Biotech Stock Mailbag: PTC Therapeutics, Vanda, MannKind

BOSTON ( TheStreet) -- An email from D.H. kicks off this week's Biotech Stock Mailbag.

Do you have any thoughts on PTC Therapeutics (PTCT)? They are in the process of going public. It is an interesting example of post-hoc subgroup analyses. Would be interested in seeing an article on this.

PTC Therapeutics went public Wednesday night, selling 8.4 million shares at $15 and raising about $114 million. That's a decent haul for a company developing a drug with a spotty clinical and regulatory track record. The stock closed Thursday, it's first trading day, up 10% to $16.49.

Existing PTC investors bought a bit less than 40% of the shares sold during Wednesday night's public offer, which takes some of the shine off the first-day trading performance.

PTC's lead drug ataluren is designed to treat patients with genetic disorders arising from so-called "nonsense mutations" which cause cells to produce shortened and malfunctioning proteins. Ataluren is supposed to act like a detour around the nonsense mutation, allowing cells to produce full-length, functional proteins.

Ataluren's mechanism of action is similar to the drugs being developed by Sarepta Therapeutics ( SRPT) and Vertex Pharmaceuticals ( VRTX) for Duchenne muscular dystrophy and cystic fibrosis, respectively. In fact, PTC is targeting DMD and CF as lead indications for ataluren, although for subgroups of patients with different mutations so not directly competitive to either company.

Sounds promising, except ataluren has a bad habit of failing clinical trials. A phase IIb study conducted a few years ago in DMD patients with nonsense mutations failed to show a significant walk benefit. Likewise, a phase III study of ataluren in cystic fibrosis patients failed to demonstrate a benefit in lung function.

Despite the clinical setbacks, PTC is pushing ahead with ataluren's development based on promising hints of efficacy observed in subgroups of patients enrolled in the previous studies. These are the "post-hoc subgroup analyses" that D.H. refers to in his email.

There's some validity to PTC's approach, particularly in DMD where we know now that younger kids and those with higher baseline walking ability tend to have disease that progresses more slowly i.e. the loss of muscle function and walking ability of these "less sick" kids doesn't decline as rapidly. This makes it harder for any DMD drug to demonstrate a benefit.

PTC's phase IIb study enrolled a good number of these "less sick" DMD kids in addition to older kids with more advanced disease. Excluding the former and including only the latter in a post-hoc efficacy analysis showed a more profound ataluren benefit.

For the ongoing phase III study, PTC narrowed enrollment to DMD kids 7 or older and those with baseline six-minute walk tests of 350 meters or less. These are the kids who seemed to benefit more from ataluren in the phase IIb study.

It's not a crazy thesis. Sarepta also enrolled older kids with more advanced disease in its eteplirsen phase II study for exactly the same reasons. While I'm generally skeptical of conclusions derived from post-hoc sub-group analyses, PTC's theory makes sense.

Where ataluren falls short -- and why the ongoing phase III study in nonsense mutation DMD carries a high risk of failure -- is the absence of dystrophin production.

Ataluren, by design, should boost the production of functional dystrophin, the protein that supports muscle function. DMD is caused by genetic mutations that prevent cells from producing functional dystrophin.

Except ataluren doesn't cause an increase in functional dystrophin. PTC blames compromised muscle biopsy samples in the phase IIb study for the inability to correlate dystrophin production to improvements in six-minute walk tests. Perhaps, but Sarepta didn't have that problem.

PTC doesn't seem to be measuring dystrophin production in the phase III DMD study either, which is weird if ataluren works the way the company say it does.

Top-line results from the ataluren phase III study in DMD are expected in the middle of 2015.

Right now, PTC is trying to convince European regulators to approve ataluren for DMD based on the post-hoc analyses of the failed phase IIb study. By the company's own admission, European regulators haven't been receptive to the idea. They want to see more data.

Last thing, let me emphasize again that PTC's ataluren is not directly competitive to Sarepta's eteplirsen. Same overall disease, but the drugs are directed at different mutations.

Following up on my dissection of Vanda Pharmaceuticals' ( VNDA) sleep disorder drug tasimelteon:

Vanda's FDA submission for tasimelteon has a lot of problems, as I documented Wednesday, but almost all are clinical review issues and therefore unlikely grounds for the agency to slap down a Refuse-To-File letter. The FDA has plenty of reasons to reject tasimelteon after a proper review.

Kishore S. writes:

"Good article and you seem to have uncovered some points/facts that the whole world missed out on including Baker Brothers. Is it possible that everyone was so blind to the obvious that small investors like me have to get burnt so badly? Anyway, good job on adding up the numbers where all the other experts are blind."

The lesson here is know what you own. Do your own homework. Don't just buy a stock because a big hedge fund owns it.

Avery_t writes:

Even if tasilmelteon doesn't work for its initial target population or end goal, it might still be a great sleep agent for the general population of insomniacs, who have very, very few choices. Any compound that induces sleep without A) being addictive or B) lowering the quality of sleep is a potential gold mine. It could be a paint thinner that's discovered to work as a sleep agent. It doesn't matter.

Takeda tried with this approach with Rozerem but failed badly. Rozerem (scientific name: ramelteon) is very similar structurally to tasimelteon. Both drugs are melatonin agonists that hit the MT1 and MT2 receptors in the brain. (Unlike other sleep drugs, like Ambien, which works against GABA receptors.)

Rozerem was approved as an insomnia drug in 2005, which led to this memorable commercial featuring Abe Lincoln and a talking beaver.

Great ad. Unfortunately, Rozerem is a mediocre prescription sleep aid.

You have to go back a bunch of years, but Vanda's original idea was to develop tasimelteon as a sleeping pill. Phase III studies were run which produced okay results -- nothing spectacular. But then Rozerem was approved and flopped commercially, forcing Vanda to go disease-shopping for another way to develop tasimelteon. That's how the idea of using the drug to treat non-24 was hatched.

Tasimelteon has no alternative future as a regular sleeping pill.

Lazard Capital analyst Josh Schimmer is the sell-side's most vocal Vanda table pounder. On Wednesday, citing his "access to management," Schimmer came to tasimelteon's defense:

The FDA worked with VNDA during SET/RESET to optimize endpoint selection. As such, we have little concern that the endpoints shifted over time, and the company was not changing endpoints surreptitiously in response to blinded or unblinded data. Phase 2 results revealed too much noise exists in N24 to use TST as an endpoint, so the FDA recommended more suitable assessments. The ultimate choice of endpoints was finalized in conjunction with the FDA before the data set was locked. The primary endpoint of entrainment was selected as a true measure of the disease's root cause and is strongly supported by KOLs. As a biomarker, however, it was important that secondary endpoints which capture the effects of tasimelteon were positive, which they were. The N24 Clinical Response Scale was created by the company, but validated in the SET/RESET studies by key secondary endpoints. Furthermore, the FDA agreed in the pre-NDA meeting that the data were adequate to support approval.

Schimmer engages in some wishful thinking. The FDA told Vanda during a pre-NDA meeting that the tasimelteon data "were adequate to support approval." Really? That's a remarkable statement for Vanda to make because it re-writes decades of regulatory regulations and precedent.

Why spend 10 months reviewing a drug for safety and efficacy when it can be done over the course of a 60-minute pre-NDA meeting?

I'd like to hear more from Schimmer or Vanda explaining precisely how the clinical response scale -- made up by Vanda during the last months of the tasimelteon trial -- was "validated" by other endpoints in the same trial.

I always believed entirely new, never-before-used clinical endpoints could only be validated independently or in separate clinical trials.

And if these other endpoints validated Vanda's made-up and arbitrary primary endpoint, why didn't the company just use the other endpoints?

Schimmer should use his "access to management" to obtain definitive proof of FDA's agreement to a total re-do of the tasimelteon study one month before results were announced. Unlike sell-side analysts, investors (successful ones, at least) don't fall for the "Trust, us, FDA is totally on board" song and dance routine.

My inbox is filled with MannKind ( MNKD) supporters heckling me for being wrong about the stock. Tim H. is representative:

You have recently written about the predicted failure of MannKind and itsshares. You even used some diabetes "expert" to further your views. But, itseems you failed. The shares have exploded in the last 2 1/2 months. I suspectyou have lost a lot of relevance (assuming you had some at some point). $1.75Billion now.

Mannkind's stock price is up $190% this year so I can understand why Tim H. wants to declare victory over the bears. But stocks are fickle, they go up and down. Mannkind shares did a lot of the latter this week, falling 15% through Thursday.

The run-up in Mannkind's stock price ahead of this summer's Afrezza clinical trial results does not prove bulls or bears right. Let's wait to see how the story plays out.

My friend and CNBC commentator Herb Greenberg said it best this week -- Don't Get Fooled by a Stock's Price:

In my decades of reporting on stocks and the markets, among the many things I have learned: Just because a heavily shorted stock is up--or a heavily promoted stock is down--doesn't necessarily prove the original investment thesis or concern is wrong.

There are always exceptions, of course, and this dynamic is often magnified for those of us who sit next to a computer all day watching our stock screens, headlines and social news feeds.

Still, the mechanics of the markets have changed. With unprecedented volatility and the speedy exchange of information on the likes of Twitter, for many investors chest-thumping and hubris, as well as anguish and despair, over every favorable or unfavorable tick trumps green eyeshades and patience. Emotion gets amplified, not reason.

In the process, the definition of success, failure, victory and defeat is now often compressed into days if not hours, and anybody who doesn't buy into the concept is considered a loser or, worse, a fool.

Trading around the charts and pinpointing the exact point of entry and the fastest exit has become standard operating procedure, with old-fashioned buy-and-hold "investing" relegated to laughing stock status. The concept of long-term short-selling appears to have all but disappeared. Most who practiced it exclusively as a profession either have quit or have been carried out on stretchers.

Yet underlying stock stories, notably short or value-oriented longs, can take more than a few weeks or months to bear out. Some take years.

Wise words. The Mannkind story is far from decided.

-- 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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