No. of Recommendations: 8
I thought I would share my DD on Immunex, a company I studied in detail during the recent Biotech seminar. This company doesn't exactly fit as a KARM or KARB (more of a RM than RB at this point I think). Maybe you should consider it a KAR"tweener".

Company Description

From the most recent 10-Q:

We are a leading biopharmaceutical company dedicated to developing immune system science to protect human health. Applying our scientific expertise in the fields of immunology, cytokine biology, vascular biology, antibody-based therapeutics and small molecule research, we work to discover new targets and new therapeutics for treating rheumatoid arthritis, asthma and other inflammatory diseases, as well as cancer and cardiovascular diseases.

Company History

Immunex was founded by researchers Steven Gillis and Christopher Henney, and businessman Stephen Duzan in July 1981. Their initial research involved lymphokines. I vaguely remember studying about these molecules in Microbiology. That was my second worst subject in medical school. As I recall, Lymphokines are molecules that modulate the immune system. This interest seems to have been stimulated by Gillis, who did early work with Interleukin-2 (IL-2) while he was studying at Dartmouth.

Immunex went public on July 7, 1983.

Immunex also received it's first patent in 1983 -- to produce IL-2 in a proprietary cell line. Immunex would add 4 more patents for IL-2 research by the end of the year.

In 1984, Immunex identified the IL-2 receptor, a gene associated with regulation of the immune system. By 1990, Immunex would identify Interleukin-1 alpha (IL-1), Human Granulocyte-Macrophage Colony Stimulating Factor (GM-CSF), Interleukin-3 (IL-3), Interleukin-4 (IL-4), and Interleukin-7. Additionally, they would also identify receptors for these molecules, further increasing their knowledge of the regulation of the human immune system.

Throughout its 17 year history, Immunex has partnered with and merged with many companies, including
Behringwerke AG, Hoffman-LaRoche, Kodak, Ajinomoto, Sterling Drug Inc, American Cyanamid, American Home
Products Corp, Wyeth-Ayerst, Digital Gene Technologies, Genentech, Medarex, and Celera. Since 1994, American Home Products has owned a majority share of Immunex.

Immunex has seven marketed drugs: Amicar, Enbrel, Leucovorin, Leukine, Methotrexate, Novantrone, and Thioplex. They have four investigational drugs: Avrend, Interleukin-15, Mobista, and soluble IL-4 receptor.

Interestingly, none of the three founders is still with Immunex. Christopher Henney resigned in 1989 to start up ICOS Corp. Stephen Duzan retired as CEO of Immunex in 1993, and Steve Gillis resigned from Immunex in 1994 to form another biotech company, Corixa. The current CEO is Edward V. Fritzky, who was with Lederle Laboratories when they merged with Immunex in 1992. He was named CEO in 1994.

During the Biotech Seminar, we learned to categorize a biotech company into one of three tiers:

Tier 1 consist of biotechs that already have one or more successful drug products on the market and enjoy minimum annual revenues of $250 million. A successful drug is one that makes enough money to produce an acceptable return on the cost of development. For the purposes of categorizing companies into our three groups, we have considered drugs that generate a minimum of $150 million per year in sales to be successful products. Tier Two companies should meet one or more of the following criteria: Profitable, Has one successful product on the market, Has a market cap of greater than $2 billion, reflecting either a leadership technology position, a deep pipeline, or promising drugs in late-stage clinical trials. All biotechs not in the top two tiers get lumped into tier three. Typically, third-tier companies are still looking to get their first successful drug to market, or are struggling to gain acceptance for their technology platforms.

Immunex (IMNX) appears to be a 1st tier company. They currently market 6 drugs. They reported revenues for three of these drugs in their most recent earnings press release: Enbrel, Leukine, and Novantrone. Their total annual revenues for the first 9 months of 2000 add up to over $611 Million ($580 M from drug sales, $31 M from royalties).

The Drugs

Immunex has one drug that would qualify as successful: Enbrel. Enbrel represented a new class of drug, being the first TNF (Tumor Necrosis Factor) modulator approved for adult and juvenile rheumatoid arthritis (RA). The market for RA treatment also happens to be a huge and underserved market. Sales of this drug has accounted for almost $370 M last year, and $458 Million for the first 9 months of 2000, representing an 84% increase over the first 9 months of 1999. Enbrel's sales remind me of Epogen in 1991, or Neupogen in 1992.

Enbrel is "co-promoted" with Wyeth-Ayerst, the pharmaceutical division of American Home Products. A portion of all profits goes to Wyeth-Ayerst, although the company's press releases do not indicate how much.

Immunex is currently studying Enbrel in three other clinical trials: one for Inflammatory Bowel Disease (IBD) that is currently between phase 1 and phase 2 (, a second trial for "reversal of cytokine toxicity" (also between phase 1 and 2), and a phase 2 trial for Congestive Heart Failure (CHF). Enbrel has been in one other clinical trial, which was stopped in July 1992 (for treatment of septic shock).

A nice overview of congestive heart failure can be found at American Heart Association's web site: CHF affects over 2 million people in the US. I don't have an estimate on worldwide prevalence. It is a very common cause of hospital visits, and I see a person with a congestive heart failure almost every time I work in the emergency department. The AHA lists 30 different medicines (9 different types) for the treatment of congestive heart failure. The also list lifestyle changes (diet and limited exercise), and surgery as treatment options.

I was able to find some abstracts regarding Enbrel and how it has been studied in the treatment of congestive heart failure (sorry if this gets too technical). One abstract suggested that Enbrel be studied to determine its effectiveness in patients with end stage congestive heart failure. Another study described the safety profile in patients with advanced heart disease, and suggested that "quality of life" scores improved in those patients while taking the drug. However, this study does not have enough statistical power to measure quality of life (only 18 patients in the entire study), so I would STRONGLY caution against taking this study as gospel truth that Enbrel is effective in treating heart failure. With only this limited information about where Enbrel would fit in the treatment of congestive heart failure, I would currently classify this as a large market potential, with a large number of competing drugs.

According to, there are currently 19 other drugs in clinical trials for congestive heart failure.

Inflammatory bowel disease (chron's disease, ulcerative colitis) affects 600,000 Americans ( This is a relapsing and remitting disease of the intestines that causes painful abdominal cramping, bloody diarrhea, and weight loss. It is often controlled by diet and medications. Sometimes patients also require surgery. There are currently 7 other drugs that are used to treat inflammatory bowel disease (a nice, but technical, summary can be found at These drugs can be used to treat both the chronic condition, and the acute flare-ups. Unfortunately, I was unable to find any information on how Enbrel is being tested for inflammatory bowel disease, and whether Immunex is testing the flare-ups, or the chronic disease. However, I would think that Enbrel has more room to make an impact here, if it turns out to be very effective.

According to, there are also 19 other drugs currently in clinical trials for inflammatory bowel disease.

I believe that patent for Enbrel began in 1991, as this is when most of the clinical trials began for Enbrel. Thus, Enbrel should be under patent protection for another 8 years.

Many of you know that Immunex recently released a warning regarding 10 patients using Enbrel who developed Aplastic Anemia, and 11 patients who developed Multiple Sclerosis (MS). The company has not linked Enbrel as a cause of these diseases, but was concerned enough to send out this warning:

It is unclear how this warning will affect Enbrel sales, but is something I would want to keep an eye on if I had any money in this company. As an aside, my fiancée works for a group of rheumatologists, and their patients can't get enough Enbrel. So these warnings don't seem to have decreased the demand at this point.

The Other Drugs

Leukine and Novantrone sales totaled $45 Million over the first 9 months of 2000. That is one-tenth the total sales of Enbrel. The FDA has recently approved Novantrone for active progressive forms of MS.

This may boost sales of Novantrone. The potential market for this drug is nice. There are 350,000 patients in the US alone with MS, and approximately half will develop active progressive forms. However, because of the risk of cardiac disorders associated with this drug, the total lifetime dosage is limited to 8-12 doses every 2-3 years. I don't believe that the risk of cardiac toxicity will limit the use of Novantrone in severe cases of MS, as the potential benefits of using the drug will likely outweigh the potential risks in many cases, but the limited total dose will likely affect repeat "purchases", in that once a patient has received their 12th dose, they will have to move onto other drugs.

The Numbers

The Clinical Indexes

Now, my numbers don't exactly match up with those presented by The Fool during the seminar. I obtained my numbers from the Company's web site,,, I was able to come up with the following information about Immunex's drug pipeline:

ElricSeven posted a nice message describing his Clinical Index, and it's utility in evaluating Biotech R&D:

Immunex's investigational products include:
Pre-clinical Trial for treating complications of chemotherapy and radiation therapy
CMA 676:
Currently in phase II trial as a treatment for Acute Myelogenous Leukemia (.286)
Mobista (Ligand for the Flt3 receptor):
Phase I for transplantation (stem cell mobilization)
Phase I/II trial as a cancer vaccine (.286)
Nuvance (Soluble IL-4 receptor):
Phase I/II for "experimental endotoxemia"
Phase I/II for Rheumatoid Arthritis
Phase I/II for graft-versus-host disease in Bone Marrow Transplants
Phase II clinical trial for long term control of asthma (.286)
Currently a pre-investigational drug, collaboration with Genetech.
Avrend (CD40-Ligand):
Phase II trial for treatment of renal (kidney) cell cancer (.286)
PIXY321 (GM-CSF/IL-3 Fusion Protein):
Phase III trial for Bone Marrow Transplantation (.606)
Phase III trial for chemotherapy induced neutropenia.

From the above information, I calculated a Core Clinical Index (CCI) of 1.43. The Fool calculated a CCI of 0.858 based on Phase II trials for Mobista, Nuvance, and Avrend.

Immunex has several current marketed products involved in clinical trials:

Enbrel (Soluble Tumor Necrosis Factor Receptor):
Phase I/II trial for treatment of Inflammatory Bowel Disease/Chron's Disease (.2)
Phase II/III for Congestive Heart Failure (.286)
Leukine (GM-CSF):
Phase I trial for neutropenia (.2)
Phase I/II Trial for "reversal of cytokine toxicity" (.2)
Phase II trial for Late-Stage Melanoma (.286)
Phase III trial for HIV infection (.606)
Phase III for neonatal sepsis (.606)
Novantrone (Injectable Mitoxantrone):
Phase I/II for Non-Hodgkin's Lymphoma (.2)
Phase III trial for metastatic breast cancer (.606)

This gives a Total Clinical Index (TCI) of 5.774. The Fool calculated 5.838.

To provide some prospective, here are the CCI and TCI of Amgen (4.540,5.312), Biogen (1.178, 4.746), and Genentec (4.504, 8.142).

Research and Development Metrics

I obtained my information at TMF's, and Immunex's most recent quarterly reports. Immunex qualifies
as a tier 1 company, and I think this is reflected in their R&D Metrics.

(in thousands)
Market Cap: $22,505,360
R&D TTM: $151,135
Earnings TTM: $773,806

R&D:Sales Ratio : $151,135/$773,806 = 19.5%

Growth Flow : $151,135+$773,806 = $924,941

Price:Growth Flow : 22,505,360/924,941 = 24.3

So Immunex invests almost 20% of their earnings in research, which seems like a good amount to me. Additionally, if I bought Immunex today, I would be paying $24.3 for every dollar of earnings and R&D. I suspect that this number is on the higher side, largely because enbrel is expected to continue to sell well. If Enbrel sales slipped, or its use was curtailed, I would expect Immunex's price:growth flow ratio to decline as well.

KARM Criteria

Dominant Brand: Immunex's Enbrel is a leading drug for the treatment of rheumatoid arthritis, but it does face competition (Remicade, from Centicor comes immediately to mind). Additionally, I don't think that Immunex has reached the dominant postion of an Amgen, Genentec, or Biogen.

For now, I give them a 0.

Repeat Purchase Business: My opinion of almost all drug companies is that they have strong repeat purchase business, as I know of very few drugs that work with but a single dose.

Score: 1

Convenience: Getting and using Immunex's drugs is relatively easy.

Score: 1

Expanding Possibilities: Immunex has a fairly strong R&D pipeline at this time. See the CCI and TCI above.

Score: 1

Rule Maker Ranking: I don't think anyone has done a rule maker ranking for Immunex, and I'm too tired to make one now. So they get a zero here, although I believe they could conceivably score in the low 40's if I did one.

Score: 0

Using the most recent 10-Q, I calculated the following:

Year over Year Sales Growth: 44%

Score: 2

Gross Margins: 70%

Score: 2

Net Margins: 14%

Score: 1

Cash: 1.81

Score: 1

Flow Ratio: 0.55

Score: 2

Cash King Margin: 13%

Score: 1

Total KARM Score: 12

So Immunex doesn't quite make the KARM cutoff of 14, but as I mentioned at the beginning of this LONG post, I don't think this company really fits as a RM or RB. However, I do think that it has potential to become a Rule Maker over the next few years.

Anyway, I hope at least a few people had the stamina to read this thing, and found it somewhat interesting.


(DISCLOSURE: I don't own any shares of Immunex. I studied this company because no one else in my Biotech seminar group was interested in this company, and I thought they had a cool name.)
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