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Assessing the Damage From Biotech's Recent Missteps

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AP Pharma's setback is just the latest in a string of bad news for the drug sector this year.

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The year is still young, but the failings and missteps of biotech and pharma companies have already started piling up. Many of the investors in these stocks have watched as their holdings plummeted after a Complete Response Letter from the FDA or an announcement of clinical trial results that were more than just mildly disappointing. But some of these stocks will recover after making a few tweaks to their drug program, while others will be banished to the land of penny stocks.

The latest stock to face this misfortune was AP Pharma (APPA), which lost more than half of its value to linger around 98 cents on Friday after the FDA issued a Complete Response Letter to the company. Complete Response Letters are handed out when a drug is denied approval and usually include questions for the company regarding the drug. In the case of AP Pharma, its drug, APF530, was denied for the treatment of nausea and vomiting in cancer patients who are on a chemotherapy regime. The FDA has concerns about the drug's two-syringe dosing system and the chances of improper administration, as well as problems at the manufacturing facility. The success of the company is hinged on the approval and partnering of this drug; should AP Pharma fail to meet FDA standards for approval, the company has little chance at a future. Don't expect to see the drug back in front of the FDA in 2010.

Last week the FDA sent another of these ominous letters to Amylin Pharmaceuticals (AMLN), Eli Lilly (LLY), and Alkermes (ALKS) for their long-acting diabetes drug Bydureon (previously referred to as Byetta LAR). The FDA didn't ask the companies for any more clinical trials (a good thing!); the Complete Response Letter largely concerned the labeling of the drug and its risk evaluation and mitigation strategy. Expect to see Bydureon approved this year or early next, but that approval will likely come with a black box -- the most severe warning the FDA can issue. (See Should FDA Really Approve Byetta LAR?)

Pfizer
(PFE) and its partner Medivation (MVDN) didn't get far enough in their Dimebon program to get a complete response letter, but the companies' shares, particularly Medivation's, took a hard hit from the news that the Russian allergy medication Dimebon isn't effective in treating Alzheimer's Disease. The news sent Medivation down 70%, but didn't have much of an impact on a behemoth like Pfizer. Even though the stock didn't really reflect investor disappointment, the news was just one bead in a string of disappointments for the company. Pfizer is currently reassessing its relationship with Medivation and the outlook isn't good for the tiny company. (See Pfizer Dealt an Alzheimer's Blow and Pfizer Fails… Again.)

XenoPort (XNPT) investors watched helplessly in mid-February as the stock plunged more than 65% to linger around $6.50 (the stock had been trading as high as $27.18 over the last 52 weeks).The stock collapse came after XenoPort and its partner, GlaxoSmithKline (GSK), received a Complete Response Letter from the FDA concerning a drug it was developing for Restless Leg Syndrome, Horizant. The FDA made it clear that Horizant isn't going to get approval for RSL because of a potential cancer risk, but XenoPort still has hope that the drug will be approved for other indications. (See XenoPort Shareholders Run Their Restless Legs.)

Inhaled insulin seems to be a total flop no matter what company is trying to make it work. First Pfizer failed to get any traction with Exubera before it abandoned the program, now Mannkind (MNKD) is flailing with Afrezza. The Complete Response Letter from the FDA didn't ask for any more clinical trials, but asked for just about everything but the kitchen sink. The conference call held by the company didn't make investors feel any better. Mannkind is relying heavily on the approval and partnership of Afrezza, but right now the company is gasping for breath.

(See Biotech Drugs to Watch In 2010.)

King Pharmaceuticals (KG) and its partner Acura Pharmaceuticals (ACUR) got a Complete Response Letter from the FDA concerning their "abuse-deterrent" pain medication Acurox. The drug combines oxycodone with niacin in an effort to prevent or deter misuse of the drug. Expect to see this drug approved, but keep a close eye on the label. If the companies can't get wording on the label that signifies how the drug curbs abuse, than it likely won't be able to gain any traction in the market. (See The Tricky Business of Perfecting Pain Meds.)
No positions in stocks mentioned.

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