by Nick Hudson
LONDON, Nov 29 (APM) - Kepler Equities is recommending investors buy into Roche as the broker said it was the only major pharma it is tipping on expectations of rising profit margins, a healthier pipeline than its peers and an expected U.S. recommendation for Avastin (bevacizumab) in metastatic breast cancer.
The broker, in a research note on Thursday, said it has set a share price target of 270 Swiss francs, compared with Roche's share price of 209.50 Swiss francs at the time the report was written on Wednesday.
Key to its 'buy' recommendation is Kepler's belief that Avastin will be recommended by a U.S. Food and Drug Administration (FDA) advisory panel on Dec. 5 in first-line metastatic breast cancer.
Avastin is already approved for colorectal and non-small-cell lung cancer in both the U.S. and EU. The EU approved use in breast cancer earlier this year and recently recommended approval for use in renal cell cancer.
"In contrast, the FDA delayed approval of Avastin for use in breast cancer. Genentech re-filed for approval earlier this year. With the advisory panel, the FDA is signalling that questions about the approval remain," Kepler said.
It added that Genentech believes one of the issues is whether progression-free survival (PFS) is an acceptable primary endpoint in first-line metastatic breast cancer. Kepler said Avastin met the primary endpoint of the trial on an improvement in PFS but did not show a benefit in overall survival (OS) versus standard of care.
Even so, Kepler expects a positive recommendation.
Roche is currently deciding whether to take R1658, also called JTT-705, designed to raise HDL, into Phase III and will announce the decision at the time of the 2007 results on Jan. 30.
Pfizer's decision a year ago to abandon torcetrapib development complicates Roche's decision, Kepler believes. "If successful, R1658 has the potential to become one of the best-selling drugs of all time in our view."
A decision to progress to Phase III may dampen short-term profitability because of trial costs, but would be strongly beneficial over the longer term.
Phase II data on a GLP-1 diabetes compound R1583 are due out shortly with a decision to take it into Phase III expected in early 2008.
Kepler believes the most important differentiating point for GLP-1 compounds, which must be injected, is dosing duration. Roche is testing once weekly and once every two weeks for R1583.
Amylin/Lilly are likely to launch their once-weekly product (exenatide LAR) at about the same time as Novo Nordisk's liraglutide, approved for once-daily dosing in 2009.
But Kepler says Roche's R1583 formulation appears to have advantages over once-weekly exenatide LAR. R1583 is available in a pre-filled syringe and uses a thinner needle, while exenatide LAR needs to be prepared by patients.
"If the clinical trials are successful, R1583 could be an important product for Roche."
Kepler is forecasting rising sales and profits for Roche over the next two years. For 2007, it believes sales will rise to 46.7 billion Swiss francs (28.3 billion euros), compared with 42 billion Swiss francs in 2006, rising to 51.2 billion Swiss francs (31 billion euros) in 2008 and to 57.1 billion in 2009 (34.6 billion euros).
Net profit of 7.9 billion Swiss francs in 2006 (4.8 billion euros), is set to improve to 9.2 billion (5.6 billion euros) this year, rising to 9.7 billion (5.9 billion euros) in 2008 and to 10.5 billion Swiss francs in 2009 (6.4 billion euros).
"Despite brief spurts of popularity in pharmaceutical stocks, we remain cautious of the sector. Roche remains our top pick as the best protection from the hard knocks ahead. Clinical news flow over the next year could add billions to top-line estimates."
 29/11/2007 14:56 GMT - INDUSTRY