GS: AMGN(OP/N)/TLRK (NR/N): AMGN to
acquire TLRK for $1.3 billion
Amgen and Tularik(NR) have signed a definitive merger agreement, through which
Tularik will become a wholly owned subsidiary of Amgen, in a stock transaction valued
around $1.3B. Amgen's previously issued 2004 financial guidance of $2.30-$2.40
adjusted EPS is unchanged, excluding any one-time charges. We maintain our EPS
estimates of $2.39 and $2.84 in 2004-2005, respectively. Amgen expects around $100M
R&D annual increase. We believe the acquisition is strategic, augmenting the company's
oncogene collaboration, and adding several novel oral agents: diabetes candidate T131,
inflammatory candidate T487, both in Phase IIa, and obesity candidate T71 in Phase I and
a novel discovery platform. In addition, T67, an injectable tubulin binder, is in Phase III
studies in liver cancer. We rate AMGN Outperform/Neutral based on solid growth,
increasingly visible pipeline and attractive valuation. Risks include slower sales,
reimbursement, patent disputes and development failures.
I. PROPOSED TRANSACTION TERMS
The companies have signed a definitive merger agreement, through which Tularik will
become a wholly owned subsidiary of Amgen. The proposed transaction will be a stock
for stock, tax free exchange, in a ratio that sets Tularik shares at $25 per share. The value
of the transaction approximates $1.3B, net of cash to be acquired (roughly $200 million
at December 31,2003) and net of Amgen's existing 21% ownership of Tularik stock. The
transaction is expected to close in the second half of 2004. The transaction has been
approved by the boards of directors at both companies.
II. Minor impact on AMGN EPS
Amgen expects the Tularik acquisition to add about $100MM in R&D expenses per year,
which we estimate to be $0.05 in EPS. However, the expenses might be partially offset
by elimination of some redundant administrative functions at Tularik, savings from R&D
support and milestone fees due Tularik based on their original collaboration in May 2003,
and a lower tax rate with the operating loss from Tularik. In 2004, the impact would be
muted because the transaction is expected to close in 2H04. Excluding any one time
charges associated with the acquisition, Amgen maintains 2004 EPS guidance of $2.30 to
$2.40 adjusted earnings per share. We maintain our EPS estimates of $2.39 and $2.84 in
2004-2005, respectively.
III. STRATEGIC FOR AMGEN
We regard the proposed transaction as strategic for Amgen. Tularik brings a strong
platform for drug discovery and the development of novel oral agents, an area that
Amgen has been building for several years. Tularik will add five development candidates
to Amgen's pipeline. Although Tularik's most advanced novel candidates are early stage, they complement areas of focus and interest for Amgen, including cancer and inflammation, where
Amgen's has strong commercial presence, and metabolic disease, where Amgen has had long
interest, including a recent collaboration with Biovitrum. The companies have established a
working relationship through their oncology collaboration, through which Amgen attained an
approximate 21% stake in Tularik. The acquisition would also facilitate Amgen's expansion into
the San Francisco Bay area.
IV. TULARIK OVERVIEW: NOVEL PLATFORM FOR ORAL DRUGS
Tularik is focused on developing novel oral agents that regulate genes. Several oral candidates may
represent first in class therapeutics. Though early stage, Tularik's pipeline addresses multiple
diseases, including cancer, inflammatory and metabolic diseases. While we regard the most
advanced candidate, T67, for liver cancer as high risk/reward, we believe some of the earlier stage
oral compounds could generate significant value over time. Tularik has developed a strong,
experienced management team, a novel platform for drug discovery and solid partnerships, which,
in addition to Amgen, include Sankyo and Japan Tobacco.
V. TULARIK CLINICAL DEVELOPMENT PROGRAMS
** T67 for primary liver cancer - interim analysis mid-2004 **
An interim analysis of Tularik's Phase II/III study with T67, an injectable beta tubulin binder, for
the treatment of primary liver cancer is expected mid-year. Over 100 patients have been enrolled.
The analysis will be conducted by a data monitoring committee (DMC). The DMC will analyze
safety and clinical endpoints including survival and response rates. While it is possible that the trial
could be stopped early if efficacy data support it, we think it is more likely that the full study is
conducted. If that is the case we would expect enrollment to be completed in the first half of 2005.
Tularik initiated the Phase II/III study, which will involve about 750 patients, in March 2003. The
primary endpoint is survival. Patients will be treated with either T67 or the current standard of care,
doxorubicin, as first line therapy. Both agents are administered by IV infusion. The trial is being
conducted at centers in the US, Europe and Asia. If data from the full trial are positive, we believe
that potential approval could occur in 2006/2007. Given lack of strong evidence of efficacy in
Phase II studies we believe this program is risky. However, we believe that T67 would be
approvable with a modest improvement in survival. The average survival period for patients
diagnosed with primary liver cancer is estimated at 6 months. The study is designed to detect an
improvement of six weeks (roughly 25%) in survival over the doxorubicin arm. We would also
expect potential safety advantages relative to doxorubicin, particularly with respect to white blood
cell and platelet suppression, cardiovascular profile and other side effects.
** T607 for solid tumors - data possible at ASCO
Behind T67, Tularik is studying T607, an analog of T67 designed not to cross the blood brain
barrier, in cancer. Tularik has studied this compound in primary liver cancer, ovarian cancer and
gastric/esophageal cancer. We believe the most likely potential indication for further pursuit might
be in gastric and esophageal cancer. As indicated in our previous notes (1-29- 04), management has
decided not to continue studies in ovarian cancer. We may see some data in the liver setting at
ASCO in early June. We think it unlikely that this indication would be pursued if it is not better
than T67. Management has been encouraged about the prospects in gastric/esophageal cancer.
However, we understand that it is not uncommon to see a response in early studies. They key test
may be duration of response in this setting.
** T487 - Phase IIa psoriasis ongoing, RA to begin soon **
Tularik is conducting studies with T487, an oral anti-inflammatory agent with potential application
in multiple inflammatory disorders including psoriasis, rheumatoid arthritis, multiple sclerosis,
inflammatory bowel disease and transplant rejection. In December 2003, Tularik announced the
initiation of a Phase IIa, double-blind, placebo-controlled study for psoriasis. The company expects
to initiate Phase IIa studies in rheumatoid arthritis soon. Both studies will enroll approximately 40
patients with moderate to severe disease and will run for 28 days. The studies are designed to test
safety and to make a preliminary assessment of clinical efficacy. Patients will be randomized to
receive once daily placebo or one of multiple doses of T487.
The primary endpoint in the psoriasis trial will be measured from skin biopsies taken at days 1 and
29, and will assess immune cell infiltration of the affected areas as well as biomarkers of
inflammation. Other measurements of efficacy will include PASI scores and the physician's global
assessment (PGA) of disease activity. In the rheumatoid arthritis study, primary measurements will
be made from infiltration of immune cells as well as inflammatory biomarkers from synovial
biopsies. Other measurements will include ACR scores and a disease activity score (DAS).
T-487 inhibits binding of specific chemokines to lymphocyte receptors, specifically the CXCR3
receptor, and is therefore predicted to inhibit migration of lymphocytes to sites of inflammation.
T487 has shown preclinical activity in transplant rejection. Phase I studies demonstrated that the
drug was well tolerated at all doses tested, and good oral exposure was achieved.
** T131 Type II diabetes - Phase IIa **
Tularik has begun blinded, placebo-controlled Phase IIa studies with drug candidate T131 for the
potential treatment of Type II diabetes. The trial is designed to look at safety and to make a
preliminary measurement of efficacy with T131 monotherapy. The study will enroll approximately
60 patients of moderate severity, who have failed diet and exercise, and have fasting blood glucose
(FBG) levels of <240 and HbA1c of >7%. The primary efficacy endpoint will be a reduction in
FBG, and secondary endpoints will measure changes in markers of disease including ins
ulin, adiponectin, HbA1c, fructosamine and lipids. Phase I studies demonstrated that T131 was
well tolerated at all doses tested, and good oral exposure was achieved.
T131 is one of multiple leads, which have been identified with potential application in diabetes.
They target the PPAR gamma receptor, the same target as the glitizone class of diabetes drugs.
T131 is a chemically distinct compound which binds in a different manner than the glitizones.
T131 is thought to modulate rather than simply antagonize the PPAR gamma receptor. Candidates
in development may obviate the fluid retention and other side effects that have been associated
with this multi-billion dollar class.
** Phase I underway with T71, a novel oral weight loss agent **
In December 2003 Tularik filed to begin a Phase I study with T71, a potential first in class agent
for weight loss. Although the exact mechanism has not been disclosed, T71 works through the
central nervous system and is thought to lower appetite and to increase metabolic rate. The
company plans to conduct a dose escalation study with this compound.
VI. PRECLINICAL CANDIDATES
A number of oral compounds have been selected as advanced preclinical candidates. In the
immunological/inflammatory category, T6204, which targets the IL-1/TNF pathway, has shown
preclinical efficacy in animal models of ulcerative colitis and collagen-induced arthritis. Other anti-
inflammatory candidates in development could address asthma. Two candidates target metabolic
disorders, including T659, an oral agent, which increases HDL cholesterol.
VII. ONCOGENE PLATFORM
In May 2003, Tularik and Amgen entered a five-year collaborative agreement to discover, develop
and commercialize cancer therapeutics based on Tularik's novel oncogene platform. Oncogenes are
genes associated with cancer. To date, the company has identified over 30 oncogenes, consisting
of cell surface as well as intracellular proteins which can be inhibited, respectively, with antibodies
and small molecules, or in some cases by either.
Under the terms of the original collaboration, Amgen was to pay Tularik up to $21 million in
milestone payments per target, plus a total of $125 million in committed funding over the five-year
period. Amgen would also pay royalties to Tularik on potential product sales. The committed
funding includes $50 million in research funding over five years. Amgen had purchased $35
million in newly issued shares of Tularik at $10 per share, and was to purchase an additional $40
million in newly issued stock at market prices over the next three years.
VIII. OTHER ACTIVE TULARIK RELATIONSHIPS
** Eli Lilly - Phase II studies with Factor Xa inhibitor.
Phase II studies are underway with an oral Factor Xa inhibitor, in development for the potential
acute and chronic treatment of disorders resulting from blood clots. Tularik is entitled to additional
milestones if the candidate advances in the clinic and potential royalties if it is commercialized.
** Sankyo **
Tularik established a 5 year, 50/50 (U.S. & Europe) collaborative agreement with Sankyo in June
2002 for the development of candidates that address G- protein coupled receptors.
** Japan Tobacco **
Since June 2000, Tularik has been collaborating with Japan Tobacco on the discovery and
development of certain metabolic disease compounds. As disclosed in Tularik's 10K filing, Japan
Tobacco plans to terminate its research support in May 2004 and the companies have been
negotiating revised terms for reducing the scope of the research portion of the collaboration.
** Medarex **
Tularik is collaborating with Medarex on the development of antibodies to three cancer targets. |
