GS: AMGN(OP/N)/IMCL(OP/N)/ABGX(IL/N): IMCL
oversold. Panitumumab data favorable for
AMGN/ABGX
AMGN and ABGX announced that Panitumumab resulted in a 46% reduction in tumor
progression rate in the P3 study in refractory colorectal cancer. Based on the top line data,
the magnitude of reduction and the statistics appear strong. However, the high (75%)
progression rate by 8 weeks makes the clinical benefit somewhat difficult to interpret. It is
also not appropriate to compare the data against those on Erbitux. We would be buyers of
IMCL based on attractive valuation and what we believe to be investors? overly
pessimistic view of the potential of Erbitux. We maintain ratings and estimates for AMGN
& IMCL (OP/N) and IL/N for ABGX. Our coverage view remains Neutral. Risks are
lower sales, development failures and delays, reimbursement, manufacturing constraints,
patent disputes, competition, and reliance on partners.
AMGN and ABGX plan to begin the BLA submission process for Panitumumab in Q4/05.
We estimate the sales potential for 3rd line CRC to be $300M and potential approval in
H2/06. Significant use in other indications will depend on successful P3 trials, FDA
approval and resolution of potential infringement on IMCL?s patent on combination
therapy. We estimate EPS contribution to AMGN (50/50 profit split) is about $0.02 per
$100M in sales.
1. IMCLONE WEAKNESS IS BUYING OPPORTUNITY
We believe the decline in Imclone shares reflects investors' risk aversion at year-end and
overly pessimistic view on the growth of Erbitux. We view the weakness as a buying
opportunity for investors with a horizon of more than a few months based on the
following:
a. Cannibalization of Erbitux should be offset by market expansion in CRC
In Q3/05, the penetration of Erbitux in 1st, 2nd and 3rd line CRC was 4%, 14% and 30%,
respectively. Due to the smaller number of patients and shorter duration of therapy, the
sales from 3rd line therapy represent about 40% of 2005 sales. The initial usage of
panitumumab will likely be for 3rd line therapy. Assuming 50% cannibalization, the total
sales of Erbitux would be reduced by 20%. However, we expect the promotion of EGFR
antibodies by Amgen to expand the market for all lines of therapy. With low penetration
of 1st and 2nd line CRC, there should be significant room for higher penetration taken
together with market expansion driven by increased promotion by a new entrant, longer
duration of therapy, and more combination of biologics, Erbitux sales in 1st and 2nd line
CRC should continue to grow even with the launch of panitumumab in H2/06. The
positive results of panitumumab in EGFR negative patients (25% of CRC) should also
increase use of Erbitux in these patients.
Our ImClone model already assumes that panitumumab is successful. Relative to Erbitux,
panitumumab may be associated with fewer infusion reactions and allergic responses,
thereby reducing the need to premedicate the patients. Dosing may also be more flexible
(every 1, 2, or 3 weeks versus weekly Erbitux). However, ImClone has significant lead
time with physicians and reimbursement agencies. Therefore, panitumumab will probably
not gain more than 50% share unless there is significant improvement in clinical benefit.
b. New indications in CRC should boost growth
In mid 2006, Phase 3 data from a Canadian study in 500 CRC patients who are refractory to
irinotecan and/or oxaloplatin should be available. Reminiscent of Study 408 for panitumumab,
patients were treated with best supportive care ¦ Erbitux. However, the primary endpoint is overall
survival, a higher hurdle than the PFS in Study 408. The positive data on panitumumab suggest that
the Canadian study may show positive data on PFS, if not overall survival. In H2/06, we expect data
on PFS from the Phase 3 trial of Erbitux in first-line, and overall survival data from the Phase 3
study in second-line CRC. If the survival data from these randomized, controlled trials are positive,
Erbitux should be preferred by physicians and third party payors.
c. Expect FDA approval of head and neck cancer ($0.5B potential) in Q1/06
Erbitux received Compendia listing for squamous cell cancer of the head and neck (SCCHN) in
Q3/05, which should facilitate reimbursement and adoption. The FDA has granted the SCCHN
marketing application priority review. Therefore, an FDA decision should be reached in Q1/06. The
requested approval is for use of Erbitux: (1) in combination with radiation for locally or regionally
advanced SCCHN, and (2) as monotherapy for recurrent and/or metastatic (R/M) SCCHN where
prior platinum-based chemotherapy has failed or was inappropriate. We expect a positive FDA
decision and product launch in Q2/06. We estimate the potential of SCCHN to approximate $0.5B
for Erbitux, with sales of over $400MM in 2010 (5 years post launch). We assume a 54%/46% sales
contribution of 1st line vs R/M SCCHN and 2.5 months vs. 5.0 months duration of therapy for these
indications, respectively.
d. Potential infringement of Imclone's patent
Imclone has exclusive license on a broad patent (Schlessinger patent) covering use of EGFR
antibodies with anti-neoplastic agents, such as chemotherapy. As with Erbitux, the use of
panitumumab will likely be in combination with chemotherapy for first and second-line therapy;
and as monotherapy in third-line therapy, a small market segment. Imclone management has
indicated that it will pursue infringers of the Schlessinger patent. It is difficult to predict whether
Amgen will be able to promote panitumumab in combination with chemotherapy without paying
royalties to Imclone.
e. Intrinsic value analysis implies essentially no value attributed to pipeline
We estimate the intrinsic value (net present value of current indications plus net cash) of IMCL
shares to be about $20/share and the pipeline value (difference between current share price of $28
and intrinsic value) to be $8/share which we view as attractive. The value of the SCCHN indication
is about $10/share. Therefore, no value is assigned to the 1st/2nd line CRC, NSCLC and pancreatic
cancer indications (with a combined potential of $2B and intrinsic value of $22/share) plus the rest
of the pipeline (1 product in Phase 2 trial and 3 products in Phase 1 studies.)
2. LIMITED IMPACT ON AMGEN
We estimate that the sales potential of panitumumab in 3rd-line CRC to be $300MM. Assuming
50% profit split with Abgenix, EPS contribution for Amgen is minor at about $0.02 per $100MM in
sales. The sales potential can be expanded significantly if panitumumab can be commercialized for
other indications, especially first-line therapy of CRC, lung cancer and other solid tumors.
3. IMPACT ON ABGENIX REFLECTED NEAR TERM, SETS SOLID STAGE FOR FUTURE
GROWTH
Abgenix stock has reacted to the news in line with our expectations. With the stock trading in the
$12-$14 range, we believe that the market is valuing Panitumumab for $500-$700 million potential,
reflecting potential use beyond the third line monotherapy CRC setting, but not additional
indications. These ranges assume end sales multiples of 5X, 50% split with Amgen and discount
rates of 30-40%. We believe that the discount rates may be lowered and multiples expanded as the
regulatory and commercial path for panitumumab matures. While panitumumab is the primary
driver for Abgenix, we note that Abgenix is conducting early clinical studies on ABX-PTH for
secondary hyperparathyroidism, and has a broad, though early stage, cancer collaboration with
AstraZeneca. Abgenix could potentially get royalties on Amgen's AMG162 in Phase III
development for osteoporosis. Nine additional licensed antibodies that could potentially provide
royalties are in early clinical studies.
4. PANITUMUMAB - DATA HIGHLIGHTS AND NEXT STEPS
a. Strong statistics
The pivotal Phase 3 study (Study 408) included 463 metastatic colorectal patients who had failed at
least 2 prior standard chemotherapeutic regimens. Patients received either best supportive care or
best supportive care plus panitumumab (6mg/kg every two weeks). The primary endpoint was
progression free survival. In the study, conducted in Europe, Australia and Canada, 231 patients
received panitumumab plus best supportive care, and 232 received best supportive care.
While the study was powered to detect a 33% decrease in tumor progression rate, a 46% difference
was observed, with p<0.000000001. Importantly, according to management, the benefit of
panitumumab was consistent by several methods of analysis, including taking into account the fact
that best supportive care patients had the option of switching to panitumumab at disease
progression. Management noted that response rates were similar to those observed in prior studies.
We believe that there were about 10% partial response and 30% stable disease. Also interestingly,
and consistent with recent data, management indicated that response was not dependent on EGFr
positive status (may have positive implications for potential label). The drop out rate of the study
was low, with approximately 13 patients having dropped off of panitumumab at any point in the
study. Consistently with prior studies with panitumumab and Erbitux, rash was the major side
effect.
b. Toward BLA submission Q4/05, potential launch H2/06.
The companies plan to begin the BLA su
bmission process this quarter. The 408 results will be the primary data for approval, supported by
additional data from ongoing studies, including U.S. study 167, where management indicated
several weeks ago that an interim analysis was supportive (response rate approximating 10%,
consistent with prior studies). Conformance lots of material have already been produced.
Panitumumab has been granted fast track status from the FDA. Assuming a 6 month review, we
would expect potential approval in H2/06.
c. Key data to come - interim PAACE study data late 2006/early 2007
In Q4/05 or Q1/06, we look for interim results from the PAACE study in approximately 150
patients. The PAACE study is an open label study of roughly 1,000 patients in the first line
colorectal cancer setting. The study will evaluate Avastin +/- Panitumumab given every 2 weeks.
Background chemotherapy includes oxaliplatin and/or irinotecan. The primary endpoint is PFS. The
secondary endpoints are response rate and overall survival. Management indicates that enrollment is
on track. Full data from this trial are not expected before late 2006. In addition to PAACE, several
studies are underway to support potential label expansion, including studies in the lung and renal
settings, and combination studies with different agents including Amgen's VEGF inhibitor,
AMG706. We expect strong news flow on panitumumab over the coming quarters. In January 2006,
at their investor day, Amgen plans to detail the comprehensive panitumumab program.
Each of the analysts named below hereby certifies that, ... |
