) -- A reminder that the next Biotech Stock Mailbag Live Chat is scheduled for Friday, July 15 at 12 p.m. ET.

I'll answer your questions and respond to your comments in what I hope will be an informative and fun discussion about the current state of the biotech investment sector. Please join me.

A looming FDA drug approval decision kicks off this week's Mailbag. Charlie W. asks,

"What's your best prediction for Transcept Pharmaceuticals' (TSPT) coming up approval decision?"

I'm going with a rejection. FDA is expected to issue its decision on July 14.

Transcept is taking a second stab at FDA approval for a low-dose formulation of the popular generic sleeping drug zolpidem (commonly known as Ambien.) This Transcept sleeping pill, branded as Intermezzo, is intended for people who wake up in the middle of the night but cannot fall back asleep.

The FDA has never before approved a so-called "middle of the night" sleeping pill and rejected Intermezzo in October 2009, due to safety concerns. The FDA wanted more data on Intermezzo's next-day effects, particularly the risk of driving impairment. Regulators were also concerned about the ability of people to take Intermezzo with less than four hours of sleep remaining or taking more than one pill per night.

Transcept conducted a driving impairment study that showed Intermezzo to be safe for people who have at least four hours of sleep before waking. The company also redesigned the Intermezzo packaging and bolstered instructions to lower the risk of dosing errors.

What Transcept did not do, however, is conduct a study to demonstrate that patients who wake in the middle of the night are able to use Intermezzo safely and correctly.

Geoffrey Chambers, who writes the

biotech blog, pointed out this week that

Transcept and the FDA discussed the need

for a "pre-approval patient use study." Transcept argued against running such a study, believing the new safety data included in the Intermezzo resubmission was sufficient to assuage the FDA's concerns.

According to Transcept disclosures in regulatory filings, FDA said it would "consider" the company's reasoning for not conducting a pre-approval patient use "in light of the overall resubmission of the Intermezzo NDA, including the data generated in the Intermezzo highway driving study."

Chambers was troubled by this language because it suggests the FDA wanted Transcept to run a pre-approval patient use study for Intermezzo. Transcept's decision not to run the study elevates the risk of another FDA rejection.

I agree with Chambers on this point, which is why I lean toward rejection.

Were insomnia a life-threatening disease with few current treatments, FDA would be more lenient on safety. But insomnia is exactly the opposite, which sets the risk-reward approval hurdle much higher.

@markflowchatter tweets,

"Globes reporting that $SPPI could be a takeover target."

Shlomi Cohen, finance columnist for Israel's


business newspaper, penned a

love note


Spectrum Pharmaceuticals

(SPPI) - Get Report

on June 30 in which I'm cast as the "zealous" basher, eager to do the bidding of hedge fund-connected short-sellers.

I've never read any of Cohen's columns before this Spectrum piece but I'm flattered by his attention. Cohen has an interesting style -- I've never seen a finance columnist incorporate so much fantasy into his investment advice.

On the subject of Spectrum being a takeover target, Cohen writes:

"In addition, Spectrum's CEO does not deny that the company is a potential takeover target for one of the pharmaceutical giants, and so he has taken care to arrange a bonus for himself if the sale is at a valuation above $750 million, a bonus that will also be paid if the company reaches that market cap without a sale, through a normal rise in the share price thanks to business growth."

So let's get this straight: According to Cohen, Spectrum's board OKs a compensation package for CEO Raj Shrotriya that includes a bonus if/when the company's market cap hits $750 million, which by my rough math is around $14-$15 a share.

The reason for Spectrum reaching a $750 million valuation doesn't matter as long as the company gets there, so it's perfectly OK for Shrotriya, in Cohen's mind, to earn his bonus by pumping Spectrum's stock price with suggestions that (nudge, nudge, wink, wink) the company might one day, perhaps, be a potential takeover target.

And this counts as investment advice in Israeli newspapers?

Returning to reality, investors are bidding up Spectrum shares in anticipation of the company's second-quarter earnings in the middle of August. Shrotriya has already said publicly to expect "record" revenue for the June quarter, fueled once again by Fusilev colon cancer drug sales because generic leucovorin -- Fusilev's competition -- is still in short supply in the U.S.

None of this should be a surprise to anyone. The

leucovorin shortage is only just now letting up



(TEVA) - Get Report


Bedford Labs

beginning to replenish supplies. This benefited Spectrum with Fusilev largely the only option in the colon cancer market for the second quarter, just like it was in the first quarter.

Spectrum reported first-quarter Fusilev sales of $34.6 million and total revenue of $44 million. There's no reason to think second-quarter sales will be lower. If anything, Spectrum needs to record a sequential gain in Fusilev sales and total revenue for the second quarter.

I fully expect Spectrum to "pre-announce" second-quarter earnings later this month or in early August, just like the company did in the first quarter. I'm not the only one anticipating this transparent stock-promotion scheme, judging by the recent ramp in the stock price.

By the way, "real" earnings pre-announcements are issued right before or at the quarter's end, not two or three weeks later. Spectrum operates from a different playbook.

The current analysts' consensus for the second quarter has Spectrum earning 15 cents a share on total revenue of $37.25 million, which is lower than first-quarter revenue, thereby totally ignoring Shrotriya's statement about expecting "record" revenues in the second quarter.

Lazy analysts.

Investors better hope Spectrum does as well in the second quarter as Shrotriya has promised because the company faces significant headwinds once leucovorin is readily available, giving U.S. doctors a cheaper and equally effective alternative to Fusilev.

More tweets. @gregtucker21 asks,

"PFS events happening later is a good sign for cabo and EXEL, yes?"

Yes, maybe. No, maybe.

On Wednesday,


(EXEL) - Get Report

said it expected a three-month delay in reporting top-line results from a phase III study of cabozantinib in medullary thyroid cancer. Delaying the announcement of results until September-October is necessary because progression-free survival events are not coming as fast as previously expected, Exelixis said.

Optimists will assume that the delay in PFS events is being caused by cabozantinib patients performing better than expected, thereby increasing the odds that the study comes out positive.

That's a definite possibility, but there's no real way of knowing because the study is blinded. It's just as likely that placebo patients are doing better than expected, which could hurt cabozantinib's chances. Patients in both arms of the study might also be exceeding expectations.

By design, twice as many patients in the phase III study were randomized to cabozantinib compared to placebo. But even with this numerical imbalance, it's folly to read too much into Exelixis' announcement of a delay, either way.

Joe W. emails,

"What do you think is a better speculative stock, Questcor Pharmaceuticals (QCOR) or Micromet( MITI)?"

Micromet is a better speculative stock because the company's antibody cancer drug pipeline is still unproven. Pivotal trial results and potential approvals are still several years away as well.

I consider Questcor to be an earnings-driven stock dependent on the growth of Acthar. Questcor's share price is at an all-time high and trades at 22 times next year's estimated earnings, which makes it a high-growth, momentum stock but certainly not speculative.

--Written by Adam Feuerstein in Boston


>To contact the writer of this article, click here:

Adam Feuerstein


>To follow the writer on Twitter, go to


>To submit a news tip, send an email to:


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.