FDA to rule on Wyeth's anti-psychotic drug

NEW YORK (CNNMoney.com) -- The FDA will decide soon whether Wyeth's experimental drug for schizophrenia merits approval for the U.S. market.

The Food and Drug Administration is expected to make a decision as early as Friday regarding the schizophrenia drug bifeprunox, developed by Wyeth (down $0.31 to $49.98, Charts, Fortune 500) and its partner, Solvay Pharmaceuticals.

Michael Krensavage, analyst for Raymond James & Associates, said bifeprunox has demonstrated "questionable efficacy" in treating schizophrenia and he wasn't convinced the drug would sail past the FDA. He also said the drug doesn't have what it takes to be a billion-dollar blockbuster.

The Madison, N.J.-based Wyeth could use some good news, since its stock tanked more than 10 percent in July, when the review of its experimental antidepressant Pristiq was stalled by the agency.

"The stock's in a precarious spot here, because they had that other drop," said Jon LeCroy, analyst for Natexis Bleichroeder, adding that the FDA might step cautiously around bifeprunox because it causes nausea as a side effect. "There's more downside risk than upside," said LeCroy.

LeCroy said that bifeprunox sales have the potential to peak at $1 billion annually. But he said growth would be stymied beyond that, because the industry for anti-psychotics as a whole will soon be constrained by generic competition.

The patent for Johnson & Johnson's (down $0.15 to $62.34, Charts, Fortune 500) blockbuster Risperdal is expected to run out in 2008. The patent for Eli Lilly & Co's (up $0.00 to $58.40, Charts, Fortune 500) Zyprexa (which totaled $2.3 billion in the first half of 2007) is slated to expire in 2011.Name-brand drug sales typically plunge when a patent expires, because competition opens to low-cost generics.

"Generic Zyprexa will make it tougher for all these schizophrenia competitors," said Krensavage of Raymond James.

Generic competition is expected to put pressure on other players in the schizophrenia class of drugs, including Abilify from Bristol-Myers Squibb (up $0.00 to $29.93, Charts, Fortune 500), with nearly $800 million in sales during the first six month of 2007, AstraZeneca's (down $6.04 to $45.00, Charts) Seroquel, with nearly $2 billion in first-half sales, and Pfizer's (down $0.24 to $24.37, Charts, Fortune 500) Geodon, with $400 million in the first half.

Even as the industry faces low-cost competition from generic drugmakers, it also stands to get more crowded. Though bifeprunox is the most advanced experimental drug in the anti-schizophrenia class, there are others in the wings. Schering-Plough acquired asenapine, through its recent purchase of Organon Biosciences, and the drug is in late-stage tests. Vanda Pharmaceuticals completed tested with its experimental iloperidone (which it licensed from Novartis) and plans to file with the FDA.

The analysts interviewed for this story do not own stock in companies mentioned here, though Raymond James has received non-investment banking securities-related compensation from Wyeth in the last 12 months.