The biotech sector, a furnace of stock-market Darwinism, could be a setting for rebirth in the second half of 2005.
will both be searching for redemption after high-profile disasters. Meanwhile,
hopes to surprise Wall Street with strong earnings and report positive results for drugs that are crucial to its future pipeline.
The highest drama involves Biogen, whose withdrawal of multiple sclerosis drug Tysabri in February lopped 40% off the company's market capitalization and raised survival concerns for its smaller partner,
Tysabri was pulled after being linked to a rare brain illness known as PML. While Biogen has absorbed most of the costs related to the withdrawal, the shares have languished as Wall Street discounts lost earnings for the potential blockbuster.
The company remains hopeful that the drug will return to the market after the results of an 8,000-patient safety evaluation are reviewed by the FDA later this summer. The stakes were raised last month when the company reported positive late-stage results on Tysabri in Crohn's disease, an inflammation of the bowel and small intestine.
For now, Wall Street is skeptical about the drug's future.
"We believe that these positive efficacy results will not have a substantial impact on Biogen," wrote Bret Holley of CIBC World Markets in a June 30 note. "We continue to believe that if Tysabri returns to the market, it would be limited to compassionate use in end-stage MS, based on concerns over PML." CIBC does not have an investment-banking relationship with Biogen Idec.
Permanent damage to Tysabri would represent a major loss for Biogen. Still, the company has other profitable drugs that could limit its downside.
Elise Wang, a Smith Barney analyst, thinks sales of Biogen's non-Hodgkins lymphoma drug Rituxan will "continue to remain solid, driven by increasing penetration in existing indications with potential upside in new indications," such as rheumatoid arthritis, according to her June 21 report.
Wang says Rituxan's potential for expanded indications should help offset slowing growth of Avonex, the company's leading MS drug. Citigroup, parent company of Smith Barney, does not have an investment-banking relationship with Biogen.
By the end of the year, Biogen is expected to seek FDA approval for Rituxan as treatment for a more severe form of non-Hodgkins lymphoma.
Another company whose future could be on the line in the second half is vaccine maker Chiron. The company's battle to reopen a plant in Liverpool, England, where it manufactures much of the world's flu vaccine has been widely chronicled. The plant is currently cleared by British health regulators to produce the drug Fluvirin for the upcoming season. But it's awaiting an FDA inspection that is needed for U.S. marketing of the drug.
Last month, Chiron dealt investors a fresh blow when it cut the amount of vaccine it expects to produce to between 18 million and 26 million doses (it's manufacturing at the plant in anticipation of FDA clearance). The estimate was down from a prior forecast of 25 million to 30 million doses.
Chiron also hacked its 2005 earnings estimates from a range of $1.40 to $1.50 a share to $1.20 to $1.45 a share.
Chiron expects the FDA to inspect the plant later this month.
The July FDA inspection is critical for gauging whether the FDA will allow Fluvirin on the market this year," wrote Thomas Wei, of Piper Jaffray, in a June 15 research note. The reduction in the number of expected doses "reinforces to us that the changes required at the Fluvirin manufacturing plant are not trivial, and suggest that the FDA inspection may not be straightforward," Wei wrote.
Piper Jaffray makes a market in Chiron securities but does not have an investment-banking relationship with Chiron.
Chiron reports second-quarter earnings July 27.
Perhaps the best chance for second-half success in the sector lies with Amgen.
The biotech pioneer is in the midst of a pipeline gap that could run well into 2006. But analysts are optimistic about the company's second quarter and second half.
For the second quarter, Eric Schmidt of SG Cowen sees strong sales in all drug franchises, expects Amgen to beat its earnings estimates and sees significant upside in the second half, he said in an interview. He says Amgen may raise its estimates for the full year.
While consensus estimates for anemia blockbuster Aranesp sales are at $750 million for the year, Schmidt says sales are tracking around $770 million. He also sees some upside in the consensus estimates of $616 million for sales of anti-inflammatory drug Enbrel. SG Cowen does not have an investment-banking relationship with the company.
More importantly for the company's future, Amgen expects to report results from phase III safety and efficacy trials of its experimental drug panitumumab in a persistent form of colorectal cancer. The drug is expected to be a direct competitor to ImClone's Erbitux, and it was
hailed at the American Society of Clinical Oncology meeting in May as a safer, more convenient and equally effective alternative to Erbitux. Panitumumab was co-developed with
Investors can also expect to hear phase II data from Aranesp trials in congestive heart failure. Aranesp is currently approved for anemia associated with kidney failure. Analysts also expect to see increasing interest in the company's experimental drug AMG-162 in post-menopausal osteoporosis in the second half through next year.
In its first-quarter earnings call, Amgen raised its full-year earnings guidance to a range of $2.80 to $2.90 from the previous range of $2.70 to $2.85.
Amgen reports earnings July 19.