Biotech is a cruel mistress. On a day when I'm beaming over Amgen's ( AMGN) success with denosumab, I'm also smarting over Aryx Therapeutics ( ARYX) and the disappointing results from a study of its blood-clotting drug. Both stocks are long picks in my Biotech Select model portfolio (defunct but soon to be resurrected, so stay tuned). Amgen is up big Wednesday morning, while Aryx is down bigger. And so it goes with biotech. Aryx reported Tuesday night that its blood-clotting drug tecarfarin failed to demonstrate superiority over the anticoagulant warfarin in a phase II/III study that enrolled about 600 patients with a variety of conditions requiring them to be on chronic blood-thinning therapy. Tecarfarin is supposed to be a re-engineered and safer version of the widely used warfarin, designed to give doctors and patients more stable control over blood clotting. Warfarin is very effective but requires a lot of monitoring and dose adjustments -- something Aryx hopes tecarfarin can avoid.
In the phase II/III study, tecarfarin worked as expected, with patients staying within the targeted therapeutic range 74% of the time. Unfortunately warfarin performed way better than expected, with patients in the targeted therapeutic range 73% of the time. That's bad luck for Aryx, for while the two drugs posted equivalent efficacy, the company designed the trial to demonstrate tecarfarin's superiority over warfarin. Therefore, this is a failed study. Based on historical studies of warfarin, Aryx expected the drug to keep patients in the targeted therapeutic range about 67% of the time, which is why they believed tecarfarin could demonstrate superiority.
Why did warfarin do so much better than expected? One reason posited by Aryx is that an independent team of experts monitored the anticoagulation status of patients in the study very closely. These experts were able to make frequent changes in the dosing of both tecarfarin and warfarin based on a host of factors, many of which are not necessarily used all the time in a real-world setting. Aryx believes that in a more real-world setting where warfarin patients aren't monitored as closely, tecarfarin, which doesn't require frequent dose adjustments, would come out on top. It's a logical argument and not unreasonable. The problem facing the company, however, is that this study didn't prove that, and it's not clear if or when a new trial will be run to do just that. Negative studies sink biotech stocks. Aryx is no exception, with the stock down 43% to $2.40 in Wednesday trading. I'm inclined to stick with Aryx, despite the tecarfarin misstep, because the company is in the midst of partnership talks for a different drug in its pipeline, the atrial fibrillation drug budiodarone. Aryx wants to have a partnership deal in place for budiodarone before the end of the summer and thinks it can get between $40 million and $60 million in upfront licensing fees, with future milestone and royalties on top of that. A deal for budiodarone, if it does get done, should lift the stock and ease some of the pain caused by the tecarfarin study. I know that the timing of partnership deals is rarely as fast as expected, so I won't panic if something is announced by Labor Day.
And tecarfarin is far from dead. The fact that the drug worked as planned is a plus. More work is needed, and a partnership for tecarfarin is probably delayed, but the drug is not mortally wounded. I added Aryx to the Biotech Select model portfolio with a cost basis of $2.79 a share, so I have the luxury of not feeling the full brunt of today's decline. Hopefully, a budiodarone partnership helps resurrect the stock. Returning to Amgen for a moment: Owning Amgen into the denosumab cancer data released last night was the right call (subscription required) and I hope readers were there for it. I added Amgen to my newsletter's model portfolio in early March with the stock at $46. My thesis was fairly simple: Amgen was trading with a significantly discounted price-to-earnings multiple that didn't take into account the growth that would come (hopefully) from positive d-mab cancer data; plus with Roche gobbling up Genentech, biotech investors would be looking for a new big-cap biotech stock in which to park some capital. The breast cancer data for d-mab were better than expected. Superiority over Novartis' ( NVS) Zometa is a big win for Amgen commercially, which is why analysts are raising their estimates this morning almost across the board. "Amgen" and "growth" are two words not seen in the same sentence in a long time; thanks to d-mab, they are now. I like Amgen at least into the mid-$60s.