ImClone is leader of biotech retreat

Sector index falls 16% since drug firm revealed FDA rebuff

3 Md. companies also down

January 29, 2002|By Julie Bell | Julie Bell,SUN STAFF

Biotechnology stocks, which outperformed the market late last year, have had a sharp reversal of fortune this month thanks at least in part to investor surprises at Wall Street darling ImClone Systems Inc.

The implosion of ImClone has raised questions about whether private Food and Drug Administration documents should be shared with investors - or at least with the Securities and Exchange Commission. But it also has encouraged a biotech slide that has ensnared local biotech company stocks.

Since Dec. 28, when the New York company stunned investors by revealing that the FDA had refused to accept the application for review of its highly touted cancer drug Erbitux, the Nasdaq biotech index has dropped more than 16 percent, closing yesterday at 788.95.

The drop has far outstripped the 2.7 percent loss of the Dow Jones industrial average, the 2.4 percent dip in the Standard & Poor's 500 index and the Nasdaq composite index's drop of 2.2 percent during the same period.

"It certainly is fair to say that the ImClone debacle is ... casting a pretty large shadow over the whole group," said Brian Rye, an analyst at Raymond James & Associates, referring to biotech stocks.

The implosion at ImClone - whose shares have plummeted nearly 68 percent from their close of $55.25 on Dec. 28 to yesterday's close of $17.90 - has sparked shareholder lawsuits and inquiries by the Justice Department and the Securities and Exchange Commission.

The House Energy and Commerce Committee, which also is investigating the Enron Corp. debacle, has begun an investigation looking in part at whether ImClone executives publicly painted a rosy picture about Erbitux's prospects for approval while privately receiving FDA correspondence that raised significant concerns about the application.

Much of the FDA's correspondence with biotech companies, including its "refusal to file" letter sent to ImClone, is private and unavailable to investors, ostensibly to protect companies' trade secrets. But some believe more of the FDA's correspondence should be made public, or at least shared with the SEC, to protect investors.

Little information

The issue has taken on added significance in the biotech industry, where many companies have yet to put their first products on the market, leaving investors little to go on other than news from scientific meetings about a drug's test results and company statements.

Steven Harr, a biotechnology industry analyst for Robertson Stephens Inc., said he expects ImClone's problems and issues surrounding the secrecy of FDA information to help keep the biotech index depressed through the first quarter.

Analysts such as John McCamant of the Medical Technology Stock Letter believe releasing FDA correspondence would harm companies and increase market volatility, but Harr is among those who believes the FDA should make more information available.

"I think as an investor, more information is generally better," Harr said, adding that he believes compelling more disclosure would be good for companies, which would be pressured by investors to quickly address FDA concerns. "It would be good for patients, good for investors and good for companies."

Three Md. companies

But Harr said that he doesn't believe companies should be forced to reveal trade secrets, and he and other analysts pointed out that ImClone is not the only reason for biotech's tough month.

A number of Maryland biotech companies recently have seen shares fall after putting out news which disappointed investors. Among them:

Human Genome Sciences Inc.'s shares closed yesterday at $27.47, off 72 cents for the day and down $12.54, or 31 percent, from its close of $40.01 on Dec. 6.

The stock fell after the company announced Dec. 7 that its drug Repifermin showed no signs of effectiveness in clinical trials against either mucositis - a condition characterized by debilitating mouth, throat and gastrointestinal sores - or ulcerative colitis.

Celera Genomics Inc., also of Rockville, lost 86 cents yesterday to close at $21.50, down nearly 10 percent from a week ago, when the company announced that co-founder Craig Venter had agreed to step aside as president.

Shares of MedImmune Inc. fell $2.10 yesterday to close at $41.50, down $2.60 or about 12 percent since the Gaithersburg company announced Dec. 3 that it would acquire vaccine developer Aviron for $1.5 billion in stock.

Biotech stocks often trade on news generated by the test data they reveal at scientific conferences, but there are few during the first quarter - a period during which the Nasdaq biotech index historically has lost 10 percent of its value on average, Harr said.

End-of-year selling

Other reasons for biotech's slide include late-December selling by investors who wanted to write off losing stocks on their taxes, putting additional downward pressure on those stocks, said Brian Rye, the Raymond James analyst.

"My sense is that it's not primarily ImClone," said Craig West, an industry analyst for A.G. Edwards Inc.

He believes investors had access to enough scientific data to understand that Erbitux isn't a wonder drug - even without the secret FDA correspondence.

Human test results presented at a scientific conference showed it to be moderately effective at best, he said.

"People seem to want to stop believing what was always true in drug development," West said, "and that is that it's hard to do."

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