SLINGSHOT CONTRIBUTOR: Killian McKee
This week examines developments from biotech companies AstraZeneca (NYSE:AZN), Relypsa (NASDAQ:RLYP), and Mast Therapeutics (NYSEMKT:MSTX) where recent FDA and management announcements have the potential to significantly impact the stock's potential. In both scenarios below, speaking to an expert will help investors gain insights into these complex situations and perform fundamental diligence.
AZN deserves investor attention as the FDA recently rejected its potential blockbuster hyperkalemia drug, ZS-9, citing concerns over its pre-manufacturing process. More specifically, the FDA issued a complete response letter (CRL) and 483 form to AZN, which states a drug will not be approved in its current state, but does not require new clinical data for potential future approval.
This came as a surprise to many who expected a smooth road to approval for ZS-9 after AZN purchased ZS Pharma for $2.7 billion last December. AZN shares were only down 1% as a result of the news, but competitor RLYP saw its shares jump ~29%. Previously, some analysts believed AZN would swoop in with a superior drug and claim most of the market for hyperkalemia, but with the FDA's denial of ZS-9 that future looks murkier.
MSTX warrants investor interest after their CEO announced they would be delaying the release of Phase 3 top line data for EPIC study by more than a month due to delays locking their patient dataset. Despite this announcement, MSTX's stock price has risen more than 25.5% over the last 4 weeks and went up more than 6% on June 14th, 2016 alone. An expert call could explain typical reasons for a delay, the implications on the study quality and precedent situations.
Option 1: A review of the 483 issued to AZN & ZS Pharma during the pre-approval manufacturing inspection for ZS-9. Is this a temporary problem? What does this mean for Relypsa's recently released competition Veltassa?
The release of the 483 report (a form issued at the conclusion of an FDA inspection when any observed conditions might violate standards) provides an excellent opportunity to interview an expert about the long-term effect this will have on the hyperkalemia landscape and what the future looks like for both AZN and RLYP.
Currently, RLYP's recently released Veltassa stands as the only drug on the market to treat long-term hyperkalemia (high levels of potassium in the blood). Despite its current monopoly on the market, sales of Veltassa have been relatively slow. In April and March, there were an average of 290 new patients per week, all of whom were started on a free starter supply. The cause of this slow adoption hasn't been totally clear, but some analysts blame a prohibitively high pricing strategy and a severe black box warning label from the FDA (which RLYP recently petitioned to have removed).
Until recently, it was believed AZN's ZS-9 would easily receive FDA approval and could outsell Veltassa, with many investors believing that ZS-9 might not be labeled with the same severe black box warning present on Veltassa. The FDA's denial of ZS-9 provides a major leg up for Veltassa right as the drugs were expected to compete head to head for market share.
However, with the recent CRL issued, investors should question where ZS-9 stands in the hyperkalemia landscape. Estimates vary greatly (ranging from 3-18 months) as to how long it will take to resolve the issues noted in the 483. Speaking with a CGMP (current goods manufacturing process) expert could give investors insights into the seriousness of these manufacturing problems, the true extent of the delay, and the future of AZN and RLYP as they pertain to hyperkalemia.
Questions for a CGMP expert that has experience dealing with 483 reports from the FDA.
What is your background consulting on CGMP issues?
What are your initial impressions of the 483 issued to AZN?
Which observations are the most troubling to you? May we walk through each observation and get an opinion on how troubling they are to you?
Given the size of AZN: 1) Are you surprised they purchased a company with this sort of manufacturing inspection report?
Given the size of AZN: 2) What is the fastest timeline that AZN could rectify these issues? Could they just put it into another facility? If they do that, what is the shortest timeline the drug could be approved, assuming no other issues?
Are you familiar with Relypsa's drug Veltassa? If so, do you think this 483 will have a meaningful impact on the future of Relypsa in the market?
What is the typical process used to address CGMP problems and does AZN have anything that will help or hurt them enact this process?
AZN voluntarily submitted some manufacturing data after the fact to the FDA. Is there any way this could impact the ruling of the 483?
In Conclusion: An interview with a pharmaceutical manufacturing expert would provide a window into the severity of the issues facing AZN's hyperkalemia drug ZS-9 and the future of rival drug Veltassa.
Join the expert interview and add questions now.*
Option 2: Investigating the meaning of the recently announced delay in the database lock for Vepoloxamer's Phase 3 EPIC study. What does it mean for investors and is it concerning?
Sickle cell disease 'SCD' patients carry a mutated form of hemoglobin causing normally circular red blood cells to morph into sticky, rigid crescent-shaped units which can cause a variety of serious complications ranging from strokes, fits of extreme pain, lethal lung complications, anemia, and more. There is a significant unmet need for effective treatments as currently there is only 1 FDA approved drug, Droxia, which is expensive and has serious side effects.
Mast Therapeutic's EPIC is one of the largest clinical sickle cell studies ever and has been measuring efficacy of using vepoloxamer to treat the disease. Phase 3 top line data was expected in June of 2016, but with a month long delay recently announced by the CEO, some have been wondering whether or not this could signal something more concerning beneath the surface. Mast management stressed they are taking longer than expected to lock their dataset because of its size and their commitment to due diligence, with their CEO writing:
"We'd like to emphasize that the additional time needed for QA/QC procedures does not reflect on the quality or integrity of the results or conduct of the study. Rather, with 77 study sites opened in 14 countries and 388 patients randomized, EPIC generated an extensive body of information. The sheer amount of data collected during a hospitalized crisis and 30-day follow-up period is substantial, and all of it must be extensively and rigorously reviewed and verified by our team for completeness and consistency."
However, some investors have also cited concerns over the company's current debt agreement with Hercules Capital, which stipulates they need not pay back $10 million if the company can demonstrate satisfactory data by July 31st, 2016. With the potential for MSTX to miss this deadline, investors would be well served by speaking with a pharmaceutical Phase 3 expert about their interpretation of Mast's letter and the implications of the delay in the database lock for vepoloxamer.
Questions for a CRO veteran that has extensive experience with global Phase 3 trials and is familiar with the situation.
Please give us more color on your background working with clinical trials. How many global trials have you done? Have you worked with Phase 3 trials?
What is the typical plan to lock a database as the last patient nears enrollment?
How much of the QA/QC process can be done while other patients are completing the trial? Meaning can the QA/QC work be completely finished on the first 80% of patients enrolled before the last 5% even start?
The CEO of the company was particularly open and transparent about the situation. In addition to the rather administrative 8-K filed, he posted this letter to investors. What do you make of this letter? Do any "red flags" jump out to you?
The letter stresses that "EPIC is the largest placebo-controlled clinical study in sickle cell disease ever conducted." Does this impact the process in your opinion because the PIs and companies are less experienced? Or are trials not typically influenced by factors like this?
In general, how challenging is it to estimate when a trial will read out once the last patient completes the initial observation period? What I mean is, how much guesswork once all the patients are finished is there in a well run study?
The CEO letter states: "We'd like to emphasize that the additional time needed for QA/QC procedures does not reflect on the quality or integrity of the results or conduct of the study. Rather, with 77 study sites opened in 14 countries and 388 patients randomized, EPIC generated an extensive body of information. The sheer amount of data collected during a hospitalized crisis and 30-day follow-up period is substantial, and all of it must be extensively and rigorously reviewed and verified by our team for completeness and consistency. " What do you make of this explanation as a reason for the delay?
The letter offers a high degree of detail about where the company currently is in the process. It states: "Trials of this size and scope usually generate thousands of individual queries, however, we already have completed 100% of the first round reviews and approximately 60% of the second round reviews. By the time we begin the third and final review cycle of patient-level data, we expect to have few to no open items, so we are well on our way to finalizing this vital part of the overall process." Does this sound normal to you and typical of a trial that is well run? Can you please lay out all the scenarios in your opinion for this delay and characterize each one's severity in your opinion for us?
Are there other problems you saw arising from the global nature of some clinical trials not present in more domestic ones? Could any of these be present in the EPIC study?
Has a trial you've worked with ever faced similar types of delays? Is this type of holdup typically more of a bump in the road or a roadblock to a drug's approval?
Join the project and add questions now.*
In Conclusion: The delay in locking the database for Mast's EPIC study could indicate something concerning for the future of their trial . An expert familiar with Phase 3 trials on a global scale could bring to light relevant information for investors.
*Author note: If you join and agree to pay for the call before the contest winner is selected, and it ends up winning, you will still receive it for free. Otherwise, you will only be charged for your share of the project, which is split among all participants. As more participants join, the cost goes down. The losing interview will not happen if enough people are not willing to pay for the call, and you will not be charged.*
You Choose the Stock: Interactive Voting
Seeking Alpha readers can vote by commenting below which expert call they would like us to execute on Slingshot Insights.
After the voting period ends, Slingshot Insights will interview a Subject Matter Expert, then post a transcript and recording of the conversation on our website for FREE.
Vote now in the comments below/direct message me to express your interest. Seeking Alpha readers can also join and add questions on Option 1: AZN here and or Option 2: MSTX here and get expert insights to enhance your investment diligence.
Disclosure: I am/we are long MSTX.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.