6
BioTech Stock Report, April 2002
would suffer the most if Erbitux does-
n't get approved. Or, even more re-
cently, the debate as to whether or not
the FDA should have approved Se-
rono's (NYSE: SRA) Rebif for multiple
sclerosis (MS), and in effect overturn
Biogen's orphan-drug status with
Avonex. Rebif and Avonex are biologi-
cally equivalent, but only differ in the
doStock and frequency that MS pa-
tients are treated. Based upon the re-
sults of the head-to-head comparison,
Rebif came out slightly more effective,
but had a higher incidence of adverse
events than Avonex. Since the differ-
ence was not overwhelmingly in favor
of Rebif, we don't see physicians clam-
oring to change their patients' medica-
tion, unless the patients no longer re-
spond to Avonex. Thus, we believe
Biogen will continue to claim the lion's
share of the U.S. market for MS.
If you can't build it, they won't
come.
One of the most overlooked prob-
lems by companies and investors alike
is production and supply-chain plan-
ning. During preapproval, companies
often ignore the realities of the hard
work and time required for scale-up,
technology transfer and validation,
and their impact on clinical trials and
regulatory approval. In the commercial
phase, regulatory compliance is now
one of the most critical supply-chain
issues companies face, as even major
players have been hammered by FDA
shutdowns and restrictions. This has
been a problem for a couple of bio-
techs in our BioPortfolio. For example,
Immunex has had difficulties meeting
patient demand for Enbrel, its block-
buster biological for treating RA, and
now psoriatic arthritis. Immunex under-
estimated the success and demand for
Enbrel, and has had to scramble to
build new manufacturing facilities. The
timing couldn't have been worse, as
prescribing patterns for Enbrel were on
the rise. It now appears that the manu-
facturing facilities will come online just
in time for Immunex to expand to the
large and unmet psoriasis market. En-
brel has not been approved for psoria-
sis yet, but we expect physicians will
be prescribing Enbrel off-label for this
indication.
Keeping up with manufacturing to
meet demand is not limited to Immunex.
Enzon (NASDAQ: ENZN) may also be
faced with a similar situation with their
pegylated interferon for hepatitis C.
Interferon is the only biological agent
that has been approved for hepatitis C
virus infections, but its use has suf-
fered from the frequency at which it
must be administered. To improve the
agent's biological properties, Enzon
modified the recombinant interferon by
coupling polyethylene glycol (PEG) to
the molecule to increase its half-life in
patients, which makes more interferon
available. The result was PEG-Intron,
which has been a success for Enzon,
and for Schering-Plough (NYSE:
SGP), who manufactures and markets
PEG-Intron. Fortunately, Schering-
Plough is preparing to get additional
manufacturing online this year. Hope-
fully, Schering-Plough will improve its
track record of getting sufficient manu-
facturing capabilities to meet patient
demand. If not, this could slow the
growth of Enzon, at a time when the
company needs revenue for expanding
its R&D program.
The tortoise will win the race
Good science and good develop-
ment rarely take linear paths from
bench-top to bedside. How much time
is needed? The time required to do it
right and no less. One of the first flags
that the companies are not thinking
clearly or executing efficiently is when
development cycles are significantly
different than relevant benchmarks,
without a sustainable explanation.
Look at Corixa's (NASDAQ: CRXA)
Bexxar, which probably will never be a
threat to IDEC Pharmaceuticals
(NASDAQ: IDPH) Zevalin. Bexxar is
similar to Zevalin, but Corixa has not
done a sufficient job of demonstrating
that Bexxar would be a good therapeu-
tic agent for non-Hodgkin's lym-
phoma. Bexxar and Zevalin are mono-
clonal antibodies with radioactive ma-
terial attached to them to kill B cells,
but Zevalin has been proven to be effi-
cacious and safe. Moreover, Zevalin is
said to be easier to work with and ad-
minister to patients, which makes it
more acceptable by physicians.
Another biotech that has taken a
slow and deliberate approach to get-
ting products to market is Cell Gene-
sys (NASDAQ: CEGE). Cell Genesys
is unique, as it is developing gene
therapy-like products for patient use.
This is a smart move since the medical
field is not ready for pure gene ther-
apy, as technology is not at a suffi-
cient level to treat the masses. Instead,
Cell Genesys is concentrating on using
gene therapy type-vectors to make
cancers more susceptible to the
body's immune system. How do they
accomplish this? The company obtains
tumor tissue from the patient that can
be collected during a biopsy or when
surgery is used as the first option to
rid the body of a tumor mass. The tis-
sue is then sent to Cell Genesys and
the company infects the cells with a
