Thursday, March 17, 2011

Leptin Fails Again: The Thin Line Between Hope and Hype

Sanofi Aventis CEO Chris Viehbacher is upset that Wall Street places no value on drug industry pipelines. As he put it during a recent media briefing sponsored by the brand name trade association PhRMA, “If you made chocolates and soda, you are going to be a better investment than in R&D today.”

Viehbacher clearly has a point (though we can’t resist pointing out that Viehbacher’s own questions about the value of Genzyme’s pipeline held up the consummation of that deal).

And it is an exaggeration to say there is no value in R&D. When Merck’s vorapaxar stumbled, for instance, it was clear that there was a great deal of value in that particular asset. Of course, when Pfizer announced R&D cuts, the stock went up—suggesting, if anything, a negative value for those assets.

Still, Big Pharma doesn’t really have to care that much about how investors value R&D. Deliver steady earnings growth and life will be fine. (Easier said than done with the looming patent cliff, but still.)

Not so for biotech companies. There, the pipeline is (generally) the only asset. And if investors place no value on R&D, well, no more biotech.

Things aren’t quite at that point yet: A company like Vertex can post annual losses of three quarters of a billion dollars and still command a $9 billion market capitalization, thanks to enthusiasm for the company’s hepatitis C pipeline (and a soupcon of excitement about a cystic fibrosis opportunity as well).

But it’s not like there are a whole lot of billion dollar market caps out there based on nothing but the promise of an early stage pipeline.

We’ve written before about the “original sin” of biotechnology: the seeming necessity of hype—incredibly unrealistic expectations for early stage ideas—to attract capital for the hard (and invariably disappointing) work of converting those ideas into real products.

We’re writing about it again because of yesterday’s news from Amylin, announcing the suspension of Phase II clinical studies of a leptin-based obesity compound. The announcement was terse, but suggested a pretty significant problem with the compound (metreleptin): some kind of neutralizing antibody to leptin.

The announcement caused a stir and a quick drop in Amylin’s share price, but the stock rebounded and actually closed the day up a smidge, once investors remembered that the only thing they really care about is whether Amylin’s once-weekly line extension for the Byetta diabetes line ever makes it to market. This is clearly a case of a pipeline asset with something close to zero value.

Compare that to the value of leptin when the hormone itself was first described. The publication of a paper describing the genetic basis of a role for leptin in regulating weight in 1995 prompted a one day jump in the market cap of Amgen of nearly $600 million, since Amgen held a license to the “ob” gene described in the paper.

At the time, Amgen wasn’t quite the giant that it is today, but it did have two fast-growing blockbuster franchises (Epogen and Neupogen). But that was an era of excitement and, yes, hype—and at least for one day leptin was an incredibly valuable asset. And it wasn’t even in clinical studies!

Leptin died a quiet death at Amgen, also in Phase II, when the company dropped the hormone itself in favor of some “back up compounds” that were never heard from again.

So maybe this is a case where putting no value on an asset makes a lot of sense. After all, Amgen gave up on leptin more than a decade ago.

But for the future of biotech, it would be nice if people got excited by something like leptin again.

image via wikimedia commons

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