Stock of the Day
Nov 20, 1998
Immunex: Much Has Happened in 2 Weeks
Though we just put the spotlight on Immunex a few weeks ago
when the FDA approved its rheumatoid arthritis drug, we wanted
to revisit this company because of the soaring stock price. On
Thursday alone the stock jumped nearly 10 points, and it's up over
16 points since we wrote about it on November 3rd.
There are several reasons for all the action in this stock. One may simply be a short squeeze, which means speculators who sold borrowed shares are having to buy them back at higher prices to get out of their short position. CNBC also reported a source close to Immunex as saying initial Enbrel sales are far outpacing analyst expectations.
A more substantive development came last week when Immunex reported additional clinical results from a study of Enbrel's long-term safety. Immunex presented the new data from a two year study at the American College of Rheumatology annual meeting on November 12. The data should ease concerns by the FDA, not to mention physicians who might prescribe it, that long-term use of Enbrel might suppress the immune system because of its unique approach to preventing rheumatoid arthritis. Immunex also presented clinical data last week showing Enbrel is effective in treating juvenile rheumatoid arthritis.
Until we get hard figures on Enbrel sales, or at least some guidance from the company, we won't know whether this latest surge in the stock price is part of a speculative frenzy or the establishment of another top-tier biotech company. In any case, it reflects the heightened investor interest in the biotech industry this year, which we noted in a recent biotech special report. For more on Immunex, see what we wrote on November 3 below...
It's Showtime for Enbrel
November 3, 1998 - As expected Monday, the FDA approved Enbrel, a drug developed by Immunex (Nasdaq:IMNX - news) to treat rheumatoid arthritis. Shares of Immunex jumped another point in after-hours trading on the news (they were already up 1-9/16 during the day session), even though final marketing clearance was widely anticipated since an FDA advisory committee recommended approval in mid-September. The drug should be available within days to the two million Americans who suffer from the debilitating immune system disorder.
Analysts say Enbrel could ring up sales of anywhere from $125 to $250 million in its first year on the market, with some predicting annual growth of about $150 million for several years and peaking above $1 billion a year. Not everyone is enthusiastic about its market potential, though. Naysayers point out that the FDA limited its recommendation to use of Enbrel by patients who have "an inadequate response to one or more disease-modifying anti-rheumatic drugs." It can also be used in combination with methotrexate, the current standard treatment, in patients who do not respond adequately to methotrexate alone.
The FDA advisory panel said it wants to see more data before giving Enbrel an unqualified endorsement for treating Rheumatoid arthritis even in cases where patients have yet to try the established therapies. Immunex is expected to present new clinical trial data on Enbrel at the American College of Rheumatology annual meeting, which runs November 8-12.
Another issue for Enbrel, ultimately an issue for almost any drug, is competition. While its approach to fighting rheumatoid arthritis is revolutionary, a host of factors including other new drugs could
ultimately dictate the scope of Enbrel's success. A drug similar to methotrexate, Hoechst's Arava, was approved in September. And Centocor's (Nasdaq:CNTO - news) Remicade, which was already approved for the treatment of Crohn's disease, is in Phase III trials for rheumatoid arthritis with results expected next week. Other issues which some analysts see as hurting Enbrel's competitive position are its cost (more than $11,000 per year) and the fact that it must be injected twice a week.
Ultimately the key to Enbrel's fate will be how enthusiastically doctors embrace it, how patients respond to it, and how insurance reimburses for it. Even if it only delivers first year sales at the low end of estimates, around $125 million, Enbrel will nearly double the revenues for Immunex, which had sales of $150 million in 1997.
The Enbrel launch is expected to push Immunex into profitability, thereby joining a select club of biotech companies. But Immunex has more than just Enbrel going for it. The company already has several products on the market including Leukine and Novantrone, two drugs with more than $50 million in sales each last year. Leukine is a white blood cell stimulating agent used after bone marrow transplants and chemotherapy, and early research shows promise in treating HIV. Novantrone is used in the treatment of certain types of leukemia and prostate cancer. Immunex also hopes to file early next year for Novantrone's use in treating multiple sclerosis, particularly secondary-progressive MS which currently has no drug specifically approved to treat it. Thioplex, another chemotherapy drug, chipped in for $22 million in 1997 sales.
As the name implies, Immunex is focused on immune system science. The company specifically targets cancer, inflammatory and infectious diseases. A massive R&D effort has created an impressive drug pipeline, not to mention the products already on the market, but expectations vary widely as to the overall market potential and how much will flow to the bottom line. Analysts are forecasting 1999 earnings in a range from 10 to 70 cents per share. From there Immunex earnings could go flat or grow to $4 per share in a few years, depending on who you talk to.
The stock had a huge run-up in 1997, going from the low-teens to the $80 in less than a year, but the stock corrected about 40% off its highs in the final few months of last year. The stock regained some momentum recently, rallying from sub-$50 a month ago to close Monday at $70 5/8. Immunex is 54% owned by American Home Products (NYSE:AHP - news) , and AHP will be a marketing partner on Enbrel.
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