Washington Editor

As expected by most analysts, Forest Laboratories Inc. and Nycomed GmbH Monday night received a complete response letter for their chronic obstructive pulmonary disease (COPD) drug Daxas (roflumilast).

Although the FDA requested certain additional information and analyses, regulators are not seeking more patient trials, the firms said in a statement.

Forest officials declined to comment beyond the companies' statement, but Wedbush Securities analyst Patricia Bank called the FDA's complete response a "middle of the road scenario," which she said was "probably better than most people expected.

"Our take was that the majority of investors had written Daxas off and assumed the product was either dead or significantly delayed," Bank said in a research note.

But Piper Jaffray analyst David Amsellem warned that the absence of a request for new studies does not necessarily mean that an approval is on the horizon.

Nonetheless, investors drove shares of New York-based Forest up 5.7 percent Tuesday. That rise, however, may have been triggered by the firm's Tuesday morning announcement of a 50 million share buyback program. Forest's stock (NYSE:FRX) closed at $27.67, a gain of $1.48.

Swiss drugmaker Nycomed, the privately owned company that developed Daxas, had submitted the new drug application (NDA) to the FDA in July 2009 with a proposed indication for the compound as a maintenance treatment of COPD associated with chronic bronchitis in patients at risk of exacerbations.

But Forest, which licensed Daxas from Nycomed under a deal potentially worth more than $500 million, submitted a new application in late January with what the FDA deemed substantial changes, including a narrower indication and a new warning about neuropsychiatric events. (See BioWorld Today, Aug. 11, 2009, and April 6, 2010.)

During a meeting last month of the FDA's Pulmonary-Allergy Drugs Advisory Committee, regulators appeared peeved that Forest amended the indication for Daxas without seeking input from the FDA. Forest's amendment also came after the agency already had completed a substantial portion of its review process, which also seemed to irk regulators. (See BioWorld Today, April 8, 2010.)

The FDA's outside advisers at last month's meeting also were moody, voting in favor of Daxas' efficacy and safety in two 9-to-6 votes, before recommending against its approval in a 10-to-5 vote.

Even with the thumbs up on safety, many on the FDA's committee had expressed concerns about neuropsychiatric events in Daxas study participants, including three suicides, and serious adverse gastrointestinal events, such as pancreatitis, which led to two deaths.

Some panelists also were concerned about carcinogenicity observed in hamsters in preclinical studies, which regulators said may be relevant for humans.

Forest also got stung when the FDA last month said Daxas provided only a modest improvement in lung function in COPD patients.

Given that range of issues, Piper Jaffray's Amsellem said he doubted the FDA was leaning toward approval of Daxas. But, he added, even if regulators approve the drug for the U.S. market, "we believe that sales potential would be limited, given the likelihood of rigorous safety monitoring in the context of a modest clinical benefit."

The FDA's absence of a request for new Daxas trials, said Baird & Co. analyst Thomas Russo, could suggest the agency did not take its panel's suggestions seriously to consider requiring the drug to be studied on top of true standard of care for COPD prior to approval.

Wedbush's Bank insisted that the FDA's complete response letter backed Forest management's credibility, which she noted has taken a hit with several pipeline product setbacks. Bank also said she viewed the FDA's letter as an indication that Daxas continues to have a path to approvability.

Daxas still could become a "meaningful revenue stream" for Forest, Bank said, "although likely not as big as first expected."

But Amsellem argued that Daxas was "not an answer" to Forest's "looming earnings gap."

With the 2012 loss to generics of Forest's major depressive disorder drug Lexapro (escitalopram oxalate) - the company's lead selling product - added to what Amsellem called a "low probability of significant commercial success" for Daxas, plus a relatively thin pipeline, he predicted Forest's shares would continue to underperform "for the foreseeable future."

Although investors are looking for a pipeline sufficient to replace Forest's current one, which also includes its Alzheimer's disease drug Namenda (memantine) - also due to lose patent protection in the next fives years - they are "not yet convinced they see it," Russo said.

Nonetheless, he said, Forest's investigational hospital infections compound ceftaroline and irritable bowel and chronic constipation drug linaclotide hold "high promise and sufficient data to ascribe value."

But as far as some of the firm's other late-stage investigational products go, Russo said there is a lack of publicly available data or the test results are "less convincing."

Forest and Zurich, Switzerland-based Nycomed said they anticipated to have a response ready for the FDA for Daxas in the third quarter.

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