By Randall Osborne

Editor

Once hailed as biotech's "magic bullet," monoclonal antibodies have not so much misfired as they seem to have been replaced in the eyes of many investors, at least by the shotgun ammunition made available through genomics, spraying the terrain with previously unavailable data that seem sure to revolutionize medicine.

Does last week's $630 million follow-on offering by Abgenix Inc. herald a resurgence of interest in the field, as some analysts propose, or is it purely an example of one company's strong technology gaining well-deserved recognition?

Stephen Brozak, a principal of Vanguard Capital, an independent broker headquartered in San Diego, said he's not a strong booster of monoclonal antibodies, but companies such as Abgenix and Medarex Inc., with their transgenic mice, are impossible to deny.

"They can apply it to just about everything autoimmune diseases, AIDS, cancer and they can do it on a basic level," he said. "And you can control the response time; it can be exceedingly finite, or last for a while longer. It has all of the positives with none of the foreign-agent problems [of other approaches]. This is truly not business as usual."

Brozak has been working in biotech since 1985, and became an analyst more than two years ago, after working on the sell side of the industry with firms that were then known by such names as Solomon Bros., Cowen & Co., and Alex Brown and Sons.

Vanguard's team includes four physicians who maintain their practices a urologist, ophthalmologist, oncologist, and emergency-room pediatrics worker. "We see 30 or 40 companies per quarter," Brozak said.

Abgenix "and, to a lesser degree, Medarex are the gatekeepers," he said. "If you want something [in the fully human antibody line], you have to partner with them, no ifs, ands or buts. The models they've got are so dominant, people are going to focus on these, until and if something negative happens, which I don't see in the future."

Other firms with non-genomics technologies may be bound for glory as well, Brozak said. He pointed to Trimeris Inc., which in late January said it was raising $65 million through a private placement to fund the development of its HIV fusion inhibitors, T-20 and T-1249. The peptides work against HIV by keeping the virus from attaching to cells rather than by targeting already infected cells.

"The protease inhibitor cocktail is not working well," with only about one-third of patients showing clear and persistent benefit, Brozak said. Researchers at Trimeris may have found the next best thing.

"They block the receptors on the AIDS viruses, and prevent any kind of replication from taking place," he said. "It's straightforward, and they don't seem to have any problem as far as rejection [goes]."

The new crop of day traders and momentum investors want more from all the companies they scrutinize, and driven by the fear of missing opportunities are making quick judgments that tend to push them in the direction of genomics, Brozak said.

Many portfolio managers with whom Brozak deals "have terror in their eyes," he said, because they believe they might not have placed their money quick enough on the next big horse.

"They're worried that they missed the 'dot-com' of the biotech world, and they're jacking the prices up to ridiculous levels, exceeding the fair values on a lot of companies," he said.

"I've been talking to the same portfolio managers I've been talking to the last few years," he said. "We're just going over lists of companies. [They're asking,] 'What do you think? What's the downside? When do we go in, and at what price?'"

Smart investors in all areas are "doing reverse math," he said. "They're figuring, '[The FDA] approval date is here, and the milestones to get to that are here.' [They realize] the most exciting work is being done on shoestring budgets in labs across the country in universities."

Providing advice for or against monoclonal antibodies or any other platform is tricky at best, Brozak said, given the new hysterical distortions in the marketplace and the old problem of potentially fatal regulatory hurdles.

"Management is an incredible part of the equation," he said. "These guys are not all created equal."

Brozak favors Alexion Pharmaceuticals Inc., which develops C5 complement inhibitors to block the production of inflammation-causing proteins in the immune system's complement cascade.

"[President and CEO] Len Bell is one of the smartest people I've run across, and [Alexion has] a product that will be remarkable when it hits the market," Brozak said.

5G1.1-SC, in collaboration with Procter & Gamble, is in a Phase IIb cardiopulmonary bypass efficacy trial and in two Phase II myocardial infarction efficacy trials.

Hitting the market, of course, is the "wild card," he added.

He cited another recent item of big news: the $303 million offering by Celgene Inc., in which Vanguard was involved and on which Brozak was prevented from talking about earlier because of the "quiet period" rule imposed by the Securities and Exchange Commission.

Celgene has a solid, FDA-approved product in Thalomid (thalidomide) and therefore is a more than reasonable subject for investment, Brozak said.

"Back in the early 1990s, biotechs were in vogue, and the questions [asked by investors] were: How big is your burn rate? How many Ph.D.s do you have on your staff? And what's the potential market for your drug regardless of how far it is from FDA approval, regardless of how far it is from Phase I [trials]?" Brozak said. "The premium being paid for an FDA-approved drug is significant."

But even with its approved Thalomid product, and even after the FDA asked Celgene to become the purveyor of thalidomide in the U.S., the company had to contend with complicated FDA procedures, he said.

The agency which had "made its name by excluding thalidomide in the U.S." in the 1950s because it caused birth defects knew the drug was coming into the country from Mexico, had grave concern about the quality of the batches, Brozak said.

"[FDA officials] approached Celgene and said, 'We want you to market thalidomide in the U.S.,'" he said. "You'd figure [Celgene] would get the green light right off the bat, but that was not the case."

He said it probably will be an FDA-related episode of some kind that will jolt the momentum investors into taking stock, and will begin to slow the industry down and lead to more moderate valuations of companies, whether they deal in genomics or monoclonal antibodies.

"You'll see one of these major biopharmas fail to get approval at a meaningful FDA checkpoint, and that will bring people's realizations back down to earth" with regard to genomics and everything else, Brozak said. *