Monday, March 10, 2014

The Most Overpriced and Underpriced Biotech Stocks? Mannkind and Oxigene

Mannkind Corporation had a market cap of almost $2 billion and it’s my vote for the most overpriced biotech stock.  Most investors already know the story of Mannkind – Inhaled insulin product Alfrezza, already rejected twice by the FDA, prior inhaled insulin product launched by Pfizer was a commercial flop, and a third and possible final showdown with the FDA set to unfold in the coming month with a ADCOM meeting on April 1st and a PDUFA date for April 15th.  So many investors ask, “Is the third time a charm?” 

I would say that the chances of a successful approval are less than 50%.  The results that have been shared (emphasis on shared as the full results haven’t been released) have been mediocre at best.  The Phase 3 results in Type 1 diabetes was numerically worse than injectable Novolog and the results in Type 2 diabetes was statistically better than Novolog but patients gained weight on the drug.  We don’t have much safety data but we do know that the inhaled insulin causes a persistent cough that the company says is benign.  My real concerns are what I refer to as “clues” which make me wary of approval.  They include the company’s unwillingness to release the full results from the trial, their inability to secure a marketing partner (if the data was that great, why can’t they get someone to partner), and the prior two FDA rejections. 

Even if the drug is approved, then comes the challenge of commercializing inhaled insulin.  Will people use inhaled insulin or are the comfortable with their current product?  Remember, the needles are much smaller, less painful (if at all), and less expensive than they were when Alfrezza first went down the path to develop inhaled insulin.  Are people scared of the long-term effects of inhaling a medication and the impact on their lungs including the very serious and deadly lung cancer?  Can Mannkind land a formidable marketing partner?  If the pharma giant Pfizer was unsuccessful in marketing inhaled insulin, what makes anyone think that another company will be successful?  Will anyone want to pay a premium for inhaled insulin versus their current insulin product knowing that Alfrezza will cost significantly more than Novolog or the other products on the market? 

Are there any dirty secrets in the trial data?  Will Alfrezza receive a positive ADCOM vote?  Will the FDA approve Alfrezza?  Can they secure a marketing partner?  Will it be a commercial success?  It seems to me there is way to many questions to justify a market cap of almost $2 billion until some of these questions are answered which is why Mannkind is my vote for the most overpriced biotech stock. 

On the other end of the spectrum is OXiGENE which has a whopping market cap of approximately $12 million.  The company’s lead drug is Zybrestat which is a vascular disrupting agent currently focused on Ovarian and Anaplastic Thyroid Cancer (ATC).  The drug works by blocking the blood flow to the tumor that then kills the cancerous tumor cells.  The company has invested over $200 million to date in this approach to tackling cancer and hopes these investments will pay off in the upcoming readout of it’s phase 2 trial in Ovarian cancer. 

Zybrestat is currently in a randomized phase 2 trials in ovarian cancer in combination with Genetech/Roche’s Avastin.  Ovarian cancer leads to 14,000 deaths in the US each year and has a 5-year survival rate of only 47%, which has been largely unchanged since the 90’s.  The trial is being conducted in 67 clinical sites and has enrolled 107 patients randomized 1:1 to receive Avastin and Zybrestat or Avastin and placebo.  The primary endpoint is an improvement of progression free survival from 50% to 65%, which is expected to report in the first half of this year (so any day now).  The trial has already passed two independent safety committee reviews and a futility analysis.  

With an upcoming phase 2 readout in a Ovarian cancer population that’s in dire need for improved treatment options, a positive result would make OXiGENE’s $12 million market cap the underpriced bargain of the century. 

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