Biotech Tracker News - Natrecor/Johnson & Johnson
February 11, 2003 Merger activity has been picking up in the biotech sector, largely because biotech companies are running low on cash. Hyseq and Variagenics merged to form Nuvelo (NASDAQ: NUVO). Last week, Protein Design Labs (NASDAQ: PDLI) said it would acquire Eos. Yesterday, OSI Pharmaceuticals (NASDAQ: OSIP) announced plans to acquire Cell Pathways (NASDAQ: CLPA). These mergers are small enough to register only as chatter on the merger watch list, but yesterday a major deal by Johnson & Johnson (NYSE: JNJ) raised the sector alert level. J&J announced its plan to acquire Scios (NASDAQ: SCIO) in a cash-for-stock deal valued at $2.4 billion.  The J&J / Scios deal is different from other recent mergers. Scios performed well over the past year, thanks to increasing sales of its cardiovascular drug Natrecor. J&J is not bailing Scios out, rather it is boosting its product line, adding Natrecor to the biotech drugs – including Remicade, ReoPro, and Procrit – in its portfolio.  As we have indicated, Natrecor is on its way to becoming a blockbuster drug (>$1 billion in annual sales). Its unique place in the emergency department and coronary and medical intensive care unit management of acutely decompensated congestive heart failure becomes clearer each week. Soon, results from FUSION (Management of Patients with CHF After Hospitalization with Follow Up Serial Infusions Of Natrecor), a 200+-patient, 12-week, randomized, open-label pilot study, may prove that Natrecor is appropriate for use in the outpatient management of patients with chronic congestive heart failure who are at high risk for hospitalization. By saying on a conference call yesterday that its officials have seen the data from the study, J&J boosted confidence that FUSION results will be positive.  While reassuring cost-effectiveness data accrue regarding acute care Natrecor use, analogous data demonstrating attributable cost-savings from avoiding hospitalizations would lead to even greater sales acceleration. In the near-term, data that raise a question about Natrecor’s safety as it relates to 30-day mortality are unlikely to contribute to widespread regulatory or professional reconsideration of Natrecor’s risk-benefit profile. These data are to be presented at the American College of Cardiology meeting next month.  Scios does have more than Natrecor. Its second most important contribution is SCIO-469, being developed as an oral treatment for rheumatoid arthritis. SCIO-469, currently in phase II trials, is a small molecule that influences the protein p38 MAP kinase in such a fashion as to downregulate several mediators of inflammation, including TNFa. Other marketed rheumatoid arthritis drugs, including J&J’s Remicade, target TNFa, but SCIO-469’s inhibition of related pathways and oral availability will make it an interesting competitor if trial results are positive. We estimate that SCIO-469 has a 25-35% probability of FDA approval.  Because small companies with marketed drugs are hard to come by in the biotech universe, we do not to see a spate of acquisitions this large in the near future. However, the smaller acquisitions of struggling biotech companies will continue as long as other financing opportunities remain limited.
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