Biotech Roundup: ImClone, Amgen, Dendreon, Satraplatin
A look at the goings on this week in the biotech space...
It's ASCO time again and the abstract books arrived on ASCO members' desks last Saturday – and they were promptly sold or delivered to the desks of hedge fund operators. After a couple of years of relative quiet in this regard, it appears hedge funds have tossed caution to the winds and are once again freely trading on this illegal inside information. (For background on this odd situation, check this out.)
ImClone (IMCL) has critical data for its lead drug Erbitux coming at ASCO, the so-called "Crystal" trial. Vectibix, Amgen's (AMGN) competitive drug, failed a roughly similar trial to much fanfare and damage to Amgen's stock. So, all eyes are on the Crystal data to be released at ASCO (June 1-5).
Take one look at ImClone's stock price this week and you can see what biotech inside traders think of the data as represented in the abstract. More than one sell-side analyst has expressed caution about the data based upon the ASCO abstracts.
How do you trade this? With caution at this point. Abstracts are only a subset of data and are always an incomplete picture. Abstracts are submitted in December for ASCO, which means updated data are available by the presentation in June. Sometimes things change.
Sometimes, Wall Street's biotech guys are too smart for their own good. See 2003's ASCO with Genentech's (DNA) Avastin. Early peeks at the abstract data caused Wall Street to say the drug would be a failure. The data was actually a smash success. Check out DNA's stock chart since June 2003 to see the result.
With those cautions in place, and ever mindful of the fact we don't give advice in the 'Ville, there is probably still money to be made in ImClone if the data are perceived as bad. ImClone is broadly enough held outside of the "biotech hedge fund clique" that there are multiple large investors who have not yet reacted to the negative data. If the data are indeed negative, then there will be additional downside when the press release hits the tape.
Put option buyers beware, however. The criticism here appears to be that the drug's positive effect is not as large as expected (no, I haven't seen the abstract myself). That means it is not an outright failure, but a failure to live up to expectations. The "expectations game" can be tricky, so any position you take based upon the stock action since the ASCO abstract leak should be appropriately sized for the increased risk.
Speaking of Amgen (AMGN), rough week. As I predicted, the ODAC panel was not kind to Amgen's franchise epo drugs. What I didn't expect was the immediate reaction by Medicare/Medicaid to reduce reimbursements for the drug. ODAC and the FDA can bluster – that's what the oncology section of the FDA does best these days – but all they can do is recommend new trials. Medicare and Medicaid hurt Amgen's pocket book directly, which directly hits Amgen's bottom line.
And yes, I think there is more downside. Amgen is hurting. The acquisition of Vectibix was silly and marginal data from additional trials make the acquisition look sillier every day. The company has cash to acquire its way out of the problem just like its big pharma brethren, but that cash pool will not be replenished as fast as expected because of reduced revenues on the company's main drugs. That makes the margin of error on everything it does, especially acquisitions, that much smaller.
There might be easier places in the healthcare sector to make money on the long side. Note also Amgen is an outsized component of both the NASDAQ Biotech Index (NBI/IBB) and the AMEX Biotech Index (BTK/BBH) so running to a basket of biotech stocks might not be a good idea.
No, I wasn't going to let an article pass without commenting on Dendreon (DNDN). I was on record here and elsewhere saying there was an 80% chance the FDA would approve Provenge, Dendreon's active immunotherapy for prostate cancer. I ascribed a 15% chance to an approvable letter requiring more efficacy data.
I was wrong. That 15% bit me in the ass as the FDA chose to ask for more efficacy data.
The letter received by the company apparently was not clear to them, so Dendreon is asking the FDA for clarification on what efficacy data they will require. The hope of many at the company and amongst the Dendreon faithful is the efficacy proof required will be something less than the interim survival analysis for the ongoing IMPACT/9902b trial scheduled for 2H-2008.
While this is possible, it is not probable absent significant political pressure applied to the FDA. As I have been saying for years, there is no doubt Provenge works. The doubt has always been how many trials it would take to convince a process-obsessed FDA that it works.
At this point, Dendreon investors need to base their portfolio decisions upon a second half of 2008 interim analysis providing the first opportunity to get the Provenge BLA back on track. Positive data from that analysis means the drug could be on the market in 2009.
The only silver lining to this is that anyone who bought in the days leading up to the panel meeting has been able to make a profit. Those who were bulls and not pigs made significant money as the stock went from the $4 range when I started writing about it every week here on the 'Ville to as high as $25.
While it is fun to speculate on potential earlier opportunities based upon the FDA deciding to cut prostate cancer patients a break, you can't logically invest on such things no matter how strongly you feel Dendreon and prostate cancer patients got screwed.
A few months back, I was telling a hedge fund manager with a large position in one of the myriad of companies that has a piece of the prostate cancer chemotherapy drug satraplatin that I thought the FDA would convene an ODAC panel to review the data. He told me I was an idiot and that no panel was necessary because the drug hit its primary endpoint with a high degree of significance.
Well, turns out I was right. The FDA is bringing satraplatin to ODAC. So how do you profit from this surprise (to most) announcement?
My gut tells me this is a dog and pony show by Office of Oncologic Drugs (OOD) head Dr. Richard Pazdur to deflect the heat he's getting from the prostate cancer community for his presumed role in the rejection of Provenge. This ploy won't work within the prostate cancer community, but having ODAC say good things about satraplatin will be something he can show to members of Congress to "prove" he is a good guy who wants to get prostate cancer patients alternatives. This is BS, as is most stuff that Dr. Pazdur does these days, since prostate cancer patients overwhelmingly reject chemotherapy as an option.
The bearish counter argument is that while satraplatin demonstrated statistical significance on their designated primary endpoint, the benefit is not clinically significant at less than two weeks median benefit. The toxicity involved is, therefore, not worth the benefit on a risk/reward basis. While I agree with this analysis, satraplatin will be used fourth line after Taxotere (fifth line when/if Provenge is ever approved) so the hurdle for approval is quite small.
If ODAC is inclined to hesitate, of much important will be data on how satraplatin improves pain and other symptoms of prostate cancer. Data to be presented at the American Urology Association conference beginning Saturday may shed some light on this.
If the last week or so taught us anything, it is that the FDA and particularly Pazdur's OOD cares very little about the clinical side. They are more interested in the math of biostatistics. While I might get surprised in July by a negative ODAC panel review of Satraplatin, I'm pretty sure I have a good read on how Dr. Pazdur thinks. After a week where he directly savaged three oncology drugs and indirectly derailed another, he wants to play good guy. Satraplatin will benefit.
If I'm wrong, the biotech sector will be a tough place. Satraplatin's trials were operated under a Special Protocol Assessment (SPA). By all accounts, the sponsors of the satraplatin trial held up their end of that agreement. For Pazdur to turn down a drug operated under a successful SPA and that hit its primary endpoint with a high degree of statistical significance would be a big deal in biotech – a big negative deal.
I'll be in Anaheim today through Wednesday for AUA and in Chicago from May 30 through June 5. If you're around those parts and want to chat about biotech, drop me a note and we'll see if we can coordinate schedules.
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