ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Friday, March 7, 1997 TAG: 9703070027
SECTION: BUSINESS PAGE: B8 EDITION: METRO
DATELINE: MALVERN, PA.
SOURCE: ASSOCIATED PRESS
Humbled by disaster, Centocor returns with a strong product and a change in organizational philosophy.
It must have been like stepping into a nightmare.
Nine months after David Holveck took over as president and chief executive officer of Centocor Inc., one of America's highest flying biotechnology companies, researchers reported that some people who took the company's most promising drug were dying.
It was Jan. 15, 1993, the day Centocor's hopes for Centoxin, a treatment for a deadly form of blood poisoning called sepsis, were dashed.
So was Wall Street's faith in the company. Centocor's stock plummeted 63 percent in one day and it continued downward until reaching about $6 a share, compared with $79 two years earlier.
Within months, 1,000 out of 1,600 employees were fired, the entire sales division was dismantled and production of Centoxin was stopped cold.
Analysts, shareholders, doctors - they all turned on Centocor.
Nonetheless, Holveck stuck it out, forcing the company to take a deep breath and start again.
Today, by most accounts, Centocor is back. In the fourth quarter of 1996, it did what few biotechnology firms have ever done: It made a profit - about $3 million.
``[Earning a profit] is the scorecard,'' Holveck said. ``There are a lot of biotech companies that are rolling out wonderful statistics, great yardage gains, passing yards, first downs, but they're not putting it on the board.''
Wall Streeters who watch the company credit his calm, low-key approach with bringing a sense of discipline to the freewheeling company. These days the stock trades in the $30 range and most analysts see even better performance ahead.
What happened? The second time around, Centocor got it right, with a drug it calls ReoPro.
Genetically engineered in Centocor's laboratory, ReoPro prevents blood clots, helping solve one of the biggest problems for heart disease patients who undergo balloon angioplasty.
Angioplasty is intended to prevent heart attacks by clearing the coronary arteries of cholesterol, but it sometimes results in clotting that can actually induce an attack.
Recent tests showed that, when injected after angioplasty, ReoPro lowered the risk of heart attacks and death by 68 percent.
Buoyed by the results, sales of the drug jumped to $88.7 million in 1996 from $22 million the year before. ReoPro now makes up more than two-thirds of the company's sales. Analysts expect sales of the drug to more than double to $200 million this year.
Centocor's success is not just a new drug. It's a whole new way of organizing a corporation.
Back in the early 1990s, Centocor executives wanted to create a fully functioning pharmaceutical company similar to giants like Merck, Eli Lilly and Pfizer.
Before the company even finished human testing on Centoxin, it hired a large staff of marketers and sales people.
``Those were very heady days for biotech,'' said J.P. Morgan analyst Craig C. Parker, referring to the widespread hopes that genetic engineering would unleash a bevy of wonder drugs to treat our worst diseases. ``I think maybe they got a little caught up in that and tried to be something they weren't.''
Hubert J.P. Schoemaker, the chairman who founded the company 18 years ago, is blunt in saying Centocor took on undue risks.
``I would say today, being partly responsible for it, it was a mistake,'' Schoemaker said. ``We were too arrogant.''
Despite early testing showing Centoxin worked, the Food and Drug Administration wouldn't approve the drug without further work.
Then in early 1993, Centocor - using the abstruse language of the world of research - announced that patients had ``an excess of mortality.''
Data showed that, among a particular group of test patients, more people who took Centoxin died than those who got a dummy pill. The company declined to give a precise number of the deaths.
``As you can imagine, not many people were saying nice things about Centocor,'' Schoemaker said. ``For me it was exceedingly difficult because I felt the survival of the company was in play.''
Soon the big sales staff was gone, but still very few gave Centocor a future.
Although test results on ReoPro were consistently positive, Holveck had the lessons of Centoxin still fresh in mind and wasn't about to take any chances when conducting research on the new drug.
``Out of every opportunity you undertake, it's not always a success, but you get value added,'' Holveck said. ``Centoxin provided us a tremendous insight in how to move a product through the development cycle.''
Centocor got ReoPro approved in 1994 in record time. But, instead of hiring a large sales force to promote it, the company hired Lilly to do that job, in exchange for a generous 50 percent royalty from Lilly's sales.
ReoPro is one of the first genetically engineered antibodies - the body's weapons against foreign invaders. It is known as a monoclonal antibody, made by combining antibody-producing cells with cancer cells.
It targets the cells lining the surface of arteries. As the body begins to build a healing layer after the angioplasty, the drug steps in, controlling the growth to prevent dangerous clots.
Now that ReoPro is an established success, Centocor hasn't given up entirely on Centoxin either. The company is studying whether it can improve the lives of people with Crohn's disease, a painful, chronic inflammation of the digestive tract.
CenTNF, a drug developed from the failed sepsis program, blocks the effect of a chemical that causes inflammation. Holveck said 65 percent of Crohn's patients responded to the drug in tests, and half of those had full remission.
Phase III trials, the final and most challenging testing required by the Food and Drug Administration, ended recently and results are expected in April or May, Holveck said.
Many investors have turned bullish on Centocor again - but not everyone. There are still a lot of people who hate the company,'' said Parker, the analyst.
For now, it doesn't bother Holveck, who plans to continue his conservative brand of risk taking. While Centocor is one of the oldest biotech companies, Holveck says it still has a lot to learn.
``They call us the granddaddy, but I think we're still a babe in the woods.''
LENGTH: Long : 122 lines ILLUSTRATION: PHOTO: Centocor chairman and co-founder Hubert J.P.by CNBShoemaker (left) and president and CEO David Holveck discuss the
company at its headquarters in Malvern, Pa. color