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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