CAMBRIDGE, Mass. ( TheStreet) -- AVEO Oncology ( AVEO) has had a difficult time since its lead cancer compound tivozanib was roundly panned at a May 2 FDA advisory panel. By a 13-1 vote, experts on the FDA's panel concluded tivozanib did not demonstrate a favorable risk/benefit for the treatment of advanced kidney cancer. Despite scathing critiques of the design and conduct of Aveo's phase III trial, a deeper look at the data demonstrates tivozanib's efficacy is actually fairly similar to previously approved kidney cancer drugs. While the phase III trial might not be completely predictive of future success, at the very least, the trial is strong enough to justify an AVEO valuation above cash on hand. There has been a lot written about the mistakes made by Aveo in designing and conducting the tivozanib study, and how these errors could have -- and should have -- been avoided. Setting aside that debate, I want to look at the tivozanib data in isolation to see what they say about the actual clinical activity of the kidney cancer drug. In particular, the FDA advisory panel compared tivozanib to seven other drugs approved in kidney cancer: Onyx Pharma's ( ONXX) Nexavar, Pfizer's ( PFE) Sutent, Inlyta and Torisel, Novartis' ( NVS) Affinitor, Roche's ( RHHBY) Avastin and GlaxoSmithKline's ( GSK) Votrient. Are the tivozanib data dramatically out of sync with the trials results of the approved drugs? Chemist and pharmaceutical analyst John Tucker (@JohnTuckerPhD on twitter) conducted an analysis correlating progression free survival (PFS) with overall survival (OS) for all seven drugs to determine the tivozanib results from Aveo's phase III trial were anomalous. If the tivozanib trial produced flaw results in terms of either PFS or OS, then it should appear outside of the correlation seen with the approved drugs. I've reproduced Tucker's analysis below:
One of the first things to note is the relatively strong correlation between PFS and OS among the seven approved drugs. The blue diamonds represents the approved drugs with the regression line superimposed. The only real outlier is Torisel (the blue diamond sitting by itself below the regression line) with a median PFS of 5.5 months but a median OS of only 10.9 months. Based on the regression line, Torisel's median OS should have been closer to 15 months. Now, look at how closely tivozanib (the red square) hews to the regression line. The median OS is slightly longer than one would expect given the median PFS but certainly within the margin of error. It's difficult to argue from these data alone that tivozanib is not an active kidney cancer drug -- perhaps the most effective drug compared to its peers, in fact.
The PFS/OS data from the Nexavar arm of the pivotal Aveo study (the green triangle) is another outlier on the graph. With a 9.1 month median PFS, the expectation would be for a median OS of around 22.5 months. If the median OS of the Nexavar control arm were even in that range, the OS hazard ratio for the tivoazanib phase III trial would have been under 1 (a positive survival trend) instead of 1.25 (a negative survival trend) and the vote of the FDA advisory panel might have gone Aveo's way. The OS anomaly in the Nexavar arm is also consistent with the argument that crossover in the control arm affected the OS results. While this does not prove the tivozanib results were completely accurate, the data seem more consistent with the contention that the Nexavar arm was atypical. What does this analysis mean for tivozanib's future? Given the flaws in the trial design, I do not believe it was necessarily wrong for the FDA advisory panel to vote against tivozanib. With that said, the similarity between tivozanib and previously approved kidney cancer drugs implies the former is active. A better designed phase III study would likely produce data to support approval. But let's try this: Ignore everything we know about Aveo's history and its more recent mistakes, and just view the stock as an oncology company with a phase II asset. Let's further assume the previous tivozanib phase III trial was really a phase II trial that provided evidence -- but not proof -- of efficacy. As an investor, ask yourself: How many companies such as this trade at a discount to cash on hand? Almost none ( see Clovis Oncology, Verastem and Geron Corporation as comparable) unless there is a real question about viability. The FDA advisory panel punished Aveo for its poor trial design and the market has punished the company for the negative vote of the advisory panel. At $2.75, Aveo has lost almost 70% of its market value. That's an overreaction, in my opinion, given the tivozanib data and comparable biotech valuations. A more reasonable valuation is justified. It may take time and don't be surprised to see Aveo raise more money, but I see Aveo eventually trading for $5-6 per share based on tivozanib's potential. Sobek has no position in Aveo or any other stocks mentioned in this column.