Friday, August 24, 2018
Charles River Labs Leads Competitors, Raymond James Says In Upgrade
Charles River Laboratories Intl. Inc CRL 0.52%, a provider of products and services to pharmaceutical companies, is a market share leader that’s well-positioned for expansion, according to Raymond James.
The Analyst
Analyst Michael Baker upgraded Charles River Laboratories from Market Perform to Outperform with a new $140 price target.
The Thesis
Charles River has a leading competitive position, with a product line unrivaled by peers, Baker said in the upgrade note. (See his track record here.)
This puts the company in a position of pricing power at a time when its products and services are becoming increasingly vital as part of the drug development process, the analyst said.
Charles River diversified its business away from more mature markets toward higher-growth segments with larger addressable markets, Baker said. The company operates in a mostly fragmented market, which implies that potential exists for more “robust” M&A opportunities, he said.
Future accretive M& deals that add new capabilities and market share opportunities for Charles River should be sufficient to lift the stock price, the analyst said.
The stock is trading at 19 times Raymond James’ 2019 EPS estimate, which is near the midpoint of its two-year historical forward P/E range of 15 to 22 times.
The analyst’s $140 price target implies a 22 times multiple, which Baker said is justified by a strong biotech funding backdrop, future market share gains and an attractive potential M&A pipeline.
CVS Merger Looming, Cantor Fitzgerald Shifts To Neutral Stance On Aetna
With a merger of CVS Health Corp. CVS 0.21% and Aetna Inc. AET 0.06% pending regulatory approval, Cantor Fitzgerald downgraded the health insurer on valuation.
The Analyst
Cantor Fitzgerald analyst Steven Halper downgraded Aetna from Overweight to Neutral with a price target of $202.
The Thesis
Aetna shares were trading at a 13-percent discount to their acquisition value in early May, but are now trading at a 4.6-percent discount, Halper said in the downgrade note.
This narrowed spread is likely a result of the increased probability of regulatory approval of the merger, the analyst said.
“AET-CVS is a vertical merger, which is inherently difficult to challenge, but there remains some potential overlap in the Medicare Part D area. The two companies, in our opinion, should be able to find a remedy to satisfy regulatory concerns.”
The acquisition would allow CVS the ability to continue its transformation to a health services company, as a new pharmacy network and pharmacy benefit manager would further complement AET’s competitive positioning, Halper said.
The analyst said it’s possible CVS views AET as a hedge against Amazon.com Inc. AMZN 0.57%’s entry into the mail order pharmacy landscape.
“Excluding the impact of the CVS merger, we continue to believe that 2018 is shaping up to be a transition year until the company’s investments and improved Medicare Star ratings pay off in 2019,” Halper said of Aetna.
“We assume the combined company will pursue a more robust IT strategy, especially in the consumer engagement area. Beyond that, the pending merger with CVS seems logical, especially as other vertical mergers have been announced in the healthcare services industry.”
What’s Wrong With New York’s Medical Marijuana Market
As the U.S. battles an opioid crisis and the federal government’s action is mostly limited to talk, progress can be found on a local level.
New York is attempting to counteract the opioid epidemic by making marijuana available as an alternative.
Medical marijuana is legal in New York and has been since 2014, but only in 2016 was marijuana accepted as a therapeutic option for chronic pain. It’s a significant milestone, since chronic pain is a major driver for opioid prescriptions.
The number of medical marijuana patients increased by 128 percent, or 37,000 people, to 65,446 patients in the last year, Marijuana Business Daily said. Last month, the state’s Department of Health added opioid replacement as a qualifying condition for a medical marijuana prescription, which should only drive the number of patients higher.
MJBiz Daily estimates there could be as many as 3.8 million New Yorkers who would be allowed to use medical marijuana as an opioid alternative. The idea that cannabis could help with easing the opioid crisis is backed by scientific research.
Earlier this year, two studies published in JAMA Internal Medicine showed that in states where medical marijuana was legalized, the number of opioid prescriptions declined, with one study pointing out that both medical and recreational marijuana legalization led to a fall in opioid prescriptions.
New York Gov. Andrew Cuomo recently announced the appointment of a workgroup to draft legislation that would legalize recreational marijuana. A Department of Health-led study showed that a regulated marijuana market in New York has more positives than negatives, according to a statement from Cuomo’s office.
The ground that medical marijuana is slowly gaining in New York is good news for marijuana companies with an established presence there.
Six companies produce and dispense marijuana in New York, according to the state’s health department. Four others have established production facilities but have not yet opened dispensaries.
The companies currently licensed to produce and sell marijuana in New York are:
- Columbia Care NY
- Etain
- Medmen Enterprises Inc MMNFF 3.14%
- PalliaTech NY
- PharmaCann
- Vireo Health of New York
- Citiva Medical.* Owned by iAnthus Capital Holdings Inc ITHUF 1.81%.
- Fiorello Pharmaceuticals*
- NYCANNA*
- Valley Agriceuticals* (a subsidiary of Gloucester Street Capital)
*Dispensaries coming soon
While these companies stand to benefit from more patients adopting marijuana in lieu of opioids, the increase in the number of patients on its own could drive even more growth, and here’s why.
Prices have limited the size of New York’s medical marijuana market so far. An ounce of high-quality marijuana runs about $320 in New York, according to priceofweed.com.
Since medical marijuana isn’t covered by health insurers, not every patient can afford it. Patients spend between $150 and $400 per month on marijuana, according to Etain.
“The price of MMJ in New York should decline, however, as officials recently doubled the number of licensed MMJ producers in the state from five to 10. Once these come online, it’s expected that prices will come down to a more reasonable level,” Eli McVey, research editor at MJBizDaily, told Benzinga.
Marijuana is still illegal on a federal level, ruling out transport across state lines.
Instead, companies that want to distribute marijuana in a state must set up production facilities there. As more patients sign up for medical marijuana and competition increases with more companies obtaining licenses, this could require companies to expand their capacity, lowering costs and prices for patients.
Aside from high prices, other factors exist that can deter patients from signing up for the medical marijuana program. Under the current laws, each company is allowed up to four dispensaries; there are just 22 dispensaries in New York, with 18 more expected in the near future.
It’s unclear whether more companies will enter the market in addition to the 10 that are already licensed. The state accepted applications back in 2015, and even though it received 43 applications, it registered only five companies, with five more added two years later.
To address this issue, most companies that operate in the state offer home deliveries, but their capacity may not suffice.
As MJBizDaily points out, there’s less than one dispensary per 1 million residents in New York, while Colorado has 90.
Geron awaits Janssen continuation decision
Geron Corp (NASDAQ: GERN) September call option implied volatility is at 209, October is at 221; compared to its 52-week range of 62 to 210 into Johnson & Johnson’s (JNJ) subsidiary Janssen making a continuation decision under its 2014 collaboration agreement with Geron. Call put ratio 2.8 calls to 1 put.
Intellia presented data demonstrating decrease in amyloid deposition
Intellia Therapeutics last night presented data from studies “demonstrating a decrease in amyloid deposition in multiple tissues of a humanized mouse model of hereditary transthyretin amyloidosis after a single dose of lipid nanoparticles.” The company also presented non-human primate data from initial studies showing a “therapeutically meaningful level of TTR protein reduction that correlated with robust and significant liver editing following a single administration of LNPs.” In one humanized mouse study, researchers found that editing rates were dose-responsive, and also observed liver editing up to 80% across multiple lead guide candidates, Intellia said in a press release. In a second humanized mouse study, researchers observed a lack of amyloid deposits in relevant tissues, including the stomach, colon, sciatic nerve and dorsal root ganglion, and therefore, a potential reversal in disease, the company added. “As a follow-up to our rodent and NHP data released previously, we shared data on the extensive preclinical characterization of our therapeutic candidates. Our leads, used in conjunction with our modular LNP delivery system, result in reductions in TTR protein levels in NHPs that, when achieved in humans, are associated with therapeutic benefit,” said Intellia CEO John Leonard. “Now, with IND-enabling activities for our lead in vivo program, ATTR, underway, we are one step closer to realizing the potential of CRISPR/Cas9 genome editing for developing curative treatments for chronic genetic diseases like ATTR. These additional activities are focused on confirming these initial results and identifying appropriate dose ranges for the development of potential human therapeutics.”
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