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Biotech Roundup: Dr. Pazdur, DOR Biopharma, Johnson & Johnson...


The similarities in problems between biopharma and pharma will only increase.


Pazdur for Safety Chief?

We're hearing increasingly strong rumors that Dr. Richard Pazdur, currently head of the FDA's Office of Oncologic Drugs (OOD), is in line to be appointed to the newly-created position of "Safety Chief" at the FDA. Given Dr. Pazdur's "Nothing Gets by Me (Unless It Is Biostatisically Pure Or Sponsored By A Firm With Many Lawyers)" attitude at OOD, he might be exactly what proponents of this portion of the new PDUFA legislation had in mind.

The effect on this for stocks of development-stage biotechnology companies pursuing oncology indications could be significant. Much would depend on who got the OOD job, but there are only a couple of people I could think of who would be worse at the job for oncology patients than Dr. Pazdur. Moving Pazdur out would not immediately make all the oncology drugs with sketchy data viable again, but it might mean late-stage oncology companies might see some positive investor attention again – particularly from 'professional' investors.

No Surprise DORB Was Shunned

Pink sheet stock DOR Biopharma (DORB) is getting clobbered today for receiving a non-approvable letter from Dr. Pazdur's OOD for a drug to treat kids with cancer. Their clinical trial data set for the drug in this indication was imperfect (biostatistically speaking), which means Dr. Pazdur's ODAC panel wasn't going to consider the clinical aspects of how the drug could save kids' lives.

DOR was an interesting drama. While my firm didn't cover the company, it did publish a review of the data available ahead of the ODAC panel meeting. My firm concluded there was no chance ODAC and Pazdur would approve the drug. However, there is probably enough truth in the data collected thus far for objective, clinically-minded folks to think the drug merited at least approval subject to additional trials (Subpart H).

An offhand comment made by Dr. Pazdur during the meeting kept the hopes alive for a few DOR diehards. They also interpreted a delay in the FDA decision as positive, believing the FDA was seriously going to consider approval. Both were fantasies generated by folks breaking the first and most important of the Six Rules for Biotech Investing. This mistake is especially common for oncology companies because a drug that helps cancer patients is awfully easy to fall in love with.

Pharma's Bad Quarter

(PFE), Johnson & Johnson (JNJ), and others in the big pharma space are reporting dismal quarters. No surprise to me on this account. The issues I've been harping about for a (very) long time – expiring patents, poor pipelines, pricing pressures – are increasingly showing up on pharma's bottom lines. Acquisition and partnership deals are heating up, and will only get hotter over the next six-nine months.

Biotech Back?

For the briefest moment, the NASDAQ Biotech Index (NBI) was almost back at the level it hit in late August 2001. That date isn't significant for any other reason than it corresponds with the date our firm launched our biotech-only model portfolio, followed in October 2001 by the launch of our biotech-only coverage focus.

Despite the relative non-significance of the date, I find it very interesting the NBI has essentially been underwater that entire time. Part of the reason is the well-documented (at least by me) disproportionate increase in short interest in the sector. Whether driven by fundamental reasons or by market-neutral hedge funds picking biotech's considerable beta for their short-side balance, the end result has been depressed values.

Especially striking is the performance of the AMEX Biotech Index (BTK) over the same period. The NBI is roughly flat, while the BTK is up better than 50%.

The BTK is not populated by biotech companies, really, but by a new breed of large pharmaceutical companies more properly called "biopharma". The NBI's weighting doesn't make it a particularly good representative of the development-stage sector either, but it is closer.

Amgen's (AMGN) recent troubles demonstrate the issues facing big pharma I noted above are also issues biopharma is facing. Investors just haven't decided to recognize that yet. There are important differences. I'd have no qualms shorting all big pharma, but I'd want to be a little more selective with the biopharma space. That said, the similarities in problems between biopharma and pharma will only increase.

Dev-stage biotech has always been the "farm team" for pharma companies. Now that pharma is so clearly in trouble, and biopharma is showing signs of cracking under the same pressures, both will increasingly look toward the pipelines of dev-stage biotech companies to solve their problems. That means more partnership deals and more acquisitions.
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