Drug battle could knock King from its throne

NEW YORK (CNNMoney.com) -- It'll take more than an ad during the Super Bowl to protect King Pharmaceuticals from the two scrappy biotechs plotting to end its near-monopoly on surgical blood clot drugs.

King (Charts), based in Bristol, Tenn., is running a pricey ad during Super Bowl XLI that focuses on the dangers of heart disease and high blood pressure without mentioning any of its products. King's top-selling product happens to be the blood pressure drug Altace, with more than $500 million in 2005 sales.

But that's not the product that's at stake. King is the leader in the $250 million market for thrombin, a coagulant that is sponged on to patients to slow bleeding during surgery. King's thrombin contributes about one-eighth of the company's sales, or $250 million, which is practically the entire market.

But King's thrombin, which is derived from cows, could face some serious competition by the end of 2007, when ZymoGenetics (down $0.17 to $15.78, Charts) and Omrix (up $1.42 to $35.50, Charts) hope to knock the larger drugmaker off its pedestal with their thrombin products.

Omrix BioPharmaceuticals, based in New York, has developed a form of thrombin based on human plasma. Seattle-based ZymoGenetics has used its DNA technology to develop a synthetic form of thrombin.

Both of these companies are awaiting regulatory decisions from the Food and Drug Administration, which will decide whether their products are safe and effective enough for the U.S. market. Omrix filed its product to the FDA in November, a month ahead of ZymoGenetics, so it might have the benefit of beating the other biotech to the market.

These relatively small companies have big partners. Omrix spokeswoman Francesca DeMartino said her company's thrombin will be marketed by Johnson & Johnson (up $0.21 to $67.01, Charts), the No. 2 U.S. drugmaker behind Pfizer (up $0.38 to $26.62, Charts). ZymoGenetics CEO Bruce Carter said his company will market its own product, which will be made by Abbott Laboratories (down $0.13 to $52.87, Charts), one of the nation's biggest drugmakers.

The biotech contenders are expected to charge a premium for their thrombin products, assuming they get approved, and they have some advantages over King's, industry analysts said.

The FDA is trying to move away from cow-based products because the human body sometimes tries to reject them as foreign substances. King's thrombin carries an FDA-mandated black box warning that says the use of cow-based thrombin could cause the patient to ramp up production of antibodies, which could result in heavy bleeding - exactly the opposite of what thrombin is supposed to do.

"Until now a lot of people who use King's thrombin product were not aware that it was bovine-derived, but you can bet ZymoGenetics will be including that in their advertising campaign," said Ian Sanderson, analyst for Cowen & Co., referring to the up-and-coming thrombin rivals as a "substantial threat" to King.

But J. David Owens, senior vice president for hospital and surgery products at King, dismissed his competitors' "scare tactics" as "unfounded."

Owens said that the bleeding problems mentioned in the FDA's black box warning were "extremely rare," occurring less than 10 times in every 11 million procedures. He said the block box was a "class warning" that applied to all cow-based thrombin products. "We feel very comfortable that we have a very safe product, based on our record," he told CNNMoney.com.

Omrix already has one product on the market, a surgical sealant that includes human-derived thrombin and has already been approved by the FDA.

But ZymoGenetics chief executive Carter was quick to note that the human-derived thrombin from Omrix also carries risks, in this case of "infectious agents." But it's hard to say how this might affect sales.

"Whenever you're tapping the blood bank, there's always the concern of what's in the blood bank," said Paul Latta, analyst for McAdams Wright Ragen. "This will be hotly disputed, but I will go with the [ZymoGenetics] product because I know there will be no antibody risk or tapping of the blood bank. Having said that, I do fully realize that a lot of people thought the Macintosh was better than the PC 15 years ago."

Omrix chief financial officer Mike Burshtine said his company's thrombin has "a very large margin of safety," and uses five different methods to screen or neutralize viruses from plasma. Burshtine also said his company's FDA-approved surgical sealant has been used successfully in 70,000 procedures.

Which brings us back to bovine-derived thrombin, which has been on the market since the 1940s. Some analysts aren't so sure that King's product is about to get knocked out of the ring.

"The philosophy that a synthetic is better than bovine-derived thrombin sounds good, but I don't know that there's such a problem with bovine-derived thrombin that people are actually rushing out the door to use a different product," said Corey Davis, analyst for Natexis Bleichroeder. "Hospital settings are notoriously slow to change, especially when higher prices are involved."

Thrombin is sold directly to hospitals, rather than physicians or patients. ZymoGenetics chief financial officer Jim Johnson said in an interview in November that he intends to woo sales reps from King, and also market share.

But here lies the crucial question: Will new types of thrombin expand the $250 million market, or will the companies be fighting for pieces of that-sized pie?

Latta of McAdams Wright Ragen said ZymoGenetics' thrombin sales could reach $200 million by 2009 and eventually peak at $400 million annually.

But Junaid Husain, analyst for Leerink Swann, said he would be "shocked and amazed" if the thrombin sales overall jumped with the introduction of new products. Husain said it was more likely to get crowded with competitors "duking it out" over a $250 million market.

Al Rauch, analyst for A.G. Edwards, emphasized in a note to clients that despite his "favorable outlook" on ZymoGenetics, the company "is unprofitable and the time line to profitability is uncertain and dependent upon the success of its product pipeline."

The analysts quoted in the story do not own shares of company stocks mentioned but Leerink Swann has received compensation for providing banking services to Omrix within the last 12 months.

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