Cell Genesys ( CEGE) is done. In the ashes of the biotech firm's blowup, however, there are important investing lessons to learn. The end for Cell Genesys came Thursday after an independent futility analysis found the company's GVAX prostate cancer vaccine had little chance of success. Cell Genesys was forced to halt the GVAX prostate phase III study, the second such late-stage GVAX prostate cancer study shuttered in recent months. Cell Genesys has stopped all clinical development of its GVAX cancer vaccine program and is laying off a majority of its employees. With little else on its plate, the company's future is bleak. The stock is now valued at pennies per share and shareholders have lost everything. Dendreon ( DNDN) is now the last company standing with a prostate cancer vaccine in clinical trials. Biotech investors, especially those willing to make bets on unproven drugs and technologies, usually understand the risks involved. Still, disasters like Cell Genesys shock the system and can discourage even the most risk-tolerant investor from ever dipping their toe into biotech again. I've never been a fan of Cell Genesys or its cancer vaccine technology. I've been warning folks off Cell Genesys for a long time, which, to borrow a phrase from my friend and former colleague Herb Greenberg, usually caused the Hostile-React-O-Meter to spin outta control! I'm not here to gloat over being right. Instead, let's re-examine the red flags in the Cell Genesys story so that when the same issues rear their ugly head in another biotech story (and you know they will) you'll be better prepared.
I spent a good bit of time last March responding to readers incredulous that I could doubt the GVAX prostate cancer vaccine. In response to one such email, I wrote the following:
"If you remember one rule about biotech investing, or more specifically, one rule about investing in biotech oncology stocks, it's that you should never (never!) trust phase II data from uncontrolled studies. Print that out. Place next to your computer. Memorize."Well, it turns out that the stupendously positive phase II data on GVAX Prostate was completely worthless. Prostate cancer patients taking GVAX in the phase II trial had a median survival of 26.2 months. In a subset of patients at the higher GVAX dose, median survival was 35 months. But all patients in the phase II study received GVAX, so there was no control, and the study wasn't randomized so there was nothing to which GVAX patients' survival could be compared. Of course, that didn't stop Cell Genesys or its believers to compare these GVAX patients to historical data. In this case, Taxotere, approved for prostate cancer patients, produced a median survival of about 19 months in its own pivotal study. Since 26 or 35 months' survival from GVAX's phase II study is way better than what Taxotere produced in the past, Cell Genesys fans reckoned that the phase III study pitting GVAX directly against Taxotere was a sure bet to succeed. Not so much, as we learned Thursday. Here's how I closed my response to that Cell Genesys investor in my March column:
"The quality of treatment changes, patient characteristics are different, there is selection bias -- heck, everything is different from one study to another. When the phase III GVAX results are announced next year, patients on the vaccine will live far shorter than they did in the phase II study. Likewise, Taxotere patients in the study will live longer than expected. This is why the odds are strongly against GVAX Prostate and why I'm no fan of the stock."The only thing I ended up getting wrong was the timing. We didn't need to wait for 2009 to find out that GVAX was a dud.
I don't want to make the blanket statement that all uncontrolled phase II studies lead inevitably to failure. But it's also no coincidence that companies which choose to invest wisely in controlled phase II drug studies -- and I think of Genentech ( DNA) with Avastin and Onyx Pharmaceuticals ( ONXX) with Nexavar -- ended up with positive phase III studies and highly successful and profitable cancer drugs. The failure of GVAX should also finally put an end to those who want to directly tie a patient's immune response to a cancer vaccine to real clinical benefit, i.e. prolonged survival. Back in February, Cell Genesys reported that researchers analyzing blood samples from prostate cancer patients in the phase II study (yes, that same uncontrolled phase II study) found two antibody, or immune, responses to GVAX Prostate that correlated positively with significantly longer survival. Again, here's what I wrote back then:
"Interesting, except for the fact that in order to find the two antigens responsible for this immune response, the researchers looked at dozens of different antigens -- including some they previously though would be linked to an immune response -- but found nothing. What this tells us is that Cell Genesys had to go deep-sea fishing with a very large net to find some positive data to report. That's not necessarily a bad thing, but it certainly doesn't prove that GVAX Prostate is doing what it needs to do most -- helping prostate cancer patients live longer. "This didn't work for Cell Genesys, nor did it work for Genitope ( GTOP) and Favrille ( FVRL) for their two respective but failed non-Hodgkin's lymphoma vaccines. If a cancer vaccine, or immunotherapy, is ever proven to be truly effective in fighting cancer, it will by definition work by stimulating the immune system to detect and kill cancer cells. Two problems here that investors should be worried about: 1) No cancer vaccine has worked yet -- and the list of failures grows ever longer; and 2) clearly, something more has to happen with these cancer vaccines than just stimulating the immune system for them to work.
Simply put, when a biotech company tells you that their cancer vaccine must be working because it stimulates a cancer patient's immune system, don't drink the Kool Aid. One last word on corporate partnerships: Cell Genesys' sweet deal with the Japanese drug maker Takeda meant little in the end. Cell Genesys has a bit more Takeda cash on hand so bankruptcy isn't looming in the immediate future. That's a plus, but the potential of GVAX was clearly not "validated" by Takeda's decision to partner. Instead, Cell Genesys-Takeda goes the way of Novacea- Schering Plough ( SGP) or Genta ( GNTA)- Sanofi Aventis ( SNY) -- cancer partnerships gone bust. While partnerships can work, they're no guarantee, so don't treat them that way.