From thestreet.com:
"Top Stories: Biotech Skin Firms Continue Quest for FDA Approval
By Jesse Eisinger
Staff Reporter
1/28/98 6:25 PM ET
BETHESDA, Md. -- There is a surreal spectacle going on in Washington. No, not that one. A quieter one is taking place at the Food and Drug Administration, where two artificial skin companies have petitioned the agency for approval for their wares for years and succeeded largely in attracting vocal skeptics. So far, however, the critics haven't kept the stocks within the stratosphere: Both have market capitalizations of more than $500 million, even though they have no earnings, virtually no sales and years of development losses.
On Thursday, Advanced Tissue Sciences (ATIS:Nasdaq) and Organogenesis (ORG:AMEX) -- inextricably linked together in the mind of Wall Street although neither desires such a pairing -- get a chance to turn the unbelievers around. That day, they both take their data to the FDA's panel of outside experts on surgery devices. Advanced Tissue has
Dermagraft for diabetic foot ulcers. Organogenesis has Apligraf for venous leg ulcers.
The trials that ATIS conducted of Dermagraft in diabetic foot ulcers have come under fire. The company conducted a trial of 281 diabetic patients with foot ulcers, which are wounds that can become serious because the sufferers can lose feeling in their feet. In analyzing this study, the company threw out the data on 46 patients because of a variety of reasons deemed not due to Dermagraft. For instance, they might have had infections or poor glucose control. Then, the company discovered that one of the versions of the graft skin wasn't in the "therapeutic range" and was "sub-potent," explains Arthur J. Benvenuto, chairman and chief executive of ATIS. In other words, that version wasn't working. Ignoring those cases, then, ATIS had, in the pivotal trial, 61 patients who received the properly effective Dermagraft, he says, while 125 were in the control group. Is that acceptable to the FDA? "That's what we are going to discuss with the panel," says Benvenuto. The FDA wanted to see more data on the newer version, so ATIS conducted a trial of 50 patients. Only, the company did it without a placebo control. Even in this trial, the company threw out 11 patients as not "evaluable." Most trials are done on an "intent-to-treat" basis, which means that in the final statistical analysis, all the patients enrolled are included. "Our trial was not [statistically] powered on an intent-to-treat basis. What we were looking for were the evaluable patients," says Benvenuto. If ATIS had conducted an intent-to-treat study, it would have "needed a lot more patients," he says.
Benvenuto says, "When I take a look at how this product performed ... I absolutely believe this product should be approved" in the U.S. It is already approved in Canada and the U.K., but sales so far are not
material.
ATIS has some powerful support. "It's going to pass muster, is the bottom line," says Doug Lind, an analyst for Morgan Stanley, ATIS's investment banking firm. Lind says that if Dermagraft was up for approval in the biologics division of the FDA, it would have a difficult time. "I've looked at it all. If this was biologics, I wouldn't be expecting a favorable review." But it's being reviewed in the devices division, where the hurdle is lower, and "that's the learning curve investors need to get up to speed on," he says.
Lind expects ATIS to get $8.8 million from Dermagraft this year and $65 million in 2001. The company has a 50/50 split of the sales with Smith &Nephew, a British medical device company. Fully diluted, the company has 42.7 million shares, according to Benvenuto.
For another opinion about ATIS's numbers, one can ask Eric Hecht. Before Hecht was at Merrill Lynch, where he doesn't cover ATIS, he was at Morgan Stanley, where he recommended the stock until he got a good look at the data. He says that for approval the company needs to convince the agency and its panel that Dermagraft is safe and efficacious. "It's clear they did establish safety. It's very clear they haven't established efficacy." "Because the conclusion are arrived at retrospectively, they can't be said to be reliable and reproducible," says Hecht. "To me, that's the medical community's standard. It doesn't matter if it's biologics, devices, whatever. You can't throw a dart at the wall, draw a circle around it and call it a
bull's-eye."
Neither Lind nor Hecht, despite their expertise in the area, has an opinion on Organogenesis. In fact, few analysts follow the company closely. That doesn't mean the media hasn't latched onto the story, however. It has been too juicy. Since filing for approval of what was then called Graftskin in late 1995 under "expedited review," the company has had a slew of trouble. One of the company's researchers, Oscar Alvarez, turned out to have faked his credentials. The company has not been ready for FDA inspections. It had to amend its original filing with the FDA. Turnover has been extremely high. Deals with several partners have been scuttled. (Herb Stein, the chairman and chief executive, declined to be interviewed for this piece.)
On Thursday, ORG finally has a chance to put it all behind them, but there are skeptics. The role of vocal persecutor has fallen to Evan Sturza, publisher of the outspoken Sturza's Medical Investment Letter. He puts the chances of approval at 30%, but thinks the prospect that ORG will sell meaningful amounts of Apligraf is virtually nil." |
