MGI Pharma Jumps 20%

The FDA approves the company's treatment for chemotherapy-induced nausea and vomiting.
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Updated from 3:52 p.m. EDT

The Food and Drug Administration on Friday approved a new drug for treating chemotherapy-induced nausea and vomiting, propelling the shares of

MGI Pharma

(MOGN)

by 20%.

The approval makes MGI Pharma, based in Minneapolis, the fourth entrant into what the company says is a $1.4 billion market for antinausea drugs known as 5-HT3 antagonists. Of that market, more than $800 million is for chemotherapy-induced nausea and vomiting. The company's shares closed up $5.36 at $31.97 on the news.

MGI Pharma holds the exclusive North American marketing rights to the antinausea drug Aloxi, which was developed by a privately owned Swiss drug company, Helsinn Healthcare.

MGI Pharma said it expects to achieve annual Aloxi sales of $250 million about four years after the drug's launch. It expects sales of $5 million to $10 million this year, and $40 million to $55 million for the first 12 months after launch. MGI Pharma will make the drug available in September.

"I can't go any higher with my ratings," said David Bouchey, a biotechnology analyst at investment bank C.E. Unterberg, Towbin. He rates the stock as both a short-term buy and long-term buy. He doesn't own the stock, and his company doesn't have an investment banking relationship with MGI Pharma.

Bouchey said Aloxi was attractive because it's a simpler drug to administer than the competitors -- Zofran, by

GlaxoSmithKline

(GSK) - Get Report

, the market leader; Kytril, by

Hoffmann La Roche

; and Anzemet by

Aventis

. These drugs went on the market between early 1991 and early 1997.

Each of those drugs is given to patients intravenously before they undergo chemotherapy; then the patients are instructed to take antinausea pills for several days following treatment. After the Aloxi injection, patients don't need to take the pills. Any drug that improves patient compliance can get a marketing edge, Bouchey said.

The other drugs are used as antinausea therapy for radiation treatments for cancer as well as for a nausea treatments after surgery and anesthesia. An MGI Pharma spokesman said his company "would consider exploring other indications," but added that it is "not conducting" radiation therapy-related tests.

In announcing the FDA action, MGI Pharma reiterated test results presented at the recent meeting of the American Society of Clinical Oncology that showed favorable comparisons of Aloxi against Zofran and Anzemet. Adverse reactions "were similar in frequency and severity" in Aloxi vs. its competition.

The company will hold a conference call Monday with investors and analysts to further describe the economic impact of Aloxi's approval by the FDA.

Earlier this week, the company reported that its second-quarter loss had narrowed to $6.97 million, or 27 cents a share, compared with a loss of $12.25 million, or 49 cents a share, for the same period last year. Total revenue for the three months ended June 30 rose to $9.87 million from $5.69 million. Revenue was paced by U.S. sales of Salagen tablets -- for the treatment of dry mouth caused by radiation therapy for head and neck cancers. This drug, whose second-quarter sales were $7.4 million, accounts for 87% of the company's revenue. MGI Pharma also markets Hexalen, a treatment for ovarian cancer.