Biotech Stock Mailbag: Ariad, NewLink, Zogenix, 5 Falling Stocks For Rest of '13

BOSTON ( TheStreet) -- Welcome back to this week's Biotech Stock Mailbag.

I described the Ariad Pharmaceuticals ( ARIA) short thesis in March and it hasn't changed significantly. Shorts continue to believe Iclusig's cardiac and other toxicities will prevent the chronic myeloid leukemia (CML) drug from generating the blockbuster sales already baked into the company's current $4 billion market valuation.

Earlier this week, I connected with a couple of institutional investors shorting Ariad for an update.

Iclusig total (TRx) script growth is flattening out while new (NRx) scripts are trending down, suggesting Ariad has saturated the T315I CML patient population (third line) and isn't attracting significant numbers of second-line CML patients to Iclusig therapy. Ariad is likely to deliver Iclusig sales this year that meet Street expectations, but next year's consensus sales forecast will come down.

Ariad and its supporters are betting on Iclusig becoming the go-to therapy for front line (newly diagnosed) CML patients. To make that happen, the company is conducting the EPIC study, which compares Iclusig to Novartis' ( NVS) Gleevec -- head to head. Ariad shorts believe the EPIC study will fail and may even be stopped early because Iclusig's safety and tolerability will be significantly worse than Gleevec.

Recall, FDA approved Iclusig with a black box warning alerting doctors to watch for blood clots that have caused fatal heart attacks and strokes, and liver toxicity including reports of liver failure and death.

Supporting their argument that Iclusig is too toxic for widespread use in CML, the Ariad shorts point to changes made to the EPIC study in July to exclude more patients with pre-existing heart problems.

Here's a link to the ClinicalTrials.gov posting for the EPIC study. And here's a link to the restrictions to patient enrollment made in July.

Previously, newly diagnosed CML patients were excluded from the EPIC study if they had a heart attack, unstable angina or congestive heart failure within three months prior to enrollment. In July, Ariad extended these enrollment restrictions to six months prior.

Ariad also added new exclusion criteria which eliminate CML patients from the EPIC study with 1) a history of ventricular arrhythmia; 2) "Cerebrovascular accident or transient ischemic attack" within 6 months; 3) "any history" of clogged arteries requiring revascularization; and 4) "any history" of blood clots.

Oh, one more: Ariad also made it more difficult for patients with high blood pressure to be eligible for EPIC enrollment.

"All of these new exclusion criteria tell me that the heart-safety risk with Iclusig is real," one of the investors shorting Ariad told me.

More evidence Iclusig is too toxic for use in front-line CML patients comes from M.D. Andersen Cancer Center, which lowered the Iclusig dose to 30 mg from 45 mg (the FDA approved dose) in the single-arm "Cortes" frontline CML study.

Ariad CEO Harvey Berger addressed the lowered dose in the Cortes study on the company's second-quarter earnings call:

"... they started at 45 milligrams as in the EPIC trial and completely enrolled a cohort at 45, and then wanted to study an additional group of patients at 30, so that they have data at both of the -- starting at each of those dose levels. It -- what happened was the 45-milligram cohort where 45-milligram patients enrolled quickly and they got through the enrollment of those patients, and now we're enrolling 30-milligram patients so they can do some comparison of the 2 groups."

Sounds like spin to Ariad shorts I spoke with this week. "Again, the reason to lower a drug's dose is usually because of unacceptable toxicity."

An interim analysis of the EPIC study is expected about one year from now in the third quarter of 2014 -- unless independent data safety monitors stop the study early because Iclusig is too toxic.

"The EPIC study is a ticking time bomb," one of the Ariad shorts told me.

There's more to the Ariad short thesis, including the expected launch soon of a cheap, generic version of Gleevec in CML and the limited commercial potential of cancer drug AP26113, but I'll stop here.

Next up, an update to a discussion in last week's Mailbag about Prosensa ( RNA), GlaxoSmithKline ( GSK) and the timing of the presentation of the drisapersen phase III study results:

We have an exact date! On Oct. 8, Glaxo will present the drisapersen data at the Oligonucleotides Therapeutics Society (OTS) annual meeting in Naples, Italy. Here is a link to the agenda for the conference.

There is a twist: While we will see the drisapersen data at OTS on Oct. 8, the possibility still exists that Glaxo presents the same data at an earlier date.

Does this mean we may see the drisapersen data at the World Muscle Society meeting, which runs Oct. 1-5? Do Glaxo and Prosensa have plans to issue a press release disclosing top-line results from the drisapersen study prior to any presentation at a medical meeting?

Prosensa and Glaxo are staying mum, which is frustrating. In my view, the companies have been too opaque about their plans to present these drisapersen data. Thankfully, we don't have to wait too much longer.

On a related note:

I walked through multiple scenarios for how Sarepta Therapeutics' ( SRPT) stock price may react to the drisapersen data in this August Mailbag.

Moving on.

On Tuesday, the FDA announced a safety labeling changes and post-market study requirements for companies that sell long-acting and extended release opioid painkillers.

FDA Commissioner Margaret Hamburg said the new safety requirements were meant to "to combat the crisis of misuse, abuse, addiction, overdose, and death from these potent drugs that have harmed too many patients and devastated too many families and communities."

The safety crackdown on long-acting opioids comes as FDA is still reviewing Zogenix's ( ZGNX) Zohydro, an extended-release formulation of hydrocodone that doesn't contain acetaminophen. It's important to note that Zohydro has no abuse deterrent technology. Given the FDA's strong actions to crack down on the abuse of long-acting opioids, it seems completely illogical for the agency to reverse course and approve Zohydro.

I can't explain why it's taking FDA so long to issue an approval decision on Zohydro. Zogenix has been in limbo since March when FDA delayed a ruling. Most recently, the company said it expected to hear from the FDA by the end of the summer. Well, it's mid-September and still nothing.

Last December, an FDA advisory panel voted against recommending Zohydro's approval, mainly for safety reasons. After the negative vote, Zogenix shares sank to around $1.50 as investors essentially wrote off any chance of Zohydro's approval. Zogenix shares were trading at $1.88 on Thursday, suggesting the market already prices in doubts about Zohydro's approval chances.

I really like the following question:

I'm not sure the end of the biotech bull market is near. The stamina exemplified in the chart is incredible: ^NBI Chart ^NBI data by YCharts

Of course, not all biotech and drugs stocks increase in value forever. FDA rejections and failed clinical trials tend to have a depressing effect on share price. With that in mind, here are five stocks which I predict will end 2013 lower than where they trade today:

1. Vanda Pharmaceuticals ( VNDA): I expect the tasimelteon FDA panel on Nov. 14 to end badly for Vanda.

2. Coronado BioSciences ( CNDO): I don't believe in the "hygiene hypothesis" so I predict negative results from the CNDO-201 phase II study in Crohn's disease. The risk: Phase II study results can be fungible, meaning flaws are more easily swept under the rug.

3. Oncolytics Biotech ( ONCY): In my opinion, management has worked hard to delay and hide as much Reolysin data as possible because the experimental cancer-killing virus is incapable of killing cancer at all. The ugly truth about Reolysin can't be hidden forever, however, so I expect the upcoming data from a study in head-and-neck cancer patients will be a total bust.

4. Amarin ( AMRN): The stock is beaten up already so the short is less compelling, but I expect the Oct. 16 FDA panel to recommend against approving Vascepa for the so-called "Anchor" patient population. Instead, the panel will tell FDA to wait two years for definitive cardiovascular outcomes data from the ongoing REDUCE-IT study.

5. Vivus ( VVUS) and Arena Pharmaceuticals ( ARNA): Two stocks but they're related. Their respective obesity drug launches are flailing. Script growth is totally unimpressive and the stocks, while down sharply already, are still over-valued.

Samuel R. asks:

There have been confusing reports on NewLink Genetics (NLNK) and the interim analysis of the pancreatic cancer trial. Can you call the company to see what is really happening. Your help would be most appreciated.

It's pretty simple. NewLink CEO Charles Link spoke at a couple of health care investment conferences this week and pushed back the timing on the interim analysis of the algenpantucel-L (a cancer vaccine) phase III pancreatic cancer study.

The trigger for the interim analysis is 222 death events in the study. The company first expected the analysis to take place in the middle of the year, then it was pushed back to the second half of the year. When asked for an update at the investor conferences this week, Link said the company is now unsure if the 222nd death in the study will occur this year at all.

NewLink spokeswoman Gina Nugent confirmed Link's new guidance for me:

"Adam, What Dr. Link said during the Baird and Stifel conferences (webcast available) was that the trigger event for the first of three planned interval analysis, which will occur when 222 death events are recorded, has not yet occurred and that management is not sure that this first trigger event will occur before the end of 2013."

What does this delay in the interim analysis mean?

NewLink is encouraged, arguing pancreatic patients in the study's control arm are unlikely to be living longer than expected. Therefore, patients being treated with algenpantucel-L might be living longer. The study is blinded so there is no way to know definitively what's going on until the interim analysis is conducted.

Skeptics (and yes, I'm in this group) believe the more likely explanation is NewLink messed up the survival assumptions used to design and power the study. All patients -- not just those treated with algenpantucel-L -- are living longer than NewLink expected. We've seen ample examples of phase III studies of cancer drugs in which delays in reporting survival endpoints ended badly -- GlaxoSmithKline (Mage-A3) Vical ( VICL) (Allovectin) and Oncoythreon ( ONTY) (Stimuvax), most recently. NewLink is no different. This delay in the interim analysis increases the risk that the phase III study ultimately fails, not the other way around.

With that said, I also believe a lot of time is being wasted by fixating on the outcome of the algenpantucel interim analysis. Even under the most ideal circumstances, the odds that the cancer vaccine works so effectively to stop the study early for efficacy are very small. The most likely outcome is that NewLink continues to enroll patients and we wait for more definitive results next year.

-- Reported by Adam Feuerstein in Boston.

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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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