Leukosite Has Big Hopes for New Cancer Drug

Will Campath do for Leukosite what Rituxan did for Idec? The company's bulls are betting on it.
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See

Idec Pharmaceuticals

(IDPH)

. See it run. Run, Idec, run.

Almost all the way to 100. Wow.

Young

Leukosite

(LKST)

reads that story when it goes to bed at night. And the company thinks to itself, "Way back in late 1996, Idec had come out with the late-stage clinical results of its cancer antibody,

Rituxan

. The trial was positive, but the stock sat in the mid-20s until August of the next year. Then it took off."

Leukosite likes that story because it finds itself in a similar position. The company, along with its development partner

Ilex Oncology

(ILXO)

, came out in April with strong Phase III data on

Campath

, a drug for chronic lymphocytic leukemia, a type of deadly blood cancer. Campath has some similarities to Idec's Rituxan, the huge cancer drug hit that's being marketed by

Genentech

(DNA)

for non-Hodgkin's lymphoma. Both are antibodies that bind with white blood cells to fight blood-borne cancers. Both also are part of a wave of new biotechnology drugs to treat cancer, a direction in which more oncologists are headed.

Boosted by the positive results, Leukosite's stock has gained more than 60% this year. But at Monday's close of 17, the market capitalization is still small, about $190 million. For a company with a product that will be filed with the

Food and Drug Administration

for approval this year and a collection of drugs in clinical trials, that's not too dear.

"Leukosite is practically a full-scale replica of Idec," says Rich van den Broek, an analyst for

Hambrecht & Quist

who rates the company a buy. His firm has performed underwriting for the biotech.

Campath's potential market is smaller than Rituxan's market, about a third to half as big, van den Broek says. But Leukosite's share base is smaller, too, so even a narrow market could still have a big impact on its per-share earnings. And "Idec's up five times" since it came out with its pivotal data on Rituxan, had the product approved, launched it and beat expectations, says van den Broek, who expects a similar performance from Leukosite. "And Leukosite has a better pipeline," he adds.

Van den Broek's pet theory, which has proven lucrative, is for the general investor to take positions in biotechs that have reported positive late-stage clinical results. "For the average person, who doesn't know the industry well, it's the best way to go. It relieves most of the risk and captures most of the reward."

To capture the full value of the drug, Leukosite and Ilex are close to announcing a marketing partner for Campath. An announcement could come in the next couple of weeks, according to the CEOs of both companies.

Speculation has it, according to two major investors in Leukosite, that

Berlex

, the U.S. division of German drug company

Schering

, will be the partner. Idec and

Genentech

(DNA)

were thought to have been involved in the bidding but to have backed out. Idec wouldn't comment. Genentech didn't return a call seeking comment.

The thinking, according to the investors and van den Broek, is that Berlex will sign a deal that will include a modest up-front payment to Leukosite and Ilex and call for an even three-way profit split. Neither Leukosite or Ilex would comment on the potential partner.

Berlex may leave biotech investors with a bad taste. This is the company that blew the marketing of

Chiron's

(CHIR) - Get Report

multiple sclerosis drug

Betaseron

, which had once been touted as a billion-dollar drug. It ended up being several hundred million and got its butt kicked by

Biogen's

(BGEN)

Avonex

.

But Berlex has the biggest-selling chemotherapeutic for chronic lymphocytic leukemia, fludarabine, and could be expected to push Campath hard. Jeffrey Latts, the chief medical officer for Berlex, declines to comment on whether the company was in talks with Leukosite and Ilex.

Leukosite and Ilex expect that Campath will be filed with the FDA around the end of October or beginning of November, according to Gus Lawlor, the company CFO. This is a delay from original projections of midyear. The drug will receive a six-month, expedited review. Lawlor thinks the drug, if approved, could be on the market in the earlier part of the second quarter of next year. That's also a slight delay, which Lawlor atributes to getting the filing complete and perfect for the FDA.

Campath will be used, if approved, for patients who have failed fludarabine, which is currently the second choice for treating the disease after other chemotherapy agents. In the clinical trial of 93 chronic lymphocytic leukemia patients who had failed fludarabine, 33% had either a complete or partial response to the drug. "That's a very respectable response rate" for that type of patient, says Berlex's Latts.

There are around 7,000 to 10,000 patients in the U.S. that fit the bill, says Leukosite's president and CEO Christopher Mirabelli, and about the same in Europe. The drug could cost patients around $10,000 annually, which is about what Idec's Rituxan costs.

The bulls expect that Campath will move up the food chain as it were, becoming a drug that chronic lymphocytic leukemia patients use earlier and earlier in their treatment for longer and longer. The drug, however, is potent and needs to be used in conjunction with antimicrobial drugs, which might limit its use.

If the drug proves safe, then the market will expand. There is potential with non-Hodgkin's lymphoma, where the drug might be used in conjunction with Rituxan, multiple sclerosis and organ transplantation. Latts says it's a common pattern for a cancer drug to get on the market for a niche and "work its way back in the treatment algorithm."

If things work out, the story Leukosite reads each night could turn out to be more than just a fairy tale.