Immunex Corporation - Company Profile, Information, Business Description, History, Background Information on Immunex Corporation

51 University Street
Seattle, Washington 98101-2936

History of Immunex Corporation

Immunex Corporation is a biopharmaceutical company that develops, manufacturers, and markets therapeutic products for the treatment of cancer, infectious diseases, and autoimmune disorders. The company more than doubled its revenue base between 1992 and 1993 as a result of a merger with Lederle pharmaceutical units of American Cyanamid Company. However, in the mid-1990s, Immunex was still trying to achieve profitability after investing heavily in research and development since its inception in 1981.

Immunex was formed during the start of the biotechnology craze of the early 1980s. Biotechnology, as it was known in the mid-1990s, was born in the early 1950s when the structure of DNA was discovered; that revelation lead to the understanding of the process by which proteins are formed. Subsequent breakthroughs, particularly in the early 1970s, showed that it was possible to genetically alter microorganisms and, importantly, produce mass amounts of proteins that naturally occurred only in small quantities. A handful of companies pioneered the commercial biotechnology industry during the middle and late 1970s, but it wasn't until the early 1980s that a horde of competitors jumped into the game. The pivotal turning point came when the U.S. Supreme Court ruled that genetically engineered bacterium could be patented. For many, that ruling suggested the possibility of fantastic profits for biotech innovators.

Eager to make their mark in the burgeoning commercial biotechnology industry were scientists Steven Gillis and Christopher Henney. Henney, a Ph.D., was internationally recognized for his research in immunology. Gillis also had a doctorate--in biological sciences from Dartmouth College--and was recognized for his contributions related to immunology research. Gillis and Henney believed that they possessed the expertise to develop a method of producing large quantities of certain hormones that showed promise in fighting infection. So, at the urging of Seattle patent attorney Jim Uhlir, they formed Immunex as a means of developing and commercializing their techniques and drugs.

Joining the duo was Steve Duzan, an entrepreneur who owned an industrial ice-making machine business at the time. Duzan had become intrigued by the emerging biotechnology industry after being introduced to Gillis and Henney. While prior to joining their start-up he had virtually no experience in medical-related industries, he did know how to raise investment capital, and he was known as a tenacious, hard-driving manager. At the age of 34 Duzan had arranged the leveraged buyout of the Washington-based Cello Bag Co. Inc. Then, in 1980, he engineered the sale of the company to ARCO Chemicals, Inc. He used cash from that deal to purchase North Star Ice Equipment Corp., a small manufacturer of ice-making machines that exported much of its output to the Middle East. Duzan overhauled that company's manufacturing operations and managed to improve its profitability.

Duzan was looking for another company to buy when he met Gillis and Henney. Instead, he helped them to form a completely new company called Immunex. Gillis and Henney, naturally, managed the scientific side of the business, while Duzan went to work finding capital to fund Immunex's cash-hungry research and development operations. As it turned out, many of the entrepreneurial skills that Duzan had learned in his previous business exploits were well-suited to the seat-of-the-pants biotechnology sector. For the first six months Duzan worked without a salary while he scrambled to secure investors. "Immunex was the penniless new kid on the block going up against these giants like Hoffman-LaRoche and Kodak," recalled Stephen Graham, an attorney at Immunex's law firm, in a July 21, 1991 Business Journal-Portland article. "But time and time again," he added, "when Steve looked at a transaction with those people, he would decide what a relatively little guy had a right to expect. And then he would double it. And then he would go out and get it."

While Duzan labored to find cash to fuel Immunex's product development engine, Gillis and Henney oversaw an ambitious research effort to generate various immune system stimulants and related technologies. Their goal was to develop a breakthrough drug, or drugs, that would allow Immunex to become a full-fledged pharmaceutical company that developed and manufactured its own products. But that pivotal product proved elusive for Immunex's research team. The company's pursuits did succeed, however, in producing a number of valuable technologies and products that earned the company respect in the biotechnology industry. Specifically, Immunex discovered and cloned a long list of genes producing substances that could work in the human body to stimulate various blood cells to fight cancer, heal wounds, and prevent auto-immune diseases like arthritis and diabetes.

Among Immunex's most important products during the mid-1980s were its Interleukin drugs and GM-CSF (Granulocyte Macrophage Colony Stimulating Factor). Those products were essentially immune system proteins that acted as hormones in the body, with each hormone commanding only specific types of cells. Each class of cells could be stimulated to respond with antibodies, enzymes, and other substances that multiplied and attacked infection. For example, Immunex's centerpiece drug, GM-CSF (marketed as 'Leukin'), was a blood-growth stimulator that enhanced the body's production of white blood cells. Leukin could fight infection in cancer patients whose white blood cells had been destroyed during bone marrow transplants. It also had potential applications related to chemotherapy.

Although Immunex was at the technological forefront in its niche, the company faced numerous roadblocks to success. Chief among its hurdles was the Food and Drug Administration (FDA) drug approval process. To shepherd a drug through the intimidating FDA gamut, a company typically had to invest millions of dollars completing its own tests and striving to comply with Federal regulations. The obvious risk was that the drug would fail to meet FDA approval and the company would be stuck with the loss. For a smaller company like Immunex, failure could be virtually devastating. To help bring their drugs and technologies to market, therefore, many biotech start-ups sought other avenues to profit. Common routes included selling or licensing proprietary technology to large pharmaceutical companies, or partnering with bigger competitors to develop and market new drugs.

Immunex managed to stay solvent and continued to fund its research and development arm during the 1980s by, in essence, selling its technology to companies that had the financial backing to take it to market. Some analysts criticized the strategy because it effectively turned Immunex into a "research boutique" and represented a diversion from the company's goal of becoming a true pharmaceutical company that marketed its own drugs. But the tactic was necessary to keep the company afloat given the volatile environment of the biotechnology industry. A critical juncture for the company came in 1983, shortly after the company had gone public to raise cash through an initial public stock offering. For no apparent reason related to Immunex's performance, the company's stock price plunged from $11 to $4. The price remained suppressed while biotech investors questioned the viability of the entire industry.

Unable to generate acceptable proceeds from the sale of more stock, Duzan arranged a number of deals that benefited Immunex. He negotiated with some large American and European drug companies, selling marketing and manufacturing rights to most of the major immune-system stimulants that it had cloned. Those agreements included high-profile products like GM-CSF and its Interleukin drugs. Although forfeiting company rights to some of that technology, Duzan was credited with swinging deals that, in the long-term, worked in Immunex's favor. For example, in selling marketing rights for GM-CSF to German pharmaceutical manufacturer Behringwerke AG, Duzan won a concession to oversee clinical trials for Leukine. That move later made it possible for Immunex to become a true pharmaceutical company, rather than just a research lab that collected royalties from its inventions.

Throughout the 1980s Immunex developed a number of promising technologies, most of which it sold or licensed to other companies. As fees and royalties income increased, revenues rose steadily to about $2.4 million in 1985, $11.3 million in 1987, and $23.3 million by 1989. But profits remained elusive, as the company continued to pour millions into research and development. Investors had generally been patient with Immunex because the company had been so successful at developing new products. But that patience gradually wore thin as they watched the company spend millions without ever successfully taking a drug to market. Immunex managed to post meager profits in 1988 and 1991, but those surpluses were insignificant compared to big losses in other years. Indeed, between 1985 and 1990 Immunex lost nearly $30 million.

Despite ongoing losses, it seemed as though Immunex had turned the corner toward profitability going into the early 1990s. In a series of bold and complex deals initiated in 1989, Duzan reacquired, sold, and swapped the rights to a number of its drugs. The end result was that Immunex, by 1990, was in a position to possibly begin marketing its own technology. "In this business you've got to become a marketing organization," Duzan said in a April 15, 1990 Seattle Times article. "Because that's the only way you can get enough cashflow to sustain your research." The most significant result of Duzan's wheeling and dealing was that Immunex managed to reacquire the U.S. comarketing rights to GM-CSF and certain Interleukin drugs from its German partner Behringwerke AG. The move was risky because GM-CSF had not been approved for use in the United States by the FDA.

Investors finally had something to cheer about when, in March 1991, Immunex won FDA approval to market Leukin (GM-CSF) in the United States to treat bone marrow transplant patients. The company's shares rocketed to a record high of $59 following the announcement, and Immunex initiated an aggressive marketing program to sell the product. Shortly after the approval, Immunex was selling Leukine through a 50-member sales team organized to market the product to oncology specialists. At the same time, Immunex continued to invest millions of dollars into new drugs. Chief among its research projects in the early 1990s was Pixie 321, a synthetic molecule that was designed to incorporate the properties of Leukine and Immunex's Interleukin 3 (a cancer-fighting compound). Duzan hoped to sell that and other drugs through its own sales force.

Despite notable successes during the late 1980s and early 1990s, Immunex continued to disappoint some analysts and investors. The company chalked up heavy losses, largely related to research expenses, totaling $78 million in 1992. The company had hoped to offset that deficit with increased sales of Leukin, but its marketing effort failed to live up to some analysts' hopes. The problem was partially attributable to a product similar to Leukin that was introduced by competitor Amgen. Amgen received approval for its drug, Neupogen, in 1992. Whereas Leukin had been approved for the bone marrow transplant market, Neupogen was approved for use in the much larger chemotherapy market. The result was that shipments of Neupogen bolted to $290 million in 1993, while revenues from Leukin topped out at less than $23 million. "One company operates in an ocean, the other in a pond," surmised Deborah Wardwell, a Seattle stock analyst, in the August 8, 1994 Seattle Times.

Encountering a fate similar to that experienced by many other biotech companies, Immunex was bought out. In June 1993 American Cyanamid purchased the company and merged it with its Lederle Oncology unit to form a new, publicly traded company still known as Immunex. Lederle Oncology was a leader in the immunology industry and had about a half dozen proprietary products in its drug portfolio. Lederle, with its more established marketing network, seemed like a natural complement to Immunex's powerful research operations. The merger initially failed to produce the desired results, however, because Lederle's products didn't sell as well as expected. That problem, combined with less-than-stellar gains with Leukin, created investor disappointment with Immunex. The stock price slipped to $30 before dropping to less than $15 per share in 1994.

Frustrated, American Cyanamid brought in a new chief executive to replace Duzan, who had been accused of alienating Wall Street with his brusque nature and questionable management decisions regarding Leukin. Specifically, he had been criticized for allowing Amgen to steal more than 90 percent of the market for Leukin. Gillis, who was heading up Immunex's research operations at the time, stepped in as a temporary president and CEO for a few months until American Cyanamid appointed Edward Fritzky to the position. (Cofounder Henney had left Immunex in 1989 to start his own consulting company.) Fritzky came to Immunex from American Cyanmid's Lederle Laboratories division. He had overseen the launch of six new products in that division and, at the age of 45, was considered a seasoned veteran in the pharmaceutical industry.

Interestingly, American Cyanamid was bought out by American Home Products in mid-1994, making the latter company the majority owner of Immunex. Fritzky remained president and CEO of the company, however, and sustained his efforts to turn Immunex into a development and marketing powerhouse in its pharmaceutical niche. Unfortunately, profits continued to evade Immunex going into the mid-1990s, amidst a string of setbacks. In September 1994, for example, cofounder Steve Gillis resigned his post to pursue other research goals. More importantly, the FDA refused to approve Leukin for use in the $500 million chemotherapy market that was dominated by Amgen. The stunning news sent Immunex's stock price tumbling 20 percent to less than $13 per share by May 1995. Nevertheless, management remained optimistic, given the company's proven research capabilities, pipeline of high-potential drugs, and ongoing efforts to get FDA approval to use Leukin in chemotherapy applications.

Principal Subsidiaries: Immunex Manufacturing Corporation; Immunex Carolina Corporation; Receptech.

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Further Reference

Cushing, William G., "Immunex Founder Stephen A. Duzan Named High-Tech Entrepreneur of the Year," Business Wire, February 10, 1989.Dowell, Valoree, "Immunex Appoints Steven Gillis Acting Chairman and Chief Executive Officer," PR Newswire, September 17, 1993.------, "Immunex Founder Resigns, Continues as Consultant," PR Newswire, September 29, 1994.Grunbaum, Rami, "Energetic CEO's Goal: Deliver on Immunex Promise," Puget Sound Business Journal, April 22, 1994, p. 1.------, "Stephen Duzan: Immunex Chairman Puts Young Company in the Big Leagues," Business Journal-Portland, July 22, 1991, p. 12.Gupta, Himanee, "Immunex's 1st Product Brings Profit," Seattle Times, July 26, 1991, p. C10.Heberlein, Greg, "Immunex Chief Rolls with the Punches," Seattle Times, August 8, 1994, p. E1.------, "Merger Boosts Immunex Stock," Seattle Times, August 18, 1994, p. D1.Lalonde, James E., "Betting On a Blockbuster: Wall Street Now See 'Transformed' Immunex," Seattle Times, April 15, 1990, p. E1.------, "Immunex Founder Resigns," Seattle Times, August 2, 1989, p. G10.Lim, Paul J., "Immunex Reassures Investors," Seattle Times, April 27, 1995, p. D3.Milburn, Karen, "Immunex Cools Expectations," Puget Sound Journal, April 24, 1989, p. 10.Price, Margaret, "Immunex: Tempest in a Test Tube?" Financial World, November 17, 1987, p. 18.

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