Hambrecht Analyst Tears Into Nektar Over Exubera; Is 'Astonished' at Pfizer's Lack of Advertising

I've said before that I enjoy the commentary of WR Hambrecht + Co's Andrew Forman,  because he doesn't sugarcoat his coverage.

In a recent note on Nektar, the supplier of Pfizer's ill-fated Exubera diabetes product, Forman had this to say:

"With less than 5,000 diabetics using Exubera, which Pfizer's CEO and Nektar's both characterized as 'highly disappointing', about a third of those beloved 'Nektarines' who stuck it out all the way up to the top of Mt. Everest will likely soon be out of a job.  As we approach the one year anniversary of Pfizer's launch at last year's ADA, and with enough Exubera inventory to supply a few hundred thousand diabetics, we are astonished that Pfizer is still holding back on DTC until the second half 2007. But after everything we have observed over the past year, nothing should surprise us any more. Maybe Pfizer can say it has just launched Exubera, but this analyst can't re-launch coverage of Nektar with any credibility. ..."

But we'll try to extrapolate on last night's call and make adjustments accordingly with a focus on lowering Exubera production revenues in 2008E, lowering Pfizer Exubera sales projections, and tempering our outlook through 2010. Our new 2007-2010 Exubera end sales forecasts are lowered from $250M, $485M, $917M and $1516M to $67M, $200M, $713M and $1,045M which now assumes about 30,000 diabetics will be using Exubera as we exit this year, reaching 100,000 diabetics in 2008 and reaching 500,000 diabetics by 2010 which is less than half what Pfizer was forecasting a year ago."

"Combining a more achievable forecast which necessitates Pfizer making its new, better-late-than-never marketing mix that involves DTD (direct to diabetic) pull marketing beginning this fall (yes, a full year later than everything else it should have done) with Nektar's internal cost cutting measures, we arrive at the following new NKTR revenue and EPS estimates through 2010..."

The full note, with all Forman's numbers an predictions, follows after the jump.

Nektar Therapeutics (NKTR): DARKEST BEFORE THE DAWN? $60M+ COST CUTS COMING, BUT LOWERING EXUBERA SALES, ESTIMATES, TARGET YET AGAIN

Exchange: NASDAQ
Symbol: NKTR
Rating: BUY
Analyst: Andrew Forman
Sector: Specialty Pharmaceuticals
Price Target: $19.00

With less than 5,000 diabetics using Exubera, which Pfizer's CEO and Nektar's both characterized as 'highly disappointing', about a third of those beloved 'Nektarines' who stuck it out all the way up to the top of Mt. Everest will likely soon be out of a job.  As we approach the one year anniversary of Pfizer's launch at last year's ADA, and with enough Exubera inventory to supply a few hundred thousand diabetics, we are astonished that Pfizer is still holding back on DTC until the second half 2007. But after everything we have observed over the past year, nothing should surprise us any more. Maybe Pfizer can say it has just launched Exubera, but this analyst can't re-launch coverage of Nektar with any credibility. But we'll try to extrapolate on last night's call and make adjustments accordingly with a focus on lowering Exubera production revenues in 2008E, lowering Pfizer Exubera sales projections, and tempering our outlook through 2010. Our new 2007-2010 Exubera end sales forecasts are lowered from $250M, $485M, $917M and $1516M to $67M, $200M, $713M and $1,045M which now assumes about 30,000 diabetics will be using Exubera as we exit this year, reaching 100,000 diabetics in 2008 and reaching 500,000 diabetics by 2010 which is less than half what Pfizer was forecasting a year ago. Combining a more achievable forecast which necessitates Pfizer making its new, better-late-than-never marketing mix that involves DTD (direct to diabetic) pull marketing beginning this fall (yes, a full year later than everything else it should have done) with Nektar's internal cost cutting measures, we arrive at the following new NKTR revenue and EPS estimates through 2010. Total 2007 revenues move from $220M to $237M which comes from the impact of deferred revenue recognition of $26M in Exubera revenue, with EPS moving from a loss of ($1.00) to a loss of ($0.95); 2008 sales from $277M to $207M with lower Exubera production sales and royalties partially offset by new contributions from Roche CERA EPO royalties, and 2008 EPS goes from a loss of ($0.12) to break-even as full impact of the $60M in cost cutting measures would be expected to be formally announced in the next few weeks to buffer the P&L. In 2009 total revenues fall from $471M to $378M with new contributions from Roche's CERA EPO, UCB's Cimzia and Novartis (Chiron) Toby contributing about $34M in new revenue which assuming continued disciplined cost management models EPS at $0.62 down from our previous estimate of $0.65.  Our total revenue estimate for 2010 falls from $722M to $576M, largely on lowered Exubera projections with EPS coming down from $1.27 to $1.00. Our new target price of $19 comes down from $22 by applying our 30 P/E multiple on 2010 discounted back two years at 25%. 

Comments

[AmyT of www.diabetesmine.com]

Um, I think they figured out that advertising isn't going to help. In fact, it may just serve to embarrass them more.