Wall Street's heady resurgence of confidence in biotechnology stocksa year ago may be tested today as an FDA advisory panel reviews theLou Gehrig's disease drug proposed by Cephalon Inc. and ChironCorp.

The two companies were credited with sparking last year's dramaticrally industry-wide with release in June 1995 of positive findingsfrom the first of two Phase III studies of the drug, Myotrophin, whichis recombinant human insulin-like growth factor (IGF-1).

In November 1995 Cephalon, of West Chester, Pa., and Chiron, ofEmeryville, Calif., said a second Phase III trial in Europe confirmedsuccessful findings of the first, which was held in North America.

But in January 1996 the FDA raised questions about the Europeandata, scuttling the companies' treatment investigational new drug(IND) application for Myotrophin and interrupting what hadappeared to be a triumphant march to market. A treatment IND wouldhave made Myotrophin available to patients pending FDA review ofthe new drug application (NDA), which has not yet been filed.

In May 1996 the FDA took the unusual step of scheduling aMyotrophin advisory committee review today prior to the NDAsubmission for use of the drug to treat amyotrophic lateral sclerosis(ALS), also called Lou Gehrig's disease.

On Wednesday as Wall Street analysts debated Myotrophin'sprospects, Cephalon (NASDAQ:CEPH) ended the day down $3.69 to$23 and Chiron (NASDAQ:CHIR) was off $5.87 to $97.87.Cephalon closed Thursday unchanged at $23 and Chiron was down87 cents to $97.

NASDAQ officials were expected to halt trading in both stockstoday.

Reijer Lenstra, analyst for Smith Barney in New York, said theFDA's Peripheral and Central Nervous System Drugs AdvisoryCommittee is unlikely to vote in favor of Myotrophin because ofsafety problems and lack of efficacy.

"How many drugs get approved that increased death by 50 percentover placebo?" Lenstra asked, saying the combined number ofpatients who died in both Phase III studies was 52 percent greater ondrug than on placebo. He suggested the FDA may recommend a thirdPhase III study to settle safety concerns.

Lenstra also questioned the validity of statistical methods used inboth Phase III trials to demonstrate Myotrophin slowed progressionof ALS and lessened severity of the disease. He said the analyses didnot take into account patient deaths. If a participant's condition in thetreatment group improved prior to dying, he noted, that improvementwas recorded at the conclusion of the trial even though the patientwas not alive.

"Since more patients died on drug than on placebo, their analysis isskewed in favor of drug," Lenstra said.

Tim Wilson, an analyst with UBS Securities, of New York, predictedMyotrophin has a 70 percent chance of receiving a favorable votefrom the committee on the treatment IND, which is still on file.

If the panel considers the issue of another clinical trial, he said, itlikely would recommend a post-marketing Phase IV study.

"I don't agree with the bears who say the drug kills patients," Wilsonsaid. "That's garbage."

He expects the FDA to characterize the European Phase III study as a"dud," but portray the North American study as successful andconclude Myotrophin is safe.

Cephalon has acknowledged the European findings were not asstrong as the North American data, but the company has said bothstudies showed Myotrophin achieved statistical significance versusplacebo. And although a greater percentage of patients taking thedrug died than those receiving placebo, Cephalon has saidinvestigators concluded the deaths were not linked to the drug.

"If the FDA believed the drug was responsible for the deaths it wouldhave stopped the trials," said Wilson.

Rachel Leheny, an analyst with Hambrecht & Quist LLC, in NewYork, said she expects Myotrophin to have a "tough day" today at theadvisory committee, but she's more bullish than bearish on theoutcome.

"If there are no safety issues," she said, "Myotrophin will get thetreatment IND and have a good chance of getting FDA approval withthe requirement of a Phase IV study."

One argument in Myotrophin's favor, analysts said, will be made by asmall army of ALS patients who are expected to lobby today forapproval of only the second drug to treat their debilitating condition.

ALS is a degenerative neuromuscular disease that destroys motorneurons, leading to death from respiratory failure three to five yearsafter onset of the disorder. It affects 70,000 people worldwide andhalf are in the U.S.

Rhone-Poulenc Rorer Inc., of Collegeville, Pa., received FDAapproval of its small molecule compound, Rilutek, for ALS inDecember 1995.

In June 1995 Cephalon and Chiron, who co-developed Myotrophinand would split sales revenues, were trading at $10.50 and $54.87,respectively, prior to release of the first Phase III North Americanfindings. Cephalon soared 75 percent and Chiron jumped 12.5percent in one day on news of the positive findings.

By November 1995 after release of the second Phase III Europeandata, Cephalon was trading at $30 and Chiron was at $91. Thecompanies' surge in stock price spread industry-wide. For example,by the end of 1995 the American Stock Exchange BiotechnologyIndex reached 123.63, a 51 percent increase over its 1994 close of81.68.

Another Shock Of Confidence?

Many analysts credited Myotrophin's success with restoring investorconfidence in biotechnology drug development after several downyears in which product failures grabbed much of the spotlight.

In January 1996, Cephalon and Chiron both fell when the FDAdeclined to accept the treatment IND. Cephalon plummeted 35percent to $23.38 and Chiron fell 5 percent to $104.

Lenstra said stockholders are in for another "shock of confidence" ifMyotrophin fizzles at the FDA, but he anticipates the recoil will belimited to Cephalon and Chiron.

"There are plenty of other things going well," he observed, such asrecent drug approvals for Biogen Inc., of Cambridge, Mass., andBiochem Pharma, of Laval, Quebec.

If the bears' prediction of a downfall is right, Wilson expects a"short-term deleterious effect" throughout the industry, but he saidMyotrophin's troubles won't overshadow the advancements of othercompanies.

Leheny said biotechnology stocks already are in "a retrenchmentmode" and a negative FDA panel review of Myotrophin "would putus there solidly." n

-- Charles Craig

(c) 1997 American Health Consultants. All rights reserved.