There's no sector more volatile than the pharma sector as Flamel Technologies (Nasdaq: FLML ) has proven in the past three months. Shares of the tiny drug developer have fallen 65% since the beginning of June and were down more yesterday after unfavorable data was released on its lead drug, heart failure treatment Coreg CR.
GlaxoSmithKline (NYSE: GSK ) markets Coreg CR. The negative abstract published yesterday in the Journal of Cardiac Failure compared the compliance with dosage rules of patients taking the once-a-day Coreg CR with that of patients taking the twice-a-day immediate release (IR) version of the drug, which loses patent protection next month.
Unfortunately for GSK and Flamel, the study showed that patients taking Coreg CR did not comply with usage regimens at a higher level than those taking the twice-a-day version. (This study was designed to be part of a one-two punch by GSK in conjunction with the ongoing COSMOS hypertension study, which is trying show that Coreg CR is superior to AstraZeneca's (NYSE: AZN ) Zestril.)
One of the reasons Flamel and GSK ran the clinical trial that was written about yesterday was because previous studies had shown that up to 64% of hospitalizations related to heart failure were due to patient noncompliance with their medication. The obvious consequence of the unfavorable journal article is that Coreg CR may be slightly harder to market, and doctors may be more reluctant to prescribe it. This likely isn't the major issue, though.
The problem with journal articles such as these is that they give ammunition to insurance companies to cover less of the drug's costs or not pay for it at all. If insurers find the extra benefits of Coreg CR to be hazy, they will grant it less favorable coverage versus its generic immediate-release counterparts. This then means that insured patients would have to pay more out-of-pocket expenses if they want the convenience of a once-a-day pill, and also that GSK would be able to charge less of a premium for Coreg CR.
As Flamel has mentioned in the past, there are four areas of potential growth for the use of Coreg CR: patients switching from the IR version, using the drug in combination with other therapies, proving its broader use (a hypertension study is ongoing), and selling it internationally.
Investors shouldn't take this journal article to mean the end of Coreg CR's potential as a blockbuster (there's still the important COSMOS study, for example) but it's certainly bad news in near and intermediate terms until GSK puts out new positive data on the drug.
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Flamel is an active Motley Fool Hidden Gems pick, and GlaxoSmithKline is an Income Investor recommendation.