) --Psst… Have you heard the latest short story on
and AVP-923, the company's experimental drug for pseudobulbar affect?
U.S. regulators are going to reject AVP-923 on Friday, the bears predict. Avanir has its supporters as well and I'll get to the bull story below. First, here is a summary of some short-sale research on Avanir sent to institutional investors this week:
Elliot Favus of Favus Institutional Research published a note Monday titled "9 Reasons to SELL Avanir Pharmaceuticals." Favus followed up Tuesday with an addendum note, "A Few More Reasons to Sell Avanir." Favus' thesis:
"Regardless of the FDA decision on AVP-923, we think shares of AVNR
Avanir will come under pressure in the near future. We see 80% downside for AVNR shares if the FDA rejects AVP-923 this week. We expect a downside price of $0.40/share (AVNR cash/share) if AVP-923 is rejected and an upside price of $4/share on FDA approval (>100M fully-diluted AVNR shares outstanding)," Favus writes.
He adds, "At the current AVNR share price ($2.88), the implied probability of FDA approval is 70%, which we think is too high. Due to our concerns surrounding QT prolongation from quinidine, we think the probability of near-term FDA approval of AVP-923 is below 50%. The AVNR 2009 10K disclosed that clinical cardiac safety studies with low-dose AVP-923 showed mean QTc prolongation above the FDA threshold of concern (5 ms mean increase)."
Across both research notes, Favus cites Avanir's SEC filings and scientific presentations of AVP-923 data to raise doubts about the cardiac safety of AVP-923. The FDA initially rejected AVP-923 in part because of concerns that higher doses of quinidine (one of two active ingredients in AVP-923) caused prolongation of the Qt interval, a measure of the heart's electrical cycle that can lead to dangerous heart arrhythmias, even death.
Avanir responded by lowering the dose of quinidine. The company conducted studies demonstrating that the "new" Qt interval was within guidelines FDA considered safe. Favus, in his notes, disputes Avanir's claims and contends that the Qt interval for "low dose" AVP-923 still runs afoul of FDA safety guidelines.
Favus also points to the death imbalances in Avanir's clinical trial of AVP-923 as a potential red flag for FDA. Six patients treated with AVP-923 died compared to a single patient treated with placebo. Avanir says all seven deaths were caused by respiratory distress resulting from an underlying neurological disease -- amyotrophic lateral sclerosis, or Lou Gehrig's disease. Favus believes that analysis doesn't explain why more patients died after treatment with AVP-923.
"When we combine the prolonged QT data (even at low doses) with the imbalance in deaths in the STAR trial, we get concerned about the potential for AVP-923 FDA approval. We think this is the constellation of events that FDA is looking for on the subject of QT prolongation and its clinical consequences," Favus writes.
Now, for the Avanir bull story, represented by SummerStreet Research Partners, which like Favus, is an independent healthcare research shop catering to institutional investors.
Carol Werther, in an Oct. 15 note to clients, predicted FDA approval of AVP-923 on Oct. 30.
"At this time we believe it is clear there will not be an FDA advisory panel since AVP-923 does not include a new chemical entity (NCE). The reply to the AVP-923 CR letter was filed on April 30. AVNR filed a comprehensive five-part document to satisfy FDA concerns to find the minimal effective dose in this frail population and to better define the cardiac safety margin. The document contains two white papers written by experts in PBA
pseudobulbar affect and cardiac safety."
You'd think that Werther and Favus would have serious disagreements about whether or not low-dose AVP-923 prolongs the Qt interval. In fact, the bull and bear agree on this point. Where the analysts disagree is that Werther, unlike Favus, believes FDA will still think AVP-923 safe enough for approval.
"We expect a label to treat the signs and symptoms of PBA with warnings not to use with drugs that increase QTc wave prolongation. Data from the advanced cardiac safety study (ACSS) indicates that AVP-923, even using a 10mg dose of quinidine, still prolongs the QTc (mean of 8.9 ms), just above the level the FDA considers no risk for Torsades de Pointes. (5 msec). Nevertheless, we do not think this will stop approval as many marketed drugs have similar profiles. AVNR submitted a risk map program to prevent abuse of AVP-923."
The official FDA approval decision date for AVP-923 is Saturday, Oct. 30. Avanir may receive the news the day before on Friday. If not, expect to hear from the company on Monday, Nov. 1.
Avanir shares closed Tuesday at $2.89.
--Written by Adam Feuerstein in Boston.
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Adam Feuerstein writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback;
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