Biotech Stock Mailbag: Avanir Pharma

BOSTON ( TheStreet) -- Let's kick off this week's Biotech Stock Mailbag with talk of new drug launches.

RMB77 asks, "Do you have any indication about how well Avanir Pharmaceuticals ( AVNR) is doing with the launch of Nuedexta? I know it's early, but I was hoping you've heard something to tell us if doctors are prescribing the drug."

Avanir only began selling Nuedexta at the end of January as a treatment for pseudobulbar affect (PBA) -- uncontrollable bouts of laughter and crying caused by certain neurological conditions. Nuedexta prescriptions to date are "modest" but "too early to draw conclusions," says Canaccord Genuity analyst Ritu Baral, who is one of Wall Street's more vocal Avanir bulls.

An institutional investor who's short Avanir describes the Nuedexta launch to me as "slow," which supports his thesis that the drug will be a commercial disappointment.

Nuedexta total scripts totaled 181 for the week ended March 18 (the most recent data available), according to IMS Health. That's the highest weekly total since Nuedexta's launch but only represents 5% growth over the 172 total scripts written for the drug for the week of March 11. Overall, 811 Nuedexta prescriptions have been written from Jan. 21 through March 18, according to IMS.

The number of Nuedexta prescriptions is growing every week but the sequential (week over week) growth is erratic -- not unusual for a drug in the infancy of a launch although the 5% growth for the week of March 18 is a concern if that trend continues.

Based on these script data, the Avanir short-seller mentioned above estimates total Nuedexta sales of $372,000 through March 18, which suggests Avanir will have a tough time meeting analysts' $1.5 million Nuedexta consensus revenue estimate for the company's fiscal second quarter, which ended Thursday.

Fiscal second-quarter sales may not matter much, but Avanir needs to quickly ramp Nuedexta sales if it's going to meet analysts' consensus revenue estimate of $30 million for the end of the company's fiscal year in September, the short-seller says. He clearly doesn't think Nuedexta makes it, which is why he's short Avanir.

Canaccord analyst Baral advised investor clients to chill out and not sweat the early Nuedexta metrics so much.

"We see early prescription data as poorly predictive of final sales potential; still too early to draw conclusions," Baral wrote in a March 16 research note. "Week-over-week growth rates ranged from -1% to almost 70%, underscoring the unreliability and noisiness of this initial data. We do not think we can draw meaningful conclusions without additional months of prescription data."

Baral did concede that if current Nuedexta scripts trends continue, the drug will miss her revenue estimates.

"We acknowledge if this initial data is indeed accurate and the trend persists for additional months, full year Nuedexta revenues may miss our 2011 fiscal year forecast of $36.0M in sales," she writes.

Avanir's stock price has been volatile since Nuedexta was approved last fall, doubling in price to around $5 in the days after approval but then falling to below $3.50 in early March. The stock closed Thursday at $4.08, up 9 cents.

More drug launch talk: Ken E. asks, "End of the first quarter for Silenor sales is tomorrow. Give us an update on scripts for Somaxon Pharmaceuticals ( SOMX)."

Not much has changed since the last time I updated Silenor's commercial launch from the middle of February. Weekly sales of the sleeping pill are averaging $260,000 per week through March 18, which is up from a $200,000 per-week average in the fourth quarter, according to Oppenheimer, which tracks Silenor scripts using data from Wolters Kluwer.

New and total scripts growth for Silenor were down 4% and 2%, respectively, week over week, as of March 18.

Traci H. asks, "Hi Adam. Are you a believer in Alexza Pharmaceuticals ( ALXA) and their Staccato technology? Do you like this stock?"

Staccato is a small, handheld inhaler that delivers a fast-acting dose of drug into the lungs. Alexza's lead product is AZ-004 (staccato loxapine) for the acute treatment of schizophrenia. Last fall, FDA rejected AZ-004 citing four issues for not approving the drug/device, chief among them potential lung safety concerns. Soon after the FDA setback, AZ-004 partner Biovail (now Valeant Pharmaceuticals ( VRX)) bailed on the product.

In recent weeks, Alexza has said that it's on track to respond to all of FDA's concerns and will resubmit AZ-004 in July. Most importantly, Alexza says it has data, some of which it has already shared with FDA, to prove that use of the staccato device doesn't impair lung function.

FDA, of course, will be the ultimate arbiter, and I won't be surprised to see the agency convene an advisory panel to review AZ-004 in the fall or toward the end of the year.

Without details from the Alexza resubmission or insight into FDA's thinking, passing judgment on the staccato device is difficult. Be aware that FDA, historically, has set a high safety bar for companies seeking to develop inhaled drugs, although such drugs have been approved. i.e., Nektar's Therapeutics ( NKTR) inhaled insulin.

I have doubts about the clinical utility of an inhaled drug for schizophrenia because I don't see the advantages over injections, especially in the hospital setting. However, an approval of AZ-004 will validate Alexza's drug-delivery technology and boost the value of its other pipeline products, some of which like migraine, panic attacks and insomnia, have certain advantages over current therapies.

Alexza ended last year with $42 million but the company needs to raise additional cash before the end of the third quarter. New money could come from the signing of a new development partner, but I have a difficult time believing any partner will sign on until FDA weighs in the lung safety of staccato.

Alexza shares fell below $1 following the FDA's rejection of AZ-004 last fall but the stock has rebounded, especially in the past couple of weeks after management reiterated plans to resubmit AZ-004 to FDA in July. Alexza closed Thursday at $1.70.

Hank O. emails, " Pharmasset ( VRUS) is on a remarkable run. Is this sustainable or justified? The hepatitis C drugs are so early in clinical trials."

Remarkable is an apt description for the roughly 50% move in Pharmasset's stock during March. And even with the stock at $78 now, Pharmasset's enterprise value is still only around $2.5 billion compared to Vertex Pharmaceuticals' ( VRTX) $9 billion enterprise value.

Is Pharmasset way undervalued? Is Vertex a bloated pig? A bit of both, perhaps?

Vertex is well ahead of Pharmasset in the race to approval of their respective Hep C drugs, but the buzz is definitely in Pharmasset's camp, especially in regard to the drugs PSI-938 and PSI-7977, which the company owns full rights to. Data being presented on both drugs at the European Association for the Study of Liver Disease (EASL) meeting right now bolster the promising data previewed in research abstracts released in early March.

Pharmasset's drugs are still in phase I and phase II studies, but in Hep C drug development, a lot can be learned about the efficacy of drugs from early studies. Strong results tend to hold up when drugs are later tested in phase III studies. Safety remains the biggest question mark that isn't necessarily answered until larger studies are conducted.

For PSI-938 and PSI-7977, the big concern was whether patients would be susceptible to relapse either during or after treatment. So far, however, that hasn't appeared to be an issue with either drug.

To answer Hank's question more directly: Yes, Pharmasset's run appears to be both sustainable and justified.

El796 asks, "Do you know anything about the company that was bought by RXi Pharmaceuticals ( RXII)? They have a phase III breast cancer vaccine."

RXi is a company developing RNAi drugs, yet on Thursday, it acquired privately held Apthera, developers of a breast cancer immunotherapy known as NeuVax which is moving into a pivotal phase III study. Acquiring a late-stage cancer drug can be expensive, but RXi gets Athera for 4.8 million shares of common stock. Total value of the deal: $7.2 million, based on RXi's stock price when the deal was announced.

So, $7.2 million for a phase III breast cancer drug?

"We got a very, very good deal," says new RXi CEO Mark Ahn, in a phone interview Thursday. The other news Thursday was Ahn's ascension to the chief executive spot, replacing Noah Beerman, who left the company for reasons not entirely clear. Ahn was already an RXi director.

Apthera found it difficult to raise money to advance NeuVax into phase III, says Ahn, explaining why RXi was able to gobble up the company so cheaply. Apthera, indeed, presented phase II data on Neuvax in 2008 and received a special protocol assessment from FDA for the phase III study in June 2009. After that, not much happened with Apthera until Thursday's announcement.

Neuvax is designed to stimulate the immune system in patients with breast cancer that express low levels of a protein known as Her-2. Similar patients who express high levels of Her-2 are typically treated with Roche's antibody cancer drug Herceptin.

In a phase II study, NeuVax reduced the risk of death and decreased disease recurrence compared to a placebo but the study was small and the results were not statistically significant. Based on these data, Apthera (now RXi) plans to conduct a phase III study of 700 women with low-expressing Her-2 breast cancer who have completed standard therapy, which includes surgery, radiation and chemotherapy. The study's primary endpoint is disease-free survival, which will take three to five years to determine.

RXi has about $11.5 million in the bank and will need approximately $20 million to complete the NeuVax study, so yes, the company will be raising cash.

What about RXi's pursuit of RNAi therapeutics? Is that taking a back seat to the company's new push into cancer immunotherapy?

No, says Ahn, who insists both pursuits are complimentary. RXi's efforts to develop RNAi drugs are still very early, in fact, the company won't even have an RNAi drug ready for human clinical trials until next year. Investors, however, aren't much interested in companies that don't have product development stories to tell, which is why RXi decided to buy Apthera, says Ahn.

"The RNAi field has sort of been pounded lately so consummating large deals has proven to be elusive even though the science has progressed," he says.

Perhaps that's why Beerman is no longer running RXi, since he promised investors a large RNAi partnership before the end of 2010. That deal never materialized.

"I can only focus on what I can control," says Ahn, declining to discuss Beerman's tenure or any unfulfilled promises he made. As RXi's new CEO, Ahn says his priorities will be to push the company's first RNAi drug into human testing next year as well as working to start the Neuvax phase III study, also next year.

After announcing the Apthera deal Thursday, RXi shares fell 12 cents to $1.38, so Ahn's new job will also entail convincing investors that an RNAi company can transform itself into a successful cancer vaccine company.

Chucky emails, "Looks like you got RPC wrong you Bleep. Bleep you Bleep.

My apologies, but that's the cleanest email about Radient Pharmaceuticals ( RPC) I could print following Thursday's announcement of results from a clinical validation study of the Onko-Sure cancer test.

Radient said preliminary results from the study showed Onko-Sure demonstrated a "significant advantage" over the CEA test in detecting early-stage colon cancer. The combination of Onko-Sure and CEA was also more effective than CEA alone, Radient said.

Radient shares closed Thursday up 9 cents to 54 cents.

A few thoughts on the results:
  • Radient provided no details or actual data in the press release, which is actually commendable given the company's recent "issues" with overly promotional press releases. Radient intends to present the data from the Onko-Sure study at a medical meeting and/or publish the results in a medical journal. Good.
  • Radient delayed the filing of its 10-K annual report with the Securities and Exchange Commission until on or before April 15. That should be a reminder to everyone of Radient's dire fiscal condition. Radient needs to raise cash to remain in business and sell Onko-Sure. The company is also dealing with delisting proceedings pushed by NYSE AMEX.
  • Much of what Radient disclosed about Onko-Sure's advantage over CEA in patients with early-stage colon cancer was already known but has not helped the company turn Onko-Sure into a commercially viable cancer diagnostic. Radient published a similar study last year essentially reaching the same conclusion, although CEA's performance overall was superior to that of Onko-Sure. Radient didn't say anything Thursday about the overall performance of Onko-Sure relative to CEA when all patient samples were analyzed.
  • The Radient story is far from over, despite what Chucky might believe.

--Written by Adam Feuerstein in Boston.

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Adam Feuerstein writes regularly for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in 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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