BOSTON (TheStreet) -- This week's Biotech Stock Mailbag kicks off with an email from Stephen A. "I'm invested in Akebia Therapeutics (AKBA - Get Report) because the stock is much cheaper than its main rival Fibrogen (FGEN - Get Report) . What do you think?"

I like the idea, as long as your expectations are set right. There are some legitimate reasons why Akebia is valued lower than Fibrogen, but not necessarily by this much. Akebia's enterprise value is $100 million and its market cap is $265 million, which implies investors are placing little value on the company's experimental anemia pill vadadustat.

By comparison, Fibrogen's corresponding enterprise and market values are $1.2 billion and $1.3 billion. Here, the reverse is true. Investors believe Fibrogen's pipeline, including its experimental anemia pill roxadustat, is worth much more.

The competing anemia pills from Akebia and Fibrogen are very similar. They're both designed to stimulate the production of red blood cells (and the oxygen-carrying molecule hemoglobin) by mimicking the body's reaction to high altitudes. Both companies are developing their respective pills to treat patients with chronic kidney disease, including dialysis patients. If approved, the drugs are taking aim at replacing less convenient, injectable anemia drugs like Amgen's (AMGN - Get Report) Epogen.

The gigantic disparity in market valuations can be explained in multiple ways (some justified) but let's start with one reason that's taken hold with investors, but is not justified: Fibrogen's anemia drug is superior to Akebia's.

A year ago, Akebia did run into some trouble when a kidney disease patient's death in a phase II study was deemed to be possibly related to vadadustat. More recently, results from a second phase II study announced last month came back with a clean safety record -- no deaths and no serious adverse events related to vadadustat. From an efficacy perspective, vadadustat maintained dialysis patients' hemoglobin levels after they transitioned off injections, achieving the primary endpoint of the study.

Akebia's stock price rose following the release of the new phase II study results, but not as much as expected, partly because of a circulating rumor accusing the company of removing 25 patients from the primary analysis of hemoglobin change because they required rescue treatment with a blood transfusion or an injectable anemia drug.

The rumor isn't true, but I heard it first-hand from multiple health care fund managers, including some who are long Fibrogen. [Trash-talking isn't just a sports thing.]

Twenty-five patients did drop out of the study before the 16-week treatment period was concluded, but of that number, only seven patients exited because they required hemoglobin rescue treatment, Akebia CEO John Butler told me.

Two of the seven patients discontinued vadadustat and were re-treated with an injectable anemia drug because they were hospitalized with unrelated illnesses. Another two patients received transfusions during the Akebia study even though their hemoglobin levels didn't call for rescue treatment, Butler adds.

A fair reading of the Akebia vadadustat data disclosed to date puts its efficacy and safety profile on par with Fibrogen's roxadustat, despite efforts by some investors to raise questions about the former. Important questions about safety remain that can only be answered with time and larger studies, but those risks apply equally to Akebia and Fibrogen because their respective drugs are so similar.

The cautionary tale to remember is Affymax, which landed in bankruptcy after safety problems tied to its approved anemia pill forced its withdrawal from the market.

I don't believe Akebia is getting a fair shake from investors, but that doesn't mean the company deserves a valuation on par with Fibrogen just yet. Fibrogen has two, deep-pocketed partners, Astellas and AstraZeneca (AZN - Get Report) , helping to fund the enormous expense of ongoing phase III studies for its anemia pill. Akebia has no big pharma partners yet, although Butler says he's working on landing a Japanese deal before the end of the year, around the same time the company plans to start its own phase III trial program. Even with a partner, Akebia will need to raise more money.

Intellectual property protection in Europe and Japan is also a muddled issue. Fibrogen is challenging patents issued to Akebia. Preliminary rulings in both geographies have gone Akebia's way, but legal wrangling is ongoing.

Lastly, while I believe the Akebia deserves a higher market valuation relative to Fibrogen, not everyone believes the so-called "biotech comparative value theory" is a wise investment strategy. Health care investor David Sable applied a good-humored butt kicking to the idea in a recent Forbes column. Sable, a portfolio manager at Special Situations Life Sciences Fund, offers five reasons not to invest in Company X just because it does the same thing as Company Y but at a greatly reduced (and therefore attractive) market value.

Reason number five on Sable's list was the best: "Face it. The cheap company might just suck."

Glenn H. asks, "Has your negative opinion of Neuralstem (CUR - Get Report) changed now that updated results from its ALS treatment have been announced?"

No. The new data on Neuralstem's surgical stem-cell therapy NSI-566 presented this week were just marginal window-dressing on the disappointing study results disclosed last March.

Neuralstem's stock price plunged last March -- and never recovered -- because ALS patients undergoing spinal surgery and injections of NSI-566 continued to lose muscle function over nine months. The phase II study had no control arm, but as I showed last March, you could do some simple calculations based on limited data provided by Neuralstem to compare the rate of ALS progression for the cumulative NSI-566 patients to progression observed in ALS patients followed in the natural history study known as Pro-Act. That comparison showed NSi-566 performed worse.

This week's data don't provide satisfactory answers to questions about NSI-566. Instead of comparing NS1-566 progression data to the actual ALS progression curve from the Pro-Act database, Neuralstem uses the 95% confidence interval around that curve. Why? Because it makes the NSI-566 performance look slightly better.

Here is a graph depicting the ALS progression scores (ALSFRS-R) over time for the 15 patients treated in Neuralstem's study. These data were presented Tuesday at the American Neurological Association annual meeting. Higher ALSFRS scores equal more muscle function. Progressive disease, or loss of muscle function, is depicted by falling ALSFRS scores and curves with negative slopes.



Neuralstem didn't do this, but you could super-impose another curve on the graph depicting ALS progression seen in the ProAct natural history study. Those patients lost a median of 1.2 points on the ALSFRS scale per month. (Thank you, biotech analyst Jason Napodano, for that data point.) Therefore, if you start the Pro-Act curve at an ALSFRS score of 40 on Day 0, it would fall to 28 on Day 300.

When I do this exercise, seven patients in the Neuralstem study treated with NSI-566 have ALSFRS scores above the median ProAct line at Day 300. Eight of the NSI-566 patients fall below.

ALS is a terrible, fatal disease screaming out for a new, effective treatment. The clinical bar to move any drug forward is low, which explains why Neuralstem is advancing NSI-566 into a new study. Based on the data disclosed last March and presented this week, it's hard to have much confidence in its success.

Steve H. writes, "In your next Mailbag, please address Arrowhead Research (ARWR - Get Report) . The analyst day on Sept. 24 seemed to go remarkably well, but the stock is tanking."

I didn't attend Arrowhead's analyst day, nor did I listen to the Webcast. I did look at the company's slides. "Remarkably well" is not how I'd describe the event.

It took Arrowhead one year but the company was finally able to link a higher dose of ARC-520 with reductions in hepatitis B viral load of greater than 1 log (just barely.) But this encouraging outcome was observed only in a subset of hepatitis B patients with less severe disease. They're healthier. Higher doses of ARC-520 were ineffective in sicker hepatitis B patients.

Arrowhead spent the rest of the day hand-waving about supposed new discoveries with the hepatitis B virus, mainly to deflect the shortcomings of ARC-520. The same management team, which blew up the company one year ago, remains in charge.

 

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.