Biotech Needs A Volatility Drug

For a startup biotechnology company to justify the $100 million or so it takes to bring a new drug to market, it can't think small. Such companies need the equivalent of what software developers call a killer app: a product so compelling that customers will pay a hefty price for its benefits.

On Feb. 22, however, biotech suffered another expensive reminder that for every drug that makes it, scores of promising killer applications may fall by the wayside. That's when shares of Synergen Inc. dropped a stunning 68%, to $13.50, after it announced that Antril, a drug designed to fight sepsis, a deadly infection syndrome, had fallen well short of expectations in a major study.

That sort of in-your-face volatility is old hat in biotech, where stocks tend to trade more on uneducated perceptions of complex science than on financial fundamentals. Predictably, the Synergen debacle sent all biotech stocks into shock (chart). Chiron Corp. and MedImmune Inc. watched their shares drop 10% and 20%, respectively. Even Amgen Inc. lost 8%, dropping to $41.50.

Betwixt cup and lip in this field is a perilous space called clinical trials: The best scientific theories can suddenly go haywire when they're applied to real, live patients. "This is the third company to run into the rocks," says John L. Castello, chief executive of Xoma Corp., which, like Centocor Inc., has watched progress on its antisepsis drug stall.

DEADLY EFFECT. These products address a very real need. Sepsis, which attacks hospital patients suffering from severe injuries or immune suppression or recovering from surgery, is a killer. Each year, half a million patients develop it, and 100,000 die, most often when a toxin is released that wreaks havoc on the immune system.

Centocor tried neutralizing the toxin with Centoxin, an antibody. But in trials, doctors couldn't tell which patients would benefit most or how the drug worked. Then, on Jan. 18, the company revealed that the drug seemed to raise the chance of death in some cases. Trials were halted. Analysts now see few prospects for Centocor's or Xoma's drugs.

Synergen's situation is not so dire. In a 900-patient study, Antril, which works by shutting off the body's inflammatory response rather than by neutralizing the toxin, showed it could reduce mortality in severely ill patients by 20% to 25%. But an earlier study had suggested it could cut the death rate by as much as 60%. "We think we have a real drug here," maintains Jon S. Saxe, Synergen's chief executive. But Wall Street isn't sure. Oppenheimer & Co.'s Jeffrey W. Casdin isn't alone in questioning whether Synergen will command the $3,000-per-dose price once predicted.

It turns out that sepsis is enormously complex and difficult to identify. Patients who develop it may be suffering from other problems that can kill them before the drug kicks in. And giving such expensive agents to anyone who might benefit is simply too costly.

That's where startup dreams meet brutal operating-room reality. Reason enough, once again, for the investor to beware: There is no vaccine against sudden-onset setbacks in biotech.

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