Profitable Biotechs

Despite recession, several Maryland Biotechs turn a profit

Biotechnology firms have been reported to be hard hit by the recent recession; struggling to stay afloat amid a dearth of venture capital funding and and lack of new drugs selling on the market. The Biotech industry is often pigeonholed as frail, cash strapped and high risk; spending years on research to develop drugs but often ending with failure and bankruptcy.

But in Maryland it's a different story. Several biotech firms have achieved profitability for their full fiscal year and some of them for the first time in the midst of a troubled U.S. economy.

Rockville based Vanda Pharmaceuticals (NASDAQ:VNDA), fought its way up to its first profitable year in 2010. Bleeding cash for at least three years prior, Vanda became an overnight success after it won a hard fought Food and Drug Administration approval.

President and Chief Executive Officer Mihael Polymeropoulos, M.D. reiterated Vanda's highlights during their most recent full year conference, "2010 has been an exceptional milestone year in the history of our company”, he continue to add “we had our first profitable year".

 In May of 2009, Vanda rocked the biotech industry with the approval of its schizophrenia drug Fanapt (Iloperidone). The company’s approval forced traders and investors to take a closer look at the biotech industry, industry and participate in FDA judgment trades.

Heavy volume of short interest and put options were placed against the company for what was thought to be its coming failure. The bet that Vanda would be dead within a year was due to the fact that in July of 2008 the company received a rejection letter from the FDA for its Fanapt. Vanda later appealed to the FDA ruling later in November of the same year.

In the time before approval, Vanda had been highly efficient with its cash, trimming pay and R&D even before the $200 million cash infusion it received from partner Novartis Pharma AG.

On May 6, 2009, after hours, an announcement was made that the Fanapt drug had won approval and could be marketed and sold. Vanda stock price increased over 600%, overnight, with a low from around $1.00 a share to over $8 in 25 minutes.

With its drug on the market, the Montgomery County biotech posted full year 2010 revenues of $35.2 million; net income amounted to $7.2 million. That’s compared to revenues of $4.5 million and a net loss of $35.9 million for 2009.

Fifteen miles south in the same county, Silver Spring based United Therapeutics Corporation (NASDAQ:UTHR) has long been a profitable, setting the bar for biotechs in the Mid-Atlantic region. Until late 2009, it was the largest biotechnology company measured by market capitalization in the Baltimore Washington area, which includes Northern Virginia. It was surpassed by Rockville based Human Genome Sciences.

However, United Therapeutics continues to be the most profitable biotech in the region. "We finished 2010 with solid operating results led by the growth in our revenues," stated Martine Rothblatt, Ph.D., Chairman and Chief Executive Officer.

The 2010 net income was $105.9 million. Revenues have nearly doubled to $604 million for 2010 from $370 million in 2009. Its flagship drug Remodulin (treprostinil) accounted for over $400 million out of that amount. Remodulin treats pulmonary arterial hypertension (PAH).

But in just the past two years United Therapeutics has expanded its drug line and significantly added to revenues. Tyvaso® (inhaled PAH treatment), and Adcirca® (Tablet PAH treatment) have both increased sales nearly eight times the amount from 2009. Tyvaso accounted for over $151.8 million of revenues in 2010 compared to only $20 million in 2009, while Adcirca accounted for over $36.3 million in 2010 revenues compared $5.7 million in 2009.

The company is fast approaching the $1B mark in income. Considering former Gaithersburg biotech juggernaut MedImmune was sold to AstraZeneca in 2007 for $15 billion on revenues of $1.2 billion; it’s fair to say that United Therapeutics is undervalued with its $3.25 billion market cap.

While other biotechnology firms typically opt for a suburban setting, United Therapeutics took a unique position and choose to build its own headquarters in downtown Silver Spring. A biotech building its headquarters in an urban setting is nearly unheard of. The final phase is currently under construction.

Another biotech no stranger to profitability is Emergent BioSolutions (NYSE:EBS), with its headquarters also in Rockville, the mid-sized biotech has increased its annual net income every year since 2008 mostly off its flagship Anthrax Vaccine, BioThrax. In 2010 it posted annual net income of over $51.7 million compared to $31 million in 2009.

Chief Financial Officer R. Don Elsey attributes the growth to the firms continued success in obtaining government contracts, "Our 2010 financial performance reflects our continued success in growing revenue from the sale of BioThrax(R) and government development contracts."

Emergent is one of the few biotech companies that achieve its revenue stream by way of federal government contracts. Most biotechs with a drug on the market sell to their target demographic within the general public, as opposed to bidding on government contracts. As a result of Emergent’s government contract wins, the company can at least maintain a predictable income stream for a set amount of time.

Elsey expects Emergent to bring in between $320 and $340 million in revenues for FY 2011, up from over $286 million for FY 2010. Net income would settle between $35 and $45 million, down slightly from 2010, but still profitable.

Like Vanda, Columbia based Osiris Therapeutics (NASDAQ:OSIR) has never made an annual profit from continuing operations until last year. The company is centered on developing drugs using stem cells.

"With quiet determination, Osiris made tremendous progress on all fronts in 2010," said C. Randal Mills, Ph.D., President and Chief Executive Officer. "We now move into 2011 with the most advanced cell therapy pipeline, featuring late stage programs in major indications such as Crohn's and cardiac disease. Above all, our efforts remain keenly focused on our groundbreaking GvHD program that seeks to achieve our overriding goal of making Prochymal the world's first approved stem cell therapy."

The Baltimore area biotech's 2010 net income was $13.1 million compared to a loss of $23.5 million before extra onetime items including discontinued operations. Revenue held steady at $43.2 million compared $44.5 million in 2009 but significantly higher than the $10 million in 2008. It has continued to receive licensing payments from partner Genzyme.

Maryland biotech's are on the verge of a considerable increase in revenue due to the fact that many are in the third and final phase of their drug development and testing, set to be completed within the next three years.

Vanda has entered the Phase III trial for its sleep disorder drug Tasimelteon, while Osiris has two Phase III drugs that have received fast track status from the FDA. Both companies have received the FDA Orphan Drug Designation. United Therapeutics recently completed its Phase III trial for oral Treprostinil to treat PAH. The company released information this month that the drug has met its primary end points.

The biotech's must receive FDA approval before the drugs can be sold on the market but by obtaining fast track and orphan drug status or having a track record of approvals, the odds are in their favor.


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