Credit Suisse Positive on Some Biotechs, Very Cautious on Others

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Credit Suisse has launched new biotech coverage on Wednesday with two analysts at the firm. The biotech sector has been a wealth-creation engine in recent years. What is interesting here about the Credit Suisse view is that, while some of the calls were started favorably with Outperform ratings, there were some that were also cautious with Neutral ratings. We even saw the equivalent of “Sell” ratings, which Credit Suisse officially categorizes as “Underperform” in its ratings system.

24/7 Wall St. has included a summary of each analyst call in the new reports, as well as adding snippets from what catalysts were driving the call. We have also added in consensus price targets and historical trading ranges to keep a reference point in mind.

Alexion Pharmaceuticals Inc. (NASDAQ: ALXN) was given a Neutral rating by Credit Suisse with a target price of $179. Asfotase Alfa is assumed to be approved in early 2015 in both the United States and United Kingdom, and its NMO/MG Phase II recruitment will be finished by the end of 2015. The Credit Suisse target price is based on an equal weighting of discounted cash flow and relative price-earnings to large-cap biotechs. Alexion shares closed on Tuesday at $169.14, versus a consensus price target of $197.05 and a 52-week range of $100.89 to $185.43.

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Arena Pharmaceuticals Inc. (NASDAQ: ARNA) was started with an uninspiring Underperform rating, and with a target price of $3.50. That is down from a closing price of $4.15 on Tuesday. Koon Ching speculates that it will continue to commercialize Belviq in the United States throughout 2014. Credit Suisse explains that its target price of $3.50 on Arena is derived from a standard discounted cash flow model based on Belviq royalties on U.S., EU and “rest of world” sales, annual cash flows until 2026, and no terminal value. Arena has a consensus price target of $7.06, and it has a 52-week range of $4.05 to $7.97.

BioMarin Pharmaceutical Inc. (NASDAQ: BMRN) was started as Outperform with a target price of $74. By the second quarter of 2015, some results from its BMN 111 (dwarfism) Phase 1/2 are expected to come out, Ravi Mehrotra projects roughly $850 million by 2020. In the second half of 2015, BMN 190 (Batten disease) and PEG-PAL are due to give results but seem to be lower-expectation products. Credit Suisse’s $74 target is based on discounted cash flow, using a standard 10% discount rate and a post-2020 terminal growth rate of 3%. The company on last look was trading at $71.23. The consensus price target for BioMarin is $83.13, and it has a 52-week range of $55.04 to $84.25.

Dendreon Corp. (NASDAQ: DNDN) was started as Neutral with a target price of $1.50, hardly higher than the $1.40 closing price from Tuesday. Its commercialization of Provenge in the United States and European Union in 2014, and its granularity of debt restructuring in 2014 and 2015, are catalysts for the Neutral rating. Credit Suisse’s $1.50 target was derived via a standard discounted cash flow modeled to 2020, using a terminal growth rate of 3% and a discount rate of 10%. Dendreon has a consensus price target of $1.90, and its 52-week range is $1.24 to $3.52. For a reference point, we recently pointed out how Dendreon’s wording of an SEC filing might signal an impending implosion. This may delay how impending that is now, but the issues remain.

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Medivation Inc. (NASDAQ: MDVN) was started as Outperform with a target price of $98. Xtandi, which treats metastatic prostate cancer, is set for a PDUFA review date by the FDA on September 18, 2014. EMA approval is expected in late 2014 or early 2015. Topline TERRAIN Phase 2 data are expected to come out in the fourth quarter of 2014 or the first quarter of 2015. Credit Suisse derived the target price of $98 from a standard discounted cash flow based on Xtandi revenues from pre-chemo and post-chemo metastatic prostate cancer settings, annual cash flows until 2027 with no terminal value, and a 10% discount. The stock recently traded at $91.05. Medivation has a consensus price target of $97.06, and its 52-week range is $48.15 to $92.48.

Orexigen Therapeutics Inc. (NASDAQ: OREX) was started with an Outperform rating and target price of $10. The company will have Contrave reviewed by the FDA on September 11, 2014, for PDUFA. Also there is a possible EU approval for Contrave in the second half of 2014. Credit Suisse says that its $10 target price on Orexigen is based on a discounted cash flow of Contrave royalties on U.S. and EU sales, annual cash flows until 2025 with no terminal value, and a 10% discount rate. As of Tuesday’s close, the company’s share price was $5.72. Orexigen has a consensus price target of $9.75, and its 52-week range is $4.60 to $7.82.

VIVUS Inc. (NASDAQ: VVUS) was started as Neutral with a target price of $5. Qsymia’s retail launch and potential partnership agreement are catalysts for this coverage. Also Stendra label updates were noted. Credit Suisse explains its $5 target price for the company is based on a standard DCF on Qsymia U.S. and EU sales, Stendra/Spedra royalties, annual cash flows until 2026 with no terminal value, and a 10% discount rate. VIVUS shares recently traded at $4.31. The stock has a consensus price target of $6.13, and its 52-week range is $4.06 to $12.90.

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