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SAN FRANCISCO (Reuters) - Burned by disappointing early sales for new, high-profile biotech medicines in 2011, healthcare investors are cautious ahead of this year's expected crop of drug launches.
Not so long ago, biotech makers could practically bank on seeing their company values jump once they obtained regulatory approval to market a drug. Now, investors are more likely to wait on the sidelines, or short a stock, ahead of proof the new treatments will be a commercial success, a process that could take months.
"People are all freaked out about product launches," said ISI Group analyst Mark Schoenebaum.
Well aware of that angst, drug developers are spending far more time laying the groundwork to get paid by insurance plans and to convince doctors and patient groups of their medicines' value as they prepare for regulatory approval.
"There was a time when products got full value prior to launch. I think we have now swung back in the other direction," said John Orwin, chief executive officer at Affymax Inc AFFX.O, which expects U.S. regulators to decide by late March whether to approve its experimental anemia drug.
Shares of Dendreon Corp DNDN.O, maker of the novel therapeutic prostate cancer vaccine Provenge, ended last year down 83 percent from their peak in May, while Human Genome Sciences HGSI.O finished with a drop of 75 percent after launching Benlysta, the first new drug for lupus in more than 50 years.
Initial sales of Provenge and Benlysta failed to live up to lofty expectations, and investors are cautious ahead of early sales results for drugs launched in 2011 by companies including Incyte Corp (INCY.O), Seattle Genetics (SGEN.O) and Savient Pharmaceuticals SVNT.O.
Even shares of Vertex Pharmaceuticals (VRTX.O), which launched hepatitis C drug Incivek last year with record-breaking sales of $420 million for its first full quarter on the market, ended the year 44 percent below their 52-week high.
The overall sector is up so far this year, and still outperforms the wider stock market. The Nasdaq Biotech Index .NBI rose 12 percent in 2011, compared with a flat return for the Standard & Poor's 500 Index .SPX.
The growing challenges for new drugs -- reimbursement, regulatory issues and safety concerns -- were major topics here this week at the annual JP Morgan healthcare conference. "Sometimes there is a gap between customers' expectations and companies' expectations," said Yoshihiko Hatanaka, CEO of Astellas Pharma (4503.T), Japan's No. 2 drugmaker. "It is critical for us to reduce that gap."
Astellas has partnered with Medivation Inc MDVN.O to develop prostate cancer drug MDV3100, which could win regulatory approval as soon as late 2012.
As the market has begun to recognize that innovative drugs have unproven real-world outcomes, companies are pursuing more niche markets.
"There is a trend away from big launches," said Ulrik Schulze, global leader for biopharma R&D at Boston Consulting Group.
In the 1990s, it typically took less than two years for a new pharmaceutical to reach peak sales, he said. That time frame is widening as companies grapple with pressure from payers and a greater focus on whether a new treatment truly improves upon existing ones.
Some drugmakers are even starting to compete on the basis of price at a drug's launch, rather than expect a premium for its novelty.
Regeneron Pharmaceuticals Inc (REGN.O), which began selling its macular degeneration drug Eylea in November, said this week that sales in the first six weeks totaled $24 million to $25 million -- well above the $5 million expected by Wall Street.
Eylea competes against Roche AG's ROG.VX well-established Lucentis, but is priced slightly lower on a per-dose basis and can be given less frequently.
CEO Leonard Schleifer said Regeneron was careful ahead of its launch to lay the groundwork with retinal physicians and to set up a system for reimbursement.
"If you deliver a product that physicians, payers, and patients think is an important product, your launch will be fine," he said.
Affymax also plans to undercut the price of its biggest rival for the treatment of anemia in kidney dialysis patients -- Amgen Inc's (AMGN.O) blockbuster Epogen.
"We recognize that peginesatide has to be part of a solution to lower costs," Orwin said, referring to the Affymax drug.
Amgen CEO-elect Robert Bradway said the company expects competition from Affymax sometime this year, but still anticipates less erosion in Epogen sales relative to 2011. Sales of Epogen, which totaled $2.5 billion in 2010, have waned over the last several years amid safety concerns.
Amgen expects the Food and Drug Administration to decide in late April whether to approve its bone drug Xgeva, or denosumab, for preventing the spread of prostate cancer to the bone.
"Xgeva is the biggest opportunity for us in 2012," Bradway said.
But uptake of denosumab for osteoporosis has been gradual and some Wall Street analysts are wary of Xgeva's potential relevance in the prevention of bone cancer.
The first high-profile drug that could reach the market this year is diabetes treatment Bydureon, which is being developed by Amylin Pharmaceuticals AMLN.O after it recently ended a long-time diabetes partnership with Eli Lilly & Co (LLY.N).
The latest deadline for an FDA decision on Bydureon is January 28.
Bydureon faces strong competition from similar drugs and Amylin will for the first time be responsible for launching a drug on its own.
"We think there is substantial uncertainty and think that there is somewhat more risk of sales falling short than of exceeding our estimates," Cowen and Co said in a research note to clients.
Reporting by Deena Beasley, editing by Matthew Lewis