Prediction: The FDA Will Reject This Drug… And Take This Stock Down
by Marc Lichtenfeld, Healthcare Specialist
Wednesday, February 2, 2011: Issue #1441
If you needed evidence that safety is arguably the most critical aspect when it comes to investing in the biotech sector, then look no further than Orexigen Therapeutics (Nasdaq: OREX).
The stock suffered a spectacular implosion on Tuesday after the Food & Drug Administration rejected the company’s obesity drug, Contrave. Regulators asked Orexigen to run another clinical trial, due to side-effects concerning the heart.
It’s a stark reminder that the FDA continues to take drug safety issues seriously. How seriously? I’ll let this 5-day chart of Orexigen show you…
The FDA’s rejection of Contrave came hot on the heels of two other obesity drug rejections in recent months – from Arena Pharmaceuticals (Nasdaq: ARNA) and Vivus (Nasdaq: VVUS).
Investors in those stocks suffered devastating losses, too…
Prior to the FDA decisions, investors frequently asked me which of the stocks they should buy, assuming that at least one of the drugs would get approved.
But I never recommended any of the companies because I was concerned about safety issues.
Speaking of which, here’s another prime drug candidate to get crushed at the hands of the FDA…
The FDA: Masters of Drug Destiny
Make no mistake, the FDA is very conservative when it comes to safety. No matter how effective a drug may be, regulators will not approve it for the mass market if they’re concerned about safety issues.
They’re essentially stewards for the community, but they’re also engaging in that common tactic known as “CYA” – Cover Your… (Well, you know the rest!) You need only look back to drug scandals like Vioxx to understand why the FDA doesn’t want to have to respond to an angry public or face multi-million-dollar lawsuits if people start getting sick or dying due to an approved drug.
But despite safety concerns, many investors still put blinders on when it comes to certain drug companies. Let me take off the blinders and reveal another drug that’s going to get rejected because of safety issues…
“Elevated Liver Enzymes:” Three Words That Could Crush This Stock
Mipomersen is a drug that treats extremely high cholesterol.
In two Phase III studies, it reduced cholesterol by 36% and 37%, compared to 13% and 5% for patients receiving placebo.
There isn’t much debate that the drug works. But in recently concluded Phase III trials, patients experienced elevated liver enzymes – a sign of toxicity. The data was consistent with earlier trials.
The drop out rate due to adverse events was high – 31% and 43% – compared to 5% and 17% for the placebo group.
The problem with elevated liver enzymes is that even when they’re not at dangerous levels – just at the upper limits of normal – they can rise as the patient continues to take the drug. Remember, high cholesterol isn’t an acute problem. You don’t just take a drug for a week and then you’re cured.
A patient on mipomersen will likely have to take it for years. So what happens to those elevated liver enzymes when a patient has taken the drug for two years… three years… five years…?
The enzyme situation doesn’t bode well for Isis Pharmaceuticals (Nasdaq: ISIS), which licensed mipomersen to Genzyme (Nasdaq: GENZ).
When the FDA Rejects This Drug, Look Out Below…
Of course, Genzyme and Isis’ management have downplayed the toxicity issues, claiming it’s not a big deal. But the FDA has asked for more data from Genzyme, which will likely delay the approval process.
And ultimately, I suspect the FDA will think it’s a very big deal and will reject the drug.
By the time that occurs, Genzyme will likely be a part of Sanofi-Aventis (NYSE: SNY), as the two companies are currently in merger talks. So Isis shares could get hurt the most.
The bottom line is this: When you’re researching drugs in clinical development – and the companies behind them – make sure you pay attention to what is arguably the most critical aspect: safety data. The FDA certainly is – and if you don’t, you could end up in the same boat as Orexigen Therapeutics investors.
Good investing,
Marc Lichtenfeld
Any investment contains risk. Please see our disclaimer.
9 Responses to “Prediction: The FDA Will Reject This Drug… And Take This Stock Down”
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Marc is a senior analyst at Investment U. His investment career started out at the trading desk of Carlin Equities in San Francisco, CA, where he executed dozens of trades each day for his clients.
So you are suggesting we short ISIS or buy put options ?
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Yea. I?D like to know when this comes up for approval by the FDA.Any way of finding out so one could buy put options beforehand?
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If the FDA has been so concerned about safety for the last 15 yrs why has so many drugs that they approved been pulled off the market for killing thousands of consumers? The fact is they are owned by Big Pharma just as most of the researchers and doctors are. The only reason the FDA is now being more cautious is because their past frauds are starting to be exposed – it’s about time. Most drugs are poisons that severely tax the kidneys and liver.
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So, how do we trade this? buy puts on Isis?
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What would ever give you such faaith in the F D A ? They have killed more people than Hitler.. Please ,do some research.
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Marc, you are very generous in your appraisal of the FDA as “stewards” of the community. More like stewards of Big Pharma, and prone to take action when all the lies and deceptions by the companies have been seen through and they are forced to take action to keep up appearances.
Witness the evidence that drug companies throw out unfavorable research and submit favorable studies. You might want to ask why has the FDA allowed statins to become the multi-billion dollar industry it has despite the paucity of evidence real life-prolonging benefit exists from them.
Statins deplete CoQ10 up to 50%, thus INCREASING risk of heart attacks. Oh but wait, statins are supposed to reduce heart attack risk…uh no, they just are supposed to lower cholesterol. To prevent heart attacks, CoQ10 would need to be added to statins, and apparently it never has been.
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Who makes Placebo?? This seems like the kind of drug that should make a lot of $$….13% decrease! and no REAL side effects…..Keep up the good work.. We enjoy your info…..
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Thanks for all the comments. Marc didn’t mean to come off as “generous” in his appraisal of the FDA. He was merely pointing out that they are charged with protecting the safety of the public. Whether they have effectively done that is certainly up for debate. However, Marc does think it’s clear that the FDA has become more conservative in recent years.
The way to play this would be to buy puts. However, the PDUFA date (the date that the FDA will give its decision) has not been determined yet. There’s no sense in getting into a trade where you’ll have to wait for months. The decision could be over a year away. He’ll keep you posted.
Mel — great comment. Marc laughed out loud. Thanks for the kind words.
Investment U
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thanks for the info , anyway….
2 very good biothech newsletters are long ISIS , it has many more products than just the Mipomersen , if the stock price will fall “big” i will buy more , i’m long
best to all
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