Jefferies still sees CROs as good opportunity, previews Q3 sales

By Lisa Kerner

Charlotte, N.C., July 17 - Jefferies & Co., Inc. analyst David Windley still sees the contract research organization (CRO) industry as a good opportunity.

The second quarter of 2006 was active with industry and investor conferences, Windley noted, adding that the average gain for stocks in the sector under Jefferies coverage is now approaching 13% year-to-date, topping major indexes, including drug and biotech.

The analyst points to continued strong overall financing for the biotech setor, even with a softer IPO window, as keeping demand high and RFPs flowing.

Jefferies is collecting data in support of the rapidly expanding phase 2-4 market. The company's investment recommendations are more weighted to late-stage companies.

Meanwhile, looking ahead to the third-quarter 2006, Windley provided assumptions for key products in Jefferies' coverage.

For buy-rated Endo Pharmaceuticals, Windley forecasts $135 to $140 million, with Lidoderm sales based on 943,000 prescriptions, a sequential increase of 10,000.

Jefferies' forecast for September quarter sales of Forest Laboratories (buy) Lexapro is $500 million, assuming 7.75 million prescriptions, down 1.5% from the June quarter. Windley blames the decline on Zoloft generics. Namenda sales should come in around $160 million, based on 1.4 million prescriptions.

Expect hold-rated Cephalon to experience Provigil prescription growth to accelerate its September quarter, according to the analyst. Jefferies third-quarter 2006 U.S. sales forecast for Provigil is $172 million, assuming a 21.5% year-over-year prescription growth.

Connetics (hold) has seen its topical steroid franchise (OLUX and Luxiq) decline for the past four quarters, a trend that is not likely to reverse. Windley is also not expecting a recovery for Soriatane as prescriptions remain flat.

Hold-rated ISTA Pharmaceuticals beat Jefferies second-quarter 2006 forecasts for both Xibrom and Istalol, with June flat. Sequential growth must resume for these two products to meet Jefferies' third-quarter forecasts.

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