have a supply problem with its groundbreaking HIV drug, Fuzeon, or not?
Uncertainty over this question roiled shares of the Durham, N.C.-based biotech firm Thursday, as one analyst took a big ax to his Fuzeon sales estimates after what he says were cautious comments about the drug's supply by Trimeris executives on a quarterly conference call.
But another analyst, listening to the same call, heard no such issues raised, so she's leaving her Fuzeon estimates intact.
Trimeris investors were clearly spooked, sending the stock down 8% to $50.77. At just after midday, the stock was off 9.5%.
The Food and Drug Administration is widely expected to approve Fuzeon in the first quarter 2003 -- that's really not an issue. But Wall Street has been somewhat nervous about the drug's complex manufacturing process. It's so hard to make Fuzeon that many analysts are concerned that there won't be enough to meet demand. It also costs a lot to make Fuzeon, causing worries about the drug's gross margin and ability to lift Trimeris into profitability.
As Trimeris executives discussed Fuzeon's manufacturing on its third-quarter conference call Thursday morning, Deutsche Banc biotech analyst Dennis Harp apparently heard something worrisome.
"Based on comments made by company management, we believe that initial yields from the validation batches are lower than target levels," he wrote in a mid-day research note. "Thus, at the time of launch in
first quarter 2003, Trimeris and
may have less capacity than our original estimate of 3 metric tons of Fuzeon per year, or 40,000 patients." (Swiss drugmaker Roche is Trimeris' partner on Fuzeon and the two companies will share the drug's profits.)
With that, Harp sharply cut his 2003 sales target for Fuzeon to $106 million from $210 million. His new 2004 sales estimate is $431 million, down from $508 million. Subsequently, he raised his 2003 net loss estimates for Trimeris to $2.77 per share from $1.71 per share. He also reduced his earnings estimate for 2004 to 14 cents per share from 99 cents per share. Harp reiterated his buy rating and the company and his firm has a banking relationship with the company.
Prior to his Thursday cuts, Harp's estimates for Fuzeon sales were among the highest, if not the highest, on Wall Street. Last May, his estimates were even higher, forecasting Fuzeon sales of $360 million in 2003, for example. Harp didn't return a call seeking comment.
Sharon Seiler, an analyst who also covers Trimeris for Punk, Ziegel & Co., said she didn't hear what Harp heard.
"The comments about manufacturing on the conference call were very general in nature and no different than what management has said in the past," says Seiler. She's keeping her Fuzeon sales estimates unchanged -- 2003 sales of $185.8 million and 2004 sales of $392.5 million. Seiler rates Trimeris a buy, and her firm doesn't have a banking relationship with the company.
Banc of America Securities analyst Mike King circulated a note on the call that kept his Fuzeon numbers intact. He rates the stock a buy and his company has a banking relationship with Trimeris. Another sell-side analyst, who also covers Trimeris but asked not to be named, agreed with Seiler.
Trimeris spokeswoman Robin Fastenau said no new guidance on Fuzeon's commercial manufacturing yields was given on the conference call. The company has successfully completed three "validation" batches of the drug, as expected, and is currently working on producing commercial quantities. She says it's too early to offer guidance on what sorts of yields will come from these commercial batches.
Fuzeon is the first of a new class of anti-HIV drugs called "fusion inhibitors." Unlike the 16 other approved AIDS drugs that attacks the virus after it enters human cells, Fuzeon erects a barrier on the outside of cells, preventing HIV from getting inside. If the virus can't invade, or "fuse" with a cell, it can't reproduce. This makes Fuzeon an important drug for patients who've grown resistant to other therapies.
But the big issue with Fuzeon has not been its efficacy, but the complex and costly manufacturing process required to make it. There are about 106 steps in the Fuzeon manufacturing process, compared with about a dozen for typical drugs.