Aveo Pharmaceuticals: A Hidden Gem Or A Hidden Disaster

| About: AVEO Pharmaceuticals, (AVEO)
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On November 28,2012 , Aveo Pharmaceuticals (NASDAQ:AVEO) announced that the FDA has accepted its Tivozanib NDA package for review with a FDA decision of July 28, 2013. Despite the FDA's acceptance of the NDA filing, investors still have concerns about Tivozanib's clinical data and when combined with analysts' sell recommendations, Aveo Pharmaceuticals' stock price tumbled 8% to the current price of $5.97 per share.

Aveo Pharmaceuticals' NDA submission was based off of the TIVO I Phase-3 trial. In this study, Aveo Pharmaceuticals compared its product Tivozanib to a billion dollar blockbuster drug Nexavar (Sorafenib) for the treatment of Advanced Renal Cell Carcinoma. Nexavar is co-developed and co-marketed by Bayer and Onyx (NASDAQ:ONXX) Pharmaceuticals.

In the TIVO trial, Tivozanib had statistically significant improvement in progression free survival and a more favorable tolerability profile when compared to Nexavar. However, the overall survival rate was essentially the same. Based on the result of this study, investors questioned whether Tivozanib's progression free survival data alone is enough to support a FDA approval.

To put the FDA's valuation on progression free survival data into perspective, as recently as November 29th, 2012, the FDA has approved Cometriq made by Exelixis (NASDAQ:EXEL) for the treatment of thyroid cancer based off of Cometriq's superior progression free survival data when compared to placebo. Furthermore, Cometriq did not extend the overall survival better than placebo. As early as 1996 the FDA has set a precedent by approving Eli Lilly's (NYSE:LLY) drug Gemzar for ovarian cancer which showed superior progression free survival but did not prolong overall survival.

In the past 6 years, the FDA has approved 6 drugs for renal carcinoma. These drugs are Sorafenib, Sunitinib, Temsirolimus, Everolimus, Bevacizumab and Pazopanib marketed by Bayer/Onyx,Pfizer (NYSE:PFE), Wyeth/Pfizer, Novartis (NYSE:NVS), Genentech/Roche (RHHBF.BK), and GlaxoSmithKline (NYSE:GSK) respectively.

Out of the 6 drugs approved for renal carcinoma, 5 of these drugs were submitted to the FDA with significant progression free survival data. However, the overall survival data for these drugs were not mature enough to be analyzed at the time of submission. Based on the FDA's willingness to approve these drugs, it is obvious that the FDA's intent is to make renal carcinoma drugs available to clinicians as quickly as possible. Based on the FDA's approval track record, it also shows that the FDA views progression free survival data as having a clinical value and that a patient's quality of life is just as important as their length of life. The FDA has clearly demonstrated that they have the flexibility of allowing drugs to reach the market first and than ask for overall survival data later. Given the FDA's approval track record, Tivozanib stands a good chance of receiving FDA approval.

Since the insiders own approximately 16% of Aveo's outstanding shares and that Tivozanib is Aveo's only product that is close to being marketed, management has re-directed 80% of the company's resources to proactively prepare Tivozanib for a 2013 commercial launch. Coincidently, in 2013, Tivozanib's overall survival data may also be mature enough to be analyzed. Although the risk is very small, an unfavorable overall survival data can be disastrous.

What is the probability of a disastrous overall survival data?

Early analysis showed that 77% of Tivozanib compared to 81% of Nexavar treated subjects achieved a one year overall survival. However, more than half of the Nexavar's patients were also subsequently treated with Tivozanib. Given this clinical scenario, Tivozanib's overall survival data should be equal to if not better than Nexavar's. However, there are no guarantees.

Aveo Pharmaceuticals is currently being down-graded by analysts due to its poor operating margins and revenue. Currently, Aveo Pharmaceuticals does not have any products on the market. From a financial analyst's perspective, Aveo Pharmaceuticals seems like an over-valued financial disaster. However from a clinical perspective, Tivozanib may be a hidden gem and once polished, Aveo Pharmaceuticals may be the next Cinderella story.

Given that Aveo Pharmaceuticals had a 52-week high of $17.51 and that the current price is $5.97, Tivozanib may just be that fairy Godmother that makes all of Aveo Pharmaceuticals Investors' dreams come true.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AVEO over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.