A Momentary Lapse of Reason*

*Floyd, P.  1987

Every now and then, pharma/biotech companies do things that suggest that they had experienced a transient ischemic attack against their better judgment. Today there were two such events in the news:

1) Biogen-Idec and BIIB037

Biogen-Idec is one of NIR’s favorite companies,  they have planned and executed better than almost anyone else in the neuro area. So when they make errors, those mistakes  perhaps are magnified by the contrast with the Company’s usual high standards. First, they disclosed vague but intriguing results for this monoclonal antibody against an undisclosed epitope of beta-amyloid, stating that patients after 54 weeks of treatment showed decreased plaque load and improved cognition.They are sufficiently impressed that they plan to now go directly into Phase III from a trial that was originally, but not entirely honestly, labeled as a Phase I.

Today’s news involved a few frontal function lacunae: Our first comment is that this news came at a presentation at the Deutsche Bank BioFest investment conference, and was not accompanied by a corporate press release; company spokespersons only made further comments in response to press inquiries. This is selective disclosure of material information, and if anyone doubts that it is material, note that the Market added $5 billion to Biogen-Idec’s market cap today, which qualifies as material in our view. Secondly, in their public description of the trial, Biogen-Idec had disclosed only plans to assess biomarkers; scans of AB plaques, blood levels of antibodies. Now, it turns out that they were also conducting cognitive testing of some kind, which means they had withheld relevant information about the trial protocol. It should be beneath Biogen-Idec to play petty games with this kind of information.We are also unimpressed with their plan to not disclose the full data until a conference sometime in 2015. Private companies can get away with delayed disclosure, but a public company, with this much riding on skimpy and selective disclosure  should not. Perhaps the analysis is not yet complete, but they do have more detail that could have been provided– What were the cognitive testing results that inspired a Phase III go decision? What was the actual rate of vasogenic edema in APOE4 patients, in non-APOE4 patients?

Finally, and this is more ambiguous, we always have a moment of vertigo when a company skips doing a real Phase II and just goes directly into a several hundred million dollar Phase III in Alzheimer’s, particularly when they cite beta-amyloid plaque reduction as a key biomarker finding. It has  not worked out well in the past, and while Biogen-Idec is in good company (e.g. Merck, Lilly/AstraZeneca, Roche) in choosing to shave off two or three years off the development timeline, the added risk is not to be dismissed. That’s a judgment call in terms of risk-benefit, whereas the first three issues, the informational omissions, are not judgment calls, they were mistakes.

2) Otsuka is buying Avanir for $3.5 billion

Someone’s lithium level needs to be checked. By the press coverage, one would think that Avanir possesses some kind of broad and deep neurology pipeline that would complement Otsuka’s psychiatry assets. They do not, they mainly have Nuedexta, the quinidine-enabled version of dexmethorphan, and while Adam Feuerstein’s (Street.com) denigration of Nuedexta as ‘cough syrup’ is overly harsh, Avanir’s  deepest expertise is in clinical testing in a plethora of disorders, as they have done with Nuedexta (aka AVP-923) and its deuterated cousin, AVP-786. The recent Phase II data in Alzheimer’s agitation was intriguing, the first time that Avanir has presented something that approximates a real opportunity. But their Nuedexta sales, with pseudobulbar affect the only approved indication, just reach $100 million annualized. The Optinose sumatriptan product that they acquired this year looks distinctly unpromising to us, and the FDA was less than enthused, rejecting the NDA.

How does this translate into $3.5 billion? In our opinion, it does not, the valuation had already become prematurely inflated post-AD data, and this just takes it to ‘could this be a sign of a bubble?’ proportions. If Otsuka, which has had a strong record in psychiatry, wants to become a significant player in neurology, there were several cheaper, deeper, better routes to that end. To the media outlets who issued half-witted headlines like “Are Avanir Shareholders Getting Enough in the Buyout?”, we can only say that when Christmas comes early, it’s greedy to ask why Santa didn’t throw in a Lamborghini for good measure.


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