Biotech Stock Mailbag: Neoprobe

BOSTON ( TheStreet) -- On Friday, May 20 from 11 a.m.to noon ET, I invite everyone to participate in the first Biotech Stock Mailbag live chat. This will be an opportunity to spend an hour discussing all things biotech and biotech investing with me.

The Biotech Stock Mailbag live chat will follow the same format as my well-received FDA advisory panel live blogs, except the focus will be on your biotech stock questions and comments. If this first live chat goes well, I'll schedule one each month.

Reminders of the May 20 biotech live chat will be posted later but for now mark your calendars and start thinking of some biotech stock topics you want to chat about.

Now onto your emails and questions:

Henry O. emails, "I recall a few months back you were going to write about Neoprobe (NEOP) but since then I haven't seen anything written by you. What do you think about the Lymphoseek results put out by the company this week? Is this a reason for you to get interested in Neoprobe now?"

Neoprobe says the phase III data released this week make a convincing case for the superiority of Lymphoseek over vital blue dye as a diagnostic tracing agent used for detecting the spread of cancer to lymph nodes. The study achieved all primary and secondary endpoints with statistical significance, and on most measures, Lymphoseek even performed better than it did in a previous phase III study.

But I'm a skeptic, everyone knows that, so I also went looking for the bear story. Is there something the Lymphoseek data are not telling us? Could Neoprobe's claim of Lymphoseek superiority over vital blue dye possibly crumble under regulatory review? It's always a good idea to know the long and short thesis of any stock you're considering buying, and, indeed, I found the short thesis on Neoprobe. More on this side of the story below.

Lymphoseek is a proprietary radioactive tracing agent designed for use during a surgical procedure known as intraoperative lymphatic mapping (ILM) or sentinel lymph node biopsy (SLNB). ILM is performed on patients during cancer surgery to determine if cancer has metastasized, or spread, from the primary tumor site into the lymph nodes. Once cancer gets into the lymphatic system, it can spread more easily to the rest of the body.

To prevent cancer from spreading, doctors perform an ILM procedure to identify which lymph nodes are closest to the tumor. Once these lymph nodes are found, doctors can remove them and test to see if they're cancerous. Most ILMs performed in the U.S. today rely on a combination of vital blue dye and an off-label radioactive tracing agent to map out lymph nodes.

The primary endpoint of the study measured the concordance rate of Lymphoseek versus vital blue dye, where vital blue dye was deemed to be the "truth standard" comparator. One hundred and fifty patients with melanoma or breast cancer underwent an ILM procedure yielding over 200 lymph nodes stained with vital blue dye. The ILM procedure was also performed with Lymphoseek in the same patients. The concordance rate was 100%, meaning Lymphoseek identified every lymph node picked up by vital blue dye.

Key secondary endpoints of the study switched the "truth standard" to Lymphoseek. When measured this way, vital blue day's reverse concordance rate was 60%, meaning that Lymphoseek was able to identify "extra" lymph nodes that vital blue dye missed. Importantly, some of these "extra" lymph nodes found only by Lymphoseek were later determined to be cancer. Lymphoseek's failed cancer detection rate was 0% compared to a failed cancer detection rate of 25% for vital blue dye. That's clinically significant since the goal of ILM is to determine whether cancer has spread to the lymph nodes, Neoprobe said.

These data, combined with data from a similar phase III study conducted earlier, make a convincing case for Lymphoseek, the company said. Neoprobe plans to submit Lymphoseek to the U.S. Food and Drug Administration in the third quarter. Before that happens, the data from the Lymphoseek study will be presented at the American Society of Clinical Oncology (ASCO) annual meeting, being held next month in Chicago.

The ASCO meeting will be a very important, early test for Neoprobe. Obviously, Neoprobe hopes oncologists who review the data there react favorably and endorse the company's claims about Lymphoseek's superiority.

ASCO, however, might also be the venue where a possible flaw in the Lymphoseek study could be brought to light, raising questions about the legitimacy of Neoprobe's assertions and upping the risk of an FDA rejection next year.

The bear story on Lymphoseek starts with criticism of the study design. The only legitimate way to compare the efficacy of Lymphoseek and vital blue dye is test both against a truly objective, independent truth standard. For cancer diagnostics, that would be a full nodal dissection, or removal and examination of the entire cluster of 20-30 lymph nodes in the region closest to the primary tumor.

In this type of study, patients would undergo ILM with both Lymphoseek and vital blue dye to determine how many lymph nodes each agent identified, and then how many of those flagged lymph nodes contained cancer. Instead of comparing the Lymphoseek and vital blue dye results against each other, the concordance of each agent would be compared, individually, against the findings of the total nodal dissection. The agent that identified the most cancer-containing lymph nodes compared to the total nodal dissection -- the real truth standard -- would be deemed superior.

Comparing the concordance of Lymphoseek to vital blue dye and vice versa produces meaningless results because either agent, on its own, is only capable of flagging a small percentage of the 20-30 lymph nodes in any region closest to the primary tumor. According to Neoprobe, Lymphoseek identified 2.4 lymph nodes per patient, while vital blue dye flagged 1.5 lymph nodes per patient.

The Neoprobe study might also be flawed because Lymphoseek was not compared to the current standard of care for lymph node mapping. As I said above, most surgeons perform ILM with a combination of vital blue dye and a generic radioactive tracing agent. Neoprobe only compared Lymphoseek to vital blue dye. Were Lymphoseek compared to vital blue dye and a generic radioactive tracing agent, the results might look far less positive.

Who's right? Did Neoprobe conduct the proper study, demonstrating conclusively that Lymphoseek should become the new standard of care for detecting the spread of cancer into the lymph nodes? Or, did the company make some crucial mistakes that call into question the legitimacy of Lymphoseek?

The ASCO meeting next month should be the place where investors start to get some of the answers.

As for Neoprobe's stock, shares have traded flat to down since the release of the Lymphoseek data Tuesday night -- not great but not surprising either given that Neoprobe shares already more than doubled in value this year. Neoprobe closed Thursday at $4.40. Current market valuation is about $660 million, calculated using a fully diluted share count of approximately 150 million.

Neoprobe has approximately $6 million in the bank so don't be surprised to see the company raise money soon. It will be interesting to see if the company tries to pull off a financing before the ASCO data presentation, or wait until after.

Neoprobe has a marketing partnership with Cardinal Health ( CAH) to sell Lymphoseek in the U.S., with a 50-50 revenue split. Neoprobe estimates the U.S. market potential for Lymphoseek to be around $450 million, maybe higher with premium pricing and reimbursement. The company will also be seeking European approval. I always view company revenue estimates with a healthy dose of skepticism, as should you.

Kurt T. asks, "Will you be updating your article from this morning about Spectrum Pharmaceuticals (SPPI)? I'm interested in hearing what the CEO had to say."

Spectrum CEO Raj Shrotriya called me Wednesday afternoon to answer some questions about the company's cancer drugs Fusilev and Zevalin that I had emailed to him earlier in the day. He also wanted to talk about my recent columns raising concerns about both drugs.

My inbox is awash in angry email since last Friday when I dared to question the ability of Fusilev to compete in the colon cancer treatment market once generic leucovorin is reintroduced later this year. And Spectrum fans were doubly pissed when I harped on the poor sales of Zevalin in the first quarter.

What you may not realize is that Shrotriya and I are old buddies. I've been covering Spectrum for years, going back to the unfortunate Satraplatin-FDA debacle of 200X. On the heels of that setback, I was writing about the prospects for the enlarged prostate drug ozarelix. I gave Shrotriya my support when he engineered the buyout of Zevalin from Cell Therapeutics and offered him a shoulder to cry on when Fusilev's colon cancer application was rejected the first time around.

The notion, therefore, that I'm a serial Spectrum basher is nonsense. But I'm also not going to sugarcoat problems when I see them. And right now, I see challenges ahead for Spectrum. With that, here's a recap of my chat with Shrotriya:

He's bullish on Fusilev in colon cancer, naturally and reiterated to me his belief that the drug can generate peak annual sales of $200 million with the colon cancer indication.

When does he seek Fusilev reaching $200 million in sales? Shrotriya wouldn't say, nor would he give more detailed guidance for the rest of this year. He acknowledges that generic leucovorin will return the market but he insists that doctors prefer the reliability and ease of use of Fusilev so much that they won't switch back to generic (and far less expensive) leucovorin even if the opportunity presents itself.

Insurance companies, also, will not have a problem reimbursing for pricier Fusilev over generic leucovorin, Shrotriya says.

I have my doubts. Fusilev sales totaled $35 million in the first quarter, a period in which Spectrum had the colon cancer market entirely to itself -- no competition from generic leucovorin. That puts the drug on a $140 million run rate. To reach $200 million in annual sales, therefore, Spectrum has to grow Fusilev revenue further off the first-quarter base and must do this with competition from generic leucovorin.

Hmm.

Shrotriya says it will be done, and he asked me to acknowledge my mistake when it does happen. I told him I would, of course, but Spectrum has to put up the Fusilev sales numbers first.

Regarding Zevalin, Shrotriya says Spectrum has not yet raised the drug's price but may do so later, perhaps if and when FDA removes the bioscan requirement that is hindering adoption. FDA is expected to make the bioscan removal decision on Nov. 20 and I'd guess Spectrum's stock price will likely run up into that important event.

Zevalin sales of $5.9 million in the first quarter were terrible and nothing Shrotriya said to me during our phone conversation or his remarks on the conference call Wednesday, adequately explains the shortfall. He's encouraged by what he says was a strong April for Zevalin, with $3 million in sales booked. If the trend continues, he added, Zevalin sales in 2011 will grow significantly over the $29.1 million booked in 2010.

But how much growth? Again, Shrotriya isn't giving specific guidance. Zevalin should be a $100 million-plus drug. That's what Shrotriya told me a couple of years ago when he re-launched Zevalin. You see, these long relationships pay off. He's nowhere close to reaching that goal yet, and the backsliding in the first quarter didn't help.

Lastly, Shrotriya was adamant about not having any plans to raise money in the near term. He said as much on Wednesday's conference call but Spectrum's 10-Q does state the company could raise money to fund new drug licensing or acquisition opportunities. Spectrum is also seeking shareholder approval to increase the authorized share count.

"We are a growth company, and as such, we need to plan for future growth," said Shrotriya, but he insisted the company has no plans to sell stock.

We may not agree right now, but I appreciate Shrotriya's phone call.

If we're not at the top of this frothy, speculative-crazed biotech market, we're damn close. How do I know? The Hostile React-o-Meter is spinning out of control on a daily basis.

Rick writes, "Adam, were you beat up as a child? Do you hate society? Why are you so negative on legit drugs? You need to relax there my man. Investors don't really appreciate your humor with things comparing a sleeping pill to a royal wedding...

"Listen up you angry little Bleep, just because you failed at everything in your life, doesn't mean you need to make everything around you a failure too. Go relax, have some kosher food, and think about ovens. Loaves of bread in the ovens (you probably didn't see that coming). When you put a loaf of bread in the oven it is a conglomerate of raw ingredients. As it begins to bake, the ingredients come to life and make a delicious bread. That is how biotechs are. Spectrum and Adeona ( AEN) are both raw ingredients just getting started. They do not need some angry little bleep with an bleep, bleep bleep trying to kill them off.

"Now go do the right thing and keep your mouth shut. The only reason you should open it is to change your position on these companies and their excellent products. May you have trouble sleeping and may you and your loved ones all get Alzheimer's. Bleep."

Greg, equally angry: "You have no Bleep job, Adam? Why lick Radient Pharmaceuticals ( RPC) again and again. You and your cheap living clowns need some money? Do you think you will go to hell with all these money? You are going to be dead and gone in 30 years. Why get the curse of others. Who are you making happy? Who do you think you are helping. Think about how and why you do all these. This is just disgusting Adam. You mother will not be proud at you at all."

John, also not happy: "Go Bleep yourself. Wonderfully unbiased piece and great timing. I hope you and your hedge fund buddies enjoy your profits. Just wanted to let you know that I will personally be in touch with the SEC regarding the numerous occasions on which you attempted to manipulate the market with timed publications over the past few years.

"Hope you don't have any electronic records of your indiscretions as I'm sure the SEC regulators will find them (they're getting quite good at this). Enjoy getting pounded in the bleep in jail. And once again thanks for using your position as a journalist for good and not evil."

This email from Awudu M. is one of my favorites: "Adam, you feel powerful and influential right about now for fueling a 13% drop in Spectrum on the day of FDA decision. I will not call you names because it is not constructive. Your article was one sided and on the negative side. As a journalist or analyst, you need to be fair and unbiased...

"You have said you do not benefit financially from the impact of such articles which i find hard to believe because there is not any logical reason for the negativity and timing of the article except for either ego or money.

"By the way, what do you think about Affymax (AFFY)?"

Love it! After ripping on me for being dishonest and financially conflicted, Awudu still wants to know my opinion of Affymax. I guess I'm not that bad.

Tony C. makes me want to pound my forehead into a wall:

"Adam I've read all your stories about the way you feel about Cell Therapeutics (CTIC). Obviously you are short the stock or something else. I am a retail investor that has been burned by 2 reverse stock splits and possibly another (it's only money) but the real money I invested in the stock was because I feel that pixantrone can make a difference in treating cancer. It may only be a small chance but nonetheless a chance. There just are too many people dying from cancer and trying a new drug is worth a shot. Of course it has side effects, but so does aspirin and other over the counter drugs out there that do not need FDA approval. Dr. Bianco is trying to help people get better, or at least last longer with this deadly disease."

You think Jim Bianco wakes up every morning and thanks the heavens for giving him investors like Tony? I do.

Last but not least, Brad B.: "It has been proven that you are hooked to another cancer screening test soon but not yet on the market. Because your comments always blow Radient to the wayside it is obvious you are trying to slow the progress and capital of Radient so they find fences in their way of progress. Your commentary is not appreciated or at all accepted and it again shows by the market advance of Radient. Stop the bleep and grow up."

Brad thinks I'm a paid shill for Exact Sciences ( EXAS) because I've written positively about its colon cancer-screening test. I tried to explain to Radient fans that if they were really interested in a test that could save lives by detecting colon cancer at its earliest and most treatable stage, they should be investing in Exact and not Radient.

Too bad my advice is lost on the Radient faithful. Year to date, Exact Sciences is up 22%; Radient is down 62%.

--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. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. 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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