FDA Panel Recommends New Cancer Treatment

IDEC's Zevalin gets an important thumbs up.
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While hijacked airplanes slammed into the World Trade Center towers and the Pentagon Tuesday morning, an advisory panel to the

Food and Drug Administration

was giving the thumbs up to a new cancer drug from

IDEC Pharmaceuticals.

(IDPH)

The juxtaposition of the two events couldn't be more bizarre -- the tremendous loss of life on one hand, and on the other, a new drug, Zevalin, offering the hope of life to patients dying from non-Hodgkin's lymphoma.

The FDA advisory panel meeting convened in a Bethesda, Md. conference room at around 8:10 a.m. EDT, before the first plane struck the north tower of the World Trade Center. But soon after the meeting began, Jennifer Chao, a biotech analyst from the investment bank Leerink Swann, received a short message on her wireless email pager. It was from her assistant in Midtown Manhattan: "A plane hit the World Trade Center." A few minutes later, Chao's pager pinged again: "Another plane hit the other tower," the message said.

"All of a sudden, people's pagers and cell phones were ringing, people were running in and out of the room," says Chao. "What was so strange was that the panel members and the people speaking had no idea what was going on. Soon, everyone knew what had happened, they decided to keep the meeting going but everyone was so distracted. It was clear that the decision on Zevalin was very secondary to what was happening outside."

Across the country, at IDEC's San Diego headquarters, employees had begun gathering in a conference room at 4 a.m. PDT to view a webcast of the FDA panel meeting. IDEC has been working on Zevalin's development for eight years, so this was a crowning moment for the company and its employees. But soon, the mood changed.

"Once the news started trickling in about the events in New York, some of our employees rushed home, others returned to their desks, some stayed to watch

the panel meeting but the enthusiasm was gone," said Vince Reardon, IDEC's director of corporate communications. "This was supposed to be a huge celebration for us, but the events of the day really took the steam out of everybody."

Not a Time for Celebrating

In any other time, IDEC would be celebrating and so would its investors. The company's shares -- halted Tuesday as is custom for a biotech company facing an FDA panel meeting -- would have likely moved higher Wednesday morning on the good news. Now, IDEC shares may fall on what is expected to be a broad, near-term selloff when the markets open for trading. At the very least, any rise in IDEC shares will be muted.

But distancing ourselves from the terrorist attack and its impact on financial markets, if possible, IDEC clearly scored a big win Tuesday because the FDA advisory panel not only recommended Zevalin's approval, but did so in a way that suggests the drug will be approved for broad use.

Zevalin is a monoclonal antibody that seeks out and attaches itself to cancer cells. But unlike other such drugs, Zevalin carries a radioactive payload designed to kill the cancer cells while leaving neighboring healthy cells intact. If approved, it would be first of a new class of "radioimmunotherapies" that links cancer-fighting drugs and radiation.

IDEC was seeking Zevalin approval to treat non-Hodgkin's lymphoma patients who have failed to respond to traditional chemotherapy as well as to Rituxan, another monoclonal antibody for the disease, co-marketed by IDEC and

Genentech

(DNA)

. Simply put, these patients have run out of treatment options. The FDA panel voted unanimously that Zevalin, taken in combination with Rituxan, was effective in helping these patients.

But the panel went further -- voting to approve Zevalin for use in patients who still have other treatment options. In order to have these patients included on Zevalin's drug label, IDEC will have to perform additional studies, but these tests will be done while the drug is being sold.

The panel's recommendations will be forwarded to the FDA for a final decision, expected by the end of the year or early next year. The FDA normally follows the advice of its advisory panel.

"At the very least, Wall Street was expecting IDEC to get an indication for the sickest patients," says Chao. "But there was upside in the panel recommendation because IDEC received the broader label they wanted." Chao rates IDEC a buy and her firm doesn't have a banking relationship with the company.

But Chao is taking a fairly cautious stance on Zevalin revenue, mainly because the drug is complicated to use and will still sit behind chemotherapy and Rituxan as the drugs of choice for non-Hodgkin's lymphoma patients. Chao forecasts Zevalin revenue of $2 million in 2001, $50 million in 2002, $78 million in 2003 and up to $201 million in 2005.

"There are higher

revenue numbers being projected by others on Wall Street, but I don't see how you can justify them until we start to see Zevalin's penetration rates

after a few quarters," she says.

But while Zevalin may not be a huge drug in dollar sales, IDEC can still win because the drug is always used in combination with Rituxan -- already one of the fastest-growing biotech drugs.

At Monday's closing price of $56.15 per share, IDEC trades at a 97 times this year's expected earnings of 58 cents per share, and 62 times 2002 projected earnings of 62 cents per share. IDEC is an expensive stock -- it has always traded at a rich premium to other profitable biotechs -- but IDEC bulls defend the valuation based on an expected earnings growth rate of 37% over the next five years. Still, IDEC's lofty valuation makes it vulnerable to any hiccups in sales growth of either Rituxan or Zevalin.

And if this isn't enough to chew on, there's also a legal fight brewing. IDEC and its main rival

Corixa

(CRXA)

have filed separate lawsuits over patents tied to radioimmunotherapy. Corixa, which is developing a similar drug called Bexxar, alleges that IDEC's Zevalin infringes on its patents. IDEC claims that Corixa's patents are not applicable to its drug.