By Amy Tsao Forget genomics. Forget original drug research. Many biotech companies have. Eager for reliable revenue streams, biotechs are increasingly looking to an area that the pharmaceutical industry has long overlooked -- antibacterial drugs, better knows as antibiotics.
The trend of biotechs turning to antibacterials -- once the domain of companies like Aventis (AVE) and Bristol-Myers Squibb (BMY) -- has been decades in the making. After the stunning success of such groundbreaking drugs as penicillin and amoxicillin, the pharmaceutical industry has seen little reason to bring new antibiotics to market. Also, the bigger payoffs to large drug companies come from medicines for chronic conditions such as depression and high cholesterol, not acute bacterial infections.
Yet the need for new antibiotics has only grown, as bacteria strains develop resistance to already available medications. The blockbuster antibiotics were "big triumphs of medicine," says Jeff Bockman, a vice-president at drug-industry research firm Defined Health. "But as time went on, the struggle to keep up with bacteria became apparent."
"VARIANTS ON A THEME." As the need for new antibacterials has been on the rise, research efforts have been declining. Of the 89 new drugs that the Food & Drug Administration approved in 2002, none were antibacterials, according to the Infectious Diseases Society of America (IDSA). Only half a dozen new antibacterials are in development by major drug companies, says the IDSA.
Enter the biotechs. Under pressure from Wall Street to produce revenues, in recent years a slew of companies, including Cubist Pharmaceuticals (CBST), Intermune (ITMN), and Vicuron (MICU), have pinned their hopes on antibacterials. Such biotechs would seem logical choices to fill the void. After all, science is what they do best, and that's what's needed to develop new antibiotics. Rather than start from scratch, most of these companies are relying on licensing or the outright purchase of late-stage experimental products from large drug companies reluctant to devote the resources needed to bring them to market.
"We don't have any completely discovered and developed antibacterials by biotech [on the market yet]," says Bockman. Most are "variants on a theme," next-generation drugs of existing antibacterials. And many industry observers question their potential as both effective infection fighters and bottom-line boosters. With the first of the licensed antibacterials hitting the market, interest in how biotechs may fare in this new arena is intense.
PACKED FIELD. Cubicin, an intravenous drug for skin infections, was the first of the in-licensed antibiotics to hit the market, making its debut at the end of 2003. Cubist, its maker, has a clear-cut goal: to have Cubicin high on hospitals' list of approved drugs. "That doesn't require the [marketing resources] that a drug for the primary-care market needs," says Cubist CEO Mike Bonney. So far, Cubicin has racked up $3.3 million in sales in eight weeks, which puts it on track to be a $25 million drug by yearend.
That may not sound bad for the initial stages of a company's first launch, but it's not good enough for some on Wall Street. Morgan Stanley analyst Steven Harr calls Cubicin's debut "sluggish." Bonney insists that Harr's pessimism notwithstanding, most analysts see Cubicin as having the potential for annual sales of between $250 million and $500 million.
Where Cubicin's market is fairly small, Genome Therapeutics (GENE) is looking at a potentially huge one for Factive, an antibiotic for bronchitis and pneumonia, which is expected to debut later this year. As a drug prescribed by primary-care physicians -- a market of between 10,000 and 15,000 practitioners -- Factive will require far more marketing support than Cubicin. Genome Therapeutics will need to partner with a drug company to get access to a larger sales force, and that will likely cut into any potential profits, points out Tom Shrader, an analyst with Harris Nesbitt Gerard. Genome CEO Steven Rauscher says he expects to announce a partnership in 2005.
And even if Genome Therapeutics teams with a company having plenty of marketing muscle, Factive will still be competing head-to-head with drugs made by Bayer (BAY) and Johnson & Johnson (JNJ), points out Shrader. The competition will also include low-priced generics -- and it will be "brutal," he predicts.
"BUILT ON HOPE." Still, Rauscher remains committed to the drug -- and this approach to bringing products to market. Rauscher says when he was hired three years ago, he and the board decided that Genome Therapeutics would "be focused on in-licensing and marketing" antibacterials and other drugs rather than helping big companies identify new drugs through genomics.
Jeff Stein, interim CEO and chief scientific officer at privately held biotech Quorex, questions the licensing business model. "What's being in-licensed is being out-licensed by someone for a reason," he says, observing that slight variants of existing antibacterials probably won't have a big commercial impact because of the low likelihood that they'll boast anything more than a limited ability to do a better job of killing bacteria. He also points out that all companies must spend a lot to prove their antibacterials in multiple trials against a variety of bacteria and in different infection sites in the body -- and that this obligation applies regardless of whether a drug has been licensed or discovered in-house.
Not surprisingly, Quorex, based in Carlsbad, Calif., is intent on developing its own antibacterials from start to finish. Its most advanced drug aims to interfere with production of DNA gyraseB, a material seen in all bacteria replication. Quorex expects to start clinical trials in the second half of this year.
DEAD END? If smaller biotechs continue to jettison early-stage development for the relatively low-risk approach of licensing, the entire industry could suffer, some say, since this approach would see biotechs abandoning their strong suit -- research and science -- in favor of marketing. "A lot of the drug industry has been built on hope in biotech," says Bockman. "If the Street puts pressure on companies to produce revenues sooner, then the whole complex is going to be destabilized."
Nor are profits guaranteed. Shrader points out that although the need for new drugs is evident, it's unclear that the upcoming antibacterials will prove to be the boon for which biotechs have been hoping. Smaller biotechs frequently are able to make money with a single product, he notes, but he questions whether that approach will work with second-generation products. Besides, he adds, biotechs seldom produce a "second drug anywhere near the sales of the first."
The need for effective antibacterials isn't going to disappear. But whether biotechs can -- or should -- fill the void is uncertain. If these outfits focus on relatively low-risk candidates they have licensed from pharmaceutical companies, the novel approaches that could provide the best hopes of beating bacteria may never get off the ground. Tsao covers biotechnology issues for BusinessWeek Online. Follow her Biotech Beat column only on BusinessWeek Online