Analyst, Bullish on Mela, Misquotes FDA

Updated with response from analyst.

NEW YORK ( TheStreet) -- The chief U.S. medical device regulator did not tell Congress that rejecting Mela Sciences' ( MELA) skin cancer detection device was a mistake, contrary to what a Needham & Co. analyst told his clients last week.

Needham medical technology analyst Dalton Chandler published a research report last Wednesday in which he argued that the U.S. Food and Drug Administration may be under additional pressure to approve Mela Science's MelaFind skin cancer detection device because European regulators granted the company a CE Mark, or regulatory clearance, to begin selling the device there.

In his report, Chandler writes: "The head of the CDRH, the division reviewing the MELA application, is on record in congressional testimony saying that the original 'non-approvable' letter was a mistake and should not have been sent, and if the data support MelaFind approval (and we already know it does via protocol agreement) that the device would be approved."

But a review of the congressional testimony given this summer by Dr. Jeffery Shuren, director of the FDA's Center for Devices and Radiological Health (CDRH), shows that FDA's top medical device regulator said no such thing.

In response to a question about the FDA's handling of the MelaFind review, Shuren responded: "The decision the first time around not to have the device go to the advisory panel was wrong. The staff made the wrong call. It should have been allowed to go to advisory panel. It eventually was. It was supported. It was a very slim margin. It was 8-7."

Shuren, in his testimony, says his CDRH reviewers erred by not convening an advisory panel to review MelaFind before rejecting the device in March 2010. Shuren said nothing during his testimony about the FDA making a mistake by issuing a non-approvable letter -- FDA jargon for a rejection.

"I went back and reviewed Shuren's quote and I should have worded it his research note differently," said Chandler. Since Shuren acknowledged that his medical device reviewers should have brought MelaFind in front of an advisory panel, it means that FDA would not have sent Mela a non-approvable letter prior to the panel, he added.

Chandler says he is checking with Needham's compliance department to determine whether a public correction to his note is required. He has a buy rating on Mela Sciences. Mela is an investment-banking client of Needham, which has helped the company raise money from investors.

Shuren testified on July 20, 2011 as part of a congressional hearing into medical device regulation. A video of the hearing can be found here. Shuren's remarks about MelaFind referenced above can be found starting at the 3-hour 13-minute mark of the hearing.

MelaFind is a computer-enhanced imaging device that takes high-tech pictures of suspect moles and lesions to assist doctors in the early detection of melanoma, the deadliest form of skin cancer.

FDA rejected MelaFind in March 2010. Mela appealed the FDA decision and demanded the agency convene an advisory panel to review the device. The FDA agreed and a panel was held in November 2010, which voted 8-7 to recommend the approval of MelaFind despite the strenuous objections of the FDA's medical device review staff.

FDA reviewers sharply criticized the accuracy of MelaFind's skin-cancer detection results. FDA reviewers have also raised concerns about the potential for misdiagnosis of skin cancer that could result if MelaFind were used incorrectly.

Since the advisory panel, Mela has amended and resubmitted the MelaFind approval application, trying to satisfy FDA's concerns. The company has also tried to pressure the FDA politically and legally to approve MelaFind but to date, U.S. regulators have issued no decision on the device.

Mela shares were down 27 cents, or 8%, to $2.97 in Monday trading.

--Written by Adam Feuerstein in Boston.

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