Weekly Healthcare Notes: Roche Holdings, Pfizer & JNJ
The past week has been a handful of events for the healthcare sector impacting many healthcare companies under our coverage. Roche Holdings ( RHHBY ) touched new highs after the U.S. FDA allowed it to release its own reserve stocks of Tamiflu, an oral drug for flu, amidst an outbreak of the disease in the country. The CDC also urged patients to take Tamiflu once flu symptoms surface.
Meanwhile, rumors made the rounds that Pfizer ( PFE ) could be seeking an early approval for its experimental breast cancer drug. On the other hand, Johnson & Johnson ( JNJ ) is said to be negotiating a settlement with over 10,000 patients who filed lawsuits against the healthcare company following its recall of hip implants.
The U.S. is currently grappling with a flu epidemic affecting both elderly and child patients the most while leaving at least 29 patients dead. More states are now reporting high flu rates even as signs of an epidemic seem to be gradually easing. The FDA's move to allow Roche to release its own reserve supply of Tamiflu will help balance the demand-supply deficit as the anti-viral is witnessing a high demand due to the flu outbreak. Roche's Tamiflu became the only oral antiviral drug approved to treat patients of all ages after it received FDA nod for extending the use of Tamiflu for the treatment of infants two weeks of age and older in December 2012.
These factors have led the recent rally in the drug maker's share price. A weak U.S. dollar and Euro against Swiss Franc also lent support to the jump as the Swiss company becomes costlier value wise. Swiss Franc is considered a safe haven and owing to euro zone issues, it has appreciated considerably. We, however, believe that after recent rally, Roche is now trading higher than its fair value. Flu outbreak is a one time event and a jump in revenues will not be recurring. Further, as global economy improves, Swiss Franc may lose its sheen. Further, Swiss Central Bank is aggressively trying to curb the appreciation in its currency through various measures.
Pfizer seems more than eager to continue with its approval streak after winning FDA approvals for two of its blockbuster potential drugs (Read Pfizer Secures Coveted FDA Approval For Eliquis and Pfizer Receives Big Boost As FDA Approves Rheumatoid Arthritis Drug ). The drug maker could be mulling to seek an early approval for its experimental advanced breast cancer drug, PD-0332991, following strong efficacy and safety exhibited by the drug in recently concluded mid-stage trials.
With impressive clinical results and the FDA's history of granting early approvals to such effective drugs, Pfizer could want to enter the market as soon as possible to gain first mover advantage even as it is many years ahead with major competitors who are developing similar drugs. The drug, if approved as a first-line treatment, could bring many billions of dollars in revenue for the struggling drug maker. This could lead to an upside in our price estimate as we have not considered the potential revenues from the drug in our model. However, final-stage trials have yet to begin and could conclude as late as 2015-16. Read our note Pfizer Could Get Boost With New Breast Cancer Drug for full details.
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Johnson & Johnson
According to Bloomberg, JNJ is negotiating a settlement involving more than 10,000 lawsuits over its recalled hip implants. If realized, the settlement could cost over $2 billion at rumored offer of $200,000 per lawsuit. However, the amount could increase substantially should patients find it unattractive and ask for higher amount. In any case, the settlement of such size will create a hole in JNJ's cash reserves, and could have an immediate impact on JNJ's share price in near term.
It, however, should not impact the medical device business as such as it decided to phase out production of ASR hip implants and surgical mesh products last year. And we believe our current price estimate already captures the expected decline in revenues due to loss of these products.
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