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Feuerstein's Biotech-Stock Mailbag

Vion has gone further downhill, while Arena can't find a catalyst.

This week's Biotech Mailbag is dedicated to former



CEO Scott Harkonen,


this week by the Feds for alleged wire fraud and the off-label promotion of the drug Actimmune as a treatment for idiopathic pulmonary fibrosis.

Harkonen faces 20 years in the slammer if convicted of the charges.

I go way back with Harkonen and Intermune and its controversial ways with Actimmune. Some of the best stuff is




. More juicy stuff can be found


Good luck, Scott Harkonen. All I can say is karma is a female dog, if you get my drift.

Moving on. I often get into extended squabbles with readers over certain biotech stocks. I write something that angers someone, emails are sent back and forth, heated words are sometimes used... You get the picture.

Well, Brian and I were in that mode over

Vion Pharmaceuticals


. He liked the stock; I didn't, and said as much in this


last October. We went back and forth for a while, but I hadn't given Vion any thought lately until receiving another email from Brian.

"You were right about this company," he wrote. "What a disaster... Drug has promise but management has killed this stock. Stock has dropped almost 80% since you wrote about it in the fall but yet the few news items that have come out since then were all positive. Do you think shareholders have any recourse against management? They have failed miserably, taken all the wrong decisions."

First off, I feel Brian's pain and I respect him a lot for coming back to me with a conciliatory email after some of the harsh words we traded. So, Brian, thanks.

Vion's lead drug, cloretazine, is being developed for some blood cancers. The lead indication seeks to treat elderly, high-risk patients with acute myelogenous leukemia, or AML. Vion intends to seek FDA approval for cloretazine later this year.

The problem is that AML is a niche cancer market with a lot of competition. And the data on cloretazine isn't so hot. A pivotal study presented in December looked OK on efficacy, but the side effect and toxicity profile was troublesome.

Let's not forget, the FDA put a hold on a different cloretazine clinical trial because of high on-study mortality. Regulators have since allowed that study to continue, but that doesn't necessarily erase the safety concerns.

Apart from the drug itself, Vion is a mess financially, as Brian points out. Management has loaded up on convertible debt, so the company's net cash position is small. The stock was at 70 cents when I wrote about it last October, then fell to around 40 cents. But the company executed on a 1-for-10 reverse stock split, which is why shares are now trading around $1.80.

Unfortunately for Brian, I don't think there's much recourse for investors here, other than to stay away. This is another example of an iffy drug (at best) being managed poorly by executives with no clue. The best thing to do is learn from it, and try to avoid making similar mistakes in the future.

Let's chew the fat. In this case,

Arena Pharmaceuticals


and its obesity drug lorcaserin.

Shahram asks, "This price action makes no sense with Arena. William Ho from Bank of America says doctors prescribe obesity drugs for only 6 to 12 months and they don't work. Lorcaserin works, patients lose 10% of their body weight and there are no heart issues. There is nothing like it on the market or in clinical trials. What in the world is going on with the price?



I touched on Arena in last week's


, which some of you may not have read since it ran on Monday, when the

Bear Stearns


crisis was stealing everyone's attention.

This is what I wrote:

"In the good ol' days of last year, a stock like Arena Pharmaceuticals would trade up in anticipation of news like the safety check of its experimental obesity drug. But even as the safety data came in positive on Monday, Arena's share price fell further.

"I'm waiting to see a biotech stock that can actually build on good news -- and keep those gains -- before I start to gain confidence that the worst is over."

Let me be clear. Monday's

safety update

on lorcaserin was positive news. The problem, however, is that investors don't really care. That may not make sense, but it's the story of this biotech market, unfortunately.

I'd also tell Shahram to step back a bit. Lorcaserin has potential as an obesity drug, but only the ongoing phase III study will prove if that's the case. A clean 12-month safety check for heart-related issues is good, but it doesn't rule out something bad popping up in the future

Meanwhile, there aren't many trading catalysts for Arena, which helps explain the recent price action. Data from the phase III lorcaserin studies won't ready until the first half of 2009. And while Arena is expected to find a partner for this drug, many investors don't believe a partnership is likely until next year.

William H. asks, "What's your take on the recent announcement by



of a partnership agreement with



over development of a cancer drug?"

My take: I like it.

The drug is XL518, a so-called MEK inhibitor, which works by disrupting one of the signaling pathways inside cells that allow tumors to grow out of control. XL518 is still in phase I studies, however, so the positive news of the partnership is tempered by the fact that the drug's development is still in the early stages.

I've long liked Exelixis for its deep pipeline of cancer drugs. Unfortunately, the stock has been hammered in this biotech bear market. At below $6, the stock is down about 50% from where it was last fall. I used to think Exelixis at $7-$8 was cheap, but I guess not.

The knock on the company is that it burns through too much money and none of its drugs are far enough along. Those are valid arguments, and ones that sting in this market, where investors are exquisitely sensitive to risk and hate companies that spend, spend, spend.

I'm hoping that Exelixis livens up going into the American Society of Clinical Oncology annual meeting at the end of May.

Let me close this week's Mailbag with a really nice note from Matthew S. remarking on my


coverage of last week's FDA advisory panel meeting for



anemia drugs in cancer.

"Adam, thanks for the fantastic coverage on Amgen today. My trades in Amgen alone today more than paid for my subscription to


. Thanks for giving me the rest of the year for free."

Awesome. That's about the best feedback I can get from a reader, so thanks so much.

For those of you who don't subscribe to


, you should check it out. While most of my columns are published to

and are available for free, I do post a lot of (hopefully) valuable biotech insights and analyses on the


"Columnist Conversation" feature, available only to paid subscribers.

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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