Is Praecis' Prostate Drug Good Enough?
THE BIOTECH BEAT
By Amy Tsao [BW 01/11/01]
Despite strong clinical data and a marketing deal with Amgen, some analysts
and doctors question Abarelix' potential
For all the initial public offerings from the biotech sector that wowed Wall Street
last year, only one made the top-10 list of best-performing IPOs for 2000:
Praecis Pharmaceuticals (PRCS ). The Cambridge (Mass.) biotech finished the
year at $30 a share, a 190% gain. It now trades at $25.
The stock's appeal is no fluke. Praecis has clinical evidence suggesting that its
drug now before the Food & Drug Administration, Abarelix, might be a
breakthrough for patients with prostate cancer, the second-leading cause of
cancer deaths in men. The company has already signed a sweet marketing deal
for the drug with Amgen, the biggest biotech company in the world. The
analysts who cover Praecis all have buy ratings on the stock. Alex To of
Credit Suisse First Boston says Praecis' Abarelix has the "key appeal of the
investment thesis," a fancy way of saying it meets all the criteria for solid
growth.
VARIED ESTIMATES. But smart investors might want to factor a few other
points into the equation, too. Estimates of Abarelix' revenue potential vary
greatly. While Amgen says it will be devoting substantial resources to selling
the drug upon approval, there are questions about the giant's fervor. And after
Abarelix, Praecis' pipeline isn't all that exciting to analysts. The company filed a
new-drug application for Abarelix with the FDA in December. The trial data
certainly look solid: Abarelix reduces tumor size in patients with the disease
without causing a potentially harmful side effect seen in other hormone
treatments already on the market. Still, for a variety of reasons, some Praecis
watchers and prostate-cancer experts wonder whether it's a valuable product
-- either clinically or commercially.
Right now, Lupron, with sales of $900 million globally in 1999, is the most
widely used hormone therapy for treating prostate cancer. A product of
Takeda of Japan and Abbott Laboratories near Chicago, the drug reduces
levels of the male hormone testosterone, which stimulates growth of the
prostate gland and can encourage growth of the cancer. But Lupron is also
associated with a side effect that causes testosterone levels to surge before
they subside.
"MORE ELEGANT." Praecis says Abarelix, unlike Lupron, doesn't cause
testosterone surge. "It is a better medicine, a more elegant way of turning off
hormones that drive prostate cancer. Instead of blowing the fuse and creating a
near-term increase in hormone levels, which could drive tumor growth further,
Abarelix shuts the light off," says Eric Schmidt, an analyst with SG Cowen who
covers Amgen.
That's promising. But not all physicians are sold on the benefits. For one thing,
a spike in hormone levels isn't life-threatening for most men, doctors say. And
for another, the surge can already be dulled simply by administering a second
drug called Casodex. "From a clinical point of view, the only patients in whom
unopposed flare would be a problem would be those with far-advanced
cancer. Those patients are a very tiny minority," says Dr. Gerald Andriole,
chief of urology at the Washington School of Medicine in St. Louis.
Andriole contends that testosterone flare lasts only about 10 days. Praecis
says it can last three to four weeks. Abarelix "could be useful in select
situations," says Dr. Richard Rosenbluth, chief of oncology at the Hackensack
University Medical Center. "But it's of marginal interest, because at best, what
it does is tweak an existing therapy."
RAPID TREATMENT. Malcolm Gefter, CEO of Praecis, insists that preventing
testosterone surge is crucial for all patients. "You want your cancer treated as
rapidly as possible, and there's a biological reason for that. You don't want it
to have the opportunity to mutate. Spreading and mutation are serious issues
with cancer."
Data from Praecis' studies have shown that Abarelix suppresses testosterone
levels more rapidly than Lupron plus Casodex. Gefter says Abarelix will show
itself to be superior in all instances of treatment and management. Credit
Suisse's To agrees. He projects peak sales of Abarelix will reach $500 million
to $1 billion over a one-year period. By these forecasts, Abarelix would take a
considerable percentage of the market away from Lupron and other
hormone-based therapies.
Why, then, has Amgen, which has rights to market Abarelix in North America
and Japan, been relatively quiet about its expectations for the drug, one of
three the company points to as a potential blockbuster? Stefan Loren, an
Amgen analyst with Legg Mason Wood Walker, says the biotech giant is
gun-shy right now because it doesn't have enough potential blockbusters under
development.
HIGH-PROFILE HIRES. Besides, "this is a new market for us," says Rebecca
Hamm, an Amgen spokesperson, of prostate cancer. "We're bringing in
top-tier leaders and hiring across-the-board many new people in ramping up
to sell [our new] products." To that end, the company hired two high-profile
pharmaceutical-industry executives this week to bolster its sales and marketing
efforts worldwide.
Amgen analyst Loren is frank about his doubts: "We're very concerned about
the sales effort on this," he says. He cites the last time Amgen tried to market a
drug in competition with large pharmaceutical companies. At its most recent
investor meeting, Amgen declared that the hepatitis-C treatment Infergen,
launched in 1997, "will never add substantially to our bottom line."
Still, the Infergen failure wasn't Amgen's fault. By the time the product was
finally approved, a better combination treatment was available to patients, says
Craig West, an Amgen analyst with A.G. Edwards & Sons. "With Abarelix,
it's better than what is out there, but it's not a dramatic revolution. It's more of
an evolution."
ON THE CUSP. Amgen will have to "parlay the mild advantages of the drug into
real sales," Loren says. But doctors, who have come to trust and understand
Lupron, may be hesitant to switch patients to Abarelix, especially if they're
stable on their current therapy. In addition, companies such as Alza (AZA )
and Atrix (ATRX ), in a deal with Sanofi-Synthelabo of France, are on the
cusp of introducing updated versions of Lupron that will require less-frequent
injections. Sanofi also happens to be Praecis' partner for Abarelix in Europe
and other countries.
So, any way you slice it, Abarelix' revenues aren't likely to be in the
blockbuster category. Loren estimates that revenues for Amgen after Praecis'
50% cut of total sales will be a modest $78 million in 2002 and $141 million in
2003. Schmidt of SG Cowen predicts Abarelix will bring in $75 million in
2002 and $130 million in 2003 for Amgen. Compare these sales expectations
to total projected revenue for Amgen of close to $5 billion in 2002 and $5.7
billion in 2003, and this drug is a drop in the company's bucket.
Then there's Praecis' pipeline after Abarelix. Recently, the biotech said it will
start safety trials of a drug for Alzheimer's disease, called Apan, in the first
quarter of 2001. The company also plans to test Abarelix for endometriosis, a
uterine-tissue disorder affecting some 5 million women in the U.S. "That's still
several years away from commercialization, but it could be a massive
opportunity," Schmidt says. Studies of the drug in patients with endometriosis
have been promising, but more testing is needed to measure safety.
BIG-NAME BACKING. Despite the questions about Abarelix, FDA approval
could come as early as June, and Praecis' two biggest institutional investors are
big names on the Street: Chase Manhattan Corp. and Soros Fund
Management. "I think the company has all the ingredients to become a great
biotech company. It is a real diamond in the rough," says Weidong Huang, a
biotech analyst with Times Square Capital Management.
Sam Isaly, a managing partner with OrbiMed Advisors, has had money in
Praecis since it was private, and his company now holds some 2.2 million
shares. He says his biggest concern is how much money the company is
spending on trials of Abarelix and other programs. Praecis has been paying for
half of Abarelix' research costs and spent about $50 million on R&D in 2000.
"The marketing advantage is not dramatic. It is a single product with no flare,"
Isaly cautions about the prostate-cancer drug.
Perhaps if strong Abarelix data become widely circulated and the Amgen sales
powerhouse converts enough skeptics, Abarelix will eventually take off. But
right now, those are big ifs.
Tsao covers the biotech industry for Business Week Online's Investing Channel
Edited by Douglas Harbrecht
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