Biotech’s Next Challenge: the Marketplace

The age of biotech finally seems to be flowering.

Eighty-one drugs and vaccines developed from biotechnology research are in advanced development, and 14 have completed clinical trials and should receive final approval from the Food and Drug Administration over the next two years, according to the Pharmaceutical Manufacturers Assn., a trade group in Washington.

That compares to just nine biotech drugs and vaccines that have been approved during the previous six years. And the new wave is expected to create markets worth tens of millions of dollars for manufacturers in addition to having far-reaching effects on how medicine is practiced in the United States. For example, the new drugs and vaccines are expected to reduce the need for blood transfusions and to minimize the effects of harsh treatments such as chemotherapy.

“We are on the verge of seeing biotechnology companies hit their first home runs. You look at the future and you see several $100-million drugs on the horizon,” said Denise Gilbert, a biotechnology analyst with Montgomery Securities in San Francisco.

Biotechnology, which involves the manipulation of material in human cells or the creation of synthetic substitutes, has been evolving for nearly two decades. Only now, however, has a substantial number of biotech drugs and vaccines been close to reaching the market after years of clinical tests and regulatory scrutiny.

Among the “magic bullets” awaiting approval are:

-Erythropoietin, manufactured by Amgen of Thousand Oaks. EPO, as it is commonly known, will be used to fight anemia in kidney dialysis and chemotherapy patients and has a potential annual market of $350 million, according to Gilbert.

-A group of drugs known as granulocyte colony stimulating factors, which spur the body to make white blood cells. The drugs, which will be taken by cancer and AIDS patients, could find a $200-million market by the 1990s, said Peter Drake, executive vice president of Vector Securities International in Northbrook, Ill. Amgen, Genetics Institute and Schering-Plough are a few of the companies developing GCSF drugs.

-Cetus’ Interleukin II, an anti-cancer drug.

-Two drugs being readied by Centocor and Xoma that counteract septic shock, which kills 100,000 Americans every year often during surgery.

Two biotech drugs introduced over the last year have given indications of what the future holds. Genentech’s Activase, introduced last December, has become the most successful new drug ever introduced in the U.S. market, with 1988 sales expected to exceed $200 million. Activase dissolves blood clots in heart attack victims.

Sales of Rorer Group’s Monoclate, a purified form of a blood-clotting protein called Factor 8 that was introduced last November, are expected to exceed $50 million this year and $100 million in 1989, analysts say.

‘Reality’ Affects Stocks

Developed from research led over a 12-year span by Dr. Theodore Zimmerman at Scripps Clinic & Research Foundation in La Jolla, Monoclate is the first drug to give the nation’s 20,000 hemophiliacs protection from new exposure to hepatitis, AIDS and other contaminant viruses in blood plasma. Monoclate is made from purified human blood plasma. The Monoclate patent is owned by Scripps, which licenses it to Rorer.

But uncertainties lie ahead for the biotechnology industry, among them the effect of “reality” on stock prices once a drug actually hits the market. Such an effect has already hit Genentech’s stock, which closed Monday at $24.50, a steep skid from its March, 1987, high of $65, despite the South San Francisco company’s current success with Activase.

One reason has been Wall Street’s disappointment that annual sales of Activase will fall short of the $1 billion some optimistic analysts had predicted.

“The biotechnology industry is no longer selling futures,” said Thomas Adams, president of Gen-Probe, a San Diego company that is making a line of bioengineered medical diagnostic products. “The values that (Wall Street is) going to put on these companies will be according to how successful they are on a profit and loss basis, not on projections by an analyst.”

Also facing the industry is a welter of lawsuits over patent rights. Rorer Group, for example, is suing both Genentech and Baxter Travenol over products that it claims infringe on its Monoclate product. The Monoclate patent includes rights to the Factor 8 substance in any form--an important distinction, because the two companies make the drug through different processes.

While Rorer’s process involves the use of purifying actual human blood serum, Genentech’s process uses bioengineering to make a synthetic substance. A San Francisco federal court judge last year upheld Rorer’s claim that Genentech had infringed on its patent. Later this year, the same court will consider Genentech’s appeal that seeks to invalidate Rorer’s patent.

Dr. Alain Schreiber, vice president of discovery and research at Ft. Washington, Pa.-based Rorer Group, said Scripps deserves the patent because the Monoclate process was “the first time anybody has obtained Factor 8 in a purified form, away from all the other contaminants in blood plasma.”

More Litigation Expected

Not surprisingly, an attorney representing Genentech in the case, Bradford Duft of the Los Angeles law firm of Lyon & Lyon, said Rorer’s patent should be invalidated if it “is construed broadly enough” to include a synthetic version of Factor 8.

Whatever the outcome of the Rorer-Genentech legal battle, Duft predicted that biotechnology litigation will grow over the next decade because companies are much less willing to give up exclusive rights to technology through cross-licensing than were Silicon Valley’s high-tech electronics manufacturers, for example.

“We have some biotech clients moving into (product) areas where you see estimates of $200 million and $300 million per year in sales. That’s big-time money and equally big money for people who might want to compete,” Duft said.

FDA-APPROVED BIOTECH DRUGS

Sales figures for approved drugs are 1988 estimates in millions of dollars; figures for unapproved drugs are projections for first year of sale.

Developer Year Annual Product (Marketer) Use OKd Sales Activase Genentech Anti-clotting drug 1987 $215 Protropin Genentech Human growth hormone 1985 110 Humulin Genentech (Eli Lilly) Insulin for diabetics 1982 150 Intron-A Biogen Leukemia therapy 1986 70 (Schering-Plough) Recombivax Chiron (Merck) Hepatitis B vaccine 1986 55 Monoclate Rorer Group Anti-viral drug 1987 50 Humatrope Eli Lilly Human growth hormone 1987 25 Orthoclone Johnson & Johnson Anti-rejection drug 1986 * for kidney transplants Roferon Genentech Leukemia therapy 1986 * (Hoffman La Roche) MORE DRUGS ON THE WAY EPO Amgen Anemia therapy for + 350 dialysis & chemotherapy Interleukin-2 Cetus Cancer therapy ** 275 Centoxin Centocor Septic shock therapy ** 240 GCSF Amgen Immune suppression ** ++ for AIDS, chemotherapy GMCSF Schering-Plough Therapy for leukemia, AIDS, ** ++ and others chemotherapy

* Not available. + Approval expected this year. ** Approval expected in 1990. ++ Combined revenue projected for GCSF and GMCSF: $325 million. Source: Montgomery Securities