Biotech and the Spoils of Success
Explosive growth can be a mixed blessing. When Enbrel, Immunex Corp.'s drug for rheumatoid arthritis, took off, it caught the company off guard. Without adequate manufacturing, Immunex risks losing market share it may never regain. Genzyme Corp. was more fortunate: When demand soared for its dialysis drug, Renagel, the company was able to quickly correct manufacturing problems before demand outstripped supply.
IMMUNEX: A LOST OPPORTUNITY
Immunex Corp. (IMNX ), Seattle's most prominent biotech company, celebrated its 20th anniversary on July 13 with a night at the baseball park. As the hometown Mariners battled the San Francisco Giants, a sea of 1,200 Immunex employees in bright yellow T-shirts cheered. But the Mariners lost, 5 to 3.
The Mariners' Friday the 13th loss in an otherwise blowout season was an all-too-appropriate symbol for Immunex, a former highflier whose good fortune with a blockbuster drug has unraveled into a string of bad breaks. Sales of its rheumatoid arthritis drug, Enbrel, jumped from $367 million in 1999 to $652 million last year--breaking records for a biotech drug in its first 24 months after launching, according to market researcher IMS Health Inc. But this year Immunex can't manufacture enough of the drug, forcing thousands of patients onto a waiting list and leaving the door open for competitors. What's more, Immunex' near-term pipeline has been decimated. Clinical tests of Enbrel for chronic heart failure were so ineffective that Immunex pulled the plug on the studies in March. And in two out of three studies of Nuvance, a highly anticipated asthma treatment, the drug failed to help patients breathe easier.
Unless it regroups fast, Immunex could end up a one-drug wonder. It could also be a cautionary tale for all the small biotechs that count on a partnership with a pharmaceutical giant to help them avoid the many pitfalls of making and marketing a new drug. It didn't help Immunex: American Home Products Corp. owns 41% but was also caught off guard by the big demand for Enbrel. Analysts criticize AHP for not doing more to correct the situation. However, an AHP spokesperson says the company is doing everything possible to increase supply, and Immunex says it is satisfied with the help it has received.
Immunex is retrofitting a factory to produce more Enbrel and is boosting research and development spending on new drugs by 5%, to $208 million. But investors are still leery. Immunex shares are down to around $15 each, from a 52-week high of $56. "The pressure is on," says CEO Edward V. Fritzky as he grabs his gut, "and I feel it."
It's a far cry from the euphoria Fritzky felt two years ago when he first realized Enbrel would be a hit. Immunex created the drug by engineering a protein that blocks one of the primary culprits in inflammatory disease, another protein called tumor necrosis factor (TNF). In November 1998, Enbrel became the first biotech drug approved by the Food & Drug Administration to treat the painful joint swelling and deterioration caused by rheumatoid arthritis. Enbrel mops up TNF without the help of toxic chemotherapy drugs commonly used to treat the disease.
That has made a world of difference for patients such as Maye Fukumoto. Prior to starting Enbrel in 1996, she was on a harsh cocktail of steroids, chemotherapy, and antivirals, yet she was still in pain. "Every morning my husband would have to lift me out of bed," says Fukumoto, a business planning manager for Southern California Gas Co. The day after her first Enbrel injection, she got out of bed on her own, then froze in amazement when she realized she felt no pain. Now she's a frequent runner, swimmer, and cyclist. "Without this drug, I would be in a wheelchair at this point," says Fukumoto.
CAUGHT NAPPING. Upbeat stories such as Fukumoto's make the shortage of Enbrel all the more frustrating. Only 75,000 of the 1 million patients who might benefit from the drug can get their hands on it, limiting sales to $750 million this year--at least $200 million less than expected, analysts say. Immunex' initial sales estimates focused on the 25% of rheumatoid arthritis patients who failed traditional therapies, so when the FDA approved the drug for children in April, 1999, and then as a first-line defense for early-stage patients in June 2000, Immunex was unprepared for the flood of demand. It had contracted Boehringer Ingelheim Pharma of Germany to manufacture Enbrel--but that wasn't enough.
In 1999, Immunex and AHP started remodeling a drug plant in Rhode Island, at a cost of $450 million. When it will come online is open to question, however. Immunex says the plant should start by mid-2002, but AHP has said publicly that it may take until the third quarter of next year to get the facility approved by the FDA. That makes some on Wall Street nervous. "I wouldn't be surprised to see the time line slip," says Rachel Leheny, a Lehman Brothers analyst and one of many biotech-watchers who are flabbergasted that AHP didn't move earlier to boost Immunex' manufacturing capacity. "It's really remarkable how this just fell through the cracks," she says.
Leheny estimates that Immunex could lose out on an additional $200 million in sales next year. Much of that will go to Johnson & Johnson's Remicade, a TNF-blocking drug that was approved a year after Enbrel. "With Immunex unable to deliver, Remicade is the only (TNF) alternative," says Ernest Brahn, a professor at the University of California at Los Angeles medical school. And in mid-August an FDA advisory committee is expected to recommend approval of a new drug from Amgen Inc., Anakinra. Amgen's compound blocks interleukin-1, another major culprit in inflammatory disease. Even though studies show Anakinra will primarily treat patients who fail other therapies, physicians will surely be tempted to try it if Enbrel isn't available. Doctors are already buzzing about D2E7, an Abbott Laboratories drug that could reach the market in 2003. It appears to block TNF with less frequent dosing than Enbrel's twice-weekly injections.
To reduce its reliance on Enbrel, Immunex is conducting human trials of new drugs for cancer, stroke, and osteoporosis. In the meantime, Immunex launched educational ads in July about rheumatoid arthritis, prepping the market for the day when Enbrel will be in plentiful supply. Fritzky hopes the onslaught of TV, print, and Web ads, which describe the disease and encourage sufferers to seek treatment, will help spike Enbrel sales when the new plant is up and running next year. By then, he predicts, there could be as many as 80,000 patients on the waiting list.
Analysts say the Rhode Island plant should clear up that waiting list. But at Immunex, the realization of what might have been still resonates. "Nobody dreamed this would work so well for so many people," Fritzky admits. "If we could recreate history, we would prepare more aggressively." That's a history lesson other biotech executives should take to heart.
By Arlene Weintraub in Seattle
GENZYME: ON THE GROWTH TRACK
For years, life was fairly simple at Genzyme Corp. (GENZ ) It sold its key drug to just 3,200 patients with a rare genetic disorder--a select enough market that the company needed only a small sales force. There was little reason to believe that much would change when Genzyme teamed up with a small biotech company to produce what it expected to be a modest kidney drug. But then lightning struck, turning this new offering into a potential blockbuster. Today, Genzyme is adjusting to the world of megadrugs.
The new drug, Renagel, which helps dialysis patients without raising calcium levels, has transformed the 20-year-old Genzyme into one of the hottest biotech outfits in the country. Renagel's sales are growing dramatically: from $56 million in 2000 to what analysts expect will be $160 million this year and at least $250 million next year. The Cambridge (Mass.) company believes Renagel could reap $1 billion in sales by the end of the decade. Genzyme General--which produces Renagel and is by far the largest of the company's three divisions--earned $121.5 million last year on sales of $752.5 million, and expects to earn $247 million this year on sales of $950 million. Overall, Genzyme Corp. expects $1.2 billion in sales this year.
Renagel also is fueling the General unit's stock price. It has risen 24% this year, to about $56, while the American Stock Exchange Biotechnology Index has fallen 17%. That makes Genzyme Corp. the third-largest U.S. independent biotech company by market cap. "For a long time, we were identified as having a niche strategy," says Henri A. Termeer, Genzyme's chairman and chief executive. "That sells us short."
PLANT GROWTH. But Renagel's fast growth is testing the company's marketing and manufacturing operations. Genzyme's first big product, Cerezyme--aimed at victims of a genetic disorder called Gaucher disease--accounted for 70% of the company's sales before Renagel and it essentially sold itself. But Genzyme must aggressively market its new kidney drug while fighting an established, lower-cost competitor that's challenging Renagel's claims. And demand for the medication has been so high that the company had to take its most popular form of the drug off the market for four months this year while it retooled its plants to boost volumes. This slowed Renagel's growth from 79% in the last quarter of 2000 to just 20% in the first quarter of this year and 29% in the second.
So far, though, Termeer appears to be keeping the growing pains to a minimum. The 55-year-old Dutchman says the global distribution and regulatory networks set up for Cerezyme have been easily adapted for Renagel. Genzyme did need to create a Renagel sales force, though, and since 1998 it has hired 100 salespeople in the U.S. and 50 in Europe. Now it's in the middle of vastly expanding its manufacturing capacity, spending several hundred million dollars on three new plants in Massachusetts, Britain, and Ireland. "[The growth] hasn't changed our strategy. It's accelerated it," says Termeer, who was an executive vice-president at medical-supply giant Baxter International Inc. before he joined Genzyme in 1983 as president.
Renagel, meanwhile, is upending the conventional wisdom about dialysis. The drug helps patients get rid of excess phosphate, which can cause heart disease. But while other treatments also eliminate phosphate, they use calcium. Renagel doesn't. In fact, it was developed for a small pool of patients who already had dangerously high calcium levels. But new studies made Genzyme suspect that all dialysis patients taking calcium treatments faced a higher risk of heart disease. Because of the calcium, "their hearts literally were turning to stone," says Michael Raab, a company senior vice-president. Suddenly Renagel had a vastly enlarged market.
Rx KING. Once Termeer realized the drug's potential, he bought out his partner, GelTex Pharmaceuticals Inc. of Waltham, Mass., paying $1.3 billion last fall. That's when the stock skyrocketed, and Genzyme came under fire from a tiny rival. Privately held Braintree Laboratories Inc. manufactures the calcium-based drug Phoslo, which costs just one-tenth of Renagel's more than $3,000 annual price tag. Braintree complained to the Food & Drug Administration last year that Genzyme's ads were misleading; the FDA is still weighing the complaint. Braintree insists that calcium is not a problem for dialysis patients. And, claims CEO Harry Keegan, "Renagel doesn't control phosphate as well as lower-priced alternatives do."
So far, Genzyme is winning the battle. In June, 2000, just 24% of new prescriptions for the two medications were written for Renagel. A year later, Renagel had raised its market share to 48%. And the overall market is ballooning: 1.7 million patients are expected to be on dialysis treatment worldwide in 2009, up from 1 million last year. Genzyme is now studying whether patients on Renagel live longer than those relying on calcium; an earlier, small-scale study showed mortality was 33% lower for kidney patients taking Renagel than for those on calcium medicines. If tests show lives are extended, "they'll take over the market," says Robert J. Alpern, dean of the Southwestern Medical School in Dallas.
The verdict should be in within two or three years. Odds are that kidney treatments--and the company--will never be the same.
By Rochelle Sharpe in Boston
Corrections and Clarifications In "Immunex: A Lost Opportunity" (The Corporation, Aug. 13), the statement that American Home Products Corp. refused to comment is incorrect. AHP's comments are in the story.
``The spoils of success'' (The Corporation, Aug. 13) erred in saying that Immunex' drug Enbrel was pulled from the market.