On March 4, 2013, the FDA will hold an advisory committee meeting for Depomed's (NASDAQ:DEPO) drug Serada. The committee will evaluate whether Serada is a safe and efficacious treatment for menopausal hot flashes. In this article we review scientific and clinical aspects of Serada and conclude it is likely to receive a favorable vote during its upcoming advisory committee meeting.
Depomed is a specialty pharmaceutical company focused on enhancing existing drug products. Depomed's main technology, Acuform, optimizes drug delivery. Specifically, Acuform retains tablets in the stomach for up to nine hours after ingestion. During this time, the tablet's active ingredient releases at a relatively slow rate. This gradual release permits less frequent dosing and alleviates side effects. Depomed already has two FDA-approved drug products based on Acuform. The company's current lead product candidate, Serada, uses Acuform to deliver gabapentin, a drug previously approved by the FDA for the treatment of epilepsy and neuropathic pain. Serada has been developed to treat menopausal hot flashes, which are characterized by sudden, temporary onset of body warmth, flushing, and sweating. Depending on the intensity of a given episode, hot flashes can also involve headache, fatigue, dizziness, and heart palpitations. Overall, hot flashes negatively impact mood, sleep, and quality of life.
Serada favorably addresses an unmet medical need
Currently, hormone replacement therapy (HRT) is the only FDA-approved treatment for menopausal hot flashes. HRT involves the use of estrogen and progesterone to boost hormone levels and minimize symptoms of the menopausal transition, including hot flashes. While HRT can relieve symptoms, even short-term use introduces a small but certain risk of serious health effects such as heart disease, stroke, and breast cancer. The use of HRT has significantly declined in the past decade due in part to epidemiologic studies highlighting these health risks. Additionally, in 2003 the FDA advised women to use the smallest effective dose of HRT for the shortest possible time to treat hot flashes. Thus, HRT therapy is clearly imperfect. Any alternative therapy for menopausal hot flashes would ideally have high efficacy, a convenient dosing schedule, and a better safety profile than that of HRT. Serada fulfills these criteria.
Serada efficaciously treats menopausal hot flashes
Three Phase III randomized, double-blind, placebo-controlled studies have been conducted for Serada: Breeze 1, 2 and 3. In Breeze 1 and 2, there were two experimental arms, one that received 1200 milligram (MG) of the drug daily and one that received 1800 mg daily. For Breeze 3, Serada was administered at just the 1800 mg level. Two primary efficacy endpoints were evaluated at both four and twelve weeks from the beginning of treatment, a total of four primary endpoints for each arm of the study. These primary endpoints measured the average daily frequency and severity of moderate-to-severe hot flashes in patients on Serada relative to patients on a placebo.
Depomed applied a parametric ANCOVA analysis to data from Breeze 1 and 2. This type of statistical analysis is proper for samples that are random and normally distributed with homogeneous variance. However, according to these assumptions, outliers could significantly affect statistical conclusions. Results from Breeze 1 and 2 were mixed. In both trials, the 1800 mg dose arm met both primary endpoints at four weeks, demonstrating significant reductions in the frequency and severity of hot flashes. For the 1800 mg dose at twelve weeks, however, one endpoint (measuring severity reduction in Breeze 2) was positive, but the three other endpoints did not achieve statistical significance.
For Breeze 3, Depomed agreed to a special protocol assessment with the FDA. This special protocol assessment outlined an adjusted evaluation using non-parametric tests together with a supportive parametric ANCOVA analysis. Generally, non-parametric tests are conservative in nature and may be more appropriate and better suited than parametric tests for samples with distributions that moderately deviate from normality. In other words, if primary endpoints for Breeze 1 and 2 failed to be met because patient data were non-normal, a non-parametric analysis may properly show statistical significance for those endpoints.
Based on the non-parametric analysis of Breeze 3 data, the primary severity endpoint was achieved at four and twelve weeks, and the frequency endpoint was achieved at four weeks. However, the frequency endpoint at twelve weeks was not met. Serada thus achieved three of four primary endpoints in Breeze 3 according to the non-parametric assessment. In contrast, results of the supportive ANCOVA parametric analysis indicate Serada met all four primary efficacy endpoints in Breeze 3, significantly reducing the frequency and severity of hot flashes at both four and twelve weeks. Notably, the Breeze 3 trial had a potentially meaningful modification relative to the earlier two trials. In contrast to Breeze 1 and 2, which had a one-week run-in period prior to randomization, Breeze 3 had a two-week run-in period. This arrangement could cause trial data to have reduced variance and more closely follow a normal distribution. That is, this longer run-in period could account for why there was complete statistical significance with ANCOVA analysis in Breeze 3, but not in Breeze 1 or 2.
Serada has an acceptable safety profile
Overall, Serada has been well-tolerated. The most common adverse events were headache, dizziness, and somnolence, all of which are commonly associated with gabapentin, Serada's active ingredient. Notably, gabapentin is also the active ingredient of Depomed's Gralise, a drug that was recently approved by the FDA for treatment of shingles. The frequency and type of adverse events in the Breeze trials were comparable to those observed in Gralise's clinical trials. This suggests the safety profile of Serada is acceptable for FDA approval.
Serada offers an alternative therapy for menopausal women suffering from hot flashes who want to avoid HRT. The drug produces favorable efficacy results and has quite mild side effects. We believe Serada will receive a clear, positive vote during its upcoming advisory committee meeting.
Putting it all together
On February 19, 2013, Depomed's stock price closed at $6.83, near its 52-week high of $7.15. Depomed's stock price may be quite volatile ahead of and after its advisory committee meeting on March 4th. Therefore, a straddle option -- a purchase of both long and short options with the same strike price -- may be suitable to hedge against the downside. Currently, the last price (excluding trading fees) of a $6 strike price straddle option with March expiration is $1.45, resulting in profits below $4.55 or above $7.45. This trade allows downside protection but an unlimited upside to take advantage of a positive advisory committee vote.
Disclosure: I am long DEPO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Beacon VP Investments is a team of analysts. This article was written by Qinghui Yu, one of our team members.