By Amy Tsao For all the initial public offerings from the biotech sector that wowed Wall Street last year, only one made the top-10 list of best-performing IPOs for 2000: Praecis Pharmaceuticals (PRCS). The Cambridge (Mass.) biotech finished the year at $30 a share, a 190% gain. It now trades at $25.
The stock's appeal is no fluke. Praecis has clinical evidence suggesting that its drug now before the Food & Drug Administration, Abarelix, might be a breakthrough for patients with prostate cancer, the second-leading cause of cancer deaths in men. The company has already signed a sweet marketing deal for the drug with Amgen, the biggest biotech company in the world. The analysts who cover Praecis all have buy ratings on the stock. Alex To of Credit Suisse First Boston says Praecis' Abarelix has the "key appeal of the investment thesis," a fancy way of saying it meets all the criteria for solid growth.
VARIED ESTIMATES. But smart investors might want to factor a few other points into the equation, too. Estimates of Abarelix' revenue potential vary greatly. While Amgen says it will be devoting substantial resources to selling the drug upon approval, there are questions about the giant's fervor. And after Abarelix, Praecis' pipeline isn't all that exciting to analysts.
The company filed a new-drug application for Abarelix with the FDA in December. The trial data certainly look solid: Abarelix reduces tumor size in patients with the disease without causing a potentially harmful side effect seen in other hormone treatments already on the market. Still, for a variety of reasons, some Praecis watchers and prostate-cancer experts wonder whether it's a valuable product -- either clinically or commercially.
Right now, Lupron, with sales of $900 million globally in 1999, is the most widely used hormone therapy for treating prostate cancer. A product of Takeda of Japan and Abbott Laboratories near Chicago, the drug reduces levels of the male hormone testosterone, which stimulates growth of the prostate gland and can encourage growth of the cancer. But Lupron is also associated with a side effect that causes testosterone levels to surge before they subside.
"MORE ELEGANT." Praecis says Abarelix, unlike Lupron, doesn't cause testosterone surge. "It is a better medicine, a more elegant way of turning off hormones that drive prostate cancer. Instead of blowing the fuse and creating a near-term increase in hormone levels, which could drive tumor growth further, Abarelix shuts the light off," says Eric Schmidt, an analyst with SG Cowen who covers Amgen.
That's promising. But not all physicians are sold on the benefits. For one thing, a spike in hormone levels isn't life-threatening for most men, doctors say. And for another, the surge can already be dulled simply by administering a second drug called Casodex. "From a clinical point of view, the only patients in whom unopposed flare would be a problem would be those with far-advanced cancer. Those patients are a very tiny minority," says Dr. Gerald Andriole, chief of urology at the Washington School of Medicine in St. Louis.
Andriole contends that testosterone flare lasts only about 10 days. Praecis says it can last three to four weeks. Abarelix "could be useful in select situations," says Dr. Richard Rosenbluth, chief of oncology at the Hackensack University Medical Center. "But it's of marginal interest, because at best, what it does is tweak an existing therapy."
RAPID TREATMENT. Malcolm Gefter, CEO of Praecis, insists that preventing testosterone surge is crucial for all patients. "You want your cancer treated as rapidly as possible, and there's a biological reason for that. You don't want it to have the opportunity to mutate. Spreading and mutation are serious issues with cancer."
Data from Praecis' studies have shown that Abarelix suppresses testosterone levels more rapidly than Lupron plus Casodex. Gefter says Abarelix will show itself to be superior in all instances of treatment and management. Credit Suisse's To agrees. He projects peak sales of Abarelix will reach $500 million to $1 billion over a one-year period. By these forecasts, Abarelix would take a considerable percentage of the market away from Lupron and other hormone-based therapies.
Why, then, has Amgen, which has rights to market Abarelix in North America and Japan, been relatively quiet about its expectations for the drug, one of three the company points to as a potential blockbuster? Stefan Loren, an Amgen analyst with Legg Mason Wood Walker, says the biotech giant is gun-shy right now because it doesn't have enough potential blockbusters under development.
HIGH-PROFILE HIRES. Besides, "this is a new market for us," says Rebecca Hamm, an Amgen spokesperson, of prostate cancer. "We're bringing in top-tier leaders and hiring across-the-board many new people in ramping up to sell [our new] products." To that end, the company hired two high-profile pharmaceutical-industry executives this week to bolster its sales and marketing efforts worldwide.
Amgen analyst Loren is frank about his doubts: "We're very concerned about the sales effort on this," he says. He cites the last time Amgen tried to market a drug in competition with large pharmaceutical companies. At its most recent investor meeting, Amgen declared that the hepatitis-C treatment Infergen, launched in 1997, "will never add substantially to our bottom line."
Still, the Infergen failure wasn't Amgen's fault. By the time the product was finally approved, a better combination treatment was available to patients, says Craig West, an Amgen analyst with A.G. Edwards & Sons. "With Abarelix, it's better than what is out there, but it's not a dramatic revolution. It's more of an evolution."
ON THE CUSP. Amgen will have to "parlay the mild advantages of the drug into real sales," Loren says. But doctors, who have come to trust and understand Lupron, may be hesitant to switch patients to Abarelix, especially if they're stable on their current therapy. In addition, companies such as Alza (AZA) and Atrix (ATRX), in a deal with Sanofi-Synthelabo of France, are on the cusp of introducing updated versions of Lupron that will require less-frequent injections. Sanofi also happens to be Praecis' partner for Abarelix in Europe and other countries.
So, any way you slice it, Abarelix' revenues aren't likely to be in the blockbuster category. Loren estimates that revenues for Amgen after Praecis' 50% cut of total sales will be a modest $78 million in 2002 and $141 million in 2003. Schmidt of SG Cowen predicts Abarelix will bring in $75 million in 2002 and $130 million in 2003 for Amgen. Compare these sales expectations to total projected revenue for Amgen of close to $5 billion in 2002 and $5.7 billion in 2003, and this drug is a drop in the company's bucket.
Then there's Praecis' pipeline after Abarelix. Recently, the biotech said it will start safety trials of a drug for Alzheimer's disease, called Apan, in the first quarter of 2001. The company also plans to test Abarelix for endometriosis, a uterine-tissue disorder affecting some 5 million women in the U.S. "That's still several years away from commercialization, but it could be a massive opportunity," Schmidt says. Studies of the drug in patients with endometriosis have been promising, but more testing is needed to measure safety.
BIG-NAME BACKING. Despite the questions about Abarelix, FDA approval could come as early as June, and Praecis' two biggest institutional investors are big names on the Street: Chase Manhattan Corp. and Soros Fund Management. "I think the company has all the ingredients to become a great biotech company. It is a real diamond in the rough," says Weidong Huang, a biotech analyst with Times Square Capital Management.
Sam Isaly, a managing partner with OrbiMed Advisors, has had money in Praecis since it was private, and his company now holds some 2.2 million shares. He says his biggest concern is how much money the company is spending on trials of Abarelix and other programs. Praecis has been paying for half of Abarelix' research costs and spent about $50 million on R&D in 2000. "The marketing advantage is not dramatic. It is a single product with no flare," Isaly cautions about the prostate-cancer drug.
Perhaps if strong Abarelix data become widely circulated and the Amgen sales powerhouse converts enough skeptics, Abarelix will eventually take off. But right now, those are big ifs. Tsao covers the biotech industry for Business Week Online's Investing Channel