Biotech Stock Mailbag: Somaxon

BOSTON (TheStreet) -- This week's Biotech Stock Mailbag opens with an email from Harish R. regarding Somaxon Pharmaceuticals (SOMX).

" Can you please write us a column on your thoughts on Somaxon? The stock has gone down from $10 to $3 and as a nervous investor, I would like to know your thoughts on the future of this drug/stock."

Somaxon shares dipped under $3 this week, which is below where the stock traded in March before the company's insomnia drug Silenor received FDA approval. The big slide in Somaxon's value started soon after the FDA's approval of Silenor and has not yet abated because, to date, Somaxon hasn't been able to commercially launch Silenor nor has it found a deep-pocketed marketing partner willing to take the drug on.
Mailbag

I hesitate to say "I told you so" but in this case, that's precisely what I did in my March 19 Mailbag, warning that a Somaxon acquisition and/or a Silenor marketing partnership were unlikely. The insomnia treatment market is too competitive and impacted by low-cost generics for Silenor (a low-dose version of an old, generically available antidepressant) to be viable commercially.

I received a lot of email about Dendreon ( DNDN) and the decision by Medicare to open a coverage assessment for Provenge, including this email from Yang O.

"Hi Adam, I have been a fan of your articles for many years now. Thank you foryour earnest analysis of biotech companies. You saved me from losing too much onjunk science. On your take about Dendreon:

"Firstly, one of the concerns is the fact that Medicare might limit the coverage of Provenge. I wonder about that, as the indication that Provenge is approved for is the last hope for prostate cancer patients that have failed all therapies. How is Medicare going to further limit the usage of Provenge? If Provenge is for first-line prostate cancer, then there might be scope of decreasing its first-line usage.

"Secondly, I read that most prostate cancer doctors are hoping to prescribe Provenge at an earlier prostate cancer stage with the hope of ensuring better response. Could the enquiries to Medicare for earlier usage of Provenge be the cause of Medicare's coverageanalysis?"

Before I get to the meat of Yang's question, let me correct a misperception. The FDA approved Provenge for the treatment of asymptomatic or minimally symptomatic, metastatic, castration-resistant prostate cancer. That's a mouthful, but described more simply, doctors will use Provenge to treat patients with prostate cancer that no longer responds to hormone therapy -- before the use of chemotherapy drugs like Taxotere and the newly approved Jevtana.

Provenge will not be used, therefore, in patients who have failed all other therapies, as Yang states. It will be used well before that, which is a big reason why estimates of Provenge's peak commercial potential are measured in billions of dollars.

If Medicare decides to limit or restrict Provenge coverage, the agency will likely only do so by requiring doctors to adhere strictly to the drug's label when choosing patients for Provenge treatment. This would dampen doctors' ability to treat prostate cancer patients with earlier stages of the disease; it would also remove from treatment consideration patients with "symptomatic" disease, generally defined as patients who require narcotics to treat pain associated with the spread of prostate cancer to bone.

The bucket of prostate cancer patients who fit inside the current Provenge label is still quite large, but obviously, sales would be higher if doctors were able to prescribe Provenge "off label" to a wider swath of prostate cancer patients -- and receive reimbursement.

For example, Leerink Swann removed all off-label Provenge sales from its Dendreon model this week, which reduced the firm's 2014 Provenge sales estimate from $2.36 billion to $1.51 billion. I'm not saying this is the correct math, I'm just highlighting the sorts of adjustments to Provenge numbers that are being made across Wall Street in wake of the Medicare coverage assessment. (Leerink retained an outperform rating on Dendreon but dropped its per-share price target to $55 from $80.)

The uncertainty surrounding the extent of Medicare coverage for Provenge has taken a bite out of Dendreon's stock price, but so too has investor fears that Provenge sales will not meet the Street's consensus estimates for 2010, even with supply constraints in place.

Dendreon's stock chart post-Provenge approval is no better looking than the charts of other biotech and drug companies with FDA drug approvals this year, as detailed nicely by BioRunUp.com, a blog written by a biotech stock trader who focuses on FDA catalysts.

Abe emails, "Any thoughts on ImmunoGen ( IMGN) on the Roche FDA filing?"

Roche announced Wednesday that Trastuzumab-DM1 (T-DM1) was filed for FDA approval as a treatment for women with Her-2 positive breast cancer previously treated with multiple therapies. T-DM1, for those not aware, combines Roche's already-approved breast cancer monoclonal antibody Herceptin linked to a toxic chemotherapy payload developed by ImmunoGen.

Roche had previously stated its intent to file T-DM1 with the FDA in the middle of the year, so Wednesday's submission hits that target. I don't know the exact filing date, but assume it was sometime this week, which means that the FDA approval decision should come during the week of January 3, 2011. That represents a six-month FDA review cycle, fairly standard for cancer drugs.

I've long been a fan of ImmunoGen, but at around $9 a share, ImmunoGen's value bakes in T-DM1's approval, give or take a buck or so for a pop on the approval announcement. (I do think T-DM1 will be approved, although don't be surprised or freaked out to see the FDA schedule an advisory committee meeting before that happens.)

Roche will market T-DM1 worldwide, but unfortunately, ImmunoGen only receives a mid-single digit royalty on those sales. The initial indication for T-DM1 as a third-line treatment for breast cancer isn't huge, but the drug has the potential to grow into a blockbuster if ongoing clinical trials support use earlier in the breast cancer treatment cycle, and perhaps one day, as a replacement for Herceptin altogether.

A phase III study comparing T-DM1 against GlaxoSmithKline's ( GSK) Tykerb in second-line breast cancer will have data in early 2012, according to Roche.

Alex S. writes, " I have quick questions on the upcoming advisory meeting for Vivus (VVUS). Do you anticipate the outcome of the meeting to have an impact on Arena Pharmaceuticals (ARNA) and Orexigen Therapeutics (OREX)? Do you think the three stocks will trade in the same direction on Friday following the meeting? How would you rank these three Obesity stocks?

The FDA advisory panel reviewing Vivus' obesity drug Qnexa is scheduled for Thursday, July 15. I will be live-blogging the panel just like I did for Cell Therapeutic's pixantrone and Acura Pharmaceuticals' Acurox.

Look for the FDA to post briefing documents for the Qnexa panel on Tuesday, July 13 on the web page for the agency's Endocrinologic and Metabolic Drugs Advisory Committee.

Whether or not Vivus, Arena and Orexigen trade in tandem or diverge depends not only on the outcome of the advisory panel, but also on the kinds of concerns and issues raised by the FDA in the briefing documents and at the panel. I can conjure scenarios that are positive for all three stocks, but I can just as easily see a situation where Vivus shares fall and Arena rises or vice versa.

None of the obesity drugs developed by Vivus, Arena or Orexigen are super-fantastic when it comes to helping patients lose weight with or without added risks and side effects. All three drugs have issues. With that said, my previously stated ranking has Vivus first, followed by Arena second and Orexigen third.

On a related note, Mark G. was not happy with my lukewarm assessment of the marketing partnership signed last week between Arena and Eisai.

"Hey there, Adam. You've been on the outside with Arena Pharmaceuticals for as long as I can remember. I don't understand that you can't see the train coming. Really. Your 'dowry' remark is pathetic at best. You can't see or better yet understand the full value potential for both parties involved. Why?..."Stop hyping Vivus as they are left in the dust. Arena's partner is for the U.S. only! Eisai has 500 sales reps. Arena already has a manufacturing facility capable of five billion pills. I was at the annual shareholder meeting for Arena, sales will start within 12 weeks of approval. Get on board for damn sake and look what youhave yet to see."

Dave D. comments on my story poking holes in MELA Sciences and its skin cancer detection device MELAFind.

"I'm not familiar with MELA Sciences, but it looks like you think the capitalraising could suggest problems with approval. Do companies know if there are issues with the upcoming advisory committee reviews? Or is it more that they know their approval submissions are iffy? Is there constant communication (questions from the FDA) during the process that might give the company as idea of where it stands, or is a submit and wait process? Thanks!"

Yes, I do think the timing of MELA's financing raises concerns/questions about management's confidence for the FDA approval of MelaFind. Beyond the stock sale, I believe the data generated from MELA's pivotal study of MELAFind also raises doubts about the chances for approval. I laid out the bear thesis on MELA last week.

Per FDA rules, the agency sends a copy of the advisory panel briefing documents to the company anywhere from 14 to 21 business days prior to the advisory committee meeting. That means MELA should be receiving its copy of FDA's MELAFind review during the last week of July.

I'm not sure there is constant contact between the FDA and MELA during the review process, but for sure, FDA questions and MELA's responses to those questions are shuttled back and forth, which should give MELA some idea about how the review is proceeding.

In this case, the FDA rejected MELAFind already (technically, the agency sent MELA a letter last March stating that the device was "not approvable" at that time). MELA bulls discount the significance of this rejection, believing that a backlog of device reviews at the FDA forced the agency into delay mode. MELA bears believe that the FDA doesn't throw around terms like "not approvable" lightly, which means the agency has issues with MELAFind and is probably not likely to approve the device. The upcoming advisory panel meeting on Aug. 25 will determine which side is right.

Mike M. also comments on MELA: "Thanks for the details on the MELAFind project. I am a dermatologist. At many of the meetings I attend, MELA has a booth and seems to be well received by other dermatologists. I know that some of the backers of this device are prominent dermatologists in the national dermatologist community and they occasionally speak to the conference in support of the device. I guess we will see how it turns out."
More on Biotech
13 Drugs Facing FDA Approval Decisions

-- Reported by Adam Feuerstein in Boston.

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Adam Feuerstein writes regularly for TheStreet.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; click here to send him an email.

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