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Joseph Krueger  

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  • Affymax Sell-Off: Did Investors Overreact? [View article]
    ngrunes, I think you should have written this article :)
    Time is a little tight for me now, but I intend to give your questions a thorough response. Your comments look at a much bigger picture that is definitely critical for a Hematide approval, and a key factor is to accurately determine how good or bad the Hematide data is going into an FDA panel review or FDA decision in light of a potentially adverse regulatory landscape.
    Right now, AFFY is in holding pattern; investors are waiting for some clarity about the data. Although your synopsis of the data seems accurate, top-line stats can be misleading in both directions. Now is a good time to measure all the factors we have been discussing here- I think it may require an entire second article.
    Jul 14, 2010. 09:12 AM | Likes Like |Link to Comment
  • Affymax Sell-Off: Did Investors Overreact? [View article]
    In regards to the Hematide data, the higher dosed non-dialysis patients were the only ones who showed an increased risk. Interestingly, these same patients actually trended towards lower efficacy (change in Hb levels). The lower dose patients in the same population had equivalent efficacy to Aranesp with no hints of increased risk. This suggests to me that there is some confounding variable in the non-dialysis subgroup in this study the led to the outcome; the variable could be the higher dose of Hematide itself.
    Jul 10, 2010. 09:58 AM | Likes Like |Link to Comment
  • Affymax Sell-Off: Did Investors Overreact? [View article]
    ngrunes, I am wilting in the sun of your scrupulous research and thought process. I applaud your technique, and it has considerable merit, but most of the "value" questions cannot be answered without the digital event of FDA approval, as this is the main determinant of value for companies like AFFY. You summed this up in the last paragraph.
    I know you understand this, but just to make my stance clear, here is where the risk comes in- and I think this has more to do with investor appetite for risk. I rely on risk weighted investing- that is all biotech is- but in my opinion there are so many unknown outcomes that reside on digital events (phase III endpoints, FDA decisions) that really all you can do is make a "best guess" based on your understanding, and make larger or smaller investments based on your confidence in that prediction.
    I primarily invest in biotech because of my background- I can understand the science very well and have some insight to the meaning of clinical trial results. Admittedly, I need to keep up more about the ever changing FDA policy and gain better predictive value for guessing approval success- I think you have captured this real well in your comments.
    My argument for Hematide approval is that is demonstrated statistically equivalent safety and efficacy, so it will be approved as a bioequivalent.
    Your primary argument against Hematide approval is not the fundamentals of safety or efficacy; you seem less concerned with those parameters; your concern is how Hematide will appear in light of the FDA sentiment about ESAs changing. Furthermore, the FDA is likely to make some resolute matter on this before Hematide can even come up for approval, and this will surely threaten its chances.
    I think you should write up a follow-up article, basically rehashing this conversation, readers would enjoy to see how you are determining value.
    I have to agree with your enlightened take on this matter, and myself and other readers should take note and weigh these issues. That being said, it does make me feel there is more risk than I was weighing in and I will adjust my portfolio accordingly, still retaining a smaller position in AFFY.

    As I stated in my last line of the article, a fair value is hard to determine, but it is more than its cash value- Hematide is not worthless.

    Let me research some more and come up with specific answers to provide values for the variables for your equations.
    Jul 9, 2010. 09:54 AM | Likes Like |Link to Comment
  • Affymax Sell-Off: Did Investors Overreact? [View article]
    follow-up comment:
    NET cash is $125 million, even with subtracting all liabilities, but not counting other tangible and intangible assets.
    You may be mislead by the almost $60 million "deferred revenue" liability which is not a real liability; it is simply amortization of the milestone payments Takeda has payed out already to avoid paying taxes on it up-front.
    Upon filing the NDA, they get another $30 million from Takeda- I would expect this within a few months. Since they are not running any trials, cash burn should be low waiting for the FDA decision which should be within a year after filing the NDA. I would expect them to still retain $125 million in cash by then.
    If the FDA rejects and requires more trials, then your valuations are more appropriate and the cash burn will be significant.
    Jul 8, 2010. 04:18 PM | Likes Like |Link to Comment
  • Affymax Sell-Off: Did Investors Overreact? [View article]
    Very interesting thoughts ngrunes, thanks for all of your contributions. You obviously know more about the FDA's take on ESAs than me, and I honestly hadnt considered those aspects until this point.
    Let me summarize your points as I understand them: "The market's response is to the safety concerns from the trial data is appropriate because the FDA has been actively debating the virtues of ESA therapy in light of the minimal efficacy and the significant safety concerns which have arisen over the last decade or so. In general, transfusions work better than ESAs without safety risks. Given these concerns, the FDA is unlikely to approve Hematide because it did not offer any advantages over existing ESA therapy; in fact it potentially introduced more risk. It is possible that the FDA will ask for more safety data and/or more effiacy data comparing Hematide to blood transfusions alone. Given that this would cause delay and significant cash burn, and put Hematide at further approval risk all cash valuations of AFFY are irrelevant and there is still significant risk to the downside if this scenario plays out."

    ngrunes, I have to say this is a fair argument, although somewhat conservative in my opinion considering this is a biotech stock and not Walmart stock. But your comments have stirred my confidence some- investors need to be aware of changing FDA additudes relevant to a drug up for approval.

    I think your risk- weighted valuation of AFFY is too low. The market is not always right but usually tries to price in expected outcomes ahead of time, and has a way over over-reacting one way or another to a development. If the $23 price was pricing in approval, below $6 is pricing in rejection, and the truth lies somewhere in the middle. If we do it your way and $23 is approval and $1 is rejection, then it should be in the middle there. Either way, $6 is simply too low.

    Some responses to your comments are that AFFY could avoid the pre-dialysis indication and seek the dialysis indication only using the larger pool of EMERALD data, which showed very equivalent effiacy to Aranesp without any hint of difference in CSEs. I don't think the FDA would ask to run Hematide against transfusions, since the pre-determined trial design was to compare it to Arenesp (although the FDA is predictable). In the PEARL trial they did examine lower doses of Hematide, which were actuall more effiacacious than the higher doses (but not statistically different- no safety data comparing was provided. This could offer some window into a compromise between safety concerns and effiacy.
    My final point is that Takeda is one hell of a partner....their input will help gain FDA approval.
    Thanks again for your insight, please keep it coming.
    Jul 8, 2010. 03:48 PM | Likes Like |Link to Comment
  • Affymax Sell-Off: Did Investors Overreact? [View article]
    thanks for the clarification. The trial appears open on clinicaltrials.gov.
    Jul 8, 2010. 02:19 PM | Likes Like |Link to Comment
  • Affymax Sell-Off: Did Investors Overreact? [View article]
    Great post, thanks for all the thoughts. I may have to tackle this in a couple responses. First, let me address some general comments you made:

    In much of your response you are attacking ESAs in general..this class of drugs has come under fire because of the side effects and their effiacy criticized as you pointed out. You have provided some very significant data to this end. But the FDA and general medical community still believes them to be effective for their intended purpose of maintaining Hb levels, with the intention of reducing morbitity and mortality. I would be surprised to see this change.
    Their CSEs are seemingly due to the biology of EPO and there is no way to circumvent them. However, the risks far outweigh the benefits...we are treating a life-shortening chronic disease...not insomnia or weight loss.

    To address some specific points:
    -The current label for darbepoetin in the US is once every two weeks. Once-monthy darbepoetin trial Amgen is running in the US is slated to be finished in 2012. Trial NCT00925587. The half life of darbepoetin is about 15 hours and Hematide is about 60 hours. AFFY is well ahead in the trials and superior in this attributes of the drug; whether this translates into superior benefit remains to be seen.

    - I frankly have no idea of the cost benefits, it has been long speculated by analysts that Hematide could be less expensive due to manufacturing ease, and using smaller margins. Amgen's margins are very large because it has a lock on the US market.

    - Hematide is also seeking other indications and indications in chemotherapy (phase II complete) and Takeda is pursing indication in Japan. Takeda is a very strong partner with signficant investment and interest in Hematide; if AFFY was doing this alone the risk would be to great.

    -Once monthly is a significant use advantage; doctors and patients like choices and the FDA is supported of offering patient options. This also protects it from generic Epogen competition some, as Epogen cannot match this.

    My main argument is not so much that Hematide is a superior drug to the existing ESAs; although it seems that is what the street thought, which is why it crashed so hard I suppose. My main argument is that AFFY was $23 two weeks ago and under $6 now; what changed, and is it reasonable?
    The key issue right now with AFFY is approval- FDA denial is what is being priced here....in my mind FDA approval is likely for the reasons I stated. My bullish case is more anti-bearish; meaning that the bears have stated this case by selling AFFY off to below $6 and I have provided counterpoints to that. In my mind, this is way overdone and the true value of AFFY is somewhere more than $6 and less than $22. Ultimately, AFFY will find a comfortable risk/reward value when investors weigh the true significance of the data and these catalysts take place.
    Really, all AFFY has to do is clarify the data- if the increased CSE are explained, the stock will rally. If they are not, the bad news is already priced in.
    Jul 8, 2010. 01:07 PM | 1 Like Like |Link to Comment
  • Affymax Sell-Off: Did Investors Overreact? [View article]
    This was the criteria specified by the FDA to demonstrate statistical non-inferiority, which was the goal of the trial.
    Jul 8, 2010. 09:43 AM | Likes Like |Link to Comment
  • Affymax Sell-Off: Did Investors Overreact? [View article]
    I obviously disagree. They met all of their primary efficacy and safety endpoints for the trial quite well. The trials were large and the follow up was long. As you can see, the only difference seen among the four trials was CSEs in PEARL, was I suspect was due to the higher dose of Hematide used in the subset patients. A better analysis of the data will reveal the cause and the NDA will avoid the exact dose/indication where the problems were.

    Treatment difference (CI)* between Hematide and EPO
    EMERALD 1 -0.15 (-0.29, -0.01)
    EMERALD 2 0.10 (-0.05, 0.26)
    PEARL 1 0.03 (-0.19, 0.26) (low dose)
    PEARL 2 0.14 (-0.09, 0.36) (low dose)


    "Hematide also met the statistical criterion for non-inferiority in the combined four studies for the adjudicated cardiovascular composite safety endpoint (CSE), which was composed of death, stroke, myocardial infarction, congestive heart failure, unstable angina, and arrhythmia (hazard ratio (HR) 1.06, 90 percent confidence interval (CI) 0.91 - 1.22).

    In a subgroup analysis of CSE events in the EMERALD studies in maintenance treatment of anemia in dialysis patients, the frequency of CSE events was balanced between Hematide and the comparator (HR 0.95, 90 percent CI 0.79 - 1.13).
    A difference in CSE events was noted, however, when a subgroup analysis was conducted in non-dialysis patients. In the PEARL trials, which evaluated correction and maintenance treatment of anemia in non-dialysis patients, the frequency of CSE events was higher in the Hematide group (21.6 percent) versus the comparator (17.1 percent) (HR 1.34, 90 percent CI 1.03 - 1.73)."
    Jul 8, 2010. 09:32 AM | Likes Like |Link to Comment
  • Affymax: Long-Term Value Far From Anemic [View article]
    Why is the stock down 70%? Why not 30% Why not 50%? Why hasnt it bounced? There is a good reason: The market is pricing in a 70% chance that the deal with Takeda is dead. Why?

    Becuause the phase III results threaten the entire Hematide franchise. The reason is because Hematide was looking approval for both the pre-dialysis and dyalisis patient population. That would give it an edge over the existing competitor Mircera.

    But because they had the issues in the pre-dialysis patients, their is a big threat that the FDA wont give them approval for that indication and thus they have absolutely no competitive edge in a crowded market.

    Since all Hematide demonstrated was equivalency and no additional benefits, also with some statistical risk in pre -dialysis patients, it may only get the dialysis indication and not the pre-dialysis indication. It will have to compete against Mircera for this.

    Even with approval of Hematide, they are up against Epogen, Aranesp, Procrit, NeoRecormon, and Mircera. Mircera is an especially big problem, because it is essentially the same drug (longer lasting PEGylated Epo) for the same dialysis indication. Without this, they cannot separate themselves from all the others.

    The deal with Takeda and all the milestones rest on gaining FDA approval for BOTH dialysis and pre-dialysis indications....they have to get BOTH or they lost their partner!!! Now it looks like pre-dialysis may be in danger....FDA may black box it.....without pre-dialysis Takeda doesnt have to pay all the milestone and may be able to back out of Hematide all together.

    What if they dont get approval? What if more trials are required? ithout Hematide, they have nothing else. Without Takeda, they may not have significant Hematide sales.

    Although Takeda has been fronting most of the bills through milestones, their are no more milestones until FDA approval so they will burn through that cash in about 3 years. PDUFA date should be about 18 monts from now, assuming they file a NDA very soon. They will burn significant cash waiting.

    Assuming approval of the dialysis indication only, we can look at Mircera sales. Mircera sales were about $300 million in 2009, so if Hematide can capture 1/3 of sales it is about $100 million which it has to share half of the profit with Takeda. Profit margin on those sales is probably about 30% so 1/2 of $100 million times 1/3= about $15 million. That is it; enough to make AFFY cash neutral.

    Current fair should be under $5. This is giving $2.50 for cash value, and $2.50 for the dialysis franchise for Hematide, risk adjusted for non-approval all together (15%), approval for the dialysis indication only (70%) or approval of both indications (15%). You will have to wait 18 months to approval, they will burn some of that cash as well, and they are screwed without immediate approval on the PDUFA.

    Hematide is in trouble on many levels....and so is AFFY. Dont fool yourself. Reasonably valued at $5....there will be no bounce for this one, folks. Slow steady drain to $5 coming.
    Jun 23, 2010. 06:10 PM | 1 Like Like |Link to Comment
  • Affymax: Long-Term Value Far From Anemic [View article]
    sorry, meant $180 million in cash, typo
    Jun 23, 2010. 05:42 PM | Likes Like |Link to Comment
  • Affymax: Long-Term Value Far From Anemic [View article]
    Sure, they have about $280 million in cash after the recent milestone payment but you are forgetting about the $125 million in liabilities on the balance sheet. The good news is that Takeda has been fronting most of the bills through milestones, so their cash burn is reasonably low. But you cannot just value them for their cash without subtracting liabilities.
    Other milestones ($20MM) rest on gaining FDA approval for BOTH dialysis and pre-dialysis indications....it looks like pre-dialysis may be in danger....FDA may black box it.....without pre-dialysis Takeda doesnt have to pay all the milestone and may be able to back out all together.
    Without Hematide, they have nothing else. Without Takeda, they may not have Hematide sales.
    Even with Hematide, they are up against Epogen, Aranesp, Procrit, , NeoRecormon, and Mircerat. Mircera especially, because it is essentially the same drug (longer lasting PEGylated Epo). Since all Hematide demonstrated was equivalency and no additional benefits, also with some statistical risk in pre -dialysis.
    So Hematide is in trouble on many levels, and when you count liabilities there is only $60MM for shareholders.
    Jun 23, 2010. 04:15 PM | Likes Like |Link to Comment
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