By David Shook
Think of them as three top rookie prospects in the Big Pharma Leagues next year -- each capable of becoming franchise players and turning struggling teams into champions, but also untested and facing tough competition.
The three to watch? Schering-Plough's antihistamine Clarinex, Bristol-Myers' heart medication Vanlev, and Merck's painkiller Arcoxia. All are under review by the U.S. Food & Drug Administration. While analysts expect each could generate at least $1 billion in sales within a few years, their successful launch has already been factored into the value of each stock. But savvy investors will want to keep an eye on them over the long term because the fortunes of these pharma giants could hinge on the success or failure of these launches.
Start with Clarinex, the so-called son of Claritin. It's similar to the $3 billion antihistamine but may be more effective, faster acting, or have milder side effects than the first-generation drug. The FDA usually takes no longer than a year to approve or reject a drug under review. Clarinex has been waiting more than two years because the FDA has questioned some of Schering-Plough's manufacturing practices.
Most analysts believe Schering (SGP ) will resolve the compliance issues and finally achieve FDA approval for Clarinex in 2002. Any more delays could be costly to the stock, analysts say. Schering is playing it low-key: "We're not making any predictions on when it might gain approval," says company spokesman Bill O'Donnell. "Right now, we're continuing to resolve the issues through a plan we implemented last year." But Claritin represents nearly 40% of company pharmaceutical sales, and Schering will soon lose market share to generic competition without Clarinex as a follow-up.
Another drug expected to gain approval in 2002 is Bristol-Myers' Vanlev, for high blood pressure. While effective treatments are sold already for this disease, Vanlev could prove to be a valuable alternative for hundreds of thousands of people who don't respond well to existing hypertension drugs. Vanlev also is being tested as a treatment for congestive heart failure -- another multibillion dollar market.
Vanlev was supposed to be one of the big drugs of 2000. Then, Bristol (BMY ) disclosed studies showing that it may be responsible for a rare side effect known as angioedema, which causes swelling around the face and throat. Analysts are taking the company at its word that researchers can overcome the side effect, however. "The jury is still out on Vanlev's actual impact," says Joseph Zammit-Lucia, president of Cambridge Pharma Consultancy in Britain. "Expectations are big, but nobody has seen the results of the latest studies."
The third, and perhaps most crucial, approval may come late in 2002. That's for Arcoxia, Merck's follow-on to its best-selling arthritis painkiller, Vioxx, which now accounts for about 15% of company drug sales. Arcoxia is vital for Merck (MRK ) because it doesn't have any other major drugs coming out of the pipeline in 2002 -- and it recently lost patent protection on five drugs which used to account for more than half of company sales. Now, it relies on a total of five still-protected drugs for nearly all its pharmaceutical sales -- most notably cholesterol reducer Zocor and Vioxx.
With both drugs, Merck faces stiff competition. In the case of Vioxx, it's up against Pharmacia's Celebrex, which shares the prescription arthritis pain market with Merck. Pharmacia, however, is set to introduce a more effective form of Celebrex, named Bextra, sooner than Merck could gain approval for Arcoxia. While analysts believe Arcoxia will be a golden goose for Merck over the long term, Pharmacia may have the initial advantage, hitting the drugstores several months earlier.
Much rides on the reception to all three of these new drugs. Merck's stock has plummeted 39% this year, to $58 a share on Dec. 12, because of concerns over earnings deterioration. Schering-Plough's stock has fallen 39% too -- closing at $36 a share on Dec. 12. Bristol-Myers has declined 33%, to $50 a share.
The drug industry has been hit hard in 2001, as patents on some big-selling drugs expired, generic-drug companies gained market share, and investors fretted over the possibility of government price controls on drugs and manufacturing compliance issues. In truth, the promise of these three new drugs have actually prevented their companies' stocks from falling further. Now comes the real test for the top rookie prospects. Whether they hit soft grounders or smash one over the fences could make a big difference in the stock performances of Merck, Schering-Plough, and Bristol-Myers in the years ahead.
Shook covers biotechnology issues for BusinessWeek Online. Follow The Biotech Beat every week, only on BW Online
Edited by Douglas Harbrecht