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General Category => Investment Ideas => Topic started by: doc75 on October 24, 2010, 12:20:46 PM

Title: BIOD - Biodel
Post by: doc75 on October 24, 2010, 12:20:46 PM

Just a heads up here to what may potentially become a great value play:

Biodel is a small (100M market cap) drug company in the *very* late stages of the prolonged FDA approval process.  It's flagship product is a fast-acting formulation of insulin called Linjeta.  This is insulin of the injected variety (as opposed to the inhaled product being developed by Mannkind) and because it is essentially a known agent, FDA approval rests only upon statistically significant demonstration of "non-inferiority". 

Pre-2009, the stock traded between $10 and $20 based on the large market and high probability of partnership pending approval, but then crashed to $2 when there were some issues in the Phase 3 clinical trial data that spooked investors.    It quickly rebounded and has traded at an average of around $4 since.  You can read the background story (soap opera) on Seeking Alpha. Just search for BIOD and peruse the articles by Joseph Krueger and others.  You'll see that the trial problems are generally believed to be the result of poor protocol rather than a bad drug -- basically, certain samples in an Indian trial were left out in the sun for too long.

The FDA decision date is October 30, less than a week away.   Given the FDA's very conservative stance as of late, it is widely expected they will not overlook the botched India data and issue a Complete Response Letter (CRL) requesting further data and/or insisting that some other issues regarding manufacturing are addressed.    The stock has recently nosedived from 5.50 to 3.75.

Notwithstanding the general market expectation, I think that if a CRL is issued then the shares could well crash again.  The biotech market is full of speculative investors who are looking only for a one-day price pop upon FDA approval.  So panic may be in the air.

This could present a fantastic buying opportunity, depending on what's contained in the CRL.  If the CRL presents no *new* surprises, then  Linjeta will almost certainly be approved in a relatively short time.  I'll have to look more closely at the numbers, but a share price substantially below today's should provide an excellent margin of safety. 

(On a related note, I noticed recently that Francis Chou has a small position in Mannkind in the Associates Fund.)
Title: Re: BIOD - Biodel
Post by: netnet on October 27, 2010, 05:02:52 PM
What do you think, probabilistically the time frame would be if they get the CRL?  The company does look like an interesting asymmetric bet, post CRL.

 What do you think the odds are for the CRL itself?

Title: Re: BIOD - Biodel
Post by: doc75 on October 27, 2010, 07:06:29 PM
What do you think, probabilistically the time frame would be if they get the CRL?  The company does look like an interesting asymmetric bet, post CRL.

 What do you think the odds are for the CRL itself?


First off -- anything I say is only pseudo-informed and based on other third party observations.  I'm not a biochemist and have no history of investment in biotechs.  That aside, here's my take:

Insulin is a known entity, "non-inferiority" rather than "superiority" is the benchmark, and the company's analysis of the Indian statistical anomalies is compelling. But the fact is that they failed to meet the pre-determined endpoint when one considers the totality of their trial data.  I imagine the FDA would not want to set a precedent and approve a drug that passed only two of three arms in phase 3 trial, even if it failed one arm for the most sensible/obvious reasons. 

Many observers have noted that the FDA has been very conservative as of late.  They *may* be satisfied by Biodel's application , but they're certainly not in the game of being nice to investors and I see little reason for them to potentially jeopardize their standards in this case.   If they issue a CRL I fully expect it to chart a straightforward path to approval, likely requiring another trial  that would set the company back a year.  Not the end of the world.

So it seems to me that the odds of a CRL are *very* high.  I can't quantify that for you, but let's just say that when I bought a small number of shares today I had images of slot machines and Vegas girls running through my head.   Why did I buy?  Because this slot machine lets me keep pulling the lever for free, so I think I'll win eventually.  (And I always have Vegas girls in my head, so they're not a concern.)

At these prices, I think the market may be taking a CRL as a foregone conclusion... or very near to that.  There's a lot of short interest in the stock.  It's been beaten down to $3.60, pretty much the lowest it has traded at since the huge initial bust to $2 at the height of the financial sh*t-storm.  So I think we're at a point where a CRL will cause only short dip in the price. And with enough people waiting in the wings to scoop up cheap shares, the shares may not get as cheap as people expect. 

When the stock initially crashed, nobody was expecting the bad news and there was typical panic selling. (Not to mention it was late 2008.)  But with the stock falling from 5.50 to 3.50 over the past couple weeks, most shareholders aren't going to be sucker punched by disappointing news this time around. 

I do hope it gets crazy cheap if there's a CRL.  I  just don't see any reason for the market cap to linger under $100M when approval within 18 months would seem a near certainty, barring *really* nasty surprises.  The new management has plenty of experience to guide the ship whether CRL or approval. The company may have to raise more cash to do an additional trial but even after pricing that in, today's price is compelling. 

The greatest risks to me are:  (1) A CRL that paints an unlikely portrait of future approval or requires completely new trials, and (2) the delay to market will result in Biodel's fast acting insulin gaining less market share, losing partnership opportunities etc.

I believe risk (1) to be highly unlikely. Risk (2) is a concern, particularly since Mannkind is also seeking approval for their inhaled fast-acting insulin, and many observers are saying this will change the market considerably.
Title: Re: BIOD - Biodel
Post by: netnet on November 01, 2010, 09:13:27 AM
I see that the FDA issued a letter.  My (uninformed) impression is that it was the worst outcome--a new phase III trial.  What are you thinking?

Title: Re: BIOD - Biodel
Post by: doc75 on November 01, 2010, 09:46:50 AM

About as bad an outcome as could have reasonably been predicted.  (The worst is an outright denial.)  The shares took a 50% haircut, which is about what I expected from a CRL.  But I was looking for a less severe CRL.

New Phase III trials are a huge burden; time & money.  I just listened to the conference call.  Management won't say much until they meet with the FDA to discuss, sometime in the next few weeks.  They did talk about "new formulations" of Linjeta.  They have some clinical data that they'll be releasing at a conference very soon (forget the exact date).  The new formulations use the same ingredients as Linjeta, but in different proportions, and apparently the result is a "profound" improvement in tolerability, one of Linjeta's weak points.   They wouldn't entertain questions about the cost/time of new trials until after they meet with the FDA.

My read is this:

- The company made a number of mistakes and the FDA called them on every one of them.  The post-hoc removal of Indian data; the proposed commercial formulation different than that tested in clinical trials; the manufacturing issues.

- I doubt Biodeal was particularly surprised by the CRL as regards Type 1.  The did dialog with the FDA at early stages, and included certain requested data in their NDA, but they must have known that a post hoc analysis was unlikely to be sufficient for approval.
I think they were surprised by the FDA's take on the Type 2 data. They're looking for clarity when they meet with the FDA.

- The FDA has requested new P3 trials with the commercial formulation of Linjeta.  I suspect that they'll instead try to run one of their new formulations through the clinic.  The new formulations apparently have the same pharmacokinetic properties as Linjeta (this is the whole point of the drug --- ultra rapid) but with tolerability equivalent to the "usual" insulins.

- I think there's value in Biodel's "ultra rapid" technology, particularly with the shares under $2.  But there's likely no huge rush to get in, because this will certainly be a long process to approval and I get a feeling that lots of biotech investors are very impatient.  It's hard to imagine much less than 2 yrs before trials are designed, run, and analyzed.  Dilution will be an issue unless they find a rich partner.  And, of course, it's difficult to predict where the insulin market will be in a couple years.
Title: Re: BIOD - Biodel
Post by: Josh4580 on November 06, 2010, 03:42:18 AM
MannKind Falls After Lawsuit Alleges Study Misconduct

The allegations may further delay action by the U.S. Food and Drug Administration on Valencia, California-based MannKind’s application to clear the drug, Afrezza, said Simos Simeonidis, an analyst for Rodman & Renshaw in New York. The agency is scheduled to rule on the application by Dec. 29.

“I assume the FDA will now dig through the data with a fine-tooth comb and it could lead to a delay if they request additional information about this specific data,” he said today in a telephone interview. Simeonidis, who has a buy rating on the stock, said the share price may get punished further, presenting a “buy opportunity.”

This could be a small net positive for BIOD.  I bought some on the dip at $1.75 and will have to look into it further.  Doc, or anyone, can you get your hands on the Rodman & Renshaw report on MNKD?  The analyst Simeonidis also covers my Resverlogix stock and seems to be pretty bright.