Biotech Stock Mailbag: Peregrine, Arena, Dendreon, NPS Pharma

BOSTON ( TheStreet) -- The Biotech Stock Mailbag is back for its seventh year!

Seth T. writes: "I checked your site but couldn't find anything on Peregrine Pharmaceuticals (PPHM) and the update on the bavituximab data. How do you judge the company's conclusions in regards to this matter? I'm hesitant to give them the benefit of the doubt after what happened but perhaps bavituximab has a future role to play in lung cancer. I appreciate your thoughts."

I didn't get a chance to write about Peregrine's bavituximab update because I was busy covering the JPMorgan Healthcare Conference. I did tweet my thoughts (snarkily):

Peregrine's attempt to resurrect the bavituximab second-line lung cancer data is a colossal waste of time. The data are corrupted and nothing the company says or does will change that fact. Peregrine claims drug vial coding discrepancies were isolated to placebo and the 1 mg bavituximab dose, leaving the 3 mg bavituximab vials pristine.

Peregrine believes a "conservative" approach to resurrecting the lung cancer study results will be to combine the placebo and 1 mg bavituximab doses into a single control arm, which can be compared against the 3 mg bavituximab dose.

Nonsense. For starters, the evidence by which Peregrine concludes only the placebo and 1 mg bavituximab vials were corrupted is ridiculously flimsy. The company has only managed to obtain full pharmacokinetic (drug blood level) data on 18 of 120 patients in the study, according to an investor who met with Peregrine executives last week.

Pharmacokinetic data is the only way to determine which patients truly received drug or placebo. Peregrine also has antibody data on patients but this information can't distinguish between the 1 mg and 3 mg bavituximab dose, so it's not helpful.

Even if we buy into Peregrine's spin, the consolidation of the placebo and 1 mg bavituximab dose into a single control arm is absurd. Peregrine doesn't have the right to write its own rules governing data analysis. Again, if you believe the 3 mg bavituximab data are clean (which I don't), then the best Peregrine can do is throw out the placebo and 1 mg bavituximab data entirely, turning the phase II study into a single-arm, uncontrolled trial from which no conclusion on a survival benefit can be made.

"With the results of this review in hand, we are now in the process of updating potential partners and moving the program forward," said Peregrine CEO Steven King, in the company's Jan. 7 statement.

Good luck with that, Steve. You had no interested partners before the bavituximab trial blew up. To believe anyone will come knocking on your door now strains the bounds of credulity.

David F. takes issue with my criticism of NPS Pharmaceutical's ( NPSP) decision to price Gattex, the recently approved short bowel syndrome drug, at $295,000 per year. Gattex doesn't deserve to be priced like other ultra-orphan drugs, I said.

David responds:

"Incredibly insensitive comments about short bowel syndrome. Being on parenteral nutrition (especially for patients who require it for 24 hours) is living death for those guys. You might as well have questioned the value of helping DMD kids to walk. We all die eventually anyway, right? I'm stunned at the hypocrisy as you cheer for Sarepta Therapeutics to price a drug at $300,000 while simultaneously making unfounded insinuations about NPS Pharmaceuticals seeking the same price. Both companies deal with a small number of doomed, hopeless patients. By raising a stink on orphan drug pricing, all you will do is kill the goose that lays the miracle drugs. No company will invest billions for a small-market drug if it can't charge high prices. That's the economics of it. Eliminate the payoff, and there will be no miracle drugs in the future. Being an investing skeptic doesn't mean you have to be anti-patient."

I recognize the living hell that short bowel syndrome (SBS) patients endure every day. The testimony given by patients at the Gattex FDA advisory panel was moving and convincing. I'm not advocating restrictions on the use of Gattex by SBS patients, but I am questioning whether a price tag of $295,000 is justified given that Gattex doesn't cure SBS. A majority of SBS patients taking Gattex will still require parenteral nutrition, which means their overall cost of therapy goes up, not down. Only a minority of patients will benefit enough from Gattex to eliminate the need of parenteral nutrition.

That makes Gattex a supportive care therapy and not what I consider an ultra-orphan therapy like Vertex Pharma's ( VRTX) Kalydeco for cystic fibrosis. Kalydeco corrects the underlying cause of cystic fibrosis for a small segment of patients. The benefit from the drug is profound and worthy of a super-premium price. In my mind, NPS and Gattex don't pass that test. I worry that NPS Pharma is going to run into payer resistance to Gattex reimbursement.

NPS Pharma shares have traded essentially flat since Gattex pricing was disclosed on Jan. 2. That tells me the market is taking a wait-and-see attitude to the Gattex launch.

Mark emails: "Adam, I have been following your comments on Arena Pharmaceuticals (ARNA) and Vivus (VVUS) for five months now. Don't you believe it's time to throw in the towel and admit you are wrong? Vivus has lost 40 to 50% of its value, Arena is up 25%-30%. Any hedge fund owning Vivus presents overhead resistance, not support. Although both companies are well capitalized, Vivus is much more at risk than Arena. Arena's partner is financing 90% of their expansion. Arena is in the enviable position of deciding whether to bring eventual European acceptance of their drug to market by themselves or use their money to invest in a secondary biotech."

I'm not a Vivus bull. Arena fans thinking otherwise are mistaken. I was out front in predicting a disappointing Qsymia launch and warned Street estimates were too high, before the stock sold off.

Mark's correct about Arena shares rising in value as we get closer to Belviq's projected first-quarter/second-quarter U.S. commercial launch. To me, Arena's $2.4 billion enterprise value makes me more bearish, not less. I agree with the fundamental bear thesis on the Belviq launch laid out by my former contributor Nate Sadeghi. If anything, Sadeghi's call was too early. I'm looking forward to Belviq hitting the market because all the talk will end and we'll finally start seeing disappointing prescriptions and sales.

Arena at $10 plus change is over-valued. Let's look at the numbers:

Using a generous six-times multiple for Belviq, Arena's current $2.4 billion enterprise value implies $400 million in royalty revenue. Arena gets roughly one-third of Belviq's economics, which again, implies $1.3 billion in Belviq sales already baked into Arena's market value.

If Belviq costs $2,500 per year, Arena and Eisai need 520,000 patients on the weight loss drug for a full year in order to generate $1.3 billion in sales. More than half of Belviq patients in the clinical trials failed to lose a minimum 5% of their baseline weight after 12 weeks, so assuming patients will stay on the drug for a year in the real world is a pipe dream. If patients stay on the drug for six months, Arena and Eisai need 1 million patients just to generate the Belviq sales already baked into Arena's valuation.

That's not going to happen.

One more note: The European Medicines Agency did not take any action on Belviq during its January CHMP meeting, which just wrapped yesterday. This is bound to disappoint Arena retail investor supporters convinced European regulators were going to approve Belviq this month. I believe Europe will reject Belviq. The next CHMP meeting takes place in February 18-21.

@JkHopkins2084 tweets, "You been noticeably quiet on $DNDN. You practically declared them bankrupt. You still maintain your doomsday view?"

Dendreon ( DNDN) shares are up 20% since the end of the year on investor optimism about management finally getting its act together and growing Provenge sales after a year of disappointing, flat sales.

To use your analogy, if I were a Dendreon doomsday clock, I'd probably tick back slightly from midnight. Instead of 11:57 pm, maybe I'm at 11:55 pm now. Dendreon's business seems to be improving but I question how much and whether Provenge sales can grow enough to move the stock significantly.

Dendreon pre-announced in-line fourth-quarter sales of $81.6 million (excluding the $3.8 million favorable accounting adjustment.) The company is doing a better job convincing community urologists to prescribe Provenge, which may or may not be helped further by direct-to-consumer advertising campaign that will start this year (costing $5 million per quarter.)

Break-even remains at $100 million in Provenge sales per quarter so Dendreon still has significant growing to do. But even if the company gets to break even, meaningful profitability remains a distant goal -- and with a $1 billion valuation already.

Historically, companies get one chance to launch a drug right. Dendreon blew that chance already, so a true and meaningful recovery in the Provenge franchise, if pulled off, would be an unusual feat.

Back to Arena: Scott writes, "I recommend you quit bashing Arena. The article you put out today is incorrect. The article suggests that people short Arena. This article is not correct. I have called Arena and let them know about your article. Plus you are only negative on this company. Are you shorting? Please don't put out negative stuff on Arena if it isn't true. If I feel you are bashing Arena and you have incorrect information in an article written again I may need to get a lawyer. I recommend you do some dd sic on Arena before you put out false information."

Responding to Scott's email would be unfair piling on, so I'll just keep my mouth shut.

George writes, "Just who is paying you to write the blatantly negative articles on Arena Pharmaceuticals? You have repeated some of the pieces ad nauseum sic time after time and often just before important news is about to arrive. My guess is your latest two, yes two at one time, a new low, is because Eisai is just about to announce a launch date for Belviq when the DEA finalise sic Schedule IV and Arena receive a landmark $65 million payment. Sorry that you will have to report back to your masters eventually that despite all your heroic rear guard actions, their shorting of Arena was totally misguided and they have lost millions."

Bob W. writes, "Just who is paying you to write the blatantly negative articles on Arena Pharmaceuticals? You have repeated some of the pieces ad nauseum sic time after time and often just before important news is about to arrive. My guess is your latest two, yes two at one time, a new low, is because Eisai is just about to announce a launch date for Belviq when the DEA finalise sic Schedule IV and Arena receive a landmark $65 million payment. Sorry that you will have to report back to your masters eventually that despite all your heroic rear guard actions, their shorting of Arena was totally misguided and they have lost millions."

Huh. George and Bob's emails are identical, even down to the misspelling of "ad nauseam" and "finalize." If I were paranoid, I'd think there was a conspiracy afoot to pump shares of Arena!

-- Reported by Adam Feuerstein in Boston.

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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