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Headline: IDEC Pharm: Reports 1Q98 profit of $0.16, JV profits
clarified
Author: CA Butler,PhD/E.Ende,MD(212)526-4410
Rating: 2
Company: IDPH
Country: OPR CUS
Industry: BIOTEC
Ticker : IDPH Rank(Prev): 2-Outperform Rank(Curr): 2-Outperform
Price : $36 3/4 52wk Range: $47-17 Price Target: $ 59
Today's Date : 04/21/98
Fiscal Year : DEC
EPS 1997 1998 1999 2000
QTR. Actual Prev. Curr. Prev. Curr. Prev. Curr.
1st: -0.12A 0.16E 0.16A - -E - -E - -E - -E
2nd: -0.63A 0.26E 0.32E - -E - -E - -E - -E
3rd: -0.51A -0.03E -0.06E - -E - -E - -E - -E
4th: 0.43A 0.11E 0.08E - -E - -E - -E - -E
Year:$ -0.83A $ 0.50E $ 0.50E $ 0.85E $ 0.85E $ - -E $ - -E
Street Est.: $ 0.51E $ 0.52E $ 1.16E $ 1.19E $ - -E $ - -E
Price (As of 4/20): $36 3/4 Revenue (1998): $89.0 Mil.
Return On Equity (98): N/A Proj. 5yr EPS Grth: 35%
Shares Outstanding: 19.6 Mil. Dividend Yield: Nil.
Mkt Capitalization: 367.35 Mil. P/E 1998; 1999 : 80.0 X; 47.0 X
Current Book Value: $4.37 /sh Convertible: None
Debt-to-Capital: 5.1 % Disclosure(s): C
* Idec Pharmaceuticals has reported a 1Q98 fully diluted profit of
$0.16 per share, which was better than the street expectation
of $0.06 and in line with our estimate of $0.16.
* We estimate that of the $35.2 million in US sales from Rituxan,
Idec received approximately $4.85 million from the Genentech/Idec
joint venture
pretax profit or 13.8% of US sales.
* With a clearer understanding of the profit share arrangement
and future R&D/S,G&A expenses, we are adjusting our quarterly
estimates for 1998 but maintaining our $0.50 EPS estimate and
Rituxan end user sales projection of $163.4 million.
* There are currently 40 US and 30 European trials using Rituxan
in different settings including front-line therapy, maintenance,
high grade and intermediate grade NHL with CHOP as well as other
ongoing studies.
* We believe that robust Rituxan sales should continue throughout
1998 and 1999 as a greater number of potential indications are
studied through the 70 ongoing trials. Thus, we reiterate our
2-Outperform and $59 price target.
FINANCIAL SUMMARY
Idec Pharmaceuticals has reported a 1Q98 fully diluted
profit of $0.16 per share, which was better than the street
expectation of $0.06 and in line with our estimate of $0.16.
Product revenues, consisting of the profit share
agreement, bulk sale of Rituxan to Genentech (GNE, 69 1/2,
2-Outperform) and S,G&A reimbursements associated with Rituxan
as well as European royalties received on Rituxan,
were $9.2 million. Rituxan sales in the US were $35.2
million while European sales to Roche by GNE were $2.5 million.
R&D revenues were $6.3 million, which was slightly less than our
expectation of $6.5 million. Total revenues were $18.1 million
less than our projection of $22.0 million.
Cost of goods reflecting bulk manufacturing of Rituxan were $4.1
million, significantly lower than our projection of $5.5 million
and the number posted in prior quarters. R&D expense declined
from last year's first quarter by 6% to $7.0 million while
S,G&A grew by 76.6% over last year rising to $3.9 million.
After net interest income of $745 thousand, untaxed net profit was
$3.9 million. The company finished the quarter with
$63.4 million in cash and equivalents or $3.23 per share.
Rituxan sales (in $MM) over the past four months were as
follows:
Region Dec 97 Jan 98 Feb 98 Mar 98 Q198
US $5.1 $13.2 $11.1 $10.9 $35.2
Ex-US - - - $ 2.5 $ 2.5
TOTAL $5.1 $13.2 $11.1 $13.4 $37.7
Idec receives 30-35% of pretax profits from the sale of Rituxan
according to the Genentech/Idec agreement (probably closer to 31%
at the current end user sales level, rising to approximately 35%
after a certain breakpoint). It also receives, on a quarterly
basis, approximately $4.2 million from bulk sale of product
(although this quarter Idec actually received closer
to $2.5 million) and $1.6 million in SG&A reimbursement. Since we
know actual Rituxan sales including the approximate 12% royalty on
ex-US revenues and total revenues from the joint business
arrangement with GNE ($9.2 million), we can estimate Idec's share
of the profits using the above assumptions. As a result, we
estimate that of the $35.2 million in US sales, Idec received
approximately $4.85 million of the JV pretax profit or 13.8% of
US sales. As sales increase, we believe that this percentage
will increase as fixed costs are spread over a larger revenue
base and marketing expenses decline as percent of sales.
The decline in COGS this quarter was due to a brief
maintenance shut down of the manufacturing plant. Going forward,
COGS should return to prior levels of approximately $5.3 million.
R&D expense should rise during 2Q and 3Q as
the phase III trial of Y2B8 gets underway, 9AC trials expand
and manufacturing expenses associated with the trials increase.
In addition, S,G&A should rise modestly.
As a result of better guidance from management adding to
a clearer understanding of the profit share arrangement and
future R&D/S,G&A expenses, we are adjusting our quarterly
estimates for 1998 but maintaining our $0.50
EPS estimate and Rituxan end user sales projection
of $163.4 million. The changes are as follows:
1Q98A 2Q98E 3Q98E 4Q98E FY98E
NEW $0.16 $0.32 ($0.06) $0.08 $0.50
OLD $0.16 $0.26 ($0.03) $0.11 $0.50
PIPELINE HIGHLIGHTS
There are currently 40 US and 30 European trials using Rituxan in
different settings including front-line therapy, maintenance,
high grade and intermediate grade NHL with CHOP as well as
other ongoing studies. IDEC-Y2B8 (salvage radioimmunotherapy
for NHL) is in phase III with results expected in 1999.
9-AC, in phase IIa, is being studied in eight different
solid tumors with the goal in 1998 of choosing one cancer
type for full phase II studies.
IDEC-151 (rheumatoid arthritis) is in phase II with results
expected at ACR at the end of 1998.
IDEC-131 (Lupus) is in phase I.
CONCLUSION
Sales of Rituxan have been strong with US sales to date
of $40.3 million. We believe that robust sales should
continue throughout 1998 and 1999 as a greater number
of indications (off-label and on-label) become available
through the 70 ongoing studies. The stock will likely trade
based on end user sales as the numbers become available.
As we expect strong Rituxan sales to continue,
we reiterate our 2-Outperform and $59 price target.
BUSINESS DESCRIPTION:
Expertise in immunologically active antibodies. Core
pipeline products include therapies for AIDS,
non-Hodgkins B cell lymphomas, malignant melanoma and
autoimmune diseases.
Disclosure Legend: A-Lehman Brothers Inc. managed or
co-managed within the past three years a public offering
of securities for this company.
B-An employee of Lehman Brothers Inc. is a director of
this company.
C-Lehman Brothers Inc. makes a market in the securities of this
company.
G-The Lehman Brothers analyst who covers this company also
has position in its securities. |
