Pharmion: Hope for Specialty Pharma?

Sarah Lacy

One of the most jam-packed presentations on the first day of the JP Morgan Healthcare Conference was Pharmion Corp. It was undoubtedly one of the biggest IPO hits for healthcare in the 18 months, and one of the few to post solid gains—up a whopping 220% since its IPO in November 2003.

It’s in the specialty pharma category. In lifesciences-speak that means the company acquires drugs or molecules from other companies and seeks to commercialize them in new markets. It’s a business model that’s been prevalent in the last year as venture investors seek to find a way around the long, expensive, and risky drug discovery process, but not one everyone is sold on. Pharmion’s success may well prove how lucrative it can be.

In introducing the company, JP Morgan analyst Corey Davis noted that it had more upwards revenue revisions in 2004 than any company in his coverage universe, and there was another one yesterday. The company upped its 2004 revenue projections from $122 million to $128 million to $127 million to $130 million and said the fourth quarter of 2004 should be its first profitable quarter.

Much of the performance—and optimism—is due to one drug, Vidaza, which is the first ever approved drug for myelodysplastic syndrome, a disease that leads to abnormal growth in blood cells. Because it’s the first drug approved, it’s now recommended as first line treatment for anyone with the disease: about 25 thousand new patients a year in the U.S. Pharmion expects to do $130 million to $140 million in 2005 sales in the U.S. for Vidaza, compared to $45 million to $47 million in 2004. It’s seeking approval in other countries. Another hit has been Thalidomide, a sleeping pill and morning sickness drug that was marketed in the 1950s then shunned for causing birth defects. Now it’s being used to treat multiple myeloma, a cancer of plasma cells, when other treatments have failed.

No doubt, this is a much faster uptick than a small biotech doing its own R&D would have seen. Of the 20 or so biotech companies to go public last year, most were still in clinical trials and few were seeing revenues like this and the markets have rewarded Pharmion. But there are likely still skeptics of the specialty pharma model. It’s similar to the classic build vs. buy problem that tech companies often face. If you build it in house you know what you are getting and you can build exactly what you want. If you buy, you have to find and then pay up for exactly what you want. And with the many specialty pharma startups now reaching maturity it will be a seller’s market for good drugs and compounds. With $240 million in cash, it will be interesting to see what Pharmion does as an encore.

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