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Sunday, August 26, 2001 - Page updated at 12:00 AM

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Immunex seeks genie in a bottle

Seattle Times business reporter

Ed Fritzky maneuvered his Porsche into a gas station, but he wasn't thinking about pumping gas. The fate of his company, his job and at least $500 million was at stake in a room a continent away.

He filled the tank, his ear glued to a cell phone. He was listening to Peggy Phillips handicap how the scientific crew had done before a Food and Drug Administration (FDA) advisory panel.

Fritzky was still talking when he started the engine and drove off. He heard a loud snap and looked back. The car had ripped the nozzle off the pump.

Three years later, as his company celebrates 20 years of survival, Fritzky's pressures are no less intense. Immunex's ability to move forward depends on how deftly it exploits Enbrel, one of its few discoveries from the 1980s that panned out.

Many in biotech say Seattle-based Immunex still has some of the world's best scientists, but turning their research into reality — and profits — depends on persuading fickle investors to be patient for 20 or 30 years. And all the while, biotech companies around the country will have Immunex under a microscope.

It's been a remarkable journey for a company founded by two immunologists who wanted to find the cure for cancer. Immunex scientists worked together to create the company's one success, Enbrel, but so far have failed to find treatments for cancer, AIDS, heart failure or asthma.

Those failures defined Immunex until Enbrel. The drug was approved in November 1998 to treat rheumatoid arthritis. Doctors called it a breakthrough for up to 1 million people in pain, and Immunex stock rose so much that it was briefly worth more than Boeing last year.

But as Immunex struggles to grow from creative start-up to mature business, it is showing biotechs that science isn't enough: Marketing and manufacturing are just as vital. With a shortage of its single smash hit, Enbrel, and no other promising drugs ready to market, Immunex stock fell 60 percent this year, leaving the company less money to spend on research.

That leaves Immunex again fighting to survive.

"Drug companies are only as good as their next product," said Steve Gillis, a co-founder. "Enbrel is a big deal, no question, but it's very important that Immunex be able to point to its pipeline and say, `Here's our next home run or triple.' You can't get by on singles."

Birth of the `Immunoids'

Gillis and Christopher Henney were researchers at the Fred Hutchinson Cancer Research Center, leading the world in researching hormones that regulate the immune system, when they decided to turn their scientific moxie into a business enterprise.

Henney was 40 and a tenured professor. Gillis was 28 and epitomized a jeans-and-T-shirt, hard-work culture. They led the research. Stephen Duzan, a Seattle businessman, was hired as chief executive to raise money.

Gillis became a sort of spiritual leader to young immunologists, biochemists and molecular biologists recruited from around the world. They called themselves "Immunoids" and earned the nickname "Immunex University."

Gillis led with a blend of scientific passion and a "Far Side" sense of humor. He teased scientists who screwed up in the lab, awarding them the "Pons & Fleischmann award for achievement in dubious science" — named after researchers who thought they had discovered cold fusion.

"It was a very productive time for science," said David Urdal, an early biochemist. "I'm not really sure when the connection hit on Immunex becoming a business."

But pressure was being felt higher up. Duzan, the money guy, insisted Immunex would be a "fully integrated pharmaceutical company" with manufacturing, sales and marketing. Scientists mostly ignored the spiel.

Early defeats

Translating science to business proved tougher than a bunch of Ph.D.s thought. Duzan couldn't attract or satisfy Wall Street and admits to being "pugnacious." Bob Kupor, an early Immunex analyst, said Immunex threatened to sue him for critical coverage.

"It was always my opinion that Immunex scientists were among the most productive in the business for the number of people and small amount of cash they had," Kupor said. "They just couldn't bring anything to (market)."

To earn cash, Immunex sold off market rights to many discoveries. By 1989, it had snagged many back, including Enbrel.

By then, Immunex desperately needed a hit. In 1991, the FDA approved Leukine, a treatment to stimulate white-blood-cell growth to help chemotherapy patients fight infection.

But competitor Amgen had won the race a month earlier with a rival product approved for the spectrum of chemotherapy patients. That left Immunex stuck in a niche market for bone-marrow transplants.

Amgen turned its edge into $1 billion in sales, outselling Leukine 24-to-1 in five years. To this day, Immunex says Leukine was superior and was unfairly rapped for side effects as Amgen touted its product as safer.

"When it came to marketing, we didn't know anything," Henney said.

The epiphany came too late. Duzan had to find a partner with cash and marketing punch. In 1993, American Cyanamid bought 53.5 percent of Immunex, agreeing to pay more than $200 million over five years to fuel research.

Many scientists were rattled: They were losing the "Immunoid" culture; corporate and marketing budgets were growing; instead of happy hours, they had meetings.

"Science became a lesser arm than it was," said John Sims, a noted scientist. "I never thought I'd work for a company with sales, marketing, public relations, regulatory and lawyers. There was a loss of the esprit de corps."

In 1993, the product pipeline started showing leaks. Cyanamid wanted to pull the plug on Enbrel when its first trial in sepsis failed, but Gillis, then interim CEO, prevailed. Tests continued in rheumatoid arthritis.

Soon after, Fritzky was hired as chief executive for his marketing savvy. He was head of an American Cyanamid unit, and scientists worried he would further damage the free-wheeling culture.

To counter that fear, Fritzky was careful not to wear a suit. But he made his mark quickly. In the first months, he ranked projects and laid off about 50 people.

And anxiety soared later that year when American Home Products bought American Cyanamid, giving Immunex a new parent known for conservative, bottom-line ways. Within a couple of months, Gillis left. Fritzky earned good will by promoting two well-respected insiders, Peggy Phillips and Doug Williams, to replace him.

But the struggles worsened. In 1995, the FDA rejected an expanded version of Leukine after it failed in clinical trials, costing millions.

With Immunex trading at a weak $12, American Home Products offered to buy the rest for $14.50 a share. The heady days of scientific genius and partnership seemed doomed.

Then, that same day, positive results came in from clinical trials for Enbrel. Insiders describe it almost as divine intervention.

"I remember reading the results, thinking, `God, we've got a drug here,' " said Williams, chief technology officer. "We had what looked like a home run."

American Home's offer was rejected.

Galvanized, the scientific team aimed for Enbrel approval in three years instead of the usual five.

The group was determined to learn from the mistakes of Leukine. It conducted broader clinical trials. It wouldn't be caught flat-footed by the FDA. It found an experienced rheumatology sales force.

Immunex got accelerated approval and, like Amgen had done earlier, shipped its drug on the first day.

"To understand the marketplace, the competition, and how to differentiate one's product — those were things we had to learn," said Peggy Phillips, head of the team. "In 1991, we had very few people with commercial experience. By this time, we did."

Enbrel rang up $367 million in sales in 1999, $652 million in 2000, and is on track for $750 million in 2001 — making it one of the fastest-selling biotech drugs ever. It delivered all the bounties of success — a high stock price, high industry visibility, and loads of cash.

Enbrel takes off

That very success created a problem: Enbrel sold too well, and demand outstripped supply.

The company had expected to sell only $500 million by the third year. It figured a deal with a plant in Germany to make the drug would suffice.

When Enbrel was approved last year for additional early stages of rheumatoid arthritis, Immunex scrambled to keep up. With its factory running full tilt, Immunex can provide for about 75,000 people, but its potential market has grown from 350,000 to 1 million. It is missing out on at least $200 million in sales this year, and patients are turning to Johnson & Johnson's Remicade.

The future

To catch up, Immunex is investing nearly $1 billion in a pair of Rhode Island factories to quadruple production of Enbrel over four years. Immunex says the investment will pay off because it expects by then to be selling $4 billion of Enbrel a year, making it one of the top-selling drugs in the world.

The boost isn't coming fast enough for Wall Street. And rivals are circling.

Arch-rival Amgen is jockeying for FDA approval for a different kind of rheumatoid-arthritis treatment that stops bone-and-joint erosion. Another drug-industry heavyweight, Abbott Laboratories, expects to have an equally effective contender on the market by 2003.

Although Immunex ranks among the top 10 biotechs in the country in sales and Fortune recently ranked it as among the fastest-growing, it has much less clout than Amgen and other drug heavyweights.

Fritzky isn't deterred. He compares Immunex to Microsoft for spawning regional industries that direct attention to Seattle.

In fact, the ties between the two have gotten closer — former Microsoft Chief Operating Officer Bob Herbold joined the Immunex board this spring. Fritzky said Immunex's relationship with Redmond will provide essential computer punch to translate human genome data into potential drugs.

Mostly, Fritzky is counting on Immunex's $1 billion cash arsenal. The money is being used for a $750 million headquarters on the Seattle waterfront to be ready in late 2003. The complex is being designed to bring back the scientific melding at the core of the 1980s discoveries. The company is now spread over 11 buildings, which Immunex officials say is a communications nightmare.

When the company is reunited, it will deal with a pipeline full of products that have been on hold for a decade. Its most promising therapies are at least five to 10 years from FDA approval. Because Immunex spent years betting on Enbrel, the company has no drugs in advanced stages of development, Gillis said.

One of its promising products, Interleukin-1, is, like Enbrel, a man-made protein that soaks up natural proteins that cause inflammation. Another, which goes by the acronym TRAIL, is a targeted cancer therapy that Immunex has teamed up to make with industry pioneer Genentech.

Fritzky said Immunex's cash lets it hedge bets by pushing more than one product through development at once. The money also gives Immunex the power to buy other biotechs with products in advanced testing but that lack money or marketing savvy, as Immunex once did.

"We now have the resources for the first time in the company's history to really invest in the pipeline," Fritzky said.

"It allows us not only to discover products, but gives us the capabilities to exploit them."

Others wonder if Immunex can come up with more blockbusters, or if it will mortgage the future to pour money into its big winner.

"You have to decide if it's better to expand a drug or to put in the pipeline product XYZ," Gillis said. "Those are the decisions Immunex has to make."

The other big question is whether the company can adapt to a more disciplined pharmaceutical culture. Immunex hopes the new headquarters will resurrect its scientific coalescence, but the lawyers and the marketing are there to stay.

And the Pons & Fleischmann award is gone for good. Human resources doesn't approve.

Luke Timmerman can be reached at 206-515-5644 or ltimmerman@seattletimes.com.

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