Heard On The Street: Agouron's AIDS Drug Faces Increased Competition
Dow Jones Online News, Friday, July 17, 1998 at 00:07
(Published on Thursday, July 16, 1998 at 21:02)
By Leslie Scism, Staff Reporter of The Wall Street Journal
As a big AIDS conference in Geneva unfolded late last month,
investors pounded the shares of numerous small drug makers on the theory
that a surprisingly successful new treatment will prove painful for some
older ones.
But some investors and analysts contend the worries are overblown
when it comes to diminished prospects for Agouron Pharmaceuticals, the
maker of a leading protease inhibitor, a category of drugs that
heretofore has been the most-promising form of treatment against HIV
infection.
Since the late-June and early-July conference, Agouron's shares have
dropped 25% to 25 5/8. But analysts at several Wall Street securities
firms say the stock could hit 45 in the next 12 months. "There's clearly
greater risk that the (protease-inhibitor) market could slow, but,
having said that, Agouron's opportunity to capture new patients . . . is
greater than that of any other protease-inhibitor maker in the U.S.,"
says Anthony Butler, a Lehman Brothers analyst who is one of the bulls.
The sell-off extended across a range of companies that make, or are
developing, AIDS drugs, after reports at the 12th World AIDS Conference
about a new therapy by DuPont that could change the way HIV infections
are treated. The new therapy, built around an unapproved drug called
Sustiva, would greatly reduce the number of HIV-fighting pills patients
have to take, one of the drawbacks of most existing
protease-inhibitor-based therapies.
Initial reports also suggested that many AIDS physicians might begin
to treat people without using the protease inhibitors that
revolutionized treatment of the disease just two years ago.
But AIDS activists and physicians say that Agouron's Viracept, in
particular, isn't as vulnerable as the early reports suggested. While
DuPont's Sustiva is indeed promising, its success, "by no means, means
that protease inhibitors are on their way out," says Spencer Cox, a drug
expert who heads the antiviral drug advocacy work for Treatment Action
Group, a nonprofit AIDS group.
"Many patients will likely be on both protease inhibitors and Sustiva
at various points in their treatment," Mr. Cox says, cautioning that
enthusiasm over the DuPont drug is based on relatively limited
experience compared to Viracept.
Dr. Howard Grossman, who has one of Manhattan's largest AIDS
practices and who currently is involved in Sustiva clinical trials,
calls the newest entrant "a great drug," and he has little doubt that
"it will be effective" and widely used.
But he notes that an ongoing "combination study" of Sustiva with
Agouron's Viracept show the blend "is really well tolerated" by his
small test group. And of existing protease inhibitors, Viracept is often
"the best tolerated" by patients and has the advantage of requiring
fewer daily dosages than a leading competitor made by pharamaceutical
powerhouse Merck.
From his admittedly "glass-half-full" perspective, Agouron Chairman
Peter Johnson says, "this is not a zero-sum game." He believes Sustiva
could increase the total pool of patients, and, because Viracept is well
suited to be combined with Sustiva, "the greater Sustiva's success, the
greater Viracept's will be."
Bulls also maintain that Agouron's push into Europe will help boost
revenue, as well. For the fiscal year that ended June 30, analysts
expect Agouron to post about $350 million in U.S. sales of Viracept. At
that level, the company's stock-market value represents barely twice its
revenue, "which is absurd," says Douglas Lind, a Morgan Stanley Dean
Witter analyst. He praises the small company for "exceeding clinical and
commercial expectations in becoming the dominant" protease-inhibitor
maker.
Bulls also praise the company for recently licensing three new
potential AIDS treatments. (Agouron also is in early testing of a cancer
therapy.) But bears contend that those new treatments all signal big
research-and-development costs that will hurt the bottom line in the
near term. The company has told analysts it is exploring changes in its
capital structure to offset some of the R&D costs.
Those costs could drive the independent-and-proud-of-it company into
the arms of a bigger company, some analysts say. Ironically, they think
Agouron would be an ideal acquisition for DuPont, which is expanding its
life-sciences operations. Neither company would comment.
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