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Biotech Stock Mailbag: Vanda, Onconova, Catalyst Pharma, Sarepta

Notice the last leg down from Oct. 16 to the present. That selling prompted Henry K. to write:

Adam, Can you explain the latest controversy, if there is one, over Sarepta? I listened to the Oct. 17 webcast but didn't hear anything that should have caused investors to sell. At least I don't think so. What are your thoughts?

Indirectly, investors have been deploying the "risk off" trade, selling winners across biotech. Sarepta probably over-reached by zooming to $54 on the drisapersen failure, so a pullback isn't really surprising.

Some of the selling is tied to the Oct. 17 webcast on which Sarepta updated the DMD patient community about future plans for eteplirsen and other exon-skipping drugs. Sarepta's design for a confirmatory, phase III study of eteplirsen probably received the most pushback from investors.

Sarepta proposes a randomized, open label study in which approximately 60 exon 51 DMD patients will be treated with eteplirsen. The control arm will consist of the same number of patients with non-exon 51 mutations -- exons 44, 45, 50 and 53 -- who will remain untreated. The primary endpoint will be six-minute walk at 48 weeks. Staggered muscle biopsies to measure dystrophin production will be taken at baseline, 24 and 48 weeks.

The open label design has some investors freaked out because it introduces the potential for biased results, or the necessity of a statistical penalty. There also seems to be some debate over the natural progression of disease in kids with non-exon 51 mutations. Published data shows these kids lose walking ability at the same rate as exon 51 DMD kids, but other data show slower progression. Wall Street hates uncertainty.

Sarepta presented its proposal for the eteplirsen confirmatory study last week to DMD patients and advocates without first getting sign-off from the FDA. Regulators may not like Sarepta's design, especially the use of non-exon 51 kids as the control arm.

Sarepta isn't stupid, however, so the company is unlikely to ignore alternative study design suggestions made by FDA.

I also hear Sarepta bears insisting the company cannot manufacture enough eteplirsen for its clinical trial and potential commercial launch.

Bottom line: Sarepta and volatility go hand in hand. Always. Don't expect the situation to change until FDA weighs in with an approval decision next year.

In a perfect world, biotech CEOs would be held accountable for their mistakes and the resulting loss of shareholder value. I don't need to remind you that the world we live in is far from perfect. Berger's position as CEO of Ariad Pharmaceuticals (ARIA - Get Report) is safe, even though it shouldn't be.

Speaking of Ariad, I published a contrarian long thesis on the stock Thursday from Boston-based money manager Jim Silverman. Check it out.

The reaction to my stories on Catalyst Pharmaceuticals (CPRX) has been incredible. I'm thankful to the readers who have expressed appreciation and support for bringing to light the ways in which Catalyst is abusing the spirit of orphan drug development, and in the process, seeking to profit off the back of patients with LEMS.

Then there is the smaller, but more vocal group of people -- mainly day traders and retail investors -- who were caught owning Catalyst without knowing much about the company. These people blame the messenger. -- me. Sadly, they've also sunk to cyber-bullying attacks against LEMS patients and the doctors who treat them.

Catalyst is majority owned by retail investors. Institutional ownership is small. Judging by my inbox and Twitter feed, I suspect many of these retail investors bought into Catalyst this summer as shares surged along with dozens of other small-cap biotech stocks. Now the biotech sector is cooling off some and Catalyst's profiteering strategy has been brought to light. The Greater Fool theory only works when there are fools left to buy at a higher price. There are a lot of fools stuck in overpriced Catalyst shares today.

But enough from me, what you really want to read are the Catalyst-generated hate mail and tweets. Here's a sampler:

Brian R.:

You better hope to god your employer, for which you are a stockholder, I may add, does not have a position in CPRX. I will spend a significant amount of my resources to make sure you are all in jail. Why didn't you write this article before, when the stock was really climbing? Answer, you waited for some instability in the stock, and for your firm to take a short position. If you were a responsible journalist, which you are not, you would have mention the 7 year exclusivity that comes with the orphan status, the fact that CPRX in their own admission, would help those that could not afford the co-pay, and most importantly the FDA warning letters that had been sent to Jacobus. Oh, you neglected those small details. I am sending my story to the WSJ so that they may formally recognize what a group of charlatans you are. Should have disclosed your indirect position dude.

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