Though 2013 looked to be a good year for Affymax (AFFY), it quickly spiraled downward when the Cupertino, CA-based biotech and its partner, Japanese drug maker Takeda (TKPYY), announced in late February of last year a nationwide suspension of all promotional and sales activities for the anemia treatment Omontys due to post-marketing reports of serious hypersensitivity reactions, including life-threatening or fatal anaphylaxis. Sadly, even an enterprise value of $20.3 million overvalues a company with little cash, no products and few prospects.
Approved in March 2012 to treat anemia, a condition in which the body does not have enough healthy red blood cells, in adult dialysis patients who have chronic kidney disease (CKD), both Wall Street analysts and investors were optimistic that Omontys (peginesatide) had a good shot at loosening Amgen’s (AMGN) stranglehold – Epogen (epoetin alfa) and increasingly Aranesp (darbepoetin alfa) – on the $11 billion CKD drug market (U.S. and other G7 countries). Being the first new FDA-approved and marketed erythropoiesis-stimulating agent (ESA) for this condition since 2001, analysts like Piper Jaffray’s Ian Somaya predicted peak sales for Omontys of $700 million by 2017.
Investors responded in-kind, pushing AFFY’s stock price and market cap to a historical high of $27.46 per share and $1.03 billion in October 2012.
A functional analog of the glycoprotein hormone erythropoietin (EPO), Omontys worked like ESAs by aiding in the formation of red blood cells by stimulating the bone marrow to produce more red blood cells, thus reducing the need for transfusions in patients with CKD. Additionally, a mean half-life of 47.9 (± 16.5) hours following intravenous administration in dialysis patients meant Omontys only had to be taken through a once-a-month injection.
The longer EPO-receptor binding activator activity of Omontys was marketed as a clinically compelling and compliance advantage over drugs like epoetin alfa, which had shorter elimination half–lives: four to 13 hours in adult CKD patients, which translated into a more complicated dosing schedule of two to three times per week (by subcutaneous or intravenous injection) for Epogen or Procrit-treated patients.
Unfortunately, we’ll never know the “would of, could of” commercial potential for Omontys. After posting sales of $34.6 million for the nine-month period ending December 31, 2012 – slightly below analyst forecasts, suggestive of the contract-grip Amgen held on dialysis centers – Omontys was recalled on February 23, 2013 following reports of severe hypersensitivity reactions including anaphylaxis in 0.2% (or about 50 patients) — including fatal reactions in 0.02% of the 25,000 patients –within 30 minutes of their first IV dose in the post-marketing phase. Almost a third of the reported cases required prompt medical intervention and in some cases hospitalization, according to an FDA safety alert issued at the time.
In July 2013, Takeda withdrew its Marketing authorization Application for Omontys in Europe too.
Though a pooled analysis of clinical studies submitted to the FDA to support initial marketing approval showed that 29 (1.2%) patients had detectable levels of peginesatide-specific binding antibodies, not one case was severe enough to engender an anaphylactic response.
What now? Given the continued uncertainties that exist regarding the immunogenicity – and the strong likelihood that neither of the largest operators of dialysis clinics in the U.S., such as DaVita (DVA) or Fresenius (FMS), would cancel existing long-term supply agreements held with Amgen due to these unknowns – AFFY management ceded control of Omontys’ fate to Takeda – including decisions on the drug’s reintroduction, such as whether to spend additional R&D to investigate and address safety concerns.
Takeda, a global drug maker with more than $18 billion in annual sales, and strong metabolic (cardiovascular & diabetes) and oncology franchises, is unlikely to invest further resources on a drug with limited commercial visibility and tougher competition for market share due to the expected launch of novel, new anemia therapies during the next several years:
- Roche (RHHBY) is readying a 2015 U.S. launch of a long-acting PEGylated Beta called Mircera; and,
- AstraZeneca (AZN) and Akebia Therapeutics (AKBA) are in late-stage development of first-in-class hypoxia-inducible factor-prolyl hydroxylase (HIF-PH) inhibitors, called roxadustat (ASP1517) and AKB-6548. To date, the two ORAL (emphasis added) compounds have demonstrated safer cardiovascular profiles than the ESA class.
Given, too, that a key method-of-use patent for Omontys expires in 2015 (“Administering Peptides that Bind to the Erythropoietin Receptor”) the anemia drug will unlikely see daylight again.
Where does that leave AFFY? Revenues have dried up: From 2009 through 2012, $370 million in reported sales was derived exclusively from its collaboration with Takeda. In 2013, the company posted revenue of just $1.3 million.
Further, the company’s joint venture with Takeda has basically ceased, according to wording in its 2013 annual SEC filing: “After April 30, 2013 we have no performance obligations under our agreement with Takeda.”
As of January 2014, AFFY had just 4 employees left in the company, all of whom were engaged in administrative functions – like fighting off shareholder and product injury-related litigation.
Though AFFY has settled all outstanding and future purchase commitments for contractual manufacturing activities, including raw materials, with just $5.6 million in cash on-hand, the company’s ability to continue as a “going concern” beyond September 2014 is questionable.
Why then, with no active R&D activity does the common stock still sell for 66 cents per share, with an implied enterprise value (market cap plus debt minus cash) of $20.3 million, which includes an $8 million liability owed to Takeda (advances against future Omontys royalties)? Perchance investors are speculating that some Chinese company is looking to reverse engineer a public offering by purchasing the company – and its $138 million in net operating loss carry-forwards.
Unfortunately, quirky riders in the tax code (see Section 382 NOL limitations if interested) would prevent any potential acquirer from leveraging most of these losses to their advantage.
Former Iraqi President Jalal Talabani (who?) is credited with saying, “wishful thinking is one thing, and reality another.” When it comes to AFFY, it’s just a tale of another broken biotech dream.
