View OSIP Acquisitions Carefully
OSI Pharmaceuticals, Inc. (OSIP) is a biotechnology company engaged in the discovery, development and commercialization of pharmaceutical products for the treatment of oncology, diabetes, and obesity in the U.S. Strong U.S. sales and robust growth in ex-U.S. sales have us modeling over $1 billion in Tarceva sales in 2008 and beyond.
We remain excited about the revenue from the companyâ?s DPP-IV estate. Despite the decision of the EPO to revoke one of the companyâ?s European patents, we do not model a significant impact on the revenues from the DPP-IV patent estate in 2008 and beyond.
However, the acquisition of Eyetech is still fresh in our minds, and as such, we maintain our Hold rating. Sale of OSIâ?s lead drug, Tarceva, looks solid. While U.S. sales are showing moderate year-over-year growth, we are impressed with the year-over-year increase in the ex-U.S. sales. Positive data from the SATURN trial in 2008 coupled with the price increase taken in February 2008 should help drive Tarcevaâ?s U.S. sales.
With $441 million in cash and cash equivalents, the company is looking to acquire research assets / additional technology in the near future. Given the experience with the Eyetech acquisition, we remain skeptical of managementâ?s credibility in this regard. Keeping these factors in mind, we maintain our Hold rating on the stock. Our target price of $38 is derived by multiplying our 2010 EPS estimate of $2.71 with a P/E multiple of 18.9x and discounting back for two years using a discount rate of 15 per cent.
Cleveland Cliffs Shows Strength
Cleveland Cliffs (CLF) has solid fundamentals, rising prices and increasing demand of its products. Strong industrial growth in China triggered demand for steel, resulting in higher demand for iron ore. The company's portfolio of both established and recent iron ore and metallurgical coal assets positions it to capitalize on global industry dynamics in 2008 and beyond.
We believe stronger commodity prices should boost revenues significantly for CLF. As a result, we rate the shares a Buy with a target of $185.00. Currently, the stock is valued at 15.2x our 2008 earnings of $11.00.
On May 6, 2008, Cleveland Cliffs reported first quarter 2008 results. Consolidated first quarter revenues were $494.4 million, a 52% increase from $325.5 million in the same quarter last year. The increase for the quarter was primarily driven by $94 million increase in sales generated by Cliffs North American Coal segment acquired in July 2007 and a $54 million increase in revenues from the company's North American Iron Ore segment.
Upgrading Onyx Pharma to Buy
Onyx Pharmaceuticals, Inc. (ONXX)delivered strong financial performance of its primary drug, Nexavar, in first quarter 2008. This is mainly attributed to Nexavarâ?s penetration into the liver cancer market, while Nexavarâ?s share in the kidney cancer market has stabilized despite heavy competition from Pfizer, Inc. (PFE) and Wyeth (WYE).
We believe Nexavar sales will continue to grow over the next several years since the label has expanded to liver cancer. Nexavar has the potential to become a blockbuster for Onyx. Sales of the drug grew dramatically in first quarter 2008. Total Nexavar sales came in at $151.9 million, up 149% year-over-year and 21.5% sequentially. US sales increased to $51 million in first quarter 2008, up 97% year-over-year and up 18.8% sequentially.
