Biotech Values

[DewDiligence]

Mixed Data Mash Myogen

[Although data from the ARIES-1 trial reported today were not as strong as those from the similar ARIES-2 trial reported in December, they did hit the primary efficacy endpoint with a good safety profile. The two successes in phase-3 ought to make MYOG a strong favorite to get FDA approval. Thus, some of the analysis here strikes me as unduly bearish. The possible class effect of lowered sperm count alluded to here is something I hadn’t heard of.]

http://www.thestreet.com/stocks/biotech/10278421.html

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By Melissa Davis
4/10/2006 2:18 PM EDT

Myogen ( MYOG ), a biotechnology company that has enjoyed star treatment on Wall Street, continues to lose its shine.

The company's stock tumbled 9% on Monday, hitting a three-month low, after recent trial results fell short of lofty expectations. The company reported that ambrisentan, its new treatment for pulmonary arterial hypertension, achieved its primary goal of improving exercise capacity for sufferers of the rare, serious disorder. But the drug failed to significantly increase the time to clinical worsening observed in that population.

The latest results pale in comparison to the robust data posted for ambrisentan in a previous clinical trial. Those results sparked a huge rally in Myogen's shares and established ambrisentan as a best-in-class drug in the minds of some.

Still, Myogen -- along with its many fans on Wall Street -- continued to embrace ambrisentan on Monday.

"Our thesis that ambrisentan is a best-in-class ETRA (endothelin receptor antagonist) for PAH is very much intact," wrote JPMorgan analyst Geoffrey Meacham, who has an overweight rating on Myogen's shares. "We still view the results as superior to competitive agents. ... [And] we see the regulatory risk for ambrisentan in the U.S. and Europe as very low given the results of two highly positive Phase III trials."

JPMorgan counts Myogen as an investment banking client and owns more than 1% of the company's shares, which fell $3.08 Monday to $32.74.

Second Opinion

Punk Ziegel analyst Matthew Kaplan -- whose firm has no investment banking relationship with Myogen -- offers a far more cautious view.

"The interesting thing about the Myogen data is the inconsistency," says Kaplan, who has no rating on Myogen but recommends buying competitor Encysive ( ENCY ), in spite of Encysive's own recent setbacks. "It's not clear -- and I don't think it ever was -- that (ambrisentan) is a best-in-class drug."

Notably, Kaplan points out, ambrisentan failed to match its earlier performance on even the primary goal of its study. Myogen reported that patients taking 5 milligrams of ambrisentan increased their six-minute walk by 30.6 meters in the latest trial. In contrast, Kaplan says, in the previous Phase III study, the company reported that patients on that same dosage of ambrisentan increased their six-minute walk by 59 meters -- or nearly twice that amount.

"Even with the same drug and the same patient population, you have numbers that are all over the place," Kaplan says. "That calls into question the consistency of the data."

Myogen did, once again, report no liver toxicity among ambrisentan users in its phase III trials. However, some believe the drug -- which showed liver toxicity in earlier [i.e. phase-2] trials -- will wind up with a black box warning in the end.

Meanwhile, the drug failed to achieve some secondary goals in its most recent study.

"Time to clinical worsening did not reach statistical significance likely due to the relatively low incidence of clinical worsening events observed in the trial," Myogen explained on Monday. "Other secondary endpoints had clinically relevant improvements ... but were not considered statistically significant due to the pre-specified approach for multiple comparisons" [i.e. because of the standard Hochberg correction for multiple comparisons].

Class Effect?

Some have expressed concern that ambrisentan could face even bigger challenges ahead.

Just last month, the Food and Drug Administration delayed approval of a similar drug under development by Encysive. The delay for that drug, known as Thelin, sent Encysive's stock spiraling 50% in a single day. The shares fell a dime, touching their 52-week low of $4.21, on Monday.

Nevertheless, Kaplan sees value in Encysive's drug and -- ultimately -- its shares.

"For a number of reasons, we continue to believe Thelin will gain FDA approval and that the approvable letter is not going to impact the marketability of the product," Kaplan wrote late last month. "Based on the robust Thelin clinical data and our recent conversations with Thelin trial investigators, combined with the valuation, we are maintaining our buy rating (while) lowering our price target to $12.50 from $21" a share.

Kaplan's firm makes a market in Encysive securities but has no investment banking relationship with the company or any position in the company's shares.

Recently, C.E. Unterberg Towbin analyst Andrew Fein offered his "two cents" on Encysive's recent setback and what -- if anything -- it could mean for Myogen going forward. Fein, who rates Encysive underperform and Myogen buy, speculated that the agency could be seeking more information about a possible class-wide effect of the drug. Specifically, he says, the agency might want more data about Thelin's potential for lowering the sperm count in male patients. [That’s one I hadn’t heard.]

If so, he says, Encysive faces two likely responses. At best, he says, the company could develop a label that warns against prescribing Thelin for the small population of males who suffer from PAH. Or at the other extreme, he says, the company could face new -- and time-consuming -- studies.

Fein foresees no similar challenges for Myogen.

"If it is a class effect, ENCY likely wants to prevent MYOG from benefiting from a potential clinical development that ENCY is going through," Fein acknowledged. But "it is our understanding that semen and hormone levels have been monitored in all of Myogen's clinical trials as well as its long-term extension studies. We believe this further validates Myogen's drug development acumen and should help to ease any concerns surrounding hiccups the company could encounter on the path towards ambrisentan approval."

Given recent developments, however, Myogen critics believe that Wall Street analysts should consider changing their tune.

"In the company's defense, I'm pleased that they at least appeared to be relatively candid with respect to the latest results, warts and all," says Source Capital Vice President Robert Lawton, whose firm has a short position in Myogen stock. "I believe the burden now exists for many of this company's Wall Street cheerleaders -- who have been consistently raising price targets and making suppositions accompanied by absurdly high revenue projections for the past year -- to, at least, admit they were off the mark. ... Not to do so would be, in my estimation, misguided at best and shameful at worst."
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