12
going through some rough times.
Eventually, Protein Design Labs will
show positive results in its research
and development.
On March 11, Protein Design Labs
announced that it has initiated a Phase
II clinical study to evaluate its human-
ized antibody Nuvion in patients with
steroid-resistant, acute graft-versus-
host disease (GvHD), a potentially fa-
tal complication of hematopoietic cell
transplantation. The objective of this
trial is to obtain additional safety and
efficacy data for Nuvion in patients
with acute graft-versus-host disease
who have failed steroid therapy.
On March 7, the FDA delivered bad
news to Sepracor/NASDAQ: SEPR
(BSR #17: Asthma). The failure to ap-
prove Soltara, the company's promis-
ing new drug for seasonal allergies,
was a huge disappointment. The FDA
told the company that it had three is-
sues with the application that were not
adequately addressed in light of cer-
tain aspects of the drug's pharmacoki-
netics and potential for accumulation
in tissue. Two of the issues pertained
to observations from safety studies in
animals that were not observed in hu-
mans: phospholipidosis (an adaptive
storage response to drug administra-
tion) and cardiomyopathy (a patho-
logic condition of the heart muscle). A
third issue concerned the need for ad-
ditional assurance of the absence of
any potential for QTc prolongation (an
effect on electrical impulse conduction
in the heart).
All three issues are common prob-
lems for every drug, and thus not
unique to Soltara. However, it is the
FDA mandate to assess the safety and
efficacy of every drug before it is al-
lowed onto the market. In this case, we
think that the FDA was a little too con-
vided for the year 2001.
With the focus by the market on
accounting irregularities, generated by
the Enron situation and Elan, Genzyme
General has been highlighted as an-
other company that may be encum-
bered with these issues. However,
they are not applicable to Genzyme.
Genzyme Corp is made up of tracking
stocks and the structure may look to
be untrustworthy to investors. But the
company has always utilized this for-
mat, and the SEC has not raised any
issues regarding the accounting treat-
ment associated with tracking stocks.
Thus, there is no reason to be alarmed.
The purpose of the tracking-stock
structure applies to Genzyme General's
tax liability. Since Genzyme General is
the only tax-reporting entity for the
corporation, Genzyme General is able
to utilize the net operating losses of
two of its other divisions (Genzyme
Biosurgery/NASDAQ: GZBX and Ge n-
zyme Molecular Oncology/NASDAQ:
GZMO) to offset its tax liability.
Genzyme has painted itself a rosy
picture for 2002 and remains one of the
solid performers in the BioPortfolio.
The company has a P/E ratio of about
35.1 and a PEG of 1.41, based on an
average earnings estimate of $1.45. Our
12-month price objective of $60 per
share assumes the stock will trade at
40 times the 2002 average earnings'
estimate. We maintain our buy below
$45.
*****
servative, as the safety concerns were
not observed in humans in either the
Phase II or Phase III clinical trials. Se-
pracor is not going to dispute the
FDA's decision and will have the rele-
vant data available.
So, was a drop in share price justi-
fied? Yes, as earnings estimates for the
coming years included sales of Soltara.
However, we believe the market over
reacted to the news, and overlooked
Sepracor's pipeline, which has signifi-
cant potential. Thus, in our opinion,
Sepracor will rebound from this set-
back and regain lost ground. Hanging
over Sepracor are concerns of the
"probable" impact of over-the-counter,
non-sedating allergy drugs competing
with currently marketed prescription
allergy drugs. Therefore, we will adjust
our target price to $30.
*****
BioTech Stock Report, April 2002
Continued from page 9, column 3
Genzyme General
