My notes from the stockholder's meeting
The following are my notes from ICOS' meeting today. Right up front I will point out that I am not a biotech professional so feel free to point out technical errors that I have made. Simple English language is not part of the biotech experience. Of course the topic isn't simple so that isn't a surprise. When in doubt, contact investor relations or the SEC filings.
The Crowds Gather
Either we were later than last year or the food enticed more folks in early. We had a tough time finding a place to sit and enjoy the tea and pastries. There was health food there too. In general the crowd was the same as last year's: mostly older folks. None of the families with small children showed up this year. Toddlers listening to anecdotes about erectile dysfunction makes for an odd mix. The room looked to hold about 400 and only half of the seats were needed. Free samples of Cialis would have been the thing to upstage Bill Gates' quiet and uneventful attendance.
The Official Meeting
Everything passed. The 88.8% of the votes present were enough for a quorum. The past year's meeting minutes are available by contacting the company Secretary; which is something I might do some day. The official meeting was concluded within ten minutes.
Operating Report
The CEO gave an overview of the presentations to follow.
His summary was along the lines of 2002 being exciting with disappointments. The Cialis' (erectile dysfunction) US delay and Pafase's (severe sepsis) termination were the two disappointments that he mentioned. The successes were the marketing of Cialis in the rest of the world and the progress throughout the pipeline. He was proud of a solid pipeline and a good cash position ($300M).
In 2003 they are looking forward to an FDA decision on Cialis. As I understand it they are very careful to not say FDA approval. The statement from Lilly about progress was considered to not be the preferred means to announce their position. ICOS prefers to announce progress after the fact, not before. Early announcements give competitors unnecessary advantages. He also mentioned the phase 2 progress on psoriasis and chronic obstructive pulmonary disease.
VP Development and Chief Medical Officer - David Goodkin
David presented the technical side of the non-Cialis work. His emphasis was on the molecules in development to relieve patient suffering. That was a nice counterpoint to the other possibility of products and markets developed for a profit; though both are true.
Tadalafil, which is Cialis when used for something other than male erectile dysfunction, is being investigated in a phase 2 trial for diabetic gastroparesis. This is a digestion issue with diabetics that can be very disruptive and even interfere with the absorption of insulin. Of the 11,000,000 diabetics in the US, 30%-50% experience this and some subset of that group will require such a medication. Currently it sounds like extreme cases are treated surgically.
Psoriasis is being targeted with IC747 which began phase 2a trials in 2Q03. Because it is a small molecule it can be taken orally so there might be fewer side effects. It works by impeding the activation of T-cells. There are 4,000,000 US patients and the market for the injectible drugs is estimated at $4B. They hope to move this drug along rapidly.
RTX for interstitial cystitis is a drug for alleviating severe bladder pain. Extreme cases must run to the bathroom every 15 minutes which makes it difficult to have a job or get some sleep. There are few competitors for a market of 700,000 US patients who are mostly women. Phase 2 trails started 1Q03. The preliminary data shown suggested that the pain and urination frequency measures were cut in half. I believe this is an Italian study but didn't capture that in my notes.
IC14 treats sepsis; not severe sepsis like Pafase. It blocks the inflammatory response that is associated with pneumonia. This is used earlier than Pafase would have been. Phase 2 trials began August 2002.
IC 485 treats chronic obstructive pulmonary disease which is the clogged bronchial tubes that 15% to 30% of smokers get. There are 16,000,000 US smokers and the current treatments are largely ineffective. This is another small molecule so it can be taken orally. Phase 1 is complete.
VP Sales and Marketing - Leonard Blum
The discussion was understandably solely about Cialis. He was very pleased with the exposure that the press has provided. The product is now available in 30 countries. It is too early to claim converts from Viagra or market chare information. They don't have a view into how much of the sales go to inventory stocking versus patient demand. They expect that some men are trying Viagra, Cialis, and Glaxo's product. They hope to expand the market in 2H03. He showed a video of a series of news clips from the non-US markets. There was a revenue projection of $2B in one of the clips but I can't remember if that was for ICOS/Lilly or the total marketplace.
Questions and Answers
This was one of the longest Q&A sessions I have sat through. I didn't copy the discussion verbatim so what follows is my paraphrasing of what I heard.
> Glaxo's Viagra competitor is being sold in Europe and is expecting an FDA decision in August 2003.
> Cialis is being sold in 10mg and 20 mg dosages at the request of the European regulators. The price and efficacy are same for both dosages.
> Viagra is offering a 7 tablet sampler via TV ads. Cialis might do TV ads but the CEO didn't mention sampler sets.
> They haven't acquired data from diabetics taking Cialis with regards to gastrointestinal benefits.
> IC747 has lots of competition but ICOS' oral product should sell better than the injectables. The psoriasis market is potentially $4B.
> ICOS has a strength in tackling inflammatory diseases but is too small to branch out there yet.
> I missed what they had to say about partnering strategies.
> ICOS is too small to branch off a piece to work on SARS.
> Form 483 refers to the FDA inspection of Lilly's Cialis manufacturing line. This issue is not considered critical path.
> Third party reimbursement account for 40% but of what I didn't catch; was it revenue, profit, risk payments?
> ICOS may need cash but has no plans and sees no advantages to providing existing shareholders preferential access to such an opportunity.
> One stockholder requested that ICOS work less on male pleasure and more on male contraception. This raised a chuckle but I am sure that she was serious.
> Cancer treatments via a novel approach are in the research phase.
> Cialis on the Internet is priced 50% higher than Viagra. That is not in ICOS' control. In Europe Cialis is about the same price as Viagra.
> The three most exciting non-Cialis items based on stage of research and market size are: psoriasis treatments, chronic obstructive pulmonary disease treatments, and Cialis spin-offs.
> The resubmittal timeline for the approvable letter is six months. Just because I typed it and it is English doesn't mean I understand it.
> A discussion of side effects of Cialis and its competitors went right by me.
> Changes in corporate reporting was largely been to require the CEO and CFO to sign the SEC filings as accurate and have made them accelerate their filings.
> Today's Lilly statement was accurate and not the way ICOS likes to do business, but the CEO's response wasn't unprofessional or emotional.
> ICOS gave out a record number of options in the same year that the stock took its biggest drop. This is largely due to two year's of options being bookkept in one year. The next year should not have the same event.
> Cialis does not lower sperm count but the 6 month trail wasn't enough for the Europeans so ICOS will conduct a 9 month trial.
> ICOS receives a 10% royalty payment from Lilly in those areas that are exclusively Lilly's. Evidently those are smaller markets.
> IC14 treatment for sepsis is a tough trail to select patients for but they look for people that are sick enough but do not have organ failure. That is where severe sepsis comes in.
> They had no comment on the Pfizer litigation.
> The FDA now has a leader and ICOS is encouraged but it is too early to tell if the approval process has sped up.
Conclusions
As with most small biotechs the first product is incredibly important. The delays in Cialis would be easier for a large company to absorb. Such a large cash position ($300M) definitely helps but there are no guarantees that the FDA or the marketplace will be kind. The upside of course is that with FDA approval and a superior product, Cialis can help ICOS survive long enough for other products in the pipeline to establish themselves and the company. Neither outcome is obvious and that is why this is a risky stock.
The valuation of any biotech is tough but I must admit to some hesitancy given the market cap of about $1.5B for a company that has a product out the door but might be a year from significant revenues. Granted those revenues can be very significant but I suspect there are other companies with similar potentials that have smaller valuations. It is hard for me to quantitatively assess that though. My wife has some shares in an IRA and I'll keep my eyes on this one.
Disclaimer (LTBH)
My wife is the one that owns shares in ICOS. I attend because I am interested in their research work into novel antibiotics though they weren't mentioned this time. Like I said at the beginning: I am not a professional so don't be surprised if I got something wrong. These notes are what I heard, not necessarily what the company thought they said. Communications can be a bite, eh? |
