Agouron called tempting target for drug giants
By Thomas Kupper
STAFF WRITER
October 3, 1998
Could Agouron Pharmaceuticals go the way of Hybritech?
Twelve years after San Diego's first successful biotech was bought out by Eli
Lilly, rumors are circulating on Wall Street that San Diego-based Agouron
also will be acquired by one of the big drug companies.
Analysts say Agouron, maker of the popular AIDS drug Viracept, talked with
DuPont in the past several weeks without reaching a deal.
And even if a takeover is not imminent, many on Wall Street believe it could
be only a matter of time before DuPont or another company with its own
AIDS drugs makes a bid for Agouron.
"It doesn't only make sense with DuPont," said analyst Anthony Butler, who
follows Agouron for Lehman Brothers in New York. "It makes sense with
Abbott, and I think it makes sense with Bristol-Myers Squibb."
The success of Viracept makes Agouron attractive. The drug generated $409
million in sales in Agouron's most recent fiscal year, which ended in June, and
has become the most popular of the AIDS protease inhibitor drugs.
Both Abbott and Bristol-Myers are at work on new, improved protease
inhibitors, and both could give their AIDS business a boost by adding
Viracept.
For now, though, speculation about an Agouron takeover has centered on
DuPont. The Delaware-based chemicals giant has a promising new AIDS
drug, Sustiva, and is trying to build a presence in biotech.
Rumors of a deal between the companies contributed to a recent surge in
Agouron's share price, which has risen more than 70 percent since the end of
August. Though biotechs in general are recovering from a lengthy slump,
Agouron is still one of the top performers. In comparison, the Amex
Biotechnology Index has gained about 30 percent since Sept. 1.
An Agouron spokesman declined to comment on the possibility of a takeover.
The argument in favor of a marriage between DuPont and Agouron is that the
combined sales force could "cross-sell" Viracept and Sustiva, because the
same customers would be buying both drugs.
Agouron already has applied this theory itself by striking a deal to market
Remune, an AIDS drug from Carlsbad-based Immune Response Corp. that
is in late-stage trials.
And while some analysts see Sustiva as potential competition for Viracept,
there are studies that suggest the drugs work well together -- a combination
some think could become a common AIDS regimen.
"DuPont looks like an ideal candidate, because of the launch of Sustiva," said
analyst Elise Wang of PaineWebber in New York. "Given Agouron's success,
the two look like an obvious combination right now."
A takeover of a successful biotech would not be a new story in San Diego. In
the 1980s, the region's most successful biotech was Hybritech, which at one
time generated half the industry's sales nationwide.
Hybritech agreed to be acquired in 1986 by Eli Lilly, which has since sold the
company to Fullerton-based Beckman Instruments. Hybritech continues to
operate in San Diego, though with a much lower profile.
Two of the industry's current powerhouses, both based in the Bay Area, have
also sold stakes to major pharmaceutical companies. Roche holds a majority
stake in Genentech, while Novartis owns 45 percent of Chiron.
Wang said such deals stem from a fundamental paradox of biotech finance.
Once companies such as Agouron get a drug on the market, investors expect
large profits to justify the risks inherent in drug development. But to sustain
their success, biotechs must plow the profits back into research.
It is a pressing issue for Agouron, which recently acquired two early-stage
AIDS drugs and was already working on several cancer drugs.
The company has tried to resolve the financial conflict by proposing a
separate "tracking stock" for its cancer research division. That idea is subject
to shareholder approval.
In theory, the tracking stock would draw a line between the cancer work and
Viracept, thus relieving some of the financial tension between the two. The
parent Agouron stock would represent Viracept and other AIDS-related
work.
But Wang said another solution would be to simply sell the company. In the
hands of a much larger company, Agouron's research projects would
represent a smaller proportion of the budget.
Copyright 1998 Union-Tribune Publishing Co. |
