Following up on a previous article in which I wrote about a possible reversal, you will see that biotech company Affymax (NASDAQ:AFFY) stock did in fact bounce in share price recently. While it did offer some newcomers a reasonable return, some traders like me may want to continue to hold. In short, Affymax is still alive.
Some speculative traders who entered cheap may have sold already sold and booked some very good gains for a two- to three-day hold. That's OK if this is your trading strategy. The risk/return is just too great to ignore here longer than three days. Remember that it was once a $27 stock last year. Most, if not all, of us here today are waiting for its partner Takeda (OTCPK:TKPHF) to inform us about its detailed investigation. Investors, as well as the FDA, need to know the exact cause which lead the company to implement a full recall of its once promising drug OMONTYS.
What surprised everyone was the immediate "voluntary" non-FDA mandated recall of the drug. Yes, voluntary even though there were a few deaths that were reported, and it wasn't a batch recall but rather a "full" recall. The mystery here is that there really isn't any clear-cut proof that it was in fact the drug's fault over human error. There is much "speculation" that the reason for the 0.02% catastrophic results may be caused by human error, lack of experience, certified training, storage requirements, or unfit facilities with poor infection control standards and/or handling with regard to this new drug.
Trouble -- Speaking of Human Error and Poor Control Standards at Dialysis Facilities:
Breaking News: On May 21, 2013 a dialysis center owned by Fresenius Medical Care North America has shut down following infection-related deaths and hospitalizations.
It astounds me to know that there are other drugs sold on the market that help a patient with one sickness, but may cause other serious side effects. These are side effects like cancer or other serious illnesses, yet they are still sold on the market and doing quite well. I noted Venofer in a previous article and its warnings and precautions. It doesn't really appear to be much different than Omontys' warnings.
More on Omontys DD:
Research indicates that Omontys was sold with:
- Full indication
- Clearly defined limitations of use
- Important safety information, including boxed warnings
Going back to news that was released on April 24, 2012, you will see that there are several caveats and conditions that must be met by "practicing" healthcare providers. Such as:
- OMONTYS is "only to be used" for the treatment of anemia due to chronic kidney disease (CKD) in adult patients "already" on dialysis
- OMONTYS is "not indicated" and is "not recommended" for use in patients with CKD not already on dialysis
- OMONTYS is "not indicated" and is "not recommended" for use in patients receiving treatment for cancer and whose anemia is "not due to CKD"
- OMONTYS is "not indicated" and is "not recommended" as a substitute for red blood cell transfusions in patients who require immediate correction of anemia
- OMONTYS is not indicated in patients with cancer receiving chemotherapy
- OMONTYS should not be used as a substitute for red blood cell transfusions in patients who require immediate correction of anemia.
- It is administered either intravenously or subcutaneously as a single monthly injection
Here are some additional facts:
- The drug was administered to over 25,000 patients.
- Fatal reactions to the injection have been reported in approximately 0.02 percent of the 25,000 patients.
- There have been no reports of serious reactions following subsequent dosing, or in patients who have completed their dialysis session.
- Omontys was successful in the trials that took years before the FDA finally approved it
- The cause of the three deaths were believed to be found in a few (maybe two) dialysis centers
In the case of Omontys, one has to wonder what the specific cases were with the three people who developed anaphylaxis, a serious allergic reaction that is rapid in onset and may cause death. There are so many questions that need to be answered, such as:
- Warning labels were placed, but were the warnings strictly followed before administered?
- Do we have documented evidence of prior proper training that took place with the nurses and/or doctors who may have administered the drug?
- Were proper steps taken immediately after an allergic reaction took place by using epinephrine or some other agent to stabilize the patient?
- Were the patients suitable in the pre-screening process?
- Was there even a screening process?
To speak plainly, the patients taking this drug clearly are not in the best of physical shape, and some of the patients may be categorized as very weak. Much like a pancreatic cancer patient fighting for survival, one must look at whether or not it's suitable for a patient to have a strong cancer drug administered to them in the first place. Is the patient strong enough to benefit from certain dosages or to weak too handle the side effects?
Also, investors should take note that the issues only arise out of the first dose and within 30 minutes. The extreme allergic reactions appear to be from intravenous and not subcutaneous injections. Minimal, first-injection dosages could be in question as well.
To do additional due diligence, let's look into the only competition by leading biotech giant Amgen (NASDAQ:AMGN):
- Epogen - FDA Approved Drug 1989
- FDA Info on competitive (ESA) drug Epogen
- FDA Labeling and Approval History for Epogen
- Epogen REMS
- The Washington Post Article
- Affymax's CEO recently joins Relypsa an Amgen company
Amgen's Epogen was approved in 1989 (when there were no other therapeutic equivalents) and had made billions upon billions in revenues year after year on its drug monopoly. It got Epogen successfully approved despite its troubles, too. As I recall, Amgen was brokerage firm Shearson's top biotech pick for years in the early 1990s while I was employed there.
Now enter Affymax's Omontys. It stands as a clear and present danger to the Amgen franchise. The drug appeared to be on the same path to success, and then tragedy struck. Now, Takeda has to sift through the pieces and see if it can put the $600 million in research already spent back together again. As you might expect, neither Affymax nor Takeda are talking and no one knows for sure what will happen here today or tomorrow. The bottom line is that we are all waiting for the final investigation outcome from Takeda to determine if this once-per-month drug can be placed back on the market or not.
To date, Takeda has assumed full responsibility over Omontys. If it decides to reintroduce Omontys, which is uncertain, Affymax shareholders are eligible to receive royalties and potential commercial milestone payments as outlined in its recent 10-Q filing. If Omontys does return, and there is no guarantee that it will, you could expect to wake up and see an immediate spike in the shares following a positive announcement. Again, there are no guarantees that this will happen.
On the other hand, if Omontys is discovered not to have any future prospects in becoming reinstated in the U.S., then the shares will gap down and it will be hard to find new YTD lows. There is a threat of bankruptcy, but I believe that the reduction in the workforce and cost-cutting expenditures has taken this risk off the table, at least temporarily.
I personally find it hard to believe that Takeda does not see some real value in Omontys. Also, you should be aware that the EMA CHMP overseas drug approval review is estimated to happen on or around May 31, 2013. As far as I can see, that application is still ongoing and wasn't pulled. The overhead has been cut, 75% of the employees are gone, and more cost-cutting measures have been taken to keep the company afloat for the time being. These are all "positives," in my opinion, not negatives. Why else would Takeda be spending the time and possibly millions of dollars in additional research to attempt to get the drug back on the market? At this juncture, only time will tell. As I mentioned earlier, I'm here for the risk/reward potential. I see a huge upside and limited downside. However, you should do what's right for your own risk tolerance.
Disclosure: I am long AFFY. 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.