How else to describe equity markets this year? The S&P 500, DOW, and NASDAQ have all returned below their 50-day and 200-day moving averages in the last few weeks; the S&P 500 closed this week – only the second in 2016 – down 8% for the year; the Russell 2000 Index Fund (IWM) is down 14%, and the Nasdaq Biotech Index Fund (IBB) is down 17%. Despite most technical indicators indicated massively oversold conditions, equities just haven’t been able to sustain a bounce.
For healthcare investors, that’s been especially disconcerting. The annual JP Morgan Healthcare Investing Conference took place all week, wrapping up this Thursday, and the usual jubilation – was not. The 4-day event usually brings with it a tailwind for bio/pharma stocks. Not so this year. Bio and pharma stocks just couldn’t escape the macro suck.
But two events in particular stood out out this week, neither of which were actually related to the JP Morgan conference: the FDA’s rejection of drisapersen, BioMarin’s (BMRN) drug for Duchenne Muscular Dystrophy, on Thursday; and the release of FDA briefing materials related to eteplirsen, a similar drug from Sarepta Therapeutics (SRPT) slated for an approval decision next month.
BioMarin’s rejection wasn’t much of a surprise after a November advisory panel committee, organized by the FDA, suggested that drisapersen’s risk/benefit was poorly characterized. Most of Wall St. expected the Complete Response Letter, which is why BMRN actually rallied4% immediately after the announcement.
Sarepta and its eteplirsen, meanwhile, have always been controversial, with the only data to date from a 12-patient study lacking a decisive control arm. The company will go before an FDA advisory panel on January 22 for a deep discussion of eteplirsen’s efficacy and safety profile, hoping for an approval under the FDA’s accelerated review process. The FDA’s briefing documents are typically released to the public just two days before the actual event, thus their posting on Friday was early and unexpected.
[As an aside, that’s a tough lesson for traders/investors coordinating trades around holidays – FDA does whatever they want, whenever they want.]
The FDA reviewer outlines two potential paths for an eteplirsen accelerated approval in the document: using clinical data from the 12-patient studies 201/202 on 6-minute walk distance as an intermediate clinical endpoint; or, using dystrophin – the protein that eteplirsen is supposed to improve – as a surrogate ‘biomarker’ endpoint.
The FDA’s reviewers take issue with both. Some choice excerpts (emphasis ours):
. . .Study 201 clearly failed to show an advantage of eteplirsen over placebo on 6-minute walk distance in the placebo-controlled trial. The specific finding proposed by the applicant as supporting accelerated approval is the comparison of 6-minute walk distance between the 12 patients in Study 201/202 and historical controls, where the control patients were selected post hoc. There are significant concerns regarding the ability to draw valid conclusions from this historically controlled comparison. Moreover, comparisons between patients in Study 201/202 and patients in a related development program who had received placebo suggest that the change in 6-minute walk distance with eteplirsen was consistent with the natural history of the disease.
. . . Based on the data submitted by the applicant, considerable doubt remains about how much, or perhaps even whether, dystrophin levels were increased by eteplirsen. The degree of uncertainty about the dystrophin data hinders discussion of its use as surrogate endpoint for eteplirsen. However, to the degree that the dystrophin data may be interpretable, the amount and distribution of dystrophin in treated patients appears to be within the range typically associated with DMD, not BMD [Becker Muscular Dystrophy]. Data suggesting that higher levels of dystrophin were produced by eteplirsen appear unreliable.
. . . For eteplirsen, the quantification of dystrophin present in the fourth muscle biopsy was assessed by Western Blot, and compared with treatment-naïve controls that were selected by the applicant. The apparent treatment effect could be expressed as a 3-fold increase over the trace amount present at baseline, but relative changes can be difficult to interpret. The mean dystrophin level in patients who had been treated with eteplirsen for some 180 weeks was on average 0.9% of normal, far below levels observed in a milder form of muscular dystrophy known as Becker-type muscular dystrophy (BMD). The minimum level of dystrophin that might be reasonably likely to predict clinical benefit in patients with BMD remains unknown, but experts in DMD have stated that levels less than 3% of that of normal healthy muscle are generally associated with the typical DMD phenotype, and have proposed that “induction of approximately 10% of normal dystrophin levels sets a minimum level to confer measurable clinical benefit.” In addition, so called “exon 51-model” BMD patients, who have the same truncated form of dystrophin that would be produced by eteplirsen in DMD patients, and experience a mild disease, express truncated dystrophin at levels reported to range from 50% to 100% of normal.
All is not lost for Sarepta with the public advisory panel this coming week, but investors aren’t giving Sarepta the benefit of the doubt. FDA clearly takes issue with Sarepta’s post-hoc analyses, and their claim that dystrophin is meaningfully improved with eteplirsen. SRPT fell 55% on Friday to close the week at $14.20, down from $38 at the beginning of the new year.
In a worst-case scenario – eteplirsen’s rejection next month – SRPT could trade into the mid-single digits, just above its ~$4.00 in cash per share. March options, which capture the approval decision in February, suggest a ~$10 move for the stock.
The markets are closed Monday for MLK Day. After a tough few weeks, that’s a welcome respite for most investors.
