Affymax Is Done. RIP.

PALO ALTO, Calif. ( TheStreet) -- "Funereal" is the word that best describes Affymax's ( AFFY) Monday morning conference call. It's hard to conjure an optimistic scenario by which the company recovers from the recall of Omontys. Even if the anemia drug remains on the market, why would kidney dialysis centers risk using it when safer options are already available?

Affymax shares are down 85% to $2.50 in Monday trading.

Three kidney dialysis patients died in February from severe allergic reactions within minutes of receiving a first dose of Omontys, Affymax disclosed Monday. Overall, 2 patients in 1,000 experienced allergic reactions to Omontys, with one third of the cases considered serious.

Affymax and partner Takeda Pharmaceuticals recalled all lots of the product on Saturday and all dialysis centers were instructed to stop using the drug. Affymax wouldn't say Monday if FDA forced the Omontys recall but did say the agency knew about the patient deaths and severe allergic reactions in advance of the companies' decision to recall.

The monthly anemia drug was approved last March. While hypersensitivity reactions to Omontys were reported in clinical trials, they were far less severe than what's being seen now that the drug is being used commercially.

Technically, Omontys has not been withdrawn from the market but can it recover? Like Boeing ( BA) and the Dreamliner batteries, Affymax first must figure out the cause of the problem, then come up with a fix and test it. At this point, Affymax doesn't know why some patients are suffering severe allergic reactions to Omontys and the company has no timetable for answers. FDA, of course, will need to weigh in on any changes to Omontys, adding to the delays.

If Boeing fixes or replaces the Dreamliner batteries, airlines and flyers are likely to embrace the new plane. Affymax's customers -- patients and kidney dialysis centers -- aren't likely to return so easily because Amgen's ( AMGN) Epogen is a readily available alternative with a much longer and safer track record. Amgen shares were up 4% to $90.13.

Affymax and Takeda were hoping the convenience and cost savings of Omontys would help steal market share from Amgen's Epogen in the kidney dialysis market for anemia drugs. Omontys seemed to be making inroads with Fresenius, one of two large kidney dialysis service companies in the U.S. Davita ( DVA) is the other. The Omontys recall, however, likely diminishes Fresenius' desire to sign a long-term supply contract.

Biogen Idec ( BIIB) was forced to pull Tysabri off the market because the multiple sclerosis drug was found to cause a serious and often fatal brain infection in a small percentage of patients. Biogen was able to return Tysabri to the market because the drug was very effective in treating multiple sclerosis -- more so than competing MS drugs. Patients demanded the Tysabri's return, believing the safety risks were acceptable. FDA agreed.

Affymax isn't likely to find kidney dialysis patients clamoring for Omontys' return. The drug's benefits aren't compelling enough and the risks too great, particularly since anemia can be treated just as effectively with Epogen.

Omontys sales in the first nine months of 2012 totaled $34.6 million, compared to Epogen sales of $1.5 billion in the same time period. With the recall, closing that chasm further will be a real challenge and with no other drugs in development as a backup, investors are right to question why Affymax shouldn't just shut down.

-- 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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