gs: AMGN (NR)/ ABGX (NR): Amgen to acquire
Abgenix for $2.2B in cash
Amgen (AMGN) has signed a definitive merger agreement to acquire Abgenix (ABGX)
for roughly $2.2 billion in an all cash transaction ($22.50 cash per ABGX share). The
proposed transaction, subject to shareholder and regulatory approval, is expected to close
in Q1/06. AMGN expects dilution of $0.05-0.10 each in 2006 & 2007 and accretion
thereafter. We maintain our estimates. The transaction should allow AMGN to (1) have
full manufacturing and commercial control of panitumumab (ABGX has equal rights), (2)
eliminate potential tiered single digit royalties on denosumab (P3, multibillion potential),
(3) have a human antibody platform for additional products, (4) about $300MM in future
tax savings, and (5) a manufacturing facility in California.
1. TRANSACTION TERMS
Under terms of the proposed transaction, Amgen will pay Abgenix shareholders $22.50 in
cash for each Abgenix share. The transaction is valued at approximately $2.2 billion, plus
the assumption of debt. At the end of the third quarter, Abgenix had $343 million in cash
and marketable securities and convertible debt of $450 million, including $300 million of
1.75% debt due 2011, $100 million of 3.5% notes due 2007, and $50 million in debt from
AstraZeneca due in 2013. In addition, Abgenix has a long term liability of $64MM due
Amgen if panitumumab is successful. The transaction will be all cash. The proposed
acquisition has been approved by the Board of Directors at both companies. Pending
shareholder and regulatory approval, the transaction is expected to complete in the first
quarter of 2006. Amgen expects the transaction to be dilutive in 2006 and 2007, on the
order of $0.05-$0.10 per share, and accretive thereafter.
2. MAINTAIN 2005-07 EPS
Assuming the close of the transaction, Amgen will bear 100%, instead of 50%, of the
development and promotional costs of panitumumab. However, it does not have to share
50% of the operating profit. Therefore, the acquisition should be slightly dilutive near
term. However, we expect Amgen to eliminate most of the non-manufacturing positions.
The $300MM in tax savings should also be accretive. We maintain our 2005-07 EPS
estimates of $3.16, $3.60 and $4.05, versus consensus of $3.21, $3.67 and $4.15,
respectively.
3. GAIN COMPLETE CONTROL AND INCREASE OPERATING PROFIT OF
PANITUMUMAB
Abgenix and Amgen have been developing Panitumumab through a 50/50
co-development arrangement. The transaction will enable Amgen to have full
manufacturing and commercial control of panitumumab. We estimate that about $5.5B
(45%) of Amgen's sales in 2005 are from the cancer market where Amgen markets
Aranesp, Neupogen and Neulasta. All three products are for supportive care to reduce side
effects of chemotherapy. Panitumumab, if successfully launched, will be Amgen's entry into the
therapeutic cancer market where there is more pricing flexibility and less reimbursement
constraints.
Under the current agreement, Amgen and Abgenix split the development costs and would share
potential operating profits on a 50/50 basis. Amgen has been responsible for the clinical
development. Abgenix has been responsible for the manufacturing and planned to co-promote
panitumumab. Under terms of the 50/50 profit share, we had estimated that EPS contribution to
Amgen (50/50 profit split) would be about $0.02 per $100 million in sales.
The companies plan to submit a rolling BLA for panitumumab this month. Panitumumab has been
granted fast track status from the FDA. Assuming a 6 month review, we would expect potential
approval in H2/06. As the second EGFR antibody to enter the market (behind ImClone's Erbitux),
panitumumab may be associated with fewer infusion reactions and may have more flexible dosing
(every 1, 2, or 3 weeks versus weekly Erbitux). While the initial indication, third line colorectal
cancer is likely to be small, we look for potential use earlier in the colorectal treatment spectrum,
driven by PACCE data (interim data soon) as well as additional potential indications. Amgen
characterized the colorectal and head and neck cancer indications as a $2 billion commercial
opportunity over time. In January 2006, at their investor day, Amgen plans to detail the
comprehensive panitumumab program. Next year, Amgen plans to start the following trials on
panitumumab: combination with oxaliplatin in first-line colorectal cancer (Phase 3), combination
with chemotherapy in second-line colorectal cancer (Phase 2), adjuvant colorectal cancer (Phase 2),
and metastatic recurrent head and neck cancer (Phase 3). Phase 1 study of panitumumab plus
AMG706 (oral inhibitor of VEGF receptor kinase).
4. ACQUIRE MANUFACTURING PLANT IN CALIFORNIA
Abgenix has been responsible for manufacturing under the co-development agreement. With the
proposed acquisition, Amgen will retain full control of manufacturing. Abgenix has been expanding
its manufacturing facilities in preparation for potential launch of panitumumab. The transaction will
include Abgenix's 100,000 square foot manufacturing plant in Freemont, CA. Amgen indicated that
this facility should be sufficient for commercial supply of Panitumumab at scale. Conformance lots
of material have already been produced.
5. ELIMINATE ROYALTIES ON DENOSUMAB (AMG-162)
The proposed transaction would eliminate tiered royalties on Amgen's denosumab (AMG-162)
which has multibillion dollar potential. Assuming average royalty rate of 5%, savings per $1B in
sales would be $50MM per year or $0.03/share.
Amgen is studying denosumab in numerous indications involving more than 10,000 patients:
- Postmenopausal osteoporosis (PMO): Management presented positive Phase II data in PMO at 2
years at the American College of Rheumatology meeting (ACR) on November 12-17, 2005. Positive
1 year data were presented in October 2004. Phase III trials in 7,869 women with PMO are ongoing
with data on fracture rate expected in 2007/08.
- Amgen also indicated that Phase II data on bone loss due to hormone ablation of breast cancer
patients support initiation of Phase III studies.
- Amgen is also conducting a Phase II study in about 1,500 prostate cancer patients with bone loss
due to hormone ablation. Interim data are expected in late 2006.
- Phase II data in rheumatoid arthritis are expected by yearend.
6. ABGENIX BEYOND PANITUMUMAB
a. ABX-PTH (ABX-10241) in Phase I study for secondary hyperparathyroidism
The ABX-PTH antibody targets and neutralizes the parathyroid hormone. Abgenix is screening
patients for a multi-dose Phase I study with ABX-PTH for secondary hyperparathyroidism (SHPT),
which results from a decline in kidney function associated with end stage renal disease. This study
will include 30 patients and four different dose groups. Enrollment is slated to be completed by year
end and data may be available in H1 2006. It is too early to assess the potential for ABX-PTH given
its early stage of clinical testing. Amgen already markets Sensipar, which works by a different
mechanism, in treating SHPT. Combination of ABX-PTH with Sensipar might increase efficacy.
b. Broad antibody platform
The core technology at Abgenix has been the production of fully human antibodies in transgenic
mice, the Xenomouse technology. In addition to being the source for proprietary antibody
development, Abgenix has historically leveraged this technology by establishing license agreements,
which typically engender upfront licenses fees to Abgenix and potential royalties on future product
sales. We estimate that Abgenix has established such agreements with over 25 companies over time,
although not all of these may be active. In certain cases, Abgenix has also established joint
development agreements with several companies including Chugai Pharmaceuticals, U3 Pharma AG
and Dendreon. While we believe that panitumumab is the strategic rationale for the proposed
acquisition, the technology platform may enable monetization from existing collaborations longer
term.
In addition to AMG-162 and an un-named antibody in clinical trials at Amgen, 8 partnered
antibodies on which Abgenix could earn potential royalties are in clinical studies. These include 4
antibodies from Pfizer (including CTLA4 antibody for cancer in Phase I/II), and candidates at
Curagen, Chiron, Human Genome Sciences and Agensys (Exhibit 1).
c. Collaboration with AstraZeneca
In 2004, Abgenix established a broad, though early-stage cancer collaboration with AstraZeneca.
The companies have been focused on identifying 36 targets to be developed by AstraZeneca over
the three-year selection phase of the agreement. As of late summer, the companies had selected 22
targets. The collaboration enables the co-development of antibodies to an additional 18 targets by
the companies.
Each of the analysts named below hereby certifies that, with respect to each subject company and its
securities for which the analyst is responsible in this report.. |
