BARRON'S: Plugged In: FDA Rejections Plague Drug Companies
By Bill Alpert
Some biotechnology investors grumble that the Food and Drug Administration
is doing its job too well this year. Agency reviewers have rejected a
surprising number of new drug applications -- demanding additional data from
drug companies and even additional clinical trials. Friday, the agency told
Pharmacia that its painkiller Parecoxib was "not approvable" without more
data. Tuesday, the agency jolted Genentech and Novartis by kicking back the
companies' application for Xolair, a monoclonal antibody treatment for
asthma and allergies. FDA reviewers want physiological safety data on a
larger number patients. The firms said they might have to undertake more
studies with the drug in children. Xolair was expected to bring in $350
million in sales next year, so the FDA's action knocked Genentech shares
down 23% by week's end to 40. Tanox, the Nasdaq-listed firm that invented
the drug, suffered a 46% drop, to close the week near 14.
Also last week, Guidant heard an FDA advisory panel refuse to recommend
approval for the Contak CD pacemaker device for congestive heart failure. In
clinical trials, the panel noted, the Guidant product had fallen short of
Guidant's goal of reducing heart failure by 25%. A rival product from
Medtronic, however, got the panel's recommendation. Guidant shares ended the
week nearly 20% down, at 29.30, even after Guidant promised additional data
to the agency. Most dramatically, Praecis Pharmaceuticals has lost half its
value since early June, with its Nasdaq shares skidding to a recent $12.50
after the FDA sent back an approval application for Abarelix, a proposed
drug for prostate cancer that Praecis is developing with Amgen. The agency
wants more information.
One hedge-fund investor, who asked that he not be identified, wonders if the
FDA's attack of rigor reflects the leadership vacuum at the agency's top.
Like a number of federal agencies, the FDA has had no boss appointed by
President George W. Bush. After some rumored false starts earlier this year,
the Administration has reportedly narrowed down the list to three
candidates. Last week Boston papers mentioned one of those finalists:
Michael J. Astrue, the general counsel for Nasdaq-listed gene therapy firm
Transkaryotic Therapies of Cambridge, Massachusetts.
The increased frequency of "not approvable" letters from the FDA may only
reflect a new level of skill among agency biostatisticians. The Securities
and Exchange Commission has similarly sharpening its scrutiny of financial
statements under its keen-eyed chief accountant, Lynn E. Turner. Whatever
the cause of the FDA's increased vigilance, investors now panic at any sign
of trouble in a drug's clinical trials.
My colleague Dave Franecki looked into just such a panic last week, as he
talked to medical researchers and stock analysts about inhaled drug
delivery. Last year firms such as Inhale Therapeutic Systems and Aradigm
enjoyed Wall Street's favor as they honed technologies that allow the
inhalation of drugs that normally required injection. On June 25 Inhale
reported results from the final Phase III trials conducted with partner
Pfizer on an inhaled insulin product called Exubera. The inhaled insulin
proved as effective in controlling blood sugar as was injected insulin, and
the Exubera patients were happy to avoid the needle.
But Inhale shares plunged 22% to 27 on the revelation that Exubera patients
showed higher levels of antibodies to the drug than did patients who
injected the drug. Both Pfizer and Inhale said that antibody levels had no
discernible impact on the patients. Soon, however, rumors reached Wall
Street of clearly serious adverse events amid the trial: four cases in which
fluid accumulated around patients' lungs and one case of pulmonary fibrosis,
or lung scarring.
Dave Franecki spoke with Dr. Priscilla Hollander, the Baylor University
Medical Center investigator who is leading the Exubera studies. In her
clinic, inhaled insulin proved slightly more effective than the injected
drug. None of her patients suffered fibrosis or lung fluid.
All diabetes patients run a higher risk of infection, including infections
that trigger fluid around the lungs. The scarring case worried some doctors,
however, because insulin is also a growth hormone. While neither Pfizer nor
Inhale would return Dave's calls last week, Pfizer has publicly acknowledged
the adverse events. The lung fibrosis was a pre-existing condition,
unrelated to the drug, said Pfizer. Three of the four cases of fluid in the
lungs were also unrelated to Exubera, said the drug company. The fourth case
has not yet been explained.
One adverse event in more than 1,000 patients wouldn't usually stall an
approval, says Ian Sanderson, an analyst at S.G. Cowen Securities. But the
large potential market for inhaled insulin might ironically hurt Exubera,
says the analyst, if the prospect of widespread use makes the FDA even more
cautious than usual. In light of the agency's conservative review of recent
applications, notes Sanderson, "this is not such an automatic slam-dunk
approval."
-- The groaning wounded lie everywhere on the Internet scene. Shares in
optical networker Level 3 Communications have sunk from over $130 to $3.75
-- that's below the level where SEC rules would treat the shares as a penny
stock if Level 3 weren't Nasdaq-listed. Last week, Webvan sought bankruptcy
protection and joined eToys and others who have fallen gloriously on the
field of battle.
With shares of Covad Communications now down to 73 cents from last year's
$65, it may be difficult to console shareholders grieving from a loss so
overwhelming. Class-action law firms such as Milberg Weiss are doing their
part: Formerly active dot.com investors are surely getting many invites to
join hands with their fellow shareholders in praying for legal relief.
On Monday, the Brookings Institution, a Washington think tank, will release
a report that could also console dot.com's next of kin who have laid such a
costly sacrifice upon the altar of capitalism. In their study titled "The
$500 Billion Opportunity," Brookings researchers Robert W. Crandall and
Charles L. Jackson alert the public to the widespread benefits that
broadband Internet access will bestow on our economy. Home shopping,
telecommuting, entertainment. The net present value of a fast rollout of
fast Internet services -- such as DSL, cable modems and 3G wireless --
could total as much as $500 billion.
Does that sound like the story you heard from Henry Blodget and Mary Meeker
before you bought those stocks two years ago? Maybe so. From the depths of
pessimism that Wall Street now feels about the Internet, it is fashionable
to sneer at the Brookings arriving late to the party -- a full year after
the cops carted the revelers away.
I, for one, agree with Messrs. Crandall and Jackson that broadband Internet
access will have as large an impact on our economy as cable television and
wireless phones. With companies from Cisco to Yahoo disappointing Wall
Street's high expectations, it is easy to forget that high-speed connections
have still reached fewer than 10% of U.S. households. My New Jersey
neighborhood enjoys the phone company's broadband service called DSL, but
our cable company is only now stringing up lines for cable modems.
In estimating the economic dividends of broadband penetration, the Brookings
researchers imagine a point where broadband connections approach ubiquity,
reaching the same number of households as phones: 94%. At that point, the
authors figure, consumers will enjoy $390 billion in annual benefits from
broadband service and home-computing gear. Another $130 billion in benefits
could derive from new entertainment, phone services and avoided hassles of
mall shopping and commuting.
Jackson, a onetime engineer in the wireless business, says he's confident
that broadband service will become ubiquitous because there are no good
alternatives. Optimistic expectations for CB radio, by contrast, were dashed
by the rise of cell phones.
If the Brookings estimates sound like the airy prophesies of such gurus as
George Gilder -- whose Telecosm is now a Telechasm -- the difference is that
Crandall and Jackson have made explicit calculations. Those calculations, of
course, are open to criticism and revision. Nor does the Brookings
publication hold itself out as an investment tip sheet. The authors say
their main hope is for Congress and courts to remove regulatory impediments
to the rollout of broadband by the cable and phone companies. Those firms,
of course, don't suffer the capital shortages plaguing DSL startups Covad
and Rhythms NetConnections. Nor do their investors need sympathy letters.
(END) DOW JONES NEWS 07-14-01
01:59 AM
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