Digging Deeper into Adventrx Pharmaceuticals

SAN DIEGO (TheStreet) -- My skeptical but realistic assessment of Adventrx Pharmaceuticals(ANX Quote) Friday caused the Hostile React-O-Meter donated to me by my old friend and colleague Herb Greenberg to overheat. Oh boy, the darn thing was spinning so outta control I thought it would melt!

Vitriolic emails and comments are still pouring in. Apparently, I violated some sacred covenant that says, "Thou shalt not speak ill of penny drug stocks." Well, sorry, but that's just not a law I intend to ever live by.

Let's dig a little deeper:

I have nothing against Adventrx and its CEO Brian Culley. But as I said Friday, I just happen to believe that a drug like ANX-530 -- a reformulation of a not-so-often used chemotherapy drug vinorelbine -- faces some steep commercial challenges in the U.S.

When it comes to treating first-line non-small cell lung cancer in the U.S., more doctors turn to the two-drug chemotherapy regimen of carboplatin and paclitaxel instead of other chemo doublets like cisplatin-vinorelbine or cisplatin-gemcitabine.

Genentech's Avastin was approved for lung cancer based on a phase III study that used carboplatin/paclitaxel as its chemo backbone. Experimental lung cancer drugs from Novartis(NVS Quote), Pfizer(PFE Quote), Amgen(AMGN Quote), Onyx Pharmaceuticals(ONXX Quote) and Novelos Therapeutics(NVLT.OB Quote) are all using the carboplatin/paclitaxel regimen in their respective phase III studies, according to BioMedTracker.

German drug maker Merck KGaA did use the cisplatin-vinorelbine backbone in its completed phase III study of Erbitux in non-small cell lung cancer, but that seems to be the exception, not the rule. [European regulators have twice turned down Merck's approval application for Erbitux in non-small cell lung cancer, by the way. The drug is not yet approved in the U.S. for lung cancer, either.]

Adventrx hopes to differentiate ANX-530 from generic (cheaper) vinorelbine because the former doesn't seem to cause as many injection site reactions or as much vein irritation, which occurs in about 30% of vinorelbine patients.

That's fine, but Adventrx has no clinical data demonstrating ANX-530 is more effective or even clinically non-inferior than vinorelbine, nor does ANX-530 reduce the incidence of other, more clinically-relevant adverse events compared to vinorelbine. These include increased susceptibility to infections (granulocytopenia and leucopenia), low platelet counts (thrombocytopenia), nerve pain (peripheral neuropathy), nausea and vomiting.

A July 2001 study conducted by the Southwest Oncology Group found that treatment with paclitaxel and carboplatin versus cisplatin and vinorelbine yielded the same median survival of 8 months in patients with non-small cell lung cancer.

But the study, published in the Journal of Clinical Oncology, also found the cisplatin/vinorelbine combination to be more toxic and less well tolerated. Rates of grade 3 and 4 leucopenia, neutropenia, vomiting and nausea occurred more frequently in patients treated with cisplatin/vinorelbine, while rates of peripheral neuropathy were higher in the carboplatin/paclitaxel arm. Overall, more cisplatin/vinorelbine-treated discontinued the study because of toxicity compared to carboplatin/paclitaxel, according to the study authors.

This is not to say that carboplatin/paclitaxel is a benign treatment. Surely, it's not. All chemotherapy causes significant side effects due to its cell-killing mechanism of action. But Adventrx's problem is that the company will try to convince U.S. doctors to use ANX-530 in place of vinorelbine when doctors aren't using much vinorelbine to start with.

Vinorelbine sales in the U.S. totaled $20 million in 2008, according to IMS Health.

Adventrx might have more luck selling ANX-530 in Europe where vinorelbine is used more frequently, but Adventrx isn't seeking approval for ANX-530 in Europe. If Adventrx did pursue ANX-530's approval in Europe, more clinical data beyond the 30-patient pharmacokinetic study would likely be required. The assumed price premium for ANX-530 over vinorelbine would also be more of a reimbursement and commercial hurdle there.

In its slide-show presentation, Adventrx does talk about use of vinorelbine in the post-surgical, or adjuvant, lung cancer setting as a potential market growth opportunity. Unfortunately, a majority of lung cancer cases in the U.S. are diagnosed too late for surgery to be a total success, which dims the prospects for adjuvant chemotherapy.

One commenter on Friday's column asked me to run some numbers and come up with a valuation for Adventrx. Here's a go, with the caveat that Adventrx is a true penny stock, which means fundamental rules won't often apply to its share price.

For starters, I'm going to assume $20 million in ANX-530, which further assumes that ANX-530 takes half the existing vinorelbine market at double the vinorelbine price.

If I put a 4-5 times multiple on those ANX-530 sales reached either in 2012 or 2013, I derive a fair value for Adventrx today in the range of 26 cents a share to 34 cents a share (based on a fully diluted share count of 250 million).

I'm not yet giving Adventrx any credit for its other chemo drug, a reformulation of Sanofi-Aventis'(SNY Quote) Taxotere (docetaxel) known as ANX-514, because it's not entirely clear yet if it works. (If ANX-514 is as good as Adventrx claims, why hasn't Sanofi tried to buy or in-license the drug, given Taxotere's looming patent expiration?)

I did hear from Adventrx's CEO Brian Culley over the weekend, who thinks I'm underestimating ANX-530's commercial potential in part because the drug is likely to receive third-party and Medicare reimbursement. I asked him to explain his reasoning in more detail and make the bull case for ANX-530, which he agreed to do. I will post his comments in Friday's Biotech Stock Mailbag.

Meantime, I've recalibrated the Hostile React-O-Meter and have added some more cooling fans, so bring it on!