GS: ABGX (IL/N): 1Q04 update, steady clinical progress
52-Week Range US$18-9
YTD Price Change 43.32%
Market Cap US$1.6bn
Abgenix reported Q1 2004 operating loss of $41.6.0 million or ($0.47) per share versus
our estimate of $47.7 million or ($0.54) and consensus of ($0.50) per share, mainly on
lower expenses. We have made minor adjustments to our model but are maintaining our
2004 loss estimate. We maintain In-Line Rating and Neutral coverage view. The primary
valuation drivers will be clinical progress, particularly on cancer antibody ABX- EGF
(panitumumab), in Phase III studies with Amgen. Milestones include more ABX- EGF
Phase II data, some of which will be presented at the ASCO cancer meeting in June. Key
risks include potential clinical failures, long development timeframes and volatility in the
biotech sector.
INVESTMENT OUTLOOK: We believe that Abgenix is best suited for risk tolerant
investors with a long time horizon. Abgenix is distinguished by its ability to make fully
human antibodies to a broad range of targets, a platform technology that can fuel a
diversified pipeline. Abgenix has established a blue chip partner list and a growing roster
of proprietary therapeutic antibodies. Over the next several years, we expect a range of
new antibodies to enter the clinic on a proprietary and partnered basis. We believe that
the main valuation driver will likely be clinical progress with lead antibody ABX-EGF, in Phase III
studies. Abgenix is developing ABX- EGF through a 50/50 profit share agreement with Amgen.
Regulatory approvals of AstraZeneca's Iressa, and ImClone/Bristol Myers' Erbitux, as well as
clinical data on OSIP/DNA/Roche's Tarceva have fueled interest in the EGF mechanism. While
ABX-EGF is further behind in development, we believe that the market will support multiple
entrants.
I. FINANCIAL REVIEW AND OUTLOOK
Abgenix reported Q1 2004 operating loss of $41.6.0 million or ($0.47) per share versus our
estimate of $47.7 million or ($0.54) and consensus of ($0.50) per share.
Contract revenues of $2.9 million, were lower than our $4.0 million estimate, but tend to fluctuate
from quarter to quarter. Operating expenses of $41.6 million were lower than our $52.0 million
estimate, mostly on lower R&D. Manufacturing start-up costs were $7.3 million vs our $9.0
million estimate. R&D expenses of $28.5 million were down sequentially from $31.7 million in Q4
2003, and were lower than our $32.0 million estimate. SG&A expense of $6.9 million was also
down sequentially, and lower than our $9.2 million estimate.
Abgenix ended the quarter with $307.0 million in cash and marketable securities, and $250 million
in convertible debt, including $100 million convert due to Astra Zeneca.
** OUTLOOK - MAINTAINING 2004 ESTIMATES **
While we have lowered projected revenues and R&D expense by $5 million, we maintain our 2004
operating loss estimate of $185.3 million or ($2.08) per share. Our estimates are for a higher loss
than management's guidance due to the unpredictability of revenue payments as well as R&D
expenses. Management has given guidance for operating cash expenditures in 2004 of $110-125
million and an additional $20-25 million in capital expenditures related to manufacturing. The
actual cash burn will be lower than our forecasts by an amount commensurate with Abgenix use of
a $60 million credit facility from Amgen, which is available after $20 million is spent on
ABX-EGF in 2004. We expect that this facility will be used in 2004 and 2005. Management has
not given revenue or expense guidance for 2004.
II. ABX-EGF (panitumumab)
ABX-EGF is a fully human antibody to the EGF receptor, which is over- expressed in a range of
cancers. Regulatory approvals of AstraZeneca's Iressa, and more recently ImClone/Bristol Myers'
Erbitux, as well as the announcement that OSIP/DNA/Roche's Tarceva met its end point in lung
cancer, have fueled interest in and validated the EGF mechanism. The recent approval of
Genentech's Avastin, a VEGF inhibitor, with potent impact in the colorectal setting was also a
significant advance. While the biological approaches are being validated, the availability of several
treatment options can complicate the development path. Under Subpart H procedures, more than
one company can get accelerated approval for a cancer indication, until one agent confirms clinical
benefit in a confirmatory study. Abgenix and Amgen could pursue accelerated approval for third
line colorectal, where phase III studies are underway in the U.S. and Europe and a series of Phase
II studies are underway in renal, colorectal, prostate cancer and non- small cell lung cancer.
Phase III Colorectal cancer - 2 pivotal trials initiated in January
In January, two pivotal studies with ABX-EGF were started in patients with advanced metastatic
colon cancer. For competitive reasons, details on the studies with respect to size and timing, have
not been provided. Patients will have 3rd line colon cancer and will have been exposed to 5-FU,
leucovorin, oxaliplatin and irinotecan. One trial will be conducted in the US and the other trial will
be outside of the US.
Phase II colorectal studies - data expected at ASCO
Data will be presented at ASCO in June 2004 from an ongoing Phase II study in colorectal cancer.
Enrollment is complete for this study. 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. Data were presented from the first 44
patients at ASCO 2003, where an approximate 10% response rate was observed.
In a separate Phase II study 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. We believe this study is still enrolling and it is not clear when we might see
data.
Non-small cell lung cancer - data at ASCO
A phase II study with less than 200 patients is underway with front line chemotherapy with or
without ABX-EGF. Safety data from this trial will be presented at ASCO. Management indicated
that enrollment has completed.
Renal cancer - not clear when data will be available
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
pretreated patients and has enrolled 115 new patients. The dose is 2.5 mg/kg weekly over an 8
week cycle.
II. OTHER CLINICAL PROGRAMS
A. ABX-MA1 - data not likely until late 2004
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.
B. ABX-PTH
In Q1 2004, Abgenix initiated Phase I trials for ABX-PTH, for the potential treatment of secondary
hyperparathyroidism (SHPT). SHPT results from a decline in kidney function associated with
end-stage renal disease (ESRD). The ABX-PTH antibody targets and neutralizes the parathyroid
hormone (PTH).
III. COLLABORATION HIGHLIGHTS
** AstraZeneca - broad cancer antibody focus **
In October 2003, 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
invested $100M in Abgenix convertible preferred stock, with $50M convertible at $30 per share in
7 and 10 years, and will possibly invest 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 ant
ibodies 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.
** Amgen - EGF **
In October 2003, Abgenix and Amgen amended their 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.
** Amgen - AMG-162 **
Management indicated that Amgen's pipeline candidate AMG-162 (osteoprotegrin) was developed
with Abgenix's technology. Amgen intends to initiate Phase III trials for osteoporosis in 2004.
IV. MANUFACTURING - Possible manufacturing agreements late 2004
In October 2003, 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 annually. Given the typically high production requirements for
antibody therapeutics, we regard the facility as a strategic asset. The company hopes to monetize its
manufacturing, in part, with the establishment of manufacturing agreements. Depending on the
scale up of ABX- EGF, it is possible that an agreement may be established in late 2004.
=== 2004 milestones ===
ASCO
- Phase II data for ABX-EGF monotherapy in second and third line colon
cancer
- Phase II safety data for ABX-EGF combination therapy in non-small cell
lung cancer
Additional Phase II data on ABX-EGF, possibly:
- Phase II ABX-EGF monotherapy time-to-progression data in renal 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 ... |
