Biotech's Single-Minded Killers Pay Off
By David Shook
Think of them as the trained assassins of the biotech world. Monoclonal antibodies, a promising category of biotech drugs, are designed to look and act like the weapons of the body's own immune system. Difference is, monoclonal antibodies (they're called monoclonal because they're grown in large batches of identical molecules) are tailored to mount a highly selective assault on a specific disease or infection.
Fifteen years after the first antibody drug (a Johnson & Johnson molecule used to suppress organ rejection) hit the market with limited success, this area of biotech medicine is bursting forth. Nine antibody drugs are on the market today, and 50 more are in development. Banc of America analyst Eric Ende projects that sales from antibody drugs will jump from $2 billion last year to more than $8 billion by 2005 and $21 billion by 2010.
These microscopic, Y-shaped proteins clearly constitute a major growth area for biotech -- one that could pay big dividends to investors who understand the major players and the risks. While virtually half of the U.S. drug industry has investments in antibodies, these supermolecules could make a handful of stocks particularly appealing over the next year or two. Chief among them is Genentech (DNA ), the No. 2 biotech drugmaker worldwide, along with a few smaller companies whose fortunes are closely tied to monoclonal antibodies.
OF MICE AND MEN.
What makes the field most interesting is that, for years, many in biotech wondered whether they had a miracle class of drugs on their hands -- or a blind alley. These antibodies are produced in mice, then harvested and used as human drugs. So the main obstacle had been to get the human body to accept these hunters as allies rather than intruders. "The history of monoclonals is one of hills and valleys and even desert," says Dr. Mark Manone, principal for Needham & Co., a biotech research firm in New York. "For a while, it wasn't clear whether this technology would ever pay off. Now, it's becoming a pretty attractive piece of land."
Why the renewed optimism? First, consider how the human immune system operates. It deploys an elaborate army of proteins and cells to attack invading microbes. The body produces millions of its own antibodies, which seek out, envelop, and destroy invader cells or those corrupted by a virus or malfunction.
Often, the immune system cannot mount a strong enough response to stop, say, a tumor cell from replicating or a chronic disease from forming. To aid the immune system, scientists have developed dozens of lab-engineered antibodies designed to attack a disease or infection at a specific target area.
LEADERS OF THE PACK.
More recently, researchers have discovered ways to trick the body into accepting these mouse-derived magic bullets. Scientists clip the edges around the mouse antibodies, in effect dressing them in a human molecular suit. This way, they're engineered to look and act like real human antibodies so the body will accept them. Only then can monoclonals attack a pathogen or diseased cell like a hired gun, doing the clean-up job where the body's own defenses fall short.
While dozens of companies have a financial interest in monoclonal antibodies for cancer and several chronic diseases, a few stand poised to flourish this year due to their research, investments, and intellectual property. The leader is South San Francisco (Calif.) Genentech, where antibody drugs account for 50% of its R&D pipeline. The biotech giant already has two of the nine monoclonals on the market -- Herceptin for breast cancer and Rituxan, a drug co-marketed by Idec Pharmaceuticals (IDPH ) in San Diego. Genentech's third antibody, Xolair, is in late-stage trials for the treatment of asthma and is being jointly developed with the Swiss drugmaker Novartis (NVS ). Several others are in trials for cancer and psoriasis.
While Genentech's stock, at $54, is among the more expensive in the sector, its shares have declined in recent months from a 52-week high of $68 as part of a broader slide in biotech stocks in 2001. In 2002, however, the mood is expected to change. Genentech's sales of Rituxan alone are expected to exceed $1 billion, up from $777 million in 2001, according to research firm Adams, Harkness & Hill. With the addition of Xolair and with Rituxan's market possibly expanding into new areas of oncology, the stock could see momentum, analysts say. "In cancer therapy to date, the only drug to reach $1 billion in sales is [Bristol-Myers'] Taxol, so obviously many are watching Rituxan's progress," Manone says.
Although Genentech is the granddaddy of antibody research, Protein Design Labs (PDLI ) has the broadest portfolio of patents covering antibody development technology. This essentially makes the company a gatekeeper collecting millions annually in fees from several major drug companies involved in antibody research.
PDL also was the first to market a so-called "humanized" antibody -- a drug composed almost entirely of human protein sequences, which are more easily accepted by the immune system. While some antibody drugs are still more mouse than human in terms of their protein composition, "a majority of monoclonal antibodies in late-stage development are humanized," says Geoff Harris, biotech analyst for UBS Warburg. PDL receives royalties on four of the nine monoclonals on the market, including Herceptin. Harris expects six additional drug licenses for the company by 2005. Meanwhile, PDL's stock has retreated from a one-year high of $45 to $29 a share.
Antibody research continues to evolve, and the next step beyond humanized antibodies appears to be what researchers call "fully human" antibody drugs. While humanized antibodies are 90% to 95% human protein sequences, three companies are specializing in making 100%-pure human antibodies: Abgenix (ABGX ), Medarex (MEDX ), and Cambridge Antibody Technology (CATG ). Based in Melbourne, Britain, Cambridge Antibody owns perhaps the most promising fully human monoclonal antibody in development, a drug called DE27 for rheumatoid arthritis.
David Chiswell, chief executive of Cambridge Antibody, says DE27 appears to work well because it neutralizes a protein that plays a role in joint deterioration and inflammation. The drug, which is being co-developed by Abbott Laboratories (ABT ), "is on track to reach the market by 2003," Chiswell says. But data emerging from clinical trials this year could create a buzz surrounding the stock, analysts say. Cambridge Antibody is primarily listed on the London Stock Exchange but began trading in the U.S. last June at $35 a share. It's now at $27.
Monoclonal antibodies still carry risk. Just ask Bristol-Myers Squibb (BMY ), which last fall shelled out $1 billion for a 20% equity stake in ImClone Systems (IMCL ), maker of Erbitux, a promising antibody for colorectal cancer. Shortly after the purchase, ImClone disclosed that the Food & Drug Administration had rejected its drug-marketing application for Erbitux. Although the company may receive FDA approval after providing better clinical records on the drug, ImClone's stock has plunged 37% since the disclosure on Dec. 28 because of the perceived risk that the drug might have shortcomings.
Despite such stumbles, monoclonal antibodies are starting to pay off for investors. And since the pace of FDA approval for these drugs should begin to accelerate in 2002 and 2003, savvy investors may want to scour the field before the next up cycle in biotech stocks begins.
Shook covers biotechnology issues for BusinessWeek Online. Follow The Biotech Beat every week, only on BusinessWeek Online
Edited by Douglas Harbrecht
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