30 July 2002
THE GLOW DIMS FOR BIOTECH/BIOTECHS LAG WALL STREET
...some patients do not react to genetically engineered proteins as if they were natural. The patients react as if the protein were a germ, and their immune systems try to destroy it. (item 1)
...any downside surprises could lob yet another psychological blow to an industry already suffering scandals, a string of drug failures, crumbling stocks and a cash crunch. (item 2)
[To please the markets] 'We really need a product success. They are tired of the dot-com syndrome and the biotech promise.' (item 2)
1. The Glow Dims for Biotech Drugs
2. Biotechs lag Wall Street
1. Rebellious Bodies Dim the Glow of 'Natural' Biotech Drugs
By ANDREW POLLACK
New York Times
July 30, 2002
The promise of many biotechnology drugs is that they are the body's own solutions. Human proteins like insulin and growth hormones, the same substances that the body uses every day, are made through genetic engineering and given to people who do not make enough of the proteins on their own.
But an outbreak of serious illnesses linked to the anemia drug Eprex shows that some patients do not react to genetically engineered proteins as if they were natural. The patients react as if the protein were a germ, and their immune systems try to destroy it.
In the case of Eprex, which is made by Johnson & Johnson and is sold only outside the United States, this immune response is widely believed to be responsible for 141 cases of pure red cell aplasia.
With this condition, the body is unable to produce red blood cells, making some patients dependent on transfusions to survive.
Although the Eprex case is the most serious, virtually all biotechnology drugs provoke immune responses in some patients, though usually just tiny fractions. The reactions are becoming of greater concern as the number of protein drugs increases.
"Sometimes there are miracle drugs, but they can still have severe side effects," said Dr. Huub Schellekens, a professor at Utrecht University in the Netherlands. "That has come as a surprise to us, really."
In some cases, patients experience allergic reactions or even potentially fatal shocks. In many cases, the body makes antibodies that attack the protein, rendering it less effective as a drug.
Up to one-third of hemophiliacs develop immune reactions to the blood-clotting protein Factor VIII. In desperation, some undergo yearlong treatments at a cost of $1 million to try to restore the drug's usefulness.
From 5 to 40 percent of multiple sclerosis patients develop resistance to beta interferon, according to Dr. Richard A. Rudick, director of the Edward J. and Louise E. Mellen Center for Multiple Sclerosis Treatment and Research at the Cleveland Clinic. Although there is debate about whether the presence of the antibodies is important, Dr. Rudick said, many such patients are unlikely to benefit from the drug.
What makes the illnesses associated with Eprex more alarming is that the antibodies produced by the patients do more than make the drug ineffective.
They also attack the patient's equivalent protein. So the patients can no longer produce any red blood cells, ending up with worse anemia than than they would have had without the drug.
Amgen saw the same problem a few years ago with patients in a clinical trial for a drug aimed at increasing the production of blood platelets. The company halted work on the drug, which never made it to market.
The reasons for the immune responses are not clear. In some cases, the drugs, which are made by putting the human gene for the protein into bacteria or animal cells, are subtly different from the natural protein. One such difference may be in the sugars that coat the protein. In other cases, the drug may have an impurity, or the proteins may clump together.
In the case of Eprex, the cause remains a mystery. The factory, in Puerto Rico, is under criminal investigation. Johnson & Johnson says it has done nothing wrong, and the plant passed two recent inspections.
The same protein, sold in the United States as Procrit by Johnson & Johnson and as Epogen by Amgen, is linked to just a handful of cases of red cell aplasia. Amgen, which developed the drug, makes both brands in a factory in Colorado.
Experts say that because living cells make biotech drugs, the output is not as predictable as with chemically made drugs. Even slight changes in manufacturing can affect the product, sometimes in ways that cannot even be detected.
"Despite best efforts to detect product differences and predict the impact of manufacturing changes, these surprises do continue to occur," Dr. Chris Joneckis, an official of the Food and Drug Administration, said in May at a workshop on the problem. The F.D.A. declined to make officials available for this article.
Immune responses also occur with protein drugs not made by genetic engineering like those purified from blood or derived from animals. The antivenin for rattlesnake bites, from horses' blood, can be used just once because after that a person's immune system is primed to destroy it immediately.
"When rattlesnake handlers get just a small bite, they don't get antivenin because they want to save it for a large bite," said Dr. Douglas J. Ringler, chief executive of TolerRx, a company in Cambridge, Mass., that is developing techniques to prevent immune reactions to protein drugs.
The 141 suspected cases of red cell aplasia pale in comparison to the three million people who have been treated with Eprex or its American counterparts for more than 10 years. Many of those patients are able to work or lead more normal lives because the drug eliminates the fatigue of anemia.
The drug is a form of erythropoietin, a protein produced by the body to spur the production of red blood cells, which ferry oxygen around the body. Before the advent of genetic engineering, scientists had tried to isolate the protein from human urine but could not obtain enough to use it as a drug.
In many cases, the genetically engineered proteins replace those taken from animals or from human blood or tissues. The biotech drugs are widely considered safer because they do not carry the risk of viral infection.
Human insulin made by genetic engineering supplanted insulin from animals. The human version generally provokes far fewer immune reactions and lets diabetics control their insulin better. Nevertheless, a small percentage of diabetics say they cannot tolerate the human version and are trying to keep cow and pig insulin available.
For hemophiliacs, Factor VIII made by genetic engineering is widely seen as safer than the same protein purified from human blood, which has a small risk of infections. But up to 35 percent of hemophiliacs develop antibodies to the genetically engineered factor, said Dr. Louis M. Aledort, a professor at the Mount Sinai School of Medicine. Fifteen percent developed antibodies to the blood-derived product, Dr. Aledort said, although the numbers may not be comparable because of differences in measuring.
Although the Eprex problem is something of a black eye for what has been the biotechnology industry's most successful product - Eprex and its American cousins exceed $5 billion in combined yearly sales - it could actually help in the long run, by eliminating the threat of generic competition. For drugs made chemically, generic manufacturers do not have to run expensive clinical trials. They need to show just that their drug is identical to the brand-name product.
But the biotechnology industry and the F.D.A. have said it is too difficult to show that two biotech drugs are equivalent without full clinical trials. Eprex is likely to become Exhibit A in such arguments.
2. Despite promise, biotechs lag Wall Street
East Bay Business Times, USA, by Susan L. Thomas
For the biotech industry, 2002 began with mild optimism. Yet halfway through, it's morphed into a mass of collective head banging.
Consider the math. In the East Bay alone, 18 biotech companies have
lost $7.5 billion in market capitalization - about 38 percent of
since the middle of January. Individually, many firms have watched half of their value evaporate.
The Nasdaq Biotech Index consistently has underperformed the languishing Dow. Falling stock prices across the board hit 52-week lows this month for firms including Chiron Corp. and Abgenix Inc. Not even Pfizer's Inc.'s $60 billion purchase of Pharmacia Corp. pumped enthusiasm into the market, and some observers say that the acquisition could actually stall new biotech deals in coming months.
So, as many biotechnology firms in the East Bay divulge their second quarter numbers next week, any downside surprises could lob yet another psychological blow to an industry already suffering scandals, a string of drug failures, crumbling stocks and a cash crunch.
Industry observers don't expect many surprises from the profit and loss sheets, though. Particularly in this region, where most companies are still reporting double-digit losses and profitability remains years away, the dollars may be less significant than what firms offer up about their pipelines and expenses.
Thomson Financial/First Call, which tracks Wall Street analysts' earnings estimates, shows that expectations run the gamut. Chiron of Emeryville is expected to earn 26 cents a share, compared to the 21 cents it earned in the same quarter a year ago. Among other profitable companies, Bio-Rad Laboratories Inc. in Hercules is expected to boost its earnings to 64 cents a share this quarter, up from 46 cents a year ago. Analysts believe SangStat Medical Corp. in Fremont will earn 6 cents, besting by far its 13-cent loss in the same quarter last year.
Some earlier stage companies are expected to narrow their losses, while others face steep drops. Protein Design Labs Inc. in Fremont is expected to lose a penny a share, compared to the 4 cents it lost last year. Yet analysts predict Onyx Pharmaceuticals Inc. in Richmond will lose 55 cents a share, compared to the 32 cents it lost a year ago. Abgenix in Fremont and Large Scale Biology Corp. in Vacaville are expected to more than double their losses.
"Certainly this (earnings season) is more important because of the perception that things are tough and bad," said Ed Jacobs, chief business and financial officer at Dublin's SuperGen Inc., which develops drugs for treating cancer.
Importantly this quarter, particularly for unprofitable firms, Wall Street will be watching to see whether companies are controlling their operational expenses, according to Jacobs. Although some East Bay companies still have two or more years of cash, others such as Lynx Therapeutics Inc. and Large Scale Biology already have had to trim expenses to conserve cash.
"I think everyone is going to be concerned if someone announces major layoffs," Jacobs said.
Some who follow the industry aren't expecting any financial scandals of the sort that have hit the broader markets or pharmaceutical firms such as Elan Corp. and Bristol-Myers Squibb. Todd Morrill, who teaches courses on biotechnology entrepreneurship at UC-Berkeley, says that because many biotech companies have few products, their businesses are more transparent to investors. But if any firm ends up restating earnings or changing future estimates, that would roil its stock and possibly others. At the same time, he added, "You get no reward for doing well."
Even so, Pacific Growth Equities biotechnology analyst Tom Dietz says second- quarter earnings are not that important in the larger picture. Any change of fortune for biotech stocks - or their investors - will instead come from successful results from potential drugs in late-stage trials or product approvals from the Food and Drug Administration. For instance, he says, Fremont-based Veriscor Inc. has late-stage trials due to end this year for its lead anti-fungal product. The FDA, too, is expected to approve Biogen Inc.'s Amevive for treating moderate-to-severe psoriasis.
Blame it on the FDA - or not
Successes from such products could help biotech recover from failures earlier this year. Abgenix, Protein Design Labs, Xoma LLC and Chiron all delayed or canceled drug development plans after poor drug trial results late last year and this year.
And then there was ImClone System Inc.'s Erbitux saga. The FDA in late December refused to accept ImClone's application for its once-promising cancer drug Erbitux, setting off waves of scandals. Former ImClone CEO Sam Waksal was arrested on charges of insider trading after recommending that friends and family sell stock ahead of the Erbitux news. In a separate matter, Bristol Myers-Squibb, ImClone's development partner for Erbitux, has confirmed that the SEC is looking into whether the company inflated sales for the previous year by some $1 billion.
"At the end of the day, we've had a pretty poor record of clinical successes," Versicor Chief Financial Officer Dov Goldstein said of the industry. Versicor, he says, is on schedule to finish trials of its latest anti-fungal drug called anidulafungin by the end of the year, as well as phase two trials of an anti-infective treatment.
It will take two or three good product approvals to make up for the ImClone and Bristol-Myers debacle and other drug failures, according to SuperGen's Jacobs. To please the markets, he added, "We really need a product success. They are tired of the dot-com syndrome and the biotech promise."
The FDA is operating without a commissioner since President Bush took office, which may be contributing to biotech's woes. It's unclear, however,how much effect the vacancy has had on the industry's success rate with the agency. But some in the field complain the lack of leadership at the top of the FDA has slowed drug approvals.
Although the commissioner does not actively conduct scientific reviews, Pacific Growth's Dietz says that those who do may be acting more cautiously knowing that a new commissioner may view the drug approval process differently. What's more, he adds, the commissioner sets the tone and tenor of how the agency operates.
Yet Dietz says the problem with the FDA process goes beyond simply needing a new commissioner. The agency needs more funding for review, and by its nature the review process has become more complex for biotech companies.
For example, he says, the FDA has a 30-year track record of approving anti-infectives. But it does not have nearly the same experience with evaluating many of the newer biologics such as, for example, a protein replacement drug.
"We're getting a lot more complicated applications," he said.
What that means is that the FDA might take longer and require more and cleaner data, he added. The question for the company then becomes whether to look for possible ways to speed through the approval process and risk being turned down, or whether to risk going slower and having the competition beat you.
"It's a tough call to make," Dietz said.
For his part, SuperGen's Jacobs says having a leader at the top may help on borderline approvals, but much of difficulty has more to do with a shift in the FDA's approach to approving drugs.
"We will have a leader, but you're not going to see a rush of drugs approved," he said.
In the mid-1990s, the FDA loosened guidelines for approving life-saving drugs, particularly for diseases such as AIDS, says Jacobs. Although nothing really bad occurred as a result, the pendulum is swinging back toward a more conservative approach.
"It's tough. It's the same rules," Jacobs said. "I think what has happened is a normal flow back."
If Pfizer's purchase of Pharmacia helps the biotech industry, it may not happen soon. Many in the industry have been expecting more acquisitions to occur as pharmaceutical companies look for new drugs to replace those with soon-to-expire patents. Biotechnology companies also need the dollars to take their drugs to market. Yet merging the two pharmaceutical firms may prompt some short-term caution as those on the sidelines wait to see what will come out of the new firm.
"That has a ripple effect," said Jacobs of Pfizer's buy of Pharmacia. "The ripple effect will initially slow down deal-making. Everybody is going to be wondering what's next."
Deals already under way may get signed, he added. But companies with overlapping or complementary products or drug candidates may decide to wait until the two fully integrate. Versicor this week announced that a deal with Pharmacia to develop oral antibiotics has been extended by three years.
UC-Berkeley's Morrill says it may take 12 to 18 months before new deals start flowing. "Anytime you have an acquisition like this, it completely screws up both companies for some time," Morrill said. On the upside, biotech firms could lure talented employees who are laid off, or they could buy product lines that must be sold to comply with antitrust laws..
Down the road though, pharmaceutical companies such as an integrated Pfizer and Pharmacia are going to need biotech, Pacific Growth's Dietz says, calling the big companies "marketing machines."
"That machine needs to be fed with product," he said. "I think a bigger Pfizer will need to consider how to fill that pipeline."
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