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1、Europe Equity Research 18 February 2010 Novartis Overweight NOVN.VX, NOVN VX Flexing the Upside from Near-Term Pipeline Catalysts Price: SF 57.85 Price Target: SF 72.00 Previous: SF 69.00 Pharmaceuticals Alexandra HauberAC (44-20) 7742-6655 / (1-312) 325-3694 Richard Vosser (44-20) 7742-6652 David
2、 P Evans (44-20) 7742-6659 J.P. Morgan Securities Ltd. For Specialist Sales advice, please contact: Marjan Daeipour (44 20) 7325-3281 35 50 65 SwF Feb-09May-09Aug-09Nov-09Feb-10 Price Performance NOVN.VX share price (SwF MSCI-Eu (rebased) YTD1m3m12m Abs 3.9%8.4%8.0%19.6% Rel 7.8%13.7%10.9%-12.2% N
3、ovartis (NOVN.VX;NOVN VX) FYE Dec 2009A2010E (Old) 2010E (New) 2011E (Old) 2011E (New) 2012E Adj. EPS FY ($) 4.494.954.965.505.586.16 Adj P/E FY 12.111.010.99.99.78.8 Headline EPS FY ($) 3.704.174.184.424.505.14 Headline P/E FY 14.713.013.012.312.110.6 Revenue FY ($ mn) 44,26751,59151,62457,62357,96
4、360,972 EBIT FY ($ mn) 9,98212,14212,16413,28913,50814,907 EBIT margin FY 22.5%23.5%23.6%23.1%23.3%24.4% Net Income FY ($ mn) 8,4009,9089,92610,96411,14812,742 Source: Company data, Bloomberg, J.P. Morgan estimates. Company Data Price (SF) 57.85 Date Of Price 16 Feb 10 Price Target (SF) 72.00 Price
5、Target End Date 30 Dec 10 52-week Range (SwF) 58.50 - 39.08 Mkt Cap (SF bn) 131.0 Shares O/S (mn) 2,264 See page 23 for analyst certification and important disclosures, including non-US analyst disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As
6、a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. In this note we highlight 3 pipeline assets (FTY720, Afinitor and Men
7、ingitis B vaccine) that we think are significantly undervalued by the current consensus, and which have important catalysts in the coming six months that could trigger substantial earnings upgrades. Up to 10% upside to 2013 group operating profit: Consensus projects $1.7bn sales for these 3 assets c
8、ombined in 2013; this compares to our current risk-adjusted forecast of $3.8bn. If all 3 projects launch successfully, we estimate 2013 sales potential of $5.1bn (excl. risk adjustment), implying 10% upside to consensus 2013 group operating profit. These assets could grow to $10.2bn sales by 2018, p
9、roviding significant growth after the 2013 Diovan exclusivity loss. Upcoming catalysts: (1) By the end of February, the FDA is expected to accept the FTY720 filing dossier (2 months from submission) and potentially grant priority review which could move the launch forward to mid 2010 from late 2010.
10、 (2) Also in 1Q 2010 we hope the FDA will green light US phase III trials for Men B, this and EU phase III data expected mid year should boost investor confidence in the viability of this vaccine. (3) We expect Phase III data from RADIANT-2 and 3 in NET (mid 2010e) to turn Afinitor into a blockbuste
11、r, and also highlight potential in further indications. We increase our FTY720 sales from $0.9bn to $1.4bn in 2013, raising the launch probability from 50% to 75% after reviewing the safety data in the recent NEJM publication of TRANSFORMS and FREEDOMS. Importantly, we believe Novartis should achiev
12、e current global consensus estimates with ex-US sales alone, thus eliminating significant downside for the share price from FDA risk. Reiterate Overweight, PT increased to SFr 72 from SFr 69: Based on higher FTY720 sales and our updated Embedded Value that has increased from SFr62 to SFr65.59 after
13、our FY results model review, we increase our YE2010 price target from SFr69 to SFr72 (still based on a 10% premium to our EmV). 2 Europe Equity Research 18 February 2010 Alexandra Hauber (44-20) 7742-6655 / (1-312) 325-3694 Richard Vosser (44-20) 7742-6652 Executive Summary In this note we highlig
14、ht 3 pipeline assets (FTY720, Afinitor and Men B) that we think are significantly undervalued by the current consensus, but have important catalysts in the coming six months that could trigger substantial earnings upgrades. Up to 10% upside to 2013 group operating profit: Consensus projects $1.7bn o
15、f sales for FTY720, Afinitor and Men B combined in 2013. This compares to our current risk-adjusted forecast of $3.8bn. If all 3 projects launch successfully, we estimate 2013 sales potential of $5.1bn (excluding risk adjustment) which would imply 10% upside to consensus group operating profit for 2
16、013. These 3 assets could grow to $10.2bn sales by 2018, providing significant growth after the 2013 Diovan exclusivity loss. Table 1: Key Novartis Pipeline Assets - Upside to Consensus ($m) Consensus 2013 sales JPM 2013E estimate (risk- adjusted, base case) JPM 2013E sales potential (risk- adjustme
17、nt removed) JPM 2018E estimate (risk- adjusted, base case) JPM 2018E sales potential (risk- adjustment removed) FTY720 582 1,391 1,804 2,397 3,196 Afinitor 492 960 1,330 2,071 3,723 Men B vaccine 630 1,493 1,991 2,479 3,306 Total 1,704 3,844 5,125 6,948 10,225 Upside versus consensus ($m sales) 2,14
18、0 3,421 Upside vs consensus on sales Upside (vs consensus) as % of group sales 3.5% 5.5% Upside vs consensus on operating profit Upside as % of group operating profit * 6.0% 9.5% *: Note that JPMe impact on operating profit assumes a 50% margin on incremental sales of these products. Source: J.P. Mo
19、rgan estimates, Company data. Upcoming catalysts: All 3 assets have important catalysts in the coming six months that could trigger substantial earnings upgrades. Importantly, we believe the risk/ reward profile going into these events seems excellent, and we see minimal risk of earnings downgrades.
20、 FTY720 / Gilenia (fingolimod): By the end of February, the FDA is expected to accept the filing dossier for FTY720, and potentially grant priority review which could move the launch forward to mid 2010 from late 2010. Safety concerns based on phase II data have been a significant overhang on the co
21、mpound, hence consensus expectations remain low, despite a substantially improved safety profile in phase III (conducted at lower doses) and a deteriorating safety profile for Tysabri, a key competitor, which should boost FTYs prospects. We think a green light from FDA could be the trigger for the m
22、arket to re-assess what to expect from FTY720 with consensus forecast to more than double to $1-2 bn. We think the risk / reward of this data point seems excellent, as current consensus expectations look achievable even if FDA were to reject the NDA (unlikely in our view). Afinitor: Phase III data f
23、rom RADIANT-2 and 3 in NET expected from mid2010 onwards should turn Afinitor into a blockbuster. Positive data in a 3 Europe Equity Research 18 February 2010 Alexandra Hauber (44-20) 7742-6655 / (1-312) 325-3694 Richard Vosser (44-20) 7742-6652 second tumor type (after renal cancer) should also h
24、ighlight potential in the further 7 indications in development which could turn Afinitor into a multi- billion dollar compound, with peak sales potential approaching $4 bn. We think the risk / reward going into the release of RADIANT 2 and 3 looks attractive, as current consensus expectations look a
25、chievable in the approved indication (renal cancer) alone. Men B: Also in 1Q 2010 we hope to get the green light from FDA for US phase III trials for Men B. In addition, European phase III data expected by mid year should boost investor confidence in the viability of this vaccine. As a reminder, Men
26、 B, if approved in all geographies, targets a $3 bn market opportunity. Key concern on Men B has been around fever observed in phase II studies, which was generally mild with short duration, and not a show stopper, according to Novartis. We think the risk/ reward looks attractive with significant up
27、grades if this comes through with consensus earnings still achievable even in the event that US FDA doesnt let it go into phase III. There is modest downside if European phase III study highlights safety concerns and / or shows insufficient efficacy based on fever-mitigating strategies. For further
28、details on FTY720, Afinitor and Men B, please refer to the following chapters. Earnings Changes The major change to our estimates is to raise forecasts for Gilenia (FTY720), by increasing the probability of success from 50% to 75% given the favourable safety profile in FREEDOMS. This increases 2013
29、sales from $0.9bn to $1.4bn. Table 2: Novartis EPS Changes ($) 2009a 2010e 2011e 2012e 2013e Basic EPS - Old Old 3.70 4.17 4.42 5.02 5.08 Basic EPS - New New 3.70 4.18 4.50 5.14 5.19 % Change . 0.0% 0.2% 1.7% 2.3% 2.1% Diluted EPS - Old Old 3.69 4.15 4.41 5.01 5.06 Diluted EPS - New New 3.69 4.16 4.
30、48 5.12 5.17 % Change . 0.0% 0.2% 1.7% 2.3% 2.1% Basic Core EPS - Old Old 4.50 4.97 5.52 6.06 6.12 Basic Core EPS - New New 4.50 4.98 5.60 6.18 6.22 % Change . 0.0% 0.2% 1.3% 1.9% 1.7% Diluted Core EPS - Old Old 4.49 4.95 5.50 6.04 6.10 Diluted Core EPS - New New 4.49 4.96 5.58 6.16 6.20 % Change .
31、0.0% 0.2% 1.3% 1.9% 1.7% Source: J.P. Morgan estimates Company data. Investment thesis We continue to rate Novartis Overweight, and raise our Price Target to SFr72. We believe the 3 pipeline assets highlighted in this note are undervalued as major contributors to earnings growth. Novartis recent lau
32、nches of an entire range of products (Tasigna, Tekturna, Lucentis, Exforge, Exjade, Galvus, Aclasta etc) are already starting to contribute to operating leverage even though each product by itself does not move the needle. We think these 3 larger assets, each with multi- billion $ potential, could h
33、ave significant impact on earnings power and earnings growth in the longer term, generating scope for substantial consensus EPS upgrades. 4 Europe Equity Research 18 February 2010 Alexandra Hauber (44-20) 7742-6655 / (1-312) 325-3694 Richard Vosser (44-20) 7742-6652 We have a high level of convict
34、ion that Novartis will continue to deliver strong operating performance across all divisions through 2010. In 2010, we believe Novartis management has a greater interest than ever to see its share price going up, to satisfy not only their own shareholders but also Alcon minority shareholders. At our
35、 year-end 2010 price target of SFr72, Novartis offer for Alcon minority shares would be worth $187 per share, and would thus remove pressure on Novartis to put more on the table, in our view. Table 3: European Pharmaceuticals Valuations - adjusted EPS multiples Price Market Cap Adjusted EPS CAGR Adj
36、usted P/E 16-Feb-10 (US$bn) 2009-2013E 2008A 2009E 2010E 2011E 2012E 2013E 2014E 2015E AstraZeneca 2,787p 63.6 -3.5% 8.6 6.9 7.3 7.2 7.6 8.0 8.6 9.5 GlaxoSmithKline 1,242p 101.9 0.1% 11.3 9.8 10.2 10.4 9.8 9.8 9.7 9.7 Novartis SFr57.85 122.8 8.4% 13.1 12.1 10.9 9.7 8.8 8.7 8.1 7.5 Roche SFr178.80 14
37、4.0 13.6% 16.2 14.7 13.4 11.8 10.1 8.8 8.1 7.6 Sanofi-Aventis 53.56 100.2 -3.5% 9.9 8.2 8.0 7.9 9.0 9.5 9.2 9.0 Weighted average Big Caps Europe 4.6% 12.5 11.0 10.5 9.8 9.2 9.0 8.7 8.5 Source: J.P. Morgan estimates, Company data, priced from Bloomberg CoB 16th Feb 2010. 5 Europe Equity Research 18 F
38、ebruary 2010 Alexandra Hauber (44-20) 7742-6655 / (1-312) 325-3694 Richard Vosser (44-20) 7742-6652 Table 4: Novartis Embedded Value Rank Product Indication US Patent Expiry Peak Sales $m Peak Sales Year US NPV / Share ROW NPV / Share Total NPV / Share Total NPV ($mn) % of Equity Value 1 Diovan Hy
39、pertension 2012 $6,013 2008 SFr. 1.66 SFr. 3.38 SFr. 5.04 $12,019 8% Tekturna / Rasilez Hypertension 2015 $1,680 2014 SFr. 0.53 SFr. 0.43 SFr. 0.96 $2,289 1% Lotrel / Exforge Hypertension 2008 $1,529 2012 SFr. 0.45 SFr. 0.70 SFr. 1.15 $2,744 2% Hypertension Franchise . SFr. 2.64 SFr. 4.51 SFr. 7.15
40、$17,052 11% 2 Glivec / Tasigna CML 2015 $5,518 2014 SFr. 2.26 SFr. 7.08 SFr. 9.34 $22,255 14% 3 Lucentis Wet AMD 2019 $1,824 2015 SFr. 0.00 SFr. 1.81 SFr. 1.81 $4,319 3% 4 Sandostatin Acromegaly/GEP tumours 2013 $1,511 2013 SFr. 0.91 SFr. 1.18 SFr. 2.10 $4,996 3% 5 Afinitor (RAD001) Solid Tumors 201
41、8 $1,549 2015 SFr. 0.66 SFr. 1.07 SFr. 1.73 $4,127 3% 6 Exjade Iron Chelation 2019 $1,374 2015 SFr. 0.47 SFr. 0.85 SFr. 1.32 $3,148 2% 7 Zometa Bone Cancer 2012 $1,699 2011 SFr. 0.44 SFr. 0.73 SFr. 1.17 $2,797 2% 8 Femara Breast Cancer 2011 $1,481 2010 SFr. 0.26 SFr. 0.66 SFr. 0.91 $2,173 1% 9 Galvu
42、s Diabetes 2021 $856 2015 SFr. 0.00 SFr. 0.87 SFr. 0.87 $2,069 1% 10 Neoral Transplant rejection 2006 $956 2008 SFr. 0.05 SFr. 0.53 SFr. 0.58 $1,375 1% 11 Aclasta Osteoporosis 2016 $795 2011 SFr. 0.30 SFr. 0.21 SFr. 0.51 $1,213 1% Top products . SFr. 27.48 $65,524 42% Other Marketed . SFr. 9.10 $21,
43、691 14% Total marketed . SFr. 36.58 $87,215 56% FTY720 Multiple Sclerosis 2019 $2,055 2015 SFr. 0.87 SFr. 0.82 SFr. 1.69 $4,026 3% QAB 149 COPD 2020 $470 2015 SFr. 0.21 SFr. 0.18 SFr. 0.38 $917 1% QMF149 COPD / Asthma 2020 $300 2015 SFr. 0.23 SFr. 0.20 SFr. 0.43 $1,030 1% NVA237 COPD $225 2015 SFr.
44、0.15 SFr. 0.11 SFr. 0.26 $618 0% QVA149 COPD 2020 $385 2015 SFr. 0.29 SFr. 0.20 SFr. 0.49 $1,171 1% Elinogrel Anti-platelet (ACS) $298 2015 SFr. 0.63 SFr. 0.08 SFr. 0.71 $1,685 1% Ilaris (ACZ885) CAPS / gout / RA $150 2014 SFr. 0.10 SFr. 0.06 SFr. 0.16 $379 0% Albuferon Hepatitis C $250 2015 SFr. 0.
45、06 SFr. 0.07 SFr. 0.13 $320 0% ASA404 NSCLC $13 2015 SFr. 0.00 SFr. 0.01 SFr. 0.01 $23 0% Key Phase III assets . SFr. 4.27 $10,170 7% Other Phase III assets . SFr. 1.14 $2,718 2% Total Phase III . SFr. 5.41 $12,888 8% Sandoz . SFr. 2.11 SFr. 5.71 SFr. 7.82 $18,645 12% Consumer Health . SFr. 1.91 SFr
46、. 3.49 SFr. 5.40 $12,876 8% Vaccines we also see a good chance that FDA may grant priority review at this time, which would be a further positive catalyst enabling approval in H1 2010. Tysabri precedent suggests fast Uptake No read across from Cladribine 7 Europe Equity Research 18 February 2010 Ale
47、xandra Hauber (44-20) 7742-6655 / (1-312) 325-3694 Richard Vosser (44-20) 7742-6652 FTY720 efficacy comparison The efficacy of FTY720 in reducing relapse rate has been proven to be significantly better than Avonex in the 1-year TRANSFORMS trial. Data from the 2-year FREEDOMS study suggest efficacy
48、 in line with Tysabri and cladribine. Table 5: Efficacy comparison of marketed and pipeline multiple sclerosis therapies two-year data Drug Study Relapse rate reduction EDSS Relative risk reduction of progressing MRI criteria Gd-enhancing lesions: reduction at 2 years FTY720 0.5mg dose FREEDOMS 54% (0.5mg) over 2y (p $3bn. Our EU forecasts alone reach $897m in 2013 (and peak sales of $1.4bn). Hence, even fully rem