A wave of biotechs is making the milestone move from drug developer to drug marketer, but investors are less interested than ever in sticking around for the potential long-term rewards.

Lately, the mantra in biotech circles is “sell the launch,” leaving some biotechs that have invested millions of dollars in pursuit of the fully integrated pharma company dream worth less after their drug has been approved than before.

Unquestionably, the launch environment for all drugs, regardless of the marketer’s size or experience, has grown more challenging in recent years due to payer pushback, cost concerns and the genericized drug market. But launches are even riskier for biotechs, given their reliance on a single product, resource constraints, limited commercial experience and ongoing market volatility. Big pharmas, in contrast, have massive commercial teams and can bury a single poor drug launch behind billions of dollars in revenues.

Investors Cooling Their Heels

“I think there are a lot of people questioning how good these drugs really are and how successful they are going to be in the current environment.” – David Pinniger

“The cost of launching a drug yourself directly relates to what the market for raising capital looks like,” explained Kurt von Emster, managing director of the life sciences venture firm venBio. “In good capital-raising markets, it might be fine and appropriate to launch on your own, but in markets like right now, it is a difficult proposition.”

Investors simply aren’t “touching anything,” he said of the biotechs that are in or approaching commercial launch.

David Pinniger, an investment manager at the venture firm SV Life Sciences, summed it up as a time of “soul searching” for investors. “I think there are a lot of people questioning how good these drugs really are and how successful they are going to be in the current environment,” he said.

The timing couldn’t be worse for several biotechs that are transitioning into commercial companies. Seattle Genetics Inc. is the most recent example, having launched Adcetris (brentuximab vedotin) for late-stage Hodgkin lymphoma and systemic anaplastic large cell lymphoma the week of Aug. 22 (Also see "Seattle Genetics Will Test Oncology Pricing Acceptance With Adcetris" - Pink Sheet, 29 August, 2011.).

InterMune Inc. is preparing for the European launch of Esbriet (pirfenidone) for idiopathic pulmonary fibrosis in September. The drug was approved in Europe earlier this year, though it failed to obtain FDA approval (Also see "InterMune Gets Ready To Go Commercial With Esbriet Launch In Europe" - Pink Sheet, 18 August, 2011.). Regeneron Pharmaceuticals Inc. is prepping for its first significant launch: Eylea (aflibercept) for neovascular age-related macular degeneration. FDA just extended the PDUFA date for the biologic by three months to Nov. 18 (Also see "Ready To Launch But Nowhere To Go: Regeneron's Eylea Gets FDA Delay" - Pink Sheet, 17 August, 2011.).

Many other biotechs also could join the commercial ranks if regulatory filing and approval timelines stay on target. Those companies include: Ariad Pharmaceuticals Inc. (ponatinib for leukemia), Affymax Inc. (erythropoiesis stimulating agent peginesatide), Incyte Corp. (ruxolitinib for myelofibrosis) and Ironwood Pharmaceuticals Inc. (linaclotide for irritable bowel syndrome) among others.

Dendreon: Biotech’s Hurricane Irene

But while clinical development and regulatory filings are moving ahead, stocks at several of the firms – though not all – are retreating. InterMune fell 36.6% from the start of the year to its Aug. 31 close. Affymax was down 29.8% and Incyte down 2.9%. The stock market’s summer roller coaster ride has left many biotech stocks in a trough not a peak, with the NYSE Arca Biotech Index down 9.1% from the start of the year through Aug. 31. Nonetheless, there is a noticeable trend among late-stage companies.

A big reality check for companies in launch mode came Aug. 4 when Dendreon Corp. announced that its therapeutic prostate cancer vaccine Provenge did not meet second quarter sales targets and that the company was pulling annual sales guidance of $350 million to $400 million for the year. The news hit Wall Street like a storm, leading several analysts to drastically cut sales forecasts for the brand and resulting in a massive sell-off (“Disappointing Provenge Sales Stir Doubt About Demand,” “The Pink Sheet” DAILY, Aug. 4, 2011).

The effects were felt beyond Dendreon, though Provenge clearly presents its own unique set of challenges: a questionably high-price, checkered regulatory history and distinct reimbursement and manufacturing challenges. Nonetheless, investors reacted as though Dendreon’s missed marks might be contagious.

“I definitely think there has been read-across,” ISI Group biotech analyst Mark Schoenebaum said. “Investors said we had better not [invest] in these launches until we figure out what we got wrong.”

HGS, in the midst of launching the lupus drug Benlysta (belimumab), partnered with GlaxoSmithKline PLC, was one stock that hit a speed bump that many have been attributed to Dendreon, though Benlysta sales seem off to their own sluggish start. In July, the company reported $7.8 million in sales of Benlysta for the second quarter, slightly below consensus estimates of $8.2 million. However, given that the drug only launched in mid-March, it is difficult to draw definitive conclusions about the launch trajectory.

But some analysts have projected multi-billion-dollar peak revenues for Benlysta, and after Dendreon’s flip flop, investors are finding it hard not to question those goals. HGS closed at $18.07 on Aug. 3, but fell 15% Aug. 4 after the Dendreon announcement; the stock has failed to recover since, falling even further to $12.88 at the end of the month.

Over-Exuberance Is Over

Many analysts are standing by long-term estimates for Benlysta and think the Provenge read-across is overblown, though at least two firms – Credit Suisse and Citigroup – recently cut price targets for HGS. Some investors say Provenge and Benlysta represent two cases of “over-exuberance,” where sales expectations were overly amped based on early catalysts.

“The natural inclination is to get excited,” said SV Life Sciences’ Pinniger. “The default is to get too enthusiastic, and that is what we have seen.”

Some biotech managers are heeding the caution signs. Seattle Genetics is not providing sales guidance for Adcetris, claiming that the ramp-up is likely to take time and providing few details on just how much.

“It is a mistake to paint all products with a broad brush and assume the [launch environment] has become more difficult, and therefore we need to limit expectations for all products or all biotech companies.” – John Orwin

Ariad CEO Harvey Berger said setting realistic sales projections will be one of the keys to convincing investors to stick with its anticipated launch of ponatinib, which could take place in late 2012. “There is no reason in the first couple of quarters to set unrealistic expectations,” he said.

The anxiety over launches began well before Dendreon and HGS, however. Companies like Amag Pharmaceuticals Inc. and Allos Therapeutics Inc. also have disappointed with their respective launches of Feraheme (ferumoxytol) for iron deficiency and Folotyn (pralatrexate) for lymphoma. Both drugs failed to meet expectations, and now the two struggling biotechs have announced a plan to merge, a move that has confused, more than calmed, investors (Also see "Investors Balk At AMAG-Allos Proposed Marriage" - Pink Sheet, 20 July, 2011.).

Notable Exceptions: Niche And Breakthrough

There are always exceptions, however, and Alexion Pharmaceuticals Inc.’s launch of Soliris (eculizumab) for the rare blood disorder paroxysmal nocturnal hemoglobinemia, and Vertex Pharmaceuticals Inc.’s Incivek (telaprevir) for hepatitis C are two notable ones. Incivek generated sales of $75.4 million in the second quarter after being on the market just six weeks, positioning it to be the stand-out launch of the year. Soliris is an ultra-orphan product that has been on the market since 2007 and continues to grow remarkably well, mainly due to geographic expansion, despite a limited patient pool. Alexion announced second quarter sales of Soliris of $187.5 million, up 48% year-over-year.

“It seems like the drug launches that are exceptions to the rule are these Alexion-like launches, where you have a drug for a rare condition and you don’t need a big sales force to support it,” said Peter Kolchinsky, managing partner at RA Capital Management. “These are the kinds of companies that in theory can stand alone as a pure play on the sales of one drug.”

Investors willing to invest in companies that have disappointed could be rewarded long-term, von Emster advices. “You have to look at year two and three of sales to get a realistic run rate,” he said. “There are a variety of companies that have launched over the last couple of years that have just been decimated, and I think if you go back and you wait and you are timely … sometime next year those are going to be differentiated stocks.”

But what’s clear is that a winning drug can no longer just be safe and effective. A successful launch demands a significant value proposition and solid execution. “Launches can be done incredibly effectively by organizations that are doing them for the first time. Look at Incivek,” said Darius Naigamwalla, managing director, North America at the consulting firm Campbell Alliance. “Not only does the drug represent a significant improvement in treatment, but Vertex did an excellent job preparing the market for the launch.”

Affymax CEO John Orwin said biotechs have to come to market with drugs that either represent a major advance in an area of unmet medical need or offer a solution that lowers costs for providers. His company is opting for the latter, with an NDA pending at FDA for a potentially lower-cost, more-convenient once-monthly ESA.

“It is really important for people to look at the stories behind these different companies and understand the value proposition for the products,” Orwin said. “It is a mistake to paint all products with a broad brush and assume the [launch environment] has become more difficult, and therefore we need to limit expectations for all products or all biotech companies.”

Seattle Genetics CEO Clay Siegall summed it up: “It’s pretty rare to find a good strong product that doesn’t have a good launch,” he said.

By Jessica Merrill

Sell The Launch: Going Commercial, Some Biotechs Are Left Hanging

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