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Soaring drug firm hits a speed bump


United Therapeutics Corp., a Silver Spring-based drug developer begun by a concerned mother turned pharmaceutical company CEO, has captivated investors for months with a compelling story that includes credible management and promising drug candidates.

But yesterday, United and Chief Executive Officer Martine A. Rothblatt hit a Wall Street speed bump that pushed shares down nearly 8 percent, a day after the company announced what was expected to be good news: An agreement to sell 1.3 million shares of new common stock to institutional investors at $110 apiece.

Shares fell $9.43745 yesterday to $115.0625, putting them closer to the $110 new-shares price. The jolt may have been inspired by one analyst's decision to downgrade the stock in the wake of a run-up he believes got carried away - and "new" information on the company's drug trials.

The private placement of stock, to be handled by Deutsche Banc Alex. Brown, is expected to raise $143 million for the company's drug development programs, acquisitions and general corporate purposes. It is scheduled to be closed within the next few business days.

But United Therapeutics' share ride has been so heady - up more than 200 percent in the past six months - that Prudential Securities analyst Robert J. Toth Jr. downgraded his recommendation on the stock from "strong buy" to "accumulate," saying shares were overvalued. Additionally, Toth said he had received new information about results in the pivotal testing of United Therapeutics' lead drug candidate, Uniprost, a treatment for the relatively rare but potentially life-threatening disease of pulmonary hypertension.

Though Toth emphasized he has not changed his revenue forecasts for the drug and still believes the Food and Drug Administration will approve it for sale, he said some in- vestors might find the information disturbing. Toth said he had learned Uniprost may not have caused statistically significant improvement in patients if the results are considered narrowly.

Pulmonary hypertension is characterized by high blood pressure in the pulmonary blood vessel between the lungs and heart but normal pressure elsewhere in the body. Patients with the disease, which affects about 60,000 people in the United States, can become worn out and breathless after walking short distances.

When United Therapeutics reported preliminary results of its final-stage Uniprost tests in March, it said the trials showed patients who received the drug "demonstrated a statistically significant improvement in their ability to exercise, the primary endpoint of the study." Those results, however, were statistically significant only when results at the sites in Europe and the United States -- each of which enrolled 224 patients - were combined.

That isn't a problem, Chief Financial Officer Fred T. Hadeed responded yesterday. The company had agreed to targets for statistical significance in advance with the FDA, both for results at the two sites when considered separately and for results on a combined basis.

"We didn't have to meet both; we had to score one or the other," Hadeed said, pointing out that Toth noted that fact in his report yesterday.

"For the combined study, the [statistical significance target] was much higher than for the separate studies," Hadeed said. "We indeed hit that."

The FDA requires drugs to be tested for safety and effectiveness on humans in three phases before considering whether to approve them for sale in the United States. The completed trials United reported on in March are Phase III trials.

A new drug application, generally followed by a review period, is the final hurdle before the FDA considers a drug for sale.

If the drug is approved and put on the market in 2001 as expected, A. G. Edwards & Sons analysts have estimated it could generate $80 million in sales in its first year alone and push money-losing young United Therapeutics into profitability.

Rothblatt, the chief executive and a former satellite communications company entrepreneur, was inspired to start the company in 1996 by her daughter, who has the disease. Rothblatt has since set up a company that has put together drug candidates, including Uniprost, by acquiring rights to market drugs that pharmaceutical companies had either shelved, axed or didn't plan to market in the United States.

She also recruited talent, including James W. Crow, a scientist who had been the project manager working on the drug before it was shelved at then Burroughs Wellcome & Co., when Uniprost was known as BW15AU. Crow is United Therapeutics' president and chief operating officer.

Over the past year, the company's shares have had a phenomenal ride, dipping as the overall biotechnology market was hammered this spring but then embarking on a six-month run-up before topping out Wednesday at $128.50.

Yesterday, Toth decided that was high enough to cut his strong buy rating.

"I hit my price target yesterday, and with the new risk factor it's a no-brainer."

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