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Biotech Shares Lose Nearly Half of Q2 Gains
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By Deena Beasley
Reuters
Friday, July 13, 2001; 6:07 PM
LOS ANGELES—Biotech shares, the stock market's best-performing sector in the second quarter of this year, have given back nearly half those gains so far this month after a string of clinical trial, regulatory and drug sales disappointments, analysts said.
"There has been negative news for some flagship companies in the sector and that is casting a long shadow," said Linda Miller, director of the portfolio management team for the John Hancock Health Sciences Fund.
The American Stock Exchange biotech index gained 30 percent in the second quarter, compared with a 17.5 percent gain in the Nasdaq Composite Index over that time.
In the first two weeks of the current third quarter, however, the biotech index fell about 13 percent while the technology-rich Nasdaq has lost about 4 percent percent, leaving both indices with 13 percent gains since the end of March.
"Overall the fundamentals in biotech are strong, but it is a volatile sector. We are seeing some return to reality," said Fariba Ghodsian, an analyst at Roth Capital Partners.
News in February that the human genome had been decoded, opening the door to a potential revolution in medicine, and events like the launch in May of Novartis AG's breakthrough cancer drug Gleevac had spurred investor enthusiasm.
"We are coming off a really strong second quarter—that has magnified the sell-off," Miller said. She also suggested that a typical summer slowdown in the stream of news from clinical trials of experimental drugs has affected the sector.
GENENTECH, IDEC HIT BY CANCER DRUG SALES
Shares of Genentech Inc., the world's oldest biotechnology company, were trading near $40 on Thursday, or less than half of $97.25 high the stock saw last September as investors anticipated news from a series of medical conferences where progress on drug development is typically announced.
The South San Francisco, California, company has been pummeled by a string of recent disappointments, including Wednesday's news of less-than-expected second-quarter sales of Rituxan, its treatment for non-Hodgkin's lymphoma, a cancer that attacks the immune system.
The company said analyst estimates for Rituxan sales were over-inflated, mainly because of erroneous information supplied by IMS Health, which collects data on drug prescriptions.
Worldwide second-quarter sales of Rituxan rose 83 percent from the year-earlier quarter to $188 million, but that was far short of high end analyst estimates for sales of $220 million.
Shares of IDEC Pharmaceuticals Inc., which co-markets Rituxan, fell more than 15 percent on Thursday to close at $52.16.
Lehman Brothers analyst Rachel Leheny on Thursday lowered her sales estimates for Rituxan from $814 million to $748 million in 2001 and from $1 billion to $925 million for 2002.
Rituxan is one of a handful of so-called "blockbuster" drugs with actual or potential annual sales of more than a billion dollars.
IDEC, which is awaiting word from U.S. regulators on its application for a second-generation version of Rituxan, said on Thursday that it has responded to a list of information requested by the U.S. Food and Drug Administration (FDA) and expects to work with the agency over the coming months.
FDA TAKING LONGER TO REVIEW CERTAIN DRUGS
Zevalin is an antibody-based drug, like Rituxan, that works by binding to certain immune cells, but it is also designed to deliver cancer-killing radiation directly to tumors.
Zevalin was given a 6-month priority review slot by the FDA last December. It is one of several drugs analysts say have been subject to much longer-than-expected regulatory review.
"The FDA has become more stringent," Ghodsian said.
Other longstanding biotech drug applications include Amgen Inc.'s for anemia treatment Aranesp, which was filed December 1999; Genzyme General's, Fabrazyme for Fabry disease; Corixa Corp.'s, radioactive cancer drug Bexxar; Scios Inc.'s heart failure drug Natrecor; and Genentech's allergy and asthma treatment Xolair.
"Even with low interest rates, time is money and some of these companies have a lot of money and some don't," Miller said.
Genentech said on Wednesday that the FDA is not satisfied with clinical trial data on Xolair involving 1,950 patients, and the company does not yet know if it will need to conduct more trials.
To improve its chances, Genentech said it will scale back a resubmitted application for Xolair for use only in adults with moderate to severe allergic asthma.
Genentech, which has $2.6 billion in cash on its books, is not expected to have trouble weathering the delay in Xolair's approval, but smaller companies are more vulnerable.
"The interest in capital investment in this sector is not what it was in 1999 or the first part of 2000," Miller said.
Traditional pharmaceutical companies have also seen setbacks --- the FDA in June extended its review of Eli Lilly's experimental sepsis drug and Merck & Co. Inc. warned earlier this month of lower-than-expected profits as some of its patents expire.
These types of concerns may mean big drug companies, which often license new drugs from biotech firms, might not be as generous as they have in the past, Miller suggested.
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© 2001 Reuters
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