Low Expectations Don't Cushion Regeneron

The failure of a phase II study of aflibercept to meet its primary endpoint was hardly surprising, but the stocks slides nonetheless.
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Regeneron

(REGN) - Get Report

shares took a drubbing Wednesday on news a study of the biotech company's cancer drug failed to meet its primary goal.

While the results were hardly unexpected, the study miss could affect Regeneron and partner

Sanofi-Aventis'

(SNY) - Get Report

plan to file with the Food and Drug Administration.

The news was part of an update on aflibercept, an anticipated competitor to

Genentech's

(DNA)

Avastin, and it sent Regeneron shares down $3.05, or 14%, to $18.42. Sanofi, which fell off much less severely, recently recovered 0.1% to $37.38.

"While expectations were very low on the ovarian cancer phase II after last year's interim data, we believe the stock could test the lows of recent trading ranges ($18 level)," wrote Cannacord Adams analyst Joe Pantginis. Still, he said, Wednesday's news was a mixed bag. He expects promising data from four early-stage chemotherapy combination studies and from two studies in metastatic colorectal cancer and glioblastoma at the much-anticipated annual meeting of American Society of Clinical Oncologists later this month.

What Are Low Expectations?

The companies said Wednesday that final results for a 215-patient phase II trial on aflibercept in ovarian cancer were consistent with interim data presented at the 2007 ASCO conference, and the drug didn't meet the primary endpoint. Specifically, tumor response rates, as assessed by an independent review committee, were 4.6% in the higher, 4-mg/kg arm of the study and 0.9% in the lower, 2-mg/kg arm -- falling shy of the goal of a response rate greater than 5% as assessed by the committee.

Median time before patients' tumors progressed was 13.3 and 13 weeks for the higher and lower dose, respectively. Patients treated with the higher dose had a median overall survival of 49.3 weeks, while those treated with the lower dose lived more than a month longer, 55.4 weeks.

"While this trial's failure was expected, it is hard not to be disappointed by the response rates, which are below the 8% combined response rate reported at last year's ASCO meeting," Credit Suisse analyst Michael Aberman opened in a note to investors. "Still, putting these data in context with additional data we now have for aflibercept, we are still convinced that it will show efficacy similar to Avastin." Aberman has an outperform rating on the stock and a $30 price target.

(Aberman cautions not to compare this trial to Avastin trials given more stringent response criteria in the aflibercept trial.)

Flirting with Filing

Previously, the companies had mentioned a possible FDA filing in ovarian cancer -- the first filing for the aflibercept -- in 2008. On Wednesday the company said it's evaluating the data to determine the next steps in the indication.

Regeneron also gave an update on an ongoing phase II study on the drug in patients with advanced ovarian cancer and symptomatic malignant ascites (SMA), a buildup of fluid in the abdominal cavity. Eight of 10 evaluable patients have achieved the metric equating to the primary endpoint of the study, which was a doubling of time to the draining of the excess fluid. Regeneron CEO Leonard Schleifer says these results are "particularly promising."

A double-blind, placebo-controlled phase II trial of 54 advanced ovarian cancer patients with SMA is about two-thirds enrolled, according to the company. The primary endpoint of the study is time to repeat paracentesis.

In June of 2007, in conjunction with the release of the interim data on the first-mentioned ovarian cancer study, Regeneron executives told

TheStreet.com

that one scenario had the companies filing for FDA approval based on a package of both phase II trials with data on response rate and ascites reduction.

"We're enrolling a placebo-controlled study that we hope will confirm

the ascites data and we'll see whether that would form the basis of a filing strategy -- but we don't want to get too far ahead," Schleifer said Wednesday.

While the ascites phase II trial could provide a quicker path to market, Credit Suisse's Aberman says he remains comfortable with an assumed launch circa 2011, after data are available from one or more of the larger phase III trials. Aflibercept is currently in four late-stage studies involving about 4,000 patients.

Cannacord Adam's Pantginis lowered his price target to $30 from $32, removing the ovarian cancer indication from his model until the companies offer more visibility on the filing. He did, however, reiterate a buy rating. "Should the stock come under pressure, we believe it could represent an interesting opportunity for investors to get in as aflibercept, in our view, still represents a potential formidable competitor to Genentech's Avastin," he wrote.

More to Watch For

Regeneron's Schleifer commented that main program remains unchanged by Wednesday's ovarian cancer results. "We're moving ahead progressively, and the big picture is still a significant competitor to Genentech's Avastin."

Schleifer also noted that preliminary results in relapsed and difficult to treat brain tumors, glioblastoma multiforme (GBM), or anaplastic glioma, were encouraging. Responses were achieved in 50% of patients with anaplastic glioma, and 30% of patients with glioblastoma and were in line with phase II Avastin response rates.

The aflibercept GBM trial did have a higher drop out rate for toxicity compared to Avastin -- 25% vs. 3.5% -- "but given this is a single institution trial and the actual types and rates of toxcities appear similar, this higher drop out could be an anomaly related to the investigators experience with the drug," wrote Credit Suisse's Aberman. Investigators from the National Cancer Institute (NCI) sponsored studies will report six month progression free survival data at ASCO.