Seeking Alpha
Profile| Send Message| ()  

Recently Affymax (AFFY) dropped 85% due to the voluntary recall of its only marketed product, Omontys. The company disclosed that Omontys may be responsible for inducing anaphylaxis in 0.2% of total patients, with 0.02% of patients dying. This news has broken many investors' and patients' hearts.

So what went wrong? No one knows so far, not even executives from Affymax or its partner, Takeda (OTC:TKPHF). In the latest conference call, Affymax executives couldn't give any possible indication on what might have gone wrong. It was just like a deer caught in the headlights. On the other hand, the company probably didn't wish to disclose any details before it had solid data to back it up.

Someone suspected that there might be a manufacturing issue. However, Affymax recalled all lots of Omontys. Affymax executive told us that deaths happened in various lots. So the manufacturing process of Omontys is unlikely a major problem.

A physician brought up a good point that Iron Dextran causes anaphylaxis in patients occasionally. A majority of CKD patients need IV iron during Omontys treatment. Iron Dextran is a widely used IV iron therapy supplement. However, Iron Dextran injection is a separate event from Omontys injection for the same patient. Fatal anaphylaxis usually happened in patients within a half hour or one hour after Omontys injection. On top of that, in the past year physicians preferred to use other IV iron supplements instead of Iron Dextran for CKD patients, which have no fatal anaphylaxis incidents. So it is almost unlikely that Iron Dextran is involved in Omontys's fatal anaphylaxis issues.

Interestingly, both Iron Dextran and Omontys consist of a long chain foreign substance, which may cause fatal anaphylaxis even though they are different in structure. Omontys (peginesatide) is an ESA that is a synthetic, foreign substance linked dimeric peptide comprised of two identical, 21-amino acid chains covalently bonded to a single lysine-branched bis-(methoxypoly(ethylene glycol)) (PEG) chain (approximate MW 40,000 daltons). Iron Dextran is iron bonded to long chains of polysaccharides.

Hypersensitivity reactions to iron dextran are reported to occur in 2.47% of patients. There have been reports of fatal anaphylaxis (15.8% of anaphylaxis patient, <0.06% total patients). FDA still allows it in the market as long as Iron Dextran is labeled in a proper warning box and described with a workable solution for anaphylaxis.

However, there is not much detail and appropriate description in the Omontys info sheet to tell physicians how to test and treat patients with anaphylaxis during an Omontys injection. If Affymax may provide a detailed box label of warning and protocol for anaphylaxis in the Omontys description sheet, the FDA will let Omontys go back to market within months.

Why is it sure that FDA will allow Omontys to re-enter the market if Affymax revises its writing like INFeD? First of all, a disturbingly high proportion of primary care and emergency physicians don't know the correct way to treat anaphylaxis and prevent recurrences, according to a survey reported here.

"Structured interviews with 318 physicians indicated that substantial numbers do not always provide epinephrine to patients they believe are having anaphylactic reactions, often fail to refer anaphylaxis patients for follow-up care, and believe incorrectly that some such patients should not receive epinephrine auto-injectors," said Myron Zitt, MD, of the State University of New York at Stony Brook.

Akhil Chouksey, MD, MBA, of Case Western Reserve University in Cleveland, referenced a 10-year review of anaphylaxis cases there that indicated that in only 15% of the adverse event cases did the care include all three of the major recommendations: that epinephrine be administered within 30 minutes of triage, that auto-injectors be prescribed at discharge, and that patients be referred to an allergist or immunologist for follow-up investigations and treatment.

"The review also found that in 26% of cases in which anaphylaxis was definitively confirmed, the patients never received epinephrine," Chouksey noted.

When there is no detailed warning and protocol of anaphylaxis prevention described in the Omontys label, most physicians aren't ready to treat anaphylactic reactions when they administrated Omontys into patients. So it possibly caused three cases of fatal anaphylaxis in Omontys's treatment. However, it was fortunate that only 0.02% of Omontys's patients died. Fatality rates of anaphylactic reactions are usually much higher than that. So if Affymax is able to provide a better method and warning like those from their competitors, fatal anaphylaxis incidents from Omontys therapy can be prevented or minimized.

Secondly, foreign substance linked drugs like Omontys are known for anaphylaxis incidents. However, all of them are still in the market because related companies provided very detailed warning labels, pretest protocol and prevention methods. Some of the drugs are even worse than Omontys regarding anaphylaxis incidents. You may find anaphylaxis info for the following foreign substance linked drugs: Mircera, Aranesp, ALDURAZYME, etc.

Mircera is Methoxy Polyethylene Glycol-Epoetin Beta. Methoxy polyethylene glycol-epoetin beta is an ESA, which differs from erythropoietin through formation of a chemical bond between either the N-terminal amino group or the 8-amino group of any lysine present in erythropoietin, predominantly Lys52 and Lys45 and methoxy polyethylene glycol butanoic acid (approximately 30,000 Daltons). This results in a total molecular weight of approximately 60,000 Daltons.

Among 1028 patients experiencing side effects of Mirera, 0.58% of patients have anaphylactic Shock which is almost triple comparing to the Omontys incidents (0.2%).

Aranesp has the active ingredient darbepoetin alfa. It is used to treat anemia and muscular dystrophy. Commonly reported side effects of Aranesp include anemia, pain, aplasia pure red cell, fatigue, and hemoglobin decrease. Aranesp differs from endogenous erythropoietin (EPO) by containing two more N-linked oligosaccharide chains. It is an erythropoiesis-stimulating 165-amino acid protein.

Recently it was reported that patients under Aranesp have anaphylaxis incidents of 0.48%, more than double compared to those injected with Omontys's 0.2%.

My well-respected fellow investor in SA with a strong chemistry background, ChemistFrog, also made similar conclusions that Omontys may cause anaphylaxis due to its foreign substance linked peptide.

Omontys has several advantages over Epogen. I will mention two major ones: fewer dosages and less cost than Epogen with similar efficacy. Omontys which offers once per month injection has significant advantages over Epogen as patients and doctors will certainly prefer the convenience and added compliance due to a more simplistic regimen. However, Amgen (AMGN) tied up major dialysis centers with its Epogen in contracts. It will be challenging for Affymax and Takeda to overcome Amgen's foothold. Recently, Affymax and Takeda made significant progress by signing up several dialysis centers. So once Omontys is released by FDA, its sales will likely grow rapidly.

Recently they hired Mr. Tim Varacek, an executive from Amgen, who has tremendous experience in Epogen's sales and marketing. He will be a great force for Affymax to increase Omontys sales and take market share from Amgen.

Investors should take consideration of the risk of investment in Affymax. Currently there are no other drug candidates in Affymax's pipeline. Omontys is the only drug for which they got FDA approval in 2012 but it's recalled now for safety concerns. The Omontys safety issue will either make or break Affymax. Since rare fatal anaphylaxis happened in the initial dose and long-term usage is safe like other foreign substance linked drugs, I believe that Affymax will solve this issue soon.

On Monday Affymax announced a 75% work force reduction and potential bankruptcy. It expects to incur between $8 million and $10 million in costs related to the job cuts. So it is very high risk to long this stock. On the other hand, Affymax reported a cash balance of about $67 million as of February end. If they are able to reduce the burn rate to $5m per quarter and manage to postpone loan payment and the other liabilities to one or more years, they and their partner, Takeda, will have resolutions for Omontys's safety issue.

Currently Affymax is very dependent on Takeda. If Takeda walks away from their contract, Affymax will have a hard time surviving. Affymax needs financial support and clinical experience to solve Omontys's issue. Takeda had dealt with worse cases than this before. Takeda will probably provide some solutions to FDA within a month or so.

In summary, there is a significant chance that Affymax will come up with appropriate descriptions for Omontys's anaphylaxis side effect like similar foreign substance linked drugs' descriptions. I believe the FDA will allow Omontys to get back to market within months, and the drug will have great potential sales growth from that point onward.

Source: Affymax Will Rise Again