Welcome to a special weekday edition of the Mailbag. Your emails have been piling up, so I'm adding second and third shifts to try to respond to as many questions as I can.
In this edition, I'll tackle questions on
However, before we open up the mailbag, let me touch on news earlier Tuesday from
, which announced positive results for its cancer drug Velcade in patients with newly diagnosed multiple myeloma. The phase III "Vista" study was, in fact, stopped early due to highly significant efficacy.
That's good news for Millennium, for sure, but also fairly expected by investors. Be aware, too, that Velcade is an injectable drug, which puts it at a disadvantage to
market-leading oral multiple-myeloma drug Revlimid.
Unless the Velcade data are spectacular, I don't see how the drug is a significant competitive threat to Celgene in first-line multiple myeloma. Let's not forget, the Revlimid data in front-line multiple myeloma are very strong. It sets a very high bar for Velcade to jump over.
Now, on to the Mailbag. An email from James K. starts us off:
"I know Cramer hates Arena Pharmaceuticals, but I have not heard a knock on the science ... I understand the risks still exist, but the news this week seems nothing short of wonderful. Lorcaserin could be a real blockbuster ...
"Why is the stock (as opposed to the company) doing so poorly? How did it merit a price of $19 two years ago in a bad market with so much less affirmative data? I know it is easy to focus on the risks, but management seems really good to me, the conference call sounded great and I don't know why it shouldn't do well from here."
Arena was a good trade for a lot of professional biotech investors. The stock went from $10 in July to $14 on Sept. 10, right before the
highly anticipated (and widely expected) announcement that a six-month cardiovascular safety check of its obesity drug Lorcaserin was clean, allowing the phase III study to continue unchanged.
So, when Arena issued its Sept. 11 press release on the positive Lorcaserin safety update, traders and hedgies were ready and eager to sell and take profits. That largely explains why the stock is now $11 and change even after positive news.
If you're a long-term investor and a strong believer in Lorcaserin, you have to expect -- and tolerate -- short-term volatility. If Arena follows through with its promise to partner Lorcaserin, there should be ample reasons for the stock to move higher again.
I'd also be aware that the six-month safety hurdle for Lorcaserin was relatively low; a bigger test of toxicity awaits at 12 months.
By the way, I don't know if Cramer hates Arena Pharmaceuticals -- you'll have to ask him that.
Chris H. asks about Vivus: "I am still wondering why the price of Vivus has continued to go down even after receiving over $150 million from
over the last four months. Am I missing something? I know that there are a lot of shorts in the stock and some selling from insiders, but I still would like some feedback on what you think about the company and their pipeline. Thanks."
At $4.94 (Monday's closing price), Vivus' stock price is down a bit more than a buck since late July, when the FDA approval of its Evamist product for menopause symptoms triggered a $140 million cash payment to Vivus from KV Pharma.
I guess that fits Chris' definition of a stock heading in the wrong direction, but you can also look at a one-year Vivus chart and see the stock is up 25%. That's not too shabby.
Vivus' decision to sell Evamist to KV was a smart and nondilutive way to raise cash. The company now has about $190 million in the bank, more than enough to pay for the phase III study program for Qnexa, its lead pipeline therapy for obesity.
If Chris is missing something regarding Vivus, it might be that he's focusing too much on Evamist and not enough on Qnexa, which has its share of believers and skeptics.
Qnexa is a combination of unspecified low doses of two currently approved drugs, Topomax (topiramate) and phentermine formed into a single capsule. The idea to combine these two drugs to help people shed pounds (the former is an antiseizure drug, the latter an appetite suppressant) comes from a West Coast diet doctor who claims to have used it for years with great success.
He later sold rights to the therapy (i.e., the specific doses of the two drugs and how they are formulated together) to Vivus, which is expected to start a large phase III clinical program by the end of the year. You can check out the rather impressive phase II study results for Qnexa
So, is Vivus worth buying for the potential for Qnexa to be a blockbuster weight loss drug? One hedge fund manager tells me yes. He owns it, and although he bought it lower, he still likes it here because the risk-reward in the stock is better than other obesity plays like Arena.
With obesity drugs, safety is often more important than efficacy. The attributes of the two drugs that make up Qnexa are well characterized. While Vivus will have to provide additional safety data from its phase III program, this fund manager is optimistic that nothing scary will pop up.
But not everyone agrees with this assessment. I spoke with another hedge fund biotech analyst whose firm won't touch Vivus. For him, there are too many unknowns about Qnexa, including the long-term safety of the two drugs taken together. He's also not a fan of Vivus management, which has been a bit too secretive about the Qnexa formulation and its negotiations with the FDA for his comfort level. (Virgil Place, a Vivus founder and its chief science officer, has also been selling a lot of stock lately.)
It's too early to tell who's right about Vivus, but unfortunately, it's going to be a while before we find out. With the phase III program for Qnexa not scheduled to start until the end of the year, data probably won't be available before the end of 2009.
It might be this long wait for anything new with Qnexa that is really keeping a lid on Vivus shares.
From reader BG: "Regarding Sonus Pharmaceuticals, there have been several drops in the stock price the past month or two on relatively increased volume. In the biotech space, should investors ever associate this type of movement with leaked data, or is that more a chat room myth?"
I share BG's worries about Sonus. The stock started to show some signs of life at the end of the August, getting above $4, but still, a stronger stock price at this point would be nice to bolster my confidence about the upcoming release of all-important phase III data on Sonus' breast cancer drug Tocosol paclitaxel. (You can read my take on the drug and this trial
BG asks a good question: Does someone on the Street know something about the Sonus clinical trial, which would explain the stock's weakness? The short answer is that I don't know. I haven't heard any leaks about the Tocosol paclitaxel data yet, although that certainly doesn't mean they don't exist.
Let's be realistic, professional biotech investors often go to great lengths to get an edge on big stock-moving events like phase III trial results. I don't mean to imply they resort to illegalities (although I have witnessed ethical lines being crossed), but let's just say it shouldn't surprise anyone that a biotech hedge fund manager, for instance, will have a leg up on the rest of us when it comes to anticipating or predicting phase III data.
Now, in Sonus' case, the company has already announced that the Tocosol paclitaxel study is done and the data are being analyzed, with results expected soon. This does raise concerns about data leakage -- it can't be ruled out.
But before we get all conspiratorial, let's not forget that there are legitimate risks to this Tocosol paclitaxel clinical trial. Positive results were never a sure thing. Couple that with a seemingly lukewarm relationship between Sonus and its big corporate partner
, and that may be all you need to keep the stock price depressed.
Adam Feuerstein writes regularly for RealMoney.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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