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Bio gambler raises its bets
MedImmune swells its pipeline to 43 projects in that hopes one or more will boost ailing stock
By Tricia Bishop
Sun reporter
October 1, 2006
About a dozen years ago, MedImmune Inc. -- now the state's largest biotech business and among the top 10 in the world -- nearly shut down.
It had developed a respiratory treatment only to have the Food and Drug Administration reject it, and executives didn't have much in the way of a backup plan. Retooling a clinical trial eventually won FDA approval of the drug, but the lesson wasn't lost on executives: There is safety in numbers.
For every 10 tries, only one drug makes it to market, which means there needs to be a long line of potential products in the wings for a company to continue.
MedImmune has taken that philosophy to a new level over the past few years, spending millions to amass a pipeline that now includes 43 potential treatments across three areas: cancer, infectious diseases and autoimmune disorders.
Its portfolio is viewed as the biggest in the biotechnology industry, where companies typically have six to eight products in the pipeline, unlike giant pharmaceutical firms.
The research projects are a huge gamble for the state's flagship biotech, which economic leaders rely on to finance entrepreneurs through MedImmune's venture capital subsidiary. And even though the Gaithersburg company has suffered some setbacks recently, state leaders look to MedImmune to maintain Maryland's reputation as a biotechnology leader.
If a handful of the developing products become blockbusters, the rewards could be tremendous. But if they all fail or only reach small markets, MedImmune will have spent a fortune on nothing. "It scares me to death," MedImmune founder and Chairman Wayne T. Hockmeyer said last week in Baltimore, where he was speaking to a roomful of entrepreneurs and economic development types.
He pointed to the billions of dollars pharmaceutical companies spend on research and development and the relatively low rate of return.
"If Pfizer has a dry hole, or Merck has a dry hole, with the billions they spend on research and development, what does that say for the rest of us?" he asked.
MedImmune has only recently been able to afford to invest in its future. The company turned profitable in 1998, and last year it was among the world's top 10 biotechs based on 2005 product sales.
Over the past 18 months, the company has added 14 new pipeline programs, more than the entire MedImmune portfolio in 2000.
The multimillion-dollar spending spree has come in the face of recent setbacks, however, which has caused some to wonder if MedImmune's strategy is sound.
Earnings growth hasn't materialized as hoped. The company's FluMist vaccine is not doing well. And earlier this year, the company announced weak sales of its blockbuster drug Synagis, a respiratory treatment for premature infants, which accounts for about 80 percent of the company's revenue.
"I think FluMist's failure has impacted investor's perception of management and perception of the company," said Phil Nadeau, a biotechnology analyst at S.G. Cowen & Co. LLC. "Going into FluMist's launch, MedImmune had a great four or five years through the launch of Synagis, and I think generally people thought that MedImmune management could do no wrong," he said.
"That perception has changed pretty dramatically, where now investors are more skeptical in the guidance that management gives, and really taking a wait-and-see attitude."
MedImmune's stock over the past 12 months reached a high of $37.38 in February. Lately, it has been trading in the $29 range.
Back in the late 1980s, when MedImmune commenced operations under the original name of Molecular Vaccines, it had no product possibilities, about a dozen employees and a business plan that never really came to pass.
Hockmeyer had recently retired from a 20-year career as an Army immunologist, and was working for another company until a group of venture capitalists approached him about starting a vaccine business.
"We thought we knew enough, which of course we didn't, to go out and do it on our own," said James F. Young, who had collaborated with Hockmeyer on the first malaria vaccine tested in humans and was brought on to round out that first management team. "There was a lot of on-the-job training that happened once we started," Young said.
The focus veered from creating vaccines to creating the infection-fighting antibodies that vaccines stimulate, which could help people whose immune systems aren't working right, such as transplant patients and premature babies.
Synagis, which became MedImmune's blockbuster drug, was the first monoclonal antibody treatment approved by the Food and Drug Administration in 1998 to prevent infectious diseases. It had sales of $1.06 billion last year.
The company continued to dabble in vaccines through the years - working on the underlying technology that led Merck to market an anti-cancer HPV (human papilloma virus) vaccine this year. But MedImmune was really thrown back into the vaccine world in 2001, when it announced plans to acquire the makers of FluMist, a nasal spray influenza vaccine.
FluMist was supposed to take the vaccine world by storm, as an alternative to traditional flu shots. But the nasal spray came in a frozen formula that prevented it from being administered at grocery stores and pharmacies. Consumers and some in the medical community often misunderstood its use of a live, but weakened, virus. And it wasn't approved for the very young or very old - groups most in danger from the flu.
Still, FluMist was found to be 55 more effective than flu shots in a recent study. And a new, refrigerator-stable version of FluMist is in line for approval later this year.
Analysts and investors are waiting to see if the vaccine is also approved to treat kids ages 1 and up. They also are watching whether the company can figure out how to get FluMist approved for those 50 and older - both factors considered critical for success.
Young said the company has been working for three years to shore up the business, sacrificing shareholder profits in the short term to do what executives believe is best for the long term.
MedImmune has added about 300 people this year, including 125 new sales staff to improve revenue from Synagis, bringing its worldwide work force to about 2,400 people.
It has aggressively added drug candidates to its oncology pipeline and begun clinical testing of a new treatment for lupus. Last month, it also broke ground on a new manufacturing plant in Frederick.
"When you look at what we've been doing over the last three years in adding people, adding programs, acquiring technology, acquiring companies, putting up buildings - we've now sort of put in place a very strong infrastructure, a very strong team that can now take the company to the next level," said Young, now MedImmune's president of research and development.
"We're well on our way."
The company stands to reap royalties from the much-publicized HPV cancer vaccines. Biotech analyst James F. Reddoch, of Friedman Billings Ramsey Group, an Arlington, Va., investment company, believes the vaccines eventually could account for a third of MedImmune's profit.
MedImmune also has become an increasingly important player in nationwide efforts to battle a potential flu pandemic. It announced within the past year an agreement with a division of the National Institutes of Health to create a library of possible vaccines for flu pandemics, and a $170 million contract from U.S. Health and Human Services to develop cell-based flu vaccines.
Still, Young and his colleagues are ever mindful of one sobering set of numbers: Just 1 in 100 research and development programs will lead to clinical trials. Only 1 in 10 of those tested will make it to market. And just 3 in 10 of those taken to market will recover the costs it took to get them there.
"This game is all about how many times can you get up to the plate and swing that bat," Young said. "And the more opportunities to do that, the greater the chances of success."
tricia.bishop@baltsun.com
This article misstated comments made by biotechnology analyst James F. Reddoch when it was published in the print edition. The Sun regrets the error.
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