Affymax Shares Hang on an FDA Decision
AFFY's stock price is swinging wildly as Investors await a ruling on the company's promising kidney disease drug.

What a difference a day makes.

Investors bid up the shares of Affymax (NASDAQ:AFFY) 19% Monday after an Food & Drug Administration report said the company’s anemia drug is comparable in effectiveness to medications for patients with chronic kidney disease sold by Amgen (NASDAQ:AMGN) and Johnson & Johnson (NYSE:JNJ).

Then, without any new information emerging, investors put the brakes on their enthusiasm Tuesday, taking Affymax shares down some 14%. Clearly, a great deal of uncertainty surrounds the prospects for the company’s experimental drug peginesatide, which would be the first marketed product for the Palo Alto, Calif.-based firm. Things could become clearer on Wednesday, when an FDA panel meets to evaluate the drug.

In its report that sparked Monday’s surge in Affymax shares, FDA staff called peginesatide “non-inferior” to Amgen’s Epogen and Aranesp and J&J’s Procrit, according to Bloomberg. However, compared to the other erythropoiesis-stimulating agents (ESA), peginesatide showed a higher incidence of cardiovascular problems in clinical trials. On the other hand, Affymax is dosed once a month, making it more convenient than the other ESAs.

The stakes are huge for Affymax and its shareholders: Amgen’s Epogen generated sales of $2.5 billion in 2010. Affymax lost nearly $10 million in the third quarter, although the company received a $10 million milestone payment from its partner on peginesatide, Takeda. In its third- quarter earnings release, Affymax said it expects to end 2011 with approximately $95 million to $100 million in cash, cash equivalents and investments.

The FDA’s final decision on peginesatide is expected at the end of March. If the drug gets the thumbs-up, Takeda will pay Affymax $50 million. Affymax now says it expects $25 million to $30 million in payments from Takeda in 2011, the Associated Press reported. The company added that it expects operating expenses will drop about 10%.

Opinions differ about peginesatide’s chances for approval. Writing on Motley Fool, Brian Orelli said he doesn’t think the FDA panel can ignore the cardiovascular issue with the Affymax drug. “The panel of outside experts only has an advisory vote, but I’d expect the panel’s opinion to be influential on the agency, given the inconsistent data,” he said. “If this was a high unmet need, I could see the panel ignoring the other trial. But with other drugs on the market, the panel is likely to give it some weight.”

Orelli is guessing that the FDA panel recommends against approval or offers a split opinion, neither of which would be good for Affymax or its shares.

Also pessimistic is Michael Yee, an analyst at RBC Capital Markets in San Francisco. While the agency “seems possibly open” to approving peginesatide, the drug still faces a “difficult road,” he said Tuesday in a note to clients, according to Bloomberg.

However, the Bloomberg article also quoted a more optimistic analyst, William Tanner of Lazard Capital Markets in New York, who told clients in a note that peginesatide is likely to be approved for the dialysis indication and may get the OK for chronic kidney disease patients who aren’t on dialysis. Affymax shareholders are pulling for Tanner’s opinion to hold up.

As of this writing, Barry Cohen is long JNJ and AMGN.


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