MONDAY, MAY 12, 2008
Merck Vaccine Gets New Label The Food and Drug Administration approved a new product label for Merck’sMRK RotaTeq vaccine to include a report of a death due to intestinal obstruction after getting the vaccine. The nod came in late April, according to a letter to Merck posted on FDA’s Web site.
Generic Plavix Threat Hits Sanofi
Human Genome Sciences Slides
Teva Beats, Street Beats Back
Shares of French drug maker Sanofi-AventisSNY fell sharply early Friday on reports that Swiss generic drug firm Schweizerhall is close to winning approval for a generic version of Sanofi’s Plavix blood-thinning drug in Germany and Luxembourg. Plavix is Sanofi’s second-biggest product.
Shares of biotech Human Genome SciencesHGSI fell early last week after it posted disappointing first-quarter results. Though losses narrowed to 35 cents a share from 38 cents a year earlier, that was worse than the 19 cents predicted by analysts. The stock slid more than 7% on the news.
Teva PharmaceuticalTEVA inched past first-quarter sales and profit views, but its stock fell on a so-so outlook and higher-than-anticipated operating and research costs. The generic drug maker reaffirmed its 2008 outlook for earnings of $2.60 to $2.75 a share vs. views of $2.71. Shares dipped 3%. The Horsham, Pa., offices of Teva.
HEALTH & MEDICINE California Funding For Stem Cell Labs Lifts Researchers
UNDER THE MICROSCOPE
New Cash, New Opportunities
Dublin, Ireland iconclinical.com
Invitrogen, others see more business amid advances in funding and science BY PETER BENESH INVESTOR'S BUSINESS DAILY
U.S. research into stem cells got a jump-start last week when California’s governing body for stem cell research voted to start handing out large amounts of money for construction of new labs. The California agency is funded by 30-yearstem cell research bonds, approved by the state’s voters in 2004. The agency will hand out a total of $271 million to 12 institutions. They in turn will invest another $560 million from foundations and internal reserves. That puts the California stem cell research infrastructure investment at $831 million. Construction at nine University of California campuses, Stanford University and two other organizations will take two years. That’s good news for the state’s economy. It’s even better news for companies that supply genetic researchers withthe special, consumable materials they need to do their work. At the top of the list is InvitrogenIVGN, already the world’s largest maker of the specialty products used in academic and industrial labs investigating and developing cellbased medicine. The company’s market share is about 25%, saysJohn Sullivan, director of research with Leerink Swann. At around $35 million in annual sales, the stem cell business is still a smallpart of Invitrogen’soverall revenue, which came in just under $1.3 billion last year.
Move To Outsourcing Boosts Icon Icon PLC
Still, Invitrogen’s stem cell sales are growing at a higher rate than the overall business, says Chief Financial Officer David Hoffmeister.
Valuable Fruit Hoffmeister puts the market for stem cell products at $1 billion. The addressable market for all of Invitrogen’s products is $8 billion. The funding of stem cell research byCalifornia is important, Hoffmeister says. “I hope it spreads.” Spread it will, says Dr. Wise Young, a medical doctor and professor of neuroscience at the Rutgers University Stem Cell Research Center. In partnership with private firm StemCyte, Young is using stem cells from umbilical cord blood to find treatments for spinal cord injuries. Stem cell research will increase because the market value of stem cell therapies is huge, he says. “The lowhanging fruit alone is probably $100 billion.” Within five years, Young sees the bone marrow transplant mortality rate falling to 1% to 2% from the present 20%. Better science is the main reason. The improvement will come with either adult stem cells or umbilical cord blood stem cells, Young says — not the controversial embryonic stem cells. The technology could bring cures for a range of disorders, including thalassemia, sickle-cell anemia and immune deficiency. More than 55 million people worldwide need treatment for those diseases. Next would come treatments for autoimmune diseases, among them multiple sclerosis, lupus, rheumatoid arthritis and diabetes. Meanwhile, stem cell treatment for heart disease is already in clinical trials.
InvitrogenassociatescientistMiroDudasconducts testsatacompanylab inCarlsbad,Calif.Thefirmstandstoget lots of business from rising worldwide investment in stem cell research.
“California’s investment will generate substantial returns in technology and new understanding of diseases stem cells can treat.” Dr. Wise Young, Rutgers University
Yet another application is macular degeneration. Stem cells have repaired retinal cells in mice, Young says. That discovery could lead to prevention of blindness. “Every estimate of those markets is too conservative,” Young said.
In Search Of Funding A big boost for Invitrogen and competitors like Thermo Fisher ScientificTMO and Applied BiosystemsABI would be more federal funding for the National Institutes of Health. NIH’s annual budget of $28 billion has been frozen since 2003 and has lost 10% of spending power to inflation. Still, NIH funds more basic research of all types than any other single body.
NIH-funded customers account for about 15% of Invitrogen’s total sales, Hoffmeister says. He argues that NIH funding for stem cell research has been insufficient. While California will spend $300 million a year for stem cell exploration, NIH so far has put only $250 million in total toward stem cell research, Young says. There’s a direct correlation between research funds and payback, he says. “I expect California’s investment will generate substantial returns in technology for growing cells and new understanding of the diseases that stem cells can treat.” While Washington has held back on financing for stem cell research, other countries have been forging ahead. Foreign governments are growing their spending on this kind of research faster than the U.S., Sullivan says. “China wants to make its own drug discoveries.” In addition to China, the foreign countries pushing hardest on stem cell research are Singapore, Great Britain and Sweden, Young says. Thatshould be good news forInvit-
rogen, which already gets about 45% of its total revenue from abroad. “There’s more growth in stem cell research and funding overseas,” Hoffmeister said. Still more demand will come from Big Pharma. The large drug firms are using stem cells for new product tests. They’ve done so by forming collaborations with biotechs. Analyst Ross Muken of Deutsche Bank Securities lists AstraZenecaAZN, Roche RHHBY, GlaxoSmithKlineGSK, Teva Pharmaceutical IndustriesTEVA and MerckMRK as investing in stem cells. Big Pharma is spending a lot, but not on basic research in university labs. “They keep this stuff proprietary and don’t disclose anything, but they’re making lots of deals,” Young said. In a recent note, Muken said three companies will benefit from a stem cell boom: Invitrogen, Applied Biosystems and Thermo Fisher. “All have significant product portfolios catering to stem cell research,” Muken wrote.
U.S.-based Big Pharma might be in the doldrums, but it’s got deep pockets and has to spend money. To restore its luster, the industry needs new products — and it can’t get them to market without clinical trials. Increasingly, drug makers are outsourcing clinicaltrials tocontract resource organizations, or CROs. IconICLR is riding the crest of that wave. Toprovideas manyservicesas possible to pharma, Icon has been on a buying spree, adding capabilities. Management sees the value of diversification, says analyst Stephen Shankman of Natixis Bleichroeder. “They’re creating an integrated product offering,” he said. Icon has already added a medical imaging division, a staffing business and more labs. Now it’s adding offices in Eastern Europe. And in February it plunked down $12 million in cash, with another $10 million tied to milestones, for Healthcare Discoveries, a unit of Catalyst Pharma Group. The acquired firm runs an 85-bed clinical pharmacology unit in San Antonio, Texas, for phase one trials. Icon did not make an official available for comment. The CRO business is in its fifth year of record and rising demand, says Eric Coldwell, an analyst at Robert W. Baird. In just the last three years, CROs have gone from 20%-25% of the clinical trial market to 25%-30% as Big Pharma tries to cut costs and find patients worldwide. “The industry is growing at 15% to 20% a year, and Icon is doubling that. It’s stunning,” Coldwell said.
Big Drug Makers Face More Scrutiny Over TV Ads IBD STAFF AND WIRE REPORTS
TV advertisements from Big Pharma came under the gun — again — last week, as congressional Democrats advocated tougher marketing restrictions. At a May 8 hearing to discuss specific ads by PfizerPFE, Johnson & JohnsonJNJ and a joint venture between MerckMRK and ScheringPloughSGP, Rep. Bart Stupak (DMich.) said TV commercials use deceptive techniques to push products to potential patients and to increase sales. “It appears that we need to enforce significant restrictions on DTC (direct-to-consumer) ads to protect American consumers from manipulative commercials designed to mislead and deceive for the profit of pharmaceutical companies,” said Stupak, head of the U.S. House of Representatives Energy and Commerce investigative panel. He said Congress should consider whether ads promoting medicines should be allowed to target consumers in the U.S. — the only country outside of New Zealand that allows such marketing. “(Drug) companies should consider it a privilege to be allowed to air DTC ads in this country,” Stupak said. “We should make sure that pharmaceuticals companies conduct themselves responsibly.” Executives from Pfizer, J&J and Merck-Schering testified before House lawmakers on three discontinued advertisements. All three promotions were criticized by Democrats as potentially misleading consumers. Stupak and Rep. John Dingell (DMich.) pressed a Merck-Schering executive on why the partnership continued advertising its Vytorin cholesterol pill even after complet-
ing a study that showed it was no more effective than a lower-cost generic. The study was completed in 2006, but the companies didn’t release the results until this past January. “I saw a vigorous debate around the quality of that data,” said Deepak Khanna, senior vice president of the partnership, explaining why the study was not released earlier. “Ultimately we took steps to make sure the data was there and meaningfully analyzed before its release.” Vytorin is a combination of Schering’s Zetia and off-patent simvastatin, formerly known as Merck’s Zocor. Earlier this year the two companies released data showing Vytorin doesno betterthangenericsimvastatin at slowing arterial thickening. Shares of Merck and Schering fell sharply on the news, and sales of Vytorin have slumped as well. The drug had been a big seller, generating more than $5 billion in revenue last year.
also caught the unwanted attention of lawmakers. Earlier this year, Pfizer discontinued its TV campaign for cholesterol drug Lipitor after Stupak and Dingell questioned the credentials of spokesman Dr. Robert Jarvik, the inventor of an artificial heart. Democrats said Jarvik was unqualified to give medical advice since he is not a licensed physician, though he did graduate from medical school. Lawmakers also criticized J&J’s Procrit ads for suggesting the anemia drug gives patients more energy and increases quality of life — a claim that’s not approved by regulators. J&J said it stopped airing the ads in 2005 and has no plans to put them back on. Dingell asked all three executives
to adopt new standards for marketing, but each said they lacked the authority to make such commitments. “Maybe we need to have another hearing with someone who can really speak on behalf of the companies,” said Dingell, who chairs the Energy and Commerce Committee. “Perhaps the company presidents would be able to respond in a more helpful fashion.”
Keeping The Pressure On Last year, Democrats tried unsuccessfully to pass a law banning consumer-directed advertisements in thethree years after a drug’s approval. They’re expected to make a similar push later this year. A government investigator from the General Accountability Office told lawmakers that the Food and Drug Administration reviews only a
small portion of the advertising materials it receives. House Democrats have frequently accused the FDA of not doing enough to ensure the safety of food and drugs. But drug industry representatives say the Democrats’ criticism of the FDA’s oversight of the drug industry is primarily driven by political motives. “It’s all about politics, not advertising,” said John Kamp, executive director of the Coalition for Healthcare Communication, a lobbying group for drug and media companies. “They hold a hearing so they can pretend their guys would do a better job running the agency than the Republicans.” The FDA is headed by a Republican commissioner appointed by the White House.
Market-Leading Medical Stocks The top stocks in the medical sector, ranked by the total of their Earnings Per Share and Relative Price Strength Ratings. % Off High
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Too Little, Too Late?
Two congressional committees have requested interviews and documents on Vytorin from the companies. And Schering disclosed on May 6 that the Department of Justice is seeking similar information. Merck and Schering halted TV marketing for Vytorin after releasing the disappointing study results, but Stupak said that action came too late. “Many consumers may not have taken Vytorin had they been aware of the study results,” Stupak said. The advertisements explained that both diet and family can cause bad cholesterol. The ads first ran in 2004 and played a big part in pushing Vytorin sales higher. Sales pitches from Pfizer and J&J
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Systems/Equip ISRG 287.57 -20.03 99 94 A 24 81 49.4 Intuitive Surgical Inc. Develops robotic surgery systems that mimic surgeons’ hand movements in miniature for minimally invasive procedures.
Systems/Equip BABY 20.77 -4.72 95 94 Natus Medical Inc. Sells hearing tests and other health products for infants. Shares hit a two-year high of 21.80 on May 5.
Outpnt/Home Care AMED 51.94 -2.92 91 94 A 3 Amedisys Inc. Provides home nursing services and hospice care. The stock set a fresh peak in May after a strong Q1 showing.
Medical/Dental-Srvcs ESRX 70.96 -10.29 94 91 C 16 33 30.4 2 Express Scripts Inc. The pharmacy benefits manager’s stock fell after it raised full-year profit outlook only slightly. Shares have gone sideways since then. Medical/Dental-Srvcs ICLR 72.1 -3.69 88 95 A 13 33 28.9 Icon PLC The contract research organization recently topped Q1 views and watched the stock set an all-time high of 74.86 on May 5.
Biomed/Biotech GILD 54.11 -0.57 89 93 A 33 17 Gilead Sciences Inc. The biotech, which set a fresh peak of 54.59 on Thursday, announced that CEO John Martin will take over as chairman.
Biomed/Biotech MATK 34.68 -5.76 88 94 C 2 160 66.7 18 Martek Biosciences Corp. Develops nutritional supplements added to health foods and infant formulas. Profit has grown in triple digits the last two quarters. Systems/Equip MR 39.55 -12.48 97 84 A Mindray Medical Int’l Shares of the Chinese medical device maker popped 12% Thursday after it topped Q1 sales and profit views.
Biomed/Biotech LIFC 50.7 -0.29 83 97 A 6 0 13.6 27 LifeCell Corp. The maker of tissue-repair products is being bought out by Kinetic Concepts in a $1.7 billion deal some analysts call too expensive. Generic Drugs SCR 13.8 -28.5 99 81 Simcere Pharmaceutical The China-based generic-drug maker has seen shares rise about 30% over the last three weeks.
On April 29, Icon reported firstquarter sales of $201 million, up 48% from a year earlier. Earnings rose 33% to 56 cents a share, beating analyst views by 3 cents. The stock gained nearly 8% on the news, then kept rising to an all-time high of 74.86 on May 5. Analystsreporting to Thomson Reuters predict full-year earnings of $2.42 a share, up 29% from last year. They see $2.99 in 2009.
THE COMPANY Icon’s clinical research unit does clinical trial testing from phase one to post-marketing phase four. Its work includes lab services, data management, consulting on regulatory matters, medical imaging and contract staffing. Icon benefits from pharma’s need for global services, Coldwell says. Contracts are long-term, immunizing CROs from economic upheavals. Another boost comes from the Food and Drug Administration. Post-Vioxx, the FDA demands longer trials with more patients, as well as post-marketing phase four trials. Being based in Ireland, the company got a jump on international markets, Shankman says. “They were a step ahead of other guys.” The other guys include CovanceCVD, Pharmaceutical Product DevelopmentPPDI and Charles River Labs InternationalCRL. Icon ranks fourth in market cap behind those firms.
LOOKING AHEAD The market for CRO services should maintain its torrid growth, Coldwell says. Pharma could outsource 50% of its trials in the next five to 10 years, a rate that will tax the industry’s ability to maintain quality, he says. Icon’s backlog after the first quarter was $1.49 billion, up 54% from a year earlier. Peter Benesh