Strong Buy of the Month - EYET

Eyetech Pharmaceuticals Inc (EYET)
Current Price= $11.25
12 mo Target=$17.50

Highlights:
"This is a rare chance to invest in a small-cap, high-growth Pharmaceutical company that has a minimum 2-year monopoly in the highly lucrative AMD market."

"With $265 million in cash (>50% of market cap), an expected $450 million from Macugen sales before rival Lucentis launches & the backing of Pharma giant Pfizer, I believe EYET is extremely undervalued at these levels."

Thesis:
Eyetech shed another 10% today after positive Phase III results were released for rival Genentech's (DNA) Lucentis drug. After finishing the day at $11.75, Eyetech now sits well below its IPO offering & more than 75% below its 52 week high of $47.92.

At these levels, Eyetech is priced to fail. Rival drug Lucentis is not expected to come to market until 2007 at the earliest. This gives Eyetech more than a 2-year monopoly. At that point, how many doctors will switch to Lucentis? With a market cap of only $500 million, the market is basically saying almost all. This is a rare chance to invest in a small-cap, high-growth Pharmaceutical company that has a minimum 2-year monopoly in the highly lucrative AMD market.

No studies have yet to compare Lucentis versus Macugen. That doesn't stop analysts, however, from making such comparisons from reporting speculation that Lucentis will eclipse Macugen as the principal treatment for AMD. It should also be noted that Lucentis is dosed once every four weeks, while Macugen is dosed once every eight weeks. Which would doctors & their patients prefer? Also, Macugen should be much cheaper to manufacture than Lucentis. This will allow Eyetech to offer price advantages without significantly sacrificing margins.

With $265 million in cash (>50% of market cap), an expected $450 million from Macugen sales before rival Lucentis launches & the backing of Pharma giant Pfizer, I believe EYET is priced to fail at these levels.


Key Statistics:

• Cash at hand: $265 million (over $6/share)
• Total debt: $2.35 million (0.017 debt/equity)
• 2005 Revenue: $175 - $190 million
• Revenue Growth: 195%
• % Held by Insiders: 10.08%
• P/E: 13.03

Recent "Analyst" notes:
07.14.05
CSFB believes that EYET's shares reflect expectations for flawless DNA's Lucentis data that will be presented at the ASRS meeting on Monday, leaving more room for stock upside than downside as only slighest hiccup in data could benefit EYET shares. Firm continues to believe that safety could favor Macugen due to less frequent dosing, an outcome that could temper potential efficacy advantages for Lucentis. Firm assumes roughly equal market share for Macugen and Lucentis with a slight edge for Macugen owing to its 2-year lead time to market, Pfizer marketing strength, fewer injections, potential for combo use with Visudyne, and longer patient experience indicating. With $550 mkt cap, $265 mln in cash, and expected $450 mln from Macugen collaboration before Lucentis even launches, firm believes EYET is undervalued. Maintains Outperform and $30 tgt.

07.18.05
Standard & Poor's Equity Research maintained a "hold" rating for Eyetech Pharmaceuticals after positive Phase III results for Genentech's Lucentis drug. "Lucentis, as well as other drugmakers' experimental treatments, reinforce our view that Eyetech's Macugen is poised to lose market share. Still, we think Macugen sales will be supported by current patients, those unable to tolerate Lucentis, and possibly non-age-related macular degeneration conditions in the future." The research firm also maintained a "strong buy" rating on Genentech.
"Meanwhile, we think Eyetech needs to expand its product portfolio." S&P Equity Research has a $15 price target for the company and views it as a potential takeover candidate.


Profile:
Eyetech Pharmaceuticals, Inc., a biopharmaceutical company, engages in the development and commercialization of novel therapeutics to treat diseases of the eye. The company’s Macugen is a pegaptanib sodium injection, which is used for the treatment of neovascular age-related macular degeneration. It has collaboration with Pfizer, Inc. to develop Macugen for the treatment of diabetic macular edema and retinal vein occlusion.