Sam:
I agree that Agouron is undervalued at this time. I cannot, however, tell where the stock is headed from here.
First, Agouron purchased Alanex in the last quarter. This purchase creates a more powerful, and integrated company. Alanex had some revenue that should help Agouron's bottom line in the quarters to come. The purchase also added to the third quarter overhead that Agouron has reported.
No one tells potential investors that they are buying more than Agouron and their pipeline. They are now buying Agouron, Alanex, and the synergies that the two companies together have created. This is an abstract concept concept that the market does not readily value. The power of structural based drug design (Agouron) is now coupled with high throughput combinational drug screening (Alanex) to create synergism that time can only tell what will happen. This synergism is not something that I would bet against in the long run.
Second, no one wants to place their money on the line because of fear. The disease that is being treated (AIDS) is not fully understood. This
lack of complete understanding creates uncertainty that the first Agouron drug, Viracept, may be a flash in the pan. I do not accept the possibility that Viracept will be a flash in the pan. Yes, there is uncertainty still present, but we now know that triple therapy in drug naive AIDS patients leads to suppression of viremia and control up to three years in the short term. This tells me that the protease inhibitors will be a cornerstone of therapy for a very long time. The PIs will be used as we progress to the next level of therapeutic investigation with interferons, and newer non PI drugs. Remember, Agouron would become a $10 stock if Viracept sales dried up suddenly.
Third, the drug pipeline is not well understood. People do not understand the science that the pipeline rests upon. We know that Thymitaq is an improvement upon the already existent thymidylate synthetase inhibitors. The first generation of these drugs, 5 flurouracil (5-FU), is a drug that has been used extensively for the last 25 years or more. Off the top of my head, 5FU brings in at least 500 million in revenue. I see Thymitaq doing that much eventually as well. It may take a long time to get there, but I believe that the science is solid.
Fourth, the MMPIs are possibly a revolution in the treatment of cancer. This is no longer pie in the sky stuff. The science that it rests upon, is pretty solid in my opinion.
Fifth, the PIs are underutilized. So the bottom line of Viracept should grow for multiple reasons. Only 1/3 of Americans with AIDS are treated with PIs. Fewer are treated on a worldwide basis. When the reports of twice daily dosing come out in early 1998, then Viracept should do even better. It has a longer half life of all the PIs now available, estimated at 5 hours. Twice daily dosing will offer an attack on the compliance issue, so if twice daily dosing of Pis does pan out, then I believe that Viracept will become the leader of all the PIs. And if the viral resistance patterns (Viracept resistant but sanguinivir sensitive) that have been already reported here regarding PI resistance, then compelling evidence would be accepted that Viracept should be the drug of choice among the PIs.
In conclusion, there is much more on the positive side than the negative.
Best regards,
TJK. |
