BioTech Sage Report - ReCap on BioGen, Celgene, ICOS, Genzyme, Imclone
November 14, 2002 - Recap. The usual trend for the biotech sector is a rally in August that carries over to September. The rally is normally spurred by promising clinical trial results presented at medical conferences and investor conferences. Unfortunately, that trend was broken, as the biotech sector fell in September, which led to a bottom-fishing rally in October. Since then, the group has remained buoyant, as the flow of news has been encouraging for key biotech companies. So what’s new that makes news? There are a few shining lights out there. First, the Food and Drug Administration (FDA) approved a label change for Biogen's multiple-sclerosis (MS) drug Avonex, lowering the rate of occurrence of neutralizing antibodies (NABs) to 5% from the original label rate of 24%. As we mentioned in November’s report, the antibody issue with current MS drugs, could give Avonex a competitive edge. The controversy is over whether reducing the relapse rate with current MS drugs can delay progression of disability and whether the presence of NABs reduces the clinical efficacy of beta interferon therapy. Competition will remain fierce for the U.S. MS market, which will impact Biogen’s earnings. However, we anticipate Biogen’s financial future to improve once the FDA approves Amevive for treating psoriasis. Second, Celgene announced that the company would acquire Anthrogenesis for $45 million. Anthrogenesis a privately held biotech company, that focuses on recovery of stem cells from human placental tissue following the completion of a full-term pregnancy. This deal may prove to be a very lucrative for Celgene as the company plans to develop stem cells in oncology. Stem cells can be used in bone marrow transplants for cancer patients, particularly hematological cancers such as multiple myeloma and leukemia, in conjunction with chemotherapy and radiation therapy. Preliminary data using newborn stem cells as therapy for immunological reconstituton has merit. With this acquisition Celgene now has the ability to tap into this expanding market. According to Celgene, more than 100,000 people in the U.S. are diagnosed annually with blood cancers that can be treated by stem cell transplants; however, only a fraction receive transplants due in part to inadequate sources of adult doses of therapeutic stem cells. Third, ICOS received good news, as Eli Lilly announced the European Commission has granted a marketing authorization for Cialis for the treatment of erectile dysfunction. Lilly/ICOS was anticipating launching Cialis in Europe during the first half of 2003, which will compete with Pfizer’s Viagra. With a switch in manufacturing site, the launch has been delayed. Fourth, Genzyme Biosurgery made two deals this month, which gave the stock a boost. The first deal was with Bio-Seal to co-develop new biopsy closure products for the lung, liver and kidney. The companies will collaborate to develop new polymer-based products that are synthetic, bio- absorbable and expandable, and can be used to seal the wound after a biopsy procedure. Under the agreement Genzyme Biosurgery will provide up-front payments, product development milestone payments and royalties on future product sales. The other is a cross-licensing pact with Guidant for products used in "off-pump" or beating heart cardiac bypass surgery. Under the agreement, Genzyme Biosurgery will make a one-time license fee payment to Guidant and pay ongoing royalties on the sale of these products, while Guidant will also obtain a license to certain Genzyme Biosurgery patents subject to certain provisions in the agreement. Fifth, rumors are fueling investors’ interest in both Enzon and Imclone Systems, as both are being speculated as merger candidates, big Pharma Schering-Plough and Bristol Myers are the prospective buyers, respectively. In our opinion, it’s better to focus on the quality and assets of the company rather than hype until there is more solid evidence of any merger. Lastly, Amgen’s share price is making a comeback as Wyeth’s said it is in no hurry to sell its Amgen’s shares, though it intends to eventually. Investors were concern it may cause undo downward pressure on Amgen’s price throughout the process. Wyeth owns almost 98.3 million shares, or 7.7% of Amgen's common stock. Wyeth’s equity sale of Amgen in the open market is limited to 20 million per quarter. Going forward, Wall Street is looking ahead to several important medical meetings (example: American Society of Hematology in December) that could drive the industry higher for the remainder of 2002.
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