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Biotech Roundup: FDA Shaping Up, Erbitux-Avastin, Options Pain


Better late than never, I always say...


Somewhere in the Colorado mountains, I lost a day. I sat down for lunch last Thursday and realized it wasn't actually Thursday, but Friday. As far as a reason goes, I can tell you only that it wasn't Laurie McGuirk's Demon Australian Rum. It was probably some mix of softball euphoria, coming home to a house that's a bigger remodel mess than I left (which is saying something), and the pressure of knowing I have to write nearly 200 pages before the end of this week. Without further ado, however…

FDA Shaping Up

The FDA could finally right a wrong dating back to 2004 when it allowed the ideology of certain White House denizens to get in the way of science. In 2004, an FDA scientific panel recommended approval of Barr Lab's (BRL) Plan B day-after contraceptive – despite stacking that FDA panel for failure. FDA leadership, under direction from the White House, shelved the application.

Barr Labs recently filed an amended NDA for the drug, allowing for over-the-counter use for anyone over 18. This compromise position (the science supports use for any age) heralds to some perhaps a return to adult leadership at the FDA in the form of Andy von Eschenbach. Senators Murray and Clinton have been playing their own politics – this time with the lives of all others who depend on drugs approved by the FDA – by vowing to hold up Dr. von Eschenbach's nomination until Plan B is approved. Hopefully this compromise will put the shameful actions of both sides behind us for a while.

My firm believes Dr. von Eschenbach's confirmation will enforce some scientific rigor on a drug approval process that is increasingly in bad shape.

Erbitux and Avastin Tossed in the Boot

The UK's not-so-nice National Institute for Health and Clinical Excellence (NICE) declined to approve Genentech's (DNA) Avastin and ImClone's (IMCL) Erbitux for reimbursement this week, citing costs that are too high. NICE uses a formula that incorporates "Quality Adjusted Life Years" (QALYs).

For Erbitux, the excuse NICE used was that Erbitux was not compared to existing drugs so they could not determine whether its use was more cost effective. With Avastin, they concluded the drug was too expensive. In their draft guidance it was clear they wanted to blame their denial of Avastin on lack of data, but their own experts told them they were barking up the wrong tree. They did some "math" to pump up Avastin's cost figures, but when it came down to it the only issue was the final numbers from either Genentech or NICE were above NICE's artificial £30,000 threshold.

I'm not sure how to say this without coming off as holding ill will against our brethren across the pond. I guess I can only assure our UK readers I don't hold any ill will against them and hope they believe me. While I think Genentech is borderline irresponsible for the price they charge for Avastin, I hope they don't decide to lower their price in the UK. American citizens pay more than their fair share of drug development costs because of price controls that exist everywhere else in the world. The only way to stop this without crushing R&D by developing our own price controls is to make other governments feel the pain of backlash from their own citizens when they decide not to reimburse the real costs of beneficial new drugs.

Options Pain, Smart Investor's Gain

See a dev-stage biotech whose shares are down because of backdated options news? If you can determine to your satisfaction the backdating does not reflect poorly on the personal integrity of top management, then you may have found a buying opportunity.

Options expenses are a fictional (non-cash) expense foisted upon young technology companies through a combination of politics and professional jealousy. For dev-stage companies with no revenues, these non-cash charges mean absolutely nothing. Restatements of results due to the non-cash charges also mean absolutely nothing.

If a dev-stage biotech is down only because of some options nonsense, then smart biotech investors who otherwise like the company should see opportunity.
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