Issue Date: May 21, 2007
A Steady Start
THE BIG BIOTECHNOLOGY companies that now rival big pharmaceutical makers in size also experienced big-pharma-sized challenges in the first quarter.
Although financial results are steady for these firms, their product portfolios have matured, thereby hampering their ability to achieve the dynamic sales growth they boasted just two or three years ago. The bigger challenges are that the safety of certain key products is under a cloud and that the pipeline of late-stage products is unlikely to deliver much this year.
Amgen, the biggest of the major biotech firms, delivered solid results. First-quarter earnings increased 15% to $1.3 billion, based on sales of $3.7 billion, also up 15%. Several reliable performers in its portfolio helped boost growth; Neulasta and Neupogen, both to reduce the risk of a white-blood-cell disorder in cancer patients, brought in combined sales of $1.0 billion, a 14% improvement, while sales of the arthritis treatment Enbrel totaled $730 million, up 11%.
But during the quarter, these results were overshadowed by negative news concerning several products in Amgen's portfolio that could impact future growth. Sales of the anemia drug Aranesp, perhaps the company's most important product, rose 15% to $1.0 billion, well below Wall Street expectations. Amgen said the lackluster performance was due to a backlog of inventory from the previous quarter and negative patient response to label changes.
In March, Amgen added a black-box warning to the labels of Aranesp and Epogen to indicate that high doses of erythropoiesis-stimulating agents (ESAs) such as Aranesp, Epogen, and Johnson & Johnson's Procrit carry a high risk of serious, sometimes deadly, side effects in cancer patients. Cancer patients account for about 80% of U.S. sales of Aranesp, according to the investment firm Friedman Billings Ramsey.
This month, a Food & Drug Administration committee recommended further narrowing the use of Aranesp and Procrit. The Oncology Drug Advisory Committee did not offer specific targets, but it said the drugs should be given only to patients with hemoglobin levels that fall below a certain threshold and should be administered for shorter periods.
"We may need another quarter or two to fully gauge the impact of the ESA safety concerns," says Morgan Stanley stock analyst Steven D. Harr. He trimmed his forecast for Aranesp in light of the uncertainty, although he slightly raised his expectations for Epogen, which has not come under such scrutiny. Sales of Epogen increased 3% in the quarter to $625 million.
Amgen watchers are also rethinking the potential of a key new Amgen product, the cancer drug Vectibix. Even though Vectibix had been touted as a competitor for ImClone System's Erbitux, sales have not picked up as quickly as analysts expected. Vectibix brought in $51 million in the quarter, compared with sales of $39 million in the fourth quarter of 2006.
Furthermore, Amgen discontinued a study of Vectibix in March after an early analysis showed that adding the drug to a regimen that includes Genentech's Avastin and chemotherapy actually accelerated disease progression in colon cancer patients.
Analysts are now wondering whether Erbitux, which targets the same receptor as Vectibix does, just works better. ImClone says sales of Erbitux rose 34% in the quarter to $306 million. It may be too early to judge the merit of investing in expanded clinical trials for Vectibix after the results, Harr says, but "R&D resource allocation is becoming a larger issue, and Amgen may need to take a harder look at this development program at some point in the future."
Other big biotech companies had less dramatic quarters. Biogen Idec, challenged by a mature product portfolio, offered steady results. First-quarter profits increased 7% to $202 million, based on revenues of $716 million, a 17% improvement.
The multiple sclerosis treatment Avonex brought in $449 million, a 14% increase, and Biogen collected $207 million in revenues from Rituxan, the treatment for arthritis and non-Hodgkin's lymphoma that it comarkets with Genentech.
Tysabri, the multiple sclerosis treatment that Biogen withdrew and then returned to the market last summer, is steadily making its way to patients. Worldwide sales of the drug totaled $48 million, of which Biogen brought home $30 million. Notably, Biogen and its U.S. marketing partner, Elan, reported no new cases of the rare brain disease, progressive multifocal leukoencephalopathy, that had led to the drug's withdrawal in early 2005.
Biogen also made progress in the quarter toward refreshing its portfolio, which has grown stale in the past two years. The company began Phase III clinical trials for BG-12, an oral treatment for multiple sclerosis, and galiximab, an anti-CD80 antibody for lymphoma. The firm also initiated a registration trial for lumiliximab, an anti-CD23 antibody for the treatment of chronic lymphocytic leukemia. However, these products are still several years away from the market.
GENENTECH POSTED solid, though not exciting, first-quarter results. Product sales were healthy but no longer displayed the explosive growth witnessed in the past, and analysts are expecting little from the company's pipeline in the short term.
Sales grew by a hefty 30% to $1.6 billion, and profits surged 61% to $792 million. Sales of the cancer drugs Herceptin and Tarceva were a little weaker than analysts had expected. Herceptin brought in $311 million, or a 7% increase over the first quarter of 2006. Tarceva sales totaled $102 million, a 10% increase from the year-ago quarter but down from $107 million in the fourth quarter of last year. Genentech and its partner OSI Therapeutics are running a host of trials across a range of cancers that, if they yield positive results, could boost revenues as early as the fourth quarter.
Lucentis, the eye disease therapy Genentech launched last summer, raked in $211 million. The drug is reported to have cornered just over half of new patients with wet age-related macular degeneration, while Genentech's slightly older cancer drug Avastin is the second choice among physicians, according to James Reddoch, a stock analyst with Friedman Billings Ramsey. Because Lucentis is a fragment of the antibody in Avastin, some doctors use the less expensive Avastin off-label to treat the eye disease.
Avastin sales in the quarter totaled $533 million, a 34% increase. "We believe there are plenty of indications left for Avastin," Morgan Stanley's Harr says, noting potential use in breast, lung, ovarian, and prostate cancers. Reddoch points to Avastin's potential use as an adjuvant, to be given to cancer patients after surgery to keep any remaining cancer cells at bay. He believes such use in breast and colon cancers could add $1 billion to U.S. sales of the drug. However, he cautions, "the safety data need to be particularly clean."
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