New Treatments, New Opportunities

Editor’s note: The following article, detailing Monsanto and its pain-killing drug Celebrex, was posted on Saturday, January 23, three days before the Wall Street Journal ran a similar story. Monsanto gained approximately 20 percent by Friday, January 29.

Medical companies and analysts are diligently combing the landscape for
the next blockbuster drug or medical breakthrough that can capitalize on the
future health needs of the country’s largest generation–the baby boomers.

As people get older they become more susceptible to both disease and
in normal body functions. Now that the baby boomers are becoming the
above-50 crowd (every day 10,000 Americans turn 50), the market for medical
solutions for their health problems is enormous, and companies with
novel approaches to these problems will be the ones who profit. The race is
on in several sectors of the drug and medical equipment industries, and some
of the most promising products are already working their way into the
market. We will take a look at a few of them and consider the prospects of
the companies that produced them.

The Viagra Syndrome

Pfizer’s [PFE>PFE] Viagra, as the entire world now knows, is a prime
example of how a treatment for an age- or disease-afflicted body function
(sexual potency in this case) can translate into a financial windfall. (By
the way, Pfizer now has a drug in the pipeline, the details of which will be
revealed in a future column, that could dwarf the popularity of Viagra.)
Such so-called lifestyle or life-improvement breakthroughs will continue to
be a vital source of best-selling drugs as the population ages into the new
millennium. Not surprisingly, researchers and medical companies are focusing
on several specific disease states that provide fertile ground for the next
blockbuster drug.

Cancer is a prime example. As the population ages, increased incidence of
cancer will accelerate the already furious search for new treatments. For
example, Entremed [ENMD>ENMD] stock soared last year when it announced
positive research findings on two of its cancer-treating compounds. After a
correction, the stock again jumped almost 25% in November 1998 when the
company’s findings were duplicated by an independent source. If human trials
show positive results the stock could go off the charts.

The arthritis frontier

Arthritis is another disease that traditionally affects the elderly.
Arthritis medications already are a multibillion-dollar pharmaceutical
market, one that will only expand as the baby boomers get older. One hundred
million people worldwide suffer from arthritic pain, with close to 40
million of them in the U.S. (the financial burden of arthritis on the U.S.
economy is close to $70 billion annually), making the market for an innovative
treatment huge.

The current crop of arthritis drugs includes household names like
Motrin, aspirin, Ibuprofen, Naproxen, and Advil. Many of these are grouped
under the title of “non-steroidal anti-inflammatory drugs,” or NSAIDs. While
these top-selling drugs work well to control pain, they have an inherent
problem: They disturb the stomach lining, resulting in ulcers, gastritis,
and life-threatening bleeding in some cases. It is estimated that more than
100,000 people are hospitalized each year because of these complications,
and close to 17,000 die because of them.

One of the most promising recent medical developments is a new class of
drugs that relieve arthritic pain without the gastrointestinal complications
discussed above. Called “COX-2 inhibitors,” these drugs have been heralded
as the next multibillion-dollar pharmaceutical market. If they perform as
advertised, they have almost unlimited potential–some analysts predict the
market for the COX-2 inhibitors could reach $4 billion annually by 2001. The
information available right now suggests these drugs are, indeed, effective.

The G.D. Searle division of Monsanto [MTC>MTC] was first out of the blocks
with a COX-2 inhibitor called Celebrex, which was approved by the Food and
Drug Administration (FDA) on December 31, 1998 to treat arthritic pain. In
fall 1998, Monsanto’s stock price took a nose dive when American Home
Products (AHP) pulled out of a proposed merger. After hitting bottom at
33.75, the stock climbed steadily in anticipation of FDA approval of

Once approval was granted, Monsanto aimed a marketing blitz at doctors,
heralding a safer way to treat arthritic pain. Unfortunately, something
changed on the way to the doctor’s office. The FDA approved the drug for
arthritic pain only–a setback because Monsanto had hoped Celebrex would be
approved as a pain treatment for a broader range of problems. The agency also
stated Monsanto had not convincingly proved its claim of reduced stomach
complications, and prohibited the company from advertising such claims until
they had more data to support their case. As a result, Celebrex currently
carries a warning label (like other arthritis medications) about the
potential complications of ulcers and bleeding, making the drug difficult to
distinguish (from a marketing standpoint) from the currently available medications.

While the label restriction was a setback to Monsanto, it may be only a
temporary one. Pfizer [PFE>PFE] has added some oomph to the Celebrex
campaign by paying Monsanto $240 million for a portion of the marketing
rights to the drug. I read Searle’s Celebrex studies, and they clearly
showed a decrease of ulcerogenic complications compared to the current class
of pain medicines. This drug does work and time will bear this out; the
question is how much time will it take.

Competing players

Time is of the essence because Merck [MRK>MRK] will cast its own substantial
shadow on the COX-2 market later this year. They are expected to get FDA
approval of their own COX-2 inhibitor, Vioxx, by June 1999. If Merck learned
any lessons from Searle’s experience, they have a shot of getting the
favored labeling as well as approval to treat arthritic pain.

Right now, though, Monsanto has the edge because Celebrex is the only game
in town. This is a drug with the potential to carve a large niche in a huge
market. Monsanto will be able to get a marketing head start on Merck,
especially with Pfizer’s help. Once doctors are convinced of the benefits of
Celebrex–regardless of what the label says–they will use it. Physicians
are creatures of habit and change their treatments very reluctantly. Once
they start writing prescriptions for Celebrex, Merck will find it difficult
to get them to switch to another product.

Additional benefits

One of the most exciting aspects of this story is that COX-2 inhibitors like Celebrex
have other potential uses
and markets. Tests performed on mice
indicate COX-2 inhibitors may suppress colon cancer cells. Studies have clearly
demonstrated that people taking aspirin (which
functions as a COX inhibitor) have a 40 to 50 percent reduction in the incidence of
colon cancer. While the reason for this is not yet clear, some early data
has shown the COX-2 enzyme (which drugs like Celebrex inhibit) to be very
prevalent in colon cancer cell growths; its effect may be to enhance the
blood supply to tumor cells. By blocking this enzyme with a COX-2 inhibitor
like Celebrex, researchers may be able eliminate tumor cells by cutting off
the blood supply to them.

Another potential application of these new drugs is to treat
Alzheimer’s disease. Scientists have found an increased level of the COX-2
enzyme in the brains of Alzheimer’s patients. There is
speculation it may contribute to the buildup of plaque so often
implicated in the damaging of cells in Alzheimer’s sufferers.

The list doesn’t end there. Early data also shows possible links between the
COX-2 enzyme and chronic kidney
damage and osteoporosis.
Whether any of these diseases can be treated with a COX-2 inhibitor like
Celebrex is not clear; much more research is still necessary.

The bottom line

G.D. Searle and Monsanto appear to be on solid ground with Celebrex.
Doctors have been waiting for a drug like this to arrive, and they will be
anxious to use it. The initial sales of Celebrex should be
strong, and over time will account for a large portion of the multibillion-
dollar pain market. Overall, the long-term potential for Celebrex is much greater
than Pfizer’s Viagra because the market for pain treatment is so much larger
than that for impotence. In short, Celebrex will have a significant impact in 1999.

Searle also has other promising
drugs in the pipeline that could make an dent in the multibillion-dollar heart
disease market. The company also is branching out into cancer treatment, with
several drugs currently in clinical trials. This drug pipeline also makes Monsanto
attractive as a potential merger candidate.

Monsanto’s fourth-quarter 1998 earnings, released January 21, were in line with Wall Street’s
expectations: five cents per share, down from nine cents per share the same quarter a year
earlier, mostly because of the company’s increased spending on research. The stock lost over a
point the day of its earnings release, but gained 5/8 the following day to close at 39 1/4.

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