PaineWebber notes on earnings and conference call. This is one of several
documents I hope to post in the next day or so.
sf
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April 15, 1998
AGOURON: STRONG FINANCIAL RESULTS; UPBEAT CALL
Key Points
1. Quarterly earnings meet our expectations and beats consensus
- Fiscal Q3 98 EPS of $0.41 was on target with our estimate and exceeded the
street concensus of $0.39. These results include $0.22 per share representing a
onetime milestone payment of $12 million from Roche upon Viracept approval in
Europe and Japan. Excluding this payment, EPS increased 30% relative to the
prior quarter.
- Viracept U.S. product revenues of $92.8 million were on target with our
expectations for the quarter and reaffirms our view that the product continues to
be well received in the market.
- Total product sales were $112 million representing a robust increase of 22%
versus the prior quarter. These sales include Viracept manufacturing revenues to
Roche of $19 million, $4 million higher than our estimate of $15 million, reflecting
recent market launchesin Europe, South America and Japan. Viracept is now
approved in 26 countries.
- Net income was #13.5 million representing an increase of nearly 300% versus
the prior quarter.
- Management guidance for Viracept U.S. revenues remains at $350-360 million
for FY 1998.
2. Viracept commands market leadership position among HIV antiretroviral
products
- According to the company, based on IMS DDD audit data which reflect sales
through all channels, Viracept commands the #1 position in terms of dollar sales
among HIV antiretroviral products on the market, including both protease
inhibitors and reverse transcriptase inhibitors (RTIs). In part, this is due to the
higher prices commanded by HIV protease inhibitors which are typically double
the cost of RTIs but is also reflective of strong market demand for Viracept.
- For the third consecutive month, Viracept has maintained its market leader
position among the HIV protease inhibitors in terms of dollar sales with its market
share increasing to 38%
- The company estimates approximately 100,000 patients are on Viracept
worldwide of which 85,000 are in the U.S.
- Based on February monthly IMS prescription data, Viracept holds a 30% market
share. The company estimates that Viracept achieved a record high in
prescriptions for March with approximately 70,000 prescriptions written through all
channels. We will be receiving March monthly IMS data later today.
-Management estimates that approximately 15% of patients are using Viracept in
a twice daily dosing regimen (BID). Additional interim data on the clinical study
for BID regimen confirms its equivalent efficacy to the current TID regimen.
3. Product pipeline news. As anticipated, Agouron provided an update on
its pipeline. These products represent potential upside to our earnings estimates
as we have yet to include any projections for these compounds in our financial
model.
-- MMP Inhibitor or AG3340 for cancer: Two pivotal Phase II clinical
studies have been initiated in combination with current chemotherapeutics to treat
non-small lung cancer and hormone refractory prostate cancer. We believe the
market launch for the product is likely to occur in 2001 with the potential to be a
multi-hundred million dollar product.
-- Rhinovirus protease Inhibitor: As we had anticipated, Agouron
announced a lead compound and has been selected for further development for
respiratory infections, a major market opportunity. The company indicated it
plans to complete Phase I clinical studies by yearend.
-- Product licensing activities: We continue to believe Agouron has a
number of product licensing candidates under discussion, primarily to augment its
HIV franchise, with a potential announcement in the next several months.
4. Reiterating Buy (1) rating. Viracept has achieved the best market
launch of any biotechnology product and represents the fourth best U.S. launch
of any drug with U.S. sales at a current annual run rate of nearly $375 million.
Our conviction regarding the significant market prospects for Viracept remains
intact. In our opinion, Viracept continues to be viewed as the optimal first line
protease inhibitor given its combination of durability and potency of effect, ease of
use, mild side effect profile, and favorable cross resistance profile. Our 12-month
price target is $65-70 based on our fiscal 2000 EPS estimate of $3.43 using a 25-
30% discount rate and a 30 multiple. The stock is currently trading at a P/E of
24.4x our 1998 calendar year estimate of $1.56 per share.
DETAILS
1. Quarterly earnings meet our expectations and beats concensus
- Fiscal Q3 98 EPS of $0.41 was on target with our estimate and exceeded the
street concensus of $0.39. These results include $0.22 per share representing a
onetime milestone payment of $12 million from Roche upon Viracept approval in
Europe and Japan. Excluding this payment, EPS increased 30% relative to the
prior quarter.
- Viracept U.S. product revenues of $92.8 million were on target with our
expectations for the quarter and reaffirms our view that the product continues to
be well received in the market. This represents a 10 percent increase from the
prior quarter.
- Total product sales were $112 million representing a robust increase of 22%
versus the prior quarter. These sales include Viracept manufacturing revenues to
Roche of $19 million, $4 million higher than our estimate of $15 million, reflecting
recent market launchesin Europe, South America and Japan. Given a relatively
small gross margin (approx. 5%) on manufacturing revenues, this has little impact
on earnings.
- Total revenues of $134.4 million also included contract revenues of $8.6 million
and royalty income of approximately $1.9 million on Roche sales of Viracept in
certain countries. Total revenues increased 28 percent relative to the prior
quarter.
(couple of lines of missing data from fax)
- Net income was $13.5 million representing an increase of nearly 300% versus
the prior quarter.
- Product gross margin continues to improve increasing to 66% this quarter
versus 63% in the prior quarter. Management guidance for gross margin is
approximately 64% for the fiscal year.
- Royalty expenses of $18.1 million representing payments on Viracept U.S. sales
to Japan Tobacco were approximately 19.5% of U.S. product sales, in line with
our expectations. Management guidance on JT royalty payments is a range of
20-21% of U.S. Viracept sales for next quarter.
- SGA expenses were $14.2 million for the quarter and are expected to be
approximately $58 million for the fiscal year. R&D expenses of approximately
$31.8 million were generally in line with our expectations and are expected to be
$120 million for the fiscal year.
UPCOMING MILESTONES
Marketing approval for Viracept in other countries -- Q2 1998
Additional clinical data on Viracept (World AIDS meeting in Geneva) -- June 28-
July3
Clinical results of Phase I/II dose ranging studies for MMP inhibitor (AG3340) --
mid-1998
Clinical results of Phase I dose ranging study for GART inhibitor (AG2034) --
mid-1998
Initiation of clinical studies for MMP inhibitor in acute macular degeneration -- H2
1998
Announcement of product licenses/acquisitions -- H2 1998
RISKS
- Stock volatility and speculative nature of biotechnology Investment
- Competition in the HIV protease inhibitor market
- Potential for resistance and cross resistance among HIV protease inhibitors
- Potential for manufacturing shortfalls
- Loss of major corporate collaborations |
