Rheumatoid Arthritis, Oncology, and Hepatitis C Therapies Propel Growth in Biotech: Interview with UBS Investment Bank Expert Analyst

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 expert analyst from UBS Investment Bank discusses the outlook for the sector for investors:

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.

Further, there is just little or no credit given to the early-stage pipeline. I'd say that this management team has a very well-established track record in terms of developing drugs and generating value in clinical development, and they have several earlier-stage projects with a short-term goal to bring that through over the coming year. We expect more visibility to come out of the early-stage pipeline over the next six to 12 months. So I would say that Incyte is one of our favorite names in the midcap space.

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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