Biotech Stock Mailbag: YM Bio, Hemispherx, Navidea

BOSTON ( TheStreet) -- This week's Biotech Stock Mailbag opens with a question from Jeff N. "Adam, I wanted to get your feedback on your prediction for a takeout of YM BioSciences ( YMI)."

Whoa, slow down, Jeff. Let's not set the bar for YM Bio at an unattainable height. Investors are anxious enough already over the interminable wait for YM Bio to negotiate a partnership for the myelofibrosis drug CYT387.

On the partner front, YM Bio CEO Nick Glover says the company continues to "conduct a robust business development campaign aimed at exploring potential opportunities to further develop and commercialize the drug with other companies ..."

Oy, that's painful to read.

Chatterboxes hanging around the biotech water cooler speculate that YM Bio is in serious partner negotiations, and the delayed start of a phase III study of CYT387 may actually be a signal of an imminent deal because potential partners want a say in the final design of that study (or studies).

YM Bio's guidance for the CYT387 phase III start has been a moving target (first, summer 2012, then second half 2012) that's now vanished. On its latest quarterly update issued Sept. 21, discussion of the phase III start was conspicuously absent. (Hence, the speculation about a deal.)

It's entirely possible the opposite is true and YM Bio is nowhere close to finding a partner for CYT387. Investors won't be happy if the company goes solo into phase III. YM Bio has enough cash to run a phase III study on its own but the stock will benefit greatly from the validation that comes from a partnership.

The idea that potential partners want input into the design of the CYT387 phase III studies is plausible given the different options on the table. The lowest-risk study YM Bio could run would be to compare CYT387 against placebo/best supportive care. This is the same trial design used by Incyte ( INCY) to get Jakafi approved in myelofibrosis. But with Jakafi approved in the U.S. and Europe, will doctors and patients want to participate?

The riskiest study design -- but also the one with the biggest jackpot if successful -- would be to run a head-to-head study of CYT387 against Jakafi. Personally, I'm rooting for this option. If YM Bio believes CYT387 is the superior myelofibrosis drug, then why not prove it definitively? High risk but high reward.

The other variable under consideration is trial endpoints. Jakafi was approved based on a primary endpoint that measured spleen reduction. That would be fine for CYT387 too, but it wouldn't capture data on anemia benefit/transfusion independence -- the drug's key differentiating characteristic. YM Bio must be thinking of way to design its phase III studies with either primary or secondary endpoints that will allow it to get anemia benefit data into CYT387's label, if approved.

YM Bio is two to three years beyond Incyte in the myelofibrosis treatment market. To catch up, YM BIO needs to be bold and produce data from phase III studies that will give doctors a compelling reason to prescribe CYT387 over Jakafi.

While we wait for YM Bio to announce phase III plans or a partnership (or both), the company will be presenting updated data from earlier studies of CYT387 at December's American Society of Hematology annual meeting. We last got meaningful clinical data on CYT387 at last year's ASH meeting.

YM Bio has traded sideways for the past year. Even with the new cash raised by YM Bio in 2012, the company's $277 million market value is still small compared to Incyte's $2.3 billion. That valuation gap should narrow, although I've been saying the same thing for more than a year and it hasn't happened.

I'd be happy to address any substantive argument for why FDA will approve Ampligen, the chronic fatigue syndrome drug from Hemispherx Biopharma ( HEB). So far, most of the responses to my column this week have been the "%^&* YOU, SHORT-SELLING SCUM!" variety. Funny but not very persuasive.

Biotech trader @sheffstation believes the changing environment at FDA -- regulators more sympathetic to patients groups, taking a more proactive, friendly manner with regards to drug approvals -- works in Hemispherx's favor.

Says Sheff: "A key point is that it took FDA only 13 days to accept the Ampligen NDA from their submission ... When does the FDA ever move this quickly? I take this as a very positive sign ..."

What Sheff forgets is that Hemispherx did not file a New Drug Application (NDA) for Ampligen this time around. The company filed a response to the FDA's complete response letter issued three years ago. Under FDA regulations, "an acknowledgement of receipt letter for the resubmission will be issued within 14 calendar days of receipt of the resubmission stating the classification of the resubmission and the performance goal date."

Hemispherex filed the Ampligen resubmission on Aug 1. On Aug. 14, the FDA acknowledged the receipt of the Ampligen resubmission and assigned a six-month review.

To answer Sheff's question, the FDA always moves this quickly when acknowledging a resubmission to a previously issued complete response letter. Hemispherx didn't receive special treatment at all.

The more relevant question to ask: Why did it take Hemispherx three years to refile Ampligen with FDA?

A related question from @ssseeker: "Why is the Hemispherx short position only 2.3% of float if you're so sure Ampligen will not get approved?"

Hemispherx shares trade for less than a buck already. Retail investors might think it fun to short a sub-$1 stock but most institutional investors wouldn't bother. The low short interest reflects indifference, not confidence, in Hemispherx.

@shakes2222 disagreed with my assertion that Navidea Biopharmaceuticals ( NAVB) is over-valued because actual Lymphoseek sales -- whenever the product is launched -- will fall far short of expectations.

"So, every analyst has it wrong on NAVB? Does pipeline add value?" he asks. "If pipeline didn't matter, all start-ups would be worthless."

In this case, I do believe that every sell-side analyst covering Navidea will be proven wrong. Their Lymphoseek sales estimates are way too high. I laid out my own sales projections in the column, so we now wait to see who's right. I like my chances.

I didn't discuss Navidea's pipeline because it's thin and not worth much:

RIGScan is a radio-labeled antibody designed to target and collect inside colon cancer cells. A surgeon uses a probe to detect the antibody-soaked cancer tissue and remove it.

Interesting idea except Navidea has been trying to develop RIGScan for 16 years without success. The main problem is that U.S. and European regulators won't approve the agent unless Navidea runs a clinical trial proving that use of RIGScan during colon-cancer surgery improves patient outcomes. An outcomes-based trial in colon-cancer surgery would be very large, lengthy and expensive, so naturally, Navidea has tried to persuade regulators to drop the requirement. That strategy has failed. Assigning value to RIGScan at this point would be overly generous.

AZD4694 is an experimental Alzheimer's imaging agent that binds to beta amyloid plaques and can be detected using a PET scan. Investors get excited when companies develop Alzheimer's-related products because the potential market is so large.

A couple of problems with Navidea's development of AZD4794: 1. The company is well behind Eli Lilly ( LLY), which bought Avid Pharmaceuticals and its very similar Alzheimer's imaging agent Amyvid in 2010. Amyvid sales to date have been minimal. 2. Detecting amyloid may be a meaningless exercise because current research hasn't yet proven that using drugs to clear these protein plaques from the brain plays any role whatsoever in improving cognition or memory. So far, all the amyloid-clearing drugs studied -- like Lilly's solaneuzumab and Elan's ( ELN) bapineuzumab -- have failed spectacularly.

Altropane is a radio-labeled imaging agent to aid in the diagnosis of Parkinson's disease. Navidea licensed the phase III-ready agent from a private company for $175,000 and 300,000 shares of Navidea common stock. Why do doctors need a radio-labeled agent to detect Parkinson's disease?

Whatever small value you attach to Navidea's pipeline still can't justify the company's current valuation tied much more to Lymphoseek.

--Written by Adam Feuerstein in Boston.

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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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