Feuerstein's Biotech-Stock Mailbag
04/26/08 - 09:57 AM EDT
Adam Feuerstein
ImClone shares have had a nice run from $38 in February to almost $48 today. Aren't ASCO and FLEX already priced into the stock?
To some extent, yes. Back in September, when the news on FLEX being positive was first released, I did a very rough back-of-the-envelope calculation that came up with a $50-$51 valuation for ImClone. More recently, Yaron Werber, the biotech analyst at Citi Investment Research upgraded ImClone to buy from hold with a $52 price target. Werber is way smarter than I when it comes to forecasting and valuation models; his Erbitux assumptions and lung cancer forecasts make a lot of sense to me. Get his March 18, 2008, research note, if you can. OK, so there isn't much room for upside in the stock from here? Well, like I said, I'm being conservative in my estimates, and when I spoke with Werber this week about his forecasts, he acknowledged the same. A few more percentage points of market share for Erbitux in lung cancer can translate into significant revenue upside. If Erbitux performs really well, the case for a $60-plus stock isn't too hard to make. Of course, all of this depends on what the data really look like. What about Europe? Yes, we can't forget about Erbitux lung cancer in Europe, where the drug is marketed by ImClone's partner, German drug firm Merck KGaA. To its credit, well deserved, the FLEX study was conducted by Merck KGaA. ImClone gets a smallish royalty on European Erbitux sales; it's important and factored into the estimates above, but not as much as the drug's North American performance. Erbitux will compete against Avastin for first-line lung cancer patients, you say, but if I'm not mistaken, the pivotal Avastin lung cancer trial showed a survival benefit for the drug of about two months. How is Erbitux, with a four- to five-week survival advantage, going to compete against Avastin? Great question. The simple answer is the drugs won't compete. They don't have to. Avastin cannot be used in about 40%-50% of lung cancer patients, including patients who have squamous lung cancer (a more serious, harder-to-treat subtype of the disease); cancer that has spread to the brain; or patients who are susceptible to coughing up blood from the lungs, known as hemoptysis. It's these lung cancer patients, ineligible for Avastin, for whom Erbitux is most likely to be used. And if the Erbitux data are really great, the drug might be used in some Avastin eligible patients as well, especially since the side effect and tolerability profile of Erbitux is better than Avastin.
RSS
