Medivation Rallies, but Skeptics Clamor for Caution

An experimental Alzheimer's disease drug made by Medivation(MDVN Quote - Cramer on MDVN - Stock Picks) has given both believers and sketpics something to bolster their arguments, after the company announced plans on Monday to move the drug into a phase III trial.

Medivation has received the regulatory sign-off to conduct a single pivotal study for its Alzheimer's disease drug Dimebon. The news sent shares of the San Francisco-based drug company up $1.85, or 13%, to $16.70.

As part of the agreement, the Food and Drug Administration agreed to accept a previously completed phase II study of Dimebon conducted in Russia as one of the two pivotal studies required to support the drug's approval to treat mild to moderate Alzheimer's disease, Medivation said.

The news is significant because Medivation won't have to spend extra money or take more time necessary to run two, phase III trials. To complete its data package for Dimebon, Medivation will begin a single, confirmatory phase III study in the second quarter, the company said, adding that an FDA filing could be ready in 2010.

The FDA agreement is also likely to be viewed by some as a tacit endorsement by U.S. regulators of the phase II Russian study. The data from this Alzheimer's study were strikingly positive for Dimebon, but also controversial because not everyone believes the results could be replicated in the U.S. or Europe.

Medivation joins a roster of companies with Alzheimer's drugs in phase III studies, including Elan(ELN Quote - Cramer on ELN - Stock Picks), Wyeth(WYE Quote - Cramer on WYE - Stock Picks) and Myriad Genetics(MYGN Quote - Cramer on MYGN - Stock Picks).

Dimebon skeptics seemed unfazed by Medivation's news and the surge in the stock price. To them, Dimebon is still an unproven Alzheimer's drug of dubious provenance that Medivation is now rushing into a risky, all-or-nothing pivotal trial.

Here's a quick recap: Medivation burst onto the biotech investment scene a couple of years ago with Dimebon, an old Russian drug previously approved and used in that country as an antihistamine.

A phase II study of the drug conducted in Russian Alzheimer's patients showed remarkable efficacy, with patients improving their cognitive ability and memory compared to placebo after only six months of treatment. When patients in this study were followed for a full year, the positive improvements in their mental status were maintained, and in some measures, increased.

Medivation proclaimed Dimebon to be the next Alzheimer's blockbuster, potentially bigger than market leader Aricept, sold by Pfizer(PFE Quote - Cramer on PFE - Stock Picks) and Japanese drug maker Eisai.

But not everyone's been willing to accept the company's claims at face value. For a variety of reasons -- a history of poor and unreliable Russian clinical data; the fact that Dimebon came out of nowhere; or Medivation's hesitancy to conduct another mid-stage study in the U.S. or Europe to confirm the Russian results -- there is a significant segment of investors who simply don't believe in Dimebon.

This is somewhat reflected in the significant short interest in Medivation -- 6.5 million shares, or 26% of the freely trading shares, as of Dec. 26, 2007. And even with Monday's increase, Medivation shares are still down 36% from their highs of three months ago.

The phase III clinical trial announced Monday will enroll 525 patients with mild to moderate Alzheimer's at sites in the U.S., Europe and South America. Two different dosages of Dimebon will be tested (the dose used in the phase II study plus a lower dose), compared against a control arm of patients receiving placebo. Patients will be treated for six months, with standard measures of cognitive function and memory used as the study's primary endpoint for efficacy.

It's important to note that patients participating in the Dimebon study won't be allowed to take other Alzheimer's medications while enrolled. This was the rule in the old Russian phase II study, but it wasn't a significant hurdle since leading Alzheimer's drugs like Aricept or Forest Labs'(FRX Quote - Cramer on FRX - Stock Picks) Namenda aren't widely available there.

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