Centocor setback rattles biotechnology

January 19, 1993|By Liz Bowie | Liz Bowie,Staff Writer

The biotech industry held its breath yesterday, waiting fo investors' reaction to the second major announcement by Centocor Inc. in a year that its leading product is in trouble.

Centocor said yesterday that tests of Centoxin showed a higher death rate in some patients taking the drug than in those who did not. Its stock dropped 65 percent after the company halted the sale of its anti-sepsis product in Europe and stopped U.S. testing. The drug has not been approved in this country.

In March, when the company announced that the Food and Drug Administration was questioning the way in which tests had been conducted, biotech stock prices dropped dramatically and investor confidence in the industry collapsed.

Industry analysts said yesterday they did not expect the same reaction this year because investors seem to be more apt to discriminate between different biotechnology companies. In addition, they said Synergen, a Centocor competitor, soon expects to have a drug for sepsis, a potentially fatal infection.

The stock was heavily traded, with 14.1 million of its 41.1 million outstanding shares changing hands on consolidated trading. The company closed down $11.125 a share, to $6.625. A year ago, Centocor stock traded as high as $60.25.

While analysts said that expectations for Centoxin were low, yesterday's news could be a final blow to the Malvern, Pa., company.

"Centoxin has no future. . . . I think it would be fair to say that Centocor's chance of becoming a large company is at an end," said David Webber an analyst with Alex. Brown & Sons. "The company has failed . . . to rise from the ashes."

Sepsis most often appears in patients who have had surgery or have been through trauma. Because doctors cannot diagnose sepsis before the patient has either died or recovered, the company's product is tested on those with symptoms of sepsis.

But there are two types of sepsis bacteria, only one of which Centoxin was developed to treat. Patients with the other type of sepsis who were given the drug had a higher death rate than those who were given a placebo, the company said.

Eli Lilly & Co. had put $100 million into development of the drug and had an option for marketing rights to a second product called CentoRx, which has completed its testing. Analysts said they expected Lilly to take advantage of that option. Lilly closed down $1.375, at $60.

While biotech stocks in general were down slightly yesterday, analysts said it was difficult to tell if this was a reaction to the Centocor announcement. But they did not predict the kind of panic that set in last March and April when "the whole financing of biotech came to a screeching halt," said Robert Gottlieb of Feinstein Partners in Cambridge, Mass.

Mr. Gottlieb and Mr. Webber said it may be too early to tell whether some companies will decide not to go ahead with scheduled stock offerings or whether stock prices would fall.

In the past two weeks, several analysts had upgraded their rating of Centocor to a "buy" on the belief that Centoxin might be approved by the FDA.

Wole M. Fayemi at Hambrecht & Quist said he downgraded his buy rating to neutral after the announcement yesterday. He said it was too early to tell whether Centocor would have to give up development of the drug.

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