The cadence of the news in the biopharmaceutical space slowed significantly last week in the run-up to the holidays. In seasonal spirit, Andy “the innkeeper” Smith assigns roles in the Christmas nativity play to those who did come forward – including Ophthotech, Amicus and Lilly.
Playing the part of King Herod, Ophthotech Corp. reported the complete failure of the two long-anticipated Phase III clinical studies for its aptamer Fovista (pegpleranib) in combination with Lucentis (ranibizumab) in the treatment of age-related macular degeneration (AMD).
In the same way as nativity plays are performed every year, there was a disturbing regularity to Fovista's failure. The practice of using the trade or proprietary name of a drug rather than the generic name for many years before the results of the pivotal trial are known is getting to be as predictive of ultimate failure as the star of Bethlehem was of the birth of a Messiah. (Also see "Stockwatch: Earnings Season Turns Into Silly Season" - Scrip, 22 Aug, 2016.) The comprehensive failure of Fovista – which appeared to perform worse than Lucentis alone in many endpoints – was also an echo of the same management team's commercial failure at Eyetech Pharamaceuticals Inc. where Fovista started development. Eyetech's other aptamer Macugen (pegaptanib sodium) was also far less efficacious than Lucentis. (Also see "Pfizer withdraws Macugen for DMO in Europe" - Scrip, 19 Jul, 2011.) While many social media commentators were quick to express disdain at the significant stock sales by Ophthotech's management on the run-up to the Fovista Phase III studies, had they known of the same teams' wholesale divestment of Eyetech stock at its IPO and subsequent secondary offerings, this surrogate marker for a lack of confidence in the role of aptamers in AMD would not have come as a surprise.
While most of the investment bank analysts covering Ophthotech might have been angling for a part as one of the three kings in the nativity play, their failure to predict Fovista's demise relegated them to a supporting role in the Roman administration. Having had "Buy" or "Outperform" recommendations on Ophthotech in the run-up to Fovista's failure (and not having read any of my recommendations going back to 2011;) the analysts from Leerink Partners described the failure as "unexpected" and "not in line with [their] expectations." (Also see "Stockwatch. Eyeballs or optical delusion?" - Scrip, 6 Jun, 2011.) The analysts from Cowen found it "unfortunate" that the results of the Fovista Phase III studies were "resoundingly negative" while those from Citigroup showed an admirable level of introspection in reporting that "we were wrong" and concluding that Opthotech's Phase IIb program was "surprisingly unreliable." The Ophthotech stock price finished the week down about 75%. In comparison, the NASDAQ Biotech Index rose by 1.9%.
Bluebird, Amicus, NantHealth Offerings
One of the gifts of the Magi – gold, or at least its US dollar equivalent – has been making an increasingly prominent appearance in the run-up to the holiday season as companies take the opportunity of office party-induced lethargy amongst investors to raise money. Bluebird bio Inc.'s recent $250m stock offering followed its share price peak after its one major conference presentation of the year – before it usually goes into clinical trial update hibernation – which the analysts from Roth Capital described as "leaving room for optimism." Bluebird's stock offering has lost its participating investors over 6% since its issue. To avoid these instant losses from equity issuance where there is absolutely no room left at the inn to make money, two biotech companies raised convertible debt offerings last week. A $250m offering from Amicus Therapeutics Inc. came bearing a 3% coupon and a $115m offering from NantHealth Inc. bore a riskier 5.5% interest rate.
The outcome of convertible debt issuance by loss-making biotech companies is generally not good, and interest rates aside, it is difficult to determine which offering is the riskiest investment. Loss-making Amicus has spent many years guiding to an accelerated approval for its small molecule chaperone treatment migalastat for Fabry disease. The filing was to be supported by clinical data that appeared to be as reliable as those generated by Ophthotech's Phase IIb study. After a number of false starts with the regulators the FDA was recently so unconvinced by the data that it requested a further Phase III study. (Also see "Amicus Eyes Broad Future Label For Migalastat After Huge Filing Setback" - Pink Sheet, 29 Nov, 2016.) With the company having lost over half its value over the year to date, Amicus' investors probably wouldn't have found a dilutive stock offering palatable after the stock price fall in response to recent FDA guidance.
With Amicus’ and NantHealth’s track records in the destruction of shareholder value the roles of manger animals in the nativity play surely beckon.
Still, if fund-raising after failure is the order of the day, then Ophthotech shareholders should expect a convertible offering sometime soon. Loss-making big data cancer analytics play NantHealth has the dubious record of completing its IPO at its second attempt at the height of the January 2016 sell-off in biotech. It closed last week down 26% from its IPO price. With Amicus’ and NantHealth’s track records in the destruction of shareholder value the roles of manger animals in the nativity play surely beckon.
The part of Gabriel in the nativity play could have been assigned to Eli Lilly & Co. last week as it took the opportunity to issue above-consensus 2017 sales and earnings guidance that so encouraged investors that its stock price rose by over 7%. I have found the recent media preoccupation with fake news passé: biopharma companies have been generating fake news under the forward-looking statement waiver for years. Lilly's new forward-looking guidance should probably be bathed in the same light as its oft-promoted but continually dashed hopes for the success of solanezumab in Alzheimer's disease. (Also see "Lilly’s Solanezumab Fails, But The Surprise Would Have Been Success" - Scrip, 23 Nov, 2016.) Unlike the Bible, it should not be taken as gospel.
Andy Smith gives an investor's view on life science companies. He has been lead fund manager for four life science–specific funds, including 3i Bioscience, International Biotechnology and the AXA Framlington Biotech Fund, and was awarded the techMark Technology Fund Manager of the year for 2007.