GS 2: IMCL(OP/N): FAQ on Erbitux with pending
acquisition of Abgenix
52-Week Range US$47-29
YTD Price Change -28.86%
Market Cap US$3.0bn
In response to investor concerns about competitive threat from panitumumab with the
pending acquisition of Abgenix by Amgen we have summarized our view to 10 common
questions. We maintain our Outperform rating based on favorable risk reward. While we
expect Panitumumab to be launched in 2006, Erbitux should continue to grow, driven by
modest increase in penetration for colorectal cancer and launch of head & neck cancer in
H2/06. In our model, we have already assumed launch of panitumumab in H2/06. With
strong promotion by Amgen and significant room for higher penetration, the market
should expand, thereby offsetting cannibalization of Erbitux. Lower pricing of
Panitumumab is a risk but we are cautiously optimistic about the impact on Erbitux. Our
coverage view is Neutral.
Valuation based on intrinsic value (using 31% net royalty on US sales) implies limited
value is assigned to 3 potential new indications of Erbitux with combined potential of $2B
and the pipeline with 4 products in Phase 1 or 2 trials.
[Goldman, Sachs & Co., and/or one of its affiliates is acting as advisor to Abgenix Inc. in
the proposed sale of the company to Amgen Inc. Goldman, Sachs & Co., and/or one of its affiliates
will receive a fee for this advisory role.]
1. WILL AMGEN'S ACQUISITION OF ABGENIX INCREASE THE COMPETITIVE THREAT
FOR ERBITUX?
Amgen management indicated during an analyst call yesterday that it plans to start multiple clinical
trials on panitumumab in 2006. Broad labeling of panitumumab should enhance its competitiveness.
The acquisition also eliminates the 50% profit sharing with Abgenix. With a higher profit margin on
panitumumab, Amgen should have more incentive to invest and build the market for EGFR
antibodies. In Q3/05, the penetration of Erbitux in first, second and third-line colorectal cancer was
4%, 14% and 30%, respectively. With low penetration of the colorectal cancer market, especially
for first and second-line therapy, there should be significant room for higher penetration. Taken
together with market expansion, longer duration of therapy, and more combination of biologics,
Erbitux sales in 1st and 2nd line colorectal cancer should continue to grow even with the launch of
panitumumab in H2/06. The positive results of panitumumab in EGFR negative patients (25% of
colorectal cancer) should also increase use of Erbitux in these patients.
2. WHEN WILL PANITUMUMAB BE LAUNCHED?
Amgen is beginning the submission of a rolling BLA on panitumumab this month based on data
from Study 408 which was conducted outside the U.S. We expect completion of the application in
Q1/06. Panitumumab has been granted priority review. Therefore, an FDA decision on approval is
expected in H2/06 and potential launch thereafter. A Phase 3 study of panitumumab in third-line
metastatic colorectal cancer is also ongoing in the US. The primary endpoint is response rate.
Enrollment has been slow due to the launch of Avastin and Erbitux. Amgen does not intend to wait
for the data before filing.
3. WHAT ARE THE RISKS TO FDA APPROVAL OF PANITUMUMAB?
Based on the data disclosed on panitumumab thus far, we expect the FDA to focus on the
robustness of the results. Amgen's BLA is based on data from the pivotal Phase 3 study (Study 408)
which included 463 metastatic colorectal patients who had failed at least 2 prior standard
chemotherapeutic regimens. The study was conducted outside the U.S. Patients received either best
supportive care (BSC) or panitumumab (6mg/kg every two weeks) plus BSC. The primary endpoint
was progression free survival (PFS). In the study, 231 patients received panitumumab plus BSC,
and 232 received BSC.
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, Amgen 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. As
seen in prior studies with panitumumab and Erbitux, rash was the major side effect.
The impressive p-value of Study 408 implies that the results have a high likelihood of being
duplicated if the study is repeated. However, details have not been disclosed. The high (75%)
progression rate by 8 weeks makes the clinical benefit somewhat difficult to interpret. Most of the
clinical benefit might be driven by a minority of the patients who did not progress. Therefore,
panitumumab may have limited effect on the median PFS. The severity of rash is also not known.
While the PFS endpoint in the ex-US study generally represents a higher hurdle than tumor
response, the FDA may scrutinize the data very stringently, especially if the FDA application is
based on one Phase 3 trial. In Study 408, the scoring of progression is affected by the frequency of
imaging scans which is every 8 weeks. However, unscheduled scans can be ordered for patients
who progress clinically. As the protocol also allows patients in the control group (BSC) to "cross
over" to receive panitumumab upon progression. Some BSC patients may receive early,
off-schedule, imaging scans to document progression so as to switch to panitumumab. Earlier scans
may shorten the PFS of the control group and increase the "spread" between panitumumab and
BSC.
4. HOW DOES PANITUMUMAB COMPARE TO ERBITUX?
There is no head to head study to compare panitumumab against Erbitux. We believe a key factor in
choice of the two agents will be efficacy. Panitumumab might have less side effects, more flexibility
in dosing, and data to support use in EGFR-negative patients.
a. Less side effects. Panitumumab is a fully human, whereas Erbitux is a chimeric (mixture of
mouse and human), antibody. Therefore, panitumumab may have less immunological and
hypersensitivity side effects than Erbitux. In clinical trials, about 3% of patients treated with Erbitux
had severe infusion reactions. The detailed data on panitumumab have not been disclosed.
However, some physicians have learned to reduce the side effects by using antihistamines and
decreasing the dosage. We suspect the rate of infusion reactions is low. Unlike Erbitux,
premedication with antihistamines is not required prior to panitumumab therapy.
b. Dosing flexibility. Panitumumab was given by intravenous infusion over 1 hour every 2 weeks in
Study 408. It was also effective given weekly in Phase 2 trials. Once every 3 week dosing is being
evaluated. Erbitux is usually infused for 2 hours weekly. The shorter infusion time and less frequent
dosing of panitumumab should be more convenient for patients and allows a higher throughput for
physician offices.
c. Active in EGFR-negative patients. In Study 408, panitumumab seemed to be effective in patients
regardless whether their tumors were positive for EGFR. Erbitux is approved for EGFR-positive
colorectal cancer. However, there are some pilot data indicating that Erbitux is effective in
EGFR-negative patients, which represent about 25% of colorectal cancer patients. ImClone is also
conducting studies to evaluate EGFR-negative patients.
On the other hand, Erbitux has a bigger database and potentially broader labeling:
Erbitux was launched in Q1/04. Many oncologists are experienced with using the product. There is
also a large set of data from numerous clinical trials supporting the effectiveness of Erbitux when
combined with various chemotherapeutic regimens and with Avastin. The database on
panitumumab is relatively limited. In 2006, Amgen plans to start clinical trials on panitumumab in
first-line colorectal cancer in combination with oxaloplatin (Phase 3), second-line colorectal cancer
with chemotherapy (Phase 2), adjuvant colorectal cancer (Phase 2), and metastatic recurrent head
and neck cancer (Phase 3). The development of Erbitux in these indications is 2 years ahead of
panitumumab. ImClone will likely launch Erbitux for head and neck cancer in H1/06. We expect
Phase 3 data on panitumumab in first and second-line colorectal cancer in 2006.
Erbitux is also ahead of panitumumab in development for other cancers, including Phase 3 trials on
first and second-line lung cancer. Results are expected 2007, and potential is about $1B. Phase 3
data on pancreatic cancer with $0.3B potential are expected in mid 2006. Furthermore, Phase 2
trials are ongoing for cancers of the cervix, esophagus and ovaries.
5. HOW WILL ERBITUX GROW?
We expect near term growth to be driven by increased penetration in colorectal cancer and launch
of head and neck cancer. On August 30, 2005, ImClone and Bristol-Myers Squibb announced the
filing of a supplemental FDA application on Erbitux in squamous cell cancer of the head and neck (
SCCHN). The companies are seeking approval for use of: (1) Erbitux in combination with radiation
for locally or regionally advanced SCCHN, and (2) Erbitux monotherapy for recurrent and/or
metastatic (R/M) SCCHN where prior platinum-based chemotherapy has failed or was
inappropriate. The application was accepted and granted priority review on October 30. An FDA
decision should be reached in Q1/06. We expect a positive FDA decision and product launch in
2006.
We estimate the potential of SCCHN to approximate $0.5B for Erbitux, with sales of over $400MM
in 2010 (5 years post launch), we anticipate about 54% of the sales from first line therapy and the
rest from R/M SCCHN. Our model assumes the average duration of therapy to be 2.5 months for
first line and 5.0 months for R/M SCCHN.
6. WHEN WILL DATA BE AVAILABLE ON ERBITUX FROM EARLY COLORECTAL
CANCER?
We believe many investors have not focused on the potential release of data from three Phase 3
trials on Erbitux in colorectal cancer in 2006. In mid 2006, Phase 3 data from a Canadian study in
500 colorectal cancer patients who are refractory to irinotecan and/or oxaloplatin should be
available. Reminiscent of Study 408 for panitumumab, patients were treated with BSC ¦ 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 colorectal cancer. If the survival data
from these randomized, controlled trials are positive, Erbitux should be preferred by physicians and
third party payers.
7. WILL PANITUMUMAB BE USED OFF-LABEL IN FIRST-LINE COLORECTAL CANCER?
We believe the first approved indication for panitumumab will be for third-line colorectal cancer
which is a small market segment. For first-line colorectal cancer, the largest segment, Amgen will
initially rely on Compendium listing of the PACCE trial which is an open label study that is not
sufficient for FDA approval. 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. Therefore, at launch, data on
PFS may not be available. Amgen has planned interim analysis starting late 2005, including
response rate from about 150 patients in Q4/05. The interim data are unlikely to drive significant
use of Avastin plus panitumumab in view of the high cost of the combination therapy and the lack
of well controlled studies.
8. HOW WILL PANITUMUMAB BE PRICED?
Pricing of panitumumab will probably not be known until product launch. A significant price
reduction by Amgen can pose a threat to Erbitux. However, we note the following:
(1) Amgen will probably not discount its core products, such
as Aranesp and Neulasta, to gain share
of panitumumab because the latter has a much lower margin after 50% profit split with Abgenix.
(2) We believe Amgen views panitumumab as superior to Erbitux and will use "value-based
pricing."
(3) Under the ASP system, lower priced products are less financially attractive to physicians.
(4) Erbitux is priced at about $8,000/month. If the product is effective in first-line colorectal cancer,
which involves a longer duration of therapy, we expect Bristol-Myers Squibb to cap the yearly cost
or use an analogous system to reduce the cost of therapy. In our model, we have capped the cost at
$50,000 per year for the first-line indication.
9. IS IMCLONE'S VALUATION ATTRACTIVE?
Valuation of ImClone shares based on PE multiples and PEG ratios is difficult because the EPS can
fluctuate significantly depending on the timing of the milestone fees, amortization of payments from
partners, and the use of deferred tax assets. Therefore, we chose to valuate ImClone shares based on
the intrinsic value (net present value of current indications plus net cash). We estimate the intrinsic
value to be about $20/share and the pipeline value (difference between current share price of $33
and intrinsic value) to be $13/share which we view as attractive. The value of the SCCHN
indication is about $10/share (see Table 1). Therefore, limited value is assigned to the 1st/2nd line
colorectal cancer, NSCLC and pancreatic cancer indications (with a combined potential of $2B and
intrinsic value of $22/share) nor to the rest of the pipeline (1 product in Phase 2 trials and 3
products in Phase 1 studies.)
Table 1: Intrinsic value analysis: Minimal value assigned to pipeline
New Indications Intrinsic Value Risk Data
Head and neck $10* Low Filed Early colorectal $8 Med Q4/06 Lung $9 High 2006/07 Pancreas $5
Low Mid-2006
Total $32 *Includes $250MM ($2.70/share) in milestone fees. Source: Company data, Goldman
Sachs Research
In calculating our intrinsic value, we assume the gross royalties on U.S. sales of Erbitux to be 39%.
Bristol-Myers Squibb pays for clinical development of all new indications. ImClone is responsible
for 50% of Phase 4 costs and a sales force with about 40 people. Assuming $0.25MM per sales
person per year, the expense associated with the sales force is $10MM per year or 1-2% of 2006/07
sales. We also assumed Phase 4 expenses of $20MM per year (2-3% of sales in 2006/07) and
royalty to third parties of 7%. Therefore, net royalties in 2006/07 would be 27-28%. With increasing
sales and decreasing clinical activities over time, we used an average of 31% net royalties for our
calculations of the intrinsic value. Decreasing the net royalty to 29% would reduce by about $1 each
the intrinsic value to $19 and the pipeline value to $21. We used 10-12% as discount rates in our
calculations of the net present value of approved indications.
10. WILL IMCLONE BE ACQUIRED?
Amgen's proposed acquisition of its partner, Abgenix, has increased speculation that Bristol-Myers
Squibb (BMY), ImClone's partner on Erbitux, may acquire ImClone. Based on the agreement on
Erbitux, BMY is not allowed to acquire a controlling stake in Imclone in excess of 19.9% prior to
September 19, 2006, subject to certain exceptions. As of 3/15/05, BMY holds the original 14.4MM
shares acquired in 10/01, or 17.2% of shares outstanding. If ImClone were acquired by a third party,
we believe terms on the Erbitux agreement will stand, that is, BMY will continue to pay royalties on
net sales in North America of 39%. BMY also reimburses ImClone for a portion of royalty fees that
ImClone pays to third parties based on North American sales. The agreement also stipulates that
BMY pays 100% of the cost of Phase 1-3 clinical trials in North America. Phase 4 trial expenses are
shared equally.
I, Maykin Ho, Ph.D., hereby certify that all of the views expressed in this report accurately reflect
my personal views about the subject company or companies and its or their securities. I also certify... |
