Seeking Alpha
, PropThink (373 clicks)
Long/short equity, deep value, event-driven, newsletter provider
Profile| Send Message|
( followers)  

By Jake King

Affymax (OTCPK:AFFY) and partner Takeda (OTCPK:TKPYY) announced Monday that Omontys, their erythropoietin stimulating agent (ESA), became the subject of a supply contract with dialysis supplier DSI Renal, Inc. This marks the 5th supply contract with a mid-sized dialysis organization (MDO) of 6 total organizations in the U.S. Investors are waiting to hear information from AFFY management later this week (presenting Thursday at the JP Morgan Healthcare Conference in San Francisco) related to improving prescription trends for Omontys since weak monthly data was posted in November, which was likely an anomaly due to bad weather (hurricane Sandy) and lumpy ordering patterns from dialysis providers (see prior story).

Monday's news is incrementally positive, with analysts estimating the potential for approximately $33 million in annual Omontys revenues from the DSI Renal agreement, assuming full penetration into DSI's 80 dialysis centers and a discount of about 15% to Amgen's (NASDAQ:AMGN) Epogen. As Medicare continues to pay less per dialysis patient (the "bundle"), we believe dialysis providers will prefer lower-cost products (like Omontys vs. Epogen) to increase or maintain long-term profitability.

The main event for AFFY would be an expanded supply contract with Fresenius Medical (NYSE:FMS), one of the two largest dialysis provider in the U.S. For reference, Fresenius has 2,100 dialysis centers across the U.S., 20x larger than DSI Renal. Importantly, analysts are not modeling in a long-term supply agreement with FMS, and if one should occur, whereby Omontys can gain a disproportionate share of ESA use in FMS centers, there would be significant upside to estimates for AFFY.

Expect shares of AFFY to continue to trade higher throughout the week into the company's presentation on Thursday at 1pm PST. Upside could continue through Friday if the company notes that prescription trends in November were, in fact, an anomaly, and that they continued substantially higher in December. Official prescription trends for Omontys in December should become available in the middle of this month. Note that the stock should continue to trade around prescription trends as Omontys continues to roll out in the marketplace, and a larger supply contract with FMS would send the shares higher, if announced.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: PropThink is a team of editors, analysts, and writers. This article was written by Jake King. We did not receive compensation for this article, and we have no business relationship with any company whose stock is mentioned in this article. Use of PropThink’s research is at your own risk. You should do your own research and due diligence before making any investment decision with respect to securities covered herein.You should assume that as of the publication date of any report or letter, PropThink, LLC and persons or entities with whom it has relation ships (collectively referred to as "PropThink") has a position in all stocks (and/or options of the stock) covered herein that is consistent with the position set forth in our research report. Following publication of any report or letter, PropThink intends to continue transacting in the securities covered herein, and we may be long, short, or neutral at any time hereafter regardless of our initial recommendation. To the best of our knowledge and belief, all information contained herein is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable, and not from company insiders or persons who have a relationship with company insiders. PropThink was not compensated to publish this article. Our full disclaimer is available at www.propthink.com/disclaimer.

Source: Affymax's Omontys Gets Another Dialysis Supply Agreement