New AIDS Drug Outlook Making Investors Nervous

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By Jesse Eisinger
Staff Reporter

Stocks of small biotech firms that produce AIDS drugs are getting jittery, as fears spread that the honeymoon is ending for protease inhibitors.

Resistance is proving to be a serious problem for patients on protease inhibitors, the breakthrough drugs that in combination with other AIDS drugs have saved thousands of lives. While resistance to the new drugs has always been a major worry, for a long time the exuberance surrounding the protease inhibitors muted the fears.

Now those fears are gaining momentum.

"The period we're in now is increasingly referred to as a honeymoon period. We all know that that's something that ends," said Bill Bahlman, an activist with the

Treatment & Action Committee of New York

, an offshoot of

ACT-UP

. But Balhman continues to be "cautiously optimistic," saying, "I haven't seen that many failures due to resistance. I've seen drugs that are very successful."

Leading AIDS specialists, however, are speaking more cautiously about PIs and the promise of the cocktails of treatment for the disease in the wake of a small but important scientific meeting in Florida on resistance held in late June.

The resistance information is "like having your worst fears confirmed," says Sally Cooper, the executive director of

PWA Health Group

, a New York AIDS treatment organization.

The stocks of small biotech companies such as

Agouron

(AGPH)

,

Vertex

(VRTX) - Get Report

and

Biochem Pharma

(BCHXF)

have been particularly volatile of late in response to the confusing outlook, trading heavily the past week. Agouron sells Viracept, one of the most promising PIs, while Biochem Pharma gets royalties on the largest-selling AIDS drug,

Glaxo Wellcome's

(GLX)

3TC, which is not a protease inhibitor. Vertex discovered a protease inhibitor, VX-478, that Glaxo has in development.

All three companies' fortunes are heavily dependent on their AIDS drugs. In contrast, robust growth of the PI market is important, but not vital, to the three drug giants that sell versions of PI: market leader

Merck

(MRK) - Get Report

,

Abbott Labs

(ABT) - Get Report

and

Roche

.

So is it time to sell Agouron and Vertex? Not necessarily. "This is academic fluff. Patients are still taking these drugs," said Edward Hurwitz, chief financial officer of

Affymetrix

(AFFX)

, a California gene data company that is working on understanding HIV mutations. Hurwitz specialized in AIDS companies when he was a sell-side analyst at

Robertson Stephens

. If doctors do start reacting cautiously to the new information on resistance by reducing prescriptions for the drugs, these companies probably won't see the effects until the fall, analysts say.

Ironically, the drugs' sales could even see a boost in the coming months from more widespread use of triple combination therapy -- a cocktail that combines three AIDS drugs. New draft guidelines from the

National Institutes of Health

advocate aggressive and early use of the therapy.

However, the developing caution toward PIs could constrict the market for these companies over the long term. That caution is exemplified by a report by Dr. William O'Brien, an AIDS specialist at the

University of Texas

Medical Branch at Galveston, that is making the rounds on the Internet and with activists. O'Brien summarizes more than 100 studies on resistance and draws the following conclusions:

The protease inhibitors increasingly seem to have a class resistance, meaning that once one PI stops working for a person, none will work.

While the combinations have brought the virus down to undetectable levels, the hope for eradication in two to three years "may be overly optimistic."

Tests to track mutant strains are inadequate, and some undetectable mutations -- which may counteract the drugs -- are not well understood.

It is also becoming increasingly significant that the cocktails -- drug combinations that often include protease inhibitors -- are not nearly as helpful for patients who've been on intensive anti-AIDS treatment previously, though they can suppress virus replication to very low levels, even in patients with advanced disease.

Only several months ago leading AIDS researchers such as

Time

magazine's Man of the Year Dr. David Ho advocated a "hit hard and hit early" strategy. But now the thinking could be shifting to a more cautious strategy of waiting with less sick patients until more is known about which combinations of drugs work for which patients.

"That group of patients will think twice" about going on therapy right away, says Gus Vianna Biehler, chairman of the

New York University Medical Advisory Board

for HIV and AIDS.

If the conclusions from the conference change the environment from one of hope to one of caution, the AIDS drug market will not expand as fast as Street analysts predict, said

Hambrecht & Quist

analyst Rachel Leheny in a report last week. "We suggest that the PI market may not be as robust as current Wall Street expectations and suggest investor caution over the next few months."

The PI market has grown 25% since the beginning of the year to about $800 million a year, and many analysts foresee it tripling over the next three years. But Leheny thinks the growth will slow. She isn't predicting how much, until more data are available.

Agouron could be particularly hurt. That's because its drug, Viracept, is being marketed as the one PI that doesn't cause resistance to others if it fails. Agouron argues that patients should start with its version. However, scientists are waiting for more data before seeing things that way.

Leheny's report also contains a piece of bad news for the other small biotech with a PI, Vertex. She says the drug, VX-478, which is being developed in conjunction with Glaxo Wellcome, will be delayed until the end of 1998.