From today's (Sunday) NY Times:
October 12, 1997
A Drug Maker Takes on AIDS, Cancer and the Short-Sellers
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Related Article Drug Combinations Are Changing the Outlook for AIDS
(Jan. 19)
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By LAWRENCE M. FISHER
arly this year, Agouron Pharmaceuticals received approval for a drug
that combats HIV, the virus that causes AIDS. Not surprisingly, shares
of Agouron, a biotechnology company, soared.
With most biotech stocks sitting out the bull market, the success put
Agouron on the map. And a closer look makes the company seem even more
attractive.
For Agouron's medication was not the result of one serendipitous
discovery, but rather the product of a research approach, or "technology
platform," that should allow the company to produce a series of
therapies for varied illnesses.
That is something to keep in mind given the steep, if temporary, decline
in the shares of San Diego-based Agouron in the last two weeks.
Here is what happened: The company's drug, Viracept, is one of a new
class of medications called protease inhibitors, which, when used in
combination with older antiviral drugs, have been shown to reduce the
amount of virus in patients' blood to undetectable levels. Protease
inhibitors block an enzyme that HIV uses to reproduce itself.
Although Agouron was the fourth company to introduce a protease
inhibitor, behind the giants Abbott Laboratories, Roche and Merck,
Viracept has captured 26.5 percent of the market since its introduction
in March. The rapid success helped send Agouron's share price from the
mid-30s to the mid-50s.
But two weeks ago, questions arose at a gathering in Toronto called the
Interscience Conference on Antimicrobial Agents and Chemotherapy. First,
data from San Francisco General Hospital suggested that combination
therapy, including protease inhibitors, was failing in 53 percent of
patients.
Another study, of 12 New York patients, appeared to show that Viracept
made people resistant to other protease inhibitors. Viracept's freedom
from such so-called cross-resistance had been thought to be an advantage
over competitors, particularly Merck's Crixivan.
But it turns out that the San Francisco study largely predated Viracept,
and was thus based on other drugs. The second study's data were sketchy.
Also, although many people had left the conference by then, Agouron
presented its own largely positive studies at midweek. They showed that
Viracept continued to suppress HIV for 12 months -- previously only
six-month data had been available -- and that among 12 patients who had
become resistant to the drug, most still responded to other protease
inhibitors.
Moreover, despite the turmoil and a tumbling stock price, only one
analyst lowered his rating on the stock in the wake of the conference --
David Crossen of Montgomery Securities, who took it from a buy to a
hold. Of 10 analysts tracked by First Call, seven still rated the stock
a buy or strong buy, while three rated it a hold.
One bullish analyst is Elise Wang of Paine Webber. "My position and
conviction on Viracept haven't changed at all," she said. "Of all the
protease inhibitors, Viracept probably has the best profile."
James McCamant, editor of the Medical Technology Stock Letter, said the
message he took from the conflicting studies on cross-resistance was
that Viracept did have an advantage, but it might be a modest one.
Nevertheless, he said he expected that the use of protease inhibitors
would increase and that Viracept would continue to gain market share.
Of course, not everyone likes the stock. Even before the conference,
Agouron shares had drifted downward, partly in response to a downgrade
from Edmund Debler, a longtime admirer of the company and an analyst
with Mehta & Isaly. Debler said he still likes Agouron, but not its
stock price. "We don't recommend it at $55," he said.
But Debler said he might buy the stock on a big dip, and one need look
no further than the Toronto conference for proof that dips are common in
biotech. Agouron stock fell from $55 on Sept. 18 to $44.50 on Oct. 2 --
nearly a 20 percent drop. Even before this, Agouron shares had sunk as
low as $31 this year.
Temporary dips are even more likely when short-sellers, who bet that a
stock will fall, have a large position in a security. In fact,
short-sellers played a role in the recent drop in Agouron stock, as they
often do in the volatile field of biotech.
But Agouron stock did not stay down for long. Aided by post-conference
meetings that Agouron set up between analysts and clinical
investigators, and by its report of quarterly earnings of 11 cents a
share -- nearly triple the consensus estimate -- the shares zipped back
up in the last 10 days, to $52.375 on Friday.
But keep your eye out for the next drop in Agouron stock, said McCamant,
who like Debler would wait for a price fall, probably to below $50,
before buying. A major reason to invest, besides Viracept, is the
company's platform technology, McCamant believes.
Based on a sophisticated three-dimensional modeling of disease targets
like proteins and enzymes, this technology should lead to drugs for
cancer and inflammation, as well as to more antivirals like Viracept.
McCamant says he has high expectations for Agouron's first anticancer
drug, Thymitaq, which is in the final stages of clinical trials for head
and neck cancers.
Most of the development cost of Thymitaq is borne by Agouron's corporate
partner on the drug, Roche, but the companies will share profits
equally. And McCamant is also hopeful regarding future drugs, including
a possible cold remedy based on an inhibitor of the rhinovirus protease.
"Agouron has proven with this first couple of drugs that their concept
of using structure-based drug design really works, and they have a
portfolio of drugs that are going to enter the clinic in the next couple
of years," McCamant said. "When should you sell? When they announce
they've cured the common cold." |
