Issue Date: May 19, 2008
Growth Moderates At Biotech Firms
BIG BIOTECH FIRMS offered a mixed bag of first-quarter results, with performances largely tied to the ability to push new pharmaceuticals onto the market. Biogen Idec has healthier times thanks to a newer drug, while sales leaders Amgen and Genentech need fresh products to reignite growth. Industry observers note the somewhat thin late-stage pipelines at the major companies and are wondering how they can pull themselves out of their slumps.
Amgen also continues to be hit by new prescribing recommendations and stricter reimbursement guidelines for its portfolio of erythropoiesis-stimulating agents (ESAs), which were recently found to have serious side effects in some cancer patients. The company's first-quarter revenues fell 2% to $3.6 billion, while earnings dipped 4% to $1.2 billion.
Worldwide sales of Amgen's Aranesp, an ESA used to treat anemia in cancer patients, dropped 25% in the quarter to $761 million. U.S. sales were down 38% to $409 million. Sales of Amgen's other ESA, Epogen, fell 11% to $554 million, as new lower dosage recommendations for kidney dialysis patients began to take effect. For the full year, the company says, the impact of the decrease in dosage requirements will be partially offset by growth in Epogen's overall patient population.
The problems with Amgen's ESA franchise could get worse. European regulatory authorities have asked the company to participate this week in a meeting to discuss studies on ESAs. A revision of the drugs' labels in Europe appears likely, bolstering the belief of Morgan Stanley stock analyst Steve Harr that the ESA market "has not yet reached a bottom."
Meanwhile, Amgen's newest product, the colon cancer treatment Vectibix, continued to disappoint. Sales were down 33% compared with the first quarter of 2007, to a meager $34 million.
Nevertheless, sales of a handful of Amgen products appeared healthy in the quarter. Combined sales of Neulasta and Neupogen, which treat a blood-cell disorder in cancer patients, increased 7% to $1.1 billion. And Enbrel, for psoriasis and arthritis, enjoyed a 30% jump in sales to $951 million. However, analysts say sales of Enbrel were padded by inventory build-ups.
The lackluster performance of older products puts even more pressure on Amgen's lead clinical candidate, denosumab, an osteoporosis drug in Phase III studies. In the fourth quarter, Amgen is expected to reveal data from late-stage trials that include a study of fractures in postmenopausal women with osteoporosis.
Also, Amgen is expected to gain approval in the first half of this year for romiplostim. This drug treats immune thrombocytopenic purpura, an autoimmune disease that causes the body to break down platelets faster than it can make them. The drug's market is more limited than denosumab's, and analysts at Friedman, Billings, Ramsey are forecasting peak annual sales of around $500 million.
Genentech, which hasn't launched a new product since 2006, is also starting to experience a slowdown in growth. First-quarter revenues increased 2% to $2.4 billion, while earnings were up 13% to $895 million. The figures may appear reasonable by other industries' standards, but they are a far cry from a year ago when Genentech's first-quarter 2007 earnings grew by a whopping 61% and revenues by 30%.
The moderate growth stems from Genentech's heavy reliance on its stable of cancer drugs. The company had managed to keep those products fresh for years by finding new indications and releasing new data to back them up. But the strategy is starting to wear thin. For example, after years of double-digit growth, the breast cancer drug Herceptin brought in first-quarter sales of $339 million, only a 9% increase, while the lung cancer treatment Tarceva saw sales of $111 million, also up just 9%.
On the plus side, Avastin received a boost in the quarter when the Food & Drug Administration gave it the green light for use in treating the sickest of breast cancer patients. Industry observers were surprised because in trials the drug helped keep tumors from growing but didn't extend survival, the agency's usual benchmark for cancer therapeutics. Avastin, which is already approved for colon and lung cancers, brought in $600 million in the first quarter, an increase of 13%. In the second half of the year, Genentech plans to apply for approval to use the drug to treat brain cancer.
At the end of the first quarter, however, the company suffered another setback in trying to broaden the market for older drugs. Genentech and partner Biogen Idec reported that Rituxan failed to help patients with the autoimmune disease lupus. Rituxan, an inhibitor of the protein CD20, has been on the market as a treatment for non-Hodgkin's lymphoma since 1997 and more recently for arthritis. The drug brought in $605 million in revenues in the first quarter, up 13% from the prior period. An approval to treat lupus was "one of the very few near-term growth drivers" for Genentech, says Jim Reddoch, a stock analyst at Friedman, Billings, Ramsey.
Rituxan's failure in lupus trials also calls into question Genentech's only new drug candidate in Phase III trials. Ocrelizumab is a second-generation drug that acts on the same target as Rituxan's. Reddoch calls orcrelizumab an important driver of long-term growth at Genentech. Otherwise, the company's late-stage pipeline consists of older products moving into new indications.
The Rituxan setback also hits Biogen Idec, which codeveloped the drug with Genentech. Yet Biogen Idec appears to be better positioned going forward. First-quarter earnings were a strong $250 million, up 24% over the 2007 quarter, based on a 32% rise in sales to $942 million.
Much of that improvement came from the return of the multiple sclerosis treatment Tysabri. Biogen Idec removed the drug from the market in February 2005 after a small number of patients died of brain infections. Biogen Idec reported no new cases of the side effect and said Tysabri sales nearly tripled in the quarter to $115 million.
Biogen Idec's Avonex, an older multiple sclerosis treatment, also had a healthy quarter. Sales were up 19% to $536 million.
While some companies are struggling with a dry pipeline, one is demonstrating the benefits of a steady flow of drugs. Except in 2005, Gilead Sciences has introduced one new product per year since 2001. Thanks to its ever-expanding HIV drug and cardiovascular franchises, Gilead's sales grew 22% to $1.3 billion in the first quarter, and profits were up 17% to $522 million.
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