The sector is setting up in an interesting manner. JPM weeks that have a red Monday tend to have a red week but we have been strong since then. Of course, there is a broader market strength that is probably helping the sector to a significant extend because the news has not been bad just not exciting. We got the CPI and it is likely to be a big market mover. The CPI expectations are for it to be cooling down to 6.5% and I think if it is at or below those levels then the market rallies with the sector. What is interesting is that the sector is at the upper end of the range and so a good CPI number that rally the markets likely breaks us out of the top of the range and that would only leave a back test to confirm the breakout. With the number coming in right at expectations, it is going to be interesting to see what exactly happens as I think this sort of cooling was likely priced into the market.
- AMRN has been quite strong this week as the pre-announced earnings are good. It seems like the decline in the US has stabilized and AMRN has been able to get to this point and remain cash flow positive. I think the worry was that the US would continued to deteriorate faster than the EU could build and cause a cash crunch at some point. I think that is probably off the table and so now it is about whether the EU can build into a blockbuster. Keep in mind that the company was unable to come to a price agreement with Germany but they are making slow and steady progress. It has been slower than most expected (or hoped) but given the stabilization in the US market, they have additional time to build up in the EU.
- There are two ways for AMRN to revalue higher. In the near term, it will be increasing confidence in the US stabilization and a solid launch in the EU in 2023/24. The longer term would be the fixed dose combination as that would come with new IP. This is not a guarantee and there are a number of scenarios. What if the data are positive but similar? It would be hard to get doctors and payors to switch to higher priced alternative. What additional benefit would be needed to justify a switch? What if there is not additional benefit? These are all questions that need to be fleshed out but if the data can come in with a better profile then they get new IP and revalues the company but this is a longer term process.
- CHRS had an interesting week. They did a deal and bought a biosimilar Eylea. That makes sense as it would go well with the biosimilar lucentis they are launching and so they would not need an more SG&A and broadens the market for them to have both a biosimilar Lucentis and Eylea. It also gives them another biosimilar launch in the out years to go with the slate of launches in the near term. I sort of think investors were happy to see a biosimilar deal as opposed to oncology. The company also discussed the launch of the OBI Lucentis biosimilar, which I think the market might be sleeping on at this point. I suspect that CHRS is setup for a hockey stick sort of revenue growth over the next 18 months and that does not seem to be priced into the stock (and this is just based on their biosimilar launches).
- Speaking of Eyela, REGN was down as they missed on revenues and that created worries about competition. The guide was about 8% lower than consensus so it was not a marginal miss but management noted this was a short term disruption. There is no way to know until we get additional quarters of revenues in 2023 but it seems like investors were a little worried by the miss. To be fair, I think REGN is going to be fine in the long run but some of their assets are reaching the end of their patent protection and that stokes worries about how they are going to replace those revenues and the miss just brought those into the forefront.
I will end it here as we wait for the CPI to decide what direction the market and sector are going to move.
Disclosure: Long AMRN and CHRS