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Biotech Stock Mailbag: Adventrx Pharmaceuticals

WEBSTER CITY, Iowa ( TheStreet) -- Welcome back to the Biotech Stock Mailbag. If you're wondering about the Hawkeye dateline, it's because I wrote this column and emailed it to my editor while flying home from the J.P. Morgan Healthcare Conference in San Francisco. Thank you, Virgin America for the free in-flight WiFi!

This Mailbag marks another milestone -- the first reader question sent via Twitter. As I announced last week, I'm now posting biotech stock commentary on my Twitter page at @adamfeuerstein. I hope you'll continue to follow me here and on Twitter, and if you have a biotech stock question for the Mailbag, I now accept email and tweets.

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Via Twitter, @dschornnyc asks, " Did you get a chance to see Adventrx Pharmaceuticals(ANX)? Have any thoughts you care to share?"

I attended the Adventrx presentation in San Francisco on Wednesday and spent some time afterward with CEO Brian Culley. Adventrx is a feel-good comeback story in that the company was essentially on life support (and probably should have went under) in 2007 after the failure of its "Co Factor" chemotherapy drug.

Culley deserves credit for somehow managing to keep Adventrx alive. His perseverance paid off last month when the company was able to seek regulatory approval in the U.S. for its first drug candidate, a reformulation of the chemotherapy drug navelbine, known generically as vinorelbine. Adventrx also raised money last week, and with $20 million in total, now has some much-needed breathing room.

Unfortunately, the years Adventrx spent in the wilderness are going to make it difficult for its reformulated chemotherapy drugs to gain traction commercially. These are niche drugs and Adventrx is going to have a tough time making any money selling them.

I know Adventrx looks cheap (share priced around 40 cents cents, a $60 million market cap), but as I'll explain below, I think the company's operating business has some real challenges.

ANX-530 is the name of Adventrx's reformulated vinorelbine currently under FDA review. ANX-530 appears to be bioequivalent to vinorelbine, based on the pharmacokinetic data that formed the basis of the FDA filing. Moreover, Adventrx says ANX-530 causes less vein irritation than vinorelbine when administered to patients.

I have no beef with any of these Adventrx claims. The problem, however, is that ANX-530, if approved in the U.S., is entering a very small commercial market in non-small cell lung cancer where it will have to compete against generic (read: inexpensive) vinrorelbine.

Adventrix chief Culley says the addressable commercial market opportunity for ANX-530 in non-small cell lung cancer is $200 million in the U.S. - but that's a made up number and wildly unrealistic.

Total vinorelbine sales in the U.S. are about $20 million annually, according to research firm IMS Health. That's the real addressable market opportunity for ANX-530.

Culley comes up with $200 million because he commissioned some market research that concluded that doctors would be willing to use ANX-530 over vinorelbine even at ten times the generic price. (Adventrx paid for the market research, so results aren't exactly unbiased.)

In other words, if ANX-530 totally replaced generic vinorelbine in the U.S. and ANX-530 was priced at ten times (!!!) the generic vinorelbine price, Adventrix could generate $200 million in ANX-530 sales.

Sorry, but a conclusion like that strains credibility.

In the real world, doctors in the U.S. do not use very much vinorelbine to treat non-small cell lung cancer patients, which is why sales are so low. The preferred chemotherapy regimen here is a combination of carboplatin and paclitaxel. (Vinorelbine is used more in Europe.)

Vinorelbine is very cheap and vein irritation occurs in only about 30% of patients, so it's not a huge problem. ANX-530 is simply not differentiated enough for doctors to switch, especially since ANX-530 will cost more. (Perhaps a lot more if Culley prices the drug based on his market research.)

Adventrx also has problems with its second pipeline drug, a reformulation of the chemotherapy drug docetaxel known as ANX-514.

Docetaxel, sold under the brand name Taxotere by Sanofi-Aventis, is a $3 billion-dollar chemotherapy drug, so Adventrx is targeting a very lucrative commercial market.

Unfortunately, Adventrx has not established crystal-clear bioequivalence between ANX-514 and docetaxel based on the results from the company's small pharmacokinetic study. Culley concedes that he can't file for approval based on the data he has so far. The company is going to meet with the FDA to establish next steps, which may involve more clinical trials. (Culley is hoping that this isn't necessary but he certainly can't guarantee it.)

The other problem for ANX-514 is that there are no data conclusively showing any favorable benefit -- safety, efficacy or tolerability -- over docetexal. Culley says that doctors might infer that ANX-514, which lacks the detergents contained in docetaxel, causes less hypersensitivity reactions in patients, but he says the company has no conclusive data to make that claim.

And let's not forget that the branded patent life on docetaxel is rapidly coming to a close. Cheap, generic docetaxel could hit the market as early as this spring, if generic drugmakers win court challenges. If not, generic docetaxel will definitely hit the market in 2013. Adventrx is simply running out of time.

One last thing: Yes, billionaire investor Carl Icahn does own a considerable stake in Adventrx, but it's important to understand that Icahn bought his position years ago before CoFactor failed (and at a much higher price.) Icahn's biotech lieutenant Alex Denner used to sit on Adventrx's board, but no longer.

"I recognize the buzz that comes from Icahn owning our stock, but it's a passive position," Culley says.
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