Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Tipping Point Part Deux


Zero upside benefit, only downside risk

In late April, I detailed what I thought would be an important tipping point for biotechnology valuations. The event was the early May Oncologic Drugs Advisory Panel (ODAC) meeting for Genta's (GNTA:NASD) Genasense and Allos Therapeutics' (ALTH:NASD) RSR-13. That meeting didn't go so well for the sector. The ODAC panel turned down both drugs.

The NASDAQ Biotech Index (NBI) hit a peak on April 27th at 845. It then declined into the May 3rd ODAC meeting, closing that day at 793. The NBI ended July at 680, down 14%. As I've written, I think that's just the start.

On September 3rd, we have another situation where an FDA decision could be a real tipping point. This time, unlike in early May, there is no real upside opportunity to a favorable FDA decision. What biotech investors have to be worried about is a negative FDA decision truly gutting sector valuations.

Last week, Eli Lilly (LLY:NYSE) presented their cancer drug Alimta (pemetrexed) to ODAC. The meeting provided a somewhat mixed message, but basically what ODAC did was recommend to the FDA - over the FDA's objections - that Alimta should be granted accelerated approval for the treatment of non-small cell lung cancer.

The crux of the tipping point this time is whether the FDA will listen to its advisory panel. After all, this is an advisory panel so the FDA is not required to follow their recommendations.

This situation has happened before. Early last year, ODAC recommended the FDA approve AstraZeneca's (AZN:NYSE) Iressa. FDA staffers were obviously incredulous. Through several conversations over the last year - particularly in the last couple of months - our research team has learned FDA staffers were not going to approve Iressa. The only reason it was approved is then-FDA Commissioner Dr. Mark McClellan insisted FDA staffers follow the recommendation of its ODAC panel.

Of course, Dr. McClellan is not there to inject some patient-centric realism into this FDA.

The PDUFA date for Alimta is Friday, September 3rd. If the FDA decides to ignore the recommendation of its advisory panel, biotech valuations will plummet. It will send a message that even medical professionals chosen to advise the FDA cannot move this FDA beyond narrow statistical concerns to bring medical advancements to cancer patients. Biotech will be "locked" down until either President Bush or President Kerry nominates a new FDA Commissioner.

What is dismal about this particular tipping point is there is no upside. If the FDA agrees with the ODAC panel and gives accelerated approval to Alimta, it is only doing what it is supposed to do. There's no sector valuation bump in that. If the FDA goes against the panel, watch out below.
< Previous
  • 1
Next >
No positions in stocks mentioned.

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.

Featured Videos