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While time-crunched investors probably appreciated the brevity of the press release announcing the bad news, no solid explanation of what exactly forced J&J's hand to terminate the program was offered. Alkermes simply stated that it was "disappointed" by the decision and expressed a more or less c'est la vie attitude. "While we hope that every collaboration results in a marketed product, we know that attrition is inevitable," said CEO Richard Pops.
The decision abruptly ends a more than two year collaboration between Alkermes and J&J on an extended release form of Procrit, which J&J is hoping to develop in order to fend off competition from a similar product that is forthcoming from biotech giant Amgen (Nasdaq: AMGN) . Procrit is a recombinant form of the naturally occurring human hormone erythropoietin (or EPO), which Amgen sells as the anemia treatment Epogen in the U.S. kidney dialysis market and J&J sells under the Procrit brand name in other markets.
By changing the amino acid makeup of EPO, Amgen has already developed a longer-lasting version of Epogen called NESP. The drug is currently under regulatory review in the U.S. and Europe for treating anemia in renal failure patients and could hit the market within a year. That means J&J is facing somewhat of a time crunch with getting a longer-lasting version of Procrit through the clinical trials and approval process in order to meet the competitive threat from NESP, for which Amgen obtained all of the marketing rights in an arbitration ruling in late 1998.
Where J&J's efforts regarding a longer-lasting version of Procrit go from here is not immediately clear. According to analysts, the ProLease extended release form of Procrit was expected to go into late-stage Phase III clinical trials sometime this year. J&J has other hooks in the water, but the ProLease-based product had appeared to be one of the most promising efforts, if not the most promising.
From Amgen's point of view, today's news is certainly not negative by any stretch of the imagination, but it doesn't do a whole lot to clear the air around NESP either. Many analysts, including one right here at Motley Fool Research, are banking on NESP to be the next blockbuster revenue generator for the biotech, which to this day is basically a two-drug shop based on Epogen and its white blood cell-boosting cousin Neupogen.
Amgen had been expected to get a head start on J&J all along with NESP, but the drug's success is not exactly a sure thing. For a drug to reach blockbuster status, two equally important steps need to take place: It must be approved for use and it must be sold effectively. Assuming that NESP receives regulatory approval, Amgen will still need to figure out a way to sell it.
For Alkermes, the loss of the extended release Procrit program mainly results in some missed milestone payments from J&J and the evaporation of any future royalty payments had the drug gained final approval. However, the company is still riding high from last December's FDA approval of a ProLease-based form of Genentech's (NYSE: DNA) recombinant growth hormone Nutropin Depot, as well as agreements this year with Glaxo Wellcome (NYSE: GLX) and Eli Lilly (NYSE: LLY) concerning the firm's AIR inhalable drug delivery technology. Even with March's biotech volatility and today's drop, the company's shares are up 68% for the year. For longtime shareholders, that performance should help today's bad news go down a little easier.
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