Note: All new or revised material since the last report is highlighted.
Reason for Report: MEDI exploring potential sale of the company; Prev. Ed.: March 29, 2007
Preliminary 1Q07 earnings announced
Recent Events
On April 12, 2007, MEDI announced its intention to explore a sale of the company.
On April 9, 2007, MEDI declared preliminary results for 1Q07.
On March 29, 2007, MEDI announced it has licensed reverse genetics technology to sanofi-aventis for use in Influenza vaccine production.
On March 23, 2007, MEDI announced it has expanded its Anti-Interferon-Alpha Program by initiating Phase I Trial of MEDI-545 in patients with psoriasis.
Overview
Based in Maryland, Medlmmune, Inc. (MEDI), a biotechnology company, is engaged in the development, manufacture, and commercialization of products primarily for the treatment of infectious diseases, inflammatory diseases, and cancer. Currently, MedImmune has four approved products in the market. Its leading product is Synagis, a monoclonal antibody developed for the prevention of serious lower respiratory tract disease caused by respiratory syncytial virus (RSV) in pediatric patients. Other products include: Ethyol (chemoprotectant), FluMist (nasal flu vaccine) and CytoGam (Cytomegalovirus antibody for prophylaxis gainst CMV). On December 18, 2006, MedImmune, Inc. completed its sale of CytoGam to ZLB Behring. MEDI is currently working on next-generation products to both Synagis and FluMist. MedImmune employs approximately 2,059 people. The company’s website is www.medimmune.com.
Key Positive Arguments / Key Negative ArgumentsMEDI believes Flumist is an $800M worldwide product. / MEDI is burdened with nearly $100M of development costs after WYE withdrew from the Flumist deal.
The company is working on a next-generation liquid Flumist product designated CAIV-T, which it believes will enhance usability. / The Flumist launch was disappointing.
The pipeline has at least 4-5 products in Phase I, II, or III trials. Many brokerage firms believe MEDI’s pipeline is significantly undervalued. / Sales of chemoprotectant Ethyol are slowing based on some confusion regarding reimbursement and the new Medicare reform laws.
Strong financials with $1.5B in cash. / Synagis sales are reaching high penetration levels in the US. The product will rely on international sales for future growth.
Note: The company’s fiscal year coincides with the calendar year.
Revenue
According to the Zacks Digest report, total revenue in 4Q06 was $528.7 million, up 7.5% YoY as compared to $492 million in 4Q05. Total revenue in 2006 increased 2.6% YoY to $1276.8 million. For 2007, the company expects revenue growth derived primarily from Synagis, based on factors such as improved patient tracking, a strengthened relationship with Caremark for distribution, and an approximately 6% price increase. MedImmune’s guidance for total product sales in 2007 is $1.5 billion. This difference is primarily due to Synagis sales increases.
Synagis
Indication: Prevention of a serious lower respiratory tract disease caused by respiratory syncytial virus (RSV) in pediatric patients.
Stage of development: Mature, widely sold and distributed.
Importance: Synagis is the company’s lead product and the primary growth driver. The product was approved in 1998 for the prevention of respiratory syncytial virus (RSV) infection in infants.
Partners: MEDI renegotiated its co-promotion agreement with Abbott Labs (ABT). The company now owns 100% of the U.S. rights to Synagis. The company recently hired an additional 125 pediatric sales representatives, bringing the total up to 425, to better target pediatricians. Additionally, MEDI should save significantly on collaboration payments to Abbott Labs starting with the 2006/2007 season. Likewise, it will own 100% of the U.S. sales of Numax. The company will continue to collaborate on ex-U.S. sales with Abbott Labs. With Numax slated to be launched by late 2008, the RSV franchise should eclipse the $1.5 billion mark by the end of the decade.
Sales: According to the Zacks Digest report, total Synagis sales in 4Q06 were $457 million, up 4.1% YoY as compared to $439 million in 4Q05. Total Synagis sales in 2006 were $1065 million, up 0.2% YoY as compared to $1063 million in FY05.
In terms of the distribution channels, MEDI implemented a new strategy for Synagis that is focused on ensuring broader access. This strategy focuses on services, compliance with the prescribing dosing regimen and expanding the network to include a greater number of payor's preferred customers. MEDI believes about two-thirds of children born before or at the start of the season typically receive less than five doses on average for the season, and with its expanded sales organization, payor out-reach and new approach with distributors, MEDI can move the dose average closer to five. MEDI is also increasing its Phase 4 activities for Synagis to focus on the clinical value of Synagis.
During preliminary earnings announcement on April 9, 2007, the company stated that for 1Q07, it expects domestic and worldwide net sales growth of approximately 9% to 10% for Synagis over the same quarter in 2006. One firm (Goldman) is of the opinion that the preannounced Synagis sales and EPS are slightly better than expected and should remove investors’ concern that Synagis sales would be weak.
Safety issues: The most serious adverse reactions occurring with Synagis treatment are anaphylaxis and other acute hypersensitivity reactions. The adverse reactions most commonly observed among patients treated with Synagis, are upper respiratory tract infection, otitis media, fever, rhinitis, rash, diarrhea, cough, vomiting, gastroenteritis, and wheezing.
2006A / 2007E / 2008E / 2009E / Est. GrowthSynagis Sales / $1065M / $1167M↑ / $1202M↑ / $1079M↓ / 4.2%↑
Ethyol
Indication: Ethyol is a selective cytoprotective agent used to reduce toxicities associated with certain cancer chemotherapy and radiotherapy. Specifically, Ethyol is an intravenous organic thiophosphate cytoprotective agent indicated for the reduction of cumulative renal toxicity associated with repeated administration of cisplatin in patients with advanced ovarian cancer or non-small cell lung cancer (NSCLC).
Stage of development: Mature
Sales: According to the Zacks Digest report, total Ethyol sales in 4Q06 were $20 million, down 20.4% YoY as compared to $25 million in 4Q05. Total Ethyol sales in 2006 were $87 million, down 9% YoY as compared to $96 million in FY05.
Regulatory issues: The company is conducting a Phase II study of subcutaneously administered Ethyol for the treatment of esophagitis in non-small cell lung cancer patients. 127 patients have been enrolled to date and an analysis is being conducted in the first 100 patients. If the data analysis indicates positive trends with no safety issues, the company plans to expand patient enrollment to a total of about 300 patients. In the meantime, the company announced it has discontinued a Phase I/II study of Ethyol in the treatment of mucositis in acute myelogenous leukemia (AML) patients undergoing chemotherapy treatment due to the lack of efficacy observed.
Patents/Generics: On January 10, 2007, MEDI announced the U.S. District Court for the District of Maryland has rejected Sun Pharmaceutical Industries, Ltd.'s motion to end the patent infringement action regarding Sun's proposed generic amifostine product. Sun Pharmaceuticals had filed an ANDA for a generic version of Ethyol in April 2004. Ethyol’s patent is protected at least until 2012, which will prevent generic alternatives to hit the market in the near-to-medium term.
2006A / 2007E / 2008E / 2009E / Est. GrowthEthyol Sales / $87M / $83M↓ / $87M↓ / $83M↓ / -3.1%↓
Flumist
Indication: Nasal spray for Influenza.
Stage of development: Mature
Importance: The company believes the product has $500M US and $300M ex-US peak sales potential. Yet, FluMist will probably remain unprofitable through 2007. Once approved, next-generation CAIV-T is expected to Phase out Flumist usage. On January 8, 2007, MEDI announced the FDA has approved the company's new refrigerated formulation of FluMist (Influenza Virus Vaccine Live, Intranasal), CAIV-T, for use in helping to prevent influenza in healthy children and adults from 5 years to 49 years of age. CAIV-T will be available in the market during 2007 2008 influenza season. MedImmune has already announced plans to price CAIV-T in the $16 to $20 range initially, and based on expected manufacturing costs, anticipates that full product breakeven will occur in the 4 million to 5 million dose range. The company believes sales in excess of $400 million are achievable in a four to five year timeframe.
Sales: According to the Zacks Digest report, Flumist posted sales of $18 million in 4Q06, up 125.2% YoY as compared to $8 million in 4Q05. Total Flumist sales in 2006 were $35 million, up 70% YoY as compared to $21 million in FY05.
Regulatory issues: The company had filed a separate sBLA for the use of CAIV-T in children without prior history of wheezing and belonging to the age group of 1-5 years. The PDUFA date for the label expansion sBLA is May 28, 2007. One firm (CIBC) is of the opinion that an expanded label would significantly increase the market opportunity for FluMist.
New Data: On October 13, 2006, MedImmune announced results of a study that demonstrated higher influenza serum antibody responses in children receiving its next-generation, investigational intranasal influenza vaccine, CAIV-T (cold adapted influenza vaccine, trivalent), than in children who received the traditional injectable trivalent inactivated flu vaccine (TIV). In this study involving 52 children between six and 35 months of age, CAIV-T prompted significantly higher conversion rates. CAIV-T also demonstrated significantly more cross-reactivity to the mismatched strain that predominantly circulated during the 2004-2005 season. The results were presented at the 44th Annual Meeting of the Infectious Diseases Society of America (IDSA).
According to pivotal Phase 3 research published in the February 15, 2007 issue of The New England Journal of Medicine, children under 5 years of age immunized with FluMist reported 55% fewer cases of influenza, compared to children who received the flu shot. In the study, FluMist also demonstrated protection against influenza strains that were both matched and mismatched to the vaccine.
Competitors: One firm (Zacks Investment research) expects new competition in the Flu market, given the scare of Avian Flu. The firm also expects GlaxoSmithKline to become a major player in the next few years.
Partners: MEDI teamed up with global vaccine and healthcare product distributor Henry Schein (HSIC) for distribution. HSIC will focus on primary care physicians, as well as handle all product-related inquires and returns; whereas MEDI will focus on manufacturing and development, as well as expand existing relationships with pediatricians and pharmacies.
2006A / 2007E / 2008E / 2009E / Est. GrowthFluMist Sales / $35M / $81M↓ / $158M↑ / $220M↑ / 96.7%↑
Drugs in the Pipeline
Human Papillomavirus (HPV) Vaccine
Indication: Cervical cancer
Stage of development: Phase II/III
Importance: Human Papillomavirus (HPV) vaccine (also called Cervarix) has shown excellent success in a Phase II trial in preventing cervical cancer.
Partners: GSK will market the product and pay an estimated 15% royalty to MEDI. In 2005, MedImmune announced an amendment to its 1997 agreement with GlaxoSmithKline for MedImmune’s developmental HPV vaccine. MedImmune will now receive royalty and milestone payments from both Merck and GSK on future development and sales of the vaccine, rather than just from GSK. The terms of the deal have not been disclosed. Medimmune has stated the net present value of the revised agreement is higher than the previous agreement.
Regulatory issues: Another significant contributor to the margin expansion at MedImmune will be royalties on the HPV vaccine products at Merck and GlaxoSmithKline. Glaxo is in late-stage trials with MEDI’s out-licensed Cervarix, a vaccine candidate for ovarian (Phase II) and cervical cancer (Phase III) protection. Glaxo has filed for approval of Cervarix in Europe. Merck’s candidate, Gardasil was approved by FDA in June 2006 and approved in EU in September 2006. MedImmune is entitled to mid-single-digit royalties on both sub-licensed HPV candidates. Merck’s Gardasil candidate may offer broader-based use than Cervarix, although Cervarix may offer greater protection. HPV royalties could make a meaningful positive contribution to MedImmune’s top-line starting in 2007. These royalties will carry 100% gross margin.
On November 9, 2006, MEDI announced it has filed an investigational new drug application (IND) with the FDA to begin human clinical testing of a cell culture-based seasonal influenza vaccine using its proprietary live, attenuated, needle-free influenza vaccine technology. The filing represents a milestone under the terms of a five-year, $170-million contract with the U.S. Department of Health and Human Services (HHS).
MedImmune's currently marketed influenza vaccine, FluMist, is now made using chicken eggs, as are all other U.S.-approved influenza vaccines. Vaccine manufacturers have been using eggs for production for decades. However, using chicken eggs as the production medium limits scalability in manufacturing and increases the potential risk of manufacturing delays or supply shortages. A severe outbreak of avian influenza could kill the flocks used to produce the eggs that would be used for vaccine production. To address these concerns, MedImmune will be applying state-of-the-art cell culture-based manufacturing methods to produce influenza vaccines without the need for chicken eggs. The success of this technology will reduce production times and substantially increase MedImmune's U.S.-based manufacturing capacity to provide influenza vaccine to the U.S. population. After adding the cell culture-based production capability for its influenza vaccine, MedImmune expects to have a production capacity of 300 million monovalent bulk doses of a pandemic vaccine annually by 2012.
Vitaxin (Abegrin)
Indication: Vitaxin (monoclonal antibody) has possible treatment potential in multiple areas, including autoimmune and inflammatory disease.
Stage of development: Phase II
Importance: The product has both anti-angiogenic and pro-apoptotic properties, which give MEDI significant hope for the future.
Regulatory issues: The company had begun four Phase II trials on Vitaxin. The four trials are: 1) malignant melanoma, 2) rheumatoid arthritis, 3) psoriasis, and 4) prostate cancer.
Vitaxin for melanoma – MedImmune has decided not to pursue a Phase III study in metastatic melanoma because the 24-month Phase II data of Vitaxin in metastatic melanoma indicated a 50% drop in the potential efficacy benefit in survival noted in the first 12 months.