NEW YORK ( TheStreet) -- Alimera ( ALIM) and pSivida ( PSDV) have an upcoming FDA drug approval decision date on Oct. 17 for the use of Iluvien to treat chronic diabetic macular edema. The FDA has already rejected Iluvien twice but the companies have a better shot with approval on this third trip through the agency. An Iluvien approval is good for both companies, obviously, but perhaps more so immediately for pSivida because it will receive a $25 million milestone payment. Right now, that equates to about 20 percent of pSivida's current market cap. Let's review why Iluvien is more likely to be approved this time. In its last Complete Response Letter rejecting Iluvien, FDA told Alimera that it would "need to conduct two additional clinical trials to demonstrate that the product is safe and effective for the proposed indication." Despite what seems like fairly specific guidance, Alimera did not run the requested clinical trials. Normally, ignoring FDA's advice would be disastrous, but in this case, perhaps not. The key issue raised by the FDA about Iluvien was not the drug's efficacy. The phase III trial demonstrated that 28.7 percent (low dose Iluvien) and 27.8 percent (high dose Iluvien) of the treated diabetic macular edema (DME) patients gained more than 15 letters of vision versus 18.9 percent in control arm -- a statistically significant difference. The Iluvien benefit was even more pronounced in a pre-planned subset of patients with DME for more than 3 years. In this group, 34.0 percent (low dose Iluvien) and 28.8 percent (high dose Iluvien) gained more than 15 letters of vision versus 13.4 percent for the control arm. The FDA's bigger concern about Iluvien focused on side effects. "The risks of adverse reactions shown for Iluvien in the FAME Study were significant and were not offset by the benefits demonstrated by Iluvien in these clinical trials," said Alimera, quoting from the FDA's Complete Response Letter. Two key adverse events tied to Iluvien caused most of the problem. 1) Cataract extraction had to be done in 41.1 percent of the low-dose patients, 50.9 percent of the high-dose patients and only 7 percent of the sham group; and 2) more Iluvien patients require intraocular pressure-reducing interventions (8.1 percent high-dose versus 3.7 percent low-dose versus 0.5 percent sham.)
The FDA rejected Iluvien because the drug's risks outweighed the benefits, mainly because the risks were too high. What's interesting is Iluvien is already approved in Europe but only for use in patients with chronic DME. Alimera, in its first two U.S. approval attempts, asked the FDA to approve Iluvien without restrictions on the type of DME patient to be treated. This time around, however, it's clear the company is only seeking approval for patients with chronic DME -- the same type of DME patient for which the drug was approved in Europe. Given Iluvien had more robust efficacy in the chronic DME patients and that the chronic DME population is likely a group more willing to endure side effects due to the lack of effective options, the third time might be the charm even though Alimera did not submit new data. It will essentially come down to whether the FDA believes the risk/benefit equation is different enough in the chronic population as compared to the broader population that was targeted in the first two applications. It is certainly encouraging to note that European regulators thought the benefits of Iluvien outweighed the risks with these patients. Investors have two ways to play the potential approval decision on Oct. 17: Buying pSivida or buying Alimera. Both are small-cap companies and both will have significant moves on the news. In terms of pSivida, approval will not just generate a significant milestone payment but also provide some proof of concept of their wholly owned posterior uveitis program. As such, it is likely to have the most significant moves on approval (and very likely might have the largest move to the downside on another rejection. In general, Alimera and pSivida represent a high risk/high reward play into the Iluvien FDA approval decision but one where the odds of approval appear higher than the previous two attempts. Sobek has no position in Alimera or pSivida.