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Complete Lehman Bros report (last page or so previously omitted):
Headline: Agouron Pharm.: Reports FY1Q Results Ahead of Expectations; Maintain Buy
Author: CA Butler,PhD/R.Rouse (212)526-4410
Company: AGPH
Industry: BIOTEC
Ticker : AGPH Rank(Prev): 1-Buy Rank(Curr): 1-Buy
Price : $53 1/4 52wk Range: $57-21 Price Target:$73
Today's Date : 10/08/97
Fiscal Year : JUN
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EPS 1997 1998 1999 2000
QTR. Actual Prev. Curr. Prev. Curr. Prev. Curr.
1st: -0.57A 0.07E 0.11A - -E - -E - -
2nd: -0.47A 0.11E 0.13E - -E - -E - -
3rd: -0.19A 0.28E 0.34E - -E - -E - -
4th: 0.09A 0.13E 0.18E - -E - -E - -
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Year:$ -1.13A $ 0.59E $ 0.75E $ 1.40E $ 1.80E $ - $ 2.48
Street Est.: $ 0.47E $ 0.50E $ 1.49E $ 1.53E $ - - $ - -
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Price (As of 10/7): $53 1/4 Revenue (1998): $412 Mil.
Return On Equity (97): N/M Proj. 5yr EPS Grth: N/M
Shares Outstanding: 33.2 Mil. Dividend Yield: N/A
Mkt Capitalization: $1.8 Bil. P/E 1998; 1999 : 71.0 X; 29.6 X
Current Book Value: $6.15/sh Convertible: None
Debt-to-Capital: N/M Disclosure(s): C
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* Agouron reported FY1Q98 results of $0.11 versus ($0.57). This was solidly
ahead of the $0.05 Street consensus as well as our recently improved $0.07
estimate.
* Total patients receiving Viracept are in excess of 60,000 currently, with
roughly 2,000 to 3,000 new patients per week being added.
* Data will be presented later this month at an AIDS meeting in Hamburg
illustrating Viracept's effectiveness as a twice per day agent. A larger study
should be available at similar meetings in Chicago.
* We therefore believe demand will continue, and are again increasing our
estimates for this year and next. Estimated sales of Viracept this year
should approach $345 million and $460 million in FY 1999.
* As the momentum in Viracept continues, so should Agouron's stock.
Accordingly, we reaffirm our 1-Buy rating at this time.
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FINANCIAL SUMMARY -Agouron
Pharmaceuticals reported impressive fiscal first quarter results of
$0.11 per share versus a $0.57 loss a year ago. This compares quite favorably
to our recently improved $0.07 estimate which was the highest on the Street
(and a $0.05 consensus number). Revenues for the quarter were led by $79.5
million in Viracept sales - 18% ahead of our newly forecasted $67.4 million.
Contract R&D of $12.3 million was slightly below the $15.0 million in our
model, however total revenues of $91.9 million exceeded our model by 11%. A
57% gross margin compares to our 60% forecast. On the operating spending
front, R&D actually declined by 9% to $26.9 million and was shy of our
projected levels by over $800,000. SG&A of $12.5 million also came in below
estimates of $13.1 million. Operating income of $4.9 million (a 5.4% margin)
compared to a loss last year and our forecasted $2.5 million (a 3.0% margin).
Nominal interest income and a 40% tax rate (exactly as we had expected)
provided for net income of $3.6 million, or a 64% improvement over our $2.2
million estimate. At the end of the quarter, Agouron had cash and equivalents
of nearly $99 million, or $2.98 per fully diluted share.
We are again increasing our estimates to reflect strong Viracept demand which
we believe will continue, especially as data on its use twice per day (bid')
becomes available (note comments below). Our revenue estimates move to $345million in FY 1998 and that in FY 1999 to $460 million. Earnings per share
will increase to $0.75 this year and more than double to $1.80 next. Leverage
will be driven not only from sales expansion, but also via gross margin
leverage.
PRODUCT SUMMARY -Prescription
trends for Viracept obviously continue to be quite robust as an
estimated 60,000 patients are in drug and 2,000 to 3,000 are added weekly.
Data from early in the launch showed 2/3rds of new patients switching from
other protease inhibitors (PIs), though the trend has actually reversed with
2/3rds now coming on drug as PI-naive. We fully expect sequential growth for
the remainder of the year. Recall that we anticipate a FY3Q European launch
as well as Japanese approval by yearend.
Certain constituencies may believe that clinical data presented at the recent
ICAAC conference is suggestive that protease inhibitors are not as powerful as
many believe. We strongly disagree and actually believe that data presented
bodes quite well for the utility of a potent PI in a combination cocktail of
an AIDS patient. We also believe that beyond potency and the all-important
resistance issues, a driving factor in the ultimate utility of a PI will be
ease of use and tolerability. On a comparative basis with the other PIs on
the market, we argue that Viracept is one of the best positioned and stands to
capture a growing percentage of the market. In tracking both retail and mail
order prescription trends on a weekly basis, we notice that Viracept has been
gaining share consistently since launch. Management would add that its
shipments to wholesalers (not captured in the IMS data we receive) continue to
be strong and are actually at record levels.
New clinical data will be provided at the upcoming AIDS meeting in Hamburg,
Germany later this month. Highlights should include data presented in a late-breaker
session from a small pilot study (n=9 or 10) dosing Viracept 1250 mg
bid in combination with d4t and 3TC. There will also follow-up pediatric data
and preliminary data from a combination study in conjunction with Nelfinavir,
Saquinavir, and 2 RTIs. Though not to be presented at Hamburg, the company
will also shortly begin combination efficacy studies w/ Dupont-Mercks' DMP-266;
recall the level of excitement created at ICAAC by this compound in
combination with Merck's Crixivan. Early pk data from the Viracept/DMP-266
combo suggests an increase in Viracept blood levels, whereas similar studies
of DMP-266 and Crixivan showed a decrease in Crixivan blood levels.
CONCLUSION -Our
estimates for Agouron are again being raised. It is our judgment that
sequential growth will continue, not only for revenues, but for earnings.
Over 7.0 million shares of Agouron remain short and could capitulate as
estimates continue to be changed. Our rating remains BUY-1 as we believe the
stock will move higher.
BUSINESS DESCRIPTION: Agouron is a biotechnology company with a rational drug
design platform technology focused on the development of novel therapies for
cancer, AIDS, and other life-threatening diseases.
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Disclosure Legend: A-Lehman Brothers Inc. managed or co-managed within the
past three years a public offering of securities for this company. B-An
employee of Lehman Brothers Inc. is a director of this company. C-Lehman
Brothers Inc. makes a market in the securities of this company. G-The Lehman
Brothers analyst who covers this company also has position in its securities. |
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