In a year of lackluster biotech IPOs, Eyetech (NASDAQ:EYET) was a big exception. Its January 29, 2004 debut was one of the year's hot issues. Newly minted shares went out at $21, above the original anticipated range of $18 to $20, and popped 54% the first day to close at $32.40. Investors, hungry for a stake in Eyetech's Macugen, the company's novel treatment for wet age-related macular degeneration (AMD), quickly sent shares to around $40 and kept them hovering there through much of 2004 and into this year. But one of last year's biggest winners has now turned into one of this year's biggest losers. Shares of Eyetech now trade in the $13 range, following a one-day drop last week of 46%.

Any informed investor knew at the time of Eyetech's IPO knew that a rival product to Macugen called Lucentis was under development at Genentech (NYSE:DNA). The products have some similarities -- namely, both target vascular endothelial growth factor (VEGF) -- but they have very different formulations. Lucentis is a fragment of the same antibody that makes up the cancer drug Avastin, while Macugen is an aptamer -- a modified string of RNA rather than a protein. Yet while investors always knew, or should have known, that these drugs could potentially compete in the marketplace, they assumed that Eyetech's head start, bolstered by the marketing clout of Pfizer (NYSE:PFE), would make its product a winner. After Genentech's May 24 announcement of interim results from a phase 3 trial of Lucentis, it's not clear what has changed with Eyetech, other than its stock price.

Certainly, the data on Lucentis are encouraging. Some 95% of patients enrolled in the study showed improved or maintained vision (which means their vision deteriorated by less than three lines on an eye chart). In the control arm of the study, 62% of patients maintained or improved their vision. That top line response rate is better than anything out of the Macugen trials. Yet as Charly Travers pointed out last week, using two separate studies to compare two different products is a big no-no. Of course, that doesn't stop analysts from making such comparisons anyway, or media outlets from reporting speculation that Lucentis will eclipse Macugen as the principal treatment for AMD.

Avoiding such apples-to-oranges comparisons isn't just a sort of homey admonition along the lines of waiting an hour after eating before going swimming. It's a statistical must, and is the only way to prevent being led toward false conclusions. Desperate to bring this point home, Eyetech management held a conference call last week to discuss reasons for their continued confidence in Macugen... and to talk a little smack about the Lucentis data.

Sure, they were clearly reeling from a big blow and were on the defensive, but they still raised some legitimate points. I won't go over them all, but one factor to consider is that the patients in the Lucentis trial appeared to have less severe AMD. The trial certainly looked at a different population -- only those with "minimally classic" or "occult" AMD, references to the location and pattern of abnormal vascularization in the eye, while Macugen has been studied in, and is approved for, all subtypes of wet AMD, including "predominantly classic," the most aggressive form of the disease.

In addition, the control arm of the Lucentis study had an unusually high rate of maintained vision, despite those patients not being treated with anything at all. Some patients in Eyetech's phase 3 trials had previously received photodynamic therapy (e.g., Visudyne from QLT (NASDAQ:QLTI)), while patients in the Lucentis trial had not. And the oft-reported statement that Macugen at best maintains vision while Lucentis improves it is simply untrue -- some Macugen patients have improved vision, just as some Lucentis patients apparently did. Maybe a much higher percentage of Lucentis patients will see vision improvements, but determining that will require a head-to-head trial.

Nevertheless, the reality is that drug sales are subject to marketing and perception just like everything else, and it looks like Lucentis could hit the market with a perception of superiority to Macugen despite any firm statistical evidence. Eyetech may have to take on the expense of conducting a head-to-head study if it hopes to maintain strong market share -- a risky move, since it could certainly turn out that Lucentis is indeed the better drug. Nevertheless, Eyetech management essentially indicated they would follow this course if no other obstacles trip up for Lucentis throughout the remainder of its development program.

One-trick pony
That Eyetech should swing so wildly on the fortunes of Macugen is no surprise. The company has little else in its pipeline; its anti-PDGF (platelet-derived growth factor) aptamer that could be synergistic with Macugen is not expected to enter the clinic until the second half of 2006. The company does have big future plans for Macugen, including possible new indications in diabetic macular edema and retinal vein occlusion -- both big markets. But if it is eclipsed by Lucentis in one market, it could be eclipsed in others, too. The outcome of the Macugen-Lucentis debate is of paramount importance to Eyetech's future, and the market is voting very little confidence right now.

Investors would be well advised to be cautious about Eyetech, because it appears, fairly or not, that the company now must shoulder the burden of proof in establishing Macugen as the equal of Lucentis -- at least in the eyes of investors. (How the medical community will react is another as-yet untested matter.) But there are a few reasons for Eyetech shareholders to be optimistic. If Macugen can even achieve near parity to Lucentis in terms of efficacy, it may have some built-in advantages.

First is the issue of mechanism and safety. Macugen targets only isoform 165 of VEGF (one particular conformation of the protein), while Lucentis is thought to inhibit all five isoforms. Eyetech says this is an advantage because it believes that the 165 isoform is responsible for all the damage in AMD. If true, that may not make Macugen more effective, but it could make Macugen safer. VEGF plays a role in maintaining blood vessels, and lowering it across the board could theoretically raise safety issues. There was nothing reported from Genentech's interim data to make it look like this is the case, but a successful AMD treatment must be effective and safe over a longer period. The Lucentis interim report only covers one year.

Another factor is that Lucentis is dosed once every four weeks, while Macugen is dosed once every six weeks. Since having these drugs administered involves an injection in the eyeball, that's a serious consideration.

Also, Macugen should be much cheaper to manufacture than Lucentis, meaning Eyetech could offer a price advantage without significantly sacrificing margins. Eyetech's gross margins in the most recently reported quarter were nearly 96%, a rather astounding figure that deserves some explanation. While Eyetech management keeps its cards close to the vest on the manufacturing costs of Macugen, another aptamer company, Archemix, has previously estimated that ARC-183, an experimental aptamer in development, will cost less than $50 per gram to manufacture at commercial scale. Macugen is pegylated for greater serum half-life, so the manufacturing costs may be higher, but using $50/gram as a ballpark figure puts the cost of a 0.3 mg dose of Macugen at around one-and-a-half cents. (Or, if you prefer, 13 cents a year). Other things go into cost of goods besides raw material manufacture, but for their potency, aptamers are quite cheap to make.

A typical antibody can cost $1,000 or more per gram to manufacture (and commercial manufacturing facilities can themselves cost $400 million or more to build and validate). Lucentis is an antibody fragment and may be cheaper to produce than a full antibody, but since it is given at a 0.3 mg or 0.5 mg dose and half again more frequently than Macugen, the cost of goods sold will be much higher. The market won't be swayed significantly by a price advantage if there is a major difference in efficacy, but if the drugs appear roughly comparable, Eyetech could easily use pricing to shift things its way and not feel too much pain.

Finally, there is the big question of how the VEGF drugs will work with a photodynamic therapy such as Visudyne. Genentech has conducted a study of Lucentis in combination with Visudyne, but results have not yet been reported. Eyetech has at least reported that the combination is safe, and efficacy evaluation is ongoing.

So is Eyetech a bargain here? Well, if head-to-head trials can establish that Macugen has equivalent efficacy to Lucentis, the stock should soar from current levels. But that's a big "if," and we have no way of knowing that now. Unfortunately, Eyetech is pretty much a one-trick pony, which makes the stock a little too uncertain for this Fool. But investors seem to be counting Eyetech out before the fight has even begun. If you're a born contrarian with a little spare mad money lying around, Eyetech could be worth a small nibble at these levels.

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Karl Thiel does not own stock in any of the companies mentioned in this article. Pfizer is a Motley Fool Inside Value recommendation. QLT is a Motley Fool Hidden Gems recommendation. The Motley Fool has a disclosure policy .