Issue Date: August 18, 2008
Productivity Lag Hits Biotech Results
IN THE ABSENCE of new growth drivers at major companies, the biotechnology industry was downright stagnant in the second quarter. Its results looked more like those offered by big pharma than the outsized sales and earnings increases that for years have been the hallmark of biotech drug companies.
The productivity lag has left some of the bigger companies, most notably Genentech, vulnerable to a takeover. If Roche succeeds in its bid for Genentech, the second-largest biotech company, the industry could look much different by this time next year.
For the 13 biotech companies tracked by C&EN, average second-quarter revenues improved 12.0%, while earnings increased 7.3%. The average profit margin slid to 26.5% compared with 27.6% in the second quarter of 2007.
For the first six months of the year, revenues for the companies reporting were up 9.6%, and earnings increased 7.6%. The average profit margin was down slightly to 27.9% versus 28.4% in the first half of 2007.
Genentech, traditionally a growth engine for the industry, pulled down the average results. The South San Francisco-based company’s second-quarter earnings rose 4.4% to $871 million, based on a 7.7% rise in revenues to $3.2 billion. For the first half of 2008, earnings rose 8.5% to nearly $1.8 billion, while revenues increased 7.7% to $6.3 billion.
Genentech’s portfolio of cancer drugs posted more moderate sales growth than the company has enjoyed in the past two years. Sales of the colon and lung cancer drug Avastin, which had been expanding by leaps and bounds, were up 15% in the quarter to $650 million. Rituxan, the non-Hodgkin’s lymphoma treatment Genentech codeveloped with Biogen Idec, posted sales of $651 million, a 12% improvement. Sales of the breast cancer drug Herceptin were up a modest 3% to $338 million, while lung cancer drug Tarceva brought in $119 million, a 17% increase.
More notable than the company’s results, however, was Roche’s surprise bid last month for the 44% of Genentech it doesn’t already own (C&EN, July 28, page 13). Although Roche executives maintain they will work to try to keep Genentech’s unique research culture, the proposed acquisition suggests they believe there is room for improvement at the biotech firm, which has not launched a new product since 2006.
Furthermore, Genentech has little in its late-stage pipeline; its most advanced product, a second-generation monoclonal antibody that binds to the CD20 antigen, which Rituxan also targets, is being developed with Roche. Combined, Roche says, the companies’ research efforts would benefit from sharing technologies, intellectual property, and other know-how that, under the current arrangement, is off limits.
The acquisition would leave Amgen in a league of its own, with triple the sales of its nearest competitor in the biotech arena. And after a rough 2007, Amgen looks to be stabilizing. Although second-quarter revenues at the Thousand Oaks, Calif.-based firm improved just 1.0% to almost $3.8 billion and earnings slid 2.4% to $1.2 billion, the results exceeded Wall Street expectations. For the first six months of the year, Amgen’s revenues fell 0.5% to $7.4 billion, while earnings were down 3.2% to $2.5 billion.
The lackluster results stemmed from the ongoing erosion of Amgen’s portfolio of erythropoietin-stimulating agents, drugs such as Aranesp and Epogen that treat anemia in cancer and kidney dialysis patients. Last year, the drugs were linked to serious, sometimes deadly, side effects when used at high doses or for extended periods. Many insurance providers—most significantly Medicare and Medicaid—subsequently limited their coverage of the products.
Aranesp sales fell 13% to $825 million in the second quarter but exceeded stock analysts’ average sales forecast by nearly $100 million. Likewise, although Epogen sales were flat at $622 million, they were about $40 million above estimates because a growing patient population balanced lower dosages. Analysts believe the faltering franchise may have reached its nadir, and some have even raised their sales estimates for 2008 and 2009.
OTHER PRODUCTS in Amgen’s portfolio looked healthy. Combined sales of Neulasta and Neupogen, white blood cell treatments, improved 15% to $1.2 billion, an increase the company attributes primarily to higher average prices for Neulasta. Sales of Enbrel, for arthritis and psoriasis, were up 2% to $841 million.
Moreover, Amgen’s prospects looked brighter on news that denosumab, a potential blockbuster osteoporosis drug, fared well in Phase III patient trials. The three-year study showed that patients taking denosumab once every six months had significantly fewer fractures than patients taking a placebo.
Stock analysts, however, are reserving judgment on the drug’s potential until September, when Amgen plans to release more details from the trial. They wonder just how good the drug is compared with other agents; Christopher J. Raymond, an analyst at Robert W. Baird & Co., says denosumab’s success will depend on whether it is better at reducing hip fractures than Novartis’ Reclast. However, even if denosumab does not cross that hurdle, Raymond notes, it is safe and already appears to be better than Merck & Co.’s Fosamax at improving bone mineral density.
Biogen Idec, meanwhile, had a strong quarter but could be facing a rough second half of the year. Second-quarter earnings rose 11.7% to $269 million based on a 28.5% surge in revenues to $993 million. For the first half of the year, earnings were up 17.2% to $519 million, and revenues jumped 30.0% to $1.9 billion. Sales of the multiple sclerosis treatment Avonex were up 14% to $527 million, while Biogen Idec’s portion of Rituxan revenues increased 21% to $279 million.
Most improvement came from a surge in sales of the multiple sclerosis drug Tysabri, which more than tripled in the quarter to $147 million. In the first half of the year, sales of Tysabri reached $262 million, compared with $77 million in the first half of 2007.
However, just days after Biogen Idec announced its results, news surfaced that two more Tysabri patients had contracted progressive multifocal leukoencephalopathy (PML), a rare and potentially fatal brain infection. Biogen Idec and its partner Elan Pharmaceuticals pulled Tysabri from the market in early 2005 after a small number of patients taking the drug died from PML. Working with the Food & Drug Administration, the companies returned the drug to the market in 2006 along with a patient-monitoring program.
Biogen Idec’s stock price plummeted from around $70 per share to $50 early this month. Elan, hit with a double whammy of the Tysabri news and weak Phase II clinical trial data for an Alzheimer’s drug under development with Wyeth, saw its shares lose two-thirds of their value in just two days.
Gilead Sciences continues to be the only big biotech firm with consistently robust sales growth, although its second-quarter profits moderated owing to a drop in royalties for the antiviral Tamiflu. The company posted second-quarter revenues of nearly $1.3 billion, a 21.9% increase, and its earnings improved 7.9% to $477 million.
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