In this edition of the Biotech Stock Mailbag, I discuss the future of Cascadian Therapeutics (CASC) and its breast cancer drug ONT-380. Keep reading because I also take a well-deserved swipe at analyst Elliot Favus and his sloppy work on Global Blood Therapeutics (GBT) - Get Report .
Hugh S. writes, "Hello Adam, Last year at ASCO, Oncothyreon was a star and trading around $4. Now it's barely over a buck. What has gone wrong?" [Oncothyreon changed its name to Cascadian Therapeutics after Hugh's email landed in my inbox.]
What's gone wrong at Cascadian is too much dithering and not enough progress with the development of the company's HER2-targeted breast cancer drug ONT-380. The positive and well-deserved buzz generated about the drug at ASCO 2015 was squandered by a bad management team.
The clinical profile of ONT-380 in HER2+ breast cancer presented at ASCO 2016 remains promising. This drug looks active against HER2+ breast cancer, but the wasted year took a toll on the company's market valuation. Thankfully, Cascadian is under new management taking steps to move the development of ONT-380 forward.
Cascadian has about a year's worth of cash in the bank. More money is needed. Everyone knows this, which is not helping the stock price. A non-dilutive financing i.e. a Big Pharma/Big Biotech out-licensing deal for ONT-380 with a hefty upfront payment, would be nice.
The "new" Cascadian is doing a much better job communicating the ONT-380 story compared to the "old" Oncothyreon. If you haven't already, I recommend downloading the ONT-380 data slide deck from ASCO 2016. For more background, you can also go back and read the story I wrote about ONT-380 during ASCO 2015.
While there are reasons to be encouraged about the Cascadian reboot, significant questions about ONT-380 and its place in the treatment of HER2+ breast cancer remain unanswered. Is the positive effect of ONT-380 on brain metastases seen in the phase I studies real and will it be confirmed in the ongoing triplet combination phase II study?
The rate of Grade 3 diarrhea tied to ONT-380 crept up to 11% in the latest data update. That's still much lower than Puma's neratinib, which requires patients to take large amounts of Immodium to barely tolerate the drug. But what happens to this closely watched side effect when more patients are treated with ONT-380 in the larger phase II trial?
And finally, will the FDA allow Cascadian to file for ONT-380's approval based on results from the ongoing "HER2CLIMB" phase II study? (Assuming those ONT-380 results are positive, of course, which is, itself, a risk.)
Cascadian won't have the data needed to answer these questions for quite some time because the phase II study is still enrolling breast cancer patients. Patience is not a virtue of biotech investors.
In this biotech bear market, good news is sold, especially if a company's good news follows an anticipatory run-up in stock price. A follow-on financing, or just the hint of one, is another reason to sell.
We got all that with Global Blood Therapeutics in the past week. The stock moved higher ahead of the anticipated data update on the company's sickle cell disease drug GBT440. The new GBT440 data presentation last Friday was positive, even if the number of patients treated remains small. Then, Global Blood followed up with a $100 million shelf registration filing, leaving investors with the impression -- accurate or not -- that a follow-on stock sale was coming. And it did, on Monday, with the company announcing a $100 million offering expected to price Monday night.
In the past month, Global Blood shares have gone from $18 to $27 and back to $18. With the overhang of stock offering cleared, Global Blood shares were up 10.7% to $19.75 on Monday.
I don't like Elliot Favus. Pardon my bluntness, but I think he's a jerk.
Why? Because Favus has tried to get his lawyers to stop me from doing my job.
When one of his short-selling reports -- sent privately to his hedge fund clients -- causes a biotech stock to fall significantly, it's my responsibility as a journalist covering biotech stocks to explain to readers why the stock is falling. That's called news, and I'm in the news business.
Favus and his lawyers don't like when I write about his research reports or even mention his name in a tweet. His lawyers send me threatening, cease-and-desist letters. TheStreet's lawyers send letters back, telling him, politely, to back off.
A lot of people dislike Favus because he writes short-selling research about biotech stocks. I admire him for that. I love a good bear thesis. You know this about me. Short sellers play an important role in the markets, which is especially true in biotech investing where the flim-flam can be piled high. Favus provides an important counterweight to much of the overly optimistic sell-side research published and consumed every day.
But I also dislike Favus because too many of his reports are poorly researched and intellectually dishonest. Take, for example, Favus' most recent report on Global Blood and GBT-440 published on last Wednesday morning. Favus believes GBT440 is a zero.
"The sum total of the GBT440 data in sickle cell disease strongly suggests the drug is not active," Favus writes, adding that Global Blood shares should not trade any higher than the company's cash value of $4.50 per share.
Favus might be right about GBT-440 not working in sickle cell disease. Global Blood has certainly not studied the drug long enough yet to make any definitive conclusions about its efficacy or safety. But in reaching his conclusion, Favus cherry-picks data presented last week on GBT440. He raises some good questions, but ignores data which works against his bear thesis. He also flings some amateurish accusations at the company better suited for a message board than an institutional research report.
Favus accuses Global Blood of hiding 90-day data from the 900 mg dose cohort, but Global Blood said those patients are still being treated. The data will be presented in December at the American Society of Hematology annual meeting.
To Favus, the "sum total" of the data is GBT440's effect on hemoglobin levels in sickle cell patients. He raises a legitimate concern about the variability of measuring hemoglobin. But he also totally ignores data on other blood-related parameters like bilirubin and reticulocyte counts which support the drug's efficacy and back up the observed increase in hemoglobin.
In his report, Favus excoriates Global Blood for not having data on patient quality of life or real-world outcomes like reductions in painful vaso-occlusive crises.
Global Blood "has been presenting investors with (mediocre) GBT440 lab-test endpoints from a small, single-center trial, when in fact, the FDA approval path for a new drug for sickle-cell disease must include QoL data and outcomes data (number of pain crises, hospitalizations, transfusions, etc.) which GBT has been totally silent on," Favus writes.
This is misleading and factually wrong.
Global Blood's current study was designed specifically to assess GBT440's effect on blood parameters because those are the objective data easiest to collect from a small and relatively short study. The patients enrolled in the study have relatively mild sickle cell disease. More than half of the patients treated with GBT440 in the study had zero hospitalizations for painful crises in the past year. Only 18% of the patients were being treated with concomitant hydroxyurea, the only medicine approved for sickle cell today.
Given this mild patient population, it's unrealistic, even ridiculous, to expect Global Blood to show a meaningful reduction in painful crises or hospitalizations. Favus is smart enough to know this but he hammers the company anyway.
And Global Blood acknowledges openly that FDA will require positive patient outcomes data in order to approve GBT440. This is no secret. The company intends to design a registration study to gather these data.
And then Favus goes off the deep end.
In his report, Favus accuses Global Blood of being the "Theranos of drug companies" because two directors on the board have no drug-development expertise.
Nine directors sit on Global Blood's board. Two of these directors -- former San Francisco Mayor Willie Brown and former Massachusetts Governor Deval Patrick -- are not "biotech" guys. And for this, Global Blood is Theranos?
Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.