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This Week in Biotech: Three Strikes and You're Out!

By Sean Williams – Feb 15, 2014 at 2:10PM

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The FDA and its advisory panel give a thumbs down to three experimental drugs, while buyout mania strikes the biotech sector.

With the SPDR S&P Biotech Index up 64% over the trailing-12-month period, it's evident that investment dollars are willingly flowing into the biotech sector. Keeping that in mind, let's have a look at some of the rulings, studies, and companies that made waves in the sector last week.

Unlike last week, with the exception of one approval from the Food and Drug Administration, the regulatory agency and its advisory panel were handing out a big helping of "do not pass go" this week.

The one bright spot
The lone FDA bright spot this week went to Pharmacyclics (NASDAQ: PCYC), which on Wednesday received an expanded indication for Imbruvica to treat chronic lymphocytic leukemia patients that have had at least one prior therapy. The approval was widely expected as the overall CLL response rate was 58.3% with a duration of response lasting anywhere from 5.6 months to at least 24.2 months. A top-line duration of response has yet to be reached, which speaks to Imbruvica's efficacy. Alongside partner Johnson & Johnson (JNJ 1.08%), the only real challenge left is ensuring Imbruvica's launch goes flawlessly.

Three strikes and you're out!
Not one or two, but three companies received the thumbs down from either the FDA or its advisory panel this past week.

Cancelling out the positives of Imbruvica's approval, Johnson & Johnson announced yesterday that the FDA had rejected blood-thinner Xarelto's expanded indication for coronary artery disease for a third time! The ruling is in no way a surprise, after the FDA's panel voted unanimously against recommending Xarelto's approval after what it considered to be insufficient trial data to support an expanded indication last month. J&J is going to need to decide if it wants to give up the hope of this broader indication or if it'll spend the money to run additional safety and efficacy trials on coronary artery disease patients. Either way, I believe J&J's pipeline is strong enough to move forward without any additional Xarelto revenue.

The FDA was a bit more direct with DURECT (DRRX 2.42%), a developer of abuse-resistant technologies used in pharmaceutical products. On Wednesday, the small-cap biotech company received a complete response letter from the FDA for Posidur, its experimental surgical site painkiller. The FDA's CRL notes that DURECT's new drug application didn't properly demonstrate Posidur's safety and recommended additional safety studies be conducted if the drug is to be approved. DURECT commented, as per the norm in CRL situations, that it would work with the FDA to uncover the best next step for Posidur, but an approval looks like at least another year out, at the earliest, in my opinion. 

Since misery loves company, The Medicines Company (MDCO) joined the fray on Wednesday as well after the FDA's advisory panel voted 7-2 against recommending approval for its blood clot prevention drug, cangrelor. At the heart of advisory panels' concerns, was the trial design which compared cangrelor against a significantly older anti-clotting therapy. The panel was also concerned about higher bleed rates among patients on cangrelor compared to the older therapy. Although the FDA isn't required to follow the advice of its panel, it does so a majority of the time. In addition, Medicines Company actually discontinued its research of cangrelor in 2009 due to what was perceived to be ineffectiveness compared to existing therapies. In other words, a failure here could decisively mark the end of the line for cangrelor.

The other theme this week was buyouts, with two notable moves being made in the biopharmaceutical sector.

On Tuesday, Mallinckrodt announced that it will purchase Cadence Pharmaceuticals (NASDAQ: CADX) for $1.3 billion, or $14 per share in cash, a nearly 27% premium from where it went out last week. For Mallinckrodt, the move is being made to get a hold of FDA-approved acetaminophen injection Ofirmev, which will help it expand its product portfolio and allow it to possibly exploit Cadence's numerous other hospital market ventures. The purchase will add to Mallinckrodt's bottom-line immediately and be "significantly accretive" in 2015. For Cadence, shareholders get a very respectable buyout price given that Ofirmev sales are only totaling about $100 million on a 12-month trailing basis. 

Later in the week, under-the-radar clinical-stage biopharmaceutical company Retrophin announced the $62.5 million buyout of privately held Manchester Pharmaceuticals, which includes $29.5 million in cash upfront. The move brings two FDA-approved drugs into Retrophin's product portfolio, including Chenodal for gallstones and Vecamyl for select cases of hypertension. With the deal expected to close by March 1, Retrophin will soon have revenue and cash flow that it can use to partially fund its rare disease drug research. In addition, Retrophin intends to try to get Manchester's Chenodal approved as a treatment for cerebrotendinous xanthomatosis, a rare genetic disease that causes chronic diarrhea in infants and also fatty deposits to build up in the brain. Shares finished the week higher by 43%.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool owns shares of, and recommends Johnson & Johnson. 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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