DECEMBER 31, 2003
REPORTER'S NOTEBOOK
By Amy Tsao
A Tale of Two Biotechs
In Cambridge, Mass., Millennium and Vertex are two outfits trying to emerge into profitability from the soup of startups
When I was a college student in Boston 10 years ago, I rarely had occasion to cross the Charles River to Kendall Square in Cambridge. Dominated by office parks and gearheads from the Massachusetts Institute of Technology, the area seemed to pale in interest next to bustling Harvard Square and Central Square to the west.
How things have changed. On a recent visit, I found Kendall Square and its surrounding streets in the throes of hyper development aimed at attracting the young and brainy who are connected to the area's suddenly thriving biotech industry. Bars, restaurants, and retail stores have sprouted or are "coming soon." Students and employees of biotech startups crowd newly laid sidewalks. State-of-the-art structures of steel and glass are rising in empty lots, where cranes and bulldozers suddenly seem as common to the area as PhDs.
MAGNET FOR DRUGMAKERS. Home to MIT and Harvard, Cambridge has always been a stomping ground for the academic elite. Now, it's also becoming a biotech nexus -- arguably the country's leading one. Drugmakers Wyeth (WYE ), Pfizer (PFE ), and Astra-Zeneca (AZN ) have set up shop in the Boston metro area to be near the dozens of biotech businesses and top researchers concentrated here.
Most recently, Swiss pharmaceutical outfit Novartis (NVS ) unveiled plans to relocate its research operations from Basel to Cambridge. Established biotech concerns that were born here, such as Genzyme (GENZ ), are sinking their roots deeper: The company just opened a gleaming, energy-efficient, $140 million headquarters.
The gold-rush bustle of the place tends to obscure countless struggles for survival and prosperity -- the kind that two Cambridge-based biotechs are engaged in. Both Millennium Pharmaceutical (MLNM ) and Vertex Pharmaceuticals (VRTX ) were Wall Street darlings just a few years back -- before their stocks plunged. They had positioned themselves as niche pharmaceutical players that would be nimbler than their larger competitors, and they're trying to make good on that promise. Now that each has two products on the market, they've reached a critical point in the biotech lifecycle -- the transition from phenom to an established, profit-generating business.
SLIMMED DOWN. In pursuit of that goal, Millennium is focusing on the debut of its newest drug, called Velcade, which received Food & Drug Administration approval last summer as a treatment for multiple myeloma, a blood cancer. It reorganized this year to prepare for Velcade's marketing push and to research the drug's potential uses in fighting other cancers.
Millennium is now housed in one building after shuttering two others. It has reduced the number of disease areas it's targeting to three, from four. And it has cut its staff from 2,300 to about 1,600, laying off many researchers even as it has added employees in sales and marketing. All of these are logical moves for an outfit that expects to lose at least $285 million this year.
Just three years ago, Millennium was focused on partnering with major drugmakers to identify new treatments using its gene-based technologies. Many of those lucrative partnerships are winding down, as the ideas they produced are being put to the test. Now, Millennium is looking to its own drugs to increase its revenue. It took in $160 million in 2002 from sales of Integrilin, its anti-platelet drug for use in cardiovascular disease, which it markets with Schering-Plough (SGP ). Analysts expect Velcade, which the outfit acquired with the purchase of Leukosite in 1999, to generate more than $50 million in revenue in 2003.
TOO MANY PILLS. Millennium's goal, says CEO Mark Levin, is to have a "balanced investment in R&D, while really beefing up on the sales side [for Velcade]." After this year's changes, he believes that the biotech has "more or less the right balance." Millennium has 10 drugs currently in clinical trials, Levin points out. If the FDA approves three or four of those over the next five years, and if Velcade and Integrilin perform as expected, Millennium should be "one of the top companies in the biotech industry," predicts Levin.
Vertex, too, is trying to make its move. With partner GlaxoSmithKline (GSK ), it introduced protease-inhibitor Agenerase, a HIV treatment that's often a key ingredient in anti-AIDS drug cocktails, in 1999. As CEO Josh Boger put it recently, the drug hasn't been a commercial success -- "not even a base hit" -- because it requires swallowing eight pills daily on top of a treatment regimen that typically would include several other drugs. Vertex's answer has been to develop a new HIV drug, called Lexiva, also in partnership with Glaxo. Introduced late in 2003, Lexiva requires taking far fewer pills and could be a much stronger revenue generator, Boger hopes.
"SETBACKS HAPPEN". Still, most biotech analysts are more optimistic about Millennium's strategy than they are about Vertex's prospects. Vertex announced in November that its most advanced drug in testing, for rheumatoid arthritis, is proving too toxic for many patients. And in December, Deutsche Bank analyst Dennis Harp examined Vertex' outlook in a report entitled "Cash Crisis Ahead?" He speculated that it might have trouble bringing a new drug to market before it has to make good on $315 million in convertible debt that comes due in September, 2007.
If he's right, Vertex may have to make some difficult choices in order to raise operating funds over the next few years. This includes licensing the rights to one or more of the drugs it has in development, a step that would let it share only partly in the commercial success of those treatments.
Boger doesn't share Wall Street's worries about his outfit, calling the 30% decline in its stock since early November "puzzling." Vertex, he insists, will prove critics wrong. "Setbacks happen," he adds. "We'll have failures, but on average we will be successful."
FDA APPROVALS. Vertex has some 20 drugs in its research-and-development pipeline, most in the early stages of testing. But while it had planned to develop two of those drugs without a partner, in December, it decided to focus on just one, a treatment for hepatitis C. Wall Street analysts polled by First Call expect Vertex' losses to widen to about $180 million in 2003, equal to $2.36 a share, from $109 million in 2002.
Neither Vertex nor Millennium will be profitable for several years, even though both have achieved the rare feat of getting products approved by the FDA in a relatively short time. With persistence and more than a little luck, either could become the next Amgen (AMGN ) or Genentech (DNA ). Or they could end up as disappointments that investors might recall a decade from now, as they ponder the varied fortunes of the businesses that made Cambridge a biotech mecca.
Tsao covers biotechnology issues for BusinessWeek Online. Follow her Biotech Beat column only on BusinessWeek Online
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