Pharmacyclics Needs a Fair Shake

The FDA's handling of the company's cancer drug doesn't fit the Dendreon-driven environment.
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Before I start with

Pharmacyclics'

(PCYC)

effort to force the Food and Drug Administration to review the company's Xcytrin cancer drug, let me ask a question related to

Dendreon

(DNDN)

, since everything biotech these days -- Pharmacylics included -- relates back to Dendreon.

If Dendreon's prostate cancer vaccine Provenge is approved by the FDA, would that set a precedent by which any drug company, regardless of the quantity and quality of clinical data, should receive a similar approval?

Posed another way, would a Provenge approval set the scientific standard too low for future drug approvals at the FDA?

I don't know the answer -- I'm not even sure there is one, but the issue has serious implications, because it could change the way investors value biotech stocks.

Typically, investors reward drug companies with successful or positive clinical trials and punish those with failed or negative trials. But if a company can get a drug approved on the bais of failed clinical trials (statistically speaking), doesn't it turn the normal order of things upside down?

Dendreon bears certainly think so. A big part of their argument against Provenge is that the drug's clinical evidence lacks scientific rigor (failed trials, post-hoc data analysis, etc.) and that an approval sets a bad precedent, because the FDA would be then be forced to give the same consideration to other companies.

And yes, they would put Pharmacyclics in this camp.

But then again, do all drugs approved by the FDA come with stellar clinical resumes? Hardly. For one, look at

Eli Lilly's

(LLY) - Get Report

lung cancer drug Alimta. In 2004, its

approval

was based on a study that failed its primary efficacy endpoint. Yet, subsequent studies done with Alimta confirmed the drug's benefit to patients and validated the FDA's decision to approve.

If Provenge ends up like Alimta, maybe the FDA won't be lowering approval standards.

And no, I'm not trying to signal that I've changed my mind on Provenge. (I still think it should be approved.) I'm simply trying to think through the implications, if any, of a Provenge approval on the FDA and biotech investing.

It would not be a good thing if every two-bit, also-ran biotech firm thought it could unload its junk at the doorstep of the FDA and expect approval. This, I'm sure about. But I'm also not convinced that this will happen if the FDA OKs Provenge.

With this framework in mind, let's steer back to Pharmacyclics, which is akin to Dendreon these days, except that the FDA is giving Pharmacyclics the shaft.

I've haven't been a

big fan of Pharmacyclics, and the stock has been a dog for years, but the latest developments in the lengthy Xcytrin saga do seem puzzling and unfair.

Xyctrin is designed to sensitize cancer cells to radiation, making radiation therapy more effective. Pharmacyclics ran a large phase III trial in patients with all kinds of cancer, but it failed. Then it tried again, this time running another phase III trial narrowed down to patients with lung cancer that had spread to the brain. This was the subgroup of patients that improved the most in the first study, so the company hoped this second trial would succeed.

It didn't. Patients receiving Xcytrin plus radiation reported a five-month improvement in time to neurologic progression compared with patients receiving radiation alone. There was a strong trend showing a clinical benefit in favor of Xcytrin, but when the statistics were run, the "p value" came out to 0.12.

English translation: There was a 12% chance that the results seen in the study were by chance, above the 5% threshold typically required for a trial to be statistically significant.

Richard Miller, Pharmacyclics' CEO, says the studies may have failed, but Xcytrin surely did not. He believes the overall weight of the clinical evidence supports the drug's efficacy and approval, despite the statistics. And so last December, Miller, with guidance from others, decided to file Xyctrin with the FDA. He told me he knew the drug faced an uphill fight, but he was shocked at what happened next.

In February, the FDA issued a dreaded "refuse to file" letter against Xyctrin. Basically, regulators rejected the drug without a review.

"There has never been a situation at the FDA where a

drug application was met with a refuse-to-file letter because a clinical trial failed to meet its primary endpoint," says Miller, adding that if the FDA believes the submitted Xcytrin data are bad, it shouldn't approve the drug.

But what Miller doesn't understand (and I have to agree with him) is why the agency won't even give Xcytrin a standard drug review.

There are also plenty of precedents to validate Miller's argument.

Genta

(GNTA)

and

Allos Therapeutics

(ALTH)

immediately come to mind as examples where the FDA reviewed cancer drug applications on the basis of failed clinical studies. The respective drugs of both companies were not approved, but they did get full reviews and even advisory panel meetings.

Xcytrin is no miracle cancer cure. At best, it might improve the quality of life for about half the lung cancer patients in this country who, unfortunately, see their cancer spread to the brain. Xyctrin does not extend survival in these patients, according to data collected so far.

Whether Xcytrin is worthy of approval is subject to debate, but given the precedent of other durgs -- and Dendreon's current situation -- Pharmacyclics does seem to deserve a full and proper FDA review, at the very least. Right?

Last week, the company decided to send Xcytrin back to the FDA, filing a New Drug Application "under protest" -- a regulatory maneuver allowable when a drug company disagrees with an FDA decision. According to Miller, the agency is now forced to review Xcytrin and decide on its approvability by Dec. 31. What's not clear to him, however, is how serious the FDA will take this review.

Pharmacyclics' stock lost about half its value in February and now trades around $3 -- a signal that Wall Street isn't very optimistic about the company's future. Certainly, Xcytrin's approval is the very definition of a long shot, but might that change if Provenge is approved?

Or, returning to my original question, is Pharmacyclics an example of a Dendreon-like company that deserves a fairer shake -- and more love from investors? Or is this the first of what might become a flood of junky companies trying to hitch a ride -- undeservedly -- on the Dendreon bandwagon?

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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