The biotechnology beaker seems half empty these days.
The bullish optimism of just over a year ago has been replaced by sour pessimism caused by a spate of biotech drug testing setbacks.
The result: plunging stock prices, layoffs, corporate restructurings, and management shuffles.
Since January 1994, the biotech industry has seen more than two dozen major product setbacks in the first six months of this year. Most of these failures came during pivotal phase III testing, the most expensive part of a drug’s development, when hundreds of patients participate in testing a drug’s effectiveness.
But unlike the pharmaceutical industry, whose failures, if made public, are often balanced by huge revenues from established drugs, biotech firms face a blinding spotlight when one of their few products collapses.
A typical young biotech company will spend years on research and upwards of $50 million of venture capital and public investment dollars just to develop one commercially viable drug.
For an individual start-up, a drug’s failure in the trials can cripple. But for the industry as a whole, some observers say, such struggles are just part of the maturing process.
“These recent failures are like the dry holes the oil industry experiences in their search for success, but for investors in the risky biotechnology industry, this is new to them and it’s been a tough lesson,” said Joshua Lerner, associate professor of business administration in the finance and entrepreneurship units at Harvard Business School.
In Massachusetts, several firms have hit dry holes, including the April failure of Myloral, AutoImmune Inc.’s highly anticipated oral medication to treat multiple sclerosis, and last week’s announcement by Cambridge NeuroScience Inc. that there are concerns about the safety of its proposed antistroke drug. A clinical trial was halted and Cambridge Neuro-Science shares plunged 60 percent.
There was blood on the balance sheets else where. Liposome Company shares recently fell more than 15 points in a day after the Princeton, N.J., company said its proposed drug, Ventus, to treat acute respiratory problems, failed in a phase III clinical trial.
“These setbacks are a wakeup call to view the biotech industry more realistically because it is very tough to coordinate scientific realities with this instant gratification pressure from Wall Street,” said Vivian Lee, a New York-based biotechnology industry business consultant.
But others maintain biotech’s recent disappointments won’t change investor outlook, despite a dearth of initial public offerings this year.
“The setbacks are just a blip on the screen,” said Anthony Butler, senior biotech analyst at Lehman Brothers. “Should we be nervous? Perhaps. But then that’s the beauty of biotechnology investing as the key clinical events that are negative today will turn out equally positive next month.”
The reasons for the spate of setbacks stem from timing and size. With an estimated 51 biotech drugs approved by the Food and Drug Administration in the past 15 years, the industry growth in the 1990s has swelled the pipeline of proposed drugs. About 200 drugs are in various stages of phase III clinical trials this year, which is higher than any previous year, according to BioWorld, a trade publication.
Only a fraction - some say 60 percent - will prove to be better medications than existing drugs and gain FDA approval.
Barely five years ago, industry analysts predicted that biotech companies would have a greater success than pharmaceutical companies in getting drugs to market. For proof, they pointed to Amgen, Inc. of Thousand Oaks, Calif., the nation’s largest biotech company. Its principal drugs, Epogen, a protein that stimulates the growth of red blood cells to treat patients with various anemias and Neupogen, an agent that stimulates the production of certain white blood cells, put biotechnology on the map and accounted for most of Amgen’s revenues, which last year were $2.24 billion.
“In a way, Amgen did the industry a disservice with the overwhelming success of its two drugs and the high level of investor expectations,” chuckled Richard Pops, president of Cambridge-based Alkermes Inc., which recently hit a pothole on the road to FDA approval with RMP-7, its experimental compound used to send a cancer drug directly to brain-tumor cells.
When such firms as Amgen, however, hit paydirt, the results are impressive.
Last year Biogen gained FDA approval for Avonex, its once-a-week injectable drug to treat multiple sclerosis. In its first seven months on the market, Avonex revenues were $76.5 million. And Wall Street analysts are projecting $260 million in revenues for 1997.
Used by 27,000 multiple sclerosis patients world-wide, Avonex has produced more sales and a larger market share than has the previous market leader, Chiron Corp.’s Betaseron, Biogen claims.
But an even bigger multiple sclerosis drug market lay ahead for the company that could deliver the medical treatment in the form of a pill instead of painful injections. Enter Myloral, a once-a-day pill that held huge promise based on pre-clinical research from Boston’s Brigham and Women’s Hospital.
So just over two years ago, AutoImmune president Robert C. Bishop faced a key decision. Knowing that Chiron and its marketer, Berlex, were close to getting FDA approval on Betaseron and that Biogen was testing Avonex, he decided to launch a phase III trial of Myloral that would involve 515 patients.
However, the rush to start the pivotal test was based on promising results from just 30 patients.
By contrast, AutoImmune had tested more than 600 people with Colloral, a similar drug to treat rheumatoid arthritis, to find the right dosage and patient population before launching a phase III trial.
“We made a risk-based decision and took an aggressive posture on Myloral,” said Bishop. “There was no second-guessing.”
When he and AutoImmune’s managers heard Dr. Malcolm J.F. Fletcher, the company’s vice president of clinical and regulatory affairs, tell them that Myloral proved no better than the placebo in reducing the neurological attack rate in multiple sclerosis patients, Bishop was “stunned.”
“We had no warning, no way of knowing,” said Bishop, shaking his head. “I was so very optimistic.”
The April 21 announcement dropped the company’s stock by nearly 70 percent, from 13 3/4 to 4.
More bad news followed. AutoImmune of Lexington, Mass. said two small patient studies of Colloral failed to demonstrate statistically significant effects. The stock dropped another 42 percent, which raised questions on Wall Street about the company’s fundamental technology.
The drugs’ problems have left AutoImmune laboratories and offices eerily empty, as beakers, microscopes, and centrifuge equipment start to collect dust.
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