a) Key Areas of Investor Focus in Healthcare
· Bio-pharma sentiment remains acutely out of favor with stocks not going up on positive pipeline news. Pipeline catalysts may still re-ignite the group but the recent setbacks by ABBV and CELG are not helping investor confidence on pipelines. Even during market swings, bio-pharma is not showing defensive support.
· Healthcare services stock sentiment has also turned negative. Many stocks are in deal purgatory as CVS-AET(+15% spread) and CI-ESRX(+30% spread) have low visibility into either the timing or potential to close mergers given regulatory pushback on vertical mergers. The AT&T-Time Warner merger case will have broad implications for these and other deals.
· 4/14-18: AACR Conf (American Association for Cancer Research): The key debate is on the hazard ratio (HR) for both various lung cancer (NSCLC) trials between Bristol-Myers, Merck, and Roche. Expectations are focused on an HR of 0.5 the various trials.
nuanced (PFS alone) vs. MRK’s (PFS and OS).
· M&A: Humana (HUM) Traded +10%. News broke that WMT and health insurer HUM were in early stage discussions on everything from a deeper partnership to an outright merger. Novartis (NVS) also announced the acquisition of gene therapy company AveXis(AVXS) for $9B (all cash). This is a big bet for NVS as gene therapy is still in the early years of development. Takeda has also confirmed they are considering making an offer to acquire Shire (SHPG).
b) Rating Updates
· Long-Term Ratings Changes: None
· Healthcare Sentiment Changes: (see Sentiment definitions below)
o Raising BIIB to Blue from Green (see below)
c) Best Ideas (at current price points): *High Conviction Risk-Reward
· Healthcare Services & Providers: *ABC,*AET,*CVS,*ESRX,*MCK,
· Medical Devices: ABT,*ZBH
· Large Cap Pharma/Biotech: *AGN,*ALXN,*BMY,*BIIB,*CELG,*GSK,*PFE,*SHPG
d) Material Updates to Ideas:
· Biogen (BIIB): Raising to Blue on material sell-off and attractive risk-reward. Over the next 12 months, BIIB will report Phase 3 data in Alzheimer's, one of the largest opportunities in bio-pharma. Between now and then, BIIB is re-focusing on building a neuro pipeline.
· Express Scripts (ESRX): We recently met with the CFO of Cigna (CI) regarding the Express Scripts (ESRX) acquisition that was announced in March. He highlighted 3 reasons for stock weakness of both ESRX and CI that have put the stock into "deal purgatory." 1. The transaction caught people by surprise as investors were focused on horizontal mergers that widened CI’s footprint in Medicare and Medicaid. 2. Political comments: FDA head Scott Gottlieb recently made comments against PBMs and other mergers in Managed Care and pharma supply chain. 3. There is an elevated uncertainty around regulatory approval of vertical integrations. Investors are waiting to see the results of the vertically aligned AT&T-Time Warner merger case to better understand odds and timing of other mergers. After due diligence, CI noted that ESRX has the best in class specialty drug business. Going forward, the merger is the best way to advance their strategy of leading in medical cost trend management and driving additional growth to a leading services platform.
· Tax Reform: With the recent passage of tax reform, we explored the possibility of healthcare cuts by the US government to the Medicare and Medicaid programs. The US Federal government represents the single biggest buyer ($1 Trillion) of both healthcare products ( prescription drugs and medical devices) and services. In the past, when healthcare expenses have grown too fast, the government has passed legislation to curb growth (i.e. Balanced Budget Act of 1997). We are focused on the potential impact of tax reform coupled with a possibly higher interest rate environment and the impact to US government healthcare spending. Simply put, we see 3 key areas to watch as most important: 1. Federal gov't revenue growth (which was +0.6% in 2016). 2. Healthcare expenditure growth (+7.8% in 2016). 3. Leverage (both interest rate& debt level).
· Medicare Advantage: CMS issued final 2019 Medicare Advantage (MA) rates estimating an average rate increase of 3.40%, nearly double the preliminary rate of 1.84%. This represents the largest increase in some time and supports a positive MA backdrop for Managed Care with potential upside from coding trend.
· Obamacare Update: CMS released its final exchange/Obamacare enrollment report for 2018. About 11.8M individuals signed up for coverage, which is down roughly 3% from the 12.2M enrollees in 2017. Despite White House efforts to curb enrollment in the healthcare exchanges, it was relatively flat y/y. Premiums grew 32% in 2018.
Interesting Chart: Odds of Drug Success From Discovery to Approval
e) Recent Pipeline Readouts & Updates:
· Alexion (ALXN): Key pipeline product ALXN1210 met primary and key secondary endpoints. ALXN reported positive top-line results of the Phase 3 study of ALXN1210 in treatment-naïve patients with paroxysmal nocturnal hemoglobinuria (PNH). We believe doctors and patients will appreciate a more convenient 8-week dosing schedule vs current every 2 weeks. Data from the Phase 3 ALXN1210-Soliris Switch study is expected in 2Q18.
· Merck (MRK): Reported positive Phase 3 Overall Survival (OS) data in the Keynote-042 trial for Keytruda monotherapy in 1L non-small cell lung cancer (NSCLC) in patients with PD-L1 expression of >1%. This is positive for MRK as data in NSCLC continues to be positive. But, doctors and investors want to compare MRK's monotherapy with MRK's chemo-therapy combo and various mono and combo therapy from Bristol-Myers (BMY).
· Roche (RHHBY): IMpower 150 trial in 1L NSCLC(non-small cell lung cancer) hits OS(overall survival) co-primary endpoint at interim. This is good news as it demonstrates the synergistic effect of adding Tecentriq to Avastin, but we still need more data for other Roche trials as well as BMY & MRK trials to better assess the NSCLC landscape.
· Abbvie (ABBV): Traded down -25%. Stock weakness is driven by the recent announcement on ABBV's oncology drug Rovalpituzumab Tesirine (Rova-T). ABBV reported results from the phase 2 TRINITY trial and efficacy data in-line with standard of care (chemo) for small cell lung cancer (SCLC). Investors had expected Rova-T to be superior to chemo. ABBV acquired Rova -T with the Stemcentryx acquisition in 2016 for $5.8B in cash and stock. In sum, this was a material pipeline setback and we see this update as clearly disappointing on efficacy of Rova-T. This exacerbates ABBV’s issue as Humira ($20B in sales out of $31B total) faces biosimilar competition.
f). Upcoming Events/Catalysts:
· 1Q18 Earnings Start in mid-April
· 4/11: MYL Analyst day
· 4/12: Credit Suisse Therapeutics Day (NYC)
· 4/13–4/17: American Society of Cataract & Refractive Surgery (Chicago)
· 4/14-18: AACR (American Association for Cancer Research) Medical Conf in Chicago
· 4/21–4/27: American Academy of Neurology (AAN)
· 4/23: FDA AdComm for LLY's Olumiant (baricitinib)
· 4/27: DHR hosts Credit Suisse & investors
· Mid-May: AT&T-Time Warner court case ruling with potential read-throughs to CI-ESRX and AET-CVS
g) Key Device & Bio-Pharm Trial Events:
· Allergan(AGN): 1H18: 2nd Ubrogepant for Migraine Ph3 trial results (ACHIEVE II trial); Atogepant Ph2B results for chronic migraine
· Alexian(ALXN): 2Q18: Expects phase III ALXN1210 PNH data (switch) and Soliris phase III NMO data in 2Q18. We expect the data to materially impact ALXN as they are critical to assessing ALXN's potential beyond Soliris in PNH, aHUS and gMG.
· BMY: 4/16/18: PDUFA for Opdivo&Yervoy in RCC; 1H18: P3 CM-227 in 1L lung OS & PFS expected in TMB, PDL1>1% detailed data; Interim hit on TMB in PFS;1H18: CM-568 in NSCLC informative study for 227; 1H18: CM-651 P3 data in 1L head and neck; 1H18: CM-451 P3 in 1L SCLC for Opdivo&Yervoy; 1H18: CM-331 P3 in 2L SCLC; 1H18: PDUFA for Opdivo&Yervoy in XL Melanoma
· BIIB: 1H18: BIIB098(next gen Tecfidera): P3 data in Multiple Sclerosis
· Celgene(CELG): 1H18: Revlimid in Follicular lymphoma Ph3 RR iNHL and DLBCL (AUGMENT & ROBUST trials); Mid-18: P3 data from Luspatercept in MDS and beta-thalassemia (BELIEVE & MEDALIST trials)
· Eli Lilly(LLY): 2018: NOVO will launch their oral GLP-1 (Semaglutide); Will compete with LLY's Trulicity
· GlaxoSmithKline(GSK): April '18: P3 GEMINI data in 1L HIV; 2Q18: Potential generic Advair launch
· Novartis(NVS): Mid-2018: Kymriah approval and launch in DLBCL (break-through designation); Mid-2018: Aimovig/AMG334 approval and launch. First to file in new migraine drug class; Mid-2018: Launch of ACZ885/CANTOS Ph3 data at medical meeting; Mid-18: Kisqali data from MONALEESA-3 trial in Advanced breast cancer
· Merck(MRK): April Full KN-189 presentation @ medical meeting; 1H18: P3 Keytruda+chemo data in 1L NSCLC (KN-407) Non-Alimta Chemo; 1H18: KN-048 data in Head & Neck; 1H18: KN-042 data in 1L NSCLC monotherapy PDL1>1%: POSITIVE OS; 6/18/18 PDUFA Cervical Cancer from KN-158
· SHPG: 2H18: SHP643 (HAE) US approval expected; 2H18: Xiidra (Dry Eye) EU approval expected
· PFE: 1H18: Phase III data in 2L platinum resistant ovarian cancer (JAVELIN Ovarian 200) 1L renal cell carcinoma (2018); 1H18: Talazoparib/PARP inhibitor FDA submission based on positive EBRACA results; Talazoparib for breast cancer phase 3 data (1H18);June 2018: Xeljanz: FDA regulatory decision on Xeljanz for treatment of ulcerative colitis
· Roche: 1H18: Hemlibra P3 data in Hemophilia patients (non-inhibitor); 1H18: IMpower 130/131/132 data in NSCLC; IMmotion 151 data in Renal Cancer; IMpassion 130 data in breast cancer; 1H18: CRC (Colorectal Cancer) expected (IMblaze 370 trial); 1H18: Melanoma 2 P3 trials; IMspire 150 & 170;
h) Ratings & Summary:
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