News for VVUS
Questions Linger on Impotence Drug
Dec. 20 (The Star-Ledger/KRTBN)--Last month, Schering-Plough Corp.
agreed to pay up to $57.5 million for the worldwide marketing rights to
an impotence pill being developed by Zonagen Inc., a little-known Texas
company that was generating a lot of excitement on Wall Street.
The deal, which didn't include future royalties, immediately
catapulted the Madison drug maker into a heated race to treat
impotence, a disorder that may afflict up to 20 million American men
with some degree of erectile dysfunction. Two other big drug makers,
Pfizer Inc. and Abbott Laboratories, were already developing pills.
Yet right after the accord was signed, questions surfaced about the
clinical trials Zonagen conducted to test its pill. Its stock has since
plummeted 40 percent. An alarmed Zonagen announced plans to buy back
$10 million in stock. That's the same amount of money Schering-Plough
handed over in the form of an up-front payment.
On the surface, it might appear to some investors that Schering-Plough
moved too quickly. In fact, some insist it has. Whatever the case, the
drop in Zonagen's shares is shaping up as a classic tale of rampant
Wall Street speculation that often characterizes small companies,
especially those entering markets with rising demand for innovative new
drugs.
This time, the high-stakes wagering has also embroiled a major drug
maker. But in this instance, that's not surprising. In order for some
investors to make money on Zonagen and its controversial impotence
pill, the feverish stock activity has to raise doubts about the
judgment of Schering-Plough's management.
"It's amazing what the speculation is doing. But I believe Zonagen's
drug is going to be approved" by federal regulators, said Steven Lisi,
a securities analyst at Metha and Isaly, an investment firm that
specializes in healthcare companies. "You have to have faith in a large
company like ScheringPlough to do its due diligence," a reference to
market research.
When it comes to impotence, pills are hot. A pill is much easier to
use than suppositories, penile implants, vacuum pumps and injections.
This explains why Wall Street had been so excited about Zonagen's pill,
even though Pfizer is much closer to obtaining marketing approval from
the Food and Drug Administration.
The downward spiral and subsequent uncertainty about Zonagen began on
Nov. 18, the day after Schering-Plough agreed to sell Zonagen's pill.
An investment manager, Asensio & Co., issued a report, made available
on the Internet, criticizing the methodology Zonagen used to conduct
clinical trials and raising questions about patent rights for its pill.
Much of the report was a technical discussion concerning the
benchmarks used to measure the pill's effectiveness. And Asensio also
alleged that Zonagen wasn't forthcoming in revealing the pill's
shortcomings. As a result, the firm called Zonagen a "grossly
overvalued" stock and predicted the pill would never be approved for
sale.
"There's just nothing there," said Manuel Asensio, who runs the
Manhattanbased investment firm. "I don't understand how people can be
drowning in this glass of water. Their clinical trials were faulty. I
think this stock would be grossly overvalued at $10 a share." And where
does he expect the stock to trade? "Less than $5," he said.
A quick read of Asensio's report might have worried many investors.
But what they may not have known is that Asensio is a short seller --
someone who borrows stock and bets that, when the stock must be
returned, a comparable number of shares can be bought at a lower price,
locking in a big profit.
When questioned, Asensio readily acknowledged that he holds a
so-called short position in Zonagen. In fact, he's also placed a
similar bet on another company in the impotence business, Vivus Inc.,
which makes a suppository that must be inserted into the penis in order
for an erection to occur. Recently, production delays contributed to a
drop in Vivus shares.
Zonagen responded to Asensio by attempting to debunk his theories in a
series of press interviews. But the impression that Zonagen may be a
bad investment was compounded earlier this month, when an industry
newsletter picked up Asensio's theme. The report from CenterWatch,
which tracks clinical trials, probed the same issues, but offered more
credibility.
Once again, Zonagen was on the defensive, as a spokeswoman denied
charges that the pill, which is actually a version of a 45-year-old
heart medication, doesn't work or that studies weren't designed
properly. And she explained that benchmarks were used to gauge
effectiveness were changed for more recent tests only after receiving
guidance from the FDA.
The spokeswoman also said Zonagen applied properly for a patent on the
method of delivering the medication and plans to seek FDA approval in
the next few months. "We're not starting any studies over and we don't
need to," she said. Safety studies with large groups of patients, she
added, will be completed on schedule next year.
Some securities analysts speculated themselves that short-sellers
stepped up their aggressive attacks on Zonagen because they were under
pressure to repay loans. "It's not a blockbuster drug," Lisi said. "But
millions of men may use it, especially if Pfizer's pill doesn't work
for them. So this is all slightly unjustified."
Through it all, Schering-Plough has remained silent. Last week, a
company spokesman again declined to comment. "We won't discuss another
company's stock," he said.
By Edward R. Silverman |
