Anti-Sense Technology Makes Sense

Editor’s note: This month’s article discusses some companies trading at very low price levels and on very light volume. Trading in such stocks can be very risky.

As I discussed in my last article (“Profiting In The Biotechnology Sector: It’s All In The Genes”), there is a very lucrative race taking place in the biotechnology sector to expose the entire human genome and uncover genes that could be used to treat all the diseases known to mankind.

The stakes are so high that many of the major pharmaceutical companies are
actively pooling their resources to create their own gene libraries for fear
of being left behind by many of the smaller biotech companies mentioned in my
previous article. There is a sense of urgency to be part of this new genetic
frontier.

The Wall Street Journal deftly discussed the evolving biotechnology landscape
in their March 4, 1999 front page article, “Big Drug Firms Discuss Linking Up
To Pursue Disease-Causing Genes.” However, the discovery and patenting of new
genes to devise medical treatments is only the tip of the scientific and
financial iceberg.

A fascinating, novel treatment approach using the information in newly
discovered genes already is appearing on the horizon. This new technology is
being perfected by several small companies and may lead to the discovery of
the next generation of blockbuster drugs.

Anti-sense biotechnology: a medical magic bullet?

For the DNA of a gene to direct the daily activity of a cell, it needs some
type of messenger to go to the cell’s neighborhood and spread the genetic
word. On a molecular level, this messenger is called messenger RNA (mRNA).

Messenger RNA is produced in the likeness of its master DNA, and is
intimately involved in the production of normal and abnormal proteins in
cells. Interestingly enough, many of these abnormal proteins are associated
with diseases like cancer, diabetes, and heart disease.

This relationship is crucial to companies using the “anti-sense” technology to
develop new drugs. Cells interpret the message of a strand of mRNA, make
“sense” of the genetic code, and make whatever protein it needs to function.
If a gene is abnormal, such as in a cancerous cell, then the
message in the mRNA sense strand will be abnormal. This incorrect message will
be decoded by the cell, lead to the production of abnormal proteins, and
ultimately to a cancerous cell.

Several companies are now involved in synthesizing small strands of DNA,
called oligonucleotides, which neutralize the abnormal message encoded in the
sense mRNA of diseased cells. These oligonucleotides are called “anti-sense”
drugs because they block the production of abnormal proteins in diseases like
cancer.

Why is anti-sense technology important?

The drugs derived from this technology will be more accurate, more efficient,
and more potent than any the pharmaceutical industry has ever seen. They also
will have fewer of the side effects that often hinder many of today’s
treatments. As the Human Genome Project proceeds and many diseased genes are
discovered, anti-sense technology will grow to become a force in the
biotechnology wars.

The companies currently involved in developing this novel approach are
considered to be pushing the envelope, both scientifically and financially.
While the technology is just beginning to bear fruit, the potential to treat
all types of diseases is very real.

Like many of the Internet companies, the businesses involved in anti-sense
drug development have no earnings. They are small companies with low stock
prices and high risk attempting to develop a technology with enormous medical
and financial potential. Most have no products to speak of, but this does not
appear to diminish their attractiveness. These companies and their
sophisticated technology will be in constant demand as more genes are
discovered.

The larger pharmaceutical firms will be eager to collaborate with these
companies and get their hands in the gene cookie jar. Acquisitions will play
an important role in the new biotech landscape, as evidenced by Warner Lambert’s
[WLA>WLA]] recent takeover of Agouron Pharmaceuticals (AGPH), a leader in
genetically derived AIDS treatment drugs.

The Participants

Hybridon Inc. (HYBN) (OTC)

Hybridon Incorporated is a Cambridge, Mass. company originally founded in
1989 by Dr. Paul Zamecnik of Harvard University. Its goal is to
develop new drugs based on anti-sense technology.

Hybridon’s plan is to
manufacture the DNA oligonucleotide strands that act as anti-sense drugs
against a wide range of human diseases. It hopes to generate revenue by
developing a unique product line of patented anti-sense drugs, by contracting
out its library of oligonucleotides, and through collaborations with the
larger pharmaceutical companies.

Hybridon does have a revenue stream from the licensing of its technology.
However, the company is not profitable, has not developed any products, and
trades in the $1-2 range. It is a player in the anti-sense game, but like
most, a risky player.

Genta Inc. [GNTA>GNTA]

Incorporated in 1988, Genta is an emerging biotechnology company that was an
early major player in the anti-sense field, developing genetically derived
drugs to treat a variety of cancers. It has several compounds in trial for the
treatment of non-Hodgkin’s Lymphoma, prostate cancer, and other types of
malignant diseases.

Genta also produces and markets other pharmaceutical products. The company,
like its competitors, is small and not profitable, with annual revenues close
to $5 million. It has no products of its own and is currently working on
collaborations with other pharmaceutical companies. The company’s stock has
been trading in the $1.5-2.5 range, with a 52-week high of 3 5/32.

Isis Pharmaceuticals [ISIP>ISIP]

Founded in 1989, California-based Isis Pharmaceuticals is one of the pioneers
in the development of new anti-sense technology drugs, and is truly the
biggest fish in this small, but deepening biotech pond. Isis uses its genetic
techniques to develop drugs to combat a variety of diseases, including cancer,
infections, and immune disorders.

The company has the distinction of
having the world’s first anti-sense drug approved by the FDA last year. The
drug, called vitravene, is the first of a new breed of DNA-derived drugs. It
is used to treat CMV retinitis, a deadly eye infection which causes blindness
in AIDS patients. Vitravene should get European approval by the summer of this
year.

Isis currently has six other anti-sense compounds in human clinical trials
aimed at treating diseases such as asthma, rheumatoid arthritis, kidney
transplant rejection, and cancer. Isis also has a drug in clinical trial for
the treatment of Crohn’s disease, an incurable intestinal disorder that
currently affects over a half a million people, with a cumulative hospital
cost of over $1 billion per year.

Isis’s drug for the treatment of Crohn’s disease may get FDA approval by the
end of the year. The company also has a number of
anti-sense drugs aimed at treating several types of cancer in trials, and has a
$40 million collaboration with Zeneca Pharmaceuticals (ZEN) to develop its
cancer line of anti-sense drugs. In addition, it has relationships with Abbot
Labs (ABT) and Merck (MRK>MRK) that will generate substantial royalty
revenue over the next several years.

The bottom line

Financially, Isis Pharmaceuticals is also the strongest fish in this
struggling school. Last year it lost $43 million or $1.60/share
compared to $31 million or $1.17/share the previous year. This increase was mostly
because of its acquisition of the anti-sense DNA library of Gilead Sciences (GLD), a former rival.

The company had $39 million in revenue for 1998, up from $32.7 million in
1997. Cash and short-term investments totaled $59 million as of December 31,
1998. Isis expects revenue to increase substantially over the next five years;
however, it does not expect to be profitable until 2001.

I believe Isis Pharmaceuticals is in a good position to be the leader in anti-
sense technology as the race to uncover new genes accelerates. It is the first
to have a product on the market, with several more in the pipeline, and is
building a library of DNA that will make many of the major pharmaceutical
companies take notice.

The company’s stock has been trading in the $11-$12 range and has been as
high as $16 per share. Isis Pharmaceuticals is an attractive long-term
investment in the biotechnology arena and an even more attractive candidate to
be acquired as the gene race enters the next century.