GS Report: ABGX (IL/N): Steady clinical, partner
progress, increasing loss estimate
52-Week Range US$17-5
YTD Price Change 71.10%
Market Cap US$1.1bn
Abgenix reported Q3 2003 operating loss of $43.6M or ($0.50) per share versus our
estimate of $37.2M or ($0.42) and consensus of ($0.39) per share. We have increased our
2003 operating loss estimate to $161.6M from $145.4M, to ($2.16) from ($1.97), based
mainly on lower revenues and higher expenses. Abgenix recently strengthened the
balance sheet with the restructuring of its alliance with Amgen and a new deal with
AstraZeneca, providing for a $100M equity investment. The primary long-term valuation
drivers will be clinical progress with candidates in the pipeline. We expect further Phase
II data on cancer antibody ABX-EGF in the next 12 months. The company believes
pivotal studies could be initiated late 2003 early 2004. 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. Over the next two years, we expect a
range of new antibodies to enter the clinic on a proprietary and partnered basis. Maintain
IL/N rating.
I. FINANCIAL REVIEW AND OUTLOOK
** REVIEW - HIGHER LOSS ON OPERATING BASIS **
Abgenix reported Q3 2003 operating loss of $43.6 million or ($0.50) per share versus our estimate
of $37.2 million or ($0.42) and consensus of ($0.39) per share. Contract revenues of $2.0 million,
were below our $4.0 million estimate, but tend to fluctuate from quarter to quarter.
Operating expenses of $47.6 million were higher than our $42.5 million estimate. Beginning in 1Q
2003, the company has introduced a line item of manufacturing start-up costs which are separate
from R&D expenses, and were $10.3 million for 3Q, vs our $6 million estimate. R&D expenses of
$26.0 million were up sequentially from $20.7 million in Q2 2003, and were lower than our $28.0
million estimate. SG&A expenses of $7.8 million was also up sequentially, and above our $6.7
million estimate.
** OUTLOOK - 2003 REVENUES LOWERED, NET LOSS INCREASED **
We have lowered our revenue estimate for 2003 to $15 million from $20 million based on lower
than expected contract revenues in the quarter. We caution that these revenues are difficult to
predict. We have increased our 2003 operating loss estimate to $161.6 million from $145.4 million.
Including a $28 million charge in the 2Q, related to the cancellation of a manufacturing agreement
with Lonza Biologics, our net loss estimate for 2003 is $189.6 million. We have increased our net
loss estimate to ($2.16) from ($1.97).
We have slightly lowered our R&D estimate for 2003 to $98 million from $100 million, based on
lower than expected R&D in the quarter. Our estimates for manufacturing start-up costs have
increased to $74 million from $65 million, based on higher-than-expected costs incurred in the
quarter.
Abgenix ended the quarter with $267.4 million in cash and marketable securities, $23 million in
long-term investments and $200 million in convertible debt, due March 2005. We anticipate an
additional $100 million from the expected investment in convertible preferred stock by
AstraZeneca. In addition we look for a $60 million cash advance from Amgen, after each company
has contributed $20 million to the ABX-EGF collaboration in 2004.
II. COLLABORATION HIGHLIGHTS IN 3Q
** AstraZeneca in new collaboration **
Last week, Abgenix and AstraZeneca announced 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. 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.
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. We believe that this partnership provides solid leverage to Abgenix
technology in oncology.
** ABX-EGF Collaboration with Amgen clarified **
On October 13, Abgenix and Amgen (its Immunex subsidiary) announced they have amended their
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Healthcare Abgenix, Inc.
agreement to develop anticancer antibody, ABX-EGF. The agreement grants Amgen authority for
development and commercialization decisions. Abgenix has agreed to manufacture clinical and
early commercial supplies of ABX-EGF. As before, both companies will share equally in the
development costs and in worldwide profits. Amgen will make an advance of $60 million to
Abgenix after each company contributes $20 million in 2004. The advance would be returned with
interest out of potential profits only if ABX-EGF is commercialized. We believe the amended
agreement will facilitate more rapid development and provides important financial flexibility to
Abgenix.
III. CLINICAL PIPELINE UPDATE
** ABX-EGF **
ABX-EGF is a fully human antibody to the EGF receptor, which is over-expressed in a range of
cancers. Abgenix and partner Amgen, are developing ABX-EGF in a number of different oncology
applications. A series of Phase II studies are underway in renal, colorectal, prostate cancer and
non-small cell lung cancer.
** Colorectal cancer - pivotal trial possible late 2003 or early 2004 **
Management indicated that it is hopeful that a pivotal trial with ABX-EGF for the indication of
advanced metastatic colon cancer could begin in the 4Q 2003 or early 2004. As discussed above,
Amgen is responsible for clinical development.
Enrollment is complete for a Phase II study in colorectal cancer. The study includes 150 patients
(expanded from 100 to get more data on oxaliplatin treated patients) who will receive monotherapy
intravenous infusions of 2.5 mg/kg of ABX-EGF weekly over an 8-week treatment cycle, for up to
6 cycles. The endpoints of the trial are tumor response rates and time to progression.
** Other EGF studies underway **
In the second trial in colorectal cancer, initiated in January 2002, up to 84 patients will receive
weekly intravenous infusions of 2.5 mg/kg of ABX-EGF in combination with standard doses of
irinotecan, leucovorin, and 5-fluorouracil (Saltz regiment) over a 6-week treatment cycle, for up to
eight cycles.
** prostate cancer **
In January 2002, Abgenix initiated a 50-patient, multi-center, open-label Phase II study of
ABX-EGF in prostate cancer patients who are failing hormone replacement therapy. In this trial,
patients will receive intravenous infusions of 2.5 mg/kg of ABX-EGF weekly over an 8-week
treatment cycle, for up to 5 cycles. The primary efficacy endpoint of the study will be measured by
prostate specific antigen (PSA) response rates (decrease of PSA level by >50% compared to
baseline). This study is intended to be a proof of principle study as PSA levels are not an accepted
primary endpoint.
** renal cancer **
Positive initial Phase II data on ABX-EGF as monotherapy in 88 advanced kidney cancer patients
were reported at ASCO in May, 2002. At 8 weeks, stable disease was achieved in 50% of the
patients. We believe this is a strong start given the severity of the patients studied, and the fact that
ABX-EGF was studied as monotherapy. The second part of this study will assess less heavily
treated pretreated patients and has enrolled 115 new patients.
Following the recent approval of AstraZeneca's Iressa as well as positive data on Bristol
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Abgenix, Inc. Healthcare
Myers/ImClone's Erbitux, there is growing enthusiasm for the EGF class. We believe that Abgenix
and Amgen will be aggressive in the development of ABX-EGF, however it is not yet clear what
the next studies for potential approval will be. We believe additional data from ongoing Phase II
studies will facilitate the process.
** ABX-MA1 **
Phase I studies are underway metastatic melanoma for ABX-MAI. ABX-MA1 is a
XenoMouse-derived fully human antibody antagonist of the MUC18 cell surface adhesion
molecule, which is expressed on metastatic melanoma cells, but not on normal skin cells. MUC18
is also expressed on sarcomas, including smooth muscle and blood vessel-derived sarcomas,
prostate and renal cell cancers, suggesting additional potential cancer targets.
IV. MANUFACTURING UPDATE - CALIFORNIA LICENSE GRANTED
Earlier this week, Abgenix announced that the State of California had issued a Drug Manufacturers
License which would allow the company to manufacture and ship clinical material. The
manufacturing facility includes four 2,000-liter and two 12,000 liter bioreactors, and is capable of
producing 200-400 Kg of material ann
ually. Given the typically high production requirements for antibody therapeutics, we regard the
facility as a strategic asset.
=== 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 that all of the views expressed in this report accurately reflect my
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