It seems to me that it is possible that Agouron overpaid on two of the three recently aquired potential drugs.
S-1153 is in Phase I testing, and they paid an initial 10 million for the right to spend a lot more money on and then pay out a lot more money if milestones are reached, and then share any eventual profits. I don't know a figure for what percentage of phase I therapeutics eventually are approved by the FDA, but I would think it is a small figure.
JE-2147 is in pre-clinical testing, so testing on humans hasn't even started yet. For this, Agouron paid an initial 6 million dollar license fee, and incur the costs and share any profits. I would think the percentage of preclinical drugs that actually are approved is very small.
Also, the amount of time required to bring a Phase I or preclinical drug through the testing and approval process to market can be very long, and the treatments for HIV could be totally different by then... Both of these are not wildly new ways to treat the disease, but are similar to other drugs already approved but with different characteristics (e.g. may treat resistant HIV).
The Remune agreement is also for an initial 10 million dollar fee, but at least that drug is completing Phase III testing, so chances are much better that it will eventually be approved.
Note that I am long Agouron and actually recently bought some more, but I do feel (with my limited knowledge of the potential market for the above drugs) they seem to have overpaid in my eyes. Perhaps other people feel the same way and are punishing the stock price by selling the stock? I feel the stock is undervalued at present given the revenue from Viracept and the potential of their pipeline, but these two purchases baffle me.
I'm also anxiously awaiting the details on the tracking stock. I own some Genzyme General, and they occasionally distribute to shareholders a few shares of the tracking stocks as GENZ accumulates stock in trade for money loaned to the tracking companies. My wife owns some Limited, and the way they (and other companies like RJR Nabisco) have handled this sort of thing is to IPO on the general market a fraction (like 18 to 20 percent) of the tracking company, and keep the rest to themselves. This assigns a value to the tracking company, and theoretically can raise the underlying price of the parent company since they own the majority of the tracking stock, and simple multiplication can let someone calculate what that majority of the publicly traded tracking company is worth. Limited still owns most of Intimate Brands (Victoria's Secret, etc), and recently offered Ambercrombie and Fitch in trade to any Limited shareholders who wanted to trade. Similar is the way AT and T split off Lucent, where they IPO'd a fraction of the company to give the shares some fair value, and then they distributed the rest to the shareholders, and Lucent became a totally independent company (i.e. AT and T doesn't own any Lucent stock). All of these examples give cash to the parent company in exchange for some piece of a company that was up until then considered "undervalued" by the parent company. The difference between all of these (except GENZ) and Agouron is that Agouron is likely going to have to give up some serious cash to get the tracking company going.
So, it seems to me the tracking stock could be:
- Fully distributed to AGPH shareholders
- Partially IPO'd with AGPH keeping the rest (the majority)
- Partially IPO's with some or all of the rest distributed to AGPH shareholders
- Simply incorporated as a separate company with AGPH keeping all
I guess we'll find out in a few weeks which it is...
- Nate |
