Reflections on Arena's AdComm: What's Ahead for Arena, Vivus, Avanir
Reza is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
On May 10, the FDA held an advisory committee meeting ("AdComm") to address safety and efficacy of Lorcaserin, Arena Pharmaceutical's (NASDAQ: ARNA) weight-loss drug. I attended the meeting and as predicted in this and this article, the panel voted strongly for approval of Lorcaserin (18 Yes, 4 No, 1 Abstain, which would have been a Yes if the voter knew that Abstain is not allowed). The event was very well organized by the FDA and tightly run.
The panel consisted of 23 medical experts in a variety of fields as voting members as well as FDA officials and others who were non-voting members. It was obviously a carefully selected group of some of the best doctors in each field.
In his opening remarks, FDA's Dr. Eric Colman astutely explained that Lorcaserin has met FDA's efficacy guideline. It was obvious that most of the meeting would be dedicated to review of safety because weight loss drugs have had a history of safety issues. I sensed that the FDA is highly understanding of Lorcaserin, has done a superb job of the review, and definitely appeared to be leaning toward approval.
Dr. Ed Hendricks of The Center for Weight Management spoke brilliantly about why Lorcaserin should be approved. Some highlights of his remarks:
"We spend a great deal of time here looking in minute detail at the risks. We don't look at the benefits in the same detail... The sponsors did a good job of investigating what happens with diabetics. They showed that the new onset of diabetes was lower in the treated population. I would submit to you that there are probably a number of cardiovascular factors [explains a number of conditions and benefits of Lorcaserin]... The benefits should be looked at with the same level of intensity that the risks are looked at. I don't think we've done that in the past.
I voted yes from a clinical perspective. I don't think placebo adjusted weight loss from a clinical perspective is a valid measure. I look at people who are true responders. There are plenty of people who are responders. There are 200 million people in this country could benefit from a drug like this... even 1/4 of them translates to 50 million people... Efficacy to me means more than just weight loss. Sometimes we use obesity drugs to prevent further weight gain [brings several examples and benefits]... Many clinicians are interested in this drug because they see it as a potential drug that could be added to some of the other drugs that we have. [brings examples]."
Dr. Peter Gross, chairman of the Hackensack Physician-Hospital Alliance stated:
"It's time to approve this drug and we do not put our head in the sand. I think the signals are not strong enough to require a risk management program [REMS]."
Dr. Robert Smith, Professor of Medicine (Endocrinology) at Brown University stated:
"I felt that there was a clear demonstration of what I consider to be a clinically significant benefit in a substantial number of individuals."
The day was a roller coaster. Before the lunch break, Dr. Sanjay Kaul, one of the louder speakers, repeated "lingering" concerns around valvulopathy, which based on several doctors I've talked to and what I gather from Arena's filings, is in my opinion a minute risk and was blown out of proportion. I changed my speech during the lunch break to point out limitations of knowledge and hint that the urgency of the situation doesn't afford us getting bogged down in theoretical details and concern over the possibility of the sky falling tomorrow.
Public commentary made after the event showed that many were astounded at Dr. Kaul's behavior. It's mind boggling that he voted Yes to Vivus' (NASDAQ: VVUS) Qnexa and No to Lorcaserin, supposedly out of safety concerns, and the fact is Lorcaserin is much safer than Qnexa and does not have some of the proven risks of Qnexa. Many feel he appears to have an unjustly negative sentiment toward Lorcaserin. Is it that he's a perfectionist? Unfortunately, science can never be perfect -- there are always unknowns, but that should not block our progress.
Is it that today's doctors are blinded by specialization, which makes some of them lose sight of the big picture? Are there other factors involved in shaping a negative sentiment? Some people had expressed concerns that Dr. Kaul is Facebook friends with a couple of journalists, including Matthew Herper, who had done his share of bashing Arena, but I do not give weight to these allegations. But the way he seemed to try to persuade the panel against Arena stood out in my mind. None of the other 23 doctors appeared that way. I had a chat with him during the break, and after the meeting wished him a nice trip back to California while still wondering what motivates him to act as he did.
Attorney Joseph Dedvukaj expressed his disappointment at Dr. Kaul as follows:
"There is no doubt in my mind that Dr. Kaul had an agenda that was not for scientific purposes, which I believe the other panelists saw. He would always attack the method but offer no facts or logic to back his questions. He basically had questions suggestive of improper handling of the data, but nothing really helpful to anyone to offer. If I were the FDA I would replace him as a panelist in the future. He was flagrant in the lunch break patting FDA reviewers in the back, which I believe is an ethics violation in and of itself. The appearance of friendship or camaraderie with FDA reviewers in my opinion gives sense of impropriety. The panelists were instructed twice not to discuss the meeting during any break."
Andy Baron expressed his concern as follows:
"I'm not usually one to be paranoid about hidden conspiracies, but from what I've seen at the meetings I do believe that Kaul has some hidden reason to promote Qnexa over lorcaserin. His statements have shown extreme unscientific bias. What I found most outrageous at the lorc adcom was his statement that the 1.5 valulopathy relative risk figure should be stringently enforced because that was what Arena and the FDA agreed to, as if it was an SPA. This was a willfully incorrect and prejudicial statement in my opinion. I don't know what he's hiding, but I do think he is hiding something, because his behavior doesn't make any sense otherwise."
A Forbes article illustrates the serious dangers of Qnexa, which Dr. Kaul voted Yes for. I never forget the look of defeat on his face after Lorcaserin received a very strong Yes vote. Some members of public are calling for action around this issue. A medical doctor's assistant wrote me a letter -- which was also posted on a couple of different discussion boards -- that expresses a concern that some others seem to share.
As voting came closer one of the panel members reminded the panel that they have spent too much time on safety and not enough time on benefits, which in his opinion were significant.
I was public speaker number 3. A woman from some organization I'd never heard of was speaker number 2 and she went on to bash Arena with the standard, unfounded, mythical arguments that shorts have been using. I heard later that she is the same person who did the same song and dance two years ago. She and another woman from another organization I'd never heard of were the only ones who recommended against approval. The second woman's arguments were even weaker than the first and showed desperation. These two folks appear to be highly uninformed of key scientific facts including Lorcaserin's latest data -- or they have an agenda. Other speakers (around 13) encouraged the FDA to do something about obesity.
I had to change my speech on the spot to address (a) doctor Kaul's gloomy tone, which the meeting ended with at lunch, and (b) the basher who was speaking ahead of me. Each speaker only had four minutes, which was far too short but it was a good exercise to distill, in my case, some 40 pages down. I wasn't planning to say anything about the short interest and the attacks Arena has been under, but after hearing the woman bash the daylights out of Arena, I had to address the nonsensical issues she raised, and briefly point out the tragedy of the kind Jim Cramer promoted when being in "hedge fund mode" (deceit, manipulation, making and propagating a fiction, and viewing truth as the enemy).
People applauded after my talk, and I heard that in another viewing area there was a standing ovation! Clearly the public speakers had an effect on the panel. Unfortunately, some panel members were not that familiar with Lorcaserin, and the issue of obesity as an epidemic was not emphasized except by the public speakers. I was a bit disappointed that some of the panel members appeared to have been unprepared, which was unfair to both FDA and Arena, who had put much effort into preparing briefing documents for the panel members to study. Both the FDA and Arena were perfectly prepared.
Andy Barons, who viewed the AdComm proceedings, expressed the same concern:
"I have thought of writing to the FDA to express my disappointment at the low level of preparation and lack of familiarity demonstrated by the panelists. The sponsor spent thousands of man-hours leading up to that meeting and the FDA spent hundreds more, and the panel showed up insultingly unprepared and mostly gave what I thought was very superficial and uninformed advice. It really seemed that many hadn't even bothered to read the briefing documents."
A No vote would have been devastating. Arena clearly does not have unlimited funds; there is a sense of urgency out there for Lorcaserin -- obesity as an epidemic is finally being recognized, and aside from all that and the science, Arena deserves to get approval because of their diligence, perseverance, and compliance with FDA's wishes.
Attorney Joseph Dedvukaj, a consumer advocate who filed the citizen petition, presented at the advisory committee meeting and stated an important key point about Lorcaserin's excellent efficacy profile:
"The categorical criteria which Lorcaserin met is harder to meet and is a better representation of the drug's efficacy. If you look at the development history of the either/or criteria contained in the FDA draft weight management guidelines, you will find that the framers created the either/or criteria to make sure a good medicine is not improperly rejected."
One speaker said he stood behind the same microphone two years ago and said the same thing and FDA didn't approve Lorcaserin then, and obesity has gone through the roof since then and has become an epidemic. A women who was in a Lorcaserin trial had a touching and emotional story of how much Lorcaserin helped her, the benefits of weight loss, and how much she wants the FDA to make the drug available to her again.
I was shocked how much attention was given to arguments that did not matter. The big picture is very clear, efficacy has been established, and FDA has indicated it feels comfortable with the safety profile. But when you have 23 highly specialized folks the argument is bound to get highly technical. It was nevertheless impressive to see the diligent process of examination to ensure patients get a safe, effective drug.
As the strong Yes vote was announced a woman who was a Lorcaserin patient during a trial had tears in her eyes -- we all felt the profound moment we've all been hoping for. She derived a lot of benefit from Lorcaserin and wants to have it available to her again. Here's a video of her speech as well as Dr. Denise Bruner, who spoke brilliantly in support of Lorcaserin approval -- notice her remark about making a fuss out of theories.
It was encouraging to see FDA moving in the direction of approval. The case for approval seems solid.
Eisai officials were on site and needless to say both the Arena and Eisai teams were delighted by the results. I met some of Arena's senior managers as well as members of Eisai, and I see a great future for this partnership. Lorcaserin will likely be one of the largest worldwide drug launches, which I am confident Eisai will manage extremely well given their track record.
All the bashers turned out to be wrong. A Seeking Alpha author "Joe Natural" who issued two articles disparaging Arena in the days leading to the AdComm, wrote to me on 8 May: "R.G., after the FDA advisory panel shoots ARNA in the chest the day after tomorrow, I'll kindly remind you that you're a bagholder." Matthew Herper of Forbes and Adam Feuerstein of TheStreet.com, who both had bashed Arena wrote the exact same confession after the AdComm: "I was wrong about Arena." Tommy Candito responded:
"Adam you scared alot of people into selling when this drug was in the mid 2's including myself, however im glad i got back in before it took off."
Piper Jaffray, which downgraded Arena in March, just upgraded it. Martin Shkreli, a hedge fund manager who claims to have several MDs and PhDs on his staff, turned out to be wrong as well.
Is it that all these parties didn't see what many of us retail shareholders saw? Is it that our MDs and PhDs are more insightful than theirs? Our MDs treat obesity patients every day. Their MDs are paid by a hedge fund!
Short interest has been at an astronomical level, and so has the fiction-making, as Cramer puts it. Truth, science, diligence, perseverance, and a desire to help people won the day. I even had to send a retraction demand to Adam Feuerstein, who made misstatements about me when he was tweeting the AdComm. He complied. Cramer went on the air saying Arena was a lottery ticket. Those of us who relied on the science knew that Arena had a solid chance of approval and it wasn't a toss of luck, as Cramer puts it.
With renewed analyst interest and 40 million shorted shares, it's not surprising to see the stock almost doubled the next trading day after the AdComm. It's expected that it would pull back on the first day of trading after this major achievement because many people have been holding Arena for many years and some are bound to take their profit. I expect a number of analysts to issue upgrades. Already we've seen price targets rise from $1 to $7 in one case, and new price targets ranging from $9 to $15. I anticipate further analyst upgrades to follow in the days and weeks ahead. A number of analysts were on the conference call following the meeting and it will take them a bit of time to produce research reports now that they all wake up from their hibernation and illusions about Arena's chances. Arena's status is about to rise from an underdog in the eyes of Wall Street to an ascending star.
Once the dust settles, shorts will want to cover, institutions will want to buy, and FDA approval should give Arena another double, in my opinion. I am not an expert but I predict $20 by September 2012. I also predict another short squeeze in the caliber of the one we saw with Dendreon (NASDAQ: DNDN).
European approval should be granted this year, far ahead of Vivus, which might not get approval in Europe due to safety concerns. Furthermore, due to Lorcaserin's excellent safety profile, the doctors I've spoken with say they prefer to use Lorcaserin on a majority of their patients over Qnexa. It appears that Lorcaserin will be first to market and with a partner like Eisai (which Vivus misses), I believe Lorcaserin will have a much bigger market share than Qnexa.
Despite all the negative propaganda, based on conversations with various doctors, I believe that Lorcaserin is a physician's first choice for weight loss due to its superior safety profile. I believe FDA will approve Arena on or before June 27. A post-marketing study may be required, which has no negative impact of the company due to related agreements with Eisai. I don't believe a REMS will be required -- and even if it is it will only delay approval by about two months. I don't believe the delay in Qnexa's PDUFA is a positive sign -- there are real safety concerns around a number of areas such as birth defects. A doctor who follows obesity drug developments said he won't be surprised to see a a Complete Response Letter (CRL) issued to Vivus. Every day our obese brothers and sisters get closer to finally having a safe, effective medication that together with diet and exercise could help them lead a happier and healthier life.
I've been asked by a few people who are selling some Arena to diversify what other stocks I like. My top two choices are Arena and Avanir (NASDAQ: AVNR). I won't be surprised to see AVNR double in the next few months due to European approval, partnership, and further short squeeze. The company recently gave bad news to shorts: it's willing to borrow and not dilute; and Nuedexta sales have been steadily rising. Institutional ownership of AVNR has been steadily rising. The latest regulatory filings indicate over 50% of the float is owned by three institutions.
Please do your own research. The above are only opinions and not investment advice. To contact the author, please visit www.rezamusic.com or write to info - at - rezamusic - dot - com.
I have shares in Arena and Avanir. I am not an investment professional and nobody should rely on what I have written in this article as investment advice. Please do your own research. The Motley Fool owns shares of Dendreon. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.