Biotech companies striving to gain FDA acceptance for their medical drugs or devices have a host of obstacles to overcome before finally being cleared to market their products. Failure at any point of the regulatory process is difficult for the companies to overcome. However, the most feared phrase in the biotech company and investor vocabulary is the dreaded CRL, or complete response letter. A company may receive a CRL after it has completed all trials, submitted a new drug application and then been found to be deficient in safety or efficacy to some degree. Depending on the severity of the CRL, the company may have to do something as simple as submit additional data that it has already collected, or it may have to run additional trials to attempt to alleviate certain concerns of the FDA before the product can be marketed. The former is a "soft" CRL while the latter is considered a "hard" CRL. The latter can profoundly affect the company's finances, its partnerships, the rest of its pipeline and even its existence due to the costs associated with additional trials. In 2010 and 2011, many biotech companies experienced setbacks in the form of CRL's. Some of these were expected and even predicted by many, while many others were outright surprises. These surprises are prime examples of the risks associated with investments made in biotech companies. Despite these setbacks, many of these biotech companies have the financials, product potential, great management or simply enough luck to weather these setbacks and push their products through to eventual FDA approval. For investors in these exceptional companies, the potential returns can be phenomenal if correct entry points are picked and patience is exhibited.
Biodel, Inc. (BIOD) Market Cap $56.04 Million 05/13/11 at 2.12 PPS
Biodel's Linjeta injectable formulation of human insulin was thought to be near blockbuster potential with their claims of safety, efficacy and most notably speed of absorption for those with type 1 and type 2 diabetes. Their November 1, 2010 CRL came as a surprise to many as the concerns were thought to be only the tolerability of pain at the injection site of the drug and some negatively skewed data from a trial in India in which the blood samples collected for analysis were compromised by exposure to heat. Biodel's hope was that the FDA would ignore the data set from India due to the compromised samples, but they noted in the CRL “excluding data from India was post-hoc and therefore not sufficient for establishing conclusive evidence of efficacy." Additionally, the FDA had concerns of safety stating "unequivocal non-inferiority needs to be achieved in order to compare the risk of hypoglycemia." These issues and others pertaining to statistical analyses and manufacturing site concerns headed the list of problems, according to the press release. The true surprise to Biodel and its investors was the severity of the CRL in which the FDA requested two additional Phase III trials, one for type 1 diabetes and the other for type 2 diabetes. The costs and time associated with such trials for a company with no approved product in its pipeline was a devastating blow as the stock price plummeted more than 50 percent after the announcement.
Biodel met with the FDA to determine their best course of action. Surprisingly, the company scrapped the Linjeta formulation and opted to start a quick Phase I trial of the new formulations, BIOD-105 and BIOD-107, in a double-blinded and three-period crossover with Humalog. In this trial, patients will receive one subcutaneous injection of BIOD-105, BIOD-107 and Humalog as a comparator each on separate occasions. This clinical trial will evaluate 18 patients with type 1 diabetes and is expected to complete in 3Q 2011. Biodel will use data from this trial to support Phase II trials that are set to begin in 4Q 2011 and Phase III trials, which should begin in 2012. These BIOD-105 and BIOD-107 trial designs are the result of Biodel's meeting with the FDA and are part of their "accelerated development plan." Similar trials evaluating BIOD-105 and BIOD-107 versus the Humalog comparator to be administered via insulin pump were initiated in May of 2011 and will likely follow the same protocols as the subcutaneous trials. As pertaining to financials, Biodel had cash and equivalents on March 31, 2011 of about $17.6 million. Their $30 million offering announced on May 13, 2011 should help them go a long way with their trials and offers new investors a much better entry point into the security but could be painful to existing shareholders.
MannKind, Inc. (MNKD) Market Cap $521.4 Million 05/13/11 at 3.99 PPS
MannKind received its CRL on January 20 of this year for Afrezza, its own human insulin formulation but in an inhalable powder form. The FDA's CRL for Afrezza indicated concerns pertaining to the use of in-vitro performance data and clinical pharmacology data to link MannKind's next generation inhaler to the Phase III trials conducted using its MedTone inhaler. There were other more easily addressed concerns in the CRL, but determining equivalency between the two devices was of enough concern to merit two additional trials by MannKind. Trials would need to be conducted on type 1 and type 2 diabetes patients using the next generation inhaler in at least one of the trials for side-by-side comparisons with the MedTone inhaler. As per their May 9 press release discussing 1Q 2011 financials, MannKind had not initiated the trials but did indicate that they had their End-of-Review meeting with the FDA in which they received additional advice about the trials' designs and will initiate the trials once a final protocol is agreed upon. With a financial reserve in the form of cash, cash equivalents and marketable securities of $47.5 million as of March 31, 2011, MannKind will also need additional financing before its trials complete as they burned through $38.1 million in 1Q. Depending on the trials' designs, MannKind will likely beat Biodel to the NDA, even with the accelerated time frame Biodel has implemented, but they may have a more difficult time financially getting there.
Alexa Pharmaceuticals (ALXA) Market Cap $102.4 Million 05/13/11 at 1.42 PPS
Alexa received its CRL on October 11, 2010 for its lead product, AZ-004, for reducing agitation in patients with schizophrenia or bipolar disorder. The active ingredient in their Staccato device that emits an aerosol spray to be inhaled by the patient is loxapine, a drug already approved for use as an antipsychotic medication. The two Phase III trials leading up to the NDA met all primary endpoints. However, the FDA expressed concern in the CRL that there were observed, dose-related post-dosage decreases in forced expiratory volume in one second, or FEV1, in healthy subjects and in subjects with COPD and asthma. A similar effect was seen in patients receiving placebo solutions also from the Staccato device. In a January 18 release, Alexa noted that it had submitted an information packet to the FDA already addressing the concerns of safety, noting that the pulmonary changes were likely background events in the patient population and that the extensive and repeated pulmonary testing may have even caused some of the observations. Alexa recently stated that it intends to resubmit the NDA in July of 2011 and expects a PDUFA date in early 2012. There were less significant items mentioned in the CRL that Alexa believes it can address pertaining to "at risk" patients via risk management, and that plan will be included in the NDA resubmission in July. Relative to Biodel and MannKind, Alexa's CRL was a fairly soft one and the company's financials are likely adequate due to a recent $16.1 million stock offering on May 3 to fund them through the apparent PDUFA date in 1Q 2012. As of March 31, Alexa had consolidated cash, cash equivalents and marketable securities of $31.8 million with a 1Q cash burn of $8.4 million. Alexa is also planning on submitting a Marketing Authorization Application (MAA) to the European Medicines Agency (EMA) for marketing approval for the Staccato device in late 3Q 2011 as well. A lot is on the line for Alexa with pressure to get the device/drug combination approved to help legitimize their Staccato device and to help their own financials out. With the approval, all the licensing partnerships they've been trying to gain would be a huge step closer to reality.
Protalix Bio Therapeutics (PLX) Market Cap $540.9 Million 05/13/11 at 6.32 PPS
Protalix received its CRL from the FDA on February 25 2011 for taliglucerase alfa. An enzyme replacement, it is Protalix's current lead product and is being developed in a partnership with Pfizer (PFE) to treat Gaucher Disease. Taliglucerase alfa is a plant-cell expressed form of the enzyme glucocerebrosidase, lacking in these patients due to hereditary reasons. The concerns of the CRL include a request for additional data from the product's switchover and long-term extension trials. The FDA also requested additional information on testing specifications and assay validations in the manufacturing and control section of the CRL. The CRL is considered soft with requests for additional data and clarification while no additional trials are currently being required. Protalix's May 4 10Q SEC filings gave no indication of a time frame for the resubmission, but one must assume it should be before 4Q 2011 based on the concerns noted. Additional submissions have been made to Israeli Ministry of Health and MAA submissions to the European Medicines Agency and ANVISA, the National Sanitary Vigilance Agency, an agency of the Brazilian Ministry of Health. Unless other concerns are noted with those agencies, the Phase III data seemed solid enough to get approval with most if not all of those agencies for marketing. In its recent 10Q, Protalix noted that it had sufficient financial resources to maintain its current development plans for the next 12 months but did note that it could not guarantee need for additional financing. Milestone payments from Pfizer have been a significant source of revenue for the company, and an additional milestone payment from them for FDA approval would negate the need for a stock offering if that approval comes soon enough.