StreetTalk: No Cure for Cancer? Wall Street Waits - and Hesitates

September 1, 2005
Brian O'Connell

BioPharm International, BioPharm International-09-01-2005, Volume 18, Issue 9

Part of the problem with cancer drugs as investment picks is that investors don't trust the underlying studies that seem to prop up vaccine maker stocks.

Ask a stock market trader about cancer drugs and, chances are, he'll shrug his shoulders and say something to the effect of "been there, done that, not much to show for it."

Brian O'Connell

You can't blame him. As far as cancer drug company stocks go, traders look at them the same way they would look at a used car — sure it might have some promise, but who hasn't been burnt by a used car that performs in fits and starts?

So there is plenty of skepticism on Wall Street about companies that make cancer drugs.

Take pharma industry giant Pfizer. On a day (August 10, 2005 to be exact) when the company announces it is seeking regulatory approval for its self-proclaimed "revolutionary" new drug SU11248 (sunitinib malate or Sutent), which targets stomach and kidney cancers, you'd think the news would be greeted with white-hot enthusiasm in financial markets.

But if you thought that, you'd be wrong. Pfizer's stock barely budged; in fact it finished the day down 0.5 percent to $26.39.

So what, right? Plenty of stocks languish after big news from the company in question. But this time, market movers and shakers were actually interested in news of the new Pfizer drug, especially after Pfizer CEO Henry "Hank" McKinnell described it as "revolutionary" on a recent conference call to analysts and big-league investors.

The thinking prior to the call was that Pfizer might be on to something, after some early analyst reports suggested that Sutent could conceivably outsell similar drugs from Onyx Pharmaceuticals and Bayer (which applied for a patent on its new kidney cancer drug, sorafenib, in July 2005). Fueling some anticipation was the news that users of Novartis' Gleevic had failed to respond favorably to treatment. This after first round clinical trials that called Gleevic "effective." Sutent is an oral, multi-targeted cancer therapy that combines anti-angiogenic and anti-tumor activity to simultaneously stop the blood supply to and directly attack tumor cells. More than 2,000 patients have received Sutent as part of Pfizer's clinical trial program.

So let's go to the Pfizer spin machine, where the message is that Sutent will be a formidable force in the cancer drug marketplace. According to a release from the company, Pfizer is marketing Sutent as a treatment for malignant gastrointestinal stromal tumor and metastatic renal cell carcinoma among patients whose tumors do not respond to or do not tolerate standard treatment options.

So far, so good — and it gets a little better. The Food and Drug Administration (FDA) has granted Sutent fast-track status because it may provide significant benefit over existing therapies for serious or life-threatening illnesses.

Pfizer says Sutent also is being studied alone and in combination with other medicines as a treatment for a number of other solid tumors including breast, lung, prostate, and colorectal cancers.

McKinnell was certainly, and unsurprisingly bullish on Pfizer's new cancer drug. "I would just add with Sutent," he said on the conference call, "we're seeing enormous excitement in oncology circles, which is a good leading indicator of the importance of this revolutionary new medicine."

He also said Sutent is one of the first in a new class of drugs that selectively targets multiple protein receptors, called receptor tyrosine kinases (RTKs). Inhibition of these RTKs is believed to starve tumors of blood and nutrients needed for growth and simultaneously kill the cancer cells that comprise tumors.

Yet there's nary a scintilla of interest in the drug on Wall Street.

SCRATCHING THE SURFACE

It's the same story with another drug company that thought it had some good news to report on its new cancer drug. Vaccine manufacturer Dendreon announced on July 22, 2005 that it had secured final three-year survival data from a Phase III study of Provenge, the company's flagship prostate cancer vaccine. That study, called D9902A, seemed to bear out what an earlier study had first suggested – that Provenge significantly extends survival of men with advanced prostate cancer.

You'd think that Dendreon would have to beat investors off with a big stick. Not the case. Weeks went by with no noticeable movement of the company stock — except on the day of the announcement. Through August 2005, it's been hovering around the $5.50 mark, after briefly flirting with $7 per share immediately following the Dendreon press release about Provenge.

The Dendreon story is an interesting case study on why traders and analysts are skittish about cancer vaccines. Part of the problem with cancer drugs as investment picks is that investors don't trust the underlying studies that seem to prop up vaccine maker stocks. Analysts say that the Provenge study looked promising at first glance, but it didn't hold up under closer scrutiny. While the D9901 and D9902A studies show a 23 percent median survival rate over placebos, there's really not enough information in the studies to support that success rate. Sure, as some industry observers say, Dendreon has every right to withhold the good stuff from the study until it can release it in its preferred environment — an industry conference or academic ledger treatise.

Those are good forums if you're a cancer vaccine specialist, but not so good if you're an investor wondering if you should jump into the water or not. Most traders will wait until FDA weighs in sometime during the fourth quarter of 2005, where the company hopes it will provide conditional approval on the new cancer drug. If it doesn't, then commercial release of the vaccine, if it happens at all, might be delayed until 2008.

That gives agita to Wall Street types — the epitome of the immediate gratification culture. Three years is fine if you're distilling scotch or waiting for the next installment of The Sopranos to roll out on HBO, but it's not so good if you're trying to raise some money for your company by drumming up interest in your stock.

TOO MUCH OF A RISK?

Also contributing to the cancer drug malaise on Wall Street is analyst perceptions that cancer research is a real crapshoot — the more money poured into research represents greater, not lesser, risk in a given company stock.

Look at ImClone. Credit Suisse First Boston (CSFB) recently issued a "neutral" rating and a $35 target price on ImClone Systems. CSFB spiked the earnings-per-share estimates on the drug company in large part due to ImClone's recent announcement that it was entering into a new cancer treatment merger with drug manufacturer UCB that would require a boost of up to $5 million in research and development spending.

Granted, ImClone has had its problems putting on a pretty face for Wall Street. In fact, for ImClone, it's been a steady erosion of support from analysts for some time now. From 2005 to 2007, CSFB, for example, lowered ImClone's earnings-per-share estimates to $1.13, $2.45 and $1.88, respectively, from $1.17, $2.52, and $1.95. But since when do companies get penalized for strengthening their research and development efforts through good industry partnerships?

So what do we have? A stock in Pfizer that has basically flatlined; a stock in Dendreon that has fallen about 35 percent or so for 2005; and a stock in ImClone that can't buy a break from the Wall Street analyst community. This despite seemingly good news on flagship products for all three cancer makers.

Like a talented, but underachieving relative who keeps hitting you up for loans and a place to stay, cancer vaccine manufacturers may be wearing out their welcome in the institutional investor community. When good news is overlooked by such investors, an industry has a problem.

Of course it's not fair. But as President Kennedy once said, "life isn't fair." Unfortunately for the big biopharm firms involved in cancer research, there are plenty of other hot spots for investors to go in the life sciences market that offer just as much potential without as much risk. Nanotechnology and biodefense stocks come to mind.

So let's hold off all the talk about 2005 being the dawn of a new cancer vaccine era. That could be true inside big pharma research laboratories, but it hasn't whetted the appetite of anyone on Wall Street lately.

Celebrity author and business/finance commentator for CNN and Fox News, Brian O'Connell has written for The Wall Street Journal and Newsweek, 79 Radcliffe Drive, Doylestown, PA 18901, 267.880.3144, fax 267.880.1939, brian.oco@verizon.net

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