Centocor And Lilly: Teamed Up In A Biotech Buddy SystemJoseph Weber
Centocor executives were never shy about their ambitions. For years, they told investors they were building an independent, fully integrated pharmaceutical house--"a major health care company," in the words of the corporate mission statement. They were sure that their main drug, Centoxin, which treats massive bacterial infection, would one day vault Centocor Inc. into the ranks of giants such as Eli Lilly & Co.
It didn't turn out that way. Instead of rivaling Lilly, the Malvern (Pa.) company now finds itself an integral part of Lilly's future plans. Desperate to survive after the Food & Drug Administration, citing poor test results, rejected its application to market Centoxin, Centocor sold 5% of its stock to Lilly last summer for $50 million. For another $50 million, the Indianapolis-based pharmaceutical giant also picked up distribution rights to Centoxin.
At first glance, the deal seems perfect. Centocor is using the cash it raised from Lilly to finish the research it believes will prove Centoxin's worthiness to regulators--and so ensure the company's survival. Last year, Centocor lost $195.6 million on revenues of $53.2 million, after a $132 million loss in 1990. Revenues in 1990 totaled $64.6 million. For its part, Lilly hopes Centoxin will help fill its new-product pipeline, especially when sales of its longtime staples, such as the antibiotic Ceclor, weaken.
Unfortunately, there's no guarantee that either company will realize its goals. The FDA's mid-April action hurt Centocor so severely that wags took to calling it "Centocorpse." The FDA ruled that company studies failed to demonstrate Centoxin's effectiveness against so-called gram negative sepsis--an often fatal bacterial infection contracted in hospitals. Far more damaging were suggestions by the agency that company staffers could have improperly altered their findings after obtaining an early glimpse of the independent analyses of Centoxin's clinical trials. Centocor declines to comment on the FDA's intimations. Finally, matters worsened when researchers writing in the New England Journal of Medicine seconded the FDA view that Centocor hadn't proved the drug's effectiveness.
HEDGING BETS. Even if Centoxin is approved, the delay may have cost Centocor and Lilly the critical marketing advantage of being first. Rival medications, such as Antril from Synergen Inc., based in Boulder, Colo., are showing promise. Moreover, Centoxin's price--a stiff $3,700 a dose--may dissuade widespread use.
Despite the hellish spring, Centocor Chief Executive David P. Holveck is sure he can win an O. K. for the drug. The company has won approvals for it in 10 European countries, with more expected. And because the deal with Lilly frees it from worrying about marketing, Holveck says Centocor can pursue research on Centoxin full-time.
Lilly executives are also upbeat about their new partners and rate Centoxin's U.S. approval chances pretty high. "We think the science is very solid," insists David Thompson, head of business development for Lilly. Already, Lilly is taking over marketing for Centoxin in Europe, where sales could top $20 million this year.
And even if Thompson is wrong, Lilly has managed to hedge its bets. Under its agreement with Centocor, Lilly may get selling rights to the company's next potentially big drug, blood-clot inhibitor CentoRx, at no cost if Centoxin flops. It will have to pay $25 million for those rights if the FDA approves Centoxin next year.
Still, if Centocor can't get the FDA to change its mind, Lilly's investment will have done little but buy time for the troubled biotech company--a sorry purchase, when stacked up against its dreams for Centoxin.
Joseph Weber in Philadelphia