Millennium and Bayer Break Discovery Barrier

It's not usually big news when a drug candidate enters human trials -- unless, as partners Bayer and Millennium Pharmaceuticals brag, it happens to be the "first small molecule drug candidate discovered against a genomics-derived target." And it took only 18 months to move from target discovery to clinical trials, a process that normally takes years. Bayer naturally wants to ballyhoo the success of its investment in Millennium, and Millennium wants to show off too. It's good news, but it doesn't change the fact that investors who choose biotech drug makers like Millennium instead of a more sober big pharma like Bayer, must have risk tolerance and a long-term horizon.

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By Tom Jacobs (TMF Tom9)
January 12, 2001

With media coverage everywhere, genomics-based drug developer hopeful Millennium Pharmaceuticals (Nasdaq: MLNM) and Germany's drug giant Bayer AG announced that they were preparing to enter clinical (human) trials with a cancer drug. Why all the fuss over a drug candidate still years away from proving safety and efficacy in humans, Food & Drug Administration (FDA) action, and marketing? Because it took under 18 months to move from gene discovery to drug candidate for human trials. This is lightning fast. Historically, the entire preclinical process -- including discovery -- can take 6.5 years.

According to Geoff Ginsburg, a Millennium senior program director, the drug inhibits the enzyme tumor cells' need to divide and grow. If and when Bayer secures FDA approval for the drug and unleashes its marketing army on the world, Millennium will reap royalties from the sales. The list of similarly-based biotech-pharma alliances is long, including Human Genome Sciences (Nasdaq: HGSI) and GlaxoSmithKline (NYSE: GSK) among others, American Home Products (NYSE: AHP) and Immunex (Nasdaq: IMNX), and Incyte Genomics (Nasdaq: INCY) and a cast of thousands (OK, fewer, but you get the idea.). But Bayer and Millennium assert in their press releases that they have the "first small molecule drug candidate discovered against a genomics-derived target." Big news.  

Why big pharma and biotechs need each other
The situation facing big pharma -- the large drug makers such as Rule Maker portfolio holdings Pfizer (NYSE: PFE) and Schering-Plough (NYSE: SGP) -- is that their huge revenue machines require more and more successful drugs to keep growing profits and satisfying shareholders. In 1998 the German giant Bayer foresaw expiration of patent protection for heart drug Adalat and antibiotic Ciprobay (also sold as Ciproxin), and generic competition, and not much in the pipeline to replace them. Bayer took a 14% stake in the then-even-riskier biotech Millennium, agreeing to pay $465 million over six years for 225 drug targets discovered using genomics-based techniques. Bayer can choose the best targets from the 225, and Millennium retains the rights to develop drugs for the rest. Champagne corks popped at Millennium, which had $90 million in 1997 revenue -- and like most biotechs needed development cash -- but Bayer execs must have gulped a lot of their own aspirin after the deal.

What about those 225 drug targets? Industry experts state that the last 100 years of drug research has yielded 500 drug targets. Thus the scale of Millennium's promise -- and genomics-era possibilities -- is staggering, and that certainly wasn't happening in-house at Bayer. Faced with mind-boggling potential for targets, Bayer took the risk on the genomics spaceship a year before genomics became a household investing word (and you could have had Millennium shares for a tenth, or even less, of today's prices). Millennium promised better-than-aspirin relief from the $500 million, 10-plus year drug development process -- touting reductions to $200 million and six to seven years of development.

Investors looking at the long term face several questions over whether big pharma or newer biotech drug makers present the best opportunities. Who's better off? Big pharma that can cherry-pick the best targets from an array of nimble biotechs, or the biotechs, like Millennium, that seek to eventually become fully-integrated drug companies themselves? While Millennium's 10-Qs have stated that they have no marketing capability and intend not to have any, has quoted Millennium's Ginsburg to the effect that the company is building a sales force and the capability for clinical trials. If the Millenniums of the world become drug powers, will their genomics-based discovery always provide a competitive advantage over existing big pharma? Millennium, after all, is just at the starting gate, with its first drug candidate (which it purchased as part of an acquisition of the company LeukoSite, leukemia treatment CAMPATH, recently receiving FDA advisory panel recommendation for full-FDA approval.  

Because those are the real big-picture questions for investors, some may greet the cancer drug news with cynicism: One London analyst told The Wall Street Journal, "Major, solid drug companies don't usually make a lot of noise about something that hasn't yet entered the clinical trials stage. Bayer spent a lot of money on this alliance and it wants to show something for it."

Investors know that bringing drugs to market takes a long time -- and they can check out a more detailed description of the drug development process at our InDepth: Biotechnology home page or through The Motley Fool's Guide to Biotech Investing. On the one hand are cash-rich, slower moving, but perhaps safer big pharma like Bayer; on the other, sexy, genomics-era companies -- with no drugs on the market or profits. But of the latter group, it's hard to find a better-placed company than Millennium, poised for its first drug to enter the market, and showing off the first potential proof of one big pharma investor's faith. 


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