Biotech Roundup: Genzyme, Amgen, GlaxoSmithKline, Genentech...
Watch Genzyme and the other orphan drug companies carefully.
Icahn Takes Genzyme Stake
Genzyme (GENZ) is the big brother of a few biotechs my firm's research team covers. Genzyme makes its billions in the orphan drug space. This space is unlikely to be affected by the structural issues darkening the prospects of the broader pharma and biopharma space. The patients are easily identified, making for tiny sales forces. The drugs are very targeted, providing clean risk/benefit analyses and high therapeutic indexes. This means the generally scarce side effects from these drugs are broadly outweighed by the patient benefit.
Pricing pressures could be an issue, but most payors just bear the cost. Legislators are loathe to go after orphan drug profits as to do so would eliminate incentives to create the drugs in the first place. Patents expire here as they do anywhere else, but orphan designation provides significant advantages in the length of market exclusivity.
In a recent disclosure, Carl Icahn's fund took a 1.5 mln share position. This has raised questions about whether Genzyme is going to be taken over. If pharma executives weren't so wrongheaded about the orphan market, the no-brainer answer to the question would be 'yes.'
If Genzyme catches a strong buyout bid from biopharma or pharma, look for other orphan-focused (non-oncology) companies to see strong price gains. My firm has three under coverage currently, BioMarin (BMRN), Pipex Pharma (PP), and Amicus Therapeutics (FOLD), and is looking for others to add to the coverage universe. BioMarin, which has been under coverage since under $6, has already run strongly on the back of existing product revenues and about a year's worth of takeover rumors. Pipex is almost unknown, but its approach to copper metabolism is fascinating and potentially revolutionary. Amicus is fairly well known and at the high end of rational valuation. It is also aiming straight at Genzyme's product lines, which makes it very likely to benefit if Genzyme is bought.
Amgen Fights Back
The Pink Sheets publication (not to be confused with OTC pink sheet stocks), details how Amgen (AMGN) will try to extricate itself from the revenue hole it is in with its Aranesp and Epogen products. The company will launch seven new clinical trials to study risks associated with using these erythropoiesis-stimulating agents (ESAs) for the treatment of anemia in patients with cancer. Two studies will be in lung cancer, four in blood cancers, and the remaining one will be a general PK/PD study examining target hemoglobin profiles.
These new trials build upon existing trials in breast cancer, NSCLC, NHL, and head/neck cancers already under way. The first to report data will be the breast cancer trial.
Johnson & Johnson (JNJ), which markets competitive drug Procrit, is helping with the trials. The FDA contributed input as to trial design. The design of the trials has not been finalized yet as the companies are still waiting for additional FDA input. The goal is to make sure enough questions are answered to get this class of drugs out of the FDA's doghouse and restore reimbursement.
The FDA is looking for hard endpoints of survival and not hemoglobin endpoints. The default agency view, according to OOD head Dr. Richard Pazdur, is the company should not bother with looking at hemoglobin target levels above 12g/dL, which is the target level that got the companies into trouble in the first place.
Doctors regularly treated patients to targets above the 12g/dL level. Amgen and JNJ didn't object strenuously because this meant more product sales. This "overdosing" and the theorized adverse impact this had on patients is what launched this whole situation. With little data to support the decision, regulatory and reimbursement authorities fixed the target level at 10g/dL.
For their part, Amgen and JNJ seem certain the 10g/dL level leaves some patient benefit on the table. Look for the trial program to address specifically whether there is a difference in patient benefit between a 10g/dL and 12g/dL target hemoglobin level.
While these trials are being launched voluntarily by Amgen and JNJ to help resurrect revenues lost due to new label changes, it should be mentioned the new FDAAA/PDUFA‑4 rules allow the FDA to mandate these studies. The FDA now has the right to mandate post-marketing studies. My opinion is this capability is a good one, though it is likely to be abused. If I had more confidence in FDA leaders like Richard Pazdur to do the right thing even occasionally, I'd have more confidence the rules wouldn't be employed selectively to bully "less-favored" drug sponsors (particularly smaller companies)
GSK Required To Do New Study
Speaking of the new FDA capability to require sponsors to do new post-marketing studies, Exhibit 1 might be GlaxoSmithKline (GSK). While the release from the FDA says "the manufacturer agreed" to these actions, GSK really had little choice as the new PDUFA-4 rules will allow the FDA to unilaterally change drug labels and require post-marketing trials anyway.
The FDA added a black box warning to GSK's Avandia for the treatment of Type 2 diabetes. It advises closely monitoring Avandia patients for cardiovascular problems and counsels patients who are already at risk of cardiovascular diseases to talk with their physician about alternatives. Since most Type 2 diabetes is linked to metabolic syndrome (a laundry list of items that closely parallels cardiovascular risk profiles), this is likely to impact Avandia sales adversely.
In addition to the warning on the label, the FDA has told GSK to run a new trial to study the long-term cardiovascular risks of Avandia compared to another drug for Type 2 diabetes. That drug could be Takeda Pharma's Actos.
GSK fared better in the US than in Canada, where they simply pulled the drug, and in Europe, where they restricted Avandia to a small group of patients. This is likely to attract the wrath of US "healthcare consumer groups." FDA critic Senator Charles Grassley has already issued a statement saying the FDA isn't doing the right thing. Senator Grassley is apparently confused that the 2014 date of final data from the safety trial is the first date when the data will be available. First data will probably be available as soon as a couple of years from now.
Investors in companies with products on the market will have to get used to these requests. I believe they will come with increasing frequency, as the FDA will use required post-marketing studies to deflect political criticism they are too lax on safety issues. The more complaining Ralph Nader and similar groups do, the more of these studies will be required.
This sets up the icky situation where FDA approval will not be the end of the risk associated with clinical trial outcomes, but merely the beginning. Since the FDA abandons its over-reliance on biostatistics when it comes to side effects (i.e. it makes a big deal of side effects that are not remotely close to demonstrating a statistically significant difference from control), I'll go out on a limb and say post-approval studies could have even more risk than pre-approval trials.
I strongly believe we'll look back on the latest PDUFA-4 negotiation as one that was the tipping point for fundamental changes in drug development. The threat of post-marketing safety studies will drive drug developers to more closely examine targeting their therapies as one strategy to reduce the incidence of side effects that are not offset by benefit to the patient.
Avastin Fails Pancreatic Cancer Trial
It's been said that nobody ever went broke shorting stock into the results of a pivotal melanoma trial. Pancreatic cancer likely deserves a place on that list. Genentech's (DNA) Avastin is only the most recent drug to fail a pivotal trial in pancreatic cancer.
Partner Roche (RHHBY) ran the "AVITA" trial, adding Avastin to the tandem of the chemotherapeutic Gemzar and Tarceva. There was some success in the secondary endpoints, but the overall trial failed to demonstrate a survival benefit by adding Avastin to the combination.
Pancreatic trials are relatively easy to enroll compared to some other oncology trials. Patients and doctors are motivated to participate. This, plus the small number of active drugs for pancreatic cancer, makes the indication attractive to biotech companies. Phase II data in pancreatic rarely looks terrible, caused mostly by the fact Phase II trials are rarely randomized in oncology.
I wouldn't invest heavily in any company whose market cap relied on a drug targeted to pancreatic cancer unless I had randomized Phase II data in hand showing a reasonable chance of success in the pivotal Phase III program.
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