Immunex' Supply-Side Cliffhanger


By David Shook Small wonder executives at Immunex Corp. (IMNX) are smiling these days: Its drug Enbrel may turn out to be the most successful treatment yet in biotechnology's 25-year history. Enbrel is a protein that treats rheumatoid arthritis by blocking a substance in the body called tumor necrosis factor. Excessive amounts of TNF contribute to pain, swelling, and damage to the joints of arthritis patients. Enbrel works miracles for most patients -- all they need to do is inject it, much the same way diabetics take insulin.

The drug is made by a process in which certain kinds of cells are cultivated from hamster ovaries. The cells are then mixed with the right nutrients and cultured in giant stainless-steel vats, called bioreactors, which look like the gear used to brew beer. When everything is stewed at just the right temperature, the cells give off Enbrel. All this happens before the drug is even harvested.

If the process sounds complicated and time-consuming, it is. Enbrel is one of several biological drugs on the market made in massive 10,000-liter tanks in sterile manufacturing plants. Unlike the other drugs, though, it is in such demand that its manufacturer can't make enough of it. Immunex always figured Enbrel would become a blockbuster, but after a year on the market, it became clear demand would outstrip supply.

SAFE TILL 2003? The company's own bullish estimates in 1997 pegged Enbrel sales at $500 million in 2000 (analysts expected it to be much lower). But it generated $652 million in sales last year, making it the fastest growing biological drug in history. "This is nothing like what we expected. This is a dream drug," says Navdeep Jaikaria, analyst for Mehta Partners in New York. He expects sales to grow 44% every year for the next five years.

Can Immunex pull through the shortage in time to hit the real jackpot? By most estimates, it can -- at least in the near future. The company is on track to finish constructing a new plant in Greenwich, R.I., next year. The facility will allow Immunex to double its Enbrel manufacturing capacity. Plus, American Home Products (AHP), which owns the rights to all overseas profits, is planning to build another plant in Ireland to meet European demand.

But for Immunex investors, the long-term challenge bears thinking about. If analysts' sales estimates are accurate, production capacity could become an issue again in 2003 -- especially if the wonder drug earns regulatory approval for treatment of other disorders, from heart failure to psoriasis.

A MARKET OF MILLIONS. Thanks in part to Enbrel's promise, Immunex stock remains one of the highest-valued biotechs on the market, with a price-earnings ratio of 112 and a total market value of $16 billion. The stock now trades at $30 a share -- a far cry from its split-adjusted high of $83. But the stock's value hinges on Enbrel's growth over the next three to four years. While the sky looks like the limit, there are dangers, too: More effective drugs might hit the market and begin to crowd out Enbrel.

Today, 70,000 patients are using it. But more than 1 million arthritis sufferers and 3 million chronic-heart-failure patients could someday benefit. (TNF also plays a role in heart muscle dysfunction, so that could be an even larger market.) "If you look at additional indications, particularly chronic heart failure, we're easily looking at market potential being 4 million patients," says Immunex Chief Operating Officer Peggy Phillips. "What we take from that total market though is anybody's guess. The number of diseases that could be treated by Enbrel is growing as the database builds."

This presents Immunex with a unique challenge. Never before has such unexpected success created such an overwhelming supply shortage in the drug industry. All across the country, Enbrel is being rationed like penicillin during World War II. And patients are clamoring for it. At Dr. Elliot Rosenstein's office in the Saint Barnabus Medical Center's Arthritis & Rheumatic Disease Center in Livingston, N.J., patients are told supplies of Enbrel are scarce. A similar drug, Johnson & Johnson's (JNJ) Remicade, remains the best alternative. But unlike Enbrel, Remicade requires a doctor to administer it, and regular treatments are needed under a rigid medical regimen. "I was and am very fond of Enbrel. We are now by necessity using Remicade -- although it, too, is a very effective medication," Rosenstein says.

GRACE PERIOD. "This is a high-quality problem to have," says Rob Toth of Prudential Securities. But it's the kind of problem that means competitors are bound to arise. One may be Abbott Labs (ABT), which recently acquired a promising antibody drug in a deal with Germany's BASF. Abbott's D2E7 antibody is similar to Remicade but is easier to tolerate. The drug and other antibodies like it remain in testing, giving Immunex a several-year grace period to dominate the market.

Yes, Immunex remains a top pick among the biotech analysts. But its supply shortage is the critical factor that will determine how big Enbrel eventually becomes. Watch how the company's management team -- widely regarded as strong -- tackles its Enbrel supply problems. If Immunex succeeds in meeting existing demands and the drug can be used to treat other diseases, this is one hot company. But if it doesn't, Immunex could tumble from its pedestal. Shook covers biotechnology issues for BusinessWeek Online. Follow The Biotech Beat every week, only on BW Online


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