Why Biotech Investors Must Understand the FDA's Adverse Events Reports
Seattle Genetics dodged the bullet, but who might be next? And how do investors know when a report is something to worry about?
The goal of AERS is to allow the FDA to perform better surveillance of side effects on drugs approved for patient use. This post-marketing surveillance is important because not all side effects will show up in clinical trials. As I've often said, there is no such thing as a safe drug. Waive a bag of the common peanut in front of everyone walking into the Super Bowl, after all, and you'll likely sicken over 600 people and kill a handful. Just from a lowly salted legume.
When the AERS was announced, I worried aloud that it could disrupt biotech markets. The reports are publicly available – easily on a delay of about a quarter or up-to-date by filing a written Freedom of Information Act (FOIA) request with the FDA. What isn't publicly available, however, is a sufficient amount of the affected patient's medical record to truly understand what's going on.
When reporting to the AERS, the reporting individual – which can be a doctor, patient, malpractice lawyer, manufacturer, etc – effectively implies the drug caused the side effect. This approach is not unprecedented, as the same happens during clinical trials. What is different is the level of evidence. Great pains are taken in clinical trials to ascertain the relationship between side effect and drug. In the AERS, it's just a reporting requirement.
The FDA not only encourages over-reporting to the AERS, it actually mandates it. This is a surveillance database, after all. Surveillance databases only work when you toss a ton of data into them and let the sheer volume of data lead you to a hypothesis. Once that hypothesis – Drug 'A' has a pattern of being related to side effect 'B' – is in hand, then the real investigation begins.
So Why Is This Important to Investors?
The first risk from the AERS is for investors who don't understand the limitations of the AERS. An AERS listing for a side effect for a particular marketed drug doesn't mean that side effect is caused by that drug. The side effect's appearance and the drug's administration may be temporally related, but this does not prove a causal relationship.
The second risk is less benign. Ethics-challenged bears can prey on investors who don't understand the AERS by making a big deal about reports listed for a particular drug. Fear is a powerful motivating force for selling, particularly in the development-stage biotech space where so many companies and drugs fail.
This is not a theoretical risk. We saw this last week with Seattle Genetics (SGEN). A Seattle Genetics bear with a history of being factually challenged issued a report where he claimed a high percentage of people receiving the company's drug Adcetris were dying from progressive multifocal leukoencephalopathy (or PML). PML is caused by the immune system being so depleted a common virus (JC Virus) kills the patient via inflammation of the brain.
The author of the report claimed Seattle Genetics was "hiding" PML deaths. This isn't true as the PML risk actually appears on the Adcetris label and was in the briefing papers for the FDA advisory committee held on Adcetris prior to approval.
I spoke with management about the "patient death" story. Management pointed out there have been only two cases of PML. One was newly reported in the FDA's AERS database. The other was listed on the FDA label. Over 2,000 patients have been treated with Adcetris in clinical trials and since approval. Two in 2,000 is 0.1%.
Management also shared data that even untreated lymphomas have an underlying PML rate. Add in treatment with chemotherapy drugs that depress the immune system and direct immune suppressors used during stem cell transplant treatments, the underlying rate runs to about 1/1400 or 0.07%.
In other words, even if we assume Adcetris is causal – which we cannot from the AERS data – the rate is not appreciably above the background rate for the underlying disease and prior treatments these patients receive.
How to Defend Yourself
So, how do investors tell when an AERS report is something to worry about? When it shows up on the FDA's "Potential Signals" list at the link below:
The FDA closely examines all AERS data in real time. When something catches their eye as an unexpected side effect potentially being caused by a drug on the market, they will flag it and list it on their Potential Signals page. Even then, note the use of the word "potential" on that page and what the FDA says right on the page:
If a drug from a company you are invested in shows up on that page, you need to get concerned. It might not be the end of the world, however, because the relationship may not end up being causal. Unfortunately, in the short term investors in biotech tend to shoot first and ask detailed questions later.
Seattle Genetics got lucky in that it has what I would call an unusually stable and well-informed investor base for a development-stage company. Management also did a good job working the phones the day the bear report made its rounds, explaining the AERS and providing facts about the PML side effect missing or distorted in the report. The misuse of the AERS data to try and scare Seattle Genetics' investors, therefore, didn't work.
Not all biotechs will be so lucky. I expect someone else will try to profit from over-playing the significance of an AERS report on some other company's drug. Hopefully this explanation about what the AERS is – and more importantly is not – will help you make smarter investment decisions if it happens to a stock in your portfolio.
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