Biotech Kahuna (Pg 4 of 5)

Abraxane was then years from any potential FDA approval for commercial use, but Soon-Shiong was quick to exploit its financial potential. In 1999 his American BioScience granted North American rights to Abraxane to APP for $60 million plus $25 million more in milestone payments. The deal gave Soon-Shiong insurance against the drug’s failure to win approval at the expense of APP shareholders, various critics pointed out. But that bit of self-dealing would turn out to benefit, rather than hurt, APP’s investors. In December of 2001 the appeal of Abraxane’s potential to become a blockbuster drug gave APP the sizzle to raise $144 million in an IPO that gave the company a valuation of over a billion dollars and made Soon-Shiong a billionaire, at least on paper. Soon-Shiong immediately used some of his new wealth to settle the lawsuit against him by paying $32 million to Terrence and Mylan and $5 million to the other investors of VivoRx and VivoRx Diabetes.

Soon-Shiong was showing a penchant for shrewd business tactics. Bristol-Myers’s patent on Taxol was set to expire in 2000. Soon-Shiong secured a patent for an experimental variant of Taxol and sought to perfect his claim to all drugs with a similar formulation by suing Ivax Corp. to prevent its release of a generic version of Taxol. The federal court ruled that the drug had been developed by Florida State University scientists and struck Soon-Shiong and two colleagues from the patent. In 2000 the Federal Trade Commission (FTC) investigated whether APP had colluded with Bristol-Myers in an effort to keep generic versions of Taxol off the market. APP said it had merely been protecting its claim to Abraxane. In June 2002 29 states sued Bristol-Myers on the theory that it conspired with APP to foreclose generic versions of Taxol, adding billions to the healthcare costs of the states and cancer patients. APP was named as a co-conspirator though it was not a defendant. In that same year APP was also the target of a New York Times exposé of the cozy pact between APP and Premiere.

Despite these setbacks Soon-Shiong was taking big strides toward becoming a genuine pharmaceuticals tycoon. APP received FDA approval on many additions to its injectables line. Sales jumped to $351.3 million in 2003 from $192 mil. in 2001 while net income rose to $71.7 mil. A company that had been a mere shell in 1997 had mushroomed into a major supplier of injectables. But much of APP’s multi-billion-dollar stock market valuation had been based on its right to the North American distributorship of the Abraxane cancer treatment being developed by Soon-Shiong’s American BioScience.

In January of 2003 the FDA granted fast-track status for Abraxane despite its reservations about the fact that 75% of the patients slated to participate in the proposed clinical trial were located in Russia. In September of 2003 an APP press release claimed that phase three clinical trials showed Abraxane outperforming Taxol. The lack of supporting details prompted Wall Street to downgrade APP stock, causing its market value to drop from $3 billion to $2 billion. Soon-Shiong went into firefighting mode, promising to provide details at a scientific meeting. The research community was far from supportive of Soon-Shiong’s shoot-from-the-hip approach, fueling further grumbling in the investment community. Shareholders filed suit on the ground that APP had released misleading information about Abraxane and that Soon-Shiong had sold 300,000 shares just before the stock plunged.

In December of 2003 APP released supporting data from the clinical trial. It showed Abraxane to be 31% more effective than Taxol in fighting breast cancer. APP shares jumped only to plunge again as analysts began delving into the data. In particular, the fact that 75 percent of the patients were from Russia raised suspicions that were reinforced by the fact that those patients reported much lower results for Taxol than had been reported in other studies.

Soon-Shiong still expected the study to earn Abraxane FDA approval, but hopes were fading of the drug becoming a blockbuster in light of competing treatments and the serious questions raised over its efficacy. The SEC began inquiring whether APP had exaggerated Abraxane’s potential so as to mislead investors. In late September of 2004, while the SEC commissioner was mulling a formal probe, Soon-Shiong stepped down as APP’s CEO whle retaining the title of executive chairman to focus on “strategic initiatives” and the researching of new proprietary injectable pharmaceutical products.” He named as his successor Alan Heller who had headed up global renal operations at Baxter Healthcare and had been an executive vice-president and president of G.D. Searle.

In early 2008 APP was favored by a major stroke of luck thanks to a tragic comedy of errors involving rival Baxter International’s heparin supply. Heparin is a blood anticoagulant extracted from the mucal lining of pig intestines and used each day by nearly a half million kidney dialysis and cardiac transplant patients in the United States. As of the end of 2007 half of that demand was being supplied by industry leader Baxter International. An error in transcribing the Mandarin name of the plant manufacturing Baxter’s heparin kept the plant from ever being inspected by either the U.S. FDA or its Chinese counterpart. An undetected production flaw allowed the shipment of large quantities of contaminated heparin which caused the deaths of at least 62 patients and illness of tens of thousands more. By February of 2008 Baxter began recalling its heparin. By April it was forced to stop selling heparin altogether.

APP’s heparin too was manufactured in China, but without quality issues. Next

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