(Bloomberg Gadfly) -- Pulling success from the jaws of disaster is a fantastic plot twist. It's just not always a good foundation for a biotech investment.
Angling for an unlikely happy ending for its depression drug, Irish biotech Alkermes PLC hoped the FDA would ignore its failure of two Phase 3 trials in 2016 and would focus instead on a third, successful test. But the agency rejected the company's attempt to file the drug for approval, Alkermes disclosed Monday. The FDA also may want the company to run several expensive new trials before it reconsiders.
Alkermes shares fell 20 percent on Monday, suggesting investors were caught unawares by what was arguably a very likely outcome.
There's an established lexicon companies use to convince investors trial failures are just flesh wounds. It serves as a convenient set of red flags.
Bad trial results often get explained away by placebo effects or other confounding trends. The words "trends toward statistical significance" are trotted out. Regulators and investors are implored to consider the "totality of the data." Post-hoc subset analyses are marshaled. High unmet patient need and the deficiencies of other treatments are used as smokescreens for mixed data. Alkermes deployed a number of these defenses for its results at various points.
Alkermes tweaked its third trial after its two initial failures and got some positive results. It has insisted to investors those were sufficient to warrant approval. But even those data were not pristine.
There are real grey areas in medicine; the line between statistical success and failure is often thin. The FDA has shown itself occasionally amenable to approving drugs for needy patients without rock-solid evidence of long-term effectiveness, especially when it comes to cancer drugs.
A recent example that may have given Alkermes hope was the agency's 2016 approval of Sarepta Therapeutics Inc.'s Exondys 51, a treatment for Duchenne Muscular Dystrophy (DMD). Several FDA scientists believed the drug was likely an "elegant placebo," but they were overruled.
Exondys was approved under previous FDA leadership. Investors appear to have hoped new commissioner Scott Gottlieb might prove even more flexible. But while his FDA has approved medicines at a record pace and has shown some signs of heterodoxy, it is not proving to be especially sympathetic to rescue missions.
Last year, PTC Therapeutics Inc. had no luck getting approval for a DMD medicine that had failed multiple trials. And now Alkermes has to go back to the drawing board. There may be cases where wriggle room is warranted, but a twice-failed depression drug apparently isn't one of them. Alkermes hopes to appeal the FDA's decision and to avoid the need for more trials, but its chances are slim.
There's nothing wrong with taking cheap, low-percentage shots on salvage efforts. But Alkermes wasn't cheap for investors. As recently as February, its market cap surpassed $10 billion. The company previously hadn't been within shouting distance of that valuation milestone since those two bruising trial failures in 2016.
When personal wealth, continued employment and the ability to raise capital ride on the perceived viability of a drug program, management isn't likely to offer investors a clear-eyed analysis of its chances. That's worth keeping in mind at all times, particularly when it comes to biotech salvage operations.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.
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