Drug maker’s volatile recipe
I once wrote a column about a Cambridge company called Advanced Magnetics Inc. that became a stock market darling. Its shares soared to nearly $60, thanks to a promising new drug in the late stages of development.
That was 2 1/2 years ago. Since then, the company has changed its name to AMAG Pharmaceuticals Inc. and moved to Lexington. But its iron therapy drug, Feraheme, is still waiting for government approval, and the company’s stock closed yesterday at $53.59, below its price near the end of 2006.
A lot is likely to change very soon. The Food and Drug Administration owes AMAG an answer on Feraheme by Monday, and analysts believe it will almost certainly be approved soon. A sales force hired last fall and a stockpile of the product are ready to go right now.
“The last step is pasting the label on drug vials and shipping them out,’’ says chief executive Brian Pereira. “That occurs the very next day after approval.’’ He sounds anxious.
So do the stock analysts who follow AMAG and overwhelmingly recommend the shares. Short sellers, who bet the price of a stock will decline, have been sharply reducing their bets against AMAG since early spring.
Seems like a layup, right? AMAG certainly will get its drug approval soon, but the company’s experience over the past 2 1/2 years, as well as gyrations in its stock price, illustrate the unpredictable path of drugs in development and the stock market’s crazy reaction to news of any kind.
Go back to 2006. AMAG’s share price had rocketed 430 percent that year, thanks to strong clinical evidence its drug could help patients with chronic kidney disease. It required many fewer treatments than existing iron therapies for most patients and could be administered more simply, in a fraction of the time.
AMAG filed its new drug application late the next year, and the stock held steady through 2007, even reaching a peak of $71 per share. But then regulators rejected a competing drug in development on safety concerns. Then the FDA raised questions about AMAG’s production facilities in Cambridge. The stock market ride got crazy.
AMAG shares plunged below $35 by March 2008, recovered to nearly $50 five months later and headed south again, finally hitting bottom three months ago at a price below $25. Now AMAG’s shares have more than doubled in the past 16 weeks.
So what do investors really expect from Feraheme? Estimates vary dramatically, but consensus forecasts expect modest sales this year, building to about $350 million by 2013. Stock market fans, and there are plenty of them, think the long-term future is much brighter than that. A few imagine the potential for a billion-dollar business.
Other analysts are more tempered. Yaron Werber, of Citigroup Global Markets, recommends AMAG shares but says he remains just “moderately upbeat’’ on the Feraheme opportunity. A lot of business strategy and execution needs to go well for AMAG to reach the potential some see.
At first, Feraheme will be used to replenish lost iron in dialysis patients. The drug’s advantages - treatments that are much faster, simpler, and less frequent - won’t give Feraheme a bigger boost because patients get iron replacement therapy while they undergo dialysis. Existing therapies don’t actually take up any more of their time.
But AMAG believes the big opportunity for Feraheme involves other patients. It wants to give the iron therapy to chronic kidney disease patients who aren’t on dialysis. Later, it wants to target other types of patients who also have iron deficiencies.
The advantages of Feraheme could make a big difference among those patients. But most of them don’t get iron replacement treatment today. No one can measure that market because it doesn’t really exist so far.
In many ways, Feraheme is as low-risk a development product as you can find in the drug business. It cost a modest $100 million or so to develop, certainly seems to work, and comes with some clear advantages over existing therapies.
That doesn’t necessarily mean smooth sailing for investors. AMAG shares would surely jump on news of FDA approval for Feraheme. What happens later will depend on results, which are unknown, and expectations, which are all over the map.
That’s a recipe for more stock market volatility.
Steven Syre is a Globe columnist. He can be reached at syre@globe.com. 
