By Justin Gillis
Washington Post Staff Writer
Monday, May 11, 1998; Page WB12

Just a month ago, not many people had heard of EntreMed Inc. Once in a while, a stock analyst or a potential investor would wheel off Interstate 270 near Rockville, park in a nondescript lot outside a brown brick building on Medical Center Drive, trudge up to Suite 200 and check on the company's labors in the esoteric field known as angiogenesis research.

Fast forward to last week, when EntreMed was caught in a media storm over speculation about two of its drugs. The magical and intoxicating phrase "cure for cancer" rolled off the tongues of television anchors from Seattle to Shanghai. Pictures flashed on screen of harried EntreMed staffers scrambling to cope with a deluge of phone calls. And suddenly the whole world seemed to know what research into angiogenesis, or the growth of blood vessels, could mean for the treatment of disease early in the next century.

Cancer patients walked in off the street, asking when the cure would be ready. Frenzied stock traders drove the company's shares into the stratosphere.

Soon, though, reality began to set in again, as the stock traders and the cancer patients and the news anchors realized that no miracles were afoot off Medical Center Drive. What is going on there is hard, complex, high-stakes work by a small but unusually sophisticated biotechnology company that may, indeed, be onto something big.

A final answer is almost certainly years away, and in the meantime EntreMed, a 50-person firm that is now world famous, has to pick its way through a new and more complicated landscape.

Will the company change direction, trying to turn its higher profile into even bigger opportunities? Can it stand a withering new level of scrutiny from Wall Street? Is the stock still a good buy for investors? Just how likely is it that EntreMed will come up with blockbuster drugs?

A Long Road to Last Week

The EntreMed tale begins many years ago, not in Rockville but a few miles south in Bethesda. In the early 1960s, a young Navy physician named Moses Judah Folkman, working then at the National Naval Medical Center, began the studies that would lead him to develop a simple, elegant theory about cancer.

He postulated, and ultimately proved, that in order to grow to a size that makes it threatening, a tumor must tell the body to sprout new blood vessels to feed it oxygen and nutrients. He wanted to know what signals the tumors were sending to spur blood vessel growth. He wanted to know if he could block the signals. And he wanted to know what would happen then.

Folkman now works at Children's Hospital in Boston, an affiliate of the Harvard Medical School. Through a distinguished career that includes invention of the heart pacemaker and of the contraceptive Norplant, he has continued to ask those same questions about cancer. Only now is he finally getting some answers.

As the research began to look more promising early in this decade, Folkman cast about for ways to develop his ideas into treatments. A colleague in his laboratory knew an experienced researcher named John Holaday, who had just started his second biotechnology firm: EntreMed. The company's name blends entrepreneurship and medicine.

From the outset, EntreMed was, by the standards of the biotechnology industry, a high-octane operation. At various times its directors have included a former dean of the medical school at Yale University, the chairman of one of the country's most successful investment firms, and other accomplished business leaders and scientists. Yet EntreMed's biggest asset has proven to be the collaboration with Folkman. The company pays some $2 million a year toward research in Folkman's laboratory, and in return it gets legal rights to many of his discoveries.

EntreMed was launched with money from private investors, and so it was not dependent in its early years on the fickle and demanding world of venture capitalists. This meant that EntreMed could pursue its research backed by patient money, a prized asset for a biotechnology firm. These companies collect tens of millions from investors and spend it over many years in a high-risk gambit to develop breakthrough drugs and treatments.

EntreMed is still in this research stage. It has no products to sell. What it has is some intriguing science, showing that certain compounds can block the growth of new blood vessels, thereby shrinking tumors and, in mice, eradicating them entirely.

Well before the publicity of last week, smart money was moving into EntreMed on the expectation that it eventually would come up with something big. "We believe that [EntreMed] may have found the Achilles' heel of cancer," analyst Alan Auerbach of the Seidler Cos. told potential investors in a report dated Feb. 19. With the stock trading then at around $12 a share, he urged long-range investors to buy in. Other stock analysts made similar recommendations.

These analysts are accustomed to studying biotechnology companies. If they had examined EntreMed by the standards one would apply to, say, a manufacturer of paper clips, the company would have appeared to be a nightmare. It has never posted a profit. In the seven years it has been in business, the company has accumulated an operating deficit exceeding $32 million. It is burning through cash at a rate exceeding $6 million a year, and even if things go well, it will be years before the company makes any money.

Still, by the standards of a biotech company, none of those numbers is particularly disturbing. Indeed, EntreMed is in sounder financial shape than most. Largely as a result of a public offering of stock in 1996, EntreMed is sitting on more than $40 million in cash, enough to fund its operations for several more years. Even before developing products to sell, it could bring money in the door by selling its expertise, or a stake in one of its drug candidates, to a big drug company. It has already done one large deal like that.

The wider world became aware of EntreMed on May 3, when a front-page article in the New York Times cast a spotlight on two compounds discovered in Folkman's lab and under development in Rockville. These are known by the trademarked names Angiostatin and Endostatin. Given in combination to mice, they seem to be able to eradicate many kinds of tumors with minimal side effects.

It was not the first time the research had made its way into the popular press, but this time investors were electrified. They may have been reacting, in part, to quotes in the Times from James Watson, one of the researchers who had shared a Nobel Prize for discovering the structure of DNA. He was quoted as saying that Folkman "is going to cure cancer in two years" and would be remembered as a person who "permanently altered civilization."

Watson later denied making such bold predictions, and leading cancer experts hastened to add that development of the drugs, even if they work, is likely to take years. But by then, the media frenzy was in full swing, and small investors were salivating. EntreMed's stock traded as high as $85 last Monday before drifting down over the course of the week to close Friday at $33.25. That's still nearly three times what the stock was trading at just a week earlier.

What has changed most for EntreMed is that the eyes of the world are now upon it. "They'll never have the problem again of having to explain who they are," said analyst Kurt Funderburg of Ferris, Baker Watts. "Their name is on everybody's lips right now."

That should come in handy the next time EntreMed needs to raise money. "I'm getting calls from analysts and investment bankers that we've been courting for some time and now are very anxious to get together all of a sudden," said R. Nelson Campbell, the company's chief financial officer. "This will increase our visibility, hopefully increase our liquidity, generate more interest in the financial community. That will make it easier for us to raise money, and making it easier for us to raise money will make it easier for our researchers to do what they need to do."

By the same token, EntreMed is now likely to be under pressure from new investors who want to see results. Unlike the savvy and patient investors who bought in at $12 a share based on long-term expectations, EntreMed now has stockholders who bought in at $50 or $60 a share, or even higher. They're sitting on paper losses already, and they are likely to demand short-term performance.

The frenzy prompted a trade publication, BioCentury, to put out an extra edition bearing the large headline, "Calm down." BioCentury commented: "The upshot of these events is that the kind of attention now being lavished on [EntreMed] does not help a company do its job, which is to advance drug candidates in a careful and systematic way to approval. With investor expectations inflamed, [EntreMed] will be under pressure that it does not need and in all fairness cannot fulfill in the near future."

The Work Goes On

While the company copes with a continuing deluge of media interest and takes stock of its new circumstances, work proceeds in its laboratory. Angiostatin and Endostatin may be its most promising compounds, but they are not the farthest along.

The EntreMed drug that may be closest to producing revenue is the old sedative thalidomide, the same drug that caused horrific birth defects in the late 1950s and early 1960s. Folkman and his colleagues theorized that it caused the defects by blocking blood vessel formation in the developing fetus – a property that may be quite useful in treating cancer and preventing certain kinds of blindness. EntreMed and other researchers have entered advanced stages of human testing with thalidomide for several kinds of cancer and for an eye disease called macular degeneration. Promising results have been reported, notably for an AIDS-related cancer called Kaposi's sarcoma and for a hard-to-treat brain cancer known as glioblastoma.

Even if thalidomide gets all the way through human testing and onto the market, however, there are reasons to think it might not be a blockbuster drug for EntreMed. For one thing, another company, called Celgene Inc. of Warren, N.J., is researching thalidomide for other diseases and is likely to beat EntreMed to market. Once the drug is approved for one purpose, doctors can prescribe it for any reason. This means Celgene may establish a strong market position long before EntreMed gets its version of thalidomide onto pharmacy shelves. Once both are out there, a price war between them is possible, and that would further limit the profits EntreMed could earn.

Far more exciting to long-range investors are Angiostatin and Endostatin. These are both genetically engineered versions of human proteins that have been shown to block blood vessel growth.

For Angiostatin, EntreMed has cut a deal with Bristol-Myers Squibb Co. of New York, the world's biggest seller of cancer drugs. Bristol-Myers is paying millions to EntreMed for the rights, and the big firm will take Angiostatin through the complex human tests that will be needed to win approval. If the drug goes on the market, EntreMed will be entitled to as much as 15 percent of net sales, an unusually rich deal for a small biotechnology firm.

For Endostatin, the second potential cancer-fighting protein, EntreMed has so far announced no collaborations with large drug companies, but it is working with the National Cancer Institute to get the drug into human tests. In light of its newfound fame, EntreMed might be able to cut an even richer deal for itself on Endostatin than the Bristol-Myers arrangement.

While Angiostatin and Endostatin will be tested separately at first, their best use may be in combination. It is the combination of the two that seems able to eradicate cancers in mice. But treatments that look good in mice frequently fail in people. And definitive human results of combination treatment with Angiostatin and Endostatin are without question years away – the fact that drove many fair-weather investors out of EntreMed stock late last week.

In all the hoopla over cancer treatment, relatively little attention has been paid to another EntreMed technology that could be quite valuable in the long run if human tests go well. It's based on the observation that the blood of birds is far better at carrying oxygen to tissues than is human blood. This is because birds have a compound in their blood cells, inositol hexaphosphate, that people lack. (This improved oxygenation is what allows birds to fly vast distances without tiring.)

EntreMed is working on a machine that could force the compound into human blood cells, greatly increasing their oxygen-carrying ability. Results are promising so far, and if they hold up, the technology might prove useful for treating heart disease, diabetic complications and other ailments where tissues starve for oxygen.

Add it all up, and the little company off Interstate 270 is aiming for nothing less than blockbuster treatments for the two biggest killers in the industrial world, heart disease and cancer.

"We don't want to project false expectations," EntreMed President Holaday said last week. "But our fundamental goal is to make a difference in people's lives."

Staff writer Michael Ruane contributed to this report.