1、US Major and Specialty PharmaceuticalsTakeaways from the 2020 J.P.Morgan Healthcare ConferenceSee the end pages of this presentation for analyst certification and important disclosures,including non-US analyst disclosures.J.P.Morgan does and seeks to do business with companies covered in its researc
2、h reports.As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.North America Equity ResearchJanuary 2020PharmaceuticalsChr
3、is Schott,CFA AC(1-212)622-J.P.Morgan Securities LLCChristopher Neyor(1-212)622-J.P.Morgan Securities LLCEkaterina V Knyazkova(1-212)622-J.P.Morgan Securities LLCXiling(Cici)Chen(1-212)622-0364XJ.P.Morgan Securities LLC2Key TakeawaysWe see the key themes from the conference as:Fundamentals appear to
4、 be strengthening for the Major Pharma names.We continue to see an upward bias to our near-and long-term estimates as pricing dynamics are better reflected in expectations,new indications support higher peak sales for key assets,recent launches are performing well and the late stage pipeline continu
5、e to improve.M&A Bizdev focused on bolt-on M&A deals(e.g.,development stage assets and/or single product companies).We see Major Pharma bizdev focused on small-to-mid sized tuck-in deals that can extend the growth runway for companies with already solid near-to-medium term fundamental outlook while
6、generally avoiding disruptive large-scale deals and deal integration risk.Drug pricing was not the prominent focus of discussion While pricing remains controversial,these concerns appear to have faded to the background with more modest list price increases and less volatile commercial pricing dynami
7、cs.Admittedly,the Presidential Election season remains a wild card throughout 2020.Opioids and generic pricing dominate Specialty Pharma discussions While opioid-exposed names remain optimistic on a 2020 settlement(potentially catalyzed by the March 2020 State of NY trial),it is unclear how much of
8、this is based on behind the scenes discussions vs wishful thinking.On the positive side,US generic pricing appears to be normalizing(i.e.,manageable annual erosion)Favorite names across our coverage include:LLY(growth),MRK,and BMY(value)represent our top picks in US PharmaCHRS,MYL and BHC represent
9、our favorite names in the Specialty Pharma sector3After 3 mega deals in 2019,we see Major Pharma returning to bolt-on deals in 2020This view is underpinned by a healthy fundamental outlook as strong core product trends and new product launches support robust volume-driven organic growth(4%sales/9%EP
10、S 5yr CAGR)for Major Pharma allowing companies to be more selective in their M&A approachValuation remains a sticking point for biotech deals with several management teams highlighting a fully-priced environment currentlyMajor Pharma is constructive on external innovation and bolt-on deals but bid-a
11、sk spreads remain challenging given the supportive funding environment and high target company expectationsOn our biz dev and capital deployment expectation for specific companies MRK Most vocal about business development.Significant capital deployment optionality and size is not a hurdle but contin
12、ues to avoid deals requiring integration.Given high asset prices,looking for assets where MRK can add value via expanded R&D opptys or global reachLLY Early-to-mid-stage M&A is a high priority across verticals,particularly Oncology/ImmunologyPFE Bizdev focused on Phase 2/3 assets with 2024-2027 laun
13、ch potential to extend long-term growthJNJ Pharma focused on early-to-mid stage partnerships while device biz evaluating broad spectrum of deals.We expect JNJ will focus on smaller vs.larger dealsBMY Maintain flexibility for tuck-in M&A near-term with deal capacity returning beyond 2020Biz Dev Focus
14、ed on Small Deals In 20204As compared to much of 2019,healthcare reform/pricing was not as major a focus at this years conference with most investors believing that:The group is already pricing in significant risk Major HC reform is unlikely in the current political environmentFundamentals continue
15、to strengthen with volume based growth replace price increasesWe expect most companies to report modest net price erosion in 2020 as list price increases moderateWe see slowing list price growth and more disclosure on“net”realized price increases as the new normal in Major Pharma which helps reduce
16、headline risk for the sector.Further,efforts such as authorized generics(eg Lilly insulin)and patient assistance could help address out-of-pocket costs.We are not expecting significant price resets in any major categories in 2020Watching immunology dynamics most closely with a number of new entrants
17、(eg Skyrizi,Rinvoq)Diabetes expected to see moderate price erosion,similar to 2018/2019Oncology pricing dynamics should remain constructive,particularly for differentiated productsWhile we anticipate ongoing HC reform headlines in an election year,most believe significant“Medicare For All”types refo
18、rm remains highly unlikely with most likely reforms being incremental vs transformational Pricing Remains Controversial but Well Reflected in Street Outlook5Emerging Pipeline Assets Represent Key Conference Focus PointWith pricing controversies subsiding at the conf this year,we see investor focus s
19、hifting towards continued developments of key pipeline assets to drive further top-line growthFor Lilly,Tirzepatide(GIP/GLP-1)continues to represent a potential best-in-class asset with multi-billion dollar sales potential and we are expecting phase 3 data readouts starting in 2020Outside of diabete
20、s,the company also highlighted mirikizumab(IL-23)readout in UC as well as the Phase 3 DIAN2 study readout in early 2020 for high dose solanezumab in inherited Alzheimers For the PD-1 market,we see adjuvant as an under-appreciated oppty for both Opdivo and Keytruda and also highlight significant ex-U
21、S opportunities for both products On data readouts,we highlight the CM-9LA data presentation(likely AACR 2020)in NSCLC for Opdivo as well as a number adjuvant readouts in 2020For Keytruda,we also highlight several adjuvant readouts including TNBC and H&N,both of which are expected later in 2020 For
22、Bristol,we continue to view TYK-2 as one of the most important pipeline asset for the company and highlight phase III data expected in 2H20Further,we also highlight a number of updates expected on CELG assets including ozanimod(approval and phase 3 data in GI indications),the CAR-T portfolio(approva
23、ls),CC-486(filing/approval,not well reflected in cons)and updated 296 data(bispecific BCMA)For Pfizer,we continue to see the Ibrance adjuvant studies in 2H/20(PALLAS and PENELOPE)as Pfizers most important readouts and see high likelihood of success for these trials(although also noting that it appea
24、rs well reflected in cons estimates)PFE will also host its first R&D in recent history in 2020 and we see increased attention to the companys mid-stage pipeline as the year progresses6Select Major Pharma Key Trials in 2020 and Beyond(Non PD-1)Source:Company reports,Clinicaltrials.gov.CompanyProductE
25、ventTimingNon PD-1 readoutsMirikizumab(IL-23)Phase 3 top-line results in UCLate 2020TirzepatidePhase 3 read-outLate 2020-2021SolanezumabPhase 3 DIAN2 study readout in inherited AlzheimersEarly 2020VerzenioAdjuvant phase 3 readout2021TYK-2Ph3 data readout in Psoriasis2H 2020OzanimodApproval in RMS an
26、d phase 3 readout in UCMarch/Mid 2020Liso-cel Approval in NHL2020bb2121approval in RRMM2020V114Phase 3 studies readout2020-2021MK-8591Long acting HIV2020/2021MK-7264Phase 3 readout in chronic cough2020JNJBCMA CAR-T FDA filing in multiple myeloma2H20IbranceAdjuvant studies readoutLate 202020V Pneumoc
27、occal vaccinePhase 3 adult data readout2020-2021Abrocitinib(JAK 1)Filing in Atopic derm2020JAK 3 InhibitorPhase 3 readout in Alopecia areata2H 2021LLYBMYMRKPFE7Select Major Pharma Key Trials in 2020 and Beyond(PD-1)Source:Company reports,Clinicaltrials.gov.Company(Product)IndicationEventTimingPD-1 r
28、eadoutsNSCLCCheckMate-9LA full data readout1H 2020RCCCheckMate 9ER phase 3 readout1H 2020EsophagelCheckMate 648 phase 3 readout2H 2020Bladder AdjuvantCM-2742H 2020Various Adjuvant(Melanoma,Lung)CM-915,CM-816 phase 3 readout2H 20201L BladderKeyNote-361 phase 3 data readout2H 20191L RCC(Combo with Len
29、vima)KeyNote-581 phase 3 data readout20202L NSCLC Stage IIIKeyNote-799 phase 2 data readout2020TNBC AdjuvantKeynote-522 full phase 3 data readout2020H&N Adjuvant Keynote-689 phase 3 readout2021BMY(Opdivo)MRK(Keytruda)8Parasiticide market in focus with Simparica Trio launching late 1Q 2020With the fi
30、rst flea-tick-worm product on track to launch late 1Q2020,there has been some debate on how the introduction of this new class of parasiticides will affect the market and the legacy/older-gen products that currently dominate itZTSs perspective:mgmt sees Simparica Trio as the#1 oppty for the company,
31、and believes the product can 1)greatly increase compliance for parasiticides(esp on the flea/tick side),2)target the entire market(although sees orals as the low-hanging fruit)and 3)is watching for potential competition from Merial,MerckELANs perspective:mgmt sees the companys parasiticide portfolio
32、 well-positioned in 2020 given the timing of ZTSs launch(vets/clinics already preparing for the season now)and fragmented/slower moving nature of the market.Expects limited/almost no impact on OTC franchises like Advantage(different pet owners)although the company does anticipate erosion to older of
33、ferings such as TrifexisASF headwinds appears to be subsiding with companies expecting limited(i.e.,net-zero)impact in 2020 and potential recovery in 2021+While the situation remains in flux(in particular both ELAN and ZTS are watching for the spread of the disease into western Europe and/or US),it
34、appears that 1)pig herds in China are(gradually)starting to recover and 2)imports into the country are starting to increaseThis points to potential recovery for China-exposed businesses in late 2020-2021,with companies also highlighting an oppty to capitalize on the industrialization of the pork-ind
35、ustry post-epidemicLastly,while multiple players appear to be working on a vaccine for ASF,at this point this appears to be multiple years away Animal Health Takeaways9Incremental Takeaways Out of the ConferenceBMY catalysts Conference highlighted distinctly positive near-term catalyst pathCore fran
36、chise appears on track with strong growth from both Eliquis and Revlimid.This,coupled with expected 2020 synergies,should support a$6+2020 EPS result in our view.On late-stage assets,BMY has 8 potential new product launches(up from 6 launches expected when the deal was announced last year).Assets ad
37、ded in 2019 include Opdivo+Yervoy in 1L NSCLC and CC-486 in 1L AML maintenance.We also highlight a distinctly positive 2020 catalyst path including Opdivo/Yervoy in lung cancer(CM-9LA)and other tumors(CM-9ER,adjuvant),ozanimod(GI indications,2H),TYK-2(psoriasis,2H)as well as updates on a number of C
38、ELG assets including the CAR-T portfolio(approvals),CC-486(filing/approval,not well reflected in cons)and updated 296 data(bispecific BCMA).MRK bizdev Deal size not a key hurdle;Focus on assets where MRK can add clinical and/or commercial value from its existing portfolioBizdev remains a key focus f
39、or Merck with the company completing$8bn of bizdev deals in 2019Valuation remains a sticking point for Merck with CEO Frazier highlight fully valued biotech valuations.That said,Merck continues to find viable transactions with a focus on areas where the company can add value to the clinical and comm
40、ercial development planIn addition,Merck appeared to express greater openness to re-evaluating its human pharma portfolio,looking to narrow its focus to key growth pillars.With over 160 products,we believe this could translate to select product divestitures over time.10LLY:Alzheimers back in focusWh
41、ile not key to our thesis on the story(we see LLYs core portfolio as the strongest within the group),Alzheimers has quickly come back in focus for the LLY story ahead of the readout of the DIAN2 trial later this qtr as well as several other Alzheimers readouts over the next 12-18 monthsOn DIAN2,the
42、company see the study as registrational in a niche population if successful although noted that this is a small sample size(100 patients).Beyond DIAN2,the company appeared more focused/enthusiastic on opportunities such as the A4 study(larger Sola study looking at 4x the prior dose in an earlier pat
43、ient population),as well as its anti-TAU and N3PG A molecules.Opioid settlement discussions ongoing,with MNK,TEVA pointing to the New York case in March as a potential catalyst for“wrapping things up”While we have seen relatively few headlines over the past few months on opioids,TEVA,ENDP and MNK al
44、l noted that settlement discussions are progressing in the background with various parties(i.e.,AGs as well as local municipalities)with JNJ also hopeful that an opioid settlement could be completed in 2020.TEVA in particular pointed to the New York case starting in March 2020 creating a sense of ur
45、gency in discussions,and were cautiously optimistic that a“global”agreement(TEVA working within the framework it has previously announced and MNK hoping for a settlement with all parties)could happen ahead of the trialHowever,it remains to be seen how much of this is wishful thinking vs reality and
46、we are somewhat skeptical that any global/final settlement can be reached given the lack of coordination and consensus among the defendants Incremental Takeaways Out of the Conference11US generic pricing has largely stabilized,with US manufacturers increasingly focused on Injectables,biosimilars and
47、 other niche opportunities Echoing comments from the past few qtrs,TEVA,ENDP and AMRX all sounded generally positive on generic pricing,noting stability in the market(at least relative to the chaos of 2017-2018)Companies appear increasingly focused on the more difficult-to-make parts of the market s
48、uch as biosimilars(MYL,TEVA)and Injectables(ENDP).MYL:Confirms 2020 outlookDuring its presentation,Chairman Robert Coury reaffirmed support for the pro forma forecasts the company put out with the Upjohn deal in July 2019.This has been a point of controversy and suggests the shift to a tender system
49、 in the Chinese market has not materially impacted the 2020 results for Upjohn beyond what was reflected in initial guidance.Mgmt will likely provide an update on its 2021 outlook around the close of the transaction(expected in mid-2020).The company see this as more representative of what Viatris fi
50、nancials will look like on a“going-forward basis.”We expect the company to take a fairly conservative approach to this initial guidance(which we view as a welcome relief to historically more aggressive guidance given by standalone Mylan).Longer-term,we see EBITDA as fairly well protected even if top
