Broker snap: Glaxo unfazed by Arzerra setback

18th Aug 2009 11:53

Shares in drugs giant GlaxoSmithKline bore up well on Tuesday morning despite disappointing clinical data relating to Arzerra, the blood cancer treatment it has licensed from Danish developer Genmab.Broker Panmure Gordon does not believe the stock will suffer many downgrades as a result of the clinical test data, which showed the drug was not as effective as hoped in the treatment of patients with non-Hodgkin's lymphoma (NHL).'What was interesting from this trial was that in patients who were refractory to prior Rituxan monotherapy, Arzerra achieved ORR [overall response rate] of 22%. Because of this signal and our view that Arzerra's biological activity is indisputable, we are not becoming despondent about this data. Further on, it could be that in hard to treat patients, Arzerra needs to be administered in combination with chemotherapy,' the broker said.Panmure Gordon is currently predicting that Arzerra will be launched as a cancer treatment in the next financial year and will deliver revenues of £100m in its first year of launch, rising to £500m by fiscal 2012. The broker said its revenue forecasts for the drug in the rheumatoid arthritis market are under review.The broker has retained its 'buy' recommendation and has a target price of 1400p for the stock. 'Growth is not going to be easy and will be fairly low quality in the short term, with cost containment central to the thesis, but we expect the dividend yield of 5.4% to provide support. The thesis has now become differentiated, with a diversified business model that should be attractive to risk-averse investors and, despite margin pressure with changing mix, we remain buyers as we expect the restructuring programme to help hold margins,' the broker concluded.