FDA Panel Deals Blow to Forest – Analyst Blog

The US Food and Drug Administration’s (FDA) Pulmonary-Allergy Drugs Advisory committee dealt a blow to Forest Labs (FRX) with the committee voting 10-5 against granting approval to Forest’s Daxas for the treatment of chronic obstructive pulmonary disease (COPD).

 

Forest shares were down more than 13% at market close yesterday on the disappointing news reported by both Associated Press and Reuters.

 

Earlier, MarketWatch had reported that the panel had voted 9-6 in favor of the product’s efficacy and safety. However, the final vote (10-5) was against approval based on the panel’s opinion that the benefits of Daxas were modest and not enough to outweigh the risks associated with the use of the drug.

 

The news did not come as a surprise as documents released by the FDA earlier this week had indicated that there could be some concerns regarding the risk-benefit profile of the drug. The FDA had noted that while Daxas achieved statistical significance in the clinical studies, the improvements were modest.

 

Moreover, the agency had also expressed concern regarding the safety profile of the candidate. In addition to the frequent and sometimes severe gastrointestinal toxicities observed with the use of PDE4 inhibitors like Daxas, the FDA raised questions about the occurrence of psychiatric adverse events like suicide. While three people with no previous history of depression committed suicide, two patients who had prior psychiatric histories tried to kill themselves.

 

A final decision from the FDA should be out in May. Although the agency is not required to follow the panel’s recommendation, it usually does so. We note that earlier this year, Forest had revised its application for the drug and is seeking approval for Daxas for the reduction of exacerbations instead of the broader indication of the treatment of COPD.

 

Given the narrower indication, it is possible that Daxas could receive approval though not immediately. At this point of time, we believe the FDA will most likely delay approval at the May 2010 action date.

 

The FDA panel’s recommendation is a setback for Forest given the company’s focus on getting new products approved prior to the loss of patent exclusivity on its lead product Lexapro in 2012.

 

Given the huge unmet medical need in the COPD market and an estimated 80 million people suffering from moderate to severe COPD worldwide, Daxas could generate several hundred million dollars in revenues once approved and commercialized.

 

Currently marketed therapies in the COPD market include GlaxoSmithKline’s (GSK) Advair and Pfizer’s (PFE) Spiriva.

 

We currently have a Neutral recommendation on Forest. We are concerned about long-term growth at Forest, especially from 2012 when Lexapro is exposed to generic competition. That puts a lot of pressure on the pipeline to come through. With the uncertainty surrounding the approval of Daxas, we believe Forest will intensify its in-licensing and acquisition activities to grow its pipeline.

 

We expect investor focus to remain on the FDA’s decision in May regarding the approvability status of Daxas.