Replies to post #88988 on Biotech Values

[DewDiligence]

I haven’t followed ANX closely for the past few years. Good luck with it. Regards, Dew

[MTdinanM3]

Since when is 205MM shares outstanding "good news" for a company with 70 mil market cap?

[mcbio]

Re: ANX (bearish Feuerstein take)

I'm heavily into ANX these days...What's your opinion of them?...TIA

You may wish to view Feuerstein's bearish article on ANX today if you're still "heavily into ANX." I don't know much at all about the company or its drug candidates so it's possible there are some flaws in his analysis, but Feuerstein appears to present a compelling bearish argument. See: http://www.thestreet.com/_yahoo/story/10662919/1/digging-deeper-into-adventrx-pharmaceuticals.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA

Digging Deeper into Adventrx Pharmaceuticals
By Adam Feuerstein 01/19/10 - 08:05 AM EST

SAN DIEGO (TheStreet) -- My skeptical but realistic assessment of Adventrx Pharmaceuticals Friday caused the Hostile React-O-Meter donated to me by my old friend and colleague Herb Greenberg to overheat. Oh boy, the darn thing was spinning so outta control I thought it would melt!

Vitriolic emails and comments are still pouring in. Apparently, I violated some sacred covenant that says, "Thou shalt not speak ill of penny drug stocks." Well, sorry, but that's just not a law I intend to ever live by.

Let's dig a little deeper:

I have nothing against Adventrx and its CEO Brian Culley. But as I said Friday, I just happen to believe that a drug like ANX-530 -- a reformulation of a not-so-often used chemotherapy drug vinorelbine -- faces some steep commercial challenges in the U.S.

When it comes to treating first-line non-small cell lung cancer in the U.S., more doctors turn to the two-drug chemotherapy regimen of carboplatin and paclitaxel instead of other chemo doublets like cisplatin-vinorelbine or cisplatin-gemcitabine.

Genentech's Avastin was approved for lung cancer based on a phase III study that used carboplatin/paclitaxel as its chemo backbone. Experimental lung cancer drugs from Novartis, Pfizer, Amgen, Onyx Pharmaceuticals and Novelos Therapeutics [LOL, one of these is not like the other] are all using the carboplatin/paclitaxel regimen in their respective phase III studies, according to BioMedTracker.

German drug maker Merck KGaA did use the cisplatin-vinorelbine backbone in its completed phase III study of Erbitux in non-small cell lung cancer, but that seems to be the exception, not the rule. [European regulators have twice turned down Merck's approval application for Erbitux in non-small cell lung cancer, by the way. The drug is not yet approved in the U.S. for lung cancer, either.]

Adventrx hopes to differentiate ANX-530 from generic (cheaper) vinorelbine because the former doesn't seem to cause as many injection site reactions or as much vein irritation, which occurs in about 30% of vinorelbine patients.

That's fine, but Adventrx has no clinical data demonstrating ANX-530 is more effective or even clinically non-inferior than vinorelbine, nor does ANX-530 reduce the incidence of other, more clinically-relevant adverse events compared to vinorelbine. These include increased susceptibility to infections (granulocytopenia and leucopenia), low platelet counts (thrombocytopenia), nerve pain (peripheral neuropathy), nausea and vomiting.

A July 2001 study conducted by the Southwest Oncology Group found that treatment with paclitaxel and carboplatin versus cisplatin and vinorelbine yielded the same median survival of 8 months in patients with non-small cell lung cancer.

But the study, published in the Journal of Clinical Oncology, also found the cisplatin/vinorelbine combination to be more toxic and less well tolerated. Rates of grade 3 and 4 leucopenia, neutropenia, vomiting and nausea occurred more frequently in patients treated with cisplatin/vinorelbine, while rates of peripheral neuropathy were higher in the carboplatin/paclitaxel arm. Overall, more cisplatin/vinorelbine-treated discontinued the study because of toxicity compared to carboplatin/paclitaxel, according to the study authors.

This is not to say that carboplatin/paclitaxel is a benign treatment. Surely, it's not. All chemotherapy causes significant side effects due to its cell-killing mechanism of action. But Adventrx's problem is that the company will try to convince U.S. doctors to use ANX-530 in place of vinorelbine when doctors aren't using much vinorelbine to start with.

Vinorelbine sales in the U.S. totaled $20 million in 2008, according to IMS Health.

Adventrx might have more luck selling ANX-530 in Europe where vinorelbine is used more frequently, but Adventrx isn't seeking approval for ANX-530 in Europe. If Adventrx did pursue ANX-530's approval in Europe, more clinical data beyond the 30-patient pharmacokinetic study would likely be required. The assumed price premium for ANX-530 over vinorelbine would also be more of a reimbursement and commercial hurdle there.

In its slide-show presentation, Adventrx does talk about use of vinorelbine in the post-surgical, or adjuvant, lung cancer setting as a potential market growth opportunity. Unfortunately, a majority of lung cancer cases in the U.S. are diagnosed too late for surgery to be a total success, which dims the prospects for adjuvant chemotherapy.

One commenter on Friday's column asked me to run some numbers and come up with a valuation for Adventrx. Here's a go, with the caveat that Adventrx is a true penny stock, which means fundamental rules won't often apply to its share price.

For starters, I'm going to assume $20 million in ANX-530, which further assumes that ANX-530 takes half the existing vinorelbine market at double the vinorelbine price.

If I put a 4-5 times multiple on those ANX-530 sales reached either in 2012 or 2013, I derive a fair value for Adventrx today in the range of 26 cents a share to 34 cents a share (based on a fully diluted share count of 250 million).

I'm not yet giving Adventrx any credit for its other chemo drug, a reformulation of Sanofi-Aventis'(SNY Quote) Taxotere (docetaxel) known as ANX-514, because it's not entirely clear yet if it works. (If ANX-514 is as good as Adventrx claims, why hasn't Sanofi tried to buy or in-license the drug, given Taxotere's looming patent expiration?)

I did hear from Adventrx's CEO Brian Culley over the weekend, who thinks I'm underestimating ANX-530's commercial potential in part because the drug is likely to receive third-party and Medicare reimbursement. I asked him to explain his reasoning in more detail and make the bull case for ANX-530, which he agreed to do. I will post his comments in Friday's Biotech Stock Mailbag.

Meantime, I've recalibrated the Hostile React-O-Meter and have added some more cooling fans, so bring it on!