Enbrel Enables Immunex To Shine In 1998; Stock Gains 133%

The launch of Enbrel is helping Immunex to move firmly into the top-tier of biotechnology companies - and may help to reinvigorate investor enthusiasm for biotech research overall.

The approval of the injectable tumor necrosis factor receptor rheumatoid arthritis therapy triggered the kind of favorable attention to biotechnology on Wall Street and in the media that is reminiscent of the exuberance for biotechnology in the early 1990s and during previous boom cycles.

The Enbrel approval capped a stream of biotech product approvals in 1998, including Cor's thrombolytic agent Integrilin in May and Genentech's breast cancer treatment Herceptin in September.

The combined impact was a strong year for the F-D-C Index of O-T-C pharmaceutical stocks, which closed up 57.8% for the year, its first positive performance since 1995.

For Immunex in particular, the Nov. 2 approval of Enbrel triggered an explosive run-up on Wall Street.

During the broad market decline at the end of the third quarter, Immunex dipped below its 1998 opening price of 54. The market recovery coupled with the Enbrel launch helped Immunex acheive an astonishing fourth quarter, and the stock closed up over 70 points for the year (133%) to 125-13/16.

With a market cap of over $5 bil., Immunex now appears primed to take a place beside Amgen, Genentech, Biogen, Genzyme and Chiron as a full-fledged commercial biotech business rather than an R&D boutique.

Immunex also reached another valuation milestone thanks to its strong showing in the fourth quarter. The price per share ($125.81) is now more than the price per vial of Enbrel ($110).

It is premature to conclude that biotech has re-entered a boom phase, however. The strong showing by the Index as a whole masks the continued rough period for smaller biotech stocks.

The performance of the five highest-cap companies on the Index - Immunex, Amgen (up 93%), Biogen (up 128.2%), Chiron (up 54%), and Genzyme (up 79.3%) - led the way in 1998. Smaller companies did not fare so well: 38 of the 64 stocks on the index closed down for the year.

Indeed, Immunex is one of only five companies on the Index to post gains in each of the past three years. The others are Enzon (up 142% to 13-15/16 in 1998), Icos (up 62.5% to 29-3/4), Scios (up 3.8% to 10-3/8) and Syncor (up 69% to 27-1/4).

Against the backdrop of one of the strongest bull markets in the history of Wall Street, biotechnology has been a bad investment in the 1990s. Indeed, the F-D-C Index only moved above its 1991 peak at the end of 1998.

The prolonged underperformance of small-cap biotech stocks appears to be having an effect on the supply of public capital for start-up companies.

According to Burrill & Company's annual report on biotech financing, the industry raised $4 bil. in 1998, a 44% decrease from the $7.1 bil. raised in 1997. Initial public offerings, of which there were 14, raised $371 mil. vs. the $709 mil. raised in 1997 from 27 IPOs.

Burrill predicts that "many companies are quietly waiting out the storm and looking for an upturn in 1999." It notes, however, that "investors are not convinced that biotech is the industry to be in at the moment, except for those large market cap biotech companies with products and profits."

Select companies like Immunex, however, have been able to outperform the broader market in the past few years. Immunex' 1998 run-up came after the company nearly tripled in value in 1997 on the strength of Phase III results for Enbrel.

Since the start of 1996, Immunex has increased seven-fold in value.

In October 1995, Immunex rejected an unsolicited bid by its majority owner American Home Products to acquire the 46.5% of the company that it did not own for $267 mil., or $14.50 per share. AHP now owns 54.1% of Immunex and would need $2.31 bil. (without a premium) to purchase the remainder.

Unlike the Genentech/Roche agreement, the Immunex/AHP relationship does not involve any specified process for a buy-out. The prices in the Genentech deal have the effect of setting a trading range for the stock, while Immunex is more free to move sharply on its own.

AHP's own strategic uncertainty following failed merger negotiations with SmithKline and Monsanto could have a spill-over effect on Immunex. AHP's Immunex stake, valued at almost $2.8 bil., has attained the level of a corporate asset that would have to be considered in any merger involving AHP.

Immunex is starting to present itself as an acquirer, rather than an acquisition target. Revenues for 1998 are estimated to be about $241 mil., with the company ending the year with approximately $140 mil. in cash, Immunex CEO Edward Fritzky told the Hambrecht & Quist conference in San Francisco Jan. 13. He suggested that the company would grow "through consolidation of products and ultimately other companies."

In order for Immunex to post a strong showing in 1999 after the explosive growth of the past two years, Enbrel will likely have to exceed the already substantial sales expectations for the product. Most analysts have pegged the injectable RA therapy at $500 mil. to $1 bil. in annual sales.

During the H&Q conference, Fritzky suggested that Enbrel's initial sell-in has indeed exceeded analysts predictions, which were for about $11 mil. in fourth quarter sales.

Fritzky estimated that between 10,000-15,000 patients have already been prescribed Enbrel in the two months since launch. However, he urged investors to wait another two months before drawing conclusions about the potential for the product, maintaining that the clear signs of efficacy in initial users will drive use to a higher plateau.

Fritzky declared that in January and February, Immunex "will be leaving the experimental phase and moving into a more complete trial of potential adoption of this product."

"While we have seen, we think, great success at this point, I would like to caution everybody that we would like to get three to six months more worth of data points under our belt before we provide any guidance on the estimates for 1999 - but so far, it is going very well," Fritzky said.

The company, which co-promotes Enbrel with its majority owner American Home Products, is planning to expand its marketing campaign in January beyond rheumatologists to include primary care physicians, Fritzky said.

Enbrel has so far been promoted mainly to rheumatologists. "Two-thirds of these specialists by the end of last year had prescribed Enbrel," Fritzky reported.

Since about 50% of rheumatoid arthritis patients are seen by primary care doctors, he said, Immunex will hope to drive referrals. "I think if the safety profile continues to hold and it continues to be an easy to use product, then ultimately primary care doctors may begin to prescribe," Fritzky added.

Immunex will also be expanding its consumer communication efforts for Enbrel, via direct-to-consumer print ads in women's magazines, a patient newsletter ("Enliven") and an expanded Web site.

Immunex has been working with FDA to expand the Enbrel Web site to include more detailed information about the drug, Fritzky reported. The site has received as many as 20,000 hits since the product's approval, Fritzky said. The updated page will be completed in February.

Immunex' strategy of lining up patient testimonials for Enbrel has paid off in glowing media coverage.

A front-page Washington Post article focused on a female Enbrel user who has put away her crutches since enrolling in clinical trials. The company's investor presentation at H&Q included a video of a triathlete who is back to competition after starting on Enbrel.

To some extent, Immunex may have benefited from fortuitous timing with Enbrel, since the pending approval of the first COX-2 inhibitors had focused investor and media attention on new arthritis therapies.

The November American College of Rheumatology conference was attended by many Wall Street analysts because of the COX-2 inhibitor data being released there. Those analysts also saw the launch presentations for Enbrel.

A Lehman Brothers report on the meeting highlighted the attendance at the Enbrel presentations and quoted one rheumatologist as saying, "after 20 years of rehashing old drugs, finally something new."

The glowing publicity surrounding Enbrel and Herceptin may have an impact not only on the image of biotechnology but also on that of the traditional pharmaceutical industry as well.

With political pressure over the cost of drugs building, front-page articles highlighting the benefits of biomedical breakthroughs are positive for the entire industry. The Post article on Enbrel, for example, included assertions by the patient that she was saving money by paying for Enbrel because it helped her to avoid surgery.

In keeping with the enthusiasm for rheumatoid arthritis therapies, Amgen has been highlighting its research efforts in that field in presentations to analysts.

During a November meeting, Amgen highlighted its two biologics for RA: interleukin-1 receptor antagonist and sTNR-RI. The latter project is a new molecule designed to be less immunogenic than TNF binding protein. Both agents were acquired by Amgen when it bought Synergen.

In 1997, Amgen announced that it was seeking partners for the former Synergen projects. The company has not disclosed any progress in licensing agreements.

During the analysts presentation, Amgen indicated that it sees use of the two agents in combination as holding the best therapeutic potential. sTNF-RI binds to a different receptor than Enbrel, Amgen said, and the company will focus on showing product advantages.

Amgen also revealed that Synergen's brain-derived neurotrophic factor is still under development at the company in an intrathecal formulation.

Amgen had off years in 1996-97, despite the strong rally in the pharmaceutical sector, and entered 1998 as the subject of acquisition rumors. The company faced increasing concern that, with growth of its two lead products, Epogen and Neupogen, slowing, it did not appear to have a suitable encore.

A Dec. 18 arbitration ruling assigning rights to the Epogen successor molecule NESP to Amgen rather than Ortho appeared to eliminate those concerns overnight. The first trading day after the ruling was announced, Amgen gained 14%, or $3.1 bil. in value.

During the November analysts meeting, Amgen positioned NESP as the ideal product to supplant Ortho's EPO product (Procrit) in the non-dialysis markets. The company apparently succeeded in convincing investors that the four amino acid difference between Procrit and NESP is enough to establish the product as a separate vehicle for growth.

Wall Street did not appear to view the loss to Johnson & Johnson to be as important as the victory was to Amgen. J&J dropped following the arbitration ruling, but rebounded to close the year higher.

In addition to Immunex, two other biotech firms on the F-D-C Index have gained more than 100% in both 1997 and 1998: Sepracor and MedImmune.

Sepracor gained 120% in 1998 on the strength of its ever-expanding patent and license estate on single-isomer versions of top-selling small molecule compounds.

The company's "improved chemical entities" development strategy does not offer the highly touted revolutionary modes of action that traditional biotech does. However, the more predictable, incrementally improved compounds provide a steady current of news that has buoyed Sepracor. The company increased in value by 141% in 1997.

Sepracor has announced that it expects approval for its single-isomer version of asthma drug albuterol, levalbuterol (Xopenex) in the first quarter of 1999. In October the company formed a metered-dose inhaler alliance with SkyePharma for asthma drugs.

In early December, Sepracor entered into a license agreement with Lilly for (R)-fluoxetine, an enantiomerically pure version of Lilly's antidepressant Prozac. Sepracor can earn up to $90 mil. including milestone payments, in addition to royalties. (R)-fluoxetine is in Phase I trials and is patented until 2015; Prozac, which had sales of $2.6 bil. in 1997, loses patent protection in 2003 - if Lilly can defend against a patent challenge (see related story, p. 9).

The company also announced licenses with Janssen to develop the anti-ulcer metabolite (+)-norcisapride and the antihistamine norastemizole, and a license with Schering-Plough to develop a metabolite of Claritin.

MedImmune has sustained two years of triple-digit growth by following a more traditional biotech model, marketing an initial product that provides a cash stream and raises investor and corporate partner confidence, and then developing a follow-on product and a broader range of therapeutics.

FDA approval of Synagis for pediatric respiratory syncytial virus came June 19, three years after the approval of the RSV therapy RespiGam. Launch of Synagis was delayed until the company could contract Boehringer Ingelheim to manufacture marketing quantities of the monoclonal antibody. Announcement of the deal in early September allowed MedImmune to weather the late-summer stock market correction.

The company has executed its strategy to transfer patients from RespiGam to Synagis. The new product is a more convenient intramuscular injection, is not blood-derived and may benefit from a wider patient population as well; MedImmune presented data at the Interscience Conference on Antimicrobial Agents and Chemotherapy that Synagis is effective in adults who have received hematopoietic stem cell transplants.

AHP is MedImmune's partner for RespiGam and Synagis. The companies have a third RSV product, a vaccine, in Phase II trials.

Other pharmaceutical partners include Pasteur Merieux Connaught, which announced a December agreement to develop a second-generation Lyme disease vaccine with MedImmune. SmithKline Beecham is co-developing MEDI-501 for several human papillomavirus indications.

The monoclonal antibody MEDI-507 has entered Phase I/II trials for prevention of graft vs. host disease in pediatric and adult bone marrow transplant patients. MEDI-507 is a humanized version of partner BioTransplant's murine antibody.

MedImmune closed 1998 at $99-7/16 per share, up 131.9%, after a 152.2% increase in 1997.

While Wall Street's rules for success in biotech appear to be increasingly tied to product launches rather than research results, investors have granted at least one exception to Icos, which posted a strong gain for the second consecutive year despite having no marketed products and no Phase III trials.

Investors are attracted to the company because it has a range of compounds that are each being evaluated in multiple Phase II trials for varied indications.

The strategy increases the likelihood of a strong pivotal trial for an eventual NDA. It also provides a constant river of news to keep investors engaged and ensures that negative results can be countered by advances in other areas.

A Phase II trial announced in September for Pafase (rPAF-AH) showed no improvement for treated patients in an allergen challenge model. The placebo-controlled crossover design had a primary efficacy endpoint. Also, the lead product for the company, LeukArrest (Hu23F2G), showed no benefit for MS patients at interim analysis of a Phase II trial released at the same time.

However, the trials only briefly affected Icos' performance. Icos was able to accompany the ambiguous results with better results in the same drugs. Another Pafase trial in respiratory distress syndrome and a LeukArrest trial in ischemic stroke patients demonstrated positive trends that will form the basis of future trials.

A fifth compound has reached the clinic, Icos announced at the January H&Q conference. IC14 is an antibody that blocks the cytokine CD14, an immune response activator. A European Phase I trial in sepsis will enroll 20 patients and will have a placebo control.

The company also partnered with Lilly to speed the development of IC351, a phosphodiesterase 5 inhibitor to treat erectile dysfunction. Phase II randomized trials showed significant benefit for the drug over placebo, Icos said. Glaxo dropped the project in 1997.