 |
|
|||||
|
||||||
|
||||||
By
Ticker: (Nasdaq: SCIO) Actually, Scios tripled in the last year, zooming steadily upward without a break from early summer 2000, while the Nasdaq sped in the opposite direction. The stock owed its bonanza to the progress of Scios's drug candidate pipeline, approval of its congestive heart failure diagnostic test, and positive new data to address Food & Drug Administration (FDA) concerns over drug hopeful Natrecor, which the FDA disapproved in 1998. Investors in any development-stage biotech company without drugs on the market watch its drug development pipeline closely. As a drug successfully passes milestones in the drug development process, from preclinical to clinical (human) trials, and through the three steadily tougher human trial phases, it becomes more likely that the FDA will approve the drug and the company will earn a chance to reap profits in the marketplace. When investors see more drugs later in the process, they naturally up their valuation of the company's possible earnings on its investment in research and development. Bottom line? Scios tripled because investors deemed its later-stage drug candidates more likely to produce future cash flows. (The Motley Fool's Guide to Biotech Investing can help you evaluate a biotech's drug pipeline.) Scios is a biopharmaceutical company, a drug company using various biotechnologies to enhance discovery and development. It specializes in products for two large markets: cardiovascular and inflammatory disease, specifically heart failure and rheumatoid arthritis. Scios' main near-term hopes are pinned on Natrecor, a naturally occurring protein it discovered in 1989 that aids in heart function. The company developed the drug treatment and received an FDA panel recommendation for approval, but the FDA itself disapproved the drug in 1998 saying more data was needed to evaluate safety and effectiveness. Since then, it has conducted further human tests to develop data to satisfy the FDA and secure its approval to market Natrecor in the U.S. Rheumatoid arthritis is joint-destroying inflammation, occurring in the same joint on both sides of the body. It is an extraordinarily painful and debilitating disease that affects 0.5-1.0% of the population, more women than men, primarily between the ages of 20 and 50. There is no known cure, and doctors currently try to reduce the painful symptoms and decrease overall disability. Scios's primary candidate to treat rheumatoid arthritis, SCIO-469, is in Phase I human trials, expected to move to Phase II in the second half of 2001. SCIO-469, if successful, would be a pill form of a newer successful treatment that currently has to be injected. Generally, pills are far more profitable than injections. Because pills are cheaper and easier than any treatments requiring trips to a doctor's office, they sell more widely. Other products in development include Alzheimer's, diabetes, and cardiovascular treatments in partnership with Eli Lilly (NYSE: LLY), diabetes-specialist Novo Nordisk (NYSE: NVO), and Chiron (Nasdaq: CHIR), respectively. In exchange for payments and royalties, Scios also licensed a chronic wound treatment drug development candidate to Chiron, but it has so-far produced disappointing results in human trials.
In March 1998, one month before the FDA didn't approve Natrecor (in FDA-speak, issued a non-approval letter), Scios' stock dove on news of company layoffs and other cost-cutting restructuring. The eye-catching stock drop and the ensuing disapproval news are not unusual: Every drug maker, large or small, faces FDA disapproval at some point, with negative consequences for stock price. But, not everyone fails to recover. Bad news can lead a curious biotech investor to examine the company's response for clues of a possible rebound: Did the company say it would abandon the drug, or would it perform more trials to obtain data to satisfy the FDA? If it went ahead, check to see if the press releases or SEC filings indicate that it has the cash to pursue the trials and survive in the interim. Then watch the progress, because a company will regularly issue releases of the progress of the trials. No releases, no progress. Or does it have other drugs in the pipeline that could come up behind it and provide a financial boost? Any of these form indications of a recovery. Scios did it all. It immediately went to work on further trials for Natrecor, and worked to expand paying partnerships with big drug makers to develop diagnostic tests and other drug candidates. All of these are signs to investors that a development-stage biotech drug maker has the resources to stay the course and recover from its stumbles. Despite Scios' efforts to fill its pipeline, the company has only two drugs that could even be on the market in the next few years -- Natrecor and its skin-wound treatment licensed to Chiron. The wound treatment's future is speculative: Though Chiron is set to announce recent trial results in the first part of 2001, prior results have disappointed. That means that Scios really depends on Natrecor while other drugs work their way through trials, most notably the SCIO-469 rheumatoid arthritis drug moving to Phase II. Expect a reversal of the stock's steady improvement if Natrecor is not approved. But, if it is approved, the double -- tripling -- of the last year may appear puny. In the meantime, you can keep up with all the industry news at our biotechnology and pharmaceutical InDepth news pages! Tom Jacobs (TMF Tom9) recognizes the importance of biotechnology, but tries to prevent his enthusiasm from clouding his biotech investing judgment. At press time, he owned no shares in companies mentioned in this story. To see his stock holdings, view his profile, and check out The Motley Fool's disclosure policy.Scios, Inc.
Phone: 800-522-9586 (Investor Relations hotline)
Website: www.sciosinc.com
Price (02/07/01): $19.94
How Did It Double?
Business Description
Financial Facts
Income Statement
12-month sales: $12.7 million
12-month income: ($42.6 million)
12-month EPS: ($1.12)
Profit Margin: N/A
Market Cap: $758 million
Balance Sheet (as of 12/31/00)
Cash and Equivalents: $38.2 million
Current Assets: $43.6 million
Current Liabilities: $31.5 million
Long-term Debt: $39.1 million
Ratios
Price-to-earnings: N/A
Price-to-sales: 59 How Could You Have Found This Double?
Where To From Here?
RSS Headlines
Fool UK
