Abgenix Conference Call
Boston, Oct 16, 2003 (CCBN StreetEvents) -- Event Transcript of Abgenix
conference call, 16-Oct-03 6:00am PT.
Corporate Participants
====================
* Raymond Withy
CEO, President and Director - Abgenix, Inc.
* Brent Vose
VP and Head of Oncology Therapeutic Area - AstraZeneca
* Les Hughes
VP, Cancer Research - AstraZeneca
* Kurt Leutzinger
CFO - Abgenix, Inc.
====================
Conference Call Participants
====================
* Meg Malloy
Goldman Sachs - Analyst
* Felicia Reed
Adams Harkness & Hill, Inc. - Analyst
* Eric Ende
Merrill Lynch - Analyst
* Mahud Shunotta
JP Morgan - Analyst
* Mark Purcell
Deutsche Bank - Analyst
* Chip Gorran
FirstPoint Healthcare - Analyst
Presentation
Raymond Withy, CEO, President and Director - Abgenix, Inc. [1]
--------------------
Good morning everyone and thank you for joining us today on this call. It is my
pleasure to be here this morning with representatives from our new business
partner, AstraZeneca, as well as members of the Abgenix Management Team to
discuss today's news.
Before we begin, I must remind you that during the course of this conference
call, Abgenix may make projections or other forward-looking statements regarding
future events or financial performance. We caution you that such statements
reflect only the company's current expectations and that the actual events or
results may differ materially.
Please refer to the risk factors and cautionary language contained in the
documents that the company files with the Securities and Exchange Commission,
including the companies annual report on Form 10-K for 2002 filed on March 28th,
2003, for a description of the factors that may impact our result and the
outcome of any forward-looking statements. The company undertakes no obligations
to update any projections or forward-looking statements in the future.
The goal of today's call is to review the news announced earlier today about a
very significant oncology alliance between Abgenix and AstraZeneca. This is a
seminal event for Abgenix. And I'm delighted to be joined by Dr. Brent Vose,
Vice President and Head of Oncology Therapeutic Area; Dr. Les Hughes, Vice
President, Cancer Research; and Jonathan Hunt, Director Investor Relations from
AstraZeneca to further describe to you how this alliance advances both companies
strategic goals while working to bring the new ways of targeted oncology
products to patients.
Let me just take a few moments to highlight how we at Abgenix view this
strategic partnership and provide a bit of context. First, this collaboration
reinforces the fundamental role that antibodies play in oncology. A role that
has strengthened over the past decade and continues to be reinforced by new
clinical and scientific developments.
As a global leader in oncology recognizes the growing importance of antibodies
to the future of cancer care. We're pleased to be their partner of choice as we
take this next step into cancer biologics.
Second, we see this alliance as a resounding validation of our integrated
antibody development platform and the comprehensive set of capabilities in
antibody discovery, development and manufacturing that Abgenix has established.
Although this particular alliance is specific to oncology, it points to our
expertise in antibodies and the value of our underlying drug development
platform. Outside of this alliance we continue to apply our antibody development
expertise to build a diversified portfolio of products across many disease
areas.
Importantly, the structure of the alliance with a favorable equity investment
by AZ combined with expected payments to Abgenix throughout the collaboration
has the potential to provide Abgenix and its shareholders with significant value
now and over many years to come.
The equity investment enables us to operate confidently in the coming years,
while the cash payments during both development and commercialization will be
ongoing as specific research and manufacturing activities are conducted for the
portfolio.
We outlined in the release Abgenix expects to be fully reimbursed for the early
clinical development, process development and clinical manufacturing activities
which we conduct for the portfolio. We expect to manufacture products in the
collaboration during the first five years of commercial sales.
Separately, we will receive milestone payments at various stages of product
development and royalties on future product sales. Finally, the alliance
includes a co-development component to enable Abgenix to continue to generate
and develop oncology therapeutics independently, for which AstraZeneca cannot
for co-development. This is of critical importance to Abgenix's product
development strategy.
Today's news reflects another central pillar of the Abgenix strategy. A
collaborative approach to drug development and goal to create the network of
partners that advances our product development activities.
Clearly, today's announcement represents another important link in our network
of strategic alliances. We look forward to working with our new partner for a
very production collaboration that brings important antibody therapies to cancer
patients.
Now, before we open the call the questions, I would like to invite Dr. Brent
Vose from AstraZeneca to make some comments.
--------------------------------------------------------------------------------
Brent Vose, VP and Head of Oncology Therapeutic Area - AstraZeneca [2]
--------------------------------------------------------------------------------
Thanks, Ray, and good morning everybody.
Before I begin, I should remind you that we also intend to make use of the safe
haven provisions set out by Ray in his introductory remarks.
We are, of course, delighted with today's announcement. This alliance broadens
our approach to what is a core therapeutic area for AstraZeneca. We have had
considerable success in the discovery and development of innovative anti-cancer
therapies. And we think this deal will increase our chances of remaining the
leader in the cancer field.
As you know, AstraZeneca already has a leading position in anti-hormonal ,
strong novel approaches pipeline and sitisoxic development capabilities.
Antibodies are one of the proven areas of cancer research where we haven't yet
established a competitive position.
This alliance allows us to enter this area with what we consider to be the very
best technology and the best partner. Antibodies hold the promise of highly
targeted and effective anti-cancer therapies and may also provide the
opportunity to address cancer targets, obviously drug-able by small molecules.
So, overall, this alliance has a strong strategic fit for our growing oncology
business. It's a natural evolution of our current strategy and will add greatly
to our traditional strength in small molecules. Ray, over to you for the Q&A.
--------------------------------------------------------------------------------
Raymond Withy, CEO, President and Director - Abgenix, Inc. [3]
--------------------------------------------------------------------------------
So, we would like to take your questions now.
================================================================================
Questions and Answers
--------------------------------------------------------------------------------
Operator [1]
--------------------------------------------------------------------------------
Ladies and gentlemen, if you would like to ask a question, please key star one.
If you would like to withdraw your question, please key star two. Questions will
be taken in the order they are received. Please hold while your questions
register.
And your first question comes from Meg Malloy of Goldman Sachs. Please proceed.
--------------------------------------------------------------------------------
Meg Malloy, Goldman Sachs - Analyst [2]
--------------------------------------------------------------------------------
Good morning and congratulations.
--------------------------------------------------------------------------------
Raymond Withy, CEO, President and Director - Abgenix, Inc. [3]
--------------------------------------------------------------------------------
Good morning, Meg.
--------------------------------------------------------------------------------
Meg Malloy, Goldman Sachs - Analyst [4]
--------------------------------------------------------------------------------
Good morning. So, you guys have had a pretty busy week, haven't you? Just a
couple of questions on the convert itself. Could you talk about when it would be
convertible and under what conditions? An $60 million can convert to be
obtained?
--------------------------------------------------------------------------------
Raymond Withy, CEO, President and Director - Abgenix, Inc. [5]
--------------------------------------------------------------------------------
Sure. Let me handover to Kurt Leutzinger, our Chief Financial Officer, who's
here with us this morning.
--------------------------------------------------------------------------------
Meg Malloy, Goldman Sachs - Analyst [6]
--------------------------------------------------------------------------------
OK.
--------------------------------------------------------------------------------
Kurt Leutzinger, CFO - Abgenix, Inc. [7]
--------------------------------------------------------------------------------
Good morning, Meg.
--------------------------------------------------------------------------------
Meg Malloy, Goldman Sachs - Analyst [8]
--------------------------------------------------------------------------------
Good morning, Kurt.
--------------------------------------------------------------------------------
Kurt Leutzinger, CFO - Abgenix, Inc. [9]
--------------------------------------------------------------------------------
Altogether it's $100 million of convertible securities that pay zero interest
and zero dividends. AstraZeneca can convert them at $3.00 per share, which is a
122% premium to yesterday's closing price.
The 50 million matures in seven years and the second 50 million matures in 10
years. If, for some reason, the securities have not been converted to common
stock prior to the maturity date, then Abgenix can either pay them off in cash
or we can convert them at the market price of the common stock at that time.
Is there any other aspect that you'd like to?
--------------------------------------------------------------------------------
Meg Malloy, Goldman Sachs - Analyst [10]
--------------------------------------------------------------------------------
Yes, just the additional $60 million ...
--------------------------------------------------------------------------------
Kurt Leutzinger, CFO - Abgenix, Inc. [11]
--------------------------------------------------------------------------------
That is issued upon success of certain milestones. And they would be maturing
five years from the time of issuance. All of the terms of those securities are
identical to the initial securities.
--------------------------------------------------------------------------------
Meg Malloy, Goldman Sachs - Analyst [12]
--------------------------------------------------------------------------------
OK, fine. And if I may, just in terms of the antibodies -- have they been --
have any of the antibodies targets yet been chosen? And should we think about
minimal annual payments in terms of, you know, requisite work that might
required, you know, per year?
--------------------------------------------------------------------------------
Raymond Withy, CEO, President and Director - Abgenix, Inc. [13]
--------------------------------------------------------------------------------
Meg, let me briefly describe the structure of the collaboration. So, this
alliance is about developing a portfolio of novel targeted antibody therapeutics
in cancer. And so we have entered this alliance bringing our antibody
technology. AstraZeneca is bringing its oncology expertise.
The first portfolio of 36 antibody products that will flow through this
alliance. Some have already been developed and maybe moved into the alliance.
These come from Abgenix's existing preclinical portfolio. We indicated last
year, I think, that we would find a partner for the preclinical products that we
had developed.
But importantly, the companies will work together on the identification of
targets to put into the alliance. The companies will -- Abgenix will then use
its XenoMouse/XenoMax technologies to make panels of fully human antibodies.
We will then both conduct preclinical research to identify lead candidates.
Abgenix will then be responsible for the later preclinical and early clinical
activities. Abgenix will also be responsible for developing a sell line in
process sciences, manufacture of clinical material and eventual commercial
manufacture.
Now, we will each share our own expenses for the early discovery work and early
preclinical work. And from then on, AstraZeneca will pay Abgenix for the late
preclinical and early clinical work as well as all of the process sciences and
manufacturing work.
AstraZeneca will then be responsible for later stage clinical development and
commercialization at its own expense. So, what it does for us is provide medium
term revenue from our activities in early clinical process sciences and
manufacturing as well as later stage for royalties.
Along the way, may receive milestone payments as we reach various stages of
development. So, that gives you an overview, I think, of the deal's structure.
We're obviously not going to disclose or estimate current payments, but that
roughly shows when and in what general order the activities will be performed
in.
--------------------------------------------------------------------------------
Meg Malloy, Goldman Sachs - Analyst [14]
--------------------------------------------------------------------------------
Thank you very much.
--------------------------------------------------------------------------------
Operator [15]
--------------------------------------------------------------------------------
And your next question comes from Felicia Reed of Adams Harkness. Please
proceed.
--------------------------------------------------------------------------------
Felicia Reed, Adams Harkness & Hill, Inc. - Analyst [16]
--------------------------------------------------------------------------------
Yes, congratulations again, you guys. It's a fabulous deal.
I just wanted to ask a question about the 60 million in convertible preferred
stock. Is that per product or how does that work?
--------------------------------------------------------------------------------
Kurt Leutzinger, CFO - Abgenix, Inc. [17]
--------------------------------------------------------------------------------
No, it's in total.
--------------------------------------------------------------------------------
Felicia Reed, Adams Harkness & Hill, Inc. - Analyst [18]
--------------------------------------------------------------------------------
OK.
--------------------------------------------------------------------------------
Kurt Leutzinger, CFO - Abgenix, Inc. [19]
--------------------------------------------------------------------------------
And it comes in two $30 million bits. So, the first 30 million for one set of
milestones. The second 30 million for the second set of milestones.
--------------------------------------------------------------------------------
Felicia Reed, Adams Harkness & Hill, Inc. - Analyst [20]
--------------------------------------------------------------------------------
OK. OK, and it's not per product? It's based on kind of overall progress with
the collaboration?
--------------------------------------------------------------------------------
Kurt Leutzinger, CFO - Abgenix, Inc. [21]
--------------------------------------------------------------------------------
Correct. Yes.
--------------------------------------------------------------------------------
Felicia Reed, Adams Harkness & Hill, Inc. - Analyst [22]
--------------------------------------------------------------------------------
OK.
--------------------------------------------------------------------------------
Kurt Leutzinger, CFO - Abgenix, Inc. [23]
--------------------------------------------------------------------------------
We would not anticipate those being issued, if ever, for several years.
--------------------------------------------------------------------------------
Felicia Reed, Adams Harkness & Hill, Inc. - Analyst [24]
--------------------------------------------------------------------------------
OK. OK, terrific. That's the only question I have. Thank you.
--------------------------------------------------------------------------------
Raymond Withy, CEO, President and Director - Abgenix, Inc. [25]
--------------------------------------------------------------------------------
Thanks, Felicia.
--------------------------------------------------------------------------------
Operator [26]
--------------------------------------------------------------------------------
And your next question comes from Eric Ende of Merrill Lynch. Please proceed.
--------------------------------------------------------------------------------
Eric Ende, Merrill Lynch - Analyst [27]
--------------------------------------------------------------------------------
Thanks for taking my question. With respect to the deal itself, you're talking
about 36 cancer targets.
I know you guys had a bunch of preclinical programs that you had been working
on. I think it was like north of 40 already. I guess what I'm trying to get at
here is within these 36 cancer targets, are you also talking about projects that
had already been underway, that already have pre-clinical packages, at least a
certain portion of them, or are these strictly targets?
--------------------------------------------------------------------------------
Raymond Withy, CEO, President and Director - Abgenix, Inc. [28]
--------------------------------------------------------------------------------
It's a mixture of both, and at the moment, it's a little too early to say which
will advance into the collaboration at what rate.
We have put our oncology pre-clinical portfolio into this collaboration. We
have excluded certain of the product candidates that we have, but ...
--------------------------------------------------------------------------------
Eric Ende, Merrill Lynch - Analyst [29]
--------------------------------------------------------------------------------
That's based on what, how much work you have already done on them?
--------------------------------------------------------------------------------
Raymond Withy, CEO, President and Director - Abgenix, Inc. [30]
--------------------------------------------------------------------------------
Eric, it's difficult to really describe what has been excluded, a certain
number of excluded products were chosen. But fundamentally we have chosen
AstraZeneca to work with us to develop as many oncology targets as we can. As I
said, some will be starting off at the target stage, and some may be introduced
into the collaboration from the pre-clinical portfolio we already have.
I think the way to look at this, is that the portfolio of 36, some, most, many
could start at the target stage, some would start later and then over time, that
36 will whittle down into a number that will enter the clinic and then hopefully
depending upon clinical success, there will be a number of marketed products
that will emerge from this.
--------------------------------------------------------------------------------
Eric Ende, Merrill Lynch - Analyst [31]
--------------------------------------------------------------------------------
OK, so should we assume that each one of these targets or each one of these
projects has the same type of milestones, the same type of royalties, or would
ones that already have work done on them, have higher royalty rates, because
they already have some kind of package behind them?
--------------------------------------------------------------------------------
Raymond Withy, CEO, President and Director - Abgenix, Inc. [32]
--------------------------------------------------------------------------------
There is a range of economic values and as defined by royalties and, for each
of the products, and it's not unreasonable to assume that products that either
have a proprietary position or later developed, may be worth more. But we're not
really going into the actual specific numbers for each specific products.
--------------------------------------------------------------------------------
Eric Ende, Merrill Lynch - Analyst [33]
--------------------------------------------------------------------------------
And are all of these products or projects you will be the primary manufacturer
at least early on.
--------------------------------------------------------------------------------
Raymond Withy, CEO, President and Director - Abgenix, Inc. [34]
--------------------------------------------------------------------------------
Yes, we, as you know, we have built a significant manufacturing capability both
to be able to supply material for all stages of clinical development, as well as
to be able to launch product and supply the early-market phase. It's our
intention to use our capabilities and provide that for all of the products in
this collaboration.
--------------------------------------------------------------------------------
Eric Ende, Merrill Lynch - Analyst [35]
--------------------------------------------------------------------------------
Can you talk a little bit more then about the capacity that you currently have
on a leader basis, but also on a, on a more of, how many products at once can
you really work on, within the manufacturing plant?
--------------------------------------------------------------------------------
Raymond Withy, CEO, President and Director - Abgenix, Inc. [36]
--------------------------------------------------------------------------------
Yes, that's a good question. It really depends. You know, this plant has been
built with a portfolio in mind. It could supply for a number of years, a product
that's perhaps already on the market. It certainly can supply product for a
number of products, that may be in late-stage clinical development, and as you
know, just a couple of days ago, we announced that ABXCGF , our lead oncology
product will be manufactured in our plant in preparation for potential launch of
ABXCGF .
--------------------------------------------------------------------------------
Eric Ende, Merrill Lynch - Analyst [37]
--------------------------------------------------------------------------------
Yes, and basically what I'm getting at then is let's assume that ABXCGF is
launched, let's just call it, you know, early '06 or something like that, or
late '05, and the initial commercial manufacturing is occurring at that plant,
does that reduce, how much does that reduce your ability to actually bring some
of these projects into the, into your manufacturing plant?
--------------------------------------------------------------------------------
Raymond Withy, CEO, President and Director - Abgenix, Inc. [38]
--------------------------------------------------------------------------------
No, our plant has a enormous flexibility. First of all, it's two plants in one,
so we can have multiple products in the plant at any one time. On one side of
the plant, we could be manufacturing it large-scale for the market. And the
other side of the plant, we could be putting many, many products through each
year to prepare for either Phase I, Phase II or even Phase III clinical trials.
That's why we built it the way we did, so we could support an ongoing portfolio
for the development of multiple products.
And we're very pleased that we will be able to support, totally, the
development of the portfolio of products that we're developing with AstraZeneca.
--------------------------------------------------------------------------------
Eric Ende, Merrill Lynch - Analyst [39]
--------------------------------------------------------------------------------
OK, is there any change in you projections for your burn rate, based on this
deal?
--------------------------------------------------------------------------------
Raymond Withy, CEO, President and Director - Abgenix, Inc. [40]
--------------------------------------------------------------------------------
When for this year, we've really not disclosed our burn rate as you know, we've
been able to measure it along the way.
--------------------------------------------------------------------------------
Eric Ende, Merrill Lynch - Analyst [41]
--------------------------------------------------------------------------------
But in a way you have, you've always said you'll have three years of cash left
by the end of this year.
--------------------------------------------------------------------------------
Raymond Withy, CEO, President and Director - Abgenix, Inc. [42]
--------------------------------------------------------------------------------
And that obviously will still hold. Now we are having a quarterly conference
call next week for our regular quarter three earnings conference call, and so
we'll be able to shed a little bit more light on the financial impact of this
transaction and the events of this week. So let's save that up for next week.
--------------------------------------------------------------------------------
Eric Ende, Merrill Lynch - Analyst [43]
OK, one more question. Yesterday I guess it was, or whenever it with Amgen, you
signed a deal, which altered your deal and same thing here. The question is, is
there a standstill provision in either one of these deals or both of them. |
