These 2 Biotechs Got Crushed

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On a day when the Dow Jones Industrial Average (INDEX: ^DJI  ) surged 260 points as the European debt drama continues to unfold, significantly larger moves happened in the health-care sector. Friday's big headline: A pair of biotech companies got crushed after receiving a complete response letter (CRL) from the FDA.

The biggest mover was Alimera Sciences (Nasdaq: ALIM  ) . Shares collapsed 73% as the company's flagship drug candidate, Iluvien, was rejected by the FDA. pSivida (Nasdaq: PSDV  ) , which licensed the technology to Alimera, lost nearly 50% of its value.

This is the second CRL Iluvien has received, although analysts had expected a better result on its second go-around. The FDA isn't convinced that the benefits of the treatment for diabetic macular edema outweigh the risks and is requiring two additional trials. Alimera doesn't have the money to run those tests, which would probably result in additional debt, dilution, or both. A buyout could be possible, but it's a stretch to think other drugmakers are licking their chops over a twice-rejected treatment. So investors shouldn't count on Pfizer (NYSE: PFE  ) , which is working with pSivida on its own eye implant, to ride in on a white horse.

Alimera's next move is to meet with the FDA. That won't get Iluvien a green light, but it could illuminate a path toward approval.

Meanwhile, MannKind (Nasdaq: MNKD  ) , following its Afrezza rejection and running low on resources, met with the FDA and received the agency's blessing to start on two trials. Investors sent shares up 33% on the news.

Or look at the trio of obesity-drug makers -- VIVUS, Orexigen Therapeutics (Nasdaq: OREX  ) , and Arena Pharmaceuticals (Nasdaq: ARNA  ) -- which were all being bullied over similar risk/reward issues. Of the three, Orexigen is the best analog. The FDA was concerned about the cardiovascular effects of its weight-loss drug Contrave, so Orexigen was tasked with running an unmanageable 100,000-patient trial to determine its risk. However, the company successfully argued that figure down to a 10,000-patient trial, which will finish in 2014. Of course, that means two additional years Contrave can't be sold. So even if Alimera is as successful as MannKind and Orexigen, it still will have to spend capital running some sort of trial and won't have any revenue coming in.

Any way you cut it, Alimera investors have a tough road ahead.

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David Williamson owns shares of Pfizer, but he holds no other position in any company mentioned. Check out his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Pfizer. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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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 November 13, 2011, at 7:17 AM, garypalys wrote:

    Not to mention IGXT IntelGenx Technologies. They received approval for their drug and it only ran to .72 and closed down over 10%. Biotechs plays are getting ridiculous!

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10/21/2016 4:47 PM
^DJI $18145.71 Down -16.64 +0.00%
ALIM $1.33 Down +0.00 +0.00%
Alimera Sciences CAPS Rating: **
ARNA $1.57 Down +0.00 +0.00%
Arena Pharmaceutic… CAPS Rating: **
MNKD $0.59 Down +0.00 +0.00%
MannKind CAPS Rating: *
OREX $2.82 Down +0.00 +0.00%
Orexigen Therapeut… CAPS Rating: *
PFE $32.18 Down +0.00 +0.00%
Pfizer CAPS Rating: ****
PSDV $2.33 Down +0.00 +0.00%
pSivida CAPS Rating: **