here is post from agph thread from pw, mentions remune couple times thought everyone would enjoy
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To: John Metcalf (4962 )
From: Steve Fancy Thursday, Jul 23 1998 1:26AM ET
Reply # of 4966
Hey guys, don't forget me...you're favorite AGPH fan (PW report below). Although I don't like it any more than anyone else...my short term calls over the last month or so have been pretty darn accurate. Maybe the way to make short term money is to trade the trends and history of this company.
I don't like the way this company promotes itself...one of its largest problems is becoming painfully obvious as they get slaughtered after trade shows and seem to disappoint the general expectations (be them right or wrong) every earnings. The news from the conference call or Margies' Post should have been released in a press release right along with earnings. An explanation and maybe even actual projections instead of the very vague description released over the newswires would have been kind of a no brainer. Create more of a certainty rather than an uncertainty. Like it or not, Johnson does not know how to play the wall street game, and unfortunately, that is part of the job.
PaineWebber
KEY POINTS
1. Fiscal year and quarterly earnings generally in line with our expectations
and consensus.
-- Fiscal Q4 and 1998 EPS of $(0.29) and $0.40 per share, respectively,
were generally in line with our estimate and street consensus. These results
include one time payments of $26 million and certain additional associated costs
for the in-licensing of three new HIV products. Excluding these payments, EPS
would have been $0.89 per share for the year and $0.22 for the quarter.
-- Viracept U.S. product revenues of $105.6 million (up 13.8% quarter to
quarter) exceeded our estimate of $102.5 for the quarter and posted $358 million
for the fiscal year. At this level, the annualized run rate for U.S. sales of Viracept
is approximately $420 million.
-- Total product sales were $409 million for the year and $126 million for the
quarter representing a solid increase of 12.6% versus the prior quarter. These
sales include Viracept manufacturing revenues to Roche of $50.9 million for the
year and $20.4 million for the quarter, reflecting recent market launches in
Europe, South America and Japan. Viracept is now approved in 28 countries.
-- Net income for the year was $13.1 million despite a net loss of $8.9 million
in fiscal Q4 98 due to one time licensing payments and associated costs.
Excluding these one time payments, net income would have been $29.7 million.
-- Viracept continues to command a market leadership position not only
among the protease inhibitors but also among all HIV antiretroviral products. In
our opinion, management guidance for Viracept U.S. revenue of $430-440 million
for FY 1998 is relatively conservative. We believe the company will meet our
expectations of approximately $450 million for the year.
2. Agouron aggressively pursuing development of product pipeline and
fortifying Viracept's market position--Expenses expected to increase over the next
few years.
-- Management has indicated that it intends to pursue an aggressive clinical
plan for its recently in-licensed HIV products (i.e., Remune, S-1153, JE-2147) and
its cancer products. In addition, the company plans to accelerate development of
other products such as the rhinovirus protease inhibitor. Furthermore, the
company anticipates additional spending for sales and marketing as well as
funding of several Phase IV clinical studies for Viracept to support its market
position. Consequently, we estimate an additional $80 million in SG&A and R&D
expenditures over the next three years to support these efforts.
-- With the substantial increase in R&D expenses. Agouron will be able to
utilize certain R&D tax credits to reduce its reported tax liability. Consequently, as
provided by the company, the tax rate for FY 1999 should be 10-15% and 20-
25% for FY 2000 with a return to a full 40% tax rate in FY 2001.
-- Earnings impact: Based on the changes outlined above, earnings per
share are revised from $1.01 to $0.54 for FY 1999, from $2.02 to $1.98 for FY
2000, and from $3.53 to $2.70 for FY 2001.
3. In addition, as expected, Agouron announced a new capital structure to
mitigate the impact of increased expenditures as it pursues and aggressive
growth strategy.
-- Agouron plans to form a new division focused on its oncology product
portfolio and the creation of a new security representing the oncology division.
The remaining portion of the company representing primarily its HIV franchise and
other antiviral products will be included in Agouron General Division. Agouron
plans to file a proxy statement with the next two weeks in which the detailed plans
for the new structure will be outlined. Upon shareholder approval, Agouron
expects the new structure to be in place by fiscal Q2 1999.
-- Impact on Agouron:
-- Approximately 25% of aggregate R&D spending will be allocated to the
oncology division and will no longer be reported on Agouron General Division's
income statement.
-- Certain tax benefits may be available to Agouron General Division due to
likely net operating losses from the oncology division.
-- Earnings estimates for Agouron General Division: Given the diversion of
25% of R&D spending to the oncology division and the potential available tax
benefits, Agouron General Division will report substantially higher earnings than
the combine entity. We estimate earnings per share of $1.37 for FY 1999, $3.01
for FY 2000 and $3.48 for FY 2001 for Agouron General Division. We expect to
further refine these estimates upon final approval of the proposed new structure.
The following table summarizes our revised earnings estimates as discussed
above:
Earnings Estimates FY 1999 FY2000 FY 2001
Agouron combined (prior) $1.01 $2.02 $3.53
Agouron combined (revised) $0.54 $1.98 $2.70
Agouron General Division $1.37 $3.01 $3.48
REAFFIRMING BUY RATING
At the price of $28 3/4 per share, the company is valued as little more than
two times its current revenue run rate of $420 million per year. As a point of
comparison, other biotech companies such as Amgen and Biogen are trading at
approximately eight times their product revenues. In our opinion, the current
valuation not only presents a unique buying opportunity for investors but also may
render the company an attractive take-over target for pharmaceutical companies
that have strategic interest in the HIV market. As Agouron's stock is trading at
only 13.8x our calendar 1999 EPS estimate of $2.09 per share, and all-stock
acquisition by a major pharmaceutical company (trading at 33.0x 1999 EPS on
average) would be neutral or accretive even with a 50-100% take-over premium.
Out 12-month price target remains at $50 based on our revised FY 2000 EPS
estimate of $1.98 using a 20-30% discount rate and a 30x multiple for the
combined entity.
UPCOMING MILESTONES
Clinical results of Phase II European clinical study of Remune in combination
therapy:
H2 1998
Initiation of Phase II/III Remune/Viracept combination therapy study:
H2 1998
Initiation of Phase I clinical study of MMP inhibitor in acute macular degeneration:
H2 1998
Initiation of Phase I clinical study of rhinovirus protease inhibitor:
H1 1999
Initiation of Phase I clinical study of HIV protease inhibitor, JE-2147:
H1 1999
Initiation of Phase II clinical study of GART inhibitor for cancer:
H1 1999
Clinical results of Phase II S-1153 combination therapy study:
H1 1999
clinical results of Phase III Remune clinical endpoint study:
Mid-1999
Initiation of Phase II/III S-1153 combination therapy study:
mid-1999
clinical results of Phase II/III Remune/Viracept combination therapy study:
H2 1999
FDA regulatory filing for Remune:
H2 1999
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. |
