Cancer Breakthrough Looks More Like Breakdown

Is it time to write the obituary for the once-heralded class of targeted cancer drugs known as epidermal growth factor inhibitors?

Investors seemed to be sharpening their pencils Monday after AstraZeneca ( AZN) said its drug, Iressa, failed to show any survival benefit among lung cancer patients in two large, late-stage clinical trials. The bad news sent shares of the Anglo-Swedish drugmaker tumbling 16% Monday, but the damage also spread to biotech firms developing similar drugs.

OSI Pharmaceuticals ( OSIP), which is developing Tarceva, plummeted 57% on Monday. Its partner Genentech ( DNA) lost 4%.

Abgenix ( ABGX) has high hopes for its EGF inhibitor, dubbed ABX-EGF, but investors weren't so sure today, pushing the stock down 20%. Amgen ( AMGN) is Abgenix's partner on the drug, and its shares were off 2%. Of course, the most noteworthy -- some would say notorious -- EGF inhibitor is ImClone Systems' ( IMCL) Erbitux. ImClone shares were off 11%.

It wasn't too long ago that EGF inhibitors were being hailed as one of the great cancer research breakthroughs of our time -- the kind of medical advance that was going to help cancer patients and make investors rich -- all at the same time. But so far, stringent human studies designed to back up these bullish claims have all come up well short of the mark.

EGF inhibitors were supposed to be a great medical breakthrough -- and multibillion dollar sellers -- mainly because they acted as chemotherapy sensitizers. Simply put, they work by hampering the ability of cancer cells to grow uncontrollably while enhancing the killing power of chemo drugs. But Monday, AstraZeneca said Iressa doesn't do that, although the company still believes the drug holds promise -- albeit possibly reduced -- as a standalone treatment. The company also said its findings raise scientific doubts about the ability of other EGF inhibitors to perform any better in combination with chemotherapy.

Still Waiting for a Win

If you're keeping score at home, not a single drug in the EGF-inhibitor class has yet to post positive results in a controlled, phase III clinical trial -- the kinds of studies that are supposed to wow the medical and investment community and lead to Food and Drug Administration approval.

Last May, at the closely watched annual meeting of the American Society of Clinical Oncology, ImClone reported failed results from a late-stage, controlled trial of Erbitux. And now Monday, AstraZeneca reported even poorer results with Iressa, tested in combination with standard chemotherapy drugs in lung cancer patients.

Instead, the companies developing these drugs have based their optimism on positive results derived from less robust, phase II studies -- which measure alternative measures of efficacy such as patient-response rates.

AstraZeneca is now pinning its hopes of getting FDA approval for Iressa on positive data from several phase II studies in which the drug was used by itself, or as monotherapy, in patients with advanced lung cancer who have run out of other medical options. An FDA advisory panel will meet Sept. 24 to discuss the drug's merits and pass on a recommendation to the full FDA for a decision before year's end. The other companies developing similar drugs have not yet filed for FDA approval.

"I just don't see how the FDA can approve the drug when the agency knows that it does nothing to improve survival," says one hedge fund manager who's been short AstraZeneca and was an early -- and correct -- bear on ImClone, well before the company's troubles were made public.

His line of reasoning: Given the life-threatening nature of cancer, the FDA is willing to approve drugs based on good response rates in patients, but the agency expects follow-up studies to show the drug also prolongs patient survival.

"But AstraZeneca has already done a survival study and it's come up negative, so just how can the company now come back and back up its earlier response-rate data?" this hedge fund manager asked.

Drugs May Find Limited Use

Rob Toth, fund manager with EGM Capital, believes the FDA still could approve Iressa because the response-rate data for the drug are supported by other studies that show improvement in the quality of life of patients, most importantly, improved lung function. Iressa also is a safe drug, and these patients have no other medical options.

"I don't think you can say that response rate equates to a clinical benefit by itself, but when combined with improved lung function and other improvements in quality of life, I think the FDA could become more receptive for approval," he says. Toth has no position in AstraZeneca but he's been long OSI Pharmaceuticals.

But even if Iressa is approved, its use -- at least in the near term -- appears to be relegated to monotherapy and not in combination with standard chemotherapy drugs, which would limit its sales potential.

So, what about Iressa's competitors? OSI was hammered Monday because its drug, Tarceva, is very similar to Iressa in that it's a small molecule drug taken orally and is also being tested in lung cancer patients.

Banc of America biotech analyst Mike King downgraded OSI to market perform from buy, based on the poor Iressa trial results.

"We are assuming that the class of EFG inhibitors will be relegated to use in patients with refractory disease, a significantly smaller market than we previously assumed," he wrote. "Our prior assumption was that the use of these drugs would encompass both early and late-stage patients." King's firm doesn't have a banking relationship with OSI, but King recently left now-defunct Robertson Stephens, which did underwriting work for the company while he was an analyst there.

Late Monday, OSI and Genentech issued a joint statement defending Tarceva and pointing out differences in its phase III clinical studies that may help Tarceva succeed where Iressa failed.

The drugs under development by ImClone and Abgenix are injectable monoclonal antibodies, which means they work differently than Iressa and Tarceva and could, therefore, still have synergistic effects with chemotherapy -- at least that's what supporters say. Other cancer-fighting monoclonal antibodies, like Genentech's Herceptin, have proven to be successful, but studies comparing the efficacy of the different forms of EGF receptor inhibitors have not been conducted.

Once again, though, cancer has proven to be an elusive foe. After last May's ASCO meeting, wrote that doctors at the closely watched meeting seemed to be tempering their enthusiasm for these targeted cancer drugs. Monday's news out of AstraZeneca likely will make them even less sanguine.

"The fact that Iressa showed no survival benefit is definitely disturbing, but I don't believe you can say that the entire EGF inhibitor class is dead," says EGM Capital's Toth. "Each drug is different and every cancer is different, so I think we need to wait until we see more data and evidence."

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