Note: This report contains substantially new material. Subsequent reports will have changes highlighted.
Reason for Report:1Q14 Results
Prev. Ed.: Apr 10, 2014; 4Q13 Results(brokers’ material considered till Apr 2)
Brokers’ Recommendations: Positive: 57.1% (4 firms); Neutral: 42.9% (3); Negative: 0.0% (0) Prev. Ed.: 4; 3; 0
Brokers’ Target Price: $32.50 (↓$7.01 from the last edition; 6 firms) Brokers’ Avg. Expected Return: 22.8%
*Note: Though dated May 8, share price and broker material are as of May 2.
Note: The tables below (Revenue, Margins, and Earnings per Share) contain material from fewer brokers than in the Valuation table. The extra figures in the Valuation table come from reports that did not have accompanying spreadsheet models.
Portfolio Manager Executive Summary
The Medicines Company is a global biopharmaceutical company focused on the development and commercialization of hospital-based acute care drugs for cardiovascular indications, surgery and perioperative care and serious infectious diseases. The company’s flagship product, Angiomax, is an anticoagulant currently used in coronary angioplasty. Another drug is Cleviprex, an intravenous drug for short-term control of blood pressure in surgical patients. The Medicines Company acquired ProFibrix in Aug 2013 and Rempex Pharmaceuticals, Inc. in Dec 2013.
Of the firms covering the stock, 57.1% (4 firms) are positive and 42.9% (3) are neutral. Notably, there are no negative ratings on the stock.
Positive or an equivalent outlook (4/7 firms):The firms believe that the company has passed a transition phase and is now entering a period of sustained growth and profitability. The firms are also pleased with the co-promotion deal with AstraZeneca which will increase revenues at no additional cost. The firms are positive on the GAIN Act which has ensured an additional five years of exclusivity for Orbactiv. The firms believe that the Tenaxis, Recothrom and Incline deals are strategic fits to the company. The firms are also encouraged by the company’s late stage pipeline candidates, especially,Orbactiv, which they believe has a high chance of gaining approval. The approval of these candidates will help diversify the top line. The firms are also positive on the successful completion of the ProFibrix acquisition, which added Fibrocaps (a dry powder topical fibrinogen thrombin hemostat) to its portfolio. The firms consider the candidate to be a strategic fit for the company’s current portfolio.
Neutral or an equivalent outlook (3/7 firms):Though the cautious firmsare encouraged by the company’s pipeline progress, they remain on the sidelines as they believe that the Angiomax litigations remain an overhang.
May 8, 2014
Overview
Based in Parsippany, NJ, The Medicines Company is engaged in acquiring, developing, and marketing pharmaceutical products that are discovered by other pharmaceutical and biotechnology companies. Its lead product, Angiomax (bivalirudin), which was acquired from Biogen Idec, is an anti-clotting therapy marketed in the U.S. for use in patients undergoing coronary angioplasty. The second product is Cleviprex, a calcium channel blocker for the reduction of blood pressure when oral therapy is not feasible or desirable. The Medicines Company launched its third FDA approved product, Argatroban (50mL ready-to-use formulation), in Sep 2011. Argatroban is a direct thrombin inhibitor indicated for the prophylaxis or treatment of thrombosis in adults with heparin-induced thrombocytopenia (HIT) and as an anticoagulant in adults with or at risk of HIT undergoing percutaneous coronary intervention (PCI). The company’s late-stage candidates include Cangrelor(acquired from AstraZeneca), Orbactiv, Ionsys, Fibrocaps and Carbavance. The Medicines Companyacquired ProFibrix in Aug 2013 and Rempex Pharmaceuticals in Dec 2013. The company’s website address is
The firms identified the following factors for evaluating the investment merits of The Medicines Company:
Key Positive Arguments / Key Negative ArgumentsWith an expanded sales force, Angiomax will be able to gain share in the percutaneous coronary intervention space. / The company is exceedingly dependent on Angiomax in the near term. Although the company has settled its patent infringement lawsuits with Tevaand APP Pharma, lawsuits against several other generic companies are still pending. Given this scenario, the company’s pipeline needs to deliver.
The extension of the Angiomax patent to Dec 15, 2014 is a major boost for the company. The company also has an additional six-month period of pediatric market exclusivity, extending the patent to Jun 15, 2015. / Cleviprex is yet to gain traction and contribute meaningfully to sales.
The firms are positive on the AstraZeneca co-promotion deal which brings in revenues at no additional costs and ensures the optimum utilization of the sales force. The Recothrom and Incline deals are viewed as positives. / The CRL on Cangrelorwas a huge disappointment. The FDA has asked for additional data analyses and studies, which will significantly increase costs.
The FDA granted aqualified infections product designation(QIPD) to Orbactiv, which provides priority review in the U.S. The candidate will also be eligible for fast track status and an additional five years of exclusivity upon approval. / The U.S. court’s decision that Hospira’s generic version of Angiomax does not infringe the patents was a huge negative for the company. The sooner-than-expected entry of Angiomax generics will be a huge setback for the company.
Note: The company’s fiscal year coincides with the calendar year.
May 8, 2014
Long-Term Growth
The company’s potential for long-term growth is linked to the future prospects of its lead drug Angiomax. Although Angiomax and Cleviprex are best-in-class due to their short half-lives, hospitals are facing budget crises and prefer to use less expensive drug alternatives, whenever possible. Thus, Cleviprex will continue to face challenges from generic nicardipine. Meanwhile, concerns remain about the company’s ability to control costs as it moves ahead with the late-stage development of itspipeline candidates.
The signing of the Gaining Antibiotic Incentives Now (GAIN) Act is a major positive for Orbactiv. The candidate was granted a QIPD designation in Nov 2013, which provides priority review in the U.S. The candidate will also be eligible for fast track status and an additional five years of exclusivity upon approval.A QIPD designationis granted to those drugs that are developed to treat serious or life-threatening infections.Once approved, Orbactiv will enjoy an additional five years of marketing exclusivity.The company expects global peak revenues of around $400 million from Orbactiv.
The company is also looking to launch four late-stage candidates by 2015. The company is looking for suitable partners in Asia-Pacific and Latin America to help in the launch of these products in these regions. This should provide the company with additional growth opportunities. The Medicines Company believes that it will achieve growth of over 20% in 2018.
The company is also boosting its pipeline through agreements and acquisitions. The acquisition of Tenaxis adds an FDA approved vascular sealant to its portfolio. It is also approved in the EU as a surgical sealant meant for cardiovascular, general, urological, and thoracic surgery. The inclusion of the product will be strategic fit to The Medicines Company’s surgical bleeding product portfolio which currently consists of Recothrom and Fibrocaps.
Fibrocaps, if approved, may have an advantage over existing products, as it can be used at room temperature and does not require thawing before use. The approval of Fibrocaps will allow The Medicines Company to strengthen its position in the hemostasis market. Moreover, the company will be able to leverage its activities in surgery centers in the U.S. and speed up its entry in Europe.
In Dec 2013, The Medicines Company acquired Rempex Pharmaceuticals and added anti-infective assets like Carbavance, Minocin IV and RPX-602. In Aug 2013, The Medicines Company acquired ProFibrix.
In Dec 2012, The Medicines Company signed two agreements to boost its top line. While one agreement relates to the in-licensing of Recothrom, the other was an acquisition deal (for Incline Pharma). Both Recothrom and Ionsys (Incline’s lead candidate) are strategic fits for The Medicines Company’s portfolio and should strengthen the company’s perioperative surgical franchise. While Recothrom should drive near-term top-line growth, Ionsys, once commercialized, should support long-term growth.
May 8, 2014
Target Price/Valuation
Rating DistributionPositive / 57.1%
Neutral / 42.9%
Negative / 0.0%
Avg. Target Price / $32.50↓
High / $44.00
Low / $27.00
No. of Brokers with target price/Total / 6/7
Risks: Sooner-than-expected generic entry of Angiomax.
Recent Events
The Medicines Co.'s 1Q14 Earnings Surpass Expectations– Apr 23, 2014
The Medicines Co.’s first-quarter earnings of $0.33 per share were slightly above the year-ago earnings of $0.31 per share. Including the impact of stock-based compensation expense, first-quarter 2014 earnings stood at $0.22 per share, below the year-earlier earnings of $0.24 per share. The Zacks Consensus Estimate for the first quarter of 2014 was a loss of $0.13 per share.
Including one-time items, the company reported a loss of $0.08 per share compared with the year-ago loss of $0.21 per share.
The company’s first quarter 2014 revenues rose 13.8% year over year to $177.2 million, missing the Zacks Consensus Estimate of $179 million.
The Quarter in Detail
Angiomax U.S. sales increased 11.3% to $146.2 million. Ex-U.S. sales of Angiomax were $9.5 million during the quarter.
Recothrom sales in the U.S. totaled $13.5 million. The Medicines Co. started selling Recothrom from Feb 2013 under its collaboration with Bristol-Myers Squibb. Net U.S. sales of The Medicines Co.’s Ready-to-Use Argatroban, Cleviprex, Minocin IV and generic portfolio came in at $8.0 million in the first quarter of 2014.
While R&D spend declined 46.6% to $31 million, SG&A spend increased 11% to $60.7 million.
Announces Acquisition Agreement
Apart from announcing first quarter results, The Medicines Co. said that it has entered into an agreement to acquire privately-held Tenaxis Medical, Inc. The company will make an upfront payment of $58 million and will be liable to pay up to $112 million on the achievement of certain milestones.
With this acquisition, The Medicines Co. is looking to boost its surgical bleeding product portfolio which currently consists of Recothrom and Fibrocaps (currently under U.S. and EU review with a response in the U.S. expected by Jan 31, 2015). Tenaxis’ sole product is approved but not launched in the U.S. as a vascular sealant. It is also approved in the EU as a surgical sealant meant for cardiovascular, general, urological, and thoracic surgery.
The Medicines Co. could gain a leading position in the market based on Tenaxis’ products' ability to seal vascular structures in wet environments without some of the safety concerns associated with other sealants or biological glues. The company intends to increase its sales focus on surgical hemostasis in the U.S. and will cross train 100+ existing sales reps on its surgery and peri-operative care products like Recothrom and Tenaxis (once the deal goes through).
The Medicines Co. intends to enter the European market later this year and has plans to strike a partnership deal by mid-15 for one or more of its surgical hemostasis solutions in Asia-Pacific and Latin America.
Revenue
According to the company, net revenues increased13.8% y/y to$177.2million in1Q14.Revenues werebelowthe expectations of somefirms.The Zacks Digest average net revenues in 1Q14 were in line with the company’s report.
Revenue ($ in million) / 1Q13A / 2013A / 1Q14A / 2Q14E / 3Q14E / 4Q14E / 2014E / 2015E / 2016EDigest Average / $155.8 / $687.9 / $177.2 / $184.9↓ / $189.9↓ / $199.5 / $751.5↓ / $678.9↓ / $755.4
Digest High / $155.8 / $687.9 / $177.2 / $187.7↑ / $192.2↓ / $203.6 / $755.9↓ / $809.1↓ / $876.4
Digest Low / $155.6 / $687.7 / $177.2 / $182.2↓ / $187.2↓ / $196.2 / $748.5↓ / $484.6↓ / $634.3
Specific Products
Note:Recent significant changes are in bold.
Angiomax/Angiox (bivalirudin)
Indication: Angiomax/Angiox is indicated for use in unstable angina patients undergoing percutaneous transluminal coronary angioplasty (PTCA) or percutaneous coronary intervention (PCI); acute coronary syndrome (ACS).
Product Life Cycle Position:Marketed for PCI in the U.S. and EU; received non-approvable letter from the FDA for ACS and marketed for ACS in the EU.
Importance: Angiomax has a fast onset of action and is also rapidly cleared, which enables cardiologists to tightly control the risk of bleeding as compared to heparin. The National Institute for Health and Clinical Excellence (NICE) in the UK announced that Angiox is economically dominant (less costly and more effective than currently available therapies) for heart attack patients. This should help increase Angiox’s share in the UK.
Safety Issues: Angiomax is contra-indicated for patients with active major bleeding or hypersensitivity to Angiomax or its components.
Partners: Angiomax was originally developed by Biogen Idec. Biogen receives royalties on Angiomax sales. Grupo Ferrer International sells Angiomax in Spain, Portugal, Greece, and several Latin American markets including Argentina, Brazil, and Mexico.The company also has tie-ups with third parties for the sale of Angiomax in countries like Russia and Israel. In Jan 2012, the company reacquired the marketing and selling rights from CSL Limited to sell Angiomax in Australia and New Zealand.
The Medicines Company has a co-promotion agreement with Daiichi Sankyo Deutschland GmbH for Angiox in Germany.
Sales:As per the company, Angiomax sales in the U.S. increased11.3% y/y to$146.2 millionin 1Q14.1Q14U.S. Angiomax sales were aheadof the expectations of some firms. International revenues were down18.1% y/yto $9.5millionin1Q14. International sales of the product were below a few firms’ expectations.TotalAngiomax revenues were $155.7 million in 1Q14, up 9% y/y. The Zacks Digest average revenues in 1Q14 were in line with the company’s report.
Competitors:Angiomax competes with other GP IIb/IIIa inhibitors, such as Merck & Co.’s Integrilin, Eli Lilly’s ReoPro, MediCure Inc’s Aggrastat.
Generics: On Mar 31, 2014, the U.S. District Court of Delaware announced that Hospira’s generic version of Angiomax does not infringe the patents. The Medicines Company intends to appeal the judge's decision on this case by mid-May. Thepatents are set to expire in Jul 2028 excluding a six-month period of pediatric exclusivity.
On Oct 3, 2011, The Medicines Company entered into a settlement agreement with Teva Pharmaceuticals regarding generic versions of Angiomax. Teva agreed that the two patents challenged by it are valid and enforceable and would be infringed by its generic version. The patents, which were the focus of the patent infringement lawsuit, are slated to expire on Jul 27, 2028. Per the terms of the settlement agreement, The Medicines Company granted a license to Teva and its affiliates under which they can launch a generic version of Angiomax in the U.S. on Jun 30, 2019. The generic could be launched earlier under certain specific circumstances. The Medicines Company also signed an agreement with Teva, under which the latter will supply Angiomax’s active pharmaceutical ingredient (API) to The Medicines Company. Firms are positive on this agreement which gives Angiomax extended exclusivity.
The Medicines Company also settled its patent infringement lawsuit with APP Pharmaceuticals. Per the terms of the settlement agreement, the company granted a license to APP and its affiliate under which they can launch a generic version of Angiomax in the U.S. on May 1, 2019. The generic could be launched earlier under certainspecific circumstances and could include an authorized generic version which would be supplied by The Medicines Company.
The companies also announced a fill/finish manufacturing agreement under which APP will manufacture and supply Angiomax finished product to The Medicines Company. This agreement will provide The Medicines Company with an additional source of Angiomax finished product. The company recently lost a fill and finish manufacturer.
A third part of the deal concerns a license and supply agreement under which APP will supply The Medicines Company with acute care generic products (therapeutic areas including treatment of acute cardiovascular, neurological and infectious disease in hospitals).
Meanwhile, The Medicines Company is still facing patent challenges for Angiomax from other generic companies.
Patents:On Mar 5, 2012, the company received an extension certificate from the PTO for U.S. Patent No.5,196,404 which is the principal U.S. patent covering Angiomax. The certificate extends the term of the '404 patent to Dec 15, 2014. The company has an additional six-month period of pediatric exclusivity which extendsthe patent to Jun 15, 2015.
Additional Studies:In Oct 2013, the company reported positive data from the randomized, controlled, open label, international, multicenter, phase IIIb EUROMAX study. The study met its pre-specified primary and secondary endpoints and showed statistically significant reductions in the primary composite endpoint of death and major bleeding in patients in the Angiox arm.
The study compared Angiox to heparin or low-molecular weight heparin with optional glycoprotein inhibitors (GPIs) started during emergency transport in patients with STEMI. Results showed a 40% relative risk reduction in the primary composite endpoint of death and non-CABG related bleeding 30 days after their PCI in the Angiox arm (5.1% vs. 8.5%). The relative risk reduction in the principal secondary composite outcomes of death, re-infarction or major bleeding was 28% (6.6% vs. 9.2%) and the relative risk reduction of major bleeding was 57% (2.6% vs. 6.0%) in the Angiox arm.
The company is also conducting a phase III study (ENDOMAX - ENDOvascular interventions with AngioMAX) in patients undergoing peripheral endovascular intervention (PEI). The company is evaluating Angiomax in the GLOBAL LEADERS study to determine if there is a better medication strategy involving Angiomax to prevent blood from clotting. The study will also focus on minimizing the number of complications following a stent procedure than the current common practice of prescribing anti-platelet medication to prevent the blood from clotting. Angiomax is also being evaluated in the HORIZONS AMI II and BRAVO-2 studies.