Jenks Healthcare Business Report JUNE 2004

	Jenks Healthcare Business Report Your complete source for market intelligence, M&A and venture capital transactions in health care
June 2004 issue If It’s June, It Must Be Time To Talk About Cancer Care Some promising studies of new cancer drugs were unveiled this month, at the annual American Society of Clinical Oncology conference, which as usual, was a meeting of the minds among clinicians, researchers and scientists. ... Public Equity Market In the IPO market: with few exceptions, prices have been falling, but there has been no shortage of new filings. See page 3 ... Mergers & Acquisitions In the limelight this month: A hostile takeover in the works, three billion-dollar deals and a senior care company in the mix have made for some interesting news in this month’s M&A section. See page 5 ... Venture Capital Market It has been another stellar month for venture investments in health care companies, which received a combined total of more than $611 million committed to finance 40 deals. See page 10 ... Private Placements The largest deal of the month, once again, was for $125 million, accounting for approximately half the total dollars committed to private placements made in health care companies this month. See page 13 ... Notes & Briefs See page 16 Sign up for a trial subscription and get the current issue! Read the past headlines.	If It’s June, It Must Be Time To Talk About Cancer Care Every year, when oncologists gather at the annual American Society of Clinical Oncology (ASCO) conference, there is a flurry of press releases detailing the results of new clinical studies, with scientists and researchers presenting their findings to physicians looking for new treatments and answers at the ASCO sessions. With the buzz that is generated, one would think that we are on the verge of finding a "cure" for cancer. At last year’s conference, the big winner was Genentech’s (NYSE: DNA) drug Avastin for the treatment of colorectal cancer. After failing in clinical trials for breast cancer, no one expected much from the colorectal cancer trials for Avastin. But they were wrong in a big way, as investors watched DNA’s shares almost double in value on news of the trial results. Now, just a year later, people are referring to the new cancer-fighting drugs as the "children of Avastin," based on similar principles but with more bells and whistles, and there were plenty of new developments. Erbitux, made by Imclone Systems (NASDAQ: IMCL), was also one of the big winners at last year’s conference, but unlike Avastin, that was expected. As an aside, as the ASCO conference was coming to an end, an estimated 18,000 biotech scientists, executives and government officials were in San Francisco for the annual Biotechnology Industry Organization conference. Protesting genetically modified food, more than 200 demonstrators turned out, 25 of whom tried to block access to the convention center and were arrested for their efforts. It is reminiscent of the days when an organization known as ADAPT used to crash the annual nursing home association conference, scream profanities at the attendees and try to flood one of the hotels. Those were the days. A year ago, in addition to DNA and IMCL, several smaller biotech companies were able to piggyback on the market success of Avastin and Erbitux and watched as their shares doubled and tripled in value because they were developing similar drugs and investors were hedging their bets with the assumption that some of these could be break-out drug candidates. This year, despite what seemed to be an abundance of good news on the cancer front, investors found little to be impressed about during the conference, and after the initial run-up in prices in anticipation of the ASCO conference, there was a post-conference slip in values as investors became disappointed that no blockbuster developments were announced. For two years running, however, Imclone Systems was the star at ASCO, as recent trials for Erbitux to treat head and neck cancer were successful, sending IMCL’s shares up above $80 per share and near their all-time high. Although few people are shedding any tears for Martha and Sam these days, those two may be getting a little teary thinking about what could have been (or not). All it took was a little faith. Someone likened the progress in cancer treatment as evolving from the dirty bomb (chemotherapy), to the smart bomb (Avastin) and now the cluster bomb that has multiple targets. The problem with the cluster bomb is that as a drug hits more targets, the higher the likelihood of side-effects and toxicity. This may be true in some cases, but the side-effects of chemotherapy are about as bad as it gets, so patients will presumably tolerate anything that the cluster bombs throw at them. According to a monthly tracking survey of 27 oncologists done by the health care group at SG Cowen, both Avastin and Erbitux are seeing increased use by the physicians monitored. This group, which includes academic and community oncologists, treats a combined 2,473 stage IV (metastatic) colorectal cancer patients. In the May survey, physicians indicated using Avastin in 43% of their first-line patients, compared with just 23% in April, and in 3% of their third-line patients (2% in April). Erbitux, on the other hand, was used with 20% of their second-line patients in May (12% in April) and 27% of their third-line patients (23% in April). This increased use caused the analysts at SG Cowen to increase their 2004 U.S. sales forecast for Avastin and Erbitux by 24% and 26%, respectively. The 2005 forecasts were increased as well, but not quite as dramatically. In another statistic that bodes well for the two drugs, 26% of the oncologists in the survey group have used Avastin for conditions other than colorectal cancer (22% for Erbitux), and they expect that to increase to 63% and 56%, respectively, in six months. These are just some of the reasons why IMCL has more than doubled in value in the past year and DNA has jumped by more than 50%. The SG Cowen report (dated June 3) goes into much more detail and is well worth the time for any interested investors. Getting back to the ASCO conference, several companies reported positive results from clinical trials dealing with everything from breast cancer (Gemzar) to prostate cancer (Atrasentan), non-Hodgkin’s lymphoma (Rituxan), multiple myeloma (Velcade) and kidney and stomach tumors (SU11248), the last one being developed by Pfizer (NYSE: PFE). One company was particularly prolific in the press release department, with the results of three Phase II trials disclosed by Telik (NASDAQ: TELK) in one day. In a trial with 21 patients with ovarian cancer who had previously failed to benefit from standard treatments, 56% of the patients who took TELK’s experimental drug Telcyta in combination with carboplatin (platinum-based chemotherapy) saw their tumors shrink by 50% or more, with three of the patients having no sign of cancer remaining. Apparently, when used alone, carboplatin usually produces tumor shrinkage in just 10% of patients with advanced ovarian cancer. In a separate trial also involving 21 patients with ovarian cancer, Telcyta used in combination with liposomal doxorubicin, a drug usually used when several rounds of chemotherapy have failed, 46% had a significant shrinkage in their tumors, compared with 13% that is typical when Doxil is used alone. In the last Phase II trial, this for patients with non-small cell lung cancer (NSCLC), Telcyta combined with docetaxel had a 27% objective response rate with one complete response. Telcyta is in Phase III trials for NSCLC and ovarian cancer, and has also tested positively in Phase II trials for breast, ovarian and colorectal cancer. This small molecule drug is activated by GST P1-1, an enzyme present in cancer cells. Upon activation, an intracellular process known as apoptosis, or programmed cell death, occurs. Although the Palo Alto, California-based company has no meaningful revenues, continued success with Telcyta will change that. TELK’s shares are up 50% from a year ago, but considerably below the 52-week high set in April. Whether a case of jumping on the bandwagon or looking for a way out of its rut, Schering-Plough (NYSE: SGP) wants to be a bigger player in the cancer market. Only 10% of the company’s revenues come from drugs that treat various forms of cancer, including $324 million from Temodar, a drug to treat brain tumors. At the ASCO conference, SGP presented results from a trial involving 573 patients with glioblastoma multiforme, a form of brain cancer which usually is fatal within a year. Two years after treatment with Temodar and radiation, 27% were still alive, compared with just 10% receiving radiation alone. In addition, tumors did not recur after two years for 11% of the patients in the trial, compared with 2% getting just radiation. SGP would like to buy one or more small companies with promising cancer treatments in development. Would Telik, which has a market cap just under $1.0 billion, be too large?
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