At the time of the Omontys recall in February, "five patients were reported to have died after receiving Omontys, according to the figures provided by Affymax (AFFY)," with "three cases of serious anaphylactic reactions associated with fatal outcomes…two deaths reported prior to February were deemed to be cardiovascular in nature." Since then, there have been no updates from Affymax, Takeda, or the FDA regarding deaths associated with Omontys. Has Takeda uncovered something so awful about Omontys that they want to sweep the drug and all of its potential liabilities under the rug rather than bring attention to it? Curiously, Deutsche Bank initiated coverage of Takeda on 10/09/2013 and there was not a single mention of Omontys anywhere in the entire 49 page report.
In our effort to get to the bottom of the Omontys saga, we asked the FDA to send us the Adverse Event report for Omontys, which can be found in its entirety here (107 pages long). The data shows there have been 22 deaths in which Omontys was reported to be the most likely cause of death! Furthermore, the report shows there has been at least one death (multiple additional cases of adverse events) reported as a result of subcutaneous administration of Omontys. Ex-CEO, John Orwin previously said "there have been no reports of such reactions …in patients receiving the drugs subcutaneously-although the subcutaneous patient numbers are limited". A key underpinning of the AFFY bull case was that the drug could be reintroduced under a limited subcutaneous-only label. That optimism appears misplaced now given a subcutaneous death. The FDA data presented here renders Orwin's statement patently false. We believe it is extremely unlikely that the FDA approves an interim reintroduction of Omontys under a subcutaneous label. Below is a summary of cases with reported deaths.
The summary above excludes other serious, life-threatening outcomes, including anaphylactic reactions and non-fatal respiratory arrest, which were reported in at least 10 other cases. We were surprised at the sheer volume of serious adverse events reported in relation to Omontys, and were reminded of something Dr. Steven Nissen said about the risks vs. benefits of Omontys at a 2011 FDA ODAC meeting: "So what I'm fearful will happen is that…you're going to be back here in front of this committee in the future, as you have been in the past, with this drug [Omontys], as you have with other drugs, with some surprises down the road."
We have written about Affymax (here, here and here) and continue to believe that Affymax is likely worthless. Given the choice between taking Epo 3x/week during regularly scheduled dialysis center visits along with other drugs such as Venofer, compared to taking Omontys once a month at a significantly higher risk of rapid onset death via anaphylactic shock or cardiac arrest, we believe the choice for not only patients and doctors, but also the FDA is clear. Don't forget that it appears insiders (who had access to this FDA data) share this view as well given they have been on a selling streak, even near current levels (John Walker at $1.92, John Orwin at $1.02).
We remain short AFFY with a price target of $0.44 per share, but the most likely outcome is that the stock is worthless. Our target price is based on a probability weighted basis whereby we assign a 90% probability to Omontys being worthless, and a 10% probability to the upside case of $4.38 per share, implying a $0.44 expected value (assumptions discussed in greater detail here). However, we believe that the data overwhelmingly shows Omontys is unsafe, too many bridges have been burned (FDA, dialysis centers, nephrologists, patients who suffered adverse reactions), and the hurdles for reintroduction are far too high. Therefore the most likely outcome is that Omontys never comes back and the Company is worthless.