The Cost of a Cure : AIDS-Research Investing Falls as Optimism Drops
Richard J. Trauger, chief scientist at Immune Response Corp., went to the international AIDS conference in Berlin last June to deliver what he thought was good news: promising results from clinical trials of the company’s anti-AIDS therapy.
Speaking with scientists and investors, he described how the Carlsbad, Calif., firm co-founded by Dr. Jonas Salk had achieved some success with a treatment that aims to boost the immune system of people infected with the HIV virus. He was mystified when people seemed discouraged by what they heard.
“People had such overly optimistic expectations about our research,” Trauger said, “that when we presented our results, they couldn’t help but be disappointed.”
Immune Response is one of dozens of biotechnology companies--many of them in California--facing tough times in their drive to discover effective treatments for the disease.
Several years ago, investors rushed to companies like Immune Response in the hope that science would soon find a vaccine or cure for the fatal disease. But that optimism has waned as some promising avenues of research have hit dead-ends amid a growing realization that the battle to conquer AIDS will be a long one.
Start-up biotechnology companies involved in AIDS research are having a hard time raising capital. Many more established firms have formed joint ventures with major pharmaceutical firms--also heavily involved in AIDS research--to help finance their research efforts.
Some biotech executives warn that if the investment climate does not improve soon, some companies will be forced to cut back or even abandon AIDS-related research.
There are numerous reasons why investor interest in AIDS is softening, company officials and others say. After a decade of research, only a few drugs have reached the market, and there is growing disenchantment about the effectiveness of once-promising treatments like AZT. Also, the biotechnology industry in general has suffered as the hype about potential wonder drugs has often exceeded the reality.
Further, many say, the threat of federal health care reform is throwing a wet blanket over the ability of all biotech companies to raise private capital. The biotechnology industry has complained bitterly about aspects of President Clinton’s reform plan that would give the government more leverage to control prices of “breakthrough” drugs.
“There is a great deal of hesitancy to invest” in AIDS research, says Martin Delaney, founding director of Project Inform, an AIDS treatment information and lobbying organization in San Francisco. “The promise of quick profits is not as realistic as everyone once thought.”
Charles J. Cashion, Immune Response’s chief financial officer, says bluntly: “HIV treatment companies have fallen out of favor.”
In response, many companies have stopped using AIDS as an investment-stalking horse and instead are emphasizing how their products can be used to treat cancer or other diseases. Immune Response, for example, is also working on treatments for liver disease, hepatitis and rheumatoid arthritis, among others.
Frustration over the lack of progress in fighting AIDS prompted 15 pharmaceutical companies, led by giant Merck & Co., to announce last year that they would pool research in the field to help speed the drug-development process.
The frustration grew more acute at the AIDS conference in Berlin last June. Just before the meeting, a research report based on studies in England, France and Ireland found that AZT, manufactured by Burroughs Wellcome Co., did not necessarily prolong life when used prior to the onset of AIDS symptoms.
“The leading drugs are waning, and there is a lack of unanimity on the next round of promising drugs,” said Dr. Brandon Fradd, senior biotechnology analyst at Montgomery Securities, a San Francisco investment firm. Fradd and others say financiers have already poured millions into AIDS research companies and are reluctant to do more until they see the fruits of that investment.
“If you came to me today and said ‘I’ve found a new way to go after the AIDS virus,’ I’d have a hard time funding your company,” said Richard Schneider, a general partner with Domain Associates, a biotech investment firm in Costa Mesa.
The companies most likely to be affected by the chill in the investment climate are start-up firms with a good idea but little money, experts say.
“If you are a bright company and have ideas, you would have a very difficult time,” said one Washington consultant for biotechnology firms.
Only three antiviral drugs--AZT, DDI and DDC--have been approved by the Food and Drug Administration. All are expensive and have toxic side effects. Many other treatments that use different approaches for fighting the virus are in various stages of development.
Seventy-four companies now have 103 AIDS medicines either in human clinical trials or awaiting FDA approval, according to the Pharmaceutical Manufacturers Assn. Of that number, 11 medicines are in review at the FDA, and 23 are in the last stage of clinical trials, known as Phase III.
The HIV therapy under joint development by Immune Response and its partner, French drug maker Rhone-Poulenc Rorer Inc., is one of the furthest along of the potential vaccines. It involves a vaccine that is actually an AIDS virus whose outer, protective “envelope” has been stripped away with chemicals and whose inner core has been inactivated with radiation. The approach, originally proposed by polio vaccine inventor Salk, is designed to enhance a person’s natural immune system to help combat the infection without using drugs.
Immune Response’s Cashion said his company--whose stock hit a high of $62 in November, 1991--may not have been able to afford the high cost of bringing its HIV treatment through clinical trials without the help of Rhone-Poulenc, a company with $4 billion in annual sales. It can cost up to $200 million to get a drug through the federal approval process.
Fradd, the Montgomery Securities analyst, said investor interest in AIDS-research companies will probably perk up if a new treatment is approved by the FDA. The last big boost in the stock prices of AIDS-research companies came in late 1991, after basketball star Magic Johnson announced that he was infected with the HIV virus.
Reacting to the News
Immune Response’s stock fluctuated sharply since the company went public in May, 1990, reflecting the general volatility among biotechnology stocks, particularly those of AIDS research firms.
Monthly highs, except latest:
May, 1990: Immune Response goes public Nov., 1991: Basketball star Magic Johnson announces he has virus believed to cause AIDS June, 1993: Immune Response reports on clinical trials of its HIV therapy at International AIDS Conference in Berlin
Wednesday close: $13.375, up 75 cents
Source: Dow Jones; Los Angeles Times
