Biotech Stock Mailbag: Clinical Data, Mannkind and Thanks!

BOSTON ( TheStreet) --This is the last Biotech Stock Mailbag column in 2010. Call me a slacker but I'm exercising my right to give the Mailbag a much-needed holiday rest.

Before I get to your biotech stock questions and comments, let me take this opportunity to thank all of you for making the Mailbag -- now entering its fifth (!) year -- such an meaningful anchor in TheStreet's coverage of the biotech sector.

My personal feelings about the Mailbag and pretty much everything I try to do at TheStreet were summed up best in a recent email I received from David K.:

"I wanted to thank you again for replying to my comments in this week's Biotech Stock Mailbag article. Even if I don't always agree with your opinions or presentation of information, I am interested in what you have to contribute and I keep abreast of your work daily. One of the first items I read every morning is your column.

"I believe that you taking the time to interact with readers in the comments section of your articles or in a live discussion during panel hearings says a great deal about your work ethic. You are surely committed to providing readers, both friends and foes alike, an opportunity to actually be a part of your column. You create a sense of community (even if a hostile one) through making your column dynamic as opposed to other authors whose static blogs simply post an article and nothing more. Your efforts are commendable and I encourage you to keep up the good work."

Makes me blush. Thank you, David, for the very kind words, even though I like to think that I'm not the one instigating the hostilities. When pushed, however, I will push back.

I truly appreciate all the readers of this Mailbag, my columns and stories. That includes those of you who desperately need spell check (once again, it's l-o-s-e-r, not l-o-o-s-e-r) and even the die-hard conspiracy theorists who will never stop believing that I'm banking coin from hedge fund short sellers in an offshore account.

I get up every day and go to sleep every night trying to provide the best biotech coverage and commentary possible. Integral to that effort is being as interactive with you as I can, whether it's through columns like the Mailbag, live blogs, the commenting section of this web site, email or on Twitter. I want to help you make sense of this crazy, volatile biotech scene in which we're all so interested. The constant feedback, questions and comments you provide -- whether it's filled with praise or stinging with criticism -- are an invaluable and essential part of the equation.

Thanks again for spending another year with me. Happy Holidays and Happy New Year! Now, onto your emails:

My column elucidating the bear thesis on Clinical Data ( CLDA) and its anti-depressant vilazodone prompted a response from the bulls.

Wedbush analyst Greg Wade, contrary to my hedge fund source, strongly believes FDA approves vilazodone on Jan. 22 and that the drug's peak sales will top $2 billion.

"There's always risk with FDA decisions but with vilazadone we have a drug acting via two known, well-understood mechanisms of action in depression, a good tolerability profile and the absence of sexual side effects," Wade says in an email he sent me after reading my column (which mentioned his bullish stance on the stock.) "Clinical Data has had two positive Phase III studies and no advisory panel. We're optimistic on Clinical Data and vilazodone's chances."

Wade took issue with some of the criticisms of vilazodone expressed by my bearish buy-side analyst source. He believes Clinical Data had conversations with FDA about using the so-called MADRS depression scale as the primary endpoint in the vilazodone clinical trials and that the agency will have no concerns about MADRS over the similar HAM-D depression scale.

Wade also downplays vilazodone's inability to significantly improve remission rates. He contends that achieving statistically significant improvements in remission rates in short, eight-week studies is difficult. "To see any effect at all is an interesting observation."

Does vilazodone causes fewer sexual side effects? If true (and it shows up in the FDA-approved label), vilazodone would have a significant marketing advantage over some of the other currently marketed antidepressants.

Wade and the other Clinical Data bulls point to data from the two phase III studies that showed vilazodone impact on sexual function was similar to placebo as measured by validated scales. All true, but in the second phase III study, decreased libido was also reported in 3.7% of vilazodone patients compared to 0.2% of placebo patients. In males, the rate of decreased libido was 4.7%.

Loss of libido sounds like sexual dysfunction and is worth mentioning, too.

Meantime, a hedge fund manager who has a large long position in Clinical Data (stock and options) emailed me to express his confidence in vilazodone. While he asked not to be named, this fund manager gives vilazodone 95% odds for an FDA approval. He's a big believer in Randal Kirk, Clinical Data's chairman, because of his past success founding and selling New River Pharmaceuticals to Shire ( SHPGY).

This investor accuses me of purposefully withholding information about Kirk and his involvement with Clinical Data because of a personal grudge and/or past articles I wrote about New River. He points to this 2007 article about New River's attention deficit disorder drug Vyvanse, specifically.

"You didn't tell the reader you had done this before with a Kirk company with very bad results for you, or even that Kirk had a very successful history developing drugs. You talk about Clinical Data in a vacuum. Honestly, this seems like anything but full disclosure to the reader…"

Kirk's deal to sell New River to Shire was genius, although Vyvanse, under Shire's control, did not meet initial sales expectations, so call me right on the drug, wrong on the stock. Kirk's business resume, however, wasn't relevant to the story I was telling in my column -- the bear thesis on vilazodone as explained by someone with a short position in Clinical Data.

The vilazodone column doesn't ignore the positives, as this long investor contends. In fact, the column states very clearly the "positive" clinical data from the drug's two phase III studies. What's sorely lacking most places these days, and which my column accomplishes, is present an alternative interpretation of the vilazodone data in the public domain that happens to be more skeptical.

Investors have no problem finding the bull story on stocks and Clinical Data is no exception, judging by the recent onslaught of Seeking Alpha articles and blog posts all extolling the vilazodone's virtues. But why wouldn't a fully informed investor also want to know about the downside, the risks, the potential negatives? Due diligence isn't diligent without understanding a stock's bull and bear thesis.

The FDA is expected to announce an approval decision for vilazodone on Jan. 22, 2011.

Via Twitter, @Superduty03 asks, "Are you ever an optimist?"

The simple answer is "not very often."

You need to understand that I'm a journalist, which means skepticism, even cynicism, is an integral part of my DNA. I see the glass half empty. I question everything and everyone, especially biotech executives. My motto: Mistrust AND Verify. Biotech investors are generally well served by skepticism. We all know the high failure rate in the sector and the hyperbole tossed around about LIFE-SAVING MEDICAL ADVANCES that usually accompanies even the most mundane announcements.

Ask anyone who knows me personally and they'll tell you that I'm a cheerful, happy and outgoing guy. When it comes to my professional life writing about biotech stocks, however, I set a very high bar for optimism and cheerfulness. In biotech investing, optimism is usually a good way to lose money.

Jim M. emails, "I was wondering what you thought about Depomed (DEPO)? They have a PDUFA date next month but it seems to have been left off of all the FDA calendars."

Guilty as charged. I inadvertently omitted Depomed and its shingles pain drug DM-1796 from my 2011 FDA Approval Decision Calendar. The FDA is expected to issue a decision on DM-1796 on or before Jan. 30, 2011.

I apologize, but I don't know enough about DM-1796 to help handicap the FDA's approval decision. DM-1796 is an extended-release, once-daily formulation of the pain drug gabapentin, which Pfizer ( PFE) sold as Neurontin and which is now available as a generic.

The FDA approval being sought for DM-1796 is for the treatment of post-herpetic neuralgia (PNH), or pain caused after an attack of shingles, also known as herpes zoster. Approximately 70,000 to 100,000 Americans are affected by PHN each year, according to Depomed.

Depomed has already licensed North American commercial rights for DM-1796 to Abbott Labs ( ABT).

If you're interested in learning more about DM-1796, you should check out the data from the phase III study conducted in PHN patients which demonstrated a statistically significant reduction in pain scores compared to placebo. On a related note, it might be interesting to see how the DM-1796 data compares to the herpes and PHN pain data recently announced by Inhibitex ( INHX) from a phase II study of its drug FV-100.

Again via Twitter, @granbebe1 asks, "Mannkind (MNKD), any news?"

Not a lot of news on Mannkind but tons of speculation and stock volatility as we get closer to the Dec. 29 FDA approval decision date for the company's inhaled insulin delivery device Afrezza.

Mannkind was trading for $6-plus around Thanksgiving but was up to $8.50 intraday Thursday. Wednesday was a particularly volatile day, with the stock trading as high as $9.23 and as low as $7.31.

On Wednesday, Mannkind founder Al Mann disclosed via an SEC filing that he purchased another 700,000 shares of the company, which a lot of investors interpreted as a sign of confidence so close to the FDA approval decision for Afrezza.

That's not entirely true, however. Mann's 700,000-share purchase was required under an equity financing agreement signed in August with an outfit known as Seaside 88. Mannkind has been selling discounted stock to Seaside 88 as a way to raise cash. Under the agreement, whenever Seaside buys and resells Mannkind shares, Mann has to buy an equal amount of Mannkind stock.

Meantime, the guessing game over the FDA's Afrezza decision continues. On Thursday, JMP Securities reiterated its buy rating and $11 price target on the grounds that there's a 40% chance for a full Afrezza approval on Dec. 29.

"Furthermore, the JPM Securities note continues, "even should a second CRL Complete Response Letter be issued, we believe the most likely scenario would not involve a requirement for new, long-term clinical trials (30% probability), based on which we believe the stock would trade in the $8-10 range. We anticipate that the focus for a CRL would be on REMS risk management plan and/or the submission of the commercial delivery device and not pulmonary safety or efficacy concerns…"

Diabetic Investor's David Kliff told his newsletter subscribers that Afrezza has less than a 50% chance of getting FDA approval and he recommended banking trading profits ahead of the decision.

My 15 Biotech Stock Predictions for 2011 column provoked some typical yet comedic responses from fans and foes alike, some of who had their own 2011 predictions.

Steveh800 predicts, "A.F. continues to be paid by Wall Street Hedge Funds to bash the stocks in their favor."

Matt writes, "Adam doesn't get a Christmas card from Anna Gluskin (again), but Jim Bianco sends him a lump of coal."

Adamsfriend says, "Adam will be seen making out with Jerry Springer in 2011."

Ruggerschr is angry. "Adam, you are so obviously a schill working for Cramer and his Hedge fund cronies. At least when you go to prison for your dastardly deeds, you will have lots of practice being other people's Bleep!"

Nealhugh predicts, "Delcath Systems will rise and FDA approval by Summer 2011."

Rds_1 says, "Adam will be a permanent fixture on The Walking Dead and give up his Street job!"

Mn_vestor has a new biotech business idea: "Biotech startup 'Greymatter' attempts to inject a brain into the skull of Adam Feuerstein. Alas, the attempt fails and he is forced to continue his career as a writer for the Street."

Joe predicts, "Adam will be in an orange jumpsuit." While pdgcwood adds, "And a name change to Shirley."

As I said above, I love you all.

That's a wrap. The Biotech Stock Mailbag is now on a short hiatus, returning Jan. 7, 2011. Keep those emails and tweets coming.

--Written by Adam Feuerstein in Boston.

>To contact the writer of this article, click here: Adam Feuerstein.

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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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