Almost everyone these days has encountered cancer in one way or another. While the rate of cancer incidence has stabilized to declined since the early 1990s and, with newer and better treatments as well as early detection, cancer death rates have also declined, the war on cancer is still far from won.
It is no surprise, then, that a few days ago, IMS Health (NYSE: RX) -- a provider of market intelligence to the pharmaceutical and healthcare industries -- said that cancer drugs sales will nearly double by the year 2012. Assuming a compound growth rate of 12-15% a year, sales will grow from $48 billion in 2008 to $80 billion by 2012.
The main contributors to growth, according to the study, are an increasing number of patients on chemotherapy, not just in major markets but in emerging markets, too, as well as longer treatment periods for growing numbers of patients. Also fueling growth are the increased use of targeted therapeutic agents, along with first-time innovations coming to the market. Expensive new biotechnology drugs, and the increasing use of combination therapies that contribute to the exploding cost of treatment will also fuel cancer drugs sales growth.
The overall pharmaceutical market grew at a 6.4% pace in 2007, meaning that with its double-digit growth rate, the cancer drug market -- today contributing 17% to global pharmaceutical sales -- will only represent a greater proportion and emphasis. Of course, there will be factors moderating growth, such as drugs losing exclusivity and financial constraints of payers.
Cancer-fighting drugs can reach the market twice as fast as the average medicine, and companies can charge as much as $50,000 for a single course of treatment. It is no surprise then that with more and more drugs coming off patent many pharma companies are turning their attention to cancer. But can it save them?
The medical war on cancer is being waged along several fronts. A biotech outfit in Melville, New York is one of the more successful combatants.
OSI Pharmaceuticals (NASDAQ: OSIP) is a biotechnology company engaged in the discovery, development, and commercialization of pharmaceutical products. Its Traceva compound has been approved by the FDA for treating lung and pancreatic cancer and is being investigated for other applications. Partner Genentech (NYSE: DNA) co-promotes the drug in the United States. OSI and marketing partner Pfizer (NYSE: PFE) sell Macugen, a treatment for the "wet" form of age-related macular degeneration. Novantrone, an anthracenedione, is offered as an intravenous chemotherapy agent. OSI's developmental pipeline includes additional cancer drugs and treatments for diabetes and obesity.
The firm pleased the Street late last month, when it reported Q3 EPS of 59 cents and revenues of $100.4 million. Analysts had been expecting 40 cents and $86.6 million. Lazard Capital subsequently reiterated its "buy" rating on the shares and analysts from JP Morgan and Lehman Brothers issued positive remarks about the prospects for improved Traceva sales. The stock popped on the news and has since been forming a bullish "flag" consolidation pattern. Prices frequently exit flags moving in the same direction they were traveling on entry. In this case, that would be to the upside.
Brokers recommend the issue with three "strong buys," four "buys" and nine "holds." Analysts see a 17% average annual growth rate through the next five years. The OSIP PEG ratio (1.49), Sales Growth rate (76.76%) and EPS Growth rate (-0.23 to +0.59 y/y) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 95% of the outstanding shares. Over the past 52 weeks, the stock has traded between $28.68 and $43.43. A stop-loss of $35.70 looks good here.
MOST NOTEWORTHY: Websense (WBSN), OSI Pharma (OSIP), Gap (GPS), Tiffany & Co (TIF) and Callaway Golf (ELY) were today's more noteworthy upgrades:
Jefferies upgraded Websense (NASDAQ: WBSN) to Hold from Underperform to reflect the strong recent results from SurfControl as well as the possibility for 2H software seasonality.
Lehman upgraded shares of OSI Pharma (NASDAQ: OSIP) to Overweight from Underweight on valuation as well as expectations for price increases and growth in Europe.
Susquehanna upgraded shares of Gap (NYSE: GPS) to Positive from Neutral citing management's ability to control costs & manage inventories, share buybacks, and streamlining of organizational structure.
Tiffany & Co (NYSE: TIF) was upgrade to Accumulate from Neutral at Buckingham based on valuation and strong worldwide luxury trends outside of Japan.
Matrix upgraded shares of Callaway Golf (NYSE: ELY) to Strong Buy from Hold to reflect positive fundamentals and the recent share weakness...
OTHER UPGRADES:
Valueclick (NASDAQ: VCLK) was upgraded to Buy from Hold at Needham.
WestLB raised Swisscom (NYSE: SCM) to Add from Hold and Ericsson (NASDAQ: ERIC) to Buy from Hold.
OSI Pharma (NASDAQ: OSIP) implied volatility of 30 below 26-week average of 38. OSIP develops and commercializes products to improve the quality of life for cancer and diabetes patients. OSIP is recently up .60 to $34.85. Wachovia says "solid earnings growth from unexpected strength of European Tarceva sales and thoughtfully implemented cost controls, we upgrade OSIP to Market Perform from Underperform." OSIP September & October option implied volatility of 30 is below its 26-week average of 38 according to Track Data, suggesting decreasing risks.
Flamel Technologies (NASDAQ: FLML) put volume & volatility Spike on disappointing trial data. FLML, a biopharmaceutical company, is recently down $2.10 to $10.58. Merriman Curhan says "disappointing results for the CASPER trial, a head-to-head study comparing twice daily Coreg IR vs. once-daily Coreg CR, with Coreg CR demonstrating no statistically significant improvement in compliance and/or adverse events relative to Coreg IR." Third Point, an activist hedge fund, announced on 7/16 a 9.2% stake in FLML. FLML September 10 puts have traded 111 times on transaction volume of 2,063 contracts, above its open interest of 137 contracts. FLML September option implied volatility is at 115 above its 26-week average of 57 according to Track Data, suggesting larger risk.
MOST NOTEWORTHY: Countrywide Financial (CFC), Toll Brothers (TOL), United Parcel Service (UPS) and OSI Pharma (OSIP) were today's noteworthy upgrades:
Both Friedman Billings and Wachovia upgraded Countrywide Financial (NYSE: CFC) to Market Perform from Underperform following the $2 billion investment by the Bank of America (BAC).
JMP Securities upgraded Toll Brothers (NYSE: TOL) to Market Perform from Underperform and believes the worst news on housing is reflected and that fears over a disappearing jumbo loan market are overblown.
Matrix upgraded United Parcel Service (NYSE: UPS) to Buy from Hold to reflect strong demand from overseas shipping.
Wachovia raised OSI Pharma (NASDAQ: OSIP) to Market Perform from Underperform on valuation...
OTHER UPGRADES:
UBS raised Joy Global (NASDAQ: JOYG) to Buy from Neutral.
China Netcom (NYSE: CN) was raised to Neutral from Sell at UBS.
Roth Capital upgraded IMAX Corp (NASDAQ: IMAX) to Buy from Hold.
WedBush raised InfoSpace (NASDAQ: INSP) to Buy from Hold.
MOST NOTEWORTHY: Websence (WBSN), RF Micro Devices (RFMD), Fiserv (FISV), Qwest (Q), and OSI Pharma (OSIP) were today's noteworthy upgrades:
JP Morgan upgraded shares of Websence (NASDAQ: WBSN) to Overweight from Underweight ahead of the renewal period starting in the December quarter and expects this momentum to drive shares higher.
RF Micro Devices (NASDAQ: RFMD) was raised to Buy from Hold at Citigroup, who said the Sirenza Microdevices (SMDI) deal gives the company its first real prospect for gross margin expansion in years.
Matrix USA upgraded Fiserv (NASDAQ: FISV) to Buy from Sell, and expects the company to benefit from the Checkfree (CKFR) acquisition.
Lehman upgraded shares of Qwest (NYSE: Q) to Overweight from Equal Weight, citing the hiring of industry veteran Ed Mueller as CEO. The firm believes the new CEO removes an overhang and could lead to a change in strategic direction and significantly increase capital spending.
JP Morgan upgraded OSI Pharma (NASDAQ: OSIP) to Overweight from Underweight based on valuation and upcoming catalysts for Tarceva that should be seen in the next year...
OTHER UPGRADES:
UBS upgraded Allstate (NYSE: ALL) to Neutral from Sell.
MOST NOTEWORTHY: Burger King Holdings, Inc (BKC), Supertel Hospitality Inc (SPPR), OSI Pharmaceuticals, Inc (OSIP), Brown-Forman Corp (BF.B) and NGAS Resources, Inc (NGAS) were today's noteworthy initiations:
CIBC considers shares of Burger King Holdings (NYSE: BKC) to still be attractive and has above-consensus estimates, starting shares with an Sector Outperformer rating. The firm believes increased operating hours and breakfast value meals will drive results, while cost savings should help margins.
JMP Securities believes there is plenty of room for growth at Supertel Hospitality (NASDAQ: SPPR) via acquisitions, leading to strong FFO upside, initiating shares with an Outperform rating and $8 target.
ThinkEquity sees additional upside for Tarceva and started OSI Pharmaceuticals (NASDAQ: OSIP) with a Buy rating and $50 target.
AG Edwards believes Brown-Forman (NYSE: BF.B) is well-positioned to benefit from new trends in spirits and wine, starting shares with a Buy rating and $74 target.
RBC Capital is positive on NGAS Resources' (NASDAQ: NGAS) growth potential and high quality assets, starting shares with an Outperform rating and $11 target...
OTHER INITIATIONS:
CIT Group (NYSE: CIT) was started with a Market Perform rating at Keefe Bruyette.
Oppenheimer started shares of Watsco, Inc (NYSE: WSO) with a Buy rating.
MOST NOTEWORTHY: Take-Two Interactive Software, Inc (TTWO), Sony Corp (SNE), Sun Microsystems, Inc (SUNW), PetSmart, Inc (PETM) and Constellation Energy Group, Inc (CEG) were today's more notable initiations:
Prudential started Take-Two Interactive Software (NASDAQ: TTWO) with a Neutral rating and $25 target, citing valuation and limited impact from GTA IV for the rating.
Prudential believes Sony Corp (NYSE: SNE) is well-positioned to benefit from digital media revolution in consumer electronics and that operating margins will continue to improve; Sony was initiated with an Overweight rating and $62 target.
Cowen views Sun Microsystems' (NASDAQ: SUNW) valuation full and initiated shares with a Neutral rating.
Pali Capital initiated PetSmart, Inc (NASDAQ: PETM) with a Buy rating and $37 target, room for price optimization as their recent checks suggest that consumers prefer PETM, regardless of price.
Credit Suisse initiated shares of Constellation Energy Group (NYSE: CEG) with an Outperform rating and $94 target.
OTHER INITIATIONS:
Stifel initiated several stocks in the network technology sector: Juniper Networks, Inc (NASDAQ: JNPR) was initiated with a Buy rating and $23 target, while Acme Packet, Inc (NASDAQ: APKT), Cisco Systems (NASDAQ: CSCO) and Polycom, Inc (NASDAQ: PLCM) were initiated with Hold ratings.
First Albany initiated NutriSystem (NASDAQ: NTRI) with a Buy rating and $57 target.
Piper Jaffray started OSI Pharmaceuticals, Inc (NASDAQ: OSIP) with an Outperform rating and $42 target.
Almost everyone these days has encountered cancer in one way or another. While the rate of cancer incidence has stabilized to declined since the early 1990s and, with newer and better treatments as well as early detection, cancer death rates have also declined, the war on cancer is still far from won.
had been expecting 40 cents and $86.6 million. Lazard Capital subsequently reiterated its "buy" rating on the shares and analysts from JP Morgan and Lehman Brothers issued positive remarks about the prospects for improved Traceva sales. The stock popped on the news and has since been forming a bullish "flag" consolidation pattern. Prices frequently exit flags moving in the same direction they were traveling on entry. In this case, that would be to the upside.
OSI Pharma
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