GS take on AZ deal: ABGX (IL/N): AstraZeneca alliance strategic for pipeline and cash
52-Week Range US$17-5
YTD Price Change 82.90%
Market Cap US$1.2bn
Fiscal Year (ending in Dec)
2002 2003E
US$-1.52 US$-1.97
Abgenix and AstraZeneca announced this morning, a strategic collaboration for the joint
development of antibodies to up to 36 cancer targets. As part of the agreement
AstraZeneca plans to invest $100M in Abgenix convertible preferred stock, with $50M
convertible at $30 per share in 7 and 10 years, and possibly an additional $60M in
convertible preferred stock, depending on the achievement of certain milestones. Abgenix
will receive milestone payments as candidates progress and royalties on potential sales.
The companies may also develop additional candidates on an equal cost and profit sharing
basis. We believe that this partnership provides solid leverage to Abgenix technology in
oncology. On the heels of the amended agreement announced with Amgen earlier this
week, Abgenix has significantly strengthened its balance sheet. We maintain In-Line
rating and Neutral coverage view. Key risks include potential clinical failures, long
development timeframes and volatility in the biotech sector.
INVESTMENT OUTLOOK: We believe that Abgenix is trading at an attractive
valuation for long-term oriented investors. Abgenix is distinguished by its ability to make
fully human antibodies to a broad range of targets, a platform technology that can fuel an
expansive, diversified pipeline. Abgenix has established a blue chip partner list and a
growing roster of proprietary therapeutic antibodies. Abgenix' most advanced candidate,
ABX- EGF is a cancer antibody in development with Amgen. Phase II data and plans for
pivotal development will likely be important valuation drivers. Over the next several
years, we expect a range of new antibodies to enter the clinic on a proprietary and partnered basis.
We maintain In-Line rating and Neutral coverage view.
I. COLLABORATION WITH ASTRAZENECA
** Technology validation **
Antibodies to up to 36 cancer targets will be selected. AstraZeneca will have exclusive commercial
rights to these candidates, and Abgenix will receive development milestone payments as candidates
progress through the clinic as well as potential royalties on future sales. Milestone and potential
royalty payments will likely differ from program to program. For these candidates, Abgenix will
conduct early clinical testing, process development, early clinical manufacturing, and
manufacturing for the first 5 years of commercial sales. AstraZeneca will pay Abgenix for its work
at competitive market prices. It is not clear at this point when the first antibody candidates may
enter the clinic.
The deal with AstraZeneca will not impact oncology programs already in place with
pharmaceutical and biotechnology partners. While we would not expect to see additional broad
collaborations in the oncology setting, we think it possible that other strategic alliances could be
formed in different focus areas, such as inflammation, infectious disease, or metabolism. Abgenix
has established over 50 collaborations with biotechnology, pharmaceutical and academic partners.
** Expanding proprietary reach **
In addition to antibodies to the 36 targets, the collaboration provides for the development of a
separate pool of antibodies by Abgenix, with the potential for 50/50% cost and profit sharing
between the companies.
** Solid cash infusion **
AstraZeneca plans to invest $100 million in convertible preferred stock, upon closing of the deal.
There is no interest and no dividend payment required. The stock is convertible at $30 per share, in
7 years for the first $50 million and in 10 years for the remaining $50 million. In addition,
depending upon the achievement of unspecified milestones, Abgenix could require AstraZeneca to
invest in another $60 million in convertible preferred stock.
II. NICE LEVERAGE OF ABGENIX MANUFACTURING CAPACITY
Abgenix has completed construction of its manufacturing facility, which is capable of producing
200-400 Kg of material annually. Given the typically high production requirements for antibody
therapeutics, we regard the facility as a strategic asset. In addition to programs selected for
development with AstraZeneca, Abgenix plans also to manufacture clinical and initial commercial
supply of lead antibody candidate, ABX-EGF, in development with Amgen.
=== 2003 milestones ===
* Phase II data for ABX-EGF monotherapy in second and third line colon
cancer at ASCO
- Fremont manufacturing facility to come on line
=== 2003/2004 milestones ===
- Phase II ABX-EGF monotherapy time-to-progression data in renal cancer
- Phase II data for ABX-EGF monotherapy in prostate cancer
- Phase II data for ABX-EGF combination therapy in non-small cell lung
cancer
- Phase II data for ABX-EGF combination therapy in first-line colon cancer
- Phase I data for ABX-MAI in cancer
* Milestone attained
I, Meg Malloy, hereby certify .. |
