In its early years, the biotech sector would rise or fall on news from a single bellwether. But over the past decade, investors have become more sophisticated and understand that news from one company is not necessarily a portent for the rest of the group.

Last week, however, news that Genentech's Xolair ruMAb-E25 to treat adult allergic asthma would not be approved this year drove investors out of not only DNA and partners Tanox (TNOX) and Novartis (NVS), but out of biotech stocks in general (see Cover Story).

The Xolair news appears to have been the straw that broke the camel's back, as the latest setback in what was to have been a stream of easy wins for biotech this year.

"It's not just Genentech, it's the continuum of bad events," said OrbiMed's Sven Borho. These include the FDA's failure to approve Amgen's Aranesp second generation EPO by the end of June, as well as non-approvable letters last month for Plenaxis abarelix for prostate cancer from AMGN and partner Praecis (PRCS), and for Aslera prasterone DHEA for systemic lupus erythematosus from Genelabs (GNLB).

Borho believes the FDA is rudderless without a commissioner, and fears that non-approvable letters will continue to emanate as agency bureaucrats focus more on the PDUFA clock than on product approvals. "The FDA scares me to death," he said. "The attitude seems to be, 'I made our statement in time for PDUFA, let's send the letter and then we can sit back.'"

Mitch Silber of TF/Carson concurred, saying that investors are now officially spooked by the fact that, with the exception of Scios (SCIO) (see Milestone Watch, below), the FDA doesn't appear to be approving anything these days. "It's becoming clear that the glasnost period with PDUFA is over at the agency, and it's casting a pall over the sector. If products aren't going to get approved, what's the point of investing in the sector?" said Silber. "And it's not just first-time biotech companies getting turned away. If Amgen, Genentech and a bunch of pharma drugs can't get through, then what will? That's why it was a wholesale sector selloff."

To wit, on Friday, the FDA issued a "not-approvable" letter to Pharmacia (PHA) for its parecoxib second-generation injectable COX-2 inhibitor to treat moderate to severe pain.

Even treatments for life-threatening diseases are getting short shrift. "It's one thing if an allergy drug like Schering-Plough's Clarinex doesn't get approved, but a sepsis drug gets sent back to the stable?", Silber said, referring to the June 13 FDA decision to extend the action date for Eli Lilly's BLA for Xigris drotecogin alfa to treat severe sepsis (see BioCentury, June 18). The FDA is now scheduled to act on the BLA on Oct. 27.

Although FDA approved some products in the second quarter - including Metadate CD methylphenidate to treat ADHD from Celltech (LSE:CCH; CLL) and Campath alemtuzumab to treat chronic lymphocytic leukemia from Millennium (MLNM) and Ilex (ILXO) - the negative perception clearly has the upper hand. The BioCentury 100 tumbled 4% last week when other major indexes were in positive territory. The NASDAQ gained 4% as buyers revisited the computer and telecommunications sector; the Dow Jones Industrials added 3%, while the S&P 500 advanced 2%. In fact, the BioCentury index has given back most of its 16% second quarter gain in the first two weeks of the third quarter. The sector has fallen 11% so far, and now stands up only 3% from its March 31 price level.

Earnings season


The company reported that Rituxan sales increased 83% to $187.7 million in the second quarter from $102.8 million in the quarter last year. IMS had put April sales at