For some time, we've been bullish on the long-term prospects of a pharmaceutical company that has made (in our opinion) a major breakthrough in medicine. The stock has been recommended in some of our more speculative advisories. Last week, it suffered a huge setback for reasons which we think are largely unjustified.
That's not just sour grapes, as you'll see in a moment (also for the record, I don’t, nor have I ever, held a personal position in the stock.). Rather, it underscores some of the deeper problems America faces today – problems which you should be aware of because they have a major and often direct impact on the lives of you and your family.
The company is Amylin Pharmaceuticals, Inc. (AMLN). In 2005, its drug exenatide received approval as a stand-alone treatment for Type II diabetes. Not only does exenatide control blood sugar, it also provides extremely beneficial side-effects, including lower blood pressure, improved cholesterol, and significant weight loss. It's the kind of breakthrough that previous generations would have celebrated on par with discovery of the polio vaccine or antibiotics.
However, for reasons that are hard to fathom, the history of exenatide has been mired in controversy. The first treatment based on it, called Byetta, had one big drawback: it had to be administered by injection twice a day. Nonetheless, many people were quite willing to put up with this inconvenience because the treatment was very effective.
A bigger problem arose when a brokerage issued a statement that people taking exenatide seemed to have a higher incidence of pancreatitis. Shortly following the report, the FDA posted a warning on its website regarding the treatment.
Unquestionably, the brokerage report was based on faulty data analysis. Yes, studies showed that people taking exenatide do have a slightly higher incidence of pancreatitis than the overall population. But so do all diabetics. (Diabetes, after all, is a disease that results from a malfunctioning pancreas.) In fact, closer inspection shows that diabetics taking exenatide actually have a lower incidence of pancreatitis than diabetics not taking it. In other words, if you are diabetic, taking exenatide will make you less likely to develop pancreatitis, not more. (We’ve written about the situation at length in previous issues of TCI that can be found via our website’s archives. The October 2008 issue contains the most comprehensive write-up.)
Despite this obvious truth, the FDA accepted and promulgated the brokerage's concerns, thereby preventing many diabetes sufferers from getting the medication that could have brought them relief (as well as holding down Amylin's stock).
Why this strange behavior from an agency which supposedly bases its decisions on sound science? We've talked before about problems with modern science and its dependency on computer-based analysis. Sure today's computers can crunch vast quantities of data quickly, but all that power is useless unless we know how to interpret the data correctly. In this case, not only was the initial interpretation of the data wrong, but also our system showed a remarkable failure to correct its mistake. As a result, harm was done to the millions of people who could have benefited from exenatide.
In fact, the full ramifications of this error are much larger than most people realize. According to a recent issue of Scientific American, diabetes and related diseases such as metabolic syndrome cost our nation close to $200 billion a year. Amylin's drug, which is derived from a natural substance found in Gila monsters, could lead to a broad range of treatments that would create huge savings for the healthcare system.
As damaging as the pancreatitis claim has been, an even bigger blow to Amylin occurred last week. The company has developed a form of exenatide, called Bydureon, that only needs to be injected once a week. This could bring relief to the many diabetics who find twice-daily injections bothersome and paved the way for even more advanced forms of the drug. Instead, the FDA decided not to approve Bydureon, a decision that triggered a roughly 50% plunge in Amylin's stock.
The FDA said it wanted more studies done on exenatide's impact on cardiovascular health, a concern that has never come up before but may have to do with the recent turmoil over another diabetic drug, Avandia, which has been linked to stroke.
We have to admit the decision left us completely nonplussed. Exenatide has been in development for years and many studies have been done on its effects. If there was any legitimate concern regarding its effect on the cardiovascular system, surely someone would have noticed it before.
In fact, as I pointed out above, all the studies so far suggest exenatide actually improves certain cardiovascular risk factors such as high blood pressure and bad cholesterol levels. This should be no surprise since, as with pancreatitis, diabetics are far more likely to suffer from cardiovascular problems than the average person.
Worse still, the FDA said it wanted new studies done using only above-therapeutic dosages of exenatide. Hardly the way to get an accurate picture of the drug's effect on real patients.
The upshot of all this is that it could take more than a year before Amylin finally wins FDA approval for Bydureon. Meanwhile, the decision has some very broad negative consequences – much broader, in fact, than most people would realize at first glance.
In the first place, the FDA's rejection of exenatide means Americans will be denied a treatment that could considerably reduce diabetes, obesity, high blood pressure, and cardiovascular disease. It's a decision that makes no sense from the perspective of saving lives and reducing health costs – which is supposedly the reason we have the FDA.
Given the nature of our business, it's tempting to suspect some form of graft was involved. We don't like to think such a thing is possible. However, we will continue to follow this situation closely. For any entity to manipulate the FDA's decision in such a matter would be more than just a crime. It would be a covert attack on the health of millions of Americans, as well as a financial attack on our government and every other entity that pays for healthcare in America.
Putting the possibility of graft aside, the FDA's decision is also a symptom of the problems our increasingly complex society faces. We've watched with interest over the past year or so as the Federal government struggled with healthcare reform. Regardless how you feel about the legislation that was eventually passed, you cannot deny that cost was a big issue in the debate. (In fact, it generally took precedence over providing people with healthcare.) Given its concern over money, one would think our government would gladly support treatments based on exenatide, which could save the healthcare system hundreds of billions of dollars a year. That's money that could be used to balance the budget, stimulate the economy, or support beneficial programs that are currently under pressure.
In other words, this is a decision that hurts everyone's pocketbook – not just those of Amylin's shareholders.
We've talked before about Joseph Tainter and his study of the downfall of civilizations in the past. You may recall his argument that complex societies tend to collapse when the layers of complexity and their costs rise faster than the energy supply. We doubt Tainter would have used Amylin as a case study, but the parallels seem clear to us. As the business of healthcare becomes bogged down by ineffective and expensive layers of bureaucracy, to the point that they exceed the benefits of finding new treatments, the whole system runs the danger of collapsing.
We're optimistic things are not yet that bad. So we're sticking with Amylin in hope that the FDA and other agencies will eventually come together and let exenatide benefit the nation. When that happens, Amylin's investors will be well rewarded for their patience.