BUSINESS
Biotech Companies Face Uncertain Future After Grappling With Troubles In 1994 • Consolidation, poor stock and product performances, and few product approvals left a gloomy legacy last year for most biotech firms Ann M. Thayer, C&EN Northeast News Bureau
T
here's nowhere to go but up. This would be an optimistic view of the biotechnology industry after a year full of pessimistic indicators. But optimism endures into 1995, as it has after difficult recent years for the industry. Most companies had little success in turning around their poor financial performance in 1994. And many products that would make the turnaround possible still await regulatory approval, continue to be under development, or, in the worst cases, fail in clinical trials. Agouron Pharmaceuticals, Biogen, Cephalon, Chiron, Genentech, Gensia Pharmaceuticals, Immunex, Isis Pharmaceuticals, Liposome Co., Medlmmune,
Regeneron Pharmaceuticals, Repligen, Scios Nova, and U.S. Bioscience were among the dozens of companies that had disappointing trial results or discontinued products. The success rate for biotechnology product development has declined dramatically since the early 1990s, say biotechnology analysts at the New York City-based investment firm PaineWebber. After inordinately high success rates in the 1980s, when most products now on the market were approved, the biotechnology drug development process is now more hazardous. Although product setbacks had less effect on established biopharmaceutical companies, smaller firms were hit hard. Except for the stocks of a few select companies, investors found little to cheer about. Thus, stock prices declined overall during most of the year, reflecting more often than not only the downside of the industry. As illustrated by C&EN's biopharmaceutical stock price index, which tracks the stocks of 11 companies, the market value of stocks fell more than 15% during the first half of 1994. Stock
Biotechnology stock prices shift dramatically in 1994 Stock price index, close 1990 = 100
Agricultural biotechnology stocks 8 ' c 1 Dow^ Jones industrial average3
Jan
Feb
Mar
Apr
I
May June July -1994
Aug
Sept
Oct
Nov
Dec
Jan Feb 1 I—1995—I
a Reindexed to show relative change. Prices as of Friday close each week, b Based on stock prices for Amgen, Applied Bioscience, Biogen, Centocor, Chiron, Cytogen, Genentech, Genetics Institute, Immunex, Repligen, and Xoma. c Based on stock prices for Calgene, Crop Genetics, DNA Plant Technology, Ecogen, and Mycogen.
12
MARCH 20,1995 C&EN
values fell on bad news, such as product setbacks, but, unlike in previous years, did not gain on good news. In the second half of 1994, biopharmaceutical stocks regained some strength. However, most of the gains were attributable to the top-tier companies—those with strong products on the market and solid financial positions. New product approvals are expected to be major drivers of an upturn in stock prices, but if or when they will happen is uncertain. Of the 25 biopharmaceutical companies surveyed by C&EN for financial performance, only four reported profits for 1994: Amgen, Chiron, Genentech, and Genzyme. After reporting a profit in four of the past five years, Biogen's net loss of nearly $11 million in 1994 was disappointing. In addition, revenues—largely from royalty income on major products the company has licensed to others—remained flat at $150 million. A $25 million special charge for halting development of its leading drug candidate, the anticoagulant Hirulog, hurt Biogen's financial performance and stock position. The Cambridge, Mass.based company now is facing possible patent challenges for p-interferon, expected to be a major proprietary drug for the company. Only Amgen has consistently been among the few profitable companies included in C&EN surveys in the past five years. TTie Thousand Oaks, Calif.-based company had net earnings of $436 million in 1994, up nearly 27%, on revenues of $1.65 billion. Its two leading products—the blood cell stimulants erythropoietin and granulocyte colony-stimulating factor—contributed $1.55 billion in 1994 sales, up nearly 19% over 1993. On the basis of its strong financial position, Amgen was able to acquire Boulder, Colo.-based Synergen in the fourth quarter of 1994 for $240 million. Synergen had been facing product development setbacks with its leading antisepsis product during 1994. But Amgen was
Few biotechnology companies showed profits for 1994 1994
Change from 1993
Profit marginb
Revenues3
Earnings
Revenues
Earnings
$
21.4 23.8 1,647.9 149.8 67.2
$-19.0 -7.2 436.0 -10.6 -63.5
41% 86 20 0 -11
nm nm 14% nm nm
def def def def 26.5% 27.9% def 21.7 def def
Cephalon Chiron Curative Technologies Cytogen Genentech
21.7 454.0 40.6 2.5 795.4
-36.1 32.0 -7.3 -32.8 124.4
28 43 30 -76 22
nm 74 nm nm 111
def 7.0 def def 15.6
def 5.8 def def 9.1
Genetics lnstituted Gensia Pharmaceuticals Genzymee Immune Response lmmunexf
130.9 71.8 310.7 7.0 144.3
-18.9 -50.1 30.2 -17.4 -33.1
28 115 17 46 nm
nm nm 225 nm nm
def def 9.7 def def
def def 3.2 def def
Isis Pharmaceuticals Liposome Medlmmune Oncogene Science Regeneron Pharmaceuticals
15.5 10.4 18.9 16.7 23.2
-18.2 -33.7 -18.8 -6.4 -30.7
28 -20 25 1 119
nm nm nm nm nm
def def def def def
def def def def def
Repligen Scios Nova T Cell Sciences U.S. Bioscience Vertex Pharmaceuticals
18.3 53.7 7.0 8.5 23.1
-23.4 -28.0 -11.1 -32.6 -17.6
-32 13 -22 4 -21
nm nm nm nm nm
def def def def def
def def def def 7.0
15.1 47.0 2.2 19.8 11.1 117.0
-12.8 -36.8 -8.3 -4.6 -17.3 2.0
57 46 -44 19 14 -3
nm nm nm nm nm nm
def def def def def 1.7
def def def def def def
$ Millions
BIOPHARMACEUTICAL Affymax Agouron Pharmaceuticals Amgen Biogenc Centocor
AGRICULTURAL Biosys Calgene Crop Genetics Ecogen9 EcoScience Mycogenh
1994
1993
a Includes product sales, contract research, royalty, and interest revenues for calendar year, b After-tax income as percentage of revenues, excluding nonrecurring special charges, c Earnings in 1994 include one-time pretax charge of $25 million, d Fiscal year changed from Nov. 30 to Dec. 31 in 1994. e Results for 1993 include charges for in-process R&D and restructuring, f Results for 1993 are for seven months from June 2 through Dec. 31, after merger with oncology business of Lederle Laboratories, g For 10-month period ending Oct. 31. 1994, because of change of fiscal year. h Results for 1993 include special charge of $38.4 million, nm = not meaningful, def = deficit.
also believed to be a takeover target, and after speculation that it might be acquired, the company adopted an antitakeover plan in late February. The plan allows shareholders to buy stock at half the market price if any person or group acquires 10% of the company's stock. Genentech's product sales also increased—31% to $601 million in 1994. Products sales of four major drugs increased for the South San Franciscobased company. Pulmozyme, a Genentech product used to treat cystic fibrosis, was one of only a few biopharmaceuticals granted marketing approval in 1994. Genentech's earnings more than doubled, rising from $58.9 million in 1993 to $124 million in 1994. Similarly, Genzyme of Cambridge, Mass., had a major gain in earnings. The
company's 1994 earnings rose 225%, to $30.2 million, on revenues of $311 million, which was an increase of 17% over 1993. Biopharmaceutical product sales rose 38% in 1994, to $172 million. A significant event for Genzyme and the industry was the approval of Cerezyme, a recombinant form of Ceredase, an enzyme that treats a rare generic condition called Gaucher's disease. The debate over drug pricing has made an example of the more than $150,000 average annual cost for this drug. Chiron had the largest gain in revenues, 43%, to reach $454 million in 1994. Earnings, not including one-time charges for investments in smaller biotechnology companies, rose 74% to $32 million. Chiron had $143 million in biopharmaceutical sales, largely of (3-interferon. In
addition to that drug, the Emeryville, Calif.-based company also produces ophthalmic and diagnostic products. Chiron surprised the biotech industry by entering a partnership in which Ciba acquired a 49.9% stake in the company. The $2.1 billion deal, completed in early 1995, should expand Chiron's access to a global regulatory, marketing, and manufacturing infrastructure as well as provide $250 million in R&D funding from Ciba over five years. The four profitable drug companies are exceptions in the biotech industry. Most companies continued to report sizable losses. This is based largely on R&D spending levels that represent significant percentages of their revenues. To control costs, many companies now are reorganizing their operations, causing some analysts to say that the industry is moving toward new business models. Centocor, Malvern, Pa., and Gensia Pharmaceuticals, San Diego, had the greatest losses for the group of 25 companies C&EN surveyed, at $64 million and $50 million, respectively. Just recently, Gensia announced that it will restructure to reduce costs and focus on commercial development. Centocor has been working to reorganize since 1992, when it failed to get U.S. Food & Drug Administration marketing approval and then pulled its antisepsis product, Centoxin, from the European market. Spending levels still are high, but the company has improved its position and received FDA approval for its first therapeutic product, the heart drug ReoPro, which is used in angioplasty, in early 1995. Centocor's goal for 1995 is profitability. For the first time in many years, agriculture represented a bright side for the industry. Mycogen reported its first profit of $2 million, although revenues were down 3% from 1993 to $117 million. The San Diego-based company has completed its integration of Agrigenetics, acquired from Lubrizol, along with the associated restructuring and technology acquisition charges taken in 1993. And despite a continued outcry from special-interest groups that oppose genetically engineered plants, Calgene introduced the first genetically engineered tomato in 1994. The Davis, Calif.-based company also expects to market transgenic cotton in 1995. Calgene's revenues were up 46% to $47 million in 1994, but the company reported a net loss of nearly $37 million for the year. MARCH 20,1995 C&EN
13
BUSINESS
Sales of major biotechnology products saw gain in 1994 Sales ($ millions) Company
I
1993
1994
Hiils America has grown by leaps and bounds, but can it maintain the momentum? Klaus Burzin, the Piscataway, Biogen3 134 136 a-, p-, and y-interferons; hepatitis NJ.-based company's growth-oriented B vaccines and diagnostics president and chief operating officer, Chiron 100 12 P-Interferon6 thinks it can. 43 38 lnterleukin-2 and other Acquisitions, joint ventures, and inoncology products ternally generated growth could all be Genentech 225 217 Human growth hormones factors in transforming the chemical 281 Tissue plasminogen activator 236 maker. It hopes to grow from a compa88 nm Pulmozyme (DNase) ny with eight North American plants 6 4 y-Interferon and sales of $548 million in 1994 to the 126c Human insulin, a-interferon, 113c more than $800 million-a-year producand Factor VIII d er Burzin wants the company to be by 43 Factor Vlll Genetics 41 2000. 43e Institute 26e Erythropoietin, granulocyte macrophage colony-stimulating factor, and Factor VIII In fact, Burzin, an organic chemist and a 24-year company veteran who has 172 Genzymef 125 Ceredase and Cerezyme headed Hiils America since 1993, points 87 Immunex 82 Oncology products out that he bases his $800 million sales 46 42 Granulocyte macrophage colonystimulating factor projection for 2000 on sales growth for existing businesses. Growth for the U.S. a Predominantly royalty income from $1.7 billion in 1994 sales and $1.6 billion in 1993 sales by licensees, b Manufacturing sales to marketing partner Berlex Laboratories began in third-quarter 1993. Actual product sales were about $200 million in unit of the Marl, Germany-based Hiils 1994. c Royalties from licensees' sales, d Includes sales of product to marketing partner Baxter, e Royalties on overseas Group could actually be much greater if sales of erythropoietin and granulocyte macrophage colony-stimulating factor and on U.S. sales of Factor VIII. nm = not meaningful. the company finds suitable acquisitions in the next five years, suggests Burzin. Industry observers, though, wonder if Some agricultural biotechnology Science's loss increased to $17 million Hiils Group will have the backing to pay companies, including Calgene, are re- in 1994, due largely to a restructuring for really big acquisitions. Significant sales growth in prior organizing and setting up cost control charge. Ecogen, Langhorne, Pa., also has measures. Worcester, Mass.-based Eco- been controlling costs and is shutting years has depended on acquisitions. down its Australian operations. And Crop Hiils America had sales totaling $31 Genetics, Columbia, Md., and Biosys, Palo million in 1984, all from imported chemicals. The addition of Nuodex, a Alto, Calif., are to merge this year. R&D spending is high Agricultural stocks followed a steady U.S. producer of colorants, in 1985 gave percentage of revenues downward trend throughout 1994 as Hiils America domestic manufacturing shown by C&EN's stock price index, ability and boosted total sales to $144 R&D spending which tracks five prominent agricultur- million. Hiils Group bought the Ger^s % of revenues $ Millions 1993 1994 1994 1993 al biotechnology companies. Only in man company Dynamit Nobel in 1987 early 1995 did the agricultural stock and folded its U.S. operations into Hiils Affymax $ 31 $ 39 201% 182% price index begin to pick up, largely America in 1988, resulting in a rise in Amgen 255 324 19 20 because of anticipated stronger perfor- total U.S. sales from $239 million in Biogen 79 53 91 61 1987 to $413 million in 1988. mance by Mycogen and Calgene. 66 Centocor 87 70 104 U.S.-based Rohm Tech, acquired in Mergers between biotechnology com37 Chiron 140 166 44 panies and acquisitions by major phar- 1989 when Hiils Group bought Rohm Genentech 299 314 46 40 maceutical firms are leading many ana- GmbH, was folded into Hiils America Genetics Institute 100 108 98 83 lysts to predict that consolidation— in 1993, adding $50 million in annual Gensia 54 61 163 85 which began in 1994—will continue into sales for a total of $598 million. Sales in Genzyme 46 52 17 17 1995. Already this year, the British drug 1994 dropped, however, as Hiils sold Immune Response 12 14 249 192 giant Glaxo acquired Palo Alto-based its plastics division. Today, about twothirds of Hiils America's sales are from Immunex3 50 52 54 78 Affymax for more than $550 million. Med Immune 15 22 99 116 Analysts also predict that biotech U.S.-produced product, and the reRegeneron 39 40 371 171 companies will increasingly take one of maining one-third comes from Hiils Repligen 35 32 130 176 two forms in the next several years—as Group factories in Europe. Scios Nova 34 39 64 83 "Our intention, as well as our chairaffiliates of large drug companies or as a Figures for 1993 are for period between June 2 and Dec. 31, large, independent companies that tar- man's [Erhard Meyer-Galow] intenafter merger with oncology business of Lederle Laboratories. get specific diseases or consolidate work tion, is to [expand] Hiils Group's North on particular technologies. D American business so it could be as Amgen
j
Products
Hiils America wants to buy American assets
14
Erythropoietin Granulocyte colony-stimulating factor
MARCH 20, 1995 C&EN
$587 719
$721 829
