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Biotech Firms Keep In Good Health

New product launches could drive growth in upcoming quarters

by Lisa M. Jarvis
November 20, 2006 | A version of this story appeared in Volume 84, Issue 47

Solid third-quarter financial results were posted by biotechnology companies, despite signs that sales growth is moderating for older products such as Amgen's Enbrel and Genentech's Rituxan. Several major biotech firms also finally rolled out drugs that could catalyze new growth.

Third-quarter earnings for the 20 biotech companies tracked by C&EN surged an average of 42.6% compared with those of the third quarter of 2005, based on a 21.7% rise in revenues. Combined profit margin was 25.6%, up from 21.9% a year ago. For the first nine months of the year, revenues increased 22.4% and earnings were up 38.6%. Profit margin for the first nine months rose to 25.1%, compared with 22.2% in the first three quarters of 2005.

Industry veteran Genentech had another healthy quarter, with earnings rising 65.9% to $637 million, based on a 36.1% increase in revenues to $2.38 billion.

Sales growth for the company's key oncology products, though strong, moderated significantly from the first half of the year and almost uniformly came in below analyst forecasts. Sales of colon cancer treatment Avastin were up 34% to $435 million, and sales of lung cancer drug Tarceva increased 37% to $100 million. Rituxan, for non-Hodgkins lymphoma and arthritis, brought in $509 million, a 12% increase.

Herceptin sales rose 40% to $302 million compared with the year-ago quarter but declined about 6% compared with the second quarter of 2006. The breast cancer treatment, launched in 1998, got a second wind last year after a clinical trial showed that taking it after surgery halved the risk of the disease recurring. Analysts attribute the quarter-over-quarter moderation to doctors having largely adopted the drug in that new setting.

Though growth in some of Genentech's oncology drugs is diminishing, the company appears to have another success in its newest product, Lucentis, an antibody fragment for the treatment of wet age-related macular degeneration (AMD). The drug, approved at the end of June, brought in $153 million in its first full quarter on the market.

"Lucentis blew away expectations," says Friedman Billings & Ramsey analyst Jim Reddoch, who notes that the sales forecast consensus among analysts had been $40 million. Roughly 80% of those sales came from patients switching to Lucentis from older AMD drugs, Reddoch notes.

Indeed, with the arrival of Lucentis, sales of OSI Pharmaceuticals' AMD product Macugen, which totaled $87 million in the first half of the year, plunged to $9 million in the third quarter. The competition is so tough that OSI recently announced plans to exit the eye disease market less than a year after entering it by buying Eyetech Pharmaceuticals.

After assessing Lucentis' quick cannibalization of the AMD market and weighing the vast population of untreated patients, Reddoch raised his 2010 sales forecast for the drug from $805 million to $1.39 billion.

At Biogen Idec, third-quarter revenues increased 18.0% to $704 million, and earnings rose 69.3% to $207 million. The quarter marked the comeback for the company's multiple sclerosis treatment Tysabri, which posted a modest $8 million in quarterly sales. Tysabri had been withdrawn from the market after it was linked to a rare and potentially fatal brain infection. Biogen noted in its earnings report that the drug is now showing promise in treating Crohn's disease, an indication that could significantly expand its market.

Biogen's third-quarter results were lifted also by its share of the sales of Rituxan, which it comarkets in the U.S. with Genentech. Those amounted to $204 million, a 12% improvement. Rituxan revenues were up year-over-year; they were down, however, from the second quarter of 2006.

Analysts had been expecting better growth this year because the drug received approval to treat rheumatoid arthritis in February. However, Genentech and Biogen say Rituxan is being administered primarily to arthritis patients who failed to respond to two other therapies, and these make up a smaller portion of the population than anticipated. On the positive side, the Food & Drug Administration said in October that the drug can be used as the first line of attack in a type of non-Hodgkin's lymphoma.

Amgen also faces pressures on older products but still reported a good quarter that included the approval of a new oncology product. The company posted a 14.7% rise in earnings to $1.22 billion, based on a 14.5% increase in revenues to $3.61 billion.

Sales of the anemia drug Aranesp totaled $1.1 billion, a 27% increase over the prior year's quarter but flat compared with the second quarter of 2006. Sales of Epogen, which had declined in recent quarters as patients switched to Aranesp in the hospital setting, increased 6% to $633 million.

Enbrel continues to feel competition from newer entrants to the arthritis market, such as Bristol-Myers Squibb's Orencia and Abbott Laboratories' Humira. Enbrel sales totaled $705 million, a 6% increase over the third quarter of 2005 but down from $724 million in second-quarter 2006.

Though its older products face challenges, Amgen received approval at the end of the third quarter for a promising new growth engine, the colon cancer treatment Vectibix. A driver behind the acquisition of Abgenix in early 2006, Vectibix is Amgen's first oncology product. Friedman Billings' Reddoch expects the drug, priced at $8,000 per month, to bring in $334 million in 2007, rising to $912 million in 2012.

The launch of Vectibix could pose a huge challenge for ImClone Systems, as that company relies completely on Erbitux, a colon cancer drug that targets the same receptor as the Amgen product. Clinical data suggest that Vectibix is more effective than Erbitux, and Amgen has undercut ImClone's price for Erbitux. During the quarter, which is its last without competition, ImClone reported revenues of $151 million, a 41.5% rise, while earnings reached $57.3 million, an 85.2% jump.

At Gilead Sciences, sales and profits surged in the third quarter, thanks to the strong performance of recently launched combinations of its antiviral drugs. Earnings were up 69.3% to $303 million, and sales rose 51.7% to $749 million.

Gilead's Atripla, which combines Bristol-Myers Squibb's Sustiva and Gilead's Emtriva and Viread, hit the market in July and raked in $68 million in its first full quarter of sales. Sales of Truvada, a combination of Emtriva and Viread, brought in $309 million, more than half of sales in the company's HIV franchise.

Meanwhile, Amylin Pharmaceuticals continues to benefit from the speedy uptake of Byetta, the peptide-based treatment for type 2 diabetes that it launched in April 2005. The company narrowed its $69.5 million loss in third-quarter 2005 to only $23.6 million this quarter, with revenues of $147 million versus just $25.9 million last year.

The steep growth trajectory for Byetta, which accounted for most of Amylin's sales, is likely to stretch into 2007. The drug is expected to receive approval this quarter for use in combination with thiazolidinedione to treat a subpopulation of diabetic patients, which could expand the drug's market by a third, Reddoch says.


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