Advanced Magnetics diversifies as MRI contrast sales sputter

Company signs up ultrasound contrast from Andaris

Developing technology with lead times measured in years makes the medical imaging industry-and imaging pharmaceuticals in particular-a risky endeavor. Contrast agent supplier Advanced Magnetics is riding the downside of technological risk related to its two existing MR imaging agents, Feridex I.V. and GastroMark. Production of these agents has virtually ground to a halt, resulting in losses for the Cambridge, MA, firm.

But Advanced Magnetics has money at hand-$35.8 million in working capital as of last December-and will use the funds to continue developing new MR imaging technology, while diversifying into other imaging modalities and nonimaging medical markets, according to Jerome Goldstein, chairman and CEO. The firm signed a deal this month with Andaris of Nottingham, U.K., to shepherd that company's Quantison ultrasound contrast agent through clinical trials and to market in the U.S. Further afield, Advanced Magnetics bought a controlling interest last October in an emerging company providing in vitro diagnostics for veterinarians.

"We are always on the lookout for interesting opportunities in areas we understand, while looking at the appropriate risk and reward profile. These opportunities can be in contrast agents or other medical specialty areas," Goldstein told SCAN.

The company expects to have a busy 1998, with developments it is not at liberty to discuss, according to Goldstein.

"There are going to be a lot of things happening this year," Goldstein said.

Advanced Magnetics will have to dip into its nest egg in order to fund new business investments, since both Feridex, sold in the U.S. by Berlex Laboratories, and GastroMark, handled by Mallinckrodt, have not produced expected revenues, he said. Feridex is an MRI liver cancer agent and GastroMark is used for abdominal MRI. The Food and Drug Administration in 1996 cleared both agents for U.S. sales (SCAN 9/11/96 and 12/18/96).

Last year, Advanced Magnetics received $5.5 million in license fees from the launch of those two agents in the U.S. The well has now run dry, however. With no more license fees coming in from the two agents, the company depends on manufacturing and royalty product fees, Goldstein said.

"In the last quarter, we didn't manufacture any (of the agents), so all we got were royalties," he said.

Advanced Magnetics had a net loss of $1.7 million in the first quarter of fiscal 1998 (end-December), compared with a profit of $4.3 million in the same period of 1996, which was a result of the license-fee payments.

The reasons for the disappointing U.S. performance of the agents are multifaceted, Goldstein said. For one, the role of radiologists within the healthcare environment is changing from that of entrepreneurs, who market their services, to providers who offer their capitated services to managed-care companies. Oncologists and other referring physicians are not as aware of the contrast agents as radiologists are, and pumping up demand on that end necessitates an investment by companies in clinical education.

But there have also been changes in the market, specific to MR contrast technology, that have softened demand. Unexpected technological change can be devastating when it occurs over the often lengthy time spent gaining market approval. That was the case for Feridex. The biggest change for Feridex was the advent of spiral CT, Goldstein said.

"In the late '80s when Feridex was in clinical trials, we were looking at contrast-enhanced CT as the gold standard for liver imaging, which is probably still true today," he said. "We didn't see a lot of new technology development in CT, so it appeared we were going after a stationary target. Then spiral CT came in, and we learned the lesson once more that there is no such thing as stationary technology."

Clinical interest in abdominal MR imaging using contrast has not taken off as hoped for either, so more investment in communicating the benefits of this procedure with GastroMark will be required, he said.

Complicating sales. Sales of Feridex in the U.S. have also been complicated by the fact that Berlex, a subsidiary of German pharmaceutical firm Schering, received FDA clearance for use of its own MR agent, Magnevist, in body imaging. This contrast agent has become the first-line product for the company, Goldstein said.

Despite sluggishness, Advanced Magnetics will continue to invest in its core MR contrast technology, he said. The firm hopes to file a new drug application with the FDA later this year or early in 1999 for Combidex, which will primarily enhance MR imaging of lymph nodes.

"We continue to do work in the core technology, but we recognize changes in the industry. To survive going forward, we need to expand what we bring to the field," Goldstein said.

The sales outlook for Feridex could change this year as contractual performance criteria click in, he said. If sales in the U.S. don't meet predetermined levels, the agreement could switch from exclusive distribution with Berlex to a co-marketing arrangement, with Advanced Magnetics having the option of selling Feridex itself.

Feridex was originally assigned to Sterling Winthrop, a Kodak subsidiary, prior to its U.S. approval. However, Kodak subsequently sold Sterling Winthrop to its French partner Sanofi, which later sold the diagnostic imaging business of Sanofi Winthrop to contrast supplier Nycomed of Norway. Advanced Magnetics took back Feridex when the Winthrop marketing organization passed to Nycomed, claiming that Sanofi could no longer fulfill its sales obligations (SCAN 8/31/94). Both firms are now enmeshed in a legal struggle in Massachusetts Superior Court, with countercharges filed concerning contractual obligations for Feridex.

Hopefully, more peaceful relations will evolve in ultrasound. Advanced Magnetics opted for Andaris and its Quantison agent over another ultrasound agent for which Advanced Magnetics had an option from Cavitation Control Technology (SCAN 10/15/97). Cavitation's agent is focused on cancer detection, while Quantison adds to ultrasound's already firm position in cardiac imaging, Goldstein said. The Andaris agent is designed for assessment of coronary artery disease.

"This could be a major new area for contrast agents," Goldstein said. "Ultrasound is a major imaging modality for cardiac imaging as it is. The ability to get significant additional information in echocardiography is viewed as a major opportunity by many people, including ourselves."

Outside of imaging, Advanced Magnetics' purchase of Kalisto Biologicals, the veterinary product developer, provides the company with a stand-alone business that could eventually go public and spin off for a tidy profit, he said. In the first quarter of 1998, however, Kalisto added $366,000 to its parent's losses. The firm started shipping its animal reagent products last month.

The Kalisto deal was not that different from Advanced Magnetics' previous experience in human in vitro diagnostics, Goldstein noted. That business was sold in 1993 and resulted in a solid profit for its parent.