AGOURON: MORE THAN MEETS THE EYE
Paine Webber
Elise Wang
May 18, 1998
Rating=1 (AGPH)
Closing Price=$34 11/16
Current FY EPS EST=$0.98 (nc)
Next FY EPS EST=$1.92 (nc)
FY End=June
5/18/98
Market Cap: $1.2 billion Avg Dly Vol: 413,200
Shares Out: 33.2 million Cash (3/31): $117 million
52-wk High: $56 1/2 Cash/share: $3.55
52-wk Low: $26 3/4 Book value/shr.: $11.83
FY End: 1998E 1999E.
June
Viracept $355MM $475MM
U.S.
Revenues
EPS P/E EPS P/E
Q1A $0.11 NA FY 1999E $1.92 18.1x
Q2A $0.15 NA FY 2000E $3.43 10.1x
Q3A $0.41 NA CY 1998E $1.56 22.2x
Q4 $0.31 NA CY 1999E $2.56 13.6x
FY $0.98 35.4x NA NA
P/E NA NA NA NA
Dividend NA NA NA NA
COMPANY DESCRIPTION
Agouron Pharmaceuticals* is a pioneer in the discovery and design
of novel small molecule drugs based upon the molecular structures of
target proteins that play a critical role in human disease. The
company's lead product, Viracept, a protease inhibitor approved for the
treatment of HIV infection, is now marketed in 25 countries. One other
product is in two Phase III studies, a second in a Phase I study and an
additional 7 projects are in development for the treatment of cancer,
viral disease and immuno-inflammatory disease. Major corporate partners
include Japan Tobacco (Viracept and other anti-virals) and Hoffmann-La
Roche (Viracept in Europe/Asia).
MORE THAN MEETS THE EYE
BROAD PROGRAM IN ANGIOGENESIS WITH APPLICABILITY IN CANCER,
OCULAR DISEASE AND POTENTIALLY, INFLAMMATORY AND
CARDIOVASCULAR INDICATIONS
BACKGROUND: Recently at the American Society of Clinical Onoclogy
(ASCO) meeting, Agouron held a seminar on angiogenesis for the investor
and analyst community. For the first time, the company provided a
comprehensive overview of its research in the angiogenesis field
demonstrating the depth of its efforts. Agouron's programs cover three
areas including inhibitors of matrix metalloproteases (MMPs), inhibitors
of blood vessel growth factors (e.g., VEGF and bFGF) and inhibitors of
endothelial cell proliferation (e.g., methionine aminopeptidase). Each
of these programs is focused on developing small molecules that are
orally administered for potential chronic use. The research overview was
presented by several key scientists in the company. One of the recent
additions to its staff is Patrick O'Connor, Ph.D., as Head of Oncology
Research who is a highly reputed scientist from the National Cancer
Institute (NCI) with over ten years of experience in this field.
--Lead MMP inhibitor, AG3340, is currently in two pivotal Phase II/III
clinical studies in advanced non-small cell lung cancer (NSCLC) and
hormone refractory prostate cancer in conjunction with standard
chemotherapeutics.
--AG3340 is a small orally delivered molecule that inhibits certain
enzymes in the class of matrix metalloproteases (MMPs). Unlike other MMP
inhibitors currently under development, AG3340 is highly specific and
appears to inhibit selective types of MMPs such as the gelatinases that
are believed to play an integral role in tumor growth and proliferation
(i.e., metastases).
--Preclinical data in various tumor animal models demonstrate a high
level of potency in inhibiting tumor growth and proliferation either as
a single agent or in combination with certain chemotherapeutics.
--Preliminary results from Phase I studies in healthy volunteers and in
cancer patients show the product as a single agent is well-tolerated
with anecdotal evidence of some cancer patients demonstrating tumor
shrinkage or stable disease.
--Study protocols indicate a target enrollment of approximately 550
patients in over 50 sites for the two studies. Accrual is expected to
take approximately 18 months and consequently, these studies will likely
take at least two years to complete.
--Preclinical data and clinical data from the Phase I and Phase I/II
clinical studies for AG3340 are expected to be presented at the 10th
NCI-EORTC Symposium on New Drugs in Cancer Therapy scheduled for June
16-19 in Amsterdam.
--Third generation MMP inhibitor with more selective inhibition is
currently under preclinical development as a backup compound.
--An additional indication for AG3340 is age-related macular
degeneration, the most common cause of vision impairment among the
elderly. According to the National Eye Institute, approximately 1.7
million Americans have decreased vision from macular degeneration, and
100,000 are blind due to the disease. We believe the company may
initiate human clinical studies in this indication this summer.
REITERATING BUY (1) RATING
As we have indicated previously, we believe the market is
underestimating the potential of the product pipeline and expect
visibility will be enhanced for these products as they progress through
human clinical studies. In addition, we continue to believe Agouron has
a number of product licensing candidates under discussion, primarily to
augment its HIV franchise, with a potential announcement in the next 6-
12 months. As a reminder, the company's first product, Viracept, has
achieved the best market launch of any biotechnology product and
represents the fourth best U.S. launch of any drug with U.S. sales at a
current annual run rate of nearly $375 million. Our conviction regarding
the significant market prospects for Viracept remains intact. In our
opinion, Viracept continues to be viewed as the optimal first line
protease inhibitor given its combination of durability and potency of
effect, ease of use, mild side effect profile, and favorable cross
resistance profile. Our 12-month price target is $65-70 based on our
fiscal 2000 EPS estimate of $3.43 using a 25-30% discount rate and a 30
multiple. The stock is currently trading at a P/E multiple of 22x our
1998 calendar year estimate of $1.56 per share
UPCOMING MILESTONES
Marketing approval for Viracept in other countries:
Q2 1998
Clinical results of Phase I dose ranging studies for MMP inhibitor
(AG3340):
June 16-19 (NCI/EORTC)
Additional clinical data on Viracept (World AIDS meeting in Geneva):
June 28-July 3
Clinical results of Phase I dose ranging study for GART inhibitor
(AG2034):
mid-1998
Initiation of clinical studies for MMP inhibitor in acute macular
degeneration:
H2 1998
Announcement of product licenses/acquisitions:
H2 1998
RISKS
--Stock volatility and speculative nature of biotechnology investment.
--Competition in the HIV protease inhibitor market.
--Potential for resistance and cross resistance among HIV protease
inhibitors.
--Potential for manufacturing shortfalls.
--Loss of major corporate collaborations.
*PaineWebber Incorporated makes a market in this security. PaineWebber
Incorporated has acted in an investment banking capacity for this
company.
The information contained herein is based on sources we believe to be
reliable, but its accuracy is not guaranteed. PaineWebber Incorporated
and/or Mitchell Hutchins Asset Management Inc., affiliated companies
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More information available upon request
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