FCP OP MEDICAL BioHe@lth-Trends - medical.lu

Development of the Capital Markets in the Period under Review
record USD 26.8 billion. The percentage of sales under threat from
patent expirations by 2008 will be 40% at Pfizer, Wyeth 33%,
Merck 31%, Sanofi 24%, Eli Lilly and GlaxoSmithKline 22%
each, and Bristol Meyers 21% (source: WR Hambrecht).
Moreover, manufacturers of generic products are increasingly
challenging Big Pharma patents, for example Zyprexa / Lilly (USD
5 billion sales), Lipitor / Pfizer (USD 11 billion sales) and Plavix /
Sanofi (USD 5 billion sales). Reduced research efficiency and
increasing price pressure brought about by the many so-called
'me-too products' in the Pharma sector are also having a negative
impact. At present this is affecting the valuations of drug
companies. For example, the price-profit ratio for US drug
companies for the year 2005 is 15 (Morgan Stanley, 2005), whilst
at the same time the dividend yield is 2.4% (Lehmann, 2005).
The high cash reserves and one-off opportunity for the repatriation
of more than USD 100 billion under the US Job Creation Act may
be regarded as positive. This means that there are increasing
resources available to Big Pharma for acquisitions (this is likely to
be of more interest to small and medium-sized companies).
Moreover, the Medicare Modernization Act will come into force in
January 2006 in the USA under which, for the first time, provision
will be made under health insurance for those on pensions for
reimbursement of the cost of drugs. However, it is still unclear
whether, in terms of profit, the anticipated increases in the volume
of drugs will be neutralised by the required price reductions. The
fund will keep a keen eye on the sector to see if any interesting
situations develop.
The Emerging Pharma or Speciality Pharma sector – which
specialises in specialist treatments – will continue to profit in
future both from less price competition and lower marketing costs
in the niche segments. With regard to the record number of patent
expirations in 2006, Speciality Pharma companies, in particular,
appear to be favourably positioned from the generic products
aspect. A number of new developments are also expected in the
ZNS segment, including drugs for the treatment of pain
(Oxymorphone), migraine (Trexima), attention disorders
(Attenace) and narcolepsy (Nuvigil). Moreover, there are
promising product developments in the fields of ophthalmology,
gastroenterology, respiratory diseases and gynaecology. As a
result, above-average growth rates may also be expected in this
investment segment.
Demographic change also favours innovative medical technology.
Important progress in the development of products in areas such as
orthopaedics (e.g. artificial discs, a more flexible joint
replacement), cardiology (e.g. cardiac management),
ophthalmopathy (e.g. implantable contact lenses) or neurology (e.g.
titanium spirals for stroke prophylaxis) offer above-average
prospects for growth. Progress is also anticipated in the treatment of
diabetes with the development of an artificial pancreas, in
cardiology with minimally-invasive repair of heart valves and
minimally-invasive treatment of atrial fibrillations, and of diseases
of the central nervous system through new facilities for the
application of neurostimulation. At the same time, manufacturers in
Asia and Latin America are increasingly looking for cost-effective
production opportunities to enable greater flexibility in terms of
pricing in the wake of procurement cost problems in hospitals. The
sector therefore continues to offer very many interesting areas for
potential investment in the Mid and Small Cap segment.
10
Since electronic networking was introduced in the NHS (National
Health Service) in Britain – with an investment volume of
USD 11 billion, the biggest civilian IT project – there have been
corresponding initiatives for the introduction of electronic patient
files in France, Germany and the USA. Furthermore, within the
scope of the Medicare Modernization Act, efforts are being made
to install an electronic prescription system by the end of 2008. This
represents an increasing recognition of the opportunities offered by
modern e-health companies for increasing efficiency in medical
care. Moreover, it is expected that hospitals will step up
investments in their information technology facilities in a bid to
improve productivity and results. Health insurance companies are
increasingly basing the refund of medical expenses on the quality
of the service provided by hospitals.
Healthcare service companies that offer new concepts in the areas
of disease management, specialist care facilities, rehabilitation and
home care will also benefit from the improved infrastructure in the
health systems.
When selecting its positions, the fund will take into account the
changing environment. With the targeted bias towards small and
medium-sized companies in the healthcare sector offering
innovative product developments, FCP OP MEDICAL
BioHe@lth-Trends should continue to be able to offer the longer
term-oriented investor the potential for gains above the market
average.
Presentation of selected companies (as of 30 September 2005)
Emerging Biotech
Biomarin (BMRN) – Market capitalisation: USD 643 million at a
price of USD 8.68
The American biotech company Biomarin develops and markets
innovative genetically engineered drugs for the treatment of
genetically-related enzyme deficiency illnesses (primarily those
affecting children). The two main products – Aldurazyme and
Naglazyme – are licensed for the treatment of various forms of
mucopolysaccharidosis. According to information from the
company itself, estimated sales for Aldurazyme, which is marketed
together with Genzyme, are around USD 65-70 million for 2005.
Naglazyme, which was licensed in the USA in 2005 and for which
there are no alternative forms of treatment, is marketed
independently by Biomarin. Phase III includes Phenoptin for the
medicinal treatment of phenylketonuria (currently only treatable
through strict diet). The European and Japanese rights for the
substance were licensed to Serono, which is bearing the major
costs of the development. Analysts at SG Cowen (report of 2
August 2005) forecast that Biomarin would break even by 2008, on
the basis of estimated sales of around USD 190 million.
Emerging Pharma
Cubist Pharmaceuticals (CBST) – Market capitalisation:
USD 1,155 million at a price of USD 20.15
Cubist Pharmaceuticals is a company that has specialised in the
development of anti-infective agents. The company’s main product,
Cubicin, is an injectable antibiotic which, according to existing data,
is suitable mainly for the treatment of gram-positive infections. It is
also notable for its efficacy in killing multi-resistant agents.
It is licensed in the USA for the treatment of serious skin
infections, and has recorded cumulative sales of USD 100 million