Pharmion: Mixed Signals Prompt Caution on 2007 Outlook

We continue to believe the longer term prospects for Pharmion Corp. (PHRM) are still good although there have been a few mixed signals since our last reports in January 2007. In this period Satraplatin data was released and the Company released Q4 2006 and full year 2006 results. The Satraplatin data, though achieving the end point may have difficulty obtaining approval in Europe, the market owned by PHRM, due to lack of positive survival data. Pain free survival data is positive which may be enough for US approval (where GPC Biotech has the rights) but not in Europe.

In addition the sales of Vidaza have flattened out as shown in Q4 results published in February. We believe this trend will continue in to 2007. Sales of Vidaza continue to be affected by competition from Dacogen although this has had the effect of reducing the growth of Vidaza not eliminating the existing market. There may be increased revenues of Vidaza in 2009 assuming approval for treatment of high-risk MDS in Europe if positive data from the 360 patient survival data study currently underway is released by the end of 2007. Thalidomide, whose sales do not follow any real tend due to the nature of sales under a compassionate use program, were less than expected in Q4 2006. Thalidomide Pharmion sales will be boosted by approval in Europe of the filing for approval made in January 2007.

It is difficult to estimate the potential of the newly acquired drug Amrubicin. Sales were in the single digit million in Japan where it is approved for lung cancer. A pivotal trial for the drug for small cell lung cancer [SCLC] is expected by the end of 2007. Other catalysts in 2007 will be results from earlier trials of oral Azacitidine and MGCD0103; the latter drug is a novel HDAC inhibitor and a pivotal trial is expected in a hematologic malignancy in 2007 after positive Phase II is achieved and presented in 2007.

For these reasons, although we think the longer term prospects are good, we believe that valuation considerations call for the stock to trade between current levels of just under $27 to $30. This target may be exceeded by very positive news on clinical results in 2007

Disclosure: Author has no position in PHRM.

PHRM 1-yr chart