What's in Dimethaid's future?
The answers may lie in this article!
Biotechnology Companies Could Stand
to Gain From Drug-Safety Worries
By CHRISTOPHER WINDHAM
Staff Reporter of THE WALL STREET JOURNAL
December 24, 2004; Page C1
The storm lashing big pharmaceutical companies over safety
concerns about pain treatments such as Celebrex and Vioxx
may actually blow some good in the direction of biotechs.
As the product pipelines for pharmaceutical companies come
under even greater pressure, biotechnology companies may be
in a better bargaining position with the big drug companies
that are seeking to license their drugs.
That wasn't the case about five years ago, says Kris Jenner,
portfolio manager of T. Rowe Price Health Sciences Fund.
"The balance of power in the commercial agreement between
large and small companies was heavily lopsided toward the
larger company," Mr. Jenner says. While the trend has been
building for a while, now "it's more evenly distributed than
it has been."
As a result, says Eric Schmidt, a biotechnology analyst with
SG Cowen, when big pharma buys rights to biotech drugs,
"the price tag has gone up."
Indeed, investors have been buying biotech stocks as an
alternative to pharmaceutical stocks, according to a Merrill
Lynch report released this week. The report says investors
view biotechnology companies as less plagued by the problems
of big pharma, including product safety, drug pricing and a
lack of innovation.
To be sure, drug approvals may face heightened scrutiny,
which could pose problems for biotech companies as well.
After all, most biotech companies burn through cash, and
any delay in getting a drug approved -- and revenues flowing
in the door -- could be perilous. "Even a modest increase in
the regulatory hurdle will have big implications," says
Steven Harr, a biotechnology analyst at Morgan Stanley.
The drugs now under fire come mainly from a class known as
Cox-2 inhibitors, which are widely prescribed for arthritis
and other ailments. Yesterday, the FDA recommended limiting
use of the drugs, pending further review.
Since Merck & Co. announced it was withdrawing Vioxx on
Sept. 30, because of a study that found the drug increased
the risk of heart attacks and strokes if used longer than
18 months, drug stocks generally have fallen. Merck itself
has fallen to $32.30 from $45.07 when it closed on Sept. 29,
the day before the announcement. Shares of Pfizer Inc., whose
drugs Celebrex and Bextra also have been subject to safety
questions, in that time have fallen to $26.07 from $30.18.
Biotechs have fared better. Amgen has risen to $64.15 from
$57.99 on Sept. 29, while Genentech has been roughly flat,
closing at $53.85 yesterday, up from $52.14 on Sept. 29.
If heightened scrutiny of new drugs delays the approval
process, fund managers may be less likely to invest in the
industry. Increased post-approval surveillance also could
create additional costs for biotechnology companies, which
typically operate on smaller budgets than major pharma firms.
"Biotechs tend to be small," says Erin Xie, portfolio manager
of State Street Research Health Sciences Fund. "If they have
to spend more on post-surveillance, it's going to affect the
bottom line."
However, biotechnology companies likely won't face the same
level of regulatory scrutiny as the major drug companies.
Stelios Papadopoulos, vice chairman of SG Cowen, says bio-
technology companies typically make drugs for deadly diseases,
such as cancer. Their drugs often have serious side effects.
But doctors, patients and regulators are more likely to accept
those side effects in drugs for life-threatening illnesses.
In contrast, drugs treating erectile dysfunction or pain relief
are more likely to be heavily scrutinized by regulators,
he says. In drugs for life-threatening conditions, he says
further, "the trade-offs between efficacy and side effects
are better understood."
Biotechnology-stock investors are likely to be willing to
absorb any additional costs resulting from a delayed approval
process, adds Sid Taubenfeld, a health-care analyst with New
York-based SIMRx Advisors. "People like to invest in biotech
no matter what," he says. "It's probably the only industry
where they sell ideas."
More pharmaceutical companies are seeking partnerships with
biotechnology companies, and seeking those partnerships at
earlier stages in the drug development process. In the past,
pharmaceutical companies have been leery about assuming
financial risks associated with preclinical and early clinical
trials, analysts say. But shrinking drug pipelines and the
ability of biotech drugs to attack new, untreated illnesses
may help big drug companies diversify their products.
Some biotechnology companies are choosing to hold out for a
more-favorable licensing deal.
Spiro Rombotis, chief executive of closely held biotechnology
company Cyclacel Group PLC, Dundee, Scotland, says biotechs
can offer better rewards to their investors by waiting until
later-stage trials to enter into partnerships.
"The amount of money that one needs to invest in midstage
clinical trials is dwarfed by the potential reward one can
get by licensing the drug" when it is further along in the
testing process, says Mr. Rombotis, whose company has two
cancer drugs in clinical trials and several other drugs in
preclinical development.
One issue biotechs don't face is the controversy over
marketing. Big drug companies selling Cox-2 inhibitors
have faced criticism from the medical community for heavily
marketing the drugs to consumers, boosting demand before
their risks were thoroughly vetted.
Because biotechnology companies generally promote their
drugs to doctors, it is unlikely that the industry will be
hurt by any direct-to-consumer marketing crackdowns, analysts
and biotechnology companies say. For example, Michael
Beckerich, spokesman for large biotech firm Amgen, says only
two of the company's drugs are advertised on television.
Write to Christopher Windham at christopher.windham@wsj.com3
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