Heartbreak And Triumph In Biotech LandJoan O'C. Hamilton
For all those investors who have hitched a ride on the biotech bandwagon, the Jan. 17 news was a reminder of why they hopped on in the first place. An advisory panel to the Food & Drug Administration recommended that Chiron Corp.'s anticancer agent, Interleukin-2, be approved for sale to the public.
Even before the news of the panel's approval had become official, eager market players had bid up the stock to a recent high of 72. Since then, Chiron has been caught in the same downdraft that has buffeted many other biotech stocks, and now it is trading at about 64. But the market's bumps don't change one key fact: If full agency approval follows as expected, Il-2 will soon go into the marketplace alongside almost a dozen other gene-spliced drugs whose combined annual revenues exceed $2 billion.
For more seasoned investors, however, the announcement stirred up less than pleasant memories. Just 18 months ago, the same advisory panel turned thumbs down on the drug. Rocked by the setback, Il-2's original developer, Cetus Corp., sold out to Chiron. The serpentine history of the drug, in fact, comes with a moral, aimed straight at ambitious biotech companies and their investors: There's more involved in getting a new drug to market than a fancy technology and a drug that seems to work.
NASTY EFFECTS. Il-2 is the genetically engineered version of a protein that occurs naturally in the human immune system. In the early 1980s, in the hands of National Cancer Institute scientist Steven A. Rosenberg, it seemed a wonder drug: Rosenberg used it to shrink tumors in otherwise incurable victims of kidney cancer. Based on Rosenberg's success, Cetus shares soared to 41, an all-time high.
The euphoria faded fast. Wider testing of the drug made clear that it took extremely skilled researchers to use it successfully. Il-2 was tricky to control and had to be administered in an expensive, labor-intensive method in the hospital. And it had such nasty side effects that in some studies, about 4% of those who got the treatment died from it.
The extensive testing Cetus encouraged proved ultimately to be a drawback. Explains a former Cetus executive: "If you don't get the drug out there, you might miss a serendipitous discovery. But all those studies can come back to bite you." And bite they did. The FDA requires that all data gathered in testing be submitted for review. The drug had been administered in widely varying dosages under all sorts of different conditions. That complicated Cetus' presentation to the FDA panel, since the company had to collate and analyze data that weren't directly comparable.
As it turned out, in fact, Cetus' 1990 presentation to the agency's advisory panel was a bomb. Since new data and analysis were pouring into Cetus literally days before the meeting, it was probably inevitable that the company's presentation to the committee would prove confusing. FDA advisers called for more analysis. Robert A. Fildes, then Cetus' CEO, compounded the problem by publicly criticizing the panel. His impolitic outburst alienated his own board, and he quit two weeks later.
Cetus' board lost faith in the independent course Fildes had set, and they set about shopping the company. Last summer it went to Cetus' Emeryville (Calif.) neighbor, Chiron, for $650 million in stock. That was probably cheap--Cetus had just sold another promising technology to Hoffmann-LaRoche Inc. for $300 million, leaving it with $380 million in the bank, products in the lab, a full-scale manufacturing plant, and a sophisticated distribution system, including a European sales organization.
RARE BREED. As a result of that experience, at least one successful California investor soured on the entire industry. "If a company with Cetus' resources couldn't make it," he asks, "how can these little guys?" He has steered clear of biotech ever since.
But biotechnology skeptics are a rare breed these days: The market, which blithely bid most biotech stocks into the stratosphere in 1991, has treated the Cetus fiasco "as an anomaly," notes Misha Petkevich, a partner at Robertson Stephens & Co., a San Francisco investment bank.
Chiron, led by Chairman William J. Rutter and CEO Edward E. Penhoet, two veterans of the approval wars, resubmitted Il-2 to the FDA panel. The company orchestrated a more organized presentation of the reworked Il-2 data to the panel, winning approval rather easily. And indeed, Il-2 may someday live up to its billing. The drug, which has shown itself effective in about 15% of kidney cancer victims, is expected to start slowly, but some analysts believe it could someday climb above $100 million in revenues as physicians learn how to use it better. Still, a bit of caution is in order. Biotech products may represent a brave new world, but getting them to market demands clearing a bunch of old-fashioned hurdles--one leap at a time.