Merrill on abgx -
Caution - I cannot prove that Merrill really wrote this ....
from Yahoo board ....
11/09/2005
Highlights:
VALUATION GAP IS NOT JUSTIFIED:
ImClone is trading at a 127% premium and has a $1.5 B larger market cap than Abgenix. But, we believe the valuation gap is not justified because Abgenix is likely to have a significant marketing advantage for p-mab, gets better worldwide economics for its drug, and should get more pipeline value as well. Thus, we reiterate our BUY on ABGX and our SELL on IMCL (C-3-9; $32.20).
P-MAB MARKETING ADVANTAGE
Despite being 2nd- to-market, we believe panitumumab (p-mab) will have a significant marketing advantage vs. Erbitux,
allowing the drug to capture more than 50% of the colorectal cancer market. P-mab has a safety advantage because it is not associated with severe allergic reactions. P-mab is dosed every other week, which matches the every other week dosing of chemo used for colorectal cancer, vs. Erbitux’s once weekly dosing. Amgen is likely to bundle p-mab with other cancer products, driving share. And, positive results from a recent comparative study should provide an efficacy marketing edge for p-mab as well.
BETTER WORLDWIDE ECONOMICS
If ex-US sales are 2/3 that of the US then we estimate Abgenix’s worldwide royalty equivalent would be 30% versus
Imclone’s 25%. Abgenix splits US and ex-US p-mab profits with Amgen. In the US, assuming a 65% operating margin, the royalty equivalent is 32.5% vs. ImClone’s net royalty of 35%. Outside the US, which could be almost as large as the US, a 50% operating margin would translate into a royalty equivalent of 25% versus Imclone’s net 4.5% royalty.
PIPELINE VALUE FAVORS ABGX:
Neither company has a robust proprietary pipeline, but Abgenix will receive royalties on worldwide sales of multiple products that were developed based on Abgenix’s proprietary XenoMouse technology. We expect ABGX to receive a 5% royalty on future sales of Amgen’s Denosumab for osteoporosis, which could achieve sales of $3 B – $4 B annually.
FACTORS THAT FAVOR IMCLONE: Abgenix has a marketing advantage, gets better economics and should get more pipeline value. However, Imclone has more cash, greater incoming milestone payments, and is profitable. We estimate incremental value for ImClone of $685 MM, which still isn’t enough to explain the valuation discrepancy.
finance.messages.yahoo.com
regards,
John |
