Biotech Stock Mailbag: Generex

Biotech columnist Adam Feuerstein answers readers' questions about drug and health care-related firms.
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) --Have you entered



FDA Drug Approval Contest


Eleven new drugs are vying for FDA approval in October, which makes the month a perfect time to see which of the Biotech Stock Mailbag readers can best predict how many of these new drugs cross the FDA finish line and how many are left standing on the sidelines.

Please visit


FDA Drug Approval Contest web page

and submit your entry quickly. The FDA may issue the first of October's drug approval decisions tonight, so don't dawdle. Good luck!

Moving on to this week's Mailbag. Larry G. writes, "Hey Adam, what are your thoughts on Anna getting knocked out of the way over at

Generex Biotechnology



Anna is Anna Gluskin, the now former chairman and CEO of Generex. On Wednesday night, Generex said the board relieved Gluskin of her executive duties although she will remain a director.

"Generex has reached a stage in its maturation where new senior management leadership is now needed for the company to capitalize more effectively on the opportunities that we believe are available to the company. We believe that a tighter focus on the company's core business is needed and we have determined that this can only be achieved under a new President and CEO," said John Barratt, a Generex independent director who was named the company's new chairman, in a statement.

Mark Fletcher, Generex's general counsel, was appointed interim CEO while a search for a permanent chief executive is conducted.

My thoughts: Gluskin was a terrible CEO, so her departure is a positive. However, I've

never believed Generex to be an investable company

for many reasons beyond Gluskin's lack of leadership. Gluskin's exit minus any other fundamental changes or improvements at Generex doesn't change my view.

I'm happy to see Generex's board do something smart for once. It's a step in the right direction; however, Gluskin remains tied to the company as a director. Why? Won't that hamper more positive change? Will Generex be able to attract a well-qualified CEO when the company's old, ousted CEO still sits on the board? And why did the board act now to remove Gluskin? Are there other facts that investors don't know about?

Generex's statement regarding the changes in the company's executive team is rather vague. Let's see if any more detail or disclosure is provided that can shed light on the situation when Generex files its annual report with the

Securities and Exchange Commission

. The 10-K is usually released in mid-October.

Meantime, Generex has other challenges. Delisting from


is looming unless the company can convince

shareholders to authorize a reverse stock split

. The first attempt at a shareholder vote in September was postponed, so the company is taking another crack on Oct. 15.

The phase III study of Generex's insulin spray Oral-lyn appears to be in limbo. Planned patient enrollment was reduced from 750 to 500, according to the U.S.' clinical trial-tracking Web site, and results expected this year have now been pushed into 2011, according to the company. That hasn't prevented Generex from issuing periodic "positive" clinical updates from the study. To me, a 33% reduction in the planned enrollment seems a highly unusual move for a study that will supposedly serve as the foundation for an approval filing with the U.S. Food and Drug Administration.

Insulin is well known to the FDA, but the agency has never before granted full marketing approval for a product that delivers insulin through the inner lining of the mouth as Oral-lyn purports to do. The FDA's bar for regulatory approval of Oral-lyn will be set very high. Generex's single, ongoing phase III study, regardless of the results, won't be enough for full approval, in my opinion.

Lastly, Generex needs to bridge the public relations chasm left behind after Gluskin's tenure as chief executive. The company should provide investors with a full and forthright accounting of

Oral-lyn's "approval" or lack thereof in India

and explain why, according to the company's SEC filings, Oral-lyn has failed to generate any significant revenue in countries like Ecuador, India and Algeria where the product is reportedly approved.

Generex would also do well to explain why it appears the

Oral-lyn compassionate use program in the U.S. and Canada

has yet to attract a meaningful number of diabetes patients. Canadian health officials have disclosed that only a single diabetic patient has taken advantage of Oral-lyn through Generex's compassionate use program, while the company has never disclosed patient numbers in the U.S., despite Gluskin's claims that

Oral-lyn was granted a "mini-approval" in the U.S.

And how about putting an end to the pursuit of Oral-lyn approvals in countries like Kenya, Yemen, Iraq, Iran, Libya and Sudan? C'mon guys, the amount of hype devoted to these efforts just makes you look ridiculous.

Via Twitter, @PtwitB asks, "Adam, what's your opinion on




I believe strongly FDA will not permit Sequenom to market a non-invasive, blood-based gene test for Down's syndrome without a full agency review as a medical device. That's counter to the current guidance given by Sequenom, which is planning to launch the Down's test in the fourth quarter of 2011 as a laboratory-developed test.

So-called LDTs or "home brew" lab tests can be sold without FDA review and approval.

If I'm right, Sequenom will have to submit a full regulatory package to the FDA for the Down's test, which would likely push back approval into 2012 or 2013.

FDA has become uneasy with the marketing of genetic tests due to concerns about the complexity and accuracy of the tests and the way tests are being used to diagnose disease and counsel patients on medical treatments. FDA is particularly concerned with direct-to-consumer marketing of genetic tests that the agency believes should be regulated as devices. One company's plan to sell a genetic test in supermarkets was placed on hold after intervention by FDA.

Sequenom doesn't sell its genetic tests directly to consumers and doesn't intend to do so in the future. However, my feeling is that FDA is moving steadily toward increased regulation of all genetic tests used to diagnose disease because of the significant medical decisions that arise from the results of these tests.

Parents must make serious medical decisions when presented with the diagnosis of a Down's baby in utero. I simply do not believe FDA will allow Sequenom to market a gene test for Down's without a complete device review.

If Sequenom launches the Down's test in the fourth quarter of 2011 (as an LDT) as planned, my guess is that FDA steps in to halt sales. Precedent for such an action exists. In 2008, FDA stopped LabCorp from selling an LDT to detect ovarian cancer.

I'm surely not the only person to have misgivings about Sequenom's aggressive push to launch the Down's test as quickly as possible, particularly because the company has yet to publish any data proving the accuracy of the test.

Sequenom investors, however, tend to be an optimistic lot, so I suspect a significant delay in the launch of the Down's test would come as an unwelcome surprise.

My column on

MELA Sciences


and the

statistical dust-up over its skin cancer-detection device MelaFind

generated a good amount of reader reaction, both emails and comments posted to the bottom of the column.

Sam H. emails to ask where I stand on MELAFind's chances for approval.

"Adam, regarding your latest article on MELA: Given your historical experience on these matters, where does that pull you to weigh in on this matter?"

I don't believe FDA will approve MELAFind based on the currently available clinical data. My bearishness extends to the outcome of the FDA's advisory panel on Nov. 18, although I concede that panel votes can be a bit of a wild card. The fact that FDA issued a "not approvable" letter on MELAFind last March, however, speaks loudest.

If I'm right about MELAFind, why are MELA insiders buying stock? That's a question asked repeatedly by many readers this week. In a comment attached to my column, "MELALong" writes:

"We can speculate as to the meaning of the initial 'non-approval' letter all day. However, the incontrovertible truth is that, after the letter was issued, the company had interaction with FDA, filed a response, and walked away from this process feeling good enough for insiders to resume buying in large quantities. One insider in particular, Lufkin, was the co-founder of DLJ. Sorry, but, for me, his actions speak louder than these words."

Lufkin is Dan Lufkin, a long-time MELA director (soon to become a director emeritus) and a namesake founder of the old Wall Street investment firm Donaldson, Lufkin & Jenrette, gobbled up by Credit Suisse in 2000.

Lufkin purchased 21,000 shares of MELA in August at prices around $6 a share, according to SEC filings. Lufkin already owns more than 700,000 shares of MELA (including stock owned by family trusts) and he was well compensated with cash and stock in his position as a company director.

Is Lufkin's purchase of another 20,000 shares of MELA stock in August a signal that he has in his possession some newly discovered evidence pointing toward MELAFind's approval?

I don't think so.

Aside from Lufkin, the other insider purchases in August and September seem relatively unremarkable. MELA CEO Joseph Gulfo did buy 10,000 shares around the same time as Lufkin, but again, he already owns more than 300,000 shares and 225,000 options and is very well compensated as the company's chief executive.

I wasn't asked this question specifically, but it's germane to the Lufkin-insider buying debate so I'll raise it myself: Lufkin is obviously a smart and very successful businessman, so why would he invest money and agree to be a director of a company with a medical device destined for FDA rejection?

The obvious answer is that the development of drugs and medical devices is inherently risky, so no one, regardless of intellectual heft, can accurately predict the future.

Smart, highly credible people with distinguished backgrounds are also not exempt from making bad decisions about which corporate boards to join. C. Everett Koop, the former U.S. surgeon general, was a director of


, the failed blood substitute company.

Vartan Gregorian, the current president of the Carnegie Foundation and a past president of Brown University, is currently a director at

Cell Therapeutics

(CTIC) - Get Report


What the heck is he thinking? Or maybe he's not…

The distinguished cancer researcher Dr. John Mendelsohn, a former president of the prestigious M.D. Anderson Cancer Center, found himself entangled in two huge corporate imbroglios as a board member for both

ImClone Systems




The moral of this story: Past performance is not necessarily an indicator of future results.

Read the rest of the reader comments to my

MELA column (and my responses) here

. I appreciate all the feedback and look forward to live-blogging the MELAFind FDA panel meeting on Nov. 18.

@aeroforce tweets, "Adam, what are your views on final 510(k) approval for

Cardium Therapeutics'



wound-healing cream? Closer rate and time frames are outstanding."

Cardium is seeking FDA approval for the collagen gel product Excellagen as a treatment for wounds in diabetes patients The Excellagen filing was submitted in December 2009 to the FDA as a simple medical device since other collagen wound healers are already on the market.

The data supporting Excellagen's efficacy look robust (you can find the data on Cardium's web site) but I remain a bit confused because the phase IIb study wasn't designed originally to study Excellagen. Instead, the study -- know as Matrix -- was set up to test the efficacy and safety of a different product, Excellerate, which combines a gene therapy-like drug with the collagen gel found in Excellagen.

Back in October 2009,

Cardium announced results from the Matrix study demonstrating the wound-healing abilities of Excellerate

compared to standard of care, but the company also disclosed -- to its surprise -- that treatment with the collagen gel (Excellagen) alone, seemed to heal wounds even better than the drug-gel combination (Excellerate).

Because the phase IIb study wasn't designed prospectively to study Excellagen as a wound-healing agent (Excellerate was the primary focus of the study), I question whether FDA will consider the Excellagen data submitted to be enough for approval. Cardium, to date, hasn't conducted a study of Excellagen on its own.

Cardium spokesperson Bonnie Ortega told me that the phase IIb study did enroll patients who were treated only with Excellagen in a separate arm, which is why the company believes it can get FDA approval.

Color me a bit skeptical, although maybe the standards for the approval of a simple medical device like collagen gel are less thorough than a standard drug review.

And speaking of drugs, Cardium doesn't appear to be doing much more work with Excellerate, which would be a more commercially lucrative product than just another wound-healing collagen gel. Last year, Cardium said it was going to consult with FDA about conducting phase III studies of Excellerate, but since then, the company hasn't provided an update.

Nick H. asks, "Adam, what are you hearing on



fast-acting insulin product? Can it overcome the India data points or will it have to go back to the table for some more data analysis?"

Let's see what the crowd thinks. According to the early entries to my FDA Drug Approval Contest, a significant majority of people believes FDA will issue a complete response letter to Biodel, meaning no approval for Linjeta on Oct. 30. I'm in that group, too.

Why the pessimism? The India issue is a risk. The phase III study of Linjeta in Type 1 diabetes patients failed to meet the necessary non-inferiority test compared to

Eli Lilly's

(LLY) - Get Report

Humulin. Biodel blamed the disappointing results on mishandling of blood samples in India. When Indian patients were taken out of the analysis, the Linjeta study was positive. That's an entirely plausible explanation, but will the FDA go along without requiring additional clinical data?

The type II diabetes studies of Linjeta were positive and Linjeta seems to cause less weight gain and lower incidence of hypoglycemia.

Other issues: The Linjeta formulation, which mixes insulin with citric acid, causes a higher incidence of injection site reactions; possible manufacturing approval delays; and the FDA never scheduled an advisory panel to review Linjeta, which seems odd given the questions raised during the clinical trials.

Throw all that into the gmish with a conservative, risk-averse FDA and it seems like an approval delay is more likely than a full approval on the first review pass.

What's interesting about Biodel, however, is the company sports a relatively paltry $100 million enterprise value. That tells you that investor expectations for Linjeta are still low, despite a recent strong move in the stock as we get closer to the FDA's Oct. 30 approval decision.

If the FDA issues a complete response letter that lays out a straightforward and easy path for Linjeta's eventual approval, Biodel's stock might end up higher.

One thing to keep in mind in this situation: Biodel's need for future financing.

Once again, don't forget to enter our

FDA Drug Approval Contest!

--Written by Adam Feuerstein in Boston.

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Adam Feuerstein writes regularly for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback;

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