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MedImmune's zig-zag rise Rebound: Gaithersburg-based MedImmune Inc., a growing presence in biotechnology, has come a long way from the dark days of 1993, when a vaccine was rejected.

Mark GuideraTHE BALTIMORE SUN

Just before Christmas in 1993, MedImmune Inc.'s founder and chief executive officer, Wayne T. Hockmeyer, received the blow of his career.

The U.S. Food and Drug Administration had rejected RespiGam, the Gaithersburg company's vaccine for preventing a serious respiratory illness in premature infants, saying clinical data were flawed.

It was a humiliating setback. Hockmeyer and other MedImmune executives were anticipating approval of the vaccine and banking on its sales to help build a drug sales force, fund development of other drugs and pave the way for acquiring another biotechnology company.

"It was the defining moment of this company," said Hockmeyer. "A failure like that can be a life-threatening experience for a young company."

Retrenching, Hockmeyer set his staff to mastering every step of the clinical studies and review process, in which volumes of information are gathered in an effort to show its safety and effectiveness.

"We could not repeat the same mistake twice," said Hockmeyer, a former chairman of the Department of Immunology at Walter Reed Army Institute of Research.

The lessons learned from the 1993 crisis served Hockmeyer and his MedImmune team well.

After new human clinical trials, the company landed approval for RespiGam in 1996, and in June it got the FDA's blessing for Synagis, a more potent and easier-to-use vaccine for the same infection RespiGam prevents, respiratory syncytial virus, known as RSV. The infection strikes about 90,000 children annually in the United States and kills 4,500 a year.

The Synagis approval came six months after MedImmune submitted its final clinical data to the FDA. It marked one of the few times a biotechnology produced drug has cleared the FDA without a review by an advisory panel, which is often arduous and time-consuming.

That and the speed with which the drug was approved, which usually is reserved for drugs given "priority review" status for expedited consideration by the agency, testified to the strength of MedImmune's application for marketing approval and the vaccine's strong safety profile, said analysts.

"What you have now with MedImmune is a company which is emerging into the top tier of biotechnology companies," said Dr. Laurence Blumberg, a biotechnology analyst with Alliance Capital Corp., a New York-based mutual fund manager and MedImmune's largest institutional investor.

Alliance, which owns 25 percent of MedImmune, began investing in the company in 1996.

One of the key reasons Alliance's analysts were drawn to the company, said Blumberg, was its exacting attention to understanding in detail how Synagis and RespiGam work as part of its preparation for clinical trials. The drugs, made from genetically engineered, naturally occurring antibodies, spur the body to make antibodies to the virus.

Recently, Wall Street has made clear that it is bullish on the company, which was founded with financing from Edison, N.J.-based Healthcare Ventures, a venture capital firm that has helped launch a number of Maryland biotechnology start-ups.

Since Dec. 1, when the 10-year-old company announced a co-marketing agreement for Synagis with pharmaceutical giant Abbott Laboratories, MedImmune shares have rocketed more than 54 percent to as high as $65.87. They closed Friday at $63.75.

That's a long way from the dark days in 1993 after the RespiGam rejection, when investors dumped the stock, sending its value down by 50 percent in two days and prompting MedImmune to cancel its planned acquisition of another biotechnology company.

Prudential Securities biotechnology analyst Caroline Copithorne expects Synagis sales to catapult MedImmune into a small group of biotechnology companies reporting profits from product sales, rather than from research or licensing agreements with big pharmaceutical houses.

But a cherry on the sundae for this year's financial report is the $30 million licensing payment due from Abbott that was triggered by the FDA approval.

With the Synagis approval, MedImmune has three drugs on the market. Synagis is expected to displace its predecessor, RespiGam. That drug, which generated $45 million in sales last year, must be administered by intravenous drip in a hospital; Synagis can be administered by injection in a physician's office.

MedImmune's other approved drug is CytoGam, which generated $20.3 million in sales last year. It prevents a viral infection common after kidney transplantation.

Some analysts think Synagis could emerge as a "blockbuster" drug, one with global sales of $500 million or more, even though its target market is small by drug market standards. Regulatory approvals in Canada, Europe and other overseas markets should ensure that status, analysts say.

The first $350 million in U.S. sales would go directly to MedImmune, said Copithorne.

Abbott would pay MedImmune an estimated royalty of 30 percent to 35 percent on U.S. sales exceeding $350 million, said analysts. Abbott gets to keep all revenue from sales outside the United States.

Driving the strong revenue prospects for Synagis is its cost -- about $4,500 per course of treatment -- and the lack of immediate competition. Children at risk for RSV need one shot a month during the RSV "season," October to April, which means about six injections a year.

Analysts expect managed care to embrace its use because it is cheaper to administer than RespiGam, which requires a monthly hospital stay during the RSV season on top of its $5,000 cost.

Also, analysts said, clinical trials showed that Synagis gives stronger protection against RSV infection, thereby reducing the incidence of the infection, which can cost more than $50,000 to treat if a child is hospitalized.

Another reason for the bullish outlook for the product is that the FDA surprised the company and analysts by saying the drug could be used to prevent RSV in children under 2 years old who are at risk for the disease, such as babies born with low birth weight or children with lung or heart problems.

Synagis's predecessor, RespiGam, was approved only to treat premature infants at high risk for the infection because their lungs are underdeveloped.

Analysts estimate that unexpected expansion broadens the potential market to about 350,000 children in the United States.

Copithorne thinks doctors might expand the use of the drug to treat adults at risk of contracting RSV, such as AIDS and cancer patients whose immune systems are greatly compromised.

The company plans to manufacture the drug at its new $50 million plant in Frederick, which will add 150 workers to its current 340 once the plant is cleared for use by the FDA. That could take two years. Meanwhile, Synagis will be made in Germany for MedImmune by Boehringer Ingleheim.

How well the drug is accepted by the medical community won't be fully seen until next year, when MedImmune and Abbott expect a full RSV "season" of sales, said Copithorne.

Abbott's Ross Products Division, which has a 500-person sales force targeting the U.S. pediatric market, expects to eventually sell more than $350 million worth of Synagis annually, said Copithorne.

More important for MedImmune, it gets the first $350 million in sales on the drug in the United States, thanks to the strength of a marketing agreement it struck with Abbott in early December.

That income will change MedImmune's bottom line dramatically. The company reported a 1997 net loss of $36 million on $81 million in sales. For its first quarter this year, the company netted $13.2 million on $59.3 million in revenue.

With Synagis catapulting MedImmune to firm profitability, the company faces a number of the opportunities and challenges that come with success.

One possibility analysts say they would not be surprised to see is an acquisition of another company with a strong product line or licensing deals to acquire others' experimental drug products.

Hockmeyer said such moves are possible but no such transactions are in the works. "We have depth and a strong product pipeline, which makes us an unusual story in the industry right now," said the chief executive.

The company's top short-term challenge is the successful marketing launch of Synagis, he says.

In the long term, Hockmeyer has his company focused on moving forward with new drug projects and seeing its plant in Frederick through to an anticipated opening in mid-2000.

Though analysts expect revenue from Synagis to fuel profitability, the company has more than 10 other drugs in development.

Some of those are years away from human testing, and several could face competitors that are being developed. But analysts say several of MedImmune's drug development projects offer good prospects for growth and for diversifying MedImmune's line of approved products.

Among those that Hockmeyer says are top priorities are:

Medi-507, an experimental vaccine for human papillomavirus (HPV), a leading cause of cervical cancer and genital warts.

A vaccine to treat urinary tract infections caused by the e.coli bacteria.

Several candidates for addressing graft-vs.-host disease, a serious complication of organ transplants.

The HPV vaccine project has generated MedImmune's other big licensing deal. SmithKline Beecham bought the rights to co-market the HPV drug, which, if proven effective, will offer an opportunity to tap a huge potential market in the millions of women at risk for cervical cancer. HPV causes about 80,000 cases of cervical cancer and more than 20 million cases of genital warts annually in the United States.

The deal is worth up to $85 million to MedImmune in licensing payments if the vaccine is approved for sale in the United States and Europe.

With its success, said Blumberg of Alliance, the company faces the important challenge of keeping expectations for the company high, but not overblown.

"The management team is seasoned with the [RespiGam] experience of '93," said Blumberg. "They are practical, but aggressive. It's a balance that generates a good team spirit."

MedImmune's zig-zag rise Rebound: Gaithersburg-based MedImmune Inc., a growing presence in biotechnology, has come a long way from the dark days of 1993, when a vaccine was rejected.

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