Expected Rejection, Unexpected Consequences

"As anticipated and as part of the ongoing regulatory review process, we do expect to receive a complete response letter from the FDA within the next few weeks," said Baxter (NYSE: BAX  ) CEO Bob Parkinson about his company's immunodeficiency disease treatment HyQ a couple of weeks ago.

So it shouldn't have come as much of a surprise when the Food and Drug Administration turned down the drug yesterday. Yet Baxter's partner, Halozyme Therapeutics (Nasdaq: HALO  ) , lost nearly half its stock value today.

HyQ is a combination of Baxter's plasma-derived Immune Globulin and Halozyme's recombinant human hyaluronidase, which allows the drug to be delivered under the skin (subcutaneous) rather than being infused intravenously. The problem isn't with the Immune Globulin, but with Halozyme's technology. In fact, the FDA isn't just worried about its use in HyQ, but in other subcutaneous products Halozyme is helping to develop.

The FDA is concerned about having patients develop antibodies to hyaluronidase and their potential effect on reproduction, development, and fertility. Some patients in the clinical trial developed antibodies, but there weren't any adverse events associated with the formation of the antibodies, so the companies will have to use pre-clinical experiments to convince the FDA that they don't pose any undue risk.

Until Halozyme can convince the FDA there isn't an issue, the agency wants dosing stopped in trials testing HyQ and a subcutaneous formulation of Viropharma's (Nasdaq: VPHM  ) Cinryze.

Using pre-clinical data to convince the FDA that there aren't safety concerns won't be easy, but it's not necessarily a death sentence for the technology. Arena Pharmaceuticals (Nasdaq: ARNA  ) was able to address a long list of safety issues without running additional clinical studies.

Halozyme has other partnerships with Roche and Intrexon and drugs it's developing on its own that aren't affected, so the news isn't the end of the world; just half of the world, judging by its share price. Until Halozyme discloses more details about what it needs to do and how long it'll take, investors should probably stay away.

Getting a drug approved for Big Pharma or small biotechs like Arena Pharmaceuticals is a tremendous challenge often filled with setbacks. While the future looks bright for Arena, there are still plenty of obstacles ahead. In our brand-new premium research report on Arena Pharmaceuticals, we walk investors through the must know opportunities and threats facing the company. Since key news can develop quickly, we're also including a full year of updates for those who sign up. Learn more.

Fool contributor Brian Orelli holds no position in any company mentioned. Check out his holdings and a short bio. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


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