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Get Four
|  | JANUARY 21, 2004
 FOCUS STOCK By Frank DiLorenzo, CFA Is ImClone Out of the Woods? If the FDA approves its Erbitux anticancer treatment, as S&P expects, the biotech's volatile stock should be set for solid growth With an FDA decision on anticancer drug Erbitux anticipated by Feb. 13, biotech outfit ImClone Systems is in the news again. Standard & Poor's Equity Research expects ImClone (IMCL; recent price, $43) and its partner, Bristol-Myers Squibb (BMY; S&P ranking 3 STARS, or hold; $30), to get the green light to begin commercializing the drug in the U.S. We're also assuming approval in the European Union by mid-2004. Erbitux was initially approved in Switzerland in December, 2003. The success of ImClone, whose shares are highly volatile, largely hinges on Erbitux, in our opinion. ImClone carries S&P's highest investment recommendation of 5 STARS, or buy. Erbitux is expected to be used initially to treat patients with advanced colorectal cancer. However, we expect it to prove effective at earlier stages as well. Other areas that may hold promise include head and neck cancer and non-small-cell lung cancer. If Erbitux is approved, we expect investors to focus on the subsequent sales ramp-up for it and upcoming clinical trial results. BUYOUT TARGET? Another important investment consideration is ImClone's manufacturing capabilities. Capacity at the current facility, where Erbitux is already in inventory, should enable ImClone to meet demand over the next two years, in our view. If ImClone is successful in its plans to expand manufacturing operations, it may be able to leverage this asset by licensing additional compounds from other drugmakers in the second half of the decade. The potential risks involve delays in the expansion or greater-than-expected demand that could potentially lead to production shortfalls. While purely speculative on our part, we think ImClone would make for an interesting buyout candidate, for three reasons. One, we believe Erbitux has the potential to be a highly successful oncology therapy. Two, the terms of ImClone's collaborative agreement with Bristol-Myers are extremely favorable to ImClone, in our opinion. Lastly, with strong financial backing (something that ImClone now lacks), we think ImClone has a number of potential anticancer compounds in its R&D stable that could reach Phase II testing within three years. We expect strong sales of Erbitux in the U.S. and the EU over the next several years. We believe that ImClone's two solid partners -- Bristol-Myers and German pharmaceuticals outfit Merck KGaA -- should help it boost sales. While we think the vast majority of ImClone's value is based on Erbitux' approvability and commercial potential, we also believe ImClone has some compelling drug targets in its pipeline. OF MICE AND MEN. Erbitux (cetuximab) is a chimeric monoclonal antibody (MAb) -- the structure of which features an approximate one-third mouse protein sequence and two-thirds human protein sequence -- that binds to epidermal growth factor receptor (EGFR). Overexpression of EGFR is common in a number of solid-tumor cancers, and Erbitux may block epidermal growth factor and transforming growth factor-alpha (TGF-alpha) from binding to this receptor, thereby potentially slowing tumor growth. ImClone has estimated that over 70% of advanced-stage colorectal cancer cases express EGFR. In addition to colorectal cancer cells, other solid tumors with high EGFR expression include non-small-cell lung cancer, head and neck cancer, and pancreatic cancer. In contrast to a chimeric MAb, a fully human MAb is based on an entire human protein sequence. Theoretically, one of the main advantages of a fully human design is a decreased propensity for immunogenicity, or a negative immune response to the treatment. Abgenix (ABGX; 3 STARS; $15) is collaborating with Amgen (AMGN; 4 STARS, or accumulate; $64) on ABX-EGF, a fully human MAb that blocks EGFR. If successfully developed, we think this compound could reach the market in 2006. However, patents held by ImClone could lead to potential lawsuits and a delay in ABX-EGF commercialization. COMBO OPTIONS. If approved by the FDA, the initial use for Erbitux would be to treat irinotecan-refractory colorectal cancer patients -- those who haven't responded well to chemotherapy. The FDA rejected a biologics license application (BLA) for Erbitux in December, 2001, but ImClone subsequently worked with Bristol-Myers and Merck KGaA on a new BLA that was submitted in August, 2003. While certain clinical trials have tested or are testing Erbitux as a single-agent treatment, we believe the drug will primarily be used in combination with chemotherapy. A prior trial by Merck KGaA showed Erbitux to be more effective when used with irinotecan in patients having irinotecan-refractory colorectal cancer. Data from this clinical trial was included in the recent BLA submission. In addition to a Phase II refractory colorectal cancer clinical trial (350 patients) that's testing Erbitux as a single agent, two Phase III trials (1,300 and 1,100 patients) of Erbitux in combination with chemotherapy for the treatment of second-line colorectal cancer are ongoing, as is a Phase III trial (2,200 patients) in combination with chemotherapy for first-line colorectal cancer. Our long-term projections assume Erbitux sales in the treatment of colorectal cancer as well as other solid-tumor cancers.
BW MALL
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