I don't believe anyone has posted the WSJ/California edition "piece" on BTIM. You can contact the WSJ editors with comments: mailto:editors@interactive.wsj.com
THE WALL STREET JOURNAL /
CALIFORNIA
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Heard in California:
BioTime's Shares Feel the Burden
Of Proof for Developing Product
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By Mark Veverka
Staff Reporter of The Wall Street Journal
It could be sell time for BioTime.
The Berkeley-based company hasn't earned a dime in the seven years it has been publicly held --
a record that is far from unusual for a biotech firm in the early stages of product development.
But a number of skeptics, who have scrutinized various claims and financial projections made
by BioTime's management, are starting to wonder whether the company will ever see any
meaningful profits.
BioTime is in the process of developing a blood-volume expander, a water-and-starch solution
designed to be pumped into patients' circulatory systems to keep their blood pressure at an
adequate level during surgery.
Its stock also has been pretty pumped up at times, trading as high as $27 last October -- adjusted
for a 3-for-1 stock split the same month. But shares are now hovering around $11, and some
bearish analysts and other experts are convinced they are going to sink much further.
Their rationale: BioTime's product, known as Hextend, doesn't look much different from a
couple of offerings already on the market -- and the market itself isn't very big.
"I've always had difficulty wondering how they would find a new niche for this product," says
Robert Winslow, a blood expert at the University of California-San Diego. (Dr. Winslow says
he has no financial stake in BioTime, but he has followed Hextend as part of his academic
research.)
Meanwhile, some investors have decided that the best way to make money on BioTime is to
short the stock -- that is, borrowing a stock and selling it on a bet that the share price will
continue to drop. (The shares can then be bought up at the cheaper price and the borrowed stock
returned, with the short-seller pocketing the difference.) Between March 13 and April 15,
according to the National Association of Securities Dealers, the short interest in BioTime rose
13% to 2.4 million shares, nearly a quarter of its total float.
"We think it's pretty much a dead stock now, and it will fall to less than $2 a share," says
Manuel Asensio, president of Asensio & Co. in New York, who has a short position in
BioTime of more than 200,000 shares.
Among Mr. Asensio's concerns: BioTime has made claims that he is convinced have "no
scientific basis whatsoever."
In fact, BioTime's 1994 prospectus for a follow-on stock offering of 900,000 shares asserts
that the company's products are "blood substitutes" that can be used as "artificial plasma." But
several experts say blood-volume expanders are by no means substitutes for human blood. They
can't transport oxygen to tissue to sustain life, fight infection or carry proteins, according to Dr.
Winslow and others.
Victoria Bellport, BioTime's chief financial officer, says the "blood-substitute" description was
being used more generally at the time of the 1994 offering, and that's why the language was put
in the prospectus. "That's what people were calling our product," she says.
Others, however, dispute that such terminology was ever accepted. "A volume expander is not a
'blood substitute,' and never has been considered such," says Delia Menozzi, a pathologist at
the Stanford Medical School Blood Center in Palo Alto. "Substitutes have to have the capacity to
carry oxygen, and expanders can't do that. It's not the same thing."
So what, then, can Hextend do?
Hextend consists of water, medical-grade corn starch called hetastarch, sugar, calcium and an
organic chemical buffer that fights acidity. Instead of pumping real blood or plasma through the
body during surgery, doctors use such water-based solutions to keep pressure in the veins and
arteries high.
A hetastarch product is different than a saline -- which is essentially salt and water -- because
starch consists of larger molecules. As a result, these solutions tend not to become absorbed by
body tissue. This is a good characteristic because it helps prevent body parts, especially the
lungs, from taking on water, Dr. Winslow points out.
But the problem for BioTime, some analysts say, is that there are two other hetastarch products
available that are very similar to Hextend -- and they're already battling for a market that is
valued at a mere $30 million or so a year. The rivals are Hespan, which is sold by DuPont
Merck at around $75 a liter, and a generic product sold by Abbott Laboratories for around $45 a
liter. (BioTime also has an agreement with Abbott to market Hextend.)
BioTime, which has told analysts that Hextend should sell for as much as $100 a liter, argues
that it can distinguish its product from the others. BioTime CEO Paul Segall says, for instance,
that only Hextend contains certain minerals, including calcium.
Calcium, he maintains, "is very important for blood clotting and for heart function," which
could reduce the rate of blood loss during surgery or in emergencies.
As a result of this and other properties, Mr. Segall suggests that Hextend will ultimately
compete not only with hetastarch -- and saline-based products, but also with many other natural
blood-based products -- a much bigger market valued at $250 million to $1 billion.
Some say that makes good sense. "I think you're going to see a lot of doctors who are going to
want to use Hextend," says David Crossen, of NationsBanc Montgomery Securities in San
Francisco, who rates BioTime a "buy" with a $32 price target over the next 12 to 18 months.
But others say that such an analysis misses a key point: During recently completed clinical trials
with the Food and Drug Administration, BioTime didn't attempt to show that Hextend could do
anything more than the other hetastarch products. "The trial was not set up to show any
distinguishable advantages," Mr. Segall concedes.
And with no demonstrable edge, BioTime could be left behind. "They've got to prove
everything in a study," Dr. Winslow says. Otherwise, in today's cost-sensitive environment,
hospitals are simply "going to make the cheapest choice."
Analysts expect the FDA to approve Hextend within the next year. And after the product hits the
market, Mr. Segall says, the company is planning to conduct additional trials to show all that
Hextend can do.
But others are dubious of this approach. The customary procedure, says Michael Yellen of GT
Global Funds, a leading health-care investor in San Francisco, is to do all clinical trials before
getting FDA approval.
Doing things the other way, Mr. Yellen says, is "a huge red flag." |
