Biotech Stock Mailbag: Unstoppable Heron, Aerie Disclosure Fail, Gene Therapy, Hate Mail!

BOSTON (TheStreet) -- The big move by Heron Therapeutics (HRTX) since the end of May generated a ton of reader email and tweets for this week's Biotech Stock Mailbag. Most of the comments I've received are skeptical, questioning Heron's suddenly upsized market value relative to the future commercial potential of its lead drug Sustol, which aims to reduce nausea and vomiting in cancer patients undergoing chemotherapy.

If you haven't been following the Heron story, here's what the stock chart looks like since the beginning of May.

HRTX Chart

The spark was a Heron press release on May 28 announcing results from a phase III study demonstrating that a Sustol-containing regimen was superior to the current standard of care in the "prevention of delayed-onset chemotherapy-induced nausea and vomiting following administration of highly emetogenic chemotherapy agents."

Simply explained, Sustol, administered as an injection, stops cancer patients from throwing up for one to five days after they've been treated with chemotherapy drugs known to cause a lot of nausea and vomiting.

Heron intends to seek U.S. approval for Sustol later this summer. If approved, the drug will be on the market in the middle of 2016. Doctors have a lot of treatment options currently for chemotherapy-induced nausea and vomiting (CINV), both branded drugs and cheaper generics. Heron points out that Sustol has the potential to be the first injectable CINV drug in its class to be approved specifically for the prevention of delayed-onset CINV in patients undergoing highly emetogenic chemotherapy.

According to Heron, the phase III "MAGIC" study achieved its primary endpoint, with 65% of patients responding to the Sustol regimen compared to 57% of patients treated with a Zofran-containing regimen, the current standard of care. These are the data upon which Heron intends to seek U.S. approval for Sustol.

If these data hold up, Sustol is most likely approved. Heron hasn't yet presented the full results from the MAGIC study, so caution is warranted. Notably, the 57% response rate in the Zofran control arm seems a bit low relative to 65-70% response rates seen in previously conducted and published studies. This might not hurt Heron's chances of securing Sustol's approval, but it could hurt commercially if doctors don't view the new regimen to be superior in actual clinical practice.

Heron said more data from the MAGIC study will be disclosed and presented at a later date. It will be important to see how Sustol performed against acute (one day) onset nausea and vomiting.

— Britney Spiers (@Britney_Spiers) June 4, 2015

At $32, Heron's market value is approximately $1.7 billion, including stock options and warrants.

Broadly speaking, the CINV drug market is divided into four buckets of patients encompassing two types of chemotherapy (moderately and highly emetogenic) and two stages of CINV prevention (acute and delayed.)

Heron will not provide specific guidance on potential Sustol sales, but the company believes it can take meaningful market share and sales from Aloxi, the most-prescribed CINV drug currently on the market in three of the four CINV patient buckets. Sustol has the potential to be approved for all four CINV patient buckets.

For the fiscal year ended on March 31, Eisai reported Aloxi sales of approximately $400 million (converted from yen.) Aloxi patents begin to expire this year, which means cheaper, generic versions of the drug are coming soon.

I don't have a consensus estimate for Sustol sales, but two analysts covering Heron forecast peak 2020 sales in the $400-500 million range. Heron points to outside market analysis saying total CINV drug sales will grow to $1 billion in 2020. Put these disparate pieces of information together suggests Sustol captures half of the CINV market in 2020 even with competition from other branded drugs and generics.

I'll let you come up with a probability that Heron hits these Sustol sales forecasts. Heron's current market cap seems to bake in a lot, if not all, of Sustol's commercial potential.

Also keep in mind that Heron has a second CINV drug, HTX-019, in clinical development. The company says HTX-019 could be submitted for approval in the second half of 2016. Heron is also working on a post-surgical pain drug, HTX-011, which is likened to Pacira Pharmaceuticals' (PCRX) commercially successful Exparel. I spoke with one significant investor in Heron who believes HTX-011 is the company's "sleeper hit" pipeline product.

Scott B. writes:

I'm disappointed that you haven't chimed in on Heron and its dismal track record. This is a company which has failed repeatedly, changed its name yet the price keeps going higher. I suspect the hedge funds who own the company are playing with it for profit and I want you to explain how this is happening. Why haven't you written about it yet?

There's a lot to unpack in Scott's email. He's right about Heron's less-than-stellar track record. Heron used to be known as A.P. Pharma. Sustol went by the moniker APF530. The FDA rejected the drug twice previously, the last time in 2013. At that time, A.P. Pharma blamed the FDA rejection on unresolved manufacturing problems.

Soon after the second rejection in 2013, A.P. Pharma's chairman and largest shareholder, the hedge fund manager Kevin Tang, cleaned house. The management team was replaced and the company's name changed. Tang brought in Barry Quart to run Heron. Quart and Tang go back to the days of Ardea Biosciences, which Tang controlled and Quart ran before it was sold to AstraZeneca (AZN) for $1.3 billion.

Heron has taken longer than expected to get to the point where Sustol can be resubmitted to the FDA for a third time, but Quart has done a good job running the company, investors tell me.

Make no mistake, however, Tang pulls the strings at Heron. He remains the chairman and largest shareholder. After the Sustol MAGIC trial results were announced, Tang bought more Heron stock in multiple purchases, which no doubt contributed to the big rise in the share price. After Tang's stock purchases, Heron went out with a stock offering of its own to raise additional money. The deal was priced at 24.75 per share. Heron is now above $32. I asked Tang to speak about Heron but he didn't respond.

Phillip T. emails:

You're unfairly critical of Aerie Pharmaceuticals (AERI). The changes made to the Rhopressa study make positive results more likely. Investors recognize now that the stock was undervalued, so it's returning to a more normal state of valuation.

Rewinding a bit. Earlier this week, Aerie issued a press release announcing "positive feedback from the FDA" on proposed changes to the primary endpoint of a nearly completed phase III study of its troubled glaucoma drug Rhopressa. The day after Aerie's announcement, the stock jumped more than 50%.

I expressed these thoughts on Twitter:

— Adam Feuerstein (@adamfeuerstein) June 16, 2015


Aerie's announcement came on the heels of an analysis conducted by the FDA, published in the British Medical Journal, which found that drug companies routinely fail to fully inform the public about their communications with the FDA. The study focused on complete response letters -- the confidential notices FDA sends to companies when a drug has been rejected. In the analysis, FDA found that companies often omit important reasons for a drug's rejection when informing the public, including investors. Some of the publicly disseminated explanations companies offer for why FDA rejected a drug are misleading, some are lies, the FDA analysis found.

Aerie's first phase III study of Rhopressa ended in failure. The drug was unable to demonstrate statistical equivalence to an older glaucoma drug. Aerie's response to the Rhopressa setback was typical: Data-mine the negative results to find a subset of patients where the failed drug might work better. Aerie now claims that the first Rhopressa study would have succeeded if patients with more severe glaucoma (as measured by baseline intraocular pressure) were excluded.

Aerie says it went to FDA and asked to change the endpoint of the second phase III study to exclude these more severe patients. Aerie says it received "written and verbal communications" from FDA agreeing to this significant study change.

Obviously, this agreement with FDA is hugely important to Aerie and the future of Rhopressa, so with the above-mentioned FDA study in mind, I asked the the company to publicly disclose the letter it received from regulators. Aerie ignored my request.

I'm not accusing Aerie of lying about the "positive feedback from the FDA," but investors deserve more transparency from drug companies about communications with regulators. By law, FDA is not allowed to make public its communications with drug companies. Unless the law is changed, it's up to the companies to be more transparent voluntarily, There should be nothing to hide, so why not disclose these FDA letters in full?

Aerie wasn't the only drug company offering one-sided versions of FDA communications this week. Cormedix (CRMD) also issued a press release about "positive feedback" from FDA, but the company went one step further.

"Cormedix is thankful for the valuable feedback provided by the FDA, and we are encouraged by their continued enthusiasm and support of Neutrolin," said Cormedix CEO Randy Milby, quoted in the company's press release.

Any proof of FDA's enthusiasm and support, Cormedix? None offered, and I did ask.

— Big Chodu (@BigChodu) June 16, 2015


Every gene therapy company is different and should be viewed that way. The clinical setbacks at Avalanche Biotechnologies (AAVL) and Celladon (CLDN) don't mean Bluebird Bio (BLUE) will fail, too. The converse is also true.

As an investors, it's easy to lump together all gene therapy companies, especially when there isn't much clinical data available to distinguish one therapy from another. [A raging biotech bull market where almost all stocks go up helps, too]. The same can be said for the crowded field of cancer immunotherapy companies.

But as we witnessed this past week with Avalanche and Bluebird, important differences in companies developing similar technologies do exist. The challenge for me (and you) is to figure out those differences to stick with the winners and avoid the losers.


No comment except to say I found this very true -- and funny.

Time for hate mail! Blake R. is a MannKind (MNKD) fan. He only likes to read good news.

You are worse than the scum of the earth and before you came along it was Harry Reid. How much is Novo Nordisk paying you for your hit pieces? Better pocket money than helping millions of diabetics, right???? Remember, one day you will have to answer for your sins against all of mankind and for them you will rot in hell.

I like how he worked "mankind" into his otherwise nonsensical tirade against my MannKind coverage. Clever, Blake!

OceanPacific626 aka William is similarly displeased with my bearish view on MannKind. He writes:

Your article is libelous as it is intently misleading to the public and causes with intent harm to the company, the products and the stockholders. If you continue to write these without retraction I will personally sue you and TheStreet and make it very public on you as well since you like to be sending out misleading articles.... You are clearly inept and chow it.

Chow it? 

DDK writes:

Bald, glasses and little wiener... so pathetic. Hope everyone sees the fullness of [bleep] you bash about MannKind.

Thanks for reading, DDK!


On that note, have a nice summer weekend.

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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