A Dull ASCO And The Usual Sell-Off

By Stephen D. Simpson, CFA | June 06, 2011 AAA

There is an undeniable cycle to nature. Leaves turn color and fall, birds migrate across continents, and stocks fall after the annual American Society of Clinical Oncology (ASCO) meeting. Making matters perhaps a bit worse this year, there were very few presentations that really stood out and not an abundance of positive news for investors to process. As is so often the case, though, there was a lot of buying momentum into the meeting and Wall Street is once again playing out the "buy the rumor, sell the news" meme.

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The Best in Show - YMI and Exelixis
The most interesting presentations arguably belonged to YM BioSciences (AMEX:YMI) and Exelixis (Nasdaq:EXEL). It is also par for the course, though, that neither presentation was completely "clean" and investors still have a lot of questions about the future of the respective drugs.

For YMI, it was all about Phase 1/2 data from the JAK-2 inhibitor CYT387 in myelofibrosis. Myelofibrosis is a rare condition and one that frequently leads to an enlarged spleen and/or anemia. This relatively small study showed good spleen response and suggested benefit in counteracting anemia. Unfortunately, this is the prime question about CYT387 - is the anemia benefit "real"? If so, this could be a drug worth hundreds of millions of dollars, but investors are just going to have to wait for further studies to confirm (or disprove) this benefit. On an encouraging note, the company seems to be taking a very smart approach to the clinical development of the drug. (For more, see Measuring The Medicine Makers.)

For Exelixis, the real excitement was about Phase 2 data for cabozantinib in seriously ill prostate cancer patients. The trial showed a meaningful reduction in tumor progression, and bone scans showed that 76% of the patients were partially or completely cleared of bone lesions. The drug also seemed to have a very significant benefit to reducing pain (metastasis of prostate cancer into the bone is excruciating). (For more, see Drug Companies With Tasty Medicine.)

Now the bad news. There have been deaths associated with this drug (1 tied to the drug in the prostate study) and it seems like the mechanism of action makes that almost inevitable. Also, the company has not designed the studies to show survival benefit, and it could be challenging to secure FDA approval without that data - particularly as Bristol-Myers (NYSE:BMY) showed data at ASCO from its Phase 3 prostate drug candidate (alpharadin - licensed from Algeta) that did point to a survival benefit.

Controversy Still Swirling Around Neoprobe
Neoprobe (Nasdaq:NEOP) is a pretty small company, but the controversy around the stock and its drug Lymphoseek is large indeed. Lymphoseek is actually an imaging agent, but the approval process is essentially identical as if it were a drug. The good news is that Lymphoseek did exceed the endpoints of its Phase 3 study and seems to be a highly sensitive agent. It also would seem to have non-trivial safety benefits and an improved administration profile over the standard of care.

Unfortunately, there is controversy about whether the company has run the proper trials. The trials have compared Lymphoseek to an FDA-approved alternative when the actual standard of care is to use a combination of that approved alternative (vital blue dye) and a colloid. The question, then, is whether Neoprobe can establish superior efficacy in a real world setting, though the safety profile may mitigate that argument. It's also worth noting that while Lymphoseek would certainly be significant to Neoprobe, the list of breakaway biotech successes based on imaging compounds is pretty sparse. (For more, see A Primer On The Biotech Sector.)

Other Data of Note
Bristol-Myers also reported very encouraging data on Yervoy (ipilimumab) in skin cancer; so much so that it could dominate the "wild type BRAF" melanoma market. Incyte (Nasdaq:INCY) and partner Novartis (NYSE:NVS) reported strong data on their myelofibrosis drug ruxolitinib. In contrast to YMI's drug, there is very good spleen response with ruxolitinib, but not much anemia benefit. Nevertheless, this drug is years ahead of YMI's compound and the two companies have filed for U.S. approval.

Other reports of some note include data from Celgene (Nasdaq:CELG) that was supportive of Revlimid but negative for Abraxane (showing a better response rate than paclitaxel, but no survival benefit in lung cancer) and solid data from Sanofi's (NYSE:SNY) semuloparin, an ultra-low weight heparin targeted at preventing venous clots in cancer patients. (For more, see Pharmaceutical Phenoms: America's Best-Selling Medicines.)

The Bottom Line
Many biotech investors seemed puzzled by Monday's post-ASCO declines, but they should take some solace in the fact that this is a very routine occurrence. While there are still a lot of questions for investors in stocks like YMI, Exelixis, and Neoprobe, bulls can certainly find some positive news to reinforce their thesis. As always, the key to successful biotech investing is diversification, staying power and due diligence. (For more, see The Ups And Downs Of Biotechnology.)

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