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June 13, 2011
Block That Review
Posted by Derek
Now here's a biotech investing strategy that I haven't come across before. Adam Feuerstein reports on a hedge fund manager, Martin Shkreli of MSMB Capiral, who's very much short the the stock of a small company called NeoProbe. They're developing a contrast agent for lymph nodes called Lymphoseek, and Shkreli doesn't think very much of their data - thus the short trade.
Not leaving anything to chance, though, he's filed a "citizen petition" with the FDA, maintaining that there are severe problems with the regulatory filings for Lymphoseek and asking the agency to deny a review to the product. At issue is the concept of "standard of care". There's a blue dye that's FDA-approved for this lymph-mapping purpose, but it seems that in actual practice, almost everyone uses it along with a radiosulfur tracer (even though the sulfur colloid isn't specifically approved for that purpose). Lymphoseek's Phase III trials are controlled against the dye alone, which has some people wondering just how meaningful its data will be.
Shkreli discloses his investment position in his FDA position - there's really nothing underhanded about what he's doing. And as Feuerstein notes, "Citizen petitions are rarely if ever filed for altruistic reasons." But although companies have used them to throw elbows during the regulatory process, this is the first time I've ever heard of a short-seller trying this move.
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1. pete on June 13, 2011 11:20 AM writes...
Clever -- but you'd think there would be some regulations on the FDA books about the need for citizen petitioners to disclose any competing financial interests, along with penalties for attempts to deceive (e.g., to lie about such interests).
Permalink to Comment2. bbooooooya on June 13, 2011 12:54 PM writes...
Does anyone know if a competitor sponsored CP has ever worked?
Permalink to Comment3. johnnyboy on June 13, 2011 1:56 PM writes...
@1: According to the Feuerstein article, the investor has fully disclosed his financial interest to the FDA, and there is no rule against an interested party making a CP.
Permalink to CommentThis seems an interesting way for investors or others to call a company's bullshit - as far as I know FDA can't really do it (can't refuse an application if all the T's and I's are properly crossed and dotted).
4. pete on June 13, 2011 2:29 PM writes...
@3 You're right - I jumped to conclusions.
If use of CP process by competing interests becomes more popular, I'd be concerned that 1) FDA will be stretched thinner and 2) it may create more speed bumps for companies pushing novel approaches or devices.
Permalink to Comment5. johnnyboy on June 13, 2011 5:11 PM writes...
Well, maybe - or maybe the contrary, i.e. FDA might receive, or have to fully process, fewer doomed-from-the-get-go applications, and therefore better use its resources. Regular readers of Feuerstein's column will be familiar with several dumpy biotechs who pursue hopeless approaches and play the FDA-application game as a delaying tactic to raise more money from investors (a specialty of Cell Therapeutics, for instance).
Permalink to Comment6. NoDrugsNoJobs on June 13, 2011 8:57 PM writes...
The company's position is that the FDA did not want them to use the colloid because the colloid is not approved for the use. It would be strange if the fda allowed them to run their compound in combination with an unapproved drug. I imagine that would be a phase 4 study?
Permalink to Comment7. NHR_GUY on June 13, 2011 9:02 PM writes...
@5 "with several dumpy biotechs who pursue hopeless approaches and play the FDA-application game as a delaying tactic to raise more money from investors"
I agree that this goes on. Nothing like a news release stating your doing a filing to bump your stock up a few points. Where I disagree with you is that I don't have a problem with this. Its up to investors to do their due diligence and call BS on this tactic by moving their capital. If you are not savvy enough to detect the underlying BS then you probably shouldn't be invested in that stock. It is not the FDA's remit to do this for you. The FDA process takes all comers as it should. The FDA should only look at the facts as presented and make their decisions based on the facts. I am not naive enough to think think the FDA process is apolitical or "blind justice", I just don't think they should start down the slippery slope of helping out schmucks who bought a bum stock.
Permalink to Comment8. Still Scared of Dinosaurs on June 14, 2011 7:00 AM writes...
I have much less of an objection to this tactic than allowing public comment at Advisory Committee meetings. I've seen plaintiffs' lawyers sneaking in because they are MD-JDs bashing companies they are suing. And always, a series of weeping patients extolling the virtues of whatever is being reviewed. Even the worst therapies will have a couple of patients who believe they were helped by what they got.
That said, I think the real danger here would be Big Pharma crushing the little guys using the same misinformation tactics Big Oil uses in regards to climate change.
Permalink to Comment9. johnnyboy on June 14, 2011 7:06 AM writes...
@7: I think we're in agreement over what you're saying. I'm not saying it's the FDA's job to filter out applications based on merit - which is precisely why I think that this investor's CP is interesting, since if it became common practice it might add such a filtering mechanism, ideally by dissuading companies from submitting in the first place, or maybe at least by stopping the application process before the 6-12 months necessary for full review.
Permalink to Comment10. AndrewD on June 14, 2011 8:03 AM writes...
I agree that the FDA may have to ignore the conflict of interest but surely the SEC and other financal regulators would take a poor view of these actions which may breach financal regulations.
Permalink to Comment11. befuddled on June 14, 2011 3:50 PM writes...
@3, johnnyboy: Feuerstein also says that disclosing a material interest isn't required to make a citizen petition to the FDA. That seems to be a mistake to me, although the FDA presumably has enough information to evaluate the petition on its merits.
@6, NoDrugsNoJobs: FDA regs appear to require that new therapies be tested against the current standard. Given how often, especially in oncology, the standard of care evolves faster than FDA approval, it would be strange for the FDA to avoid recognizing that fact. Especially since the use of the colloid has been widely published (see PMID 12375751).
The ability of citizen petitions to turn FDA approval into a more active, potentially adversarial process is a good thing, I think. Would that we had that option in the patent approval process.
Permalink to Comment12. NoDrugsNoJobs on June 14, 2011 6:26 PM writes...
11-befuddled, don't you think the FDA would have mentioned that they had the wrong comparator when they discussed and got their phase 3 plan approved by the FDA?
Permalink to Comment13. bbooooooya on June 15, 2011 7:54 AM writes...
"don't you think the FDA would have mentioned that they had the wrong comparator when they discussed and got their phase 3 plan approved by the FDA?"
They may have but, to the best of my knowledge, NEOP has not disclosed any transcript of their meeting with the FDA. Releasing this (which they have the right to do) would be the simplest was to prove or disprove what the FDA said.
Permalink to Comment14. NoDrugsNoJobs on June 15, 2011 10:58 AM writes...
13 - Do you think Neop is lying to the public and its investors? Are you aware of examples where companies have released "transcripts" of their private meetings with the FDA?
Permalink to Comment15. bbooooooya on June 15, 2011 3:26 PM writes...
"Do you think Neop is lying to the public and its investors?"
I am not sure. I also do not believe the company has stated unequivocally that the FDA said they did not need to compare lymphoseek with S colloid. If company management said so in a SEC filing it would go a long way to dispel current skepticism.
"Are you aware of examples where companies have released "transcripts" of their private meetings with the FDA?"
I am not. I do not believe there is any prohibition on this.
Permalink to Comment16. bbooooooya on June 15, 2011 3:29 PM writes...
"Do you think Neop is lying to the public and its investors?"
I am not sure. I also do not believe the company has stated unequivocally that the FDA said they did not need to compare lymphoseek with S colloid. If company management said so in a SEC filing it would go a long way to dispel current skepticism.
"Are you aware of examples where companies have released "transcripts" of their private meetings with the FDA?"
I am not. I do not believe there is any prohibition on this.
Permalink to Comment17. Still Scared of Dinosaurs on June 16, 2011 6:35 AM writes...
The FDA is pretty open to submissions that use the "wrong" comparator. After all, they accept and approve a lot of placebo-controlled trials for conditions that already have approved therapies.
Europe, on the other hand, not so much. Any idea as to Neoprobe's strategy there?
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