Lilly to Benefit from OSI Rejection

Includes: LLY, OSIP
by: EP Vantage

OSI Pharmaceuticals’ (OSIP) attempt to extend the use of its most valuable drug, Tarceva, as a maintenance treatment for non-small cell lung cancer (NSCLC) appears to have failed in the US following a resounding rejection Wednesday by the FDA’s oncology advisory committee, with some panellists clearly unimpressed by the marginal survival benefits shown in the pivotal trial.

Shares in OSI fell 7% Wednesday and continued to slide by 4% in early trade today to $31.65 on Tarceva’s missed opportunity with analysts expected to slash previously upgraded forecasts for the drug on hopes of extended FDA approval. OSI’s loss is likely to be Eli Lilly’s (NYSE:LLY) gain through the removal of a major competitive threat to Alimta, which received US and European approval in July for this same maintenance setting; at the time the US pharma giant claimed these approvals represented a “paradigm shift” in the treatment of NSCLC.

Marginal benefit

The use of some lung cancer drugs in patients whose cancer has not progressed after initial treatment with standard chemotherapy is a somewhat controversial area. Although statistically speaking many of the trials have generated significant improvements in overall survival and disease progression compared to placebo, these are offset by toxicity and quality of life concerns (ASCO - New lung cancer treatment strategy has sceptics as well as fans, June 3, 2009).

In Tarceva’s case, the drug improved progression free survival by one week, to three months in total and increased overall survival by one month, to one year overall. However, even though patients may survive for an extra month it is clear that experts remain unconvinced that they have a better quality of life considering the side effects of the drug.

On top of the marginal and therefore debateable survival benefits of taking Tarceva straight after chemotherapy even if the cancer has stabilised, the experts also questioned the rationale for using the product in this manner. Tarceva is currently prescribed as a second line treatment for NSCLC if chemotherapy fails or the cancer progresses after the initial chemotherapy cycle. Used in this setting, Tarceva has been shown to improve overall survival of lung cancer patients by three months, three times the survival rate when used as a maintenance therapy.

As such, there appears to be no logical reason why the current use of Tarceva needs to be changed and the 12 to 1 vote against approval by the panel means it will come as a major surprise if the FDA issues anything other than a formal rejection of this use, by the January 18 PDUFA date.

OSI’s claims of a more convenient dosing regimen for Tarceva, oral and once-daily compared to Alimta’s intravenous injection once every three weeks, also appears to have fallen on deaf ears.

Forecast U turn

All of which means the current forecasts for Tarceva and Alimta are likely to be revised over the coming months.

At the beginning of the year, analysts significantly upgraded their forecasts for Tarceva following the clinical trial data in the maintenance setting, both as a monotherapy and in combination with Avastin.

Archive consensus forecasts from EvaluatePharma reveal that estimates for Tarceva in 2012 have increased by $745 million to $1.78 billion since the start of the year, driven mainly by expectations for broader US and European approval. These estimates can now be expected to drop back to prior levels, reducing partner Roche’s in-market sales of the drug. OSI receives 50% of profits on US sales and royalties on sales in the rest of the world.

This will significantly reduce OSI’s cash flow from Tarceva, which had been forecast to reach $500 million by 2014.

Conversely, forecasts for Alimta could see some upgrades over the coming months, although the effect may be less dramatic given that they have already been rising consistently throughout the year. Estimates for 2012 have increased by 29% to $2.41 billion, making it Lilly’s biggest selling drug by 2014 at $2.73 billion.

The maintenance approval in the US and Europe, based on a greater overall survival rate than Tarceva, has no doubt helped to boost these estimates, but the removal of Tarceva’s threat should spark further upgrades.

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