Agouron anticipates the oncology division would become more like a biotech company: trading on future potential, pipeline etc. They feel a responsibility to shareholders (and they are shareholders too) to expose the oncology asset, which they feel is lost in the shuffle. Although some referred to it as a tracking stock, it is more like separating the company into two divisions: an oncology research division, with it's market cap trading more like a biotech company; and the profitable HIV division, with Viracept and the other HIV projects in clinical development. The oncology research program accounts for 25% of the total R&D and this 25% will be part of the oncology division. Taking out milestone payments etc, the spending for FY99 R&D will approximate the spending for R&D for FY98 for Agouron. They want to increase shareholder value and it will be non dilutive.
At present, they feel that with the company's stock trading at 20 times '99 earnings, and only twice '99 sales of Viracept; no value is given to the oncology pipeline division. If it were trading at a 50-60 multiple times current earnings, then they would feel value is being given to the growing cancer pipeline. They feel that the simplest way of doing that is to isolate organizationally to prepare financial accounting for it and to allow it to be judged with other R&D biotechs. - like Entremed or British Biotech. They think the Agouron oncology business set up that way would fare very well.
Many of the operating details await formulation and details cannot be given until the papers are filed with the SEC, but it would be a division of Agouron and Agouron would be responsible for their working capital AND IT DOES NOT REQUIRE ADDITIONAL CAPITAL AND IS NOT DILUTIVE according to Peter Johnson. Tony Lehman thought it would dilute shares, and Peter Johnson said it would not. Johnson feels there is only upside for shareholders with this news. Unfortunately he doesn't know the power of the shorts and uncertainty and overall market conditions where investors would rather pay for Internet stocks trading at p/e's of 300-400 or whatever. And the overall market's attraction to big caps.etc. Hopefully once the details are presented, the picture will be clearer.
Apart from Lehman's skepticism, (Mehta too, but not as much) I didn't think the Q&A was negative.
Douglas Lind of Morgan Stanley DW liked the idea; " I think the tracking stock, at least in my mind, and from my experience, looks like a rational and logical approach." Johnson said they would like this oncology division to be operational at end of second quarter.
As Peter said, Tony Lehman seemed skeptical of how it would raise market value. It will be subject to shareholder approval.
Agouron's cash position remains strong and they do not anticipate any need for capital. Working capital 6/30/98 of $128 million represents a 10% increase from 6/30/97.
Increased sales of Viracept and a series of in license activity have underscored Agouron's commitment to the AIDS market and have contributed to another excellent quarter. They believe that continued growth and market share and the launch and marketing of Viracept outside the US should permit the company to report continued operating profitability in the coming quarter and fiscal year.
Agouron expects gross margins to continue to improve. 65% in '98; (can't remember- 99) and 72% in 2000.
Increased SG&A of ~$80 million have increased due to increasing staff levels and increasing expenses for in support of ongoing Viracept sales and market activity, and increasing Phase IV studies marketing and the operations of a Canadian Marketing subsidiary.
The effective income tax rate for FY98 was 40%. The company anticipates that the rate will range from 10% to 15% for FY99, due to greater use of tax credits due to increased R&D and decreased contract revenues.
BTW: The Dow Jones wire did report :
<<Agouron Pharma 4Q Operating Net 22c/Diluted Shr Vs Loss 38c>AGPH>>
so the licensing fees were considered as charges and the earnings were much higher than estimated.
The high inventory this quarter was due to inaccurate estimates from Roche. The initial estimates from Roche were way off, and Agouron over accrued in the third quarter and basically are still correcting for it. At the last conference call, Agouron was unable to provide analysts with figures because Roche had not given them any information yet, and it was too early to know. They expect to work off the inventory. Roche's expectations for Europe now are very bullish. Agouron estimates that European sales, based on projected royalties given to them by Roche, will approximate $270 million to $300 million.
I thought Agouron was more positive than usual because they are usually very conservative and would rather err on the cautious side. Which is why they appear to be toning down the rate of growth, due to unknowns, like Sustiva, until they see how the Sustiva data plays out.
They think it is too early to say how popular these protease sparing regimens will be, but studies have shown that Viracept and Sustiva have very favorable pharmakinetics (sp?) and Sustiva is contra- indicated in use with fortovase and amprenavir (vertex 141). It also decreases levels of Crixivan.
It increases levels of ritonavir, like viracept. They think that Sustiva will increase market activity overall and they do not believe it will do away with proteases.
As far as the BID studies, Viracept BID up to 48 weeks was just as effective as TID. They point out that their competitor (assume Merck) did not provide any longitudinal data for BID - crixivan. (And they are many who are skeptical of Crixivan BID, thinking that AUC and trough levels are not adequate with BID dosing, they didn't say this, it's in the literature). They think once a day Sustiva with twice a day Viracept is a very tolerable combination that should permit easier adherence, much more than Crixivan every 8 hours. And only two out of 212 patients dropped out for diarhea.
Although overall prescription data is moderating, Viracept's growth is continuing. BID sales increase sales, as more pills are taken for BID. They are reformulating Viracept. Viracept is being used more and more for salvage therapy. Deeks and others presented very positive studies on the use of Viracept in salvage regiments. There is a very large study comprehensive underway, ACTG 384 that will really highlight the Nelfinavir/Sustiva combination. With 8 treatment arms, I'll have to find it, all are either Nelfinavir and or Sustiva.
Foreign sales will also drive the growth.
Many positive things came out of Geneva though one would never know from the media. They think that Remune has the potential to be a blockbuster, even bigger than Viracept.
BTW, Dr. Valentine's latebreaker session presented at Geneva is available now at the WEBCAST -at the 98 Geneva - and it is very impressive. And who ever was asking for numbers and statistics, there are plenty there. It is available in Real Audio.
Differences were significant at the .005 level, and it wasn't a very big study, maybe 20 in each group, which makes it more impressive. And it was double blinded, randomized, carried out at 8 centers, like Mass General etc. wacnt2.aids98.ch
They think that Valentine may present more data at ICAAC as a latebreaker.
During the Q&A, they were asked if Agouron had any plans like Glaxo and to market their drugs in the third world at a 75% discount. They were told by Roche that Viracept may be under consideration with some of the governments. Roche has the licenses there and it will be their call but Agouron will receive royalties if it is sold there.
Presentations by Gallant, Thompson, Filopa (sp) confirm the findings of Keith Henry that the majority of patients who fail Viracept can be treated either with either Indinavir or Ritonavir/Saquinavir. Cross resistance with Viracept is unusual. Personal discussions with Dr.Henry indicate his patients are still responding long term, 15/16 beyond 24 weeks are still undetectable.
<<But they've got to tighten down on spending if they are going to do this. Good companies start requisitioning pencils for a quarter or two to send a message.>>
Peter, now is not the time to cut back, if you want them to remain independant and prepare to market Viracept in Canada and market Viracept here, and proceed with the Phase IV data for final approval.
I'm sure the money is going for marketing and R&D etc and not for fancy pen sets :-)
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