Take one look at Affymax’s stock chart and you’d never guess the most important day in its history, a classic make-or-break moment, is coming up Dec. 7. It looks like nobody is giving the company a snowball’s chance in you-know-where to succeed.
The big event coming up for Palo Alto, CA-based Affymax (NASDAQ: AFFY) will be on Dec. 7 when an advisory committee to the FDA will meet. The panel will weigh the risks and benefits of Affymax’s peginesatide as a new anemia treatment for patients on kidney dialysis. If the panel likes what it sees, and the FDA ultimately clears the product for sale by its March 27 deadline, then the company could start marketing its first drug in the U.S. If that happens, Affymax will be in position to fight for a share of a $2.5 billion dollar annual market, and it will be the first direct challenger in the U.S. to a 22-year-old monopoly held by Thousand Oaks, CA-based Amgen.
Amgen is the big guy in this story, the world’s most valuable biotech company with a market valuation of about $49 billion. Affymax, with a stock price of $4.89 at yesterday’s close, is a relative pipsqueak, worth about $175 million. Given that Affymax had about $116 million in the bank at the end of September, investors are basically saying the company’s technology is only worth a piddling $60 million—hardly an expression of confidence that it’s about to wrestle away market share from Amgen. And even though Affymax’s stock is already low at below $5, an increasing number of investors are betting that Affymax will fall further, according to data on short-selling compiled by NASDAQ.
Affymax CEO John Orwin, who started at the company in January, isn’t making any predictions, but he says the efficacy of his company’s drug is “well-established” and that his team is ready to field questions about the safety of its drug candidate. “This was the largest and most comprehensive clinical trial program ever done,” in this class of anemia drugs he says.
Most investors wrote off Affymax in June 2010, when the company announced the results from a quartet of pivotal clinical trials that enrolled 2,600 patients. The studies showed that kidney patients who aren’t yet on dialysis had a increased rate of heart-related serious adverse events, such as heart attack, stroke, congestive heart failure, and death, when they got the Affymax drug instead of the usual Amgen treatment. About 21.6 percent of patients on the Affymax drug had those serious adverse events, compared with 17.4 percent on the Amgen drug. Affymax stock crashed immediately, and hasn’t recovered.
Making matters worse, regulators have been on high-alert for years about serious adverse events with anemia drugs. Amgen suffered through its worst year ever in 2007, losing $29 billion in market value, as studies showed heart risks associated with its anemia drugs when used in high doses. That damaging information emerged as Affymax was beginning its quartet of clinical trials. The new evidence about the Amgen drugs prompted the FDA to insist on a rigorous set of studies that were designed to look for heart troubles from the start—unlike other studies which discovered heart trouble through retrospective analysis, which can introduce bias into clinical results.
Given the heightened anxiety at the FDA about heart risks with anemia drugs, many investors obviously concluded that Affymax’s drug would be dead on arrival. But Affymax, and its partner Takeda Pharmaceuticals, have continued their push to bring the new drug to the market.
The reason, Orwin says, is that when you look at two of the four trials, in which patients were on kidney dialysis, there wasn’t any higher risk of serious cardiovascular adverse events. And when you look at the merged pool of data from all four trials, the studies reached their goals. The drug was able to effectively stimulate the production of oxygen-carrying red blood cells, which help patients fight off the weakness and fatigue of anemia. And when the safety data was pooled from all four studies, the Affymax drug didn’t appear to raise heart risks compared with a couple different Amgen drugs.
That further analysis prompted Affymax and Takeda to go ahead and seek FDA approval in the limited group of kidney dialysis patients—where the drug’s safety is established—while forgoing a more risky strategy of trying to seek approval for a broader group of patients that would include the pre-dialysis group. There are about 400,000 patients in the U.S. on dialysis treatment, and Amgen made $2.5 billion last selling its pioneering anemia drug, epoetin alfa (Epogen, a.k.a EPO), to those patients.
If Affymax can convince the FDA that its drug is safe and effective enough for kidney dialysis patients, then big questions will be about its business opportunity. One key differentiating factor for Affymax is that its injectable drug only needs to be taken once a month, unlike Amgen’s Epogen, which is injected one to three times a week. That’s not a huge convenience advantage for dialysis patients, who already have to come in to a clinic several times a week to get their blood filtered. But Orwin says that it reduces administrative hassles like nurse time, record-keeping, and product disposables.
More importantly, Affymax’s drug is a synthetic peptide, unlike Amgen’s larger protein molecule. That should mean that Affymax’s drug will be less expensive to manufacture, giving it flexibility to compete with Amgen by offering its product at a lower price. Affymax hasn’t set a price for its product, but Orwin said the company senses opportunity through a new set of Medicare rules which place a cap on the amount of reimbursement doctors can obtain for treating kidney dialysis patients. The reimbursement cap creates a new incentive for doctors to find lower-cost alternatives to Amgen’s drug.
“Just having a competitive alternative to EPO for the first time in 22 years will make peginesatide attractive,” Orwin says. If approved by the FDA, he says, “I think customers would be interested.”
Timing, like most things in business, will be hugely important to Affymax. If it can win FDA approval in the first quarter of 2012, it should have the second-mover position in the market to itself for at least a couple years. Switzerland-based Roche won FDA approval of an alternative epoetin (Mircera) but agreed not to sell it in the U.S. until July 2014 under an intellectual property dispute settlement with Amgen. And some of Amgen’s key intellectual property protection expires in 2015, opening the way for lower-cost “biosimilar” drugs that generic companies may seek to market.
All of those kind of business strategy considerations will be moot, though, if Affymax runs into a regulatory buzz saw of safety questions and never gets its drug on the market. The company itself is going into a self-imposed quiet period between now and the big FDA advisory committee meeting on Dec. 7, as it seeks to craft the most clear and compelling answers to the agency for why its drug deserves a shot.
Whether investors believe in his company or not, this is the moment Orwin has been waiting for since he took the CEO job back in January.
“We have a big step in front of us,” Orwin says.
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