By Jennifer Van Brunt


In this season of quarterly earnings reports, it's no surprise that one public company after another has come in below analysts' expectations. The global economic slow-down has affected broad sectors of the economy, and market watchers predict that earnings will continue to lag for the forseeable future.

But the biotechnology stocks, which remain relatively immune to global woes, are still under intense pressure to perform like more traditional drug stocks. Even today, more than 20 years after the first biotech firm sold stock to the public, only a small percentage of the 300-plus biotech and biotech-related companies that are publicly traded are actually turning a profit.

For instance, of the 100 companies that biotech analysts at Boston-based SG Cowen Securities Corp. include in the SG Cowen biotech universe, only seven are classed as earnings-driven: Amgen Inc. (NASDAQ:AMGN), BioChem Pharma Inc. (NASDAQ:BCHE), Biogen Inc. (NASDAQ:BGEN), Centocor Inc. (NASDAQ:CNTO), Chiron Corp. (NASDAQ:CHIR), Genentech Inc. (NASDAQ:GNE) and Genzyme Corp. (NASDAQ:GENZ). These are all large-cap companies; they are mature, by biotech standards, and they have had at least one major therapeutic drug on the market for years. (See the chart on p. 3 for yearly sales figures of selected biotech drugs.) But SG Cowen's list of 100 contains another nine companies that actually reported positive earnings per share in fiscal 1997 — including Incyte Pharmaceuticals Inc. (NASDAQ:INCY), Biomatrix Inc. (AMEX:BXM), Millennium Pharmaceuticals Inc. (NASDAQ:MLNM), Bio-Technology General Corp. (NASDAQ:BTGC) and ArQule Inc. (NASDAQ:ARQL).

By this measure, then, only about 16 percent of the 300-plus public biotech firms are profitable. But that's about to change — and the change may be rather abrupt. The FDA has set a speed record this year in its approval of new biotech-derived drugs, and while many of those products are just starting to enter the market, it won't be long before profits from those sales start showing up on balance sheets.

Meanwhile, sales figures for biotech drugs that were approved in 1997 are already giving solid indications of the earnings potential of the companies that developed them. Top among these is Viracept, Agouron Pharmaceuticals Inc.'s (NASDAQ:AGPH) HIV protease inhibitor for treating AIDS in adults and children. Sales of this drug have skyrocketed since it garnered FDA approval in March 1997. By the end of the calendar year, the La Jolla, Calif., company had reported $196 million in sales of the drug. In 1998, with additional approvals of Viracept in the European Union and Japan, worldwide sales had jumped to $238 million by June 30, which is also the end of Agouron's fiscal year. Thus, the company was able to report Viracept sales of $409.3 million in fiscal 1998.

Another new biotech product that's on its way to stardom is Rituxan, a chimeric monoclonal antibody that gained approval in late November 1997 for use as a single-agent therapy in non-Hodgkin's B-cell lymphoma. The drug's developers, Idec Pharmaceuticals Corp. (NASDAQ:IDPH), of San Diego, and Genentech, of South San Francisco, reported 1997 sales to third parties of a mere $5.5 million — but then the drug had only been on the market for two weeks. Since then, Rituxan sales have soared. Genentech just reported third-quarter 1998 sales of $39.4 million, $36.1 million in the U.S. and $3.3 million elsewhere. In June 1998, the product received pan-European regulatory approval, where it is sold by F. Hoffmann-La Roche Ltd. under the tradename MabThera. Year to date, Rituxan has racked up total sales of $111.9 million.

There are other biotech drugs that remain hot commodities — with steep sales curves — even though they have already been on the market for more than two or three years. Canadian firm BioChem Pharma's nucleoside analogue 3TC — known variously as Epivir or lamivudine — has gained a tremendous part of the AIDS drug market and is about to become a major player in the hepatitis B market.

Since its approval in November 1995, the drug has become a cornerstone for all combination drug therapies for HIV infection and AIDS. Subsequently, it's been incorporated into a combination tablet — called Combivir — which has also been approved for sale in both the U.S. and the European Union. Epivir garnered C$429 million in its first full year of sales; the following year, 1997, it racked up C$973 million; and by the end of the second quarter of 1998, those numbers stood at C$570 million.

As well, marketing partner Glaxo Wellcome plc, of London, has filed for approval to sell the drug as a treatment for hepatitis B infection in at least 30 countries. It was approved in the Phillipines under the tradename Zeffix in August; since then, approvals have been granted in New Zealand and Pakistan. As well, in early October an FDA advisory committee unanimously recommended its approval; the drug will be marketed as Epivir-HBV in the States. The potential market for a hepatitis B therapy is enormous. SG Cowen analysts project that 3TC for hepatitis B could become a billion-dollar drug at maturity. As well, they project another billion dollars for the drug in the AIDS market.

Also hot is Biogen's Avonex (interferon beta-1a) for treating multiple sclerosis. The FDA approved Avonex for sale in May 1996; within days, it was on the market in the U.S., and the Cambridge, Mass., company recorded 1997 sales of $77 million. In 1997, aided by European market introduction in March, worldwide sales leapt to $240 million. In the first nine months of 1998, sales figures have already surpassed that mark: Biogen reported nine-month Avonex sales of $270 million. In its third-quarter earnings statement, Biogen said that 40,000 patients in the U.S. and 11,000 in Europe are on weekly Avonex therapy.

Centocor's chimeric monoclonal antibody ReoPro, too, is continuing to gain sales over time. First approved in December 1994 to prevent blood clots in the setting of high-risk angioplasty, the GPIIb/IIIa platelet receptor inhibitor has since gained further approvals in a wide range of interventional cardiology settings. The Malvern, Pa., company is also conducting clinical trials to expand its use even further. Marketing partner Eli Lilly and Co., of Indianapolis, reported 1995 sales to end-users of $23 million. By 1997, that figure had jumped to $254 million. And for the first six months of 1998, Lilly sold $171 million to end-users. Analysts at SG Cowen project that ReoPro sales will reach $650 million in 2001.

Biotechnology's first crop of therapeutics may be experiencing slower growth now that their markets are more mature, but they still bring in plenty of cash. (Again, see the chart on p. 3 for product sales figures.) Cambridge, Mass.-based Genzyme's Cerezyme (recombinant glucocerebrosidase) for treating Gaucher's disease racked up sales of $333 million in 1997 and could come close to $400 million this year. Genentech's tissue plasminogen activator Activase appears to be losing market share, but still brought in $261 million in 1997. The company's growth hormone products — Protropin, Nutropin and Nutropin AQ — contributed $224 million in sales in 1997.

No other single biotech drug has yet to beat the sales history of either Epogen or Neupogen, Amgen's billion-dollar drugs. By the time 1998 sales figures are recorded, however, that too may change. *