Past case studies can provide important information about how current events are likely to play out. Regarding Affymax (NASDAQ:AFFY), we conducted in depth research looking for past examples of drugs that had been subject to recalls and subsequently made their way back onto the commercial market in the United States. We hoped that this would inform our analysis of its drug, Omontys, which has been recalled. We didn't find many case studies and in the examples that we did find, the facts and circumstances surrounding the drug and its reintroduction were extremely unique with few similarities to the current situation with Omontys. This reinforced our initial conclusion that a return of Omontys is very unlikely. We present two case studies below (Tysabri and Lotronex), which we believe delineate key characteristics of drugs that have a reasonable chance of being reintroduced to the U.S. market following a recall. Omontys has none of these characteristics. As a result, we remain short Affymax, with a price target of $0.44.
Tysabri was approved by the FDA for treatment of relapsing remitting forms of multiple sclerosis (MS) on 11/23/2004. At the time, Tysabri was thought to represent a significant advance in the treatment of MS, with studies showing Tysabri was effective in substantially reducing patients' relapse rate. This table from a 2004 JPMorgan report summarizes key differences among MS treatments at the time:
However, on 2/28/2005, Tysabri was voluntarily withdrawn after two reported cases of progressive multifocal leukoencephalopathy [PML] associated with patients receiving Tysabri for MS, including one death. In conjunction with the withdrawal, the FDA stated: "FDA continues to believe Tysabri offers great hope to MS patients" (note the FDA did not make such a statement about Omontys).
After an exhaustive study that included reviewing each patient who had been administered Tysabri, an FDA advisory panel unanimously voted in favor of Tysabri's return to market, requiring no additional studies in March 2006. On 6/5/2006, the FDA approved resumed marketing of Tysabri under a special restricted distribution program with significant limitations recommended specifically for, "patients who have not responded adequately to, or cannot tolerate other treatments for MS."
Unlike Omontys for the treatment of anemia for patients on dialysis, Tysabri demonstrated a meaningful improvement in MS therapy for a broad population by reducing relapse rates, slowing disease progression, and improving patients' quality of life. While Tysabri could also be administered on a more efficient dosing schedule (IV monthly vs. SC daily-to-weekly for other MS drugs), there was no mention of this factor in the FDA's decision to re-approve Tysabri. We believe the key benefit of Omontys over existing drugs in the market, most notably Epogen, is its ability to be administered on a less frequent dosing schedule, and aside from this, Omontys demonstrates very limited clinical benefits over existing treatments. Importantly, even this benefit is of limited utility to dialysis patients, because many of them need to visit dialysis centers multiple times each week for treatments other than Epogen. As a result, we believe it is very unlikely that the FDA re-approves Omontys based on its rationale for re-approving Tysabri.
Lotronex was approved by the FDA for treatment of Irritable Bowel Syndrome [IBS] in women whose predominant bowel symptom was diarrhea on 2/9/2000. In October 2000, the FDA announced it was re-evaluating Lotronex as a result of reported serious adverse reactions. On 11/28/2000, Lotronex was voluntarily withdrawn after reports of 5 deaths and additional bowel surgeries.
According to an FDA briefing document [pdf] from December 2000 to December 2001, following the withdrawal of Lotronex, both the manufacturer and the FDA, "received an unprecedented number of communications from physicians, IBS patients and IBS patient advocacy groups requesting that the withdrawal of Lotronex be reconsidered." This resulted in an FDA Gastrointestinal Advisory Committee being convened to review Lotronex. The advisory panel voted 14-2 in favor of approving Lotronex for IBS with diarrhea as the predominant symptom subject to severe marketing restrictions. On 6/7/2002, the FDA re-approved Lotronex for restricted marketing only in patients with ALL of the following symptoms: (i) significant stomach cramps and pains or bloating, (ii) inability to control the needs to have a bowel movement or have "accidents", and (iii) inability to lead a normal home or work life because of the need to be near a bathroom.
The FDA released the following statement along with its re-approval: "The FDA is aware of the need to balance between access to effective therapies (particularly when conditions are serious, debilitating, or life threatening, and when no satisfactory alternative therapy exists) and protection of the public from serious drug-related adverse events. Since the withdrawal of Lotronex, the FDA and GSK have received numerous emails, letters and telephone calls from patients who related how their IBS symptoms were not responsive to any therapy other than Lotronex, and how their quality of life was adversely affected by its withdrawal. FDA has determined that in some patients the benefits of Lotronex outweigh the risks associated with the use of the drug" (emphasis added).
Unlike Omontys for the treatment of anemia in patients on dialysis, Lotronex had patients, physicians and patient advocacy groups all agitating for its re-approval. There were also "no satisfactory alternative" therapies for a segment of the population suffering from d-IBS. We have not seen the same constituents advocating for re-approval of Omontys; there are safe and effective existing therapies for patients on dialysis suffering from anemia. As a result, we believe it is very unlikely that the FDA re-approves Omontys based on its rationale for re-approving Lotronex.
An Ominous Sign: Omontys.com is Gone
Lastly, we would like to point out that far from advocating for the return of Omontys, Takeda's latest action, removing the Omontys.com website, appears to be a sign that it is simply hoping memory of the drug fades into oblivion. When we attempted to visit omontys.com on Friday 9/6/13, we were expecting to see the same old website that had been up since February. Instead, we found that the site was down. When we checked today, the site was still down. We think that means one thing-Omontys is not coming back.
This is a cached version of the website from 8/26/13, and this is what we had expected to see:
But instead, we saw this:
It wasn't just us.
We thought that maybe the skeleton crew at Affymax forgot to pay their bills for a month, so we checked the domain registration:
Omontys.com is managed by Takeda, not Affymax. Per the latest AFFY 10-Q, "Takeda assumed full responsibility for OMONTYS, including the ongoing recall and investigation of OMONTYS as well as any subsequent decisions as to whether the product may be subject to reintroduction…". The website, administered by the company that has sole discretion over the reintroduction of Omontys, is down. We think that means one thing-Omontys is not coming back.
Tysabri and Lotronex were re-approved by the FDA following recalls for very different reasons-Tysabri was re-approved due to its efficacy, and Lotronex was re-approved because there were no satisfactory alternative therapies and patients wanted the drug. Omontys does not have these characteristics. What we do know about Omontys is that it is a drug associated with life-threatening risks, with unclear clinical benefits at best, and there is no publicly available data around risk factors and how to reduce the risk of occurrences of serious adverse events. We believe these case studies overwhelmingly show that the most likely outcome is that Omontys never comes back. Finally, it appears that the website for Omontys (www.omontys.com), administered by Takeda, is down and has been since at least last week. We think this means one thing-Omontys is not coming back.
John Walker, an Affymax director and "biotechnology industry veteran with more than 30 years of experience in the healthcare and biopharmaceutical industries" apparently agrees, dumping all of his AFFY shares on 8/28/2013 at $1.92.
We remain short AFFY with a price target of $0.44 per share based on our probability weighted scenario analysis, which is described in depth here.
Disclosure: I am short AFFY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.