Washington Editor

Affymax Inc. and its Japanese partner Takeda Pharmaceutical Co. Ltd. have ceased development of Hematide, a synthetic pegylated peptide-based erythropoiesis-stimulating agent (ESA), as a product to treat chemotherapy-induced anemia.

The companies, which entered into a $545 million deal in June 2006, said they instead will focus on developing Hematide for use only in renal patients.

Affymax CEO Arlene Morris insisted the decision was "strategic" and not a result of a product failure or blow-up.

"This was a difficult decision to make, given the promise Hematide has demonstrated in the early clinical trials in cancer patients suffering from anemia," she told investors and analysts Thursday evening during a conference call. "However, given the changing dynamics and continued uncertainty in regulatory requirements and in the use of ESAs for oncology indications, we believe this is the right decision at this time."

Morris pointed to the July 30 decision by the FDA to restrict the use of ESAs in the cancer patients and reimbursement limits imposed last year by the Centers for Medicare & Medicaid Services (CMS) as major contributing factors for the firms' decision to end the Hematide oncology program.

"Because of these factors, we are not optimistic on the future trends in oncology, which we believe will continue to result in a significant negative impact on the potential of ESAs for patients with anemia associated with chemotherapy in cancer," she said.

Morris said her Palo Alto, Calif.-based firm's analysis showed an "increasingly less attractive opportunity when weighed against the need for longer, more expansive development programs expected to be required by regulatory authorities" for new ESAs seeking entrance into the oncology marketplace.

Takeda is discontinuing enrollment in its ongoing U.S. Phase I trial of Hematide in patients with chemotherapy-induced anemia, Morris said.

Analyst Christopher Raymond, of R.W. Baird & Co., noted that the FDA had placed numerous restrictions on the Phase I trial's design, such as dividing patients into tumor-specific and dose-escalating cohorts, which made the trial's execution cumbersome and lengthy. Patients also had to be followed for tumor progression, he added.

Given the burdensome clinical trial program requirements along with the new limits on use of ESAs in the oncology setting, Raymond said he was not surprised by Affymax's and Takeda's decision to dump the Hematide oncology program. In fact, he had predicted the move several weeks earlier.

Hematide's premarket exit from the oncology indication, said analyst Michael Aberman, of Credit Suisse Securities LLC, creates an ironic "small silver lining" for Thousand Oak, Calif.-based Amgen Inc.'s Aranesp.

Nonetheless, Raymond said, Hematide has a promising future in the $5 billion renal market, given its administration profile as a once-monthly injection, which makes it more convenient than currently marketed ESAs.

"It is a true once-a-month treatment that can be given for both the correction of anemia and for the maintenance of hemoglobin once per month without any lead-in period of more frequent dosing," said Jeff Knapp, chief commercial officer for Affymax.

In addition, Baird's Raymond said, because Hematide is a synthetic, it would have a lower manufacturing cost than Aranesp and other ESAs.

He attributed London-based Shire plc's July decision to stop selling its anemia drug Dynepo (epoietin delta) in Europe to its manufacturing costs.

"One of the hunches I have on Dynepo is that its costs of goods was prohibitive to the point where they could not compete, and that's why they discontinued it," Raymond told BioWorld Today.

Morris maintained that Affymax's and Takeda's strategy "from early on" was to prioritize development toward renal indications where clinical benefit was better established.

"Our lack of emphasis in oncology has meant that from the onset, we have focused resources toward advancing Hematide more aggressively in dialysis and predialysis indications," she said.

Hematide currently is being evaluated in a large Phase III program of four clinical trials - two dialysis and two predialysis - involving 2,400 patients with kidney disease. The company has completed enrollment in one study and plans to fulfill enrollment in the other three studies by the end of the year, Morris said.

For the renal trials, safety events are being followed, such as myocardial infarction, congestive heart failure requiring hospitalization and arrhythmia requiring hospitalization, Raymond noted.

"This will be the first time an ESA has ever had a primary endpoint evaluating safety," Morris told BioWorld Today.

The commercial opportunity for Hematide in renal indications is significant, Morris said. The new Medicare legislation recently signed into law also may have a significant impact on how ESAs are used in the dialysis setting, she added.

Affymax's Knapp noted that Medicare, the predominant payer for anemia drugs in the U.S., has been reimbursing ESAs on cost-plus basis.

"In this environment, ESAs had represented a significant profit center," he said.

But, Knapp said, under the new Medicare bill, which takes effect January 2011, CMS will begin reimbursing dialysis centers for all services, including separately billable drugs, like ESAs, at a fixed-bundled rate.

"This new approach to reimbursement will likely eliminate what many have viewed as the overutilization of ESAs in the [end-stage renal disease] population, while at the same time, rewarding overall high quality of care for the ESRD patients," Knapp said.

Although many of the details related to implementation of the reimbursement changes still need to be worked out, "we expect these changes in reimbursement to be disruptive to the overall marketplace, and in particular, to the way Amgen works with the dialysis community," Knapp said. "We think this disruption will eventually lead to quality care and additional overall choices in treatment options, including ESAs."

In that "new environment," Knapp said, ESAs will "no longer be the primary source for profit, but instead, dialysis centers will be focused on continuing to improve patient care and managing costs for more efficient and effective operations."

He noted that Hematide is expected to be launched in 2011, about the same time the new Medicare legislation takes effect.

"In a fixed-cost setting, once-monthly Hematide will have a very meaningful advantage over the three-times-per-week epo compounds and represents a greater than 90 percent reduction in doses," Knapp said.

The renal setting, he declared, is a market that "we will target aggressively with the intent to win."

Shares of Affymax (NASDAQ:AFFY) rose $1.17 Friday, to close at $18.74.