• Sector’s defensive characteristics and impact on future economic growth
• Highest number of annual new product approvals since 2004
• Record number of products in clinical trials and annual industry research and development [R&D] investment
• Improving access to capital
• Brisk pace of industry consolidation and licensing transactions
• Many small- and mid-capitalization companies remain undervalued

With 2010 officially on the books, it appears an appropriate time to review the sector’s performance along with some of the themes highlighted in our previous articles.

Big Versus Small

The twenty-member NYSE Arca Biotechnology Index (BTK) was up 38% in 2010, while the broader NASDAQ Biotech Index (NBI) advanced 15%.  Performance of the NASDAQ Biotech Index was in line with the Dow Jones Industrial Average (INDU), S&P 500 (SPX), and NASDAQ Composite (COMP), which were up 11%, 13%, and 17%, respectively.

Why the huge discrepancy in returns between the two major biotechnology indices?  Unlike the equal-weighted NYSE Arca Biotechnology Index, the NASDAQ Biotech Index is calculated under a modified capitalization-weighted methodology, taking into account the total market value of the companies it tracks and not just their share prices.  Accordingly, companies with the largest market capitalizations, or the greatest values, will have the highest weighting in the index.

During 2010, most of the large capitalization biotechnology companies [greater than $10 billion] underperformed the median return of 11% for the 130 companies in the NASDAQ Biotech Index.  For example, Celgene Corporation (CELG) was up 6%, Cephalon, Inc. (CEPH) was down 1%, Amgen, Inc. (AMGN) was down 3%, Teva Pharmaceutical Industries (TEVA) was down 7%, and Gilead Sciences, Inc. (GILD) declined by 16%.  Bucking the trend of underperformance among large capitalization biotechnology names were Shire plc (SHPGY), along with Genzyme Corporation (GENZ) and Biogen Idec, Inc. (BIIB), both of which were targeted by shareholder activist Carl Icahn [see our August 2009 article “Three Recent Biotechnology Activist Wins by Carl Icahn”].

Accordingly, the relative underperformance of large capitalization biotechnology companies in 2010 masked the fact that many smaller, innovative companies performed well, as evidenced by the fact that 30 of the 130 companies comprising the NASDAQ Biotech Index produced greater than 50% returns during the period.  This performance is consistent with our thesis that small and mid-capitalization companies with positive clinical or regulatory catalysts would continue to outperform their larger industry peers in 2010.  See Table 1 for a list of the top ten gainers from the NASDAQ Biotech Index in 2010.

Noticeably absent from the list of 2010 winners, however, were the staggering quadruple-digit returns witnessed in 2009 [Vanda Pharmaceuticals, Inc. (VNDA) +2,150% and Human Genome Sciences, Inc. (HGSI) +1,342%].

Table 1. Top ten gainers from NASDAQ Biotech Index (NBI) in 2010

Last Year’s Laggards Become 2010 Winners

After declining 22% in 2009, shares of Akorn, Inc. (AKRX), a niche generic pharmaceutical company, staged an impressive comeback by becoming the largest percentage gainer within the NASDAQ Biotech Index during 2010.  In November 2010, the company announced that core business revenue is projected in the range of $79.0 million to $80.0 million in 2010, a 76%-79% increase over 2009, and up from the company’s prior guidance range of $71.0-$75.0 million.

In another dramatic reversal of fortune, three of the top ten gainers from the NASDAQ Biotech Index in 2010 made the list of top ten decliners in the prior year.  Questcor Pharmaceuticals, Inc. (QCOR), Idenix Pharmaceuticals, Inc. (IDIX), and NPS Pharmaceuticals, Inc. (NPSP) rebounded sharply in 2010, each posting triple-digit returns due in part to the following:

• Questcor’s performance was largely due to strong revenue growth from its H.P. Acthar® Gel (repository corticotropin injection), which is indicated for the treatment of acute exacerbations of multiple sclerosis in adults, as monotherapy for the treatment of infantile spasms in infants and children under 2 years of age, and for the treatment of several other diseases and disorders.
• Despite news in September 2010 that the U.S. Food and Drug Administration [FDA] placed two of the company’s HCV drug candidates on clinical hold, Idenix Pharmaceuticals benefited from its drug candidate for the treatment of HIV/AIDS advancing into a Phase 2b trial by its corporate partner, ViiV Healthcare.
• Interest in NPS Pharmaceuticals can be attributed to the fact that in early 2011 the company expects to report top-line results from a Phase 3 study of teduglutide, a proprietary analog of GLP-2, in patients with short bowel syndrome who are chronically dependent on parenteral nutrition.

Losers Brought to You by the Letter “A”

Affymax, Inc. (AFFY), AMAG Pharma (AMAG), Arena Pharma (ARNA), Alexza Pharma (ALXA), and Alnylam Pharma (ALNY) were among the top ten decliners from the NASDAQ Biotech Index in 2010 [see Table 2].

Affymax, Inc. (AFFY), which hopes that its investigational anemia drug peginesatide could ultimately compete with Amgen Inc.’s Aranesp® [darbepoetin alfa], posted the largest percentage decline within the NASDAQ Biotech Index for 2010.  Top-line results from the Phase 3 clinical program released in June 2010 showed that the frequency of death, stroke, myocardial infarction, congestive heart failure, unstable angina, and arrhythmia was higher in non-dialysis patients taking peginesatide than those taking Aranesp, which sent shares of Affymax plummeting.   In November 2010, Affymax and partner Takeda confirmed their goal of submitting a new drug application [NDA] for peginesatide for the treatment of anemia in chronic renal failure patients on dialysis in the second quarter of 2011.

AMAG Pharmaceuticals, Inc. (AMAG) launched Feraheme® (ferumoxytol) to treat iron deficiency anemia in July 2009, but anemic sales earned the company a spot in the top ten decliners of 2010.  Net product revenues from Feraheme were $15.1 million in the third quarter of 2010, well below the $500 million to $1 billion in annual sales originally projected by Wall Street analysts.  See our February 2010 article “Iron Safety Hits AMAG Pharmaceuticals.”

Table 2. Top ten decliners from NASDAQ Biotech Index (NBI) in 2010

Our Top Ten Articles

In the spirit of analyzing statistics from 2010, we reviewed our website traffic to identify the top ten articles from the past year.  The list below is ranked in descending order, starting with the most popular article:

1)              Cancer vaccine therapies: failures and future opportunities (Apr ‘10)

2)              Investment opportunities with five frontline therapies for AML (Sep ‘10)

3)              Cancer immunotherapy to take center stage at ASCO (Jun ‘10)

4)              Monoclonal antibody companies command premiums (Jul ‘10)

5)              Stem cell competition heating up (Aug ‘10)

6)              Buyout buzz at ASH hematology confab preview (Dec ‘09)

7)              Cyclin dependent cancer confab preview (Apr ‘10)

8)              Drug development spotlight: the mTOR’s new clothes (Nov ‘10)

9)              Past pitfalls and potential promise for pancreatic cancer (Oct ‘10)

10)            Five key factors weighing on Dendreon (Jul ‘10)

Interesting to note that despite popularity among readers, companies focusing on cancer immunotherapy, hematological malignancies, monoclonal antibodies, or stem cells did not make the list of top ten gainers from the NASDAQ Biotech Index in 2010.

2011 Outlook

Most of the drivers supporting our favorable outlook for the biotechnology industry remain intact for 2011, such as the record number of products in clinical trials and annual industry R&D investment, improving access to capital, brisk pace of industry consolidation and licensing transactions, and attractive valuations among many small- and mid-capitalization companies, which should continue to outperform their larger industry peers in 2011.

The key exception relates to the number of FDA drug approvals, which declined in 2010 and is more than 50% below the high of 56 new approvals in 1996 despite the fact that legislation passed in 2008 gave the FDA more money and resources.  There is no discounting the negative impact of clinical and regulatory setbacks on the psyche of biotechnology investors, as evidenced by the greater than 10% decline in the NASDAQ Biotech Index in late February 2009 following a spate of high profile disappointments.

With Opening Day less than a month away, it seems only fitting to reference one of the most quoted personalities of our time to describe our analysis of the biotechnology sector in 2010.  In this article, we review our favorable outlook for the industry, draw comparisons with the prior year, and introduce the results of our recent “Life Sciences Industry Outlook” survey that targeted industry executives, investors, analysts, and members of the media.

Bullish Outlook

Our favorable outlook for the biotechnology industry in 2010, which builds upon many of the same catalysts we proposed for 2009, is based on the following key drivers:

• Sector’s defensive characteristics and impact on future economic growth
• Highest number of annual new product approvals since 2004
• Record number of products in clinical trials and annual industry R&D investment
• Improving access to capital
• Brisk pace of industry consolidation and licensing transactions
• Many small and mid-capitalization companies remain undervalued

In fact, several of these themes were reinforced by the results of our industry survey.

Defensive Sector and Economic Driver

During periods of economic uncertainty, the biotechnology sector is often portrayed as defensive given that disease is relentless in both good economic times and bad.  Despite recent medical advances, there remains a need for quality, innovative products to diagnose and treat a broad variety of diseases such as cancer, central nervous system disorders, cardiovascular diseases, diabetes and infectious diseases.

Beyond its defensive characteristics, the sector plays a critical role in the United States [US] economy.  Innovative new medicines developed by life science companies provide better patient outcomes, improved quality of care, increased life expectancy, and lead to economic gains.

While the strengths and weaknesses of the US healthcare system remain the subject of great debate, we believe new medicines should be viewed as investments in the future, not only in patient health – but also in economic recovery and growth.  For example, as indicated in our October 2009 article “Innovative New Medicines are Key to Economic Growth,” a permanent one percent reduction in mortality from cancer alone has a present value to current and future generations of Americans of nearly $500 billion and a cure would be worth about $50 trillion.

New Drug Approvals

In a repeat of last year, the total number of approvals for new molecular entities and biologic license applications by the US Food and Drug Administration’s [FDA] Center for Drug Evaluation and Research [CDER] in 2009 was the highest since 2004.  Of course, cynics will rightfully call attention to the modest year-over-year increase [25 in 2009 versus 24 in 2008] and that recent performance is still more than 50% below the high of 56 new approvals in 1996.

However, we believe that viewing the number of FDA approvals in the context of new risk evaluation and mitigation strategies [REMS] that were introduced in 2008 and internal resource constraints that have plagued the agency provides optimism going forward.  While legislation passed in 2008 gave the FDA more money and resources, hiring and training hundreds of new employees takes time.  With that process well underway, combined with increased familiarity of the REMS program, we believe the drug approval process should improve going forward.

In terms of therapeutic areas, oncology represented one out of five [20%] approvals by CDER in 2009 according to a recent publication [Nature Reviews Drug Discovery 9, 89-92, February 2010].  Not surprisingly, oncology was our highest ranked survey response with regard to attracting investment and/or business development activity in 2010.  See Table 1 below.

Table 1. In terms of raising capital and/or business development activity, which key therapeutic area do you expect to attract the most interest/visibility during 2010?

* Numbers may not add up to 100% due to rounding

Record Pipeline and Investment

According to the latest report by the Pharmaceutical Research and Manufacturers of America [PhRMA], there are a record number of biotechnology drugs currently in development.  In the US alone, there are 633 biotechnology medicines being developed, including 254 medicines for cancer, 162 for infectious diseases, 59 for autoimmune diseases, 34 for HIV/AIDS and related conditions, 25 for cardiovascular disease, and 19 for diabetes and related conditions.

Annual research and development expenditures by PhRMA member companies also reached a record $50.3 billion in 2008, more than tripling the $15.2 billion level of investment in 1995.

Access to Capital

In 2010, companies at all stages of development will try to attract investors and the competition will be fierce.  However, in terms of access to capital for life sciences companies, our survey indicated that more than 46% of respondents expect favorable conditions in 2010, with modest improvement over 2009.  Another 46% of respondents indicated that they expect access to capital to be about the same as 2009.  Only 4% of respondents expected access to capital to improve markedly with initial public offerings [IPO] possible.

In 2009, venture capital investment in biotechnology declined by 19%, both in dollars and deals, from the prior year according to the MoneyTree™ Report by PriceWaterhouseCoopers and the National Venture Capital Association, based on data from Thomson Reuters.  However, biotechnology was the single largest investment sector for 2009 with $3.5 billion going into 406 deals.

In terms of initial public offerings [IPOs], only three biotechnology companies successfully tested the public markets in 2009.  In 2010, two IPO’s have already been completed, albeit both below the expected offering price, and several others are in queue, including Prometheus Laboratories, Aveo Pharmaceuticals, Trius Therapeutics, Aldagen, Alimera Science, and Tengion.  See Table 2 for recent biotechnology IPO performance.

Table 2. Recent Biotechnology IPO Performance

In terms of public financings, several companies have already completed offerings in 2010, including Amicus Therapeutics, Inc. (FOLD), BioSante Pharmaceuticals, Inc. (BPAX), Cell Therapeutics, Inc. (CTIC), Chelsea Therapeutics International, Inc. (CHTP), Cleveland Biolabs, Inc. (CBLI), Cyclacel Pharmaceuticals, Inc. (CYCC), Derma Sciences, Inc. (DSCI), EntreMed, Inc. (ENMD), InterMune, Inc. (ITMN), Palatin Technologies, Inc. (PTN),and XOMA Ltd. (XOMA).

Improving access to capital could lead to an acceleration of merger and acquisition activity and licensing deals, as large pharmaceutical companies begin to lose their leverage and company valuations start increasing.

Consolidation

More than 82% of survey responders expected merger and acquisition activity to accelerate in 2010 compared with 2009.  In view of two recent deals, the paucity of merger and acquisition activity and decline in both the quantity and value of licensing & partnering transactions announced during the JP Morgan Healthcare Conference in 2010 appears to have been the pause that refreshes [see “Biotech Deal Activity Declines…The Pause that Refreshes?”].

For example, on February 23, 2010, Cephalon, Inc. (CEPH) exercised its option to acquire Ception Therapeutics, Inc. for $250 million in view of positive Phase 2 data from a clinical study in adults with eosinophilic asthma.  In January 2009, Cephalon paid Ception $100 million upfront for the option.

On March 1, 2010, Astellas Pharma, Inc. offered to acquire all outstanding shares of common stock of OSI Pharmaceuticals, Inc. (OSIP) for $52.00 per share in cash, or an aggregate of approximately $3.5 billion on a fully diluted basis.  The offer represented more than a 40% premium on the closing price of OSI Pharmaceuticals’ common stock of $37.02 per share on February 26, 2010, and shares have subsequently traded above $57 on expectations for a higher bid.

In view of the fact that US pharmaceutical companies stand to lose billions of revenue due to patent expirations from 2010 to 2012, we expect merger and acquisition activity to remain brisk.

Small Versus Large

As highlighted in our “Biotech’s 2009 Stealth Small Cap Rally” article, small capitalization biotechnology companies were among the best performers of 2009.  The relative underperformance of many large capitalization biotechnology companies in 2009 masked the fact that many smaller, innovative companies performed well, with 20 of the 125 companies comprising the NASDAQ Biotech Index producing triple-digit returns during the period.  Vanda Pharmaceuticals (VNDA), Human Genome Sciences (HGIS), and Targacept, Inc. (TRGT) led the way, with stock prices up 2,150%, 1,342%, and 487%, respectively.

Similar to 2009, we expect that small and mid-capitalization companies with positive clinical or regulatory catalysts will continue to outperform their larger industry peers in 2010.

Beware the Ides of March

In our February 2009 article “Chink in the Biotechnology Armor,” we cited the spate of high profile clinical setbacks and regulatory delays during the month as the reason for the sector’s precipitous decline.  The NASDAQ Biotech Index, which traded as high as 772 during the first week of February, traded as low as 605 by the first week of March – losing more than 21% of its value during the 30-day period.

In February and March 2010, there have also been a significant number of clinical and regulatory setbacks.  Consider the following:

• AMAG Pharmaceuticals, Inc. (AMAG) – Purported safety concerns regarding Feraheme® [ferumoxytol], the company’s marketed product for the treatment of iron deficiency anemia in adult patients with chronic kidney disease, kicked off a 27% decline in shares of AMAG Pharmaceuticals, Inc.  The stock, which traded as high as $45.61 on February 3, 2010, subsequently traded as low as $33.29 despite assurances from the company that the rate of serious hypersensitivity reactions related to Feraheme are consistent with the product’s label.
• Cell Therapeutics, Inc. (CTIC) – On February 8, 2010, the FDA released its briefing documents for the company’s lymphoma drug, pixantrone, in advance of an Oncologic Drugs Advisory Committee [ODAC] meeting originally scheduled for February 10, 2010.  Shares of Cell Therapeutics, Inc., which closed at $1.06 the prior week, traded as low as $0.53 that day.  Among other issues, the FDA raised concerns about pixantrone’s efficacy in view of the fact that the randomized study was stopped at less than 50% of its planned patient target because of poor accrual.  The ODAC meeting was subsequently rescheduled for March 22, 2010.
• Isis Pharmaceuticals, Inc. (ISIS) – On February 10, 2010, the company and its partner, Genzyme Corporation (GENZ), announced results from a Phase 3 study of mipomersen in patients with heterozygous familial hypercholesterolemia [heFH].  While the trial met its primary endpoint with a highly statistically significant 28 percent reduction in LDL-cholesterol after 26 weeks of treatment, the results raised safety concerns and apparently fell short of Wall Street’s expectations.  Shares of Isis Pharmaceuticals, which closed above $11 the day before the results were released, traded as low as $8.85 the next day.
• XenoPort, Inc. (XNPT) – On February 17, 2010, XenoPort, Inc. and its partner GlaxoSmithKline plc (GSK) received a Complete Response letter from the FDA, delaying approval for Horizant™ [gabapentin enacarbil] Extended-Release Tablets, an investigational non-dopaminergic treatment for moderate-to-severe primary Restless Legs Syndrome.   Shares of XenoPort, Inc., which closed at $19.60 the day before the news, hit an all-time low of $6.39 the next day.
• Novelos Therapeutics, Inc. (NVLT.OB) – On February 24, 2010, the company announced that the primary endpoint of improvement in overall survival was not met in a pivotal Phase 3 trial for advanced non-small cell lung cancer [NSCLC] with its lead product, NOV-002, in combination with first-line chemotherapy.  Shares of Novelos Therapeutics, Inc., which closed at $1.65 the day before the results were released, traded as low as $0.28 the next day.
• Adventrix Pharmaceuticals, Inc. (ANX) – On March 1, 2010, the company announced that it received a refuse to file letter from the FDA regarding its New Drug Application for ANX-530 [vinorelbine injectable emulsion].  In the letter, the FDA indicated that the data included in the initial submission from the intended commercial manufacturing site was insufficient to support a commercially-viable expiration dating period.  Shares of Adventrix Pharmaceuticals, Inc. which closed at $0.29 the prior week, traded as low as $0.16 that day.
• Medivation, Inc. (MDVN) – On March 3, 2010, the company and its partner, Pfizer, Inc. (PFE), announced that the investigational drug dimebon [latrepirdine] unexpectedly failed in a Phase 3 trial in patients with Alzheimer’s disease.  Shares of Medivation, Inc., which closed above $40 the day before the results were released, traded as low as $12.55 the next day.

Helping to offset the negative impact of these setbacks, the NASDAQ Biotech Index is market value-weighted, taking into account the total market capitalization of the companies it tracks and not just their share prices.  Accordingly, companies with the largest market capitalizations, or the greatest values, will have the highest impact on the index.  Further, several companies experiencing clinical or regulatory setbacks were not included in the NASDAQ Biotech Index.

In addition, recent merger and acquisition activity may also help mask the effects of the aforementioned clinical and regulatory setbacks.  For example, the NASDAQ Biotech Index closed up 2.7% the day that Astellas Pharma, Inc. offered to acquire OSI Pharmaceuticals, Inc.

Upcoming Catalysts

When it comes to raising visibility and capital, 40% of survey respondents cited general risk aversion in the financial markets as the single greatest challenge facing most life sciences companies in 2010.   Another 28.8% of respondents cited the average market capitalization of life sciences companies being too small and/or lack of liquidity as the single greatest challenge.

In view of the aforementioned clinical and regulatory setbacks, investors will be closely monitoring the following events, as there is no discounting the negative impact of continued clinical and regulatory setbacks on biotechnology investor’s appetite for risk:

• MannKind Corporation (MKND) – In January 2010, the company announced that the FDA would be unable to complete its review of Afrezza™ before the mid-January Prescription Drug User Fee Act [PDUFA] date in order to complete an inspection of a manufacturing-related facility belonging to one of the company’s suppliers.  Alfrezza is a novel, ultra rapid acting mealtime insulin therapy under review for use in adult patients with type 1 and type 2 diabetes mellitus for the treatment of hyperglycemia.  The company has not been given a new PDUFA date by the FDA.
• InterMune, Inc. (ITMN) – A Pulmonary-Allergy Drugs Advisory Committee [PADAC] meeting is scheduled for March 9, 2010, to review the NDA for pirfenidone, the company’s investigational drug candidate for the treatment of patients with idiopathic pulmonary fibrosis [IPF] to reduce decline in lung function.
• Amylin Pharmaceuticals, Inc. (AMLN), Eli Lilly and Company (LLY), and Alkermes, Inc. (ALKS) – Following a weather delay, the FDA has set a new PDUFA action date of March 12, 2010, for its review of the NDA for exenatide once weekly.  Exenatide is being developed in collaboration with Eli Lilly and based on technology from Alkermes, Inc.
•  Cell Therapeutics, Inc. – The rescheduled ODAC meeting for pixantrone takes place on March 22, 2010.
• Delcath Systems, Inc. (DCTH) – On February 4, 2010, the company announced that sufficient events have been reached to allow data analysis to begin on its Phase 3 trial for a novel drug delivery platform to deliver ultra-high doses of anti-cancer drugs to the liver while preventing these high doses of drug from entering the patient’s bloodstream.  The 92 patient, randomized, multi-center, Phase 3 trial used the drug melphalan to treat patients with metastatic melanoma in the liver.  Assuming a successful trial endpoint, the company expects to file a new drug application [NDA] with the FDA in April 2010.
• Dendreon Corporation (DNDN) – A Biologics License Application for Provenge® [sipuleucel-T] for the treatment of men with metastatic, androgen-independent prostate cancer, has been assigned a PDUFA date of May 1, 2010.

Conclusion

While the capital markets remain turbulent, many of the biotechnology industry’s fundamentals, such as the number of products in clinical trials, new product approvals, profitable biotech companies and industry mergers & acquisitions remain favorable.   Combine these positive attributes with yet to be seen benefits from decoding the human genome, an improvement or stabilization in the capital markets, greater resources for the FDA and a novel blending of technology, chemistry and biology and many of the necessary ingredients for The Biotechnology Revolution remain intact.  Or, as Yogi Berra simply said, “You can observe a lot by watching.”

Despite the use of recombinant erythropoietin, anemia remains a significant problem for patients with CKD and end-stage renal disease [ESRD].  As such, parenteral iron formulations in conjunction with erythropoietin have become standard practice.

Iron replacement therapy background

All parenteral iron preparations consist of a central core containing elemental iron, shielded by a carbohydrate shell consisting of molecules such as dextran, sucrose, dextrin or gluconate.  Once injected, the iron-carbohydrate complex is metabolized [by macrophage of the reticuloendothelial system] and the iron is released where it then binds to transferrin in plasma and the redundant carbohydrate moiety is then cleared by the liver.  The degradation of the various iron complexes, however, is very different.

Iron complex degradation

In general, iron is most rapidly released from the smaller molecular weight compounds, and is released more slowly from the iron dextran preparations.  These properties determine the maximum dose that can be administered at any one time.  If too much intravenous iron is administered, there is a danger that the iron will be released from the complex too rapidly.  This “free iron” overloads the buffering capacity of the transferrin molecule.

Parenteral iron reactions

“Free iron” reactions are anaphylactoid in nature.  The symptoms are similar to the anaphylactic reactions seen in a small proportion of patients given dextran-based parenteral iron.  This latter complication is thought to be associated with immunologic reactions to dextran, which resulted in black box warnings for iron dextran-based products and spurred the development of short-chain carbohydrate-based iron compounds [eg, gluconate or sucrose complexes] that were “believed” to be less immunogenic than dextran.

Emerging data

It has previously been noted that high molecular weight dextran formulations could induce allergic reactions more frequently than low molecular weight dextran formulations.  This was validated by the publication of data from the FDA on reported adverse drug events [ADEs] related to the provision of three formulations of intravenous iron during 1998-2000 [Nephrol Dial Transplant (2004) 19: 1571-1575]:

• Low molecular weight dextran [INFeD®] by Watson Pharmaceuticals, Inc. (WPI)
• High molecular weight dextran [Dexferrum®]
• Non-dextran, sodium gluconate complex in sucrose [Ferrlecit®]

The publication covered more than 21 million doses of parenteral iron administered between 1998-2000.  Overall ADE rates were low, with only 1,981 among the 21 million doses [or approximately 94 per million doses]. 

Interestingly, low molecular weight dextran [INFed®] produced the fewest number of serious ADE’s per million doses [11.6], yet the product caries a black box warning in its label.  The serious ADE rate for Ferrlecit® [non-dextran] was nearly four times higher [49.6].

Venofer® Experience

Introduced in 2000, Venofer® is another non-dextran parenteral iron agent.  Based on use in an estimated 2 million patients that received Venofer® worldwide between 1992 and 2002, 83 hypersensitivity reactions have been reported, including serious or life threatening reactions.  This translates into 41.5 serious ADEs per million, which is more than 3.5 times the rate reported for INFed®.

Summary

Regardless of the iron shield complex, parenteral iron-related ADE’s are rare.  Despite the fact that life-threatening ADE rates are significantly higher among recipients of both high molecular weight dextran and non-dextran products than among recipients of low molecular weight dextran, such safety concerns have not translated into comparable black box warnings for either Venofer® or Ferrlecit® since their market introduction.  As a non-dextran product, AMAG’s Feraheme® should be viewed no differently, although investors are understandably nervous in view of a safety-conscious regulatory agency.

Last week, Genentech (DNA) and Biogen Idec (BIIB) reported that a Phase 3 study of Rituxan® failed to meet the primary endpoint as a treatment for patients with a form of lupus. This was the second setback for patients with lupus in less than a month, as La Jolla Pharmaceutical (LJPC) recently announced that the Independent Data Monitoring Board for its Riquent® Phase 3 study in lupus completed the first interim efficacy analysis and determined that continuing the study is futile.

Also during the week, Human Genome Sciences (HGSI) announced that Albuferon® met its primary endpoint of non-inferiority to peginterferon alfa-2a in a Phase 3 clinical trial for patients with chronic hepatitis C. Unfortunately, investors apparently had higher expectations for the study and sent the company’s stock to an all-time low on the news. Recent clinical setbacks in the area of lupus also likely weighed on Human Genome Sciences. The company is investigating LymphoStat-B®, a human monoclonal antibody that inhibits the biological activity of B-lymphocyte stimulator, in two Phase 3 superiority trials for patients with systemic lupus erythematosus (SLE). Human Genome Sciences expects to have the first Phase 3 data available for LymphoStat-B® by mid-2009, and all Phase 3 data to support regulatory filings available in fall 2009.

Putting disappointing clinical updates aside, last week’s big news came from Roche (ROG.VX) and Genentech, which announced a merger agreement under which Roche will acquire the outstanding publicly held interest in Genentech for a total payment of approximately $47 billion in cash. This positive development fueled speculation as to where investors might redeploy their proceeds (see related article by Thomson Reuters).

Seeking biotechnology companies of comparable size and liquidity, investors will likely gravitate towards the larger companies among the 135 members of the NBI that we divided into the following three groups using data obtained through Gridstone Research:

Tier 1: market capitalization in excess of $10 billion (6 companies)
Tier 2: market capitalization greater than $2 billion but less than $10 billion (12 companies)
Tier 3: market capitalization of at least $1 billion but less than $2 billion (12 companies)

The 30 companies in these three groups had a collective market capitalization of approximately $240 billion at the end of last week. Assuming that investors reinvested the entire $47 billion in cash they receive for their Genentech shares into these groups, it would represent approximately 20 percent of the current value. Of course, it is unlikely that the entire $47 billion will return to the biotechnology sector, as index funds and other Genentech holders may reallocate their proceeds to other industries. Nonetheless, it is reasonable to assume that the majority of funds will be reinvested within the biotechnology sector.

Tier 1 consists of Amgen (AMGN), Biogen Idec (BIIB), Celgene (CELG), Genzyme General (GENZ), Gilead Sciences (GILD), and Teva Pharma (TEVA). Not surprisingly, this group performed exceptionally well during the past week. Year-to-date laggard Celgene (CELG) benefited the most and advanced 17 percent during the period.

Tier 1 Graph

Copyright ©1999-2008 by StockCharts.com Inc., Redmond Washington. All rights reserved. Used with permission.

Tier 2 consists of Shire plc (SHPGY), Life Technologies (LIFE), Vertex Pharmaceuticals (VRTX), Cephalon (CEPH), Illumina (ILMN), Myriad Genetics (MYGN), Qiagen N.V. (QGEN), Alexion Pharmaceuticals (ALXN), Warner Chilcott (WCRX), Gen-Probe (GPRO), OSI Pharmaceuticals (OSIP), and Perrigo (PRGO). In addition to possibly benefiting from the reallocation of Genentech proceeds, Tier 2 includes some of the sector’s best performing stocks year-to-date, including Myriad Genetics, Life Technologies and Illumina.

Tier 2 Graph (partial list)

Copyright ©1999-2008 by StockCharts.com Inc., Redmond Washington. All rights reserved. Used with permission.

Tier 3 consists of Endo Pharmaceuticals (ENDP), Techne (TECH), ONYX Pharmaceuticals (ONXX), Sepracor (SEPR), United Therapeutics (UTHR), Amylin Pharmaceuticals (AMLN), CV Therapeutics (CVTX), Isis Pharmaceuticals (ISIS), Auxilium Pharmaceuticals (AUXL), BioMarin Pharmaceutical (BMRN), Regeneron Pharmaceuticals (REGN), and Acorda Therapeutics (ACOR). Tier 3 represents a number of companies that have been rumored as takeover targets themselves, including ONYX Pharmaceuticals, Amylin Pharmaceuticals, and Acorda Therapeutics. Just last week, Gilead Sciences and CV Therapeutics announced the signing of a definitive agreement pursuant to which Gilead will acquire CV Therapeutics for $20.00 per share, which topped an unsolicited proposal from Astellas Pharma Inc. to acquire CV Therapeutics.

Tier 3 Graph (partial list)

Copyright ©1999-2008 by StockCharts.com Inc., Redmond Washington. All rights reserved. Used with permission.

The brisk pace of merger and acquisition activity along with licensing transactions is central to the bullish outlook for biotechnology proposed at the start of 2009. However, new product approvals and positive clinical trial results are an equally important theme. As such, investors will likely be closely monitoring near-term events, such as results from the first Phase 3 trial of Human Genome Sciences’ LymphoStat-B® for lupus in mid-2009, AMAG Pharmaceuticals (AMAG) obtaining approval for Feraheme™ to treat anemia, final results from Dendreon’s (DNDN) Phase 3 trial of Provenge® for prostate cancer expected in April, and results from Genentech’s Phase 3 study of Avastin® plus chemotherapy in adjuvant colon cancer expected in mid-2009.