H & Q rated a BUY Yesterday the Metabolic and Endocrine Advisory
panel to the FDA voted unanimously against
recommending approval of ERGOSET for the
treatment of Type 2 diabetes.
* The panel indicated that ERGOSET did demonstrate
evidence of efficacy, but would like to see
additional data to substantiate the duration of
ERGOSET's effect. In addition, the panel was
confused about the mechanism by which
ERGOSET works and indicated that it would like
additional data to confirm the mechanism.
* We are downgrading the stock from a Strong Buy
to a Buy. However, we caution that it could take a
significant amount of time to before the company
will be in a position to provide enough new data to
the FDA because it is unclear specifically what the
FDA will want to see. We will revisit our rating
following additional feedback from the FDA.
* The company has established a collaboration with
Johnson & Johnson who we believe will share
development costs going forward. We will be
revising our financial model following discussions
with management.Discussion
Ergo's New Drug Application was based on results from three pivotal studies. The FDA
has historically
approved treatments that produced a reduction in HbA1c levels ( a measure of long-term
glucose metabolism) of
between 0.5% and 1.0%. In pivotal trials, ERGOSET was tested as adjunctive therapy in
two studies involving
patients who were taking oral hypoglycemic agents. In these studies, ERGOSET
treatment resulted in a
statistically significant reduction in glycated hemoglobin A1c, (HbA1c), 0.5% and 0.6%
respectively. In a third
study, ERGOSET was tested as monotherapy in patients who were not taking oral
hypoglycemic agents. In this
population ERGOSET also produced a reduction in glycated hemoglobin A1c levels of
0.44% in the intent to
treat patient population.
Advisory panel review
The panel's vote not to recommend approval was unanimous among the 9 voting
members. We believe that the
panel's vote was influenced by three factors
1. The effect of ERGOSET was moderate
2. The panel wanted additional data on the duration of ERGOSET's effect
3. The panel wanted proof on the mechanism by which ERGOSET works
The FDA itself appeared favorably disposed toward approval of the drug. It its own
review, the FDA concluded
that ERGOSET provided efficacy that , though moderate, was within the range of
currently approved agents.
With respect to duration the agency indicated that the last four drugs that were approved
for diabetes were
approved on the basis of six month data with additional data from non-controlled studies.
Further, the agency
indicated that the company has taken reasonable steps to acquire data that demonstrates
longer duration of
efficacy. The company did conduct an extension study following the completion of the six
month controlled trial.
The extension study has provided data on patients beyond 18 months. In addition, the
agency appeared to like the
responder analysis conducted by the company, and we believe, set the stage for using the
analysis to identify
patients that were most likely to respond to ERGOSET treatment. In all three studies,
between 60-65% of
patients responded to ERGOSET treatment. Responders were classified as those
individuals who achieved a
0.3% improvement within the first 8 weeks of treatment. Among responders,
improvements in HbA1c levels as
were more profound, exceeding 1.0% in each study. However, despite the agency's
positive review, we do not
believe that approval will be granted without the submission of additional data given the
unanimous negative
vote.
Next steps
It is unclear presently what additional steps must be taken and what new data must be
provided to the agency.
In our opinion a worst case scenario would be that the company would have to conduct a
12 month blinded
study. If this were the requirement, we believe that new data wouldn't be in hand for
about two years. Given
the agency's position on required duration we don't think that this scenario is probable,
but it is possible. The
company is currently conducting additional studies with ERGOSET, including a Phase II
insulin sparing
study in type 2 diabetes patients and a Phase II study in obese subjects. Results from the
insulin sparing
study will be available within two months or so. The obesity study is at a much earlier
stage. These studies
will not provide more data on duration. It is not clear what studies would satisfy the
panel's desire for further
proof of the mechanism by which ERGOSET works. Presumably such studies would be
shorter than studies
to demonstrate efficacy. ERGOSET is thought to act by a central mechanism in the brain
which orchestrates
the hormones that govern metabolism. Several panel members wanted to see additional
data on ERGOSET's
effects on several such hormone including prolactin, growth hormone and insulin.
Additional data on
hormone levels may provide more help on understanding the mechanism. The panel's
request for more data
on the mechanism was unusual. The panel was also interested in obtaining more safety
data, particularly as it
relates to hormone levels. The FDA suggested follow up on the incidence of heart
attacks, although was not
overly concerned. While there was a higher number of heart attacks in the ERGOSET
treated patients it was
not statistically significant. Heart attacks are not uncommon in patients with this disease. In
terms of safety
data, one fact that seemed lost in the discussion was that bromocriptine has been on the
market for twenty
years and is typically used at much higher dosages than ERGOSET, which is a fast
release, low dose
formulation of bromocriptine. We had been anticipating that ERGOSET would be counter
indicated in
lactating women because of market experience with bromocriptine.We will revisit our
rating following some clarification on the additional data requirements. We will be
adjusting our model following additional discussions with management. The company
ended the second
quarter with approximately $37 million in cash. We believe that Johnson & Johnson will
share the
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