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Biotech Companies: The FDA Doesn't Care About Your Phase 3 Trials

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Biotech company Peregrine Pharmaceuticals (NASDAQ: PPHM  ) was up as much as 33% today after announcing that it's starting a phase 3 trial for bavituximab in non-small-cell lung cancer.

You read that right. Not up 33% because its phase 3 trial was a success. Up 33% because it's starting a phase 3 trial.

Now granted, Peregrine is a small biotech company. The bump in share price only represents about a $70 million increase in Peregrine's value. But I'm not sure the news is worth even that much.

My best guess is that investors take the start of the trial as some sort of endorsement by the Food and Drug Administration. Peregrine even mentions the agency in the headline of the press release, highlighting that the company "has reached agreement with the FDA." If the agency agreed to allow Peregrine to run the trial, it must think the trial will work right?

Sorry, it doesn't really work that way.

The FDA is pretty open to biotech companies running clinical trials to test their experimental drugs, as long as there isn't a reason to think the drug will harm patients. If a biotech company can find patients willing to enter a clinical trial, the FDA is usually fine with a company running the trial. After all, that's the only way to definitively determine whether a drug works.

Examples abound where running another phase 2 trial would have made things a lot clearer, but the FDA "agreed" to allow biotech companies to run a phase 3 trial. Aeterna Zentaris (NASDAQ: AEZS  ) and Keryx Biopharmaceuticals (NASDAQ: KERX  ) took their colorectal cancer drug, perifosine, into a phase 3 trial based on a subset of the phase 2 data, which didn't turn out so well. Outside of cancer, Elan's (UNKNOWN: ELN.DL2  )  Alzheimer's drug bapineuzumab is a good example of the FDA's indifference to biotech companies running phase 3 trials; Elan and its partner Wyeth started phase 3 trials for bapineuzumab before the phase 2 data was even complete.

Peregrine's investors are desperate for some validation because the bavituximab phase 2 data in lung cancer are a mess; the company doesn't know which patients got the low dose of the drug and which got the placebo.

Peregrine combined the two arms of the study and compared them to the higher dose of bavituximab, which showed an increase in overall survival of 4.4 months. Assuming the low dose was doing something, the high dose might even extend survival by more than that, but the current results aren't statistically significant.

The only way to know for sure is to run another trial. Peregrine could have run another cheaper phase 2 trial to confirm the tantalizing-but-very-dirty data from the first phase 2 trial, or it could roll the dice and jump into an expensive phase 3 trial. Don't for a second think that was the FDA's decision to make. It's Peregrine's money to spend.

Speaking of money, that seems to be the main motivator here. At the end of January, Peregrine had about $26 million in cash and equivalents. Pausing to run a second phase 2 trial would have eaten up much of that. Pressing into phase 3 trials has investors excited, which will allow the company to raise more cash at a higher valuation.

I'm not saying that bavituximab is guaranteed to fail its phase 3 trial in lung cancer. But without any definitive data, it's a crap shoot, like most phase 2 trials run by biotech companies.

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Read/Post Comments (7) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 20, 2013, at 5:24 PM, Hope4GoodFuture wrote:

    Dr. Orelli, you never seem to respond to questions posted after your articles but I'll try anyway (or maybe another informed person can help). What I'd love to know is: Why do oncologists agree to steer their patients into Phase III trials with therapies for which efficacy has not been well documented in P2? One answer could be that there are often no other options-- but there usually are actually some options (they might not be great, but probably better than a useless dud drug). Another answer could be that many oncologists aren't really up on what's promising- many just look at like everybody else (or maybe don't even bother to do that). I actually buy that to some extent; many oncologists got their certification and don't want to spend their nights searching for new therapies, so just wait for protocols to change. Another possible answer is that oncologists may benefit financially from steering patients to certain clinical trials. Do you know if this is the case and, if so, how it works? Two recent bombs demonstrate how little P3 can mean- ZIOP's palifosfamide and CLSN's thermodox. CLSN skipped P2 altogether and based P3 on very limited p1 data. ZIOP apparently ran a terrible p2 that censored patients like it was going out of style. So, what's bothering me is that so many people (hundreds) died on these trials while getting worthless treatment (both companies admitted that their drugs would not get approved anywhere with the P3 results they got). Maybe the FDA actually SHOULD have an opinion as to whether a drug is WORTHY of Phase III, rather than just flipping it off to the company as "hey, it's your dime". The consumer (patient) doesn't have access to (or the background to understand) the details that might make them highly suspect of a drugs "proof of concept" trials. Most oncologist probably have no way of knowing either, or don't want to rock the boat, or don't have the time to delve in, or whatever. The FDA is in a unique position to ask for, and receive, data that could lead them to say-- "hey this more then your dime- this involves lives- and your data from P2 is not convincing so go away and don't come back until you have something worthy of hundreds of patients placing their hopes on you".

  • Report this Comment On May 20, 2013, at 5:57 PM, cowboy2014 wrote:

    I politely disagree. I guarantee if you made that opinion directly to the FDA they would ask you to redact your opinion. You imply that Phase 3 means nothing. Absolutely false. Anytime you give a drug to many hundreds of people (Phase 3 patient groups much higher) the FDA cares a lot more. Also you are discounting that the patient group which is already suffering. The FDA doesn't allow people to be used as guinea pigs under any circumstance.

  • Report this Comment On May 20, 2013, at 6:04 PM, BSDetector wrote:

    There are foolish articles and there are articles by FOOLS. Yours falls into the latter category with a first class grand champion rating.

    Would you care to attempt once more to convince us that an FDA EOPII not is meaningless? You must be the same guy that stated months ago that PPHM's work is nothing more than placebo.

    Good luck with that one champ!

  • Report this Comment On May 21, 2013, at 12:42 AM, exultation wrote:

    May I ask contributor Orelli what his basis is in saying that the FDA doesn't care about biotech companies' phase 3 trials? What qualifies him to say that, and what credentials does he have to cover biotech companies? He even uses phrases like "my best guess is." Gosh, does he get paid for guessing?

    A writer's statements should be based on facts and data, not on subjective assumptions.

  • Report this Comment On May 21, 2013, at 9:02 AM, BBTERPS wrote:


    It is known that the phase2 NSCLC trial which you refer to as a mess was knowingly sabotaged. Luckily they were only able to convolute two of the three arms of the trial. The third has historically unsurpassed 11.7MOS. You have to wonder why someone would sabotage a cancer trial with so many sick patients literally dying from disease.

    You have to wonder why so many Motley writes have coordinated the attacks on PPHM.

    All Phase 3 trials have the hurtle to repeat the results of the Phase 2, that got them to this point.

    And here's a revelation for you not all succeed.

    How does that revelation differ for PPHM than any other.

    To say Phase 3 isn't relevant that anyone that wants to pony up the cash can run a FDA approved phase 3 is in denial or has an unholy agenda. Based on the history of the Motley Fool timing and staff writers history IMO it is the latter.

    With Adam Fuerenstein and Jim Cramer who apparently believe lying to manipulate a stock is fair game. Maybe they are working with the big time hedges in manipulating this stock. Maybe they need to be looked at in the Sabotage investigation by the FBI and SEC.

    If it smells like duck....................

  • Report this Comment On May 21, 2013, at 9:58 AM, krimba11666 wrote:

    you guys are so predictable now. when I read good news about FDA yesterday, I immediately thought "how long will it be before Motley Fool crap posts a spin or contradictory angle"? Low and behold, the next morning there you were like green mold. You folks in my mind have lost credibility, you are like a broken record with PPHM, and are not a neutral analyst firm.. One of these days you will find in hot water or a legal suit.

  • Report this Comment On May 21, 2013, at 11:58 AM, TMFBlacknGold wrote:

    Good reminder on small-cap pharma PR tricks Brian.


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