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Bird Flu Hype Infecting Biotech Industry

December 4, 2005

SAN FRANCISCO — Two years ago, as fears of a SARS pandemic spread, a San Diego biotech company aided by federal dollars speeded a promising vaccine out of the lab and into human testing.

But when Vical Inc. (VICL) and the government wrap up the 15-person test next year, the drug is expected to end up on the shelf because the dreaded global epidemic never panned out. Bird flu has now overtaken SARS as the No. 1 feared global death threat.

As biotechnology companies suddenly refocus their profit mission to the new threat – and investors drive stock prices to new highs – some analysts wonder if these endeavors could face the same fate Vical met with its rapid response to severe acute respiratory syndrome, or SARS.

“There are so many unknowables and a lot of hype,” said AG Edwards analyst Al Goldman. “The avian flu potential is something that you can’t get your arms around because no one knows if – or when – a pandemic is going to happen.”

The particular bird flu strain that now worries health officials has been around since 1997 and has killed 62 people worldwide since 2003, yet it hasn’t acquired the genetic changes it needs to start spreading easily from person to person.

What’s more, leading scientists now discount the notion that flu pandemics happen in regular intervals and that the world is overdue for a new one.

They don’t even agree on how bad it is that bird flu has spread to more types of birds. Instead of an appetite for people, the germ is showing a growing fondness for birds, some say.

Still, there is scientific consensus that vaccine and drug stockpiles should be created in the United States just in case.

To that end, the Bush administration wants $7.1 billion in emergency spending to improve vaccine production systems and to detect and contain a potential pandemic flu strain before it reaches the United States.

So far, the U.S. government has awarded a little more than $162 million this year to drug companies developing bird flu vaccines.

The promise of billions more in government support and continued fears that the country is ill-equipped to deal with an impending pandemic have a slew of biotechnology companies jumping into the flu business.

Vical chief executive officer Vijay Samant says his company is among those pursuing a novel flu vaccine despite its SARS experience, which he said has yielded some benefit.

Samant said federal regulators are now better prepared to handle new viral threats like SARS and that Vical has the ability to restart the SARS project almost immediately if that bug emerges again. Most of the SARS vaccine research costs at Vical were covered by the National Institutes of Health, which reported in September that the experimental vaccine appeared safe – but little other data about its effectiveness has been produced.

“Don’t underestimate the value of learning how to deal with that emerging threat,” Samant said.

Still, Samant did joke that the “first slide of everybody’s” Powerpoint presentation to investors promises to profit from flu fears.

“My single-minded focus is to drive the vaccine program for bird flu,” Novavax Inc. (NVAX) chief executive Rahul Singhvi said during a conference call with analysts in November discussing the Malvern, Pa.-based company’s new aim at influenza.

The company, like many of its competitors in the new flu market, is developing a faster and less expensive way to manufacture flu vaccine than current methods by using pieces of the flu’s genetic material rather than the entire virus to provoke an immune response in people.

But the company is at least two years, and probably even more, from getting its experimental vaccine on the market.

In the meantime, the lion’s share of government funding has flowed to the established vaccine makers Sanofi-Aventis and Chiron Corp. (CHIR) The government awarded Sanofi $100 million contract to crank out a bird flu vaccine and Chiron received $62.5 million, even as the Emeryville-based Chiron attempts to overcome manufacturing woes.

Still, Novavax’s stock, which dropped below $1 a share in August, soared to a 52-week high of $6.01 a share in October immediately following reports that birds infected with the bird flu were found in Turkey, Romania and Russia and a dead parrot exported from South America was found in Britain with the virus.

Novavax’s stock has fallen off nearly 50 percent in the last month, but other companies pursuing novel flu remedies are enjoying heady days on Wall Street.

BioCryst Pharmaceuticals of Birmingham, Ala., soared to a five-year high of $18.42 a share in October on the same news that drove up Novavax’s stock. BioCryst is developing a drug that slows the replication of the flu virus, but showed such poor results in human trials that one-time partner Johnson & Johnson (JNJ) abandoned the project and left BioCryst (whose stock was trading around $15 on Friday) to go it alone.

“Whether this is a real market is hard to know,” said Ken Trbovich, an analyst with RBC Capital Markets. “There is potential, but it’s like holding a lottery ticket right now.”




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