Apr 092015
 

 

Special Update – The Medicines Company (MDCO) – Angiomax Pre-Announcement Now Discounts Patent Loss – The Reincarnation Is Around The Corner – Reiterate BUY  

1. Q1 Angiomax Shortfall Not Entirely Unexpected –In our last Issue, we mentioned that based upon the judge’s comments from the March trial, Hospira is very optimistic that they will win the Angiomax patent lawsuit. They are so confident that they will emerge victorious, HSP seems to be telling hospitals not to order any Angiomax because an inexpensive generic will be available come June. While Angiomax represents important cash flow, it is not a growth product and certainly not a reason to invest in MDCO shares. In addition, the miss is entirely due to Angiomax, and there is usually some drawdown of inventory ahead of upcoming generic approval. The miss of $52-60 million is approximately a month of sales, typically 4-6 weeks of the MDCO inventory. Finally, it does not appear to change in the number of hospital procedures.

2. Here Comes The Pipeline – Investors’ focus can now shift to their broad 9-10 drug pipeline as MDCO begins to unlock that value that is, in our view, increasing in value daily as the company delivers clinical data and regulatory approvals worldwide. Three drugs just last week received EU approval – cangrelor, Orbactiv, Rapixa. Two of those products (cangrelor, raplixa) are awaiting near-term U.S. approval, and another one (IonSys) has an April 30 PDUFA date. Branded Kengrexal overseas, cangrelor is the first and only intravenous antiplatelet agent that provides immediate, consistent, and rapidly reversible P2Y12 inhibition. The company re-submitted the NDA in December and the drug is scheduled to go before another advisory committee on April 15. In our view, the resurrection of cangrelor will go a long way in restoring management’s credibility as well as delivering a potentially important growth driver. The PDUFA date is July 28. Raplixa is the first ready-to-use, biologically active, powdered fibrin sealant that provides hemostasis in a wide range of bleeding settings. It too, has experienced some regulatory delays – not due to clinical data – and its PDUFA date is the end of April. Lastly, IonSys – a novel anesthetic transdermal patch for pain – also has an April 30 PDUFA date. Taken together, these 3-4 near-term global introductions are driving a major comeback year for the MDCO pipeline.

3. Long-term Blockbusters Increase Takeover Potential – With novel a compound in the PCSK9 race in ALN-PCS, a next-generation antibiotic in carbavance and unique new rapidly-acting IV anesthetic in ABP-700 – in our view, MDCO would be considered one of the more exciting new biotech IPOs if Angiomax was not in the picture. Hence, the takeover and global partnering potential continues to increase as these future blockbusters progress through the clinic.

4. Stock Now Discounting HSP Win – While consensus sentiment has reflected HSP winning the Angiomax patent suit, in our view, today’s pre-announcement basically discounts an actual MDCO defeat in the stock before it actually happens. Many investors have been on the sidelines awaiting a final patent decision. With today’s news, we believe, here is their opportunity. Moreover, with the patent overhang virtually out of the stocks way, MDCO’s takeover potential, we believe, also rises.

MDCO is a BUY under 42 with a TARGET PRICE of 60.