Proceed with caution
The stock market has been no place to look for upbeat stories over the past month.
Of course there are exceptions, precisely, one headquartered in Massachusetts. NitroMed Inc., a small Lexington drug company, is living the pharmaceutical-biotech stock market dream, at least for the moment.
NitroMed stock took off two weeks ago, when the company disclosed startlingly good news from the clinical trials for its BiDil treatment for African-Americans suffering from heart failure. Those shares soared from $4.82 to $22.30 in 11 trading days, enjoying their best single-session advance yesterday.
The gains gave little-known NitroMed a stock market value of $571 million, still small by the measure of most investors. But NitroMed's climb gave it a greater value than better known life science companies like Trans-karyotic Therapies Inc. of Cambridge and Cubist Pharmaceuticals Inc. of Lexington. The catalyst for NitroMed's stock spike was a decision to halt the three-year-old BiDil clinical trial, involving nearly 1,100 patients, because of a "significant" ability to improve survival rates. Clinical trials are stopped when data show an experimental drug's effectiveness, because it would be unethical to continue treating some study patients with placebos.
NitroMed is not riding some new compound cooked up in its labs. BiDil is a combination of two generic drugs, normally used to treat angina and hypertension, that was tested nearly 20 years ago and considered a dud at the time.
BiDil was tested by another company, Medco Research Inc., in a study of heart failure among Veterans Administration patients in the 1980s. The drug's ability to help the general population of heart failure patients in the test was considered not statistically significant, which in effect killed its application to the Food and Drug Administration.
A doctor involved in the research, Jay Cohn, acquired the rights to BiDil and brought them to NitroMed, which was founded a few years earlier to develop drugs using nitric oxide chemistry. They analyzed the data from the Veterans study and concluded that BiDil may have been a bust treating the general population, but it seemed to help black patients.
The FDA agreed but told NitroMed to conduct a large new study examining the effect of BiDil exclusively on black patients. The company launched the trial in May 2001 and got the word two weeks ago doctors had seen enough.
That news has accelerated all kinds of timetables for NitroMed executives. Now they plan to make study data public late this year and will be ready to market BiDil next year.
"It was a great day," NitroMed chief executive Michael Loberg said yesterday. "Unfortunately, you don't get a chance to blow up the balloons. You just travel to airports."
Now NitroMed faces new challenges that pose risks for investors buying shares at today's much higher prices. The research company must turn itself into a business that actually makes money by selling products to customers.
Though NitroMed has marketing relationships with other companies for different products, it intends to hire a sales force and market BiDil directly. Loberg suggests a sales force of about 200 can get the job done.
The market opportunity for BiDil may range from $500 million to $700 million, said analyst Jennifer Chao of Deutsche Bank, lead underwriter for NitroMed's initial public stock offering last November. She called BiDil a "potential blockbuster" and set a stock price target of $38 per share for NitroMed.
That's an aggressive forecast for a company that hasn't sold anything yet, way too upbeat for me. Congratulate NitroMed, but proceed with caution.
Steven Syre is a Globe columnist. He can be reached at syre@globe.com.
