By Jim Shrine

Investors, given a day to digest PathoGenesis Corp.¿s TOBI (tobramycin solution for inhalation) sales shortfall, were not any more confident in the story than on Tuesday, when they took nearly two-thirds of the value out of the stock.

The shares (NASDAQ:PGNS) lost another 87.5 cents Wednesday, or 7.2 percent, to close at $11.312 per share. The stock opened at $34.75 Monday, and a few months ago traded as high as $61.50.

The sell-off started when PathoGenesis, of Seattle, reported that first-quarter sales of TOBI ¿ a drug to treat chronic lung infections in cystic fibrosis patients ¿ would total about $10 million. The company said it expected to post a net loss of 30 cents per share in the quarter, well off the mean analyst estimate of a 20-cent profit.

¿My goal is to do everything we can to get the sales trend back on stream,¿ Wilbur Gantz, chairman and CEO of PathoGenesis, told BioWorld Today. ¿The results of our trial were outstanding, [and] our data show compliance has been excellent; patients feel better and breathe easier and go to the hospital less. We need to make sure everyone is aware of this.¿

To that end, Gantz said, the company increased its sales force 25 percent in the first quarter (to 31 people), and will follow up with doctors who have said they intend to put patients on TOBI. ¿We have to make sure, in fact, that doctors are motivated to do that, that they have the information they need. The second thing is we need to make sure we are getting information directly to the patients and are working with patient groups.¿

Lesley Wright Marino, an analyst at BancBoston Robertson Stephens Inc., in New York, told BioWorld Today that investors were caught completely off guard by the revised sales expectations. PathoGenesis estimated sales for 1999 of $62 million to $63 million, and Marino in turn reduced her projection to $62 million from $102 million.

¿We, and I think most investors, were surprised at the magnitude,¿ Marino said. ¿There hadn¿t been any real indication patient demand had hit a wall, the way it seems to have done. Management¿s outlook is dramatically different than what we had been expecting.

International Launch Plan On Schedule

¿We had been looking for $19 million in sales, and they come out a week before the quarter ends and say it¿s going to be $10 million,¿ she added. ¿The magnitude of how much they¿ll miss by is something no one had a feel for.¿

Part of the problem, Marino said, was that prescription data from London-based IMS Health indicated demand was continuing to grow. And, she said, the quarter was affected by wholesalers and patients stocking up in the previous quarter, before a price increase, as the company pointed out.

¿But I also feel that doesn¿t 100 percent answer what happened here,¿ she said, ¿and I¿m not sure what the rest of the answer is. I think, clearly, management¿s credibility has been severely damaged by this whole episode.¿

Marino said company officials should have had access to better information and provided it to investors.

Gantz said, ¿The most accurate data I have is what wholesalers are shipping out to customers. I get that data in the middle of the month. When we saw what actual February sales were, I made the decision that we had to go out right away with the information.¿

The international launch of TOBI won¿t add significantly to sales this year, Gantz said, but is ¿very important for the year 2000. We have approval in Canada, and will launch in April. As we get reimbursement approval, province by province, sales will build up during the year. We¿re also working to get approval in the U.K., which is the first step to the Common Market. We¿re on stream for quarter-three approval in the U.K., which means launch soon thereafter. That¿s certainly important for the year 2000.¿

The key in the U.S., Gantz said, is to increase usage among cystic fibrosis (CF) patients. Now, he said, 20 percent to 25 percent of the 30,000 CF patients with chronic lung infections in the U.S. are using the drug. The second step to increasing U.S. sales is to work toward getting off-label usage in bronchiectasis, a lung infection, and then in indications such as severe chronic bronchitis and ventilator-dependent patients, he said.

Phase II Data For New Indication Soon

Clinicians will present Phase II data of TOBI for bronchiectasis on April 25 in San Diego at the America Lung Association/American Thoracic Society 1999 International Conference. The company is developing a protocol for a Phase III trial in bronchiectasis, and is working with investigators to get a better understanding of how the product best can be used in patients using ventilators, Gantz said.

PathoGenesis, he said, also is working on two other aerosolized antibiotic drugs, with the lead drug expected to enter the clinic by the end of the year.

John Sonnier, a vice president and analyst at Vector Securities International Inc., in Deerfield, Ill., was among several analysts who downgraded the stock on Tuesday. He said in a research note Wednesday, however, that PathoGenesis might represent an attractive opportunity for those with longer-term outlooks.

Each additional $5 million in TOBI sales would drive net income 25 cents per share, he said. ¿Therefore, we will closely monitor the company¿s progress in improving its commercial operation, and reevaluate our position on signs of improvement.¿

Marino expects the stock will stay in the low-teens to mid-teens for the time being. ¿Right now I believe in my 1999 numbers,¿ she said. ¿But I don¿t feel like I have a great deal of conviction on where sales can really go. Until we have a little more to work with in terms of trends, I think the stock will probably continue to trade at these depressed levels.¿

At the same time, ¿it¿s not like the drug is dead,¿ Marino said. ¿In terms of the outlook, the credibility is damaged and sales will be less. But this is not a factor of the drug not working, or causing some serious adverse events. We¿re still talking about a real market and real disease and a product that makes sick kids feel better.¿