By Jake King
PropThink's first article on Affymax (OTCQB:AFFY) was in December, after a large retracement suggested that Affymax was poised for a snap back; it subsequently gained 15%. But since mid-January, AFFY has been in decline. We noted the disappointing Omontys sales in early February and called Affymax dead money when Fresenius paused the expansion of its Omontys pilot program just two weeks ago (PropThink's negativity was based on poor scripts/sales, an overly optimistic outlook from The Street, and the "red flag" safety issues noted by Fresenius).
On Saturday, however, Affymax and partner Takeda announced that they will voluntarily recall all lots of Omontys (peginesatide), its recently-approved erythropoiesis-stimulating agent (ESA), as a result of new post-marketing reports regarding serious hypersensitivity reactions. "To date, fatal reactions have been reported in approximately 0.02% of patients following the first dose of intravenous administration. The reported serious hypersensitivity reactions have occurred within 30 minutes after such administration of Omontys. There have been no reports of such reactions following subsequent dosing, or in patients who have completed their dialysis session."
Affymax reported that approximately a third of the reactions were serious in nature, including anaphylaxis, and required prompt medical intervention. More than 25,000 patients have received Omontys since launch, and the FDA said that there have been 19 reports of anaphylaxis from U.S. dialysis centers, three of which resulted in death.
Any drug has the potential to cause allergic reactions, but in a patient population with significant co-morbidities and limited physiological reserve, a severe hypersensitivity rate of 0.2% that requires prompt medical intervention or hospitalization could cripple future sales. Most dialysis occurs in the outpatient setting and doctors are not always present. Thus, converting patients from current erythropoietin-stimulating agents, like Amgen's (NASDAQ:AMGN) Epogen, to Omontys in the outpatient setting no longer seems appropriate.
The question, however, is why these safety issues weren't spotted during clinical testing or whether the reactions are related to a "bad batch" of the drug: manufacturing-specific issues. Note that the Phase III program supporting Omontys' NDA and subsequent approval enrolled 2,606 patients, including approximately 1,600 dialysis patients. Following approval, however, the FDA post-marketing requirements included an observational study and a randomized controlled trial, with data due in 2018 and 2019, respectively: "The objectives of the studies are to evaluate cardiovascular safety and assess safety of long-term use in adult patients on dialysis, in particular in the incident patient population."
Affymax and Takeda will discuss the issues with FDA to see if Omontys does have a place in the market, and while dialysis patients have severe allergic reactions to other therapies, like IV iron, we have doubts that this product will be able to reenter the market anytime soon. A very quick identification of a "bad batch" or some other CMC-related cause could revive Omontys' prospects, but the overhang from this episode may persist. If the cause cannot be identified, it could take more 6-12 months for Affymax to run another clinical study, perhaps pre-treating patients with hydrocortisone to see if that brings the hypersensitivity, severity, and/or incidence down to acceptable levels.
Affymax currently has a negative cash flow and no drug pipeline, so it may well trade near cash until a resolution of this problem. For adventurous investors, cash per share is around $2.00, therefore, buying the stock below this level could allow those to speculate on an Omontys comeback, with minimal risk. Because Affymax currently has negative cash flow and no drug pipeline, avoiding the name makes better sense, and investors may be better off moving to alternative drug and biotech companies that are on solid ground.
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