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Biotech / Medical : Agouron Pharmaceuticals (AGPH) -- Ignore unavailable to you. Want to Upgrade?

To: Peter Singleton who wrote (3180)	12/8/1997 1:02:00 PM
From: biao luo	Read Replies (2) \| Respond to of 6136

Lehman report: lehman.com Headline: Agouron Pharm.: Downgrade to 2' on Discontinuation of Thymitaq Author: CA Butler,PhD/R.Rouse (212)526-4410 Rating: 2 Company: AGPH Country: REC CUS Industry: BIOTEC Ticker : AGPH Rank(Prev): 1-Buy Rank(Curr): 2-Outperform Price : $31 3/4 52wk Range: $57-27 Price Target: $46 Today's Date : 12/02/97 Fiscal Year : JUN ------------------------------------------------------------------------------ EPS 1997 1998 1999 2000 QTR. Actual Prev. Curr. Prev. Curr. Prev. Curr. 1st: -0.57A 0.11A 0.11A - -E - -E - - 2nd: -0.47A 0.13E 0.13E - -E - -E - - 3rd: -0.19A 0.34E 0.34E - -E - -E - - 4th: 0.09A 0.18E 0.18E - -E - -E - - ------------------------------------------------------------------------------ Year:$ -1.13A $ 0.75E $ 0.75E $ 1.80E $ 1.40E $ - $ 1.85 Street Est.: $ 0.47E $ 0.50E $ 1.53E $ 1.52E $ - - $ - - ------------------------------------------------------------------------------ Price (As of 12/2): $31 3/4 Revenue (1998): $412 Mil. Return On Equity (97): N/A Proj. 5yr EPS Grth: 25%+ Shares Outstanding: 33.2 Mil. Dividend Yield: N/A Mkt Capitalization: $1.1 Bil. P/E 1998; 1999 : 42.3 X; 22.7 X Current Book Value: $6.15/sh Convertible: None Debt-to-Capital: N/A Disclosure(s): C ------------------------------------------------------------------------------ * Agouron announced today that its agreement with Roche for the development of cancer therapeutics would be terminated. * Thymitaq, the most advanced of three drugs terminated by Roche, will not move into Phase III trials. Agouron will, however, continue development of its collagenase I inhibitor, AG3340, which is in a Phase I trial. * Thymitaq was estimated to come to market in FY99. The absence of this drug impacts Agouron modestly, however, R&D payments from Roche will effect EPS. Our estimates do not change for FY98, yet move to $1.40 in 1999 and $1.85 in 2000. * Viracept sales remain strong and despite the presence of AG3340 in the clinic, we do not have information regarding its efficacy and are unclear of near-term drivers to support the stock. * Our NPV target is decreased to $46 and thus our rating moves to a 2- Outperform. ------------------------------------------------------------------------------ SUMMARY -Agouron announced that it has agreed to end its collaboration with Roche in the field of cancer. Roche, however, will continue to market Viracept in Europe. Agouron is also ending its development of its lead cancer product Thymitaq and is instead thrusting resources into two other compounds, AG3340 and a research program involving cdk4 (a protein important in cell cycle). Agouron will no longer receive future milestone payments from Roche and thus, EPS for FY1999 and FY2000 are effected by $20 million each. We had postulated sales of Thymitaq in FY 1999, yet royalties by our estimates were modest to Agouron ($2.0 million in FY 1999 and $3.5 million in FY 2000). Nevertheless the drug represented some opportunity for the future of Agouron beyond Viracept. The discontinuation of Thymitaq does impede our NPV generating a new 12-month target of $46. While dose-ranging studies with AG3340 continue with enthusiasm, the visibility of this drug in terms of revenue potential is unclear. Moreover, while Viracept sales continue to be strong, data on competitive products (i.e. VX-478) will be presented at the AIDS meetings in Chicago the first week in February. While we do not believe information emanating from that conference will negatively impact Viracept sales, thecurrent perception may be less robust. THE THYMITAQ DATA -An interim analysis of Thymitaq was performed yesterday at Agouron. The drug was being tested in two types of cancer: head and neck and hepatoma. In the US head and neck trial, 58 patients were tested with Thymitaq with the goal to determine the median time to progression. The drug was superior to methotrexate (standard of care) by 20 days, yet in the 68 patient European study was inferior by 62 days to standard of care. Thus, these data are essentially mixed. In the 53 patient hepatoma study the goal was time to survival. Those patients receiving drug numbered 37, while those receiving doxorubicin were 16. By day 40 the Thymitaq arm proved superior. The company, in deciding on a Phase III strategy however, realized a 400 patient hepatoma trial would be needed. This trial in their opinion appeared risky and management opted to focus instead on its 39 (also in cancer). CONCLUSION -While no one can expect a pipeline without disappointments, there is never a good time to have such a setback. Thus the current Thymitaq situation will likely hamper to upside potential for Agouron shares in the near-term. This should not, however, suggest that the fundamental story, the platform technology, management, or anything else at Agouron is flawed. To the contrary, one may actually applaud a management team that doesn't throw good money after bad in an R&D program that doesn't meet certain criteria. Again, we not argue that the Street will actually reward the stock here, but we do believe that the fundamentals at the company are in tact and that the longer term opportunity in the story remains. Beyond Viracept, the MMP and GART programs are both in Phase I studies and we await data from at least the MMP arena by mid-98. Further, the rhinovirus program may enter the clinic next year and we would not rule out the potential in-licensing of a product. These opportunities do not offset, however, the lack of definitive drivers for the stock, thus with this revised' scenario now playing out we feel that a less aggressive investment rating is warranted. Our 1-Buy moves to a 2-Outperform. BUSINESS DESCRIPTION: Agouron is a biotechnology company with a rational drug design platform technology focused on the development of novel therapies for cancer, AIDS, and other life-threatening 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.