Seeking Alpha: Forget Arena Vs. Vivus - Zafgen May Be The Ultimate Winner

As an investor and writer with no financial stake in any of the companies involved, watching the message board battles between Arena (ARNA) and Vivus (VVUS) shareholders is good theater. Both companies have FDA-approved drugs on the market that are effective in helping obese people lose weight, but neither Arena's Belviq nor Vivus's Qsymia look like "the one obesity drug to rule them all". Belviq is hampered by modest efficacy, while Qsymia can produce scary side effects and has a more limited marketing effort behind it.

Quite frankly, though, the Arena-versus-Vivus battle may ultimately be just the undercard for the real battle. A private biotech company by the name of Zafgen has drug in clinical testing that has shown very impressive efficacy and solid safety, and happens to work by a completely different mechanism than biotech and pharma companies have pursued so far. While Arena and Vivus likely have at least three years before Zafgen's drug becomes a clear and present danger, investors in those companies may want to consider the risk that their parties could be brought to a premature end if Zafgen can continue to produce such strong data.

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Forget Arena Vs. Vivus - Zafgen May Be The Ultimate Winner

Investopedia: Weight Watchers Still Can't Get It Right

I generally try to consider both the positives and negatives of every stock I analyze, but that has gotten increasingly difficult with Weight Watchers (NYSE:WTW). I have long had my issues with this management team, and I believe management errors have finally started to take their toll on the valuation. While I do believe the brand carries considerable value and that this could be a highly attractive business if run properly, I have little confidence that this team can do it.

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Seeking Alpha: Can Anything Stop Novo Nordisk?

Novo Nordisk (NVO) is a company for the record books and MBA lesson plans. This Danish biopharmaceueticals company doesn't try to do very many things, but it does them very, very well. With modest near-term competitive risks and substantial potential value in the pipeline, operationally there is little to fear at Novo Nordisk. The question for investors, as is so often the case with this stock, is what is the proper price to pay for that excellence.

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Can Anything Stop Novo Nordisk?

Investopedia: A Look Back At The Year In Biotech

Despite 2012 being a year where investors were increasingly skittish as the year wore on, the exceptionally risky biotechnology industry enjoyed an exceptionally good year. While the group has come off a bit from its peak in the early fall, the group is up more than 30% year to date - making it not only a strong outperformer relative to the S&P 500 (which is up about 12%), but one of the best-performing groups of the year.

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Investopedia: The Week Ahead In Healthcare

For better or worse, late June through mid-July tends to be a period where very little of note happens. There are no major medical conferences during this period, the FDA seems to avoid scheduling PDUFA dates during this time period, and there are no significant earnings on the calendar. With analysts and managers using the time to take rare vacations (or not-so-rare excursions to the golf course), stocks tend to drift and investors can likely expect the same for the week ending July 13.

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Investopedia: Arena Pharmaceuticals - One Huge Step Forward, But Many More Remain

Patient (or long-suffering, depending upon your point of view) Arena Pharmaceuticals (Nasdaq:ARNA) shareholders got some major validation on June 27, 2012, when the company announced that the FDA had formally approved the company's weight-loss drug, Belviq (aka lorcaserin). With a commercial launch with marketing partner Eisai expected around the end of the year, investor attention now shifts to the questions of whether Belviq will prove popular with doctors and patients, whether it will get adequate reimbursement, and what the total market potential will ultimately be.

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Investopedia: Control May Be Herbalife's Real Long-Term Problem

Herbalife (NYSE:HLF) has gotten knocked around hard lately, as well-known investor David Einhorn has apparently taken some interest in the company and asked some fairly pointed questions. Although I don't agree with those who have interpreted his questions as implying that there is any sort of pyramid scheme at work, that doesn't mean that there aren't inherent issues with the Herbalife model. While there is likely to be sustained ongoing demand for the sort of supplements that Herbalife sells, I wonder whether Herbalife's model takes too much of the company's growth potential out of its own hands.

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Seekin Alpha: Novo Nordisk Finally Looks (Slightly) Mortal

To whom much valuation is given, much is expected. That's about the only sense in which Novo Nordisk (NVO) disappointed anybody this quarter. While this highly-focused pharmaceutical company has been enjoying phenomenal success in diabetes, investors may just want to check into the estimates that underpin the valuation before committing their capital to these shares.

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Novo Nordisk Finally Looks (Slightly) Mortal

Investopedia: Wall Street Isn't Buying The Medifast Story

Whenever an investor finds a stock that looks simply too cheap, it's wise to question why that may happen. Some stocks are simply under-followed and over-looked and represent real bargains. In other cases, investors have made mountains of molehills and overestimate the risks present (or underestimate the growth). Then there are cases where the Street may be right to be wary and cautious, and a seemingly cheap stock is, in fact, priced appropriately for the risks.

In that vein, it's worth taking a closer look at Medifast (NYSE:MED), as this growing weight loss play seems cheap, relative to historical financials.

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Seeking Alpha: Vivus's Qnexa And Its Potential Value

Vivus's (VVUS) chances of getting FDA approval for Qnexa, its investigational drug combination for obesity, have never looked better. To suggest that the process has been difficult would be to say that War and Peace is a little wordy or that Michael Jordan could play a little ball.

Nevertheless, a surprisingly positive panel vote has investors excited that the FDA very well may approve the first prescription drug for obesity in over a decade. The question investors may want to ask then, aside from what the chances are that the FDA goes along with its panel, is how much appreciation potential may be left in the shares.

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Vivus's Qnexa And Its Potential Value

Investopedia: More Yo-Yo'ing At Weight Watchers

Weight Watchers (NYSE:WTW) is one of those oddly volatile stocks. Although the company's inconsistent attendance history and highly levered balance sheet no doubt explain some of it, it is curious that this is a Wall Street plaything. With the company offering disappointing guidance on attendance, it looks like this earnings cycle is just feeding that volatility engine once again. (To know more about analyzing a business, read How To Evaluate A Company's Balance Sheet.)

Good Performance All Around  
Weight Watcher's third quarter was actually pretty strong in many respects. Revenue was up almost 30% as reported, and more than 26% on a constant currency basis. Paid weeks rose 38% and overall attendance was up 9%. North America was strong - revenue was up almost 25%, paid weeks were up almost 26% and attendance jumped more than 13% (though was up just about 5% on a rolling two-year basis). International was not so strong - revenue was up just 7% in constant currency and attendance growth barely surpassed 1%.

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Investopedia: Vivus Tries A New Path

If at first you don't succeed, keep trying until the money runs out. That would seem to be the underlying strategy at Vivus (Nasdaq:VVUS), as this biotech continues to try to find a successful path to FDA approval for its obesity drug Qnexa. With news that the FDA may be more amenable to a different label, investors may have some reason for cautious optimism that a new obesity drug could actually hit the market within the next 12-18 months.

If You Can't Beat 'em, Avoid 'em  
One of the issues that has held up FDA approval of Qnexa (a new combination of previously approved drugs phentermine and topiramate) is the known birth defect risks of topiramate and the possibility that this new combination drug could have similar (or perhaps even worse) risks of teratogenicity. What makes this issue more complicated, though, is the fact that much of the birth defect data on topiramate was generated from women who also had epilepsy - and epilepsy is a known risk factor for birth defects.


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Investopedia: Transcept Pharmaceuticals Bulls Get A Rude Awakening

FDA rejections are almost always painful for biotechnology companies, and Tuesday's press release from Transcept Pharmaceuticals (Nasdaq:TSPT) announcing that it expected another FDA rejection has certainly brought the pain. On mid-day Wednesday, the stock was down about 40% and approval of the company's middle-of-the-night sleeping pill is now looking like a more distant possibility. 

What Transcept Was Trying to Accomplish  
Transcept was hoping that the FDA would sign off and approve the company's proprietary low-dose formulation of zolpidem. This is a compound that was developed and marketed by Sanofi-Aventis (NYSE:SNY) as Ambien and is now manufactured as a generic by Teva Pharmaceuticals (Nasdaq:TEVA) and many others. This new drug, called Intermezzo, is targeted for people who awaken in the middle of the night and have difficulty getting back to sleep - the first so-called middle-of-the-night insomnia pill.

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Investopedia: Arena's New Data Doesn't Change Obesity Pill Outlook

It is understandable that long-suffering Arena Pharmaceuticals (Nasdaq:ARNA) would react very positively to an almost sign of good news. After all, this company's stock has taken a pounding in the wake of the FDA's rejection of the company's drug lorcaserin for obesity. While any positive news relating to efficacy certainly does not hurt the prospects for refiling the drug application and eventually gaining approval, Thursday's news does not solve Arena's biggest problems.


Is Meta-Analysis the Same as Data Mining?
On Thursday morning, Arena announced data from meta-analyses of three of the trials for lorcaserin. This data was presented at the European Congress on Obesity and indicated that almost half of patients taking two 10mg doses a day saw more than 5% weight loss, more than double the rate of response in the placebo group. More than one-fifth of those same patients saw better than 10% weight loss; nearly triple the response seen in the placebo group.

Unfortunately, most observers are going to regard this data with a shrug. Clauses like "Modified intent-to-treat with last observation carried forward" are tantamount to data mining in many people's eyes, and the FDA has been very aggressive in rejecting such analyses. This is not to say that lorcaserin doesn't work; rather it just seems unlikely that the FDA is going to revise its viewpoint that lorcaserin offers "marginal efficacy" on the basis of a new look at old data (as opposed to a new study showing better outcomes). 



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The MannKind Eulogy

I'm hardly the first (nor likely the last) to write what amounts to a eulogy for MannKind (Nasdaq: MNKD) after this week's earnings report and conference call. With too little cash on hand, too much still to do with respect to clinical studies, and a great deal of uncertainty about funding or partnering opportunities, it is clearly dark times for this company and its ongoing survival is hardly a sure thing.

Looking At The Balance Sheet

First thing's first, the company's earnings report was in some respects typical for a biotech – that is, the concern was all about the cash on hand and the cash burn. To that end, the company ended the period with $70 million in cash and still has access to a further $98 million drawdown.

In order to minimize the cash consumption and stretch out survivability, the company is cutting 41% of its workforce. At this point, MannKind is pretty much just be keeping the so-called “essential personnel” for getting Afrezza through the clinic and is putting the cancer vaccine programs on the backburner.

The End Of Easy Money?

None of that is terribly surprising. More concerning, though, was founder Al Mann's unwillingness to publicly commit himself to further funding of the company. MannKind exists in large part only because of Al Mann's wealth and if that spigot is now off the company is clearly looking at much more onerous funding terms in the future.

Honestly, I'm not sure how anyone could really be surprised by this. Self-made billionaires don't get that way because they're stupid or because they routinely throw money down bottomless pits. More to the point, there has to be a point of pain for even the most avid believer and Al Mann likely has to face a difficult decision about whether he wants to risk any more of his wealth (and the money he can give to his foundations) on what may be a doomed idea.

The Path To Go Forward

So where does the company go now? Management should be commended for being quite clear about what they think needs to be done to secure approval, and how long those steps will take. To wit, management laid out a clear path of about 15 months for a new submission. Assuming a decent FDA review period (and no particularly ridiculous delays for labeling decisions and what not), that would put the decision date at around the end of 2012/beginning of 2013.

Can MannKind get there without more money? All of the analysts seem to say “no”, saying that the company has enough money to get through the end of 2011, but not beyond that. I think that may be a little too negative – I think its *possible* (but NOT probable) that the company could stretch their funding beyond that, but a lot of it will have to do with just how large these final trials have to be to appease the FDA. One way or another, though, the company will need more resources to survive to launch day.

Partners?

It was also interesting to hear the company continue to talk about partnering prospects; suggesting that there were multiple parties with at least some level of serious interest. Obviously, the company didn't name names, or was management very willing to talk specifics about what sort of deal they would find acceptable.

In terms of deals, MannKind is really over a barrel right now. It is unlikely that any Big Pharma CEO or VP would put his butt on the line and give a large upfront cash payment to MannKind when Afrezza has already been subject to two Complete Response Letters. At this point, then, MannKind investors should probably look at examples like Arena's (Nasdaq: ARNA) deal with Eisai for Lorqess or the deal between Orexigen (Nasdaq: OREX) and Takeda – deals that committed the larger partners to very little in the way of upfront cash and with all of the upside to the biotech on the back end.

That is not to say that nobody places any value on Afrezza. Even with past failures in inhaled insulin, I could see Sanofi-Aventis (NYSE: SNY), NovoNordisk (NYSE: NVO) and Lilly (NYSE: LLY) all being interested in Afrezza as a way of rounding out (and protecting) their diabetes franchises. The sticking point, though, is price and the structure of the deal. Any company that offers MannKind more upfront cash than is necessary to get Afrezza through the FDA is going to have to explain itself to an angry shareholder base if/when Afrezza fails again. Likewise, I cannot imagine that any company not currently engaged in diabetes is going to touch this drug – why build out a sales force for a drug that may not get approved or find much commercial acceptance? 

What might a deal look like? If MannKind strikes a deal before FDA approval, I would expect a modest upfront cash payment – likely just enough to fund the remainder of the drug's development expenses, plus a milestone for approval – and a relatively large royalty on the backend. The sooner the company does the deal, the larger the upfront payment and presumably the smaller the backend royalty.

Unfortunately, the company does not have many other obvious options. The remainder of the company's pipeline is very early stage and likely not worth much in a sale. More to the point, I do not see any way that the company could sell its GLP-1 or cancer vaccine programs for enough cash to fully fund Afrezza through approval. So why bother? Why sell a future option for pennies on the dollar when those pennies won't really spell the difference between success and failure?

The Bottom Line

I've never been positive on inhaled insulin or MannKind and that's not changing today. I simply do not think the market is as large or promising as the bulls believe, and I base that on over a decade of following the diabetes market. Moreover, let's not forget that this is a company with a $500 million market cap and a $1 BILLION enterprise value. That is a pretty huge valuation for a very iffy product – Seattle Genetics (Nasdaq: SGEN) has what may be an incredible drug for lymphoma and trades at an EV of $1.3 billion,

I'm sure that anybody still owning MannKind today is not going to be easily swayed, and I don't really mean to change their mind. I just think that for me, MannKind does not make any sense as a stock when the company sports a billion-dollar valuation.

FDA's Bizarro World - Orexigen Gets Panel Approval

Welcome to Bizarro World, courtesy of the FDA. At the beginning of 2010, there was a widespread belief that Vivus (Nasdaq:VVUS) would get approval for its obesity drug Qnexa and that Arena Pharmaceuticals' (Nasdaq:ARNA) lorcaserin had at least a fighting chance; Orexigen (Nasdaq:OREX) was the long-shot candidate with its drug Contrave. When FDA panels subsequently voted down both Qnexa and lorcaserin and the FDA followed up with complete response letters (rejections), most observers thought Contrave had little chance.

Late on Tuesday, the FDA's panel reviewing Contrave voted 11-8 to recommend approval. That is a huge win for Orexigen. It also looks to be a boon for Vivus and Arena as well, though, as it raises the possibility that these companies will eventually convince the FDA to grant approval.

Going Through the Details

Contrave is a combination drug that blends the long-approved drugs naltrexone (originally approved to treat addiction) and bupropion (depression) into a single sustained-release treatment. Contrave missed one of the FDA's efficacy benchmarks (an average of 5% weight loss), but surpassed the other (35% or more patients achieving 5% or better weight loss). In terms of safety, the trials have shown some risks relating to blood pressure, but far and away the worst side-effect was nausea (which has led as many as one-quarter of patients in trials to drop out). (For more, see Orexigen Finds A Cautious Partner.)

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FDA Locked And Loaded For MELA Sciences

The FDA has been playing a rough game of "Whack-A-Mole" lately, smacking down would-be drugs in the fields of obesity, diabetes and psychiatry, and hitting the stocks of companies like VIVUS (Nasdaq:VVUS), Arena Pharmaceuticals (Nasdaq:ARNA) and Alexza (Nasdaq:ALXA). With a very aggressive pre-panel meeting review, investors are now extremely nervous that the agency is about to do the same to MELA Sciences (Nasdaq:MELA) and MelaFind, the company's would-be testing device for melanoma (a very serious type of skin cancer). 

A Consummate Binary Event
For investors who are not familiar with the term "binary event", the FDA's ultimate decision on MelaFind is a very good working definition. While large medical device companies like Stryker (NYSE:SYK) or Medtronic (NYSE:MDT) need FDA cooperation to thrive, it is more of a matter of survival for MELA Sciences.

If the agency grants approval, the company will be able to enter a large field with no other comparable competitive device option. If the agency refuses to allow MELA to market this device, the company has nothing else in its bag and will effectively be a zombie company. In other words, the stock will go up a lot if the FDA approves MelaFind, or down a lot if MelaFind is rejected. Not surprisingly, then, there has been a huge amount of stock shorting interest and option activity going into Thursday's panel meeting.

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Dark Days In Diabetes

Diabetes has long been one of the most "investable" diseases, with a host of pharmaceutical, biotech, and medical device plays on this serious (and increasingly common) condition. Recent weeks have not been kind to the sector, though, as a range of problems and challenges have sent investors to the sidelines.   

FDA - Don't Call Us, We'll Call You
Several companies have seen their fortunes take a bad turn either in the clinic or from the Food and Drug Administration.


Roche (Nasdaq:RHHBY) has essentially been sent back to the drawing board on its weekly GLP-1 drug taspoglutide, and there is a good chance that the side-effect problems that halted a Phase 3 study will prove insurmountable. Another would-be long-acting GLP-1 drug (to be marketed by Eli Lilly (NYSE:LLY) was surprisingly rejected due to FDA worries about safety and a demand for a new study.

Biodel (Nasdaq:BIOD) recently saw its application for a new formulation of insulin rejected due to sample handling and patient drop-out problems, and the FDA's unwillingness to brook a post-hoc analysis of the data. Both Vivus (Nasdaq:VVUS) and Arena Pharmaceuticals (Nasdaq:ARNA) saw their obesity drugs rejected (obesity is a leading cause of Type 2 diabetes), though the FDA left a sliver of hope for both companies (particularly Vivus).

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Vivus Gets An Encouraging No

In a reversal of a recent trend, the FDA actually gave a glimmer of hope to a biotech company and its shareholders. Although almost everyone was counting on the FDA's rejection of Vivus's (Nasdaq:VVUS) obesity drug candidate Qnexa, the FDA left the window open wider than many people expected. With what amounts to an "encouraging rejection", there may yet again be reason to hope that at least one new obesity drug can make it to market in the foreseeable future. 

More Analysis, Please
When the FDA rejects a drug, it sends companies what is called a "complete response letter" (or CRL) outlining the agency's objections and indicating the sort of deficiencies that the company must correct before the FDA will reconsider approval. In some cases, the FDA requires new full-scale clinical trials, while other times the agency simply wants the results of trials already underway or new kinds of data analysis. (For related reading, check out FDA To Obesity Drugs: Drop Dead.)

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Trick or Treat for Biodel?

Biotech CEOs should be forgiven if they feel like the FDA has turned almost every day into Halloween. Companies ranging from Jazz Pharmaceuticals (Nasdaq:JAZZ) to Alexza Pharmaceuticals (Nasdaq:ALXA) to the obesity triumvirate of Vivus (Nasdaq:VVUS), Arena (Nasdaq:ARNA), and Orexigen (Nasdaq:OREX) have all seen the scarier side of the FDA drug approval process lately. The FDA has handed out rejections to the first two, panels have recommended against the next two, and Orexigen has been batted around by investors who wonder if the FDA (or its panel) will take out their knees next. 

All in all, it is easy to understand why shareholders of biotech Biodel (Nasdaq:BIOD) would be nervous these days. Although the company's Linjeta insulin could be a blockbuster for the company, problems with a pivotal study and an October 30 FDA PDUFA date have investors wondering if they are going to be left waiting in vain for the Great Pumpkin on Halloween. 


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