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The Big Bet on ADVENTRX Pharmaceuticals

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Sometimes it's easier to improve current treatments than it is to develop new ones. Alkermes (Nasdaq: ALKS  ) has done pretty well making longer-lasting versions of drugs like Amylin Pharmaceuticals (Nasdaq: AMLN  ) and Eli Lilly's (NYSE: LLY  ) Byetta and Johnson & Johnson's (NYSE: JNJ  ) Risperdal.

ADVENTRX Pharmaceuticals (AMEX: ANX  ) has taken a slightly different approach by reformulating cancer drugs to improve safety profiles while keeping the efficacy the same. Its lead compound, Exelbine, is a novel formulation of Navelbine, which is now sold as a generic. The FDA is due to make a decision about the drug on or around Sept. 1.

This is actually the second attempt at gaining FDA approval for Exelbine. In late 2009, ADVENTRX submitted its application for Exelbine, but the agency refused to accept the application. The FDA wanted stability data to set the expiration dates, which took about a year to assemble and refile.

I don't think the refuse-to-file letter says much about the approvability of Exelbine. Stability tests are pretty routine; the drug is either the same as it was when it was manufactured or it isn't. ADVENTRX said the 12-month data were consistent with the six-month and nine-month time points. Sounds good to me.

But it does say something about ADVENTRX's ability to interpret the requirements of the FDA. Roche and ImmunoGen's (Nasdaq: IMGN  ) refuse-to-file letter for T-DM1 and the FDA's surprise request for more data for Amylin and Eli Lilly's Bydureon lead me to believe that this could be more an issue with the agency communicating requirements than ADVENTRX misunderstanding them. But does it really matter? Whoever is to blame for the refuse-to-file letter, the miscommunication adds a level of risk to the approvability of the drug.

How the bet wins, how it loses
In this case, a true win is going to take two steps.

First, Exelbine needs to be approved. As discussed above, that's not a sure thing in this regulatory environment, but it seems more likely than not.

Once the drug is approved, Exelbine needs to be a commercial success. Sales of the competing generic aren't that high, so a couple of hundred million in sales would certainly be impressive for Exelbine. If the drug can bring in enough to cover its expenses, I'd call that a win. ADVENTRX has another cancer drug, ANX-514, that's further back in the clinic. Sharing sales-force costs between two drugs is a more commercially viable solution.

On the other side of the coin, a complete response letter that requires a substantial amount of work would be a disaster. The company had $47 million at the end of the first quarter, which should be plenty to launch Exelbine and help fund its phase 3 programs, but probably won't be enough if Exelbine is burning cash from another trial rather than bringing in revenue.

A commercial failure for Exelbine wouldn't be the end of the world from a financial perspective; I don't think investors have extremely high hopes for the drug. But Exelbine is a proof of concept for ADVENTRX's business model. If Exelbine can't compete as an improved generic, how will ANX-514, a reformulation of Sanofi's Taxotere, compete with its corresponding generic? ANX-514 will also have added competition from Celgene's (Nasdaq: CELG  ) Abraxane, a reformulation of Taxol, which is in the same class as Taxotere.

Fish or cut bait?
Watching from the sidelines and waiting to reformulate your investment thesis seems most apropos for ADVENTRX. Exelbine might be the near-term catalyst, but I see a lot more potential in ANX-514, which should address a much larger market. You'll miss some upside if you wait to see how Exelbine performs, but sometimes it's worth sacrificing upside for clarity.

I'm also not keen on the idea that the company has a third recently acquired dug, ANX-188, which treats sickle cell anemia. I'd rather the company stick with oncology drugs. There doesn't seem to be much reason to head off on a tangent even if a company can get a late-stage asset on the cheap. Furthermore, being a strictly oncology company would make it a better takeout target.

If you're interested in keeping an eye on ADVENTRX as its FDA decision approaches, click here to add the company to your watchlist.

Fool contributor Brian Orelli holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of Johnson & Johnson and Immunogen. Motley Fool newsletter services have recommended creating a diagonal call position in Johnson & Johnson. 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.

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