Hepatitis C Treatment Developments in the Biotechnology Sector: a Wall Street Transcript Interview with Matthew Roden, Executive Director and Senior Analyst at UBS

Wall Street Transcript

67 WALL STREET, New York - September 20, 2012 - The Wall Street Transcript has just published its Biotechnology and Pharmaceuticals Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Biotechnology and Pharmaceutical Valuations - Oncology Drug Development - Orphan Drugs - FDA Approval Process - Reimbursement Trends

Companies include: Amgen Inc. (AMGN), Biogen Idec Inc. (BIIB), Celgene Corporation (CELG), Gilead Sciences Inc. (GILD), Alexion Pharmaceuticals, Inc. (ALXN), Merck & Co. Inc. (MRK), Vertex Pharmaceuticals Incorpo (VRTX), Seattle Genetics Inc. (SGEN), Bristol-Myers Squibb Co. (BMY), Idenix Pharmaceuticals Inc. (IDIX), Pharmacyclics Inc. (PCYC), Incyte Corporation (INCY), Pfizer Inc. (PFE) and many others.

In the following excerpt from the Biotechnology and Pharmaceuticals Report, an UBS Investment Bank discusses his top picks for the sector for investors:

TWST: As an analyst, what would be on your wish list if you could ask management teams for additional data, information or insight that would enable you to better evaluate the stocks in your group?

Mr. Roden: Yes, it's a good question, because if you think about even some recent examples of where investors have gotten hurt, one recent example is Bristol-Myers Squibb (BMY) with the hepatitis C program that got shut down. And the correlate to that is Idenix (IDIX), which is seeing some collateral damage to its franchise from the Bristol shutdown. I call it collateral damage because there is no evidence that Idenix's drug is not safe, but because there are some similarities to the Bristol compound, and it got put on hold by the FDA.

So how could we have avoided these blowups would be if we had a better understanding of the overall data in these clinical development programs. I would actually focus in on the preclinical body of evidence for these drugs, because investors can really only have received a tip of the iceberg of preclinical data for clinical-stage compound. Generally, the visibility into clinical trial data is pretty good, but the problem is that if there are preclinical signals that would give us pause, most often we can't see them. They are just not public. So if I had one ask - maybe it's just because we're feeling the pain of Bristol and Idenix - one way we could have avoided that is if we knew more about the preclinical profile of the drugs in question.

TWST: What is your top pick in the large-cap space right now? What about in the midcap space?

Mr. Roden: On the large-cap side, our favored name is Gilead (GILD) into yearend, and with a 12-month time horizon. Gilead is a name that has performed this year, but we continue to be considerably above consensus on it's core HIV business as well as the growth in that hepatitis C business to come. And yet, we still have optionality from the pipeline.

I would note that its sleeper in the pipeline is the cancer program. I don't think the market is really giving any credit for the cancer program that looks really promising, especially when we compare that to the also-promising data from Pharmacyclics (PCYC). That's really moved from a couple of hundred million dollar company - they're now a $4.5 billion company. So a lot of value being attributed there. But both are Phase III programs, but all the value being attributed to Pharmacyclics, and none to Gilead. So maybe that's just the sleeper in the pipeline that could increase in visibility in the coming months.

But the key value driver here is the catalyst path in hepatitis C and in HIV. We're positive on those, but also note that there is considerable upside to Street numbers over the next three years, which we think will protect investors from downside, while enabling relatively open-ended upside, up into the $80 range in our view.

In the midcaps, one of our favorite names is Incyte (INCY). At times, this has performed really well this year, but presently, it made a bit of a pullback on their expectation management around the second-quarter result. At the end of the day, we think that their first-to-market drug, Jakafi, is a clinically meaningful drug for myelofibrosis and polycythemia vera. And our thesis here has always been sort of the peak sales thesis, as opposed to a steepness of the launch thesis. We have been impressed with what they've done this year in terms of launching Jakafi, but we think that they're well positioned to beat 2012 and 2013 estimates.

Meanwhile, you have, we think an underappreciated program in rheumatoid arthritis - this is the baricitinib program. We think the Phase IIb's six months of data to be presented at the ACR meeting in November will be a derisking data point in terms of the safety profile for this drug. So far, the three-month data looked very favorable versus tofacitinib from Pfizer (PFE), and we think that ultimately baricitinib could be best in class among the oral anti-inflammation drugs, which, of course, is a huge segment.

For more from this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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