EntreMed Inc., the Rockville biotechnology company that saw its stock soar in May on news of its promising cancer research, lost 47 percent of its value yesterday after Bristol-Myers Squibb Co. halted development of a critical drug.
Shares in EntreMed fell $11.625, to $12.875, in heavy trading. The drop followed an announcement after Tuesday's close that Bristol-Myers will relinquish responsibility for developing the drug, angiostatin, to EntreMed.
In May, Dr. Judah Folkman, a Harvard University scientist, said in a front-page article in the New York Times that he had combined angiostatin with another drug, endostatin, to eradicate tumors in laboratory mice.
That development attracted worldwide attention and sent EntreMed's stock soaring to as high as $85 a share.
But in a joint announcement, the two companies said EntreMed, which holds the license for both drugs, would assume responsibility for "preclinical and clinical work" on angiostatin.
Bristol-Myers, based in Princeton, N.J., will keep the option to reassume development and marketing rights if clinical trials are successful, the companies said.
"At this time, angiostatin protein in its present form does not meet our criteria for molecules that advance to clinical trials," said Robert A. Kramer, vice president of oncology drugs for Bristol-Myers. "We have chosen to direct our resources to other programs in our broad oncology pipeline."
Dr. John Holaday, the chairman and chief executive officer of EntreMed, said Bristol-Myers withdrew because it was simply unable to produce reliable batches of the drug. He said EntreMed has had more success producing angiostatin.
Holaday predicted EntreMed would reach its goal of making enough of the drug for clinical trials and would submit a new drug application to the Food and Drug Administration this year. "Do I think we'll make that clinical trial and application?" he said. "You bet."
But investors clearly had doubts. They started selling shares in Tuesday's after-market trading. Yesterday's volume was 3.3 million shares -- more than 10 times EntreMed's three-month daily average.
"Bristol-Myers is one of the leading oncology companies in the world -- it is not a vote of confidence in the potential for this product that they would decide to abandon development before it even got into humans," said Ira Loss, an analyst with HSBC Washington Analysis, who follows the FDA.
Eric Ende, an analyst at Lehman Brothers in New York, predicted that EntreMed would have difficulty scaling up production of endostatin and angiostatin at the same time. "It takes a lot of money to develop drugs," he said. "Maybe they can develop them, but Bristol-Myers is cutting off about $4 million a year. That makes it more difficult."
He said angiostatin had a 3 percent chance of being successful commercially -- down from his estimate before yesterday of 15 percent.
EntreMed, which employs about 50 people, had $38 million in cash in the third quarter. It must show it can produce the compound in large quantities before the National Cancer Institute will take over and run safety studies in patients.
But Holaday viewed the stock price decline as the kind of overreaction that the company has gotten since the New York Times article May 3. The next day, shares in the company rose as high as $85, finally closing at $51.8125, up $39.75, or nearly 330 percent. "Because of that microscope, people are going to overreact to every piece of news," he said.
Then, on Nov. 14, after a Wall Street Journal article focused on the difficulty other researchers were having in duplicating Folkman's work, shares in EntreMed plunged more than 23 percent, to $24.875.
Folkman did not return phone calls placed to Children's Hospital in Boston. In a statement, the hospital said "all protein bio-pharmaceuticals are high-risk undertakings that present companies with scale-up challenges."
The hospital also said Folkman "remains very optimistic about the effectiveness of both angiostatin and endostatin."
When the two drugs and a third inhibitor being tested are approved, the hospital said, "they can be tried in various combinations, similar to chemotherapy protocols, which often include a number of different medications."
Angiostatin and endostatin work by cutting off the blood supply to tumors. Given intravenously to mice, they have eradicated any type of cancer, with no apparent side effects. The drugs also appear to prevent the spread of tumors.
Holaday said EntreMed has had great success producting angiostatin -- and endostatin -- using yeast as a manufacturing agent. He said the method employed by Bristol-Myers, which relied on animal cells, was far less effective.
"They couldn't make reliably batch after batch," he said.
He said Bristol-Myers did not want to switch methods to use yeast because "they didn't feel comfortable retrofitting their system to do it in a different way.
"Big pharmaceutical companies do some things very well," he said. "But biotechnology companies are here for a reason."
Some analysts, while not totally optimistic, saw the stock drop as an overreaction. "Any time a major pharmaceutical company walks away from a biotech company, that's negative," said Kurt Funderburg, an analyst with Ferris Baker Watts in Baltimore. "But I think there's a little bit of an overreaction to what's going on."
Pub Date: 2/11/99