Revlimid and positive pipeline news flow. Share repurchases, dividend payments and denosumab ramp-up hedges the Amgen Inc $63 9% H sales decline of ESA franchise- and blankness of pipeline. Did not perform as expected due to maturing sales growth from HIV franchise and lately announcement of VRUS’ acquisition news; however, we see it as a Gilead Sci. $45 6% Ok perfect move to gain the leadership position in HCV market using its vast experience in anti-viral therapy. 54MP Advisors Bold are MP’s 2012 Top Picks
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