Rushing to wrong interpretations of the news and the triggering of computer programmed-selling of biotech stocks on good news devastate serious biotech sector shareholders. Also, routinely instigating sell offs of development-stage firms at each and every quarterly financial announcement of negative income, knowing in fact that these firms have yet to put products on the market, boxes these stocks. Now, we are witnessing another pattern of computer programmed-selling, i.e. activation following announcements of clinical trial results, regardless of whether these results are positive or negative.
For some, the name of the game is win/win. For serious long-term investors in the biotech sector, it has become a lose/lose situation. Added to the problem are computer-generated reports thrown at investors that evaluate the development-stage firms based only on their financial results. In these reports, we find no trace of evaluation of the firms’ investigational products, as if they do not exist or have no value. The truth is that these drugs mean everything to investors in the biotech sector. Evaluating the biotech firms while ignoring the value of the investigational products (some might be breakthrough drugs) makes spending on them a punishable crime, and the market does, indeed, often punish investors for this illogical crime.
Intermune’s (ITMN) moment of truth
Rushing to exaggerate negative news, thus causing stocks to tumble, is not an uncommon practice. The phenomenon is mainly observed in the event that the FDA sends complete response letters about the firms’ NDAs, instead of granting straightforward approvals of their drugs. The stocks in question sometimes lose 60-80% of their values. Stricken by fear, investors fall on themselves like dominoes, causing the domino effect that evaporates their own investments.
Intermune’s drug Esbriet (pirfenidone) for the treatment of idiopathic pulmonary fibrosis (IPF) received in May an FDA Complete Response letter, instead of a straightforward approval. It took no time for the stock to tumble, losing 60% of its value even before investors knew anything about the letter’s contents. They sold the stock without any consideration of the drug’s importance, clinical trial results, FDA requirements, and history, such as pirfenidone’s approval and successful marketing in Japan. Friday, the battered stock received an O.K. from the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA). The committee recommended granting marketing authorization for Esbriet in adults for mild to moderate idiopathic pulmonary fibrosis. The stock price more than doubled, rallying from under $15 to around $33.
Top-Tier Biotech Companies
Stocks of top-tier biotech firms, those who generate revenues and income, are not immune from irrational undervaluation. Amgen (AMGN), Gilead (GILD), and Onyx (ONXX) have all suffered from one or another of the above practices. Stocks of firms expecting near-term approvals of drugs having huge markets, like Vertex’ (VRTX) drug for chronic hepatitis C virus infection, are also not immune against up and down trading.
It seems that the moment of truth for Onyx and Amgen has finally come to free them from the pressure weighing on their stocks. It has arrived with the announcement of undeniable positive results from late phase trials of cancer drugs estimated to add billions of dollars in revenues to their coffers. We expect the same with Gilead and Vertex.
ONXX rallied after the firm announced positive clinical trials results of its cancer drug carfilzomib for advanced multiple myeloma. The drug worked after other treatments failed. Better good news has come from the results of the same drug as a first line treatment for advanced multiple myeloma in combination treatment. (Please read the past article, “ONYX’ drug Carfilzomib delayed the need for a stem cell transplant.”) First line treatment means more patients, more sales, and more revenues. We do not expect the pressure on the stock to be deliberately lifted. Yet, we do not expect wise investors to take their profits and go at the time when the firm is on the verge of generating huge revenues, or being taken over at double its current market value.
Amgen’s happy moment of truth has come to free the firm from the pressure that boxed its stock for years to date. The truth has come from Amgen’s monoclonal antibody denosumab, which is marketed as Prolia, for osteoporosis and now as Xgeva after its very recent approval at a higher dose for cancer-related bone injury. Investors’ great enthusiasm came from Xgeva's clinical trial, which demonstrated significant improvement of bone metastasis-free survival in prostate cancer. The prostate cancer results are impressive and important. Usually, prostate cancer takes a benign course. In some patients, though, the disease takes an aggressive course where it proliferates quickly and metastasizes to the bone.
The victims of this kind of aggressive prostate cancer endure broken bones with excruciating pain. They require extensive, expensive treatments, but with a negative effect on patients’ well being. Hence the great enthusiasm for Xgeva, which demonstrated efficacy in delaying metastases and preventing metastatic consequences on the patients’ bones in case cancer cells had already invaded patients’ skeleton.
Many analysts began to reconsider their estimation of denosumab’s sales, which, in our opinion, could generate $3 billion between breast cancer, prostate cancer and other cancers, in addition to osteoporosis.
CYTOKINETICS: The Most Recent Casualty Among Development-stage Biotechs
Most development-stage biotech firms’ stocks have been and are still being put under pressure at quarterly financial results and at each and every announcement of clinical trial results. The victimized firms in this category included: ImmunoGen (IMGN), Exelixis (EXEL), Seattle Genetics (SGEN), Ariad (ARIA), Array Pharmaceuticals (ARRY) and many others.
Following undeniably promising clinical trial results announced by Seattle Genetics and successive positive results by ImmunoGen, these two firms seem to have reinstated their broken wings and are ready to fly.
Cytokinetics' (CYTK) story
At the 21st International Symposium on ALS/MND in Orlando, Florida, Cytokinetics announced successful results from Phase IIa “Evidence of Effect” (EoE) clinical trial of CK-2017357 in patients with ALS - a deadly, disease that affects the nervous system where upper and lower motor neurons die, leading to progressive muscle weakness and atrophy (shrinkage). The disease affects almost all muscles, including neck muscles, arms muscles, trunk, legs and muscles that control facial expressions, chewing, swallowing, speaking, and breathing. Patients lose tremendous weight and at later stages of their illness, they lose ability to breathe on their own and depend on support of a ventilator for survival. Patients also become vulnerable to developing pneumonia. Death is only a matter of time.
For reasons that we just don’t understand, following the announcement of what seems to be good results from Cytokinetics’ ALS drug CK-2017357, investors sold their stocks. CYTK lost around 25% of its value.
Recognizing the fact that the patients on this trial have received only one shot of the drug, and that the disease is crippling and deadly with no drug that would improve patients’ symptoms and boost their well being, we were surprised to see the stock selloff. Physicians strive for an effective symptomatic management and any drug that would improve patients’ quality of life. The aim of the small trial has been to prove that Cytokinetics’ drug CK-2017357 can at least fulfill these requirements. The only available drug Rilutek (riluzole), which acts by decreasing the release of glutamate, delays, for a short time, the need for lung support and provides 2-3 months increase in survival.
Having said all that, it is obvious that discovering and developing any new product that can offer minimal additional help, or improve the quality of life of ALS patients, should be welcomed. This is especially true when there is scientific justification for using the drug for ALS. CK-2017357 fits that description. It selectively activates the fast skeletal troponin complex by increasing its sensitivity to calcium, leading to an increase in skeletal muscle force. The drug action, and the results from preclinical trials and phase 1 trial, demonstrate encouraging pharmacological activity and suggest that CK-2017357 could be a potential candidate for muscle weakness, wasting diseases, and neuromuscular dysfunction conditions. That’s the reason that led the FDA to grant CK-2017357 orphan-drug designation for the treatment of ALS.
No rational observer, investor, or analyst would expect to make a relevant judgment of any drug following results of very small limited trials where the patients received only one shot of a high or low dose of the drug, or a placebo. In such small trials, the drug would be condemned if it causes horrible side effects, or shows no biological effects. These are definitely not the case with Cytokinetics’ drug CK-2017357. The trials had no drug safety concerns and the improvements were shown to be CK-2017357 dose related, which indirectly proves that the benefits come from the drug and are not a placebo effect.
More important was the decision to move the trials into the higher phase, which is the better of the two possibilities expected from such trials; ending the trials, or moving the drug to a higher phase trial. Jeremy M. Shefner, MD, PhD, Professor and Chair of the Department of Neurology at the Upstate Medical University at the State University of New York, who presented the results, said that the results are both encouraging and consistent with data generated in the preclinical studies and Phase I trials. The results support further study of CK-2017357 to evaluate the potential for sustained functional benefit in patients with ALS.
At this stage, we cannot confirm with certainty whether the drug would be successful or not. But we can say that nothing in the trials have gone wrong as to invite for a selloff of CYTK. All we can say is that, prior to eroding the stock value, it would have been wiser for the shareholders to remember that the upcoming results of Cytotokinetics trials with its cardiac muscle myosin activator Omecamtiv mecarbil for heart failure will be more informing than the small ALS study.
The heart failure results will decide upon the future relationship with Amgen, which is betting on this drug and is spending on it. If these results will confirm the prior results, it would be big for Amgen, and would surely decide the future of Cytokinetics.
Disclosure: We have no position in CYTK