Biotech Stock Mailbag: GTx, Vanda, Pharmacyclics

BOSTON ( TheStreet) -- This week's Biotech Stock Mailbag opens with an analyst comment regarding GTx ( GTXI).

Wedbush analyst David Nierengarten came to the defense of GTx on Thursday following my story Wednesday explaining why the almost-completed phase III studies of the company's muscle-wasting drug enobosarm are likely to fail.

Nierengarten disagrees with my analysis and is telling clients to buy GTx because he believes the enobosarm phase III studies will succeed. I didn't find any of his rebuttals of the GTx bear thesis to be very persuasive, but one point he made does call out for a follow-up discussion.

In his GTx research note, Nierengarten says:

"The opinion piece that's mine emphasizes mean and median measures of the Phase II study, claiming the populations overlap and therefore there is no treatment effect, and this will be demonstrated in the Phase III. This comment ignores the design of the Phase III studies, which use a responder analysis." Emphasis his.

Ah, the responder analysis, otherwise known as one of the tricks companies use to rig the analysis of a clinical trial to produce the appearance of positive results (especially when real positive results are nonexistent.) Thanks to Nierengarten, we now know the GTx game plan for how results from the enobosarm phase III trial results will be announced.

You should wary of any responder analysis. I'll explain, but first a recap of GTx's phase III trial.

The design of GTX's two phase III cancer cachexia studies is fairly simple. Patients undergoing first-line chemotherapy treatment for non-small cell lung cancer with an accompanying diagnosis of cachexia are randomized to receive a daily, 3 mg dose of enobosarm or a placebo. After three months, the patients are assessed on two co-primary endpoints: 1) change in lean body mass (measured using an x-ray scan); and 2) physical function, defined as a 10% or greater improvement in the stair climb power test.

Enobosarm has to meet both co-primary endpoints with statistical significance for the studies to be successful.

Here's how the responder analysis kicks in. Each patient in the trial is assessed by the two co-primary endpoints. If both criteria are met -- no loss of lean body mass and a 10% or greater improvement in stair climb power -- the patient is considered a responder.

According to GTx, the phase III study will be a success if the number of responders in the enobosarm arm is greater than the responders in the placebo arm. The difference favoring enobosarm has to be statistically significant as well.

The problem with a responder analysis is that it only tells you the benefit derived by individual responders, but says nothing about the clinical meaningfulness or magnitude of treatment effect for the patients as a whole.

A per-patient responder analysis can be useful but only in the context of knowing if the entire group of patients treated with a drug benefits over a control.

I'll use an extreme example to demonstrate my point.

In a two-arm study, let's say 20% of patients treated with a drug respond but the other 80% either don't respond or are made worse off. In the placebo arm, 10% of patients respond but 90% don't respond or fare worse.

In this hypothetical study, the number of drug responders is twice that of placebo and could very well be statistically significant even though the overall treatment effect for all patients is clinically meaningless or even negative.

GTx will have you believe achieving a positive result via the responder analysis in the enobosarm phase III trials is enough, but that's very misleading. In order to be fully transparent, GTx must also disclose the mean treatment effect for all enobosarm patients compared to all placebo patients.

Vertex Pharmaceuticals ( VRTX) ran into this problem last year with a phase II study of one of its cystic fibrosis drugs. At first, the company only provided investors with responder analysis data and was sharply criticized by analysts and investors for doing so. Later, Vertex provided the mean treatment effect for each arm of the study.

Watch closely to see if GTx provides the mean treatment effect for enobosarm and placebo arms of the study, particularly the stair climb power endpoint. If the company doesn't, it's hiding something.

Jason B. asks: " Vanda Pharmaceuticals ( VNDA) presented today Wednesday at the JMP Securities conference. Did the company say anything to allay your concerns about its sleep drug?"

No. I heard nothing from Vanda CEO Mihael Polymeropoulos that would change my bearish stance on tasimelteon's chances for FDA approval for the treatment of non-24 sleep-wake disorder.

Polymeropoulos spins a tale of a close working relationship with the FDA in order to explain the incredible changes made to the tasimelteon phase III study, but I'm sorry, nothing he says rings credible.

At the end of the presentation, Polymeropoulos was asked about the rationale for using tasimelteon to treat non-24 when cheap, over-the-counter melatonin is already available. His response:

Our patients had access to melatonin. These melatonin are very ineffective and when effective inconsistent. The reason for this is that melatonin has been perfected by evolution to be a hormone secreted and circulated in the blood. If you were to give melatonin intravenously daily, it would work perfectly, better than anything else. But melatonin is not perfected to be an oral drug. It doesn't have the absorption, it doesn't have the dynamics to be an efficacious drug. Hence why tasimelteon truly fits an unmet medical need.

Let's unwind this statement:

1. The American Academy of Sleep Medicine recommends melatonin for blind patients with non-24 due to a clinical benefit demonstrated in case reports and clinical studies. The claim that non-24 patients are without treatment options is false.

2. The oral bioavailability of melatonin is 15%. Vanda has not disclosed the oral bioavailability of tasimelteon but the oral bioavailability of Takeda's Rozerem, which like tasimelteon is a melatonin agonist, is only 2%.

Before Polymeropoulous whacks melatonin for not being an effective drug for non-24, perhaps he should disclose the oral bioavailability of tasimelteon and generate credible clinical data.

Johnson & Johnson ( JNJ) and Pharmacyclics ( PCYC) submitted ibrutinib to the FDA on Wednesday for the treatment of two blood cancers -- mantle cell lymphoma and chronic lymphocytic leukemia. Ibrutinib has already been hailed as a wonder drug for B-cell lymphomas, so how quickly will FDA approve?

In all seriousness, the speed at which FDA approves ibrutinib will be interesting to watch as a test case for how the agency handles drugs awarded with the breakthrough therapy status, a designation designed to accelerate drug development and approval.

Ibrutinib actually has three breakthrough therapy designations, so investors expect FDA to review the drug and approve it quickly.

Let's try to quantify.

Assuming Pharmacyclics and J&J submitted ibrutinib to FDA on July 10 and the agency grants the drug priority review (eight-month review cycle), the approval would come on March 10, 2014.

No way it's taking that long.

John (above) thinks a three-month review is reasonable, which would place ibrutinib approval on Oct. 10. That's a reasonable expectation, perhaps a tad on the aggressive side.

The fastest recent FDA drug reviews/approvals were Medivation's ( MDVN) prostate cancer drug Xtandi (102 days) and Vertex's cystic fibrosis drug Kalydeco (104 days), according to JMP Securities analyst Mike King.

A 102-day review period for ibrutinib would place the approval on Oct. 21. King expects a mid-October approval.

If FDA intends for breakthrough designation to have real meaning, drug reviews should be abbreviated. A three-month review period for ibrutinib sounds right, so call it end of October, early November to be conservative. Certainly, I'd expect ibrutinib to be approved before blood cancer experts gather in New Orleans in the beginning of December for the American Society of Hematology annual meeting.

TheStreet contributor wrote a column in May looking at the implications of an early ibrutinib filing on the value of Pharmacyclics. It's still worth a read.

Here's a chart of Pharmacyclics' performance year to date. The stock is up 15% since the ibrutinib filing was announced. PCYC Chart PCYC data by YCharts

Back to GTX:

GTx has not raised money through a stock offering since June 2011. The company did raise $19 million by selling the breast cancer product Fareston last year.

GTx's CFO Mark Mosteller sold 17,000 shares through the exercise of options on July 8.

And now, for the entertainment portion of the Mailbag: Hate Mail!

Kelvin G. writes, "You are Bleeping wrong about GTXI. I bet you and your crew bought today, Bleephole."

JT writes, "Your days of slandering companies is over ahole. You will be investigated now! A group is already forming."

Jim: " Bleephole... bad karma you bleep like you."

Adam (clearly an alias) writes, "Go bleep yourself! You bald headed, ugly bleep, piece of bleep."

Steve R.: "You really are a dumbass and quite possibly the biggest loser I am proud to say that I don't know."

Enjoy your weekend, all.

-- 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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