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As I suggested a couple of days ago, BioMimetic Therapeutics (Nasdaq: BMTI) did indeed get a thorough grilling from the FDA's advisory panel.

The good news? The panel ultimately voted in BioMimetic's favor on the three key summary questions of safety, efficacy and benefit/risk. What's more, the foot-and-ankle specialists (the key intended application for BMTI's Augment product) were supportive.

The bad news? The FDA (and the panel, to some extent) clearly has concerns about the product, and it is far from certain that the agency is going to grant approval to BMTI to market the product.

A Meeting With A Challenging Tone

While some observers of the meeting (or those who followed the tweets of those following the meeting live) may have felt the panel was contentious and negative, it didn't strike me as all that unusual relative to recent meetings. Certainly there were some pointed questions, and the panelists took the company to task more than once for deficiencies in the study and/or its results, but it is frankly rare to see these meetings conducted as love-fests for the applicant.

There was no shortage of criticism on the design and results of the trial – particularly as it applied to the statistical power of the results and the definition of the endpoints. In one case, for instance, a panelist observed that a swing of just a couple patients either way could have altered the statistical conclusions, and one went so far to comment that he would not put Augment in his grandmother. On more than one occasion, the panelists argued forcefully for additional studies on Augment, whether before or after approval.

It is also worth noting that one of the FDA's representatives, Nona Colburn, was quite aggressive regarding BMTI and Augment – so much so that more than one panelist went on record expressing criticism of Dr. Colburn'sa adversarial posture and/or disagreeing with her positions. Adding more color to this, the company mentioned on its conference call Friday morning that Dr. Colburn has been quite uncommunicative and uncooperative in their interactions. Clearly then, it would seem that there is at least one “no” vote within the FDA group handling this application.

Summary Points

At the end of the meeting, the panelists voted 12-6 in favor of Augment's safety and 10-8 in favor of the efficacy and benefit/risk trade-off. The panel really did not seem bothered by the potential cancer risk of the product - a major issue with a somewhat similar product from Medtronic (NYSE: MDT) called Amplify that did not make it through to approval. The panel was also comfortable with the company's choice of imaging to confirm efficacy, and the majority of the panelists felt that, on the margin, Augment is effective.

Where To From Here?

It is critically important for BMTI longs, or those considering owning the shares, to understand that this is *NOT* an FDA approval. The FDA is going to consider the panel's comments and recommendations and make its own internal decision on BMTI's application.

Based on the FDA's recent past, investors should expect a 6 to 9-month review process. At this point, the outcome looks like a toss-up. Although the panel votes were positive, my past experience with the FDA process has led me to regard anything less than 75% support for approval as a potential source of concern, with equivocal or close panel votes tending to lead to requests for additional data before approval.

Several panelists argued strongly for additional studies on efficacy and safety prior to approval, while others seemed content with post-marketing studies. It is also worth noting, as intangible and subjective as this is, that the FDA appeared tough and determined, but not unduly biased or negative.

In the meantime, the company is going to slowly begin preparations for a commercial launch – getting the underpinnings of a sales infrastructure in place, but keeping the cash commitments low. Investors should also realize that the odds of any M&A activity now are close to nil – a company like Stryker (NYSE: SYK) or Smith & Nephew (NYSE: SNN) may well be keenly interested in an orthobiologics product like Augment, but the risks of stepping in ahead of an FDA decision are just too great.

What To Watch

BioMimetic's shares are likely to stay relatively depressed in the short term. Incremental developments like an FDA inspection (often a precursor of approval) would be positive, but investors should not expect a lot of information – the FDA typically goes silent for months at a time during the process and there may well be no new information coming to management prior to receiving the actual letter.

In the meantime, investors might want to keep MELA Sciences (Nasdaq: MELA) on their radar as a sort of “canary in the coal mine.” There's nothing at all similar between MELA's device and Augment, but MELA secured a narrow positive panel recommendation despite very adamant FDA opposition. Should the FDA grant approval to MELA without additional studies, that will almost certainly be seen as a positive development regarding BMTI's prospects.

The biggest credible downside risk to BMTI shareholders is that the agency demands another pivotal-scale clinical trial before granting approval. That would set the company back by at least two years and force the company to spend tens of millions of dollars and perhaps setting back development of other clinical programs. Such a move would likely force the stock down into the mid-single digits. On the other hand, if the FDA's needs are more modest – say asking for the data from pharmacokinetics studies that the company has already done but not formally presented – the downside will be more limited.

The Bottom Line

For those BMTI longs who think I'm too negative and are preparing the “you're just short / somebody is paying you to say this” emails, don't bother. I'm long BMTI shares, I believe Augment can be a great product, and I believe eventual FDA approval is a “when, not if” event. But I have also been following med-tech for a long time, I carry more than a few scars, and I know that the process of securing FDA approval can be more difficult and time-consuming than bulls want to believe.

I still believe that Augment will be a very competitive product that will break Medtronic's near-stranglehold on orthobiologics, even though the approved indications will be different. I also believe that companies like Stryker, Smith & Nephew, Biomet, and Zimmer (NYSE: ZMH) will seriously consider trying to acquire this company and add its orthobiologics franchise to their own efforts in trauma and soft-tissue repair.

To that end, I think BMTI is a stock whose ultimate value is in the high teens. For aggressive and risk-tolerant investors, this is an intriguing opportunity. Just keep in mind, though, that the FDA is no pushover these days and the path to approval could be a little rockier than bulls want to see.

Disclosure: I am long BMTI.

Source: BioMimetic Clears Another Hurdle