Major macro mojo, man
For about two weeks, I've been promising a reprise of the "Tipping Point for Biotech" article from one month ago. I apologize for the tardiness, but I have been researching the subject as I wanted to make sure I shared views in addition to my own.
In the aforementioned article, I told the tale of two New Drug Applications (NDAs) for cancer drugs targeted to patients who have no decent existing treatments. The first application was from a company called Genta (GNTA:NASD) for a drug called Genasense. The second was from a company called Allos Therapeutics (ALTH:NASD) for a drug code-named RSR-13. I will focus here on Genasense because its experience on May 3rd has indeed had repercussions for the biotech sector.
Genasense demonstrated activity in the treatment of patients with malignant, metastatic melanoma. The problem was management made several mistakes running this trial, the most serious of which was to open it several months too early. This made a mish-mash of the data and made what should have been a very clear case for approval into one that was not so clear.
(For the record, we called the chances for a positive vote on Genasense no better than a coin flip after we reviewed the FDA's briefing documents. We made that call before the closing bell the Friday afternoon before the ODAC presentation. Prior to that, we believed Genasense had a good chance to be approved. We never thought RSR-13 would be approved.)
In what I can only describe as a spectacle, the FDA convinced its "independent" Oncologic Drugs Advisory Committee (ODAC) to vote against recommending approval for both drugs. The vote itself did not surprise many biotech executives. The conduct of the FDA during this meeting, however, has most biotech executives we spoke with scared to death.
How ODAC panels usually work
FDA staffers first prepare an analysis of the NDA and create a "briefing document" for the ODAC panelists. It is usual for the briefing document to be negative. The company also prepares a briefing document for ODAC panelists. Their document is usually positive. The FDA usually augments the standing panel with a couple of doctors with expertise in treating the particular disease or science involved.
At the ODAC meeting, the company presents their case for approval. They are then asked questions by the panelists. The FDA presents their side of the story and are also asked questions. FDA management usually bookends these two presentations by answering any legal/technical questions and by framing exactly what they need from the ODAC panel. At this point, everyone takes a break for about 15 minutes.
After the break, the panel invites public comment. This usually consists of patients helped by the drug and patient advocacy groups imploring the panel to approve the drug. It can get quite emotional.
After this, the panel discusses the merits of the application. They do this in public, not behind closed doors. The vote is also public. During this discussion phase, typically only panelists speak. FDA staff, FDA management, and company representatives usually only speak in response to particular questions. The main topics for discussion are a series of questions the FDA poses to the panel. One or more of the questions directly address whether the ODAC panel members believe the drug is worthy for approval.
How this ODAC panel worked
That all went out the window on May 3rd.
The first clue we had this meeting would be different came to us just before the meeting started. The FDA unexpectedly added eight members to the 9-person standing ODAC panel. Seven of them were new voting members. The eighth could participate in the discussion, but was not allowed to vote because she had a significant financial relationship with one of Genta's competitors. According to our research, only two of these eight individuals had any regular experience with melanoma patients. One of those was the woman who worked for the Genta competitor. One of the added voting members was a statistician and mathematician who has no experience treating cancer patients. His addition raised eyebrows since there is already one statistician on the standing panel, an FDA staff statistician who helped create the briefing paper in attendance, and one of the members of the FDA management team in attendance is a statistician by training.
This was no independent review. It was a trial, and not a particularly fair one. The two FDA management representatives, to put it bluntly, never shut up. Throw in comments by the additional statistician and the woman from Genta's competitor and you have the four people who did 90% of the talking during the panel. Any time an actual panelist voiced a positive opinion on the drug, the added statistician or the two FDA management members immediately argued against approval.
At this point, I should re-emphasize there were problems with the Genasense NDA. This is not the place to go into them, but suffice it to say if this was a clean and easily interpreted clinical study, Genasense would not have been in front of the ODAC panel.
When we first asked biotech executives what they thought, they all said the result was not unexpected. Only when we pressed further did we find out the real truth: Biotech executives privately say they are shocked at the FDA's behavior. The FDA did not present the information and leave it to the experts on the ODAC panel. The actively argued against approval of Genasense.
More importantly, nearly every biotech executive we spoke with will alter their clinical and regulatory strategies because of the spectacle the FDA put on earlier this month.
I already acquainted you with the most popular change - the Special Protocol Assessment program. Biotech executives will make broad use of this program in order to help prevent the kind of problems experienced by Genta at this ODAC meeting.
Trial design will also change. Look for fewer Phase III trials relying upon time to disease progression or progression-free survival as primary endpoints. If they do, expect those trials to be significantly larger than they once were. The net effect of this change will be that trials will be more expensive and last longer than they did before.
Trial mechanics will change. Clinical trials are enormously difficult to run. There are always errors and lost data. Look for companies to spend millions more on each Phase III in order to try and reduce the amount of lost data and inaccuracies.
Companies will run more trials. Former FDA Commissioner Mark McClellan told executives of cancer companies to bring them their most promising drugs as soon as possible - even if they were supported by only one trial. Genasense was the most promising drug in 30 years of treating melanoma and it got shot down hard in this post-McClellan FDA.
Can I draw a causal line between the events at that ODAC meeting and the weakness in biotech we've seen since late April? Yes. Biotech investors - I'm not talking short sellers here, but the funds and individuals who actually invest in biotechs so they can carry out their research - are flummoxed. They are sitting on their hands, trying to figure out which companies with late stage trials might run into the same fate as Genta and Allos.
Here's the table I included in the "Tipping Point" article published a month ago:
Here are some comparison performance figures. I chose the baseline figure to be April 29th since that was the day before the ODAC briefing documents were made public.
Biotech executives are more cautious than they were two weeks ago, if only for the fact the class action vultures have descended on both Genta and Allos. This means additional uncertainty amongst investors and potential investors, as they can't tell whether management is hiding something or just being cautious.
The last time the FDA acted anywhere close to this, biotech valuations were cut in half. As a team with an eye to the long term, we almost welcome such nonsense as it gives us a chance to load up on very promising companies at stupidly cheap prices. The interim pain in such a decline, however, would be immense.
I'm not saying such a decline will happen, though I cannot rule it out. I will say I think there is very little chance biotech outperforms the market for the remainder of the year. Whether that means it underperforms a sinking market or underperforms a rising market you can judge for yourself guided by your own due diligence and the help of the fine commentary from my fellow Minyanville Professors.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter