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Biotech faces a crisis in credibility fueled by boom-era hubris

The crashing shares of Nektar Therapeutics late last week were the culmination of a terrible stretch that should shake the confidence of biotechnology investors.

It began Tuesday with the Food and Drug Administration calling out Novartis (NVS), the Swiss drug giant, for not disclosing that employees had manipulated data in the application for Zolgensma, its gene therapy for spinal muscular atrophy, until after the treatment was approved. It ended not only with Nektar shares cratering 29% as the company disclosed that it had manufacturing problems with a cancer drug being used in clinical trials, but also with shares in Amarin (AMRN), maker of the fish oil-derived heart drug Vascepa, dropping 17% on news that the FDA would hold a public hearing on whether to widen the use of the medicine. It’s a hearing that Amarin had been counseling investors was increasingly unlikely.

This is a crisis in credibility fueled by boom-era hubris. Executives seem to be forgetting that it is far better to underpromise and overdeliver than the other way around. Investors seem to be forgetting as well. It would behoove them to remember that drug development is a field in which 9 of 10 new medicines that start trials don’t make it to market. Here, there be tygers.

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Unlike Amarin and Nektar, Novartis did not see last week’s news hurt its stock price. Its shares on the New York Stock Exchange were flat, ending the week down 0.4%. But the company’s reputation and image have not fared as well.

“We rely on truthful scientific data to make regulatory decisions, and we take the issue of data integrity very seriously,” the FDA’s acting commissioner, Ned Sharpless, tweeted when the agency made its concerns public. “In this case, the agency will use its full authorities to take action, if appropriate, which may include civil or criminal penalties.”

At issue was not whether Novartis’ Zolgensma, a gene therapy for infants with a deadly neurological condition called spinal muscular atrophy, was effective, but why the company did not let the FDA know about the potential issue sooner, Dr. Wilson W. Bryan, director of the FDA’s Office of Tissues and Advanced Therapies, wrote in a memo.

He said Novartis appeared to have been aware of allegations of data manipulation in a test used to measure Zolgensma’s potency since March 14. Zolgensma was approved two months later, on May 24. But Novartis conducted a two-part internal investigation before letting the FDA know, on June 28.

Novartis executives said it was normal to wait until they had finished their own investigation to let the FDA know about the data manipulation. But when CEO Vas Narasimhan was asked on a conference call with financial analysts when the matter crossed his desk, he did not give a clear answer.

“I was primarily involved with our discussions of how do we best approach our investigation once we confirm that there was actual data manipulation, and to ensure that we had a robust investigation of the data and a robust assessment of the product quality, product safety, product integrity, to make sure that we were doing no patients any harm, and ensure that we were doing the right things with respect to our updates to the regulators,” he said. A spokesman said that the matter crossed Narasimhan’s desk in May, when the first stage of the company’s investigation ended.

Nektar has faced its own credibility crisis. Between October 2017 and March 2018, the company’s stock price quadrupled to $106 over the frenzied excitement around drugs that boost the immune system to fight cancer. The idea was that adding its drug, bempegaldesleukin, to the leading cancer immunotherapies — Bristol-Myers Squibb’s Opdivo or Merck’s Keytruda — would make them even more effective.

On Thursday, Nektar told investors that early in its clinical trials, two of its 22 lots of “bempeg” had been defective, and had been given to dozens of patients whose cancers didn’t shrink as much as those who got the correctly manufactured drug.

Nektar presented a rosy interpretation of this news: It had accidentally created a placebo group, when one hadn’t existed previously. When the drug is manufactured correctly, it must work. Investors and sell-side analysts favored another interpretation: This just adds more doubt as to whether bempe is effective.

The results “seriously dent confidence in management’s ability to execute in oncology,” wrote analysts at the investment bank H.C. Wainwright. Evercore, another bank, said: “It’s hard to tell if there’s a legitimate issue with the batches or another creative way to explain away our concerns that bempeg has not been dosed to have meaningful clinical activity.” Jefferies downgraded shares from buy to hold.

Jonathan Zalevsky, Nektar’s chief scientific officer, said that the company has made changes to its manufacturing process, including which employees work with outside manufacturers, to prevent another foul-up, and that these steps have been approved by the FDA. “We have high confidence this will never happen again,” he said in an interview. But that still means some cancer patients in a clinical trial got medicine that had less chance of working than it was supposed to have, because of the manufacturing snafu.

“Ninety-one percent of Americans think pharma companies put profits before people,” said Jennifer Miller, a bioethicist at Yale University. “Yet companies claim and or aim to have patients as partners — to be patient-centered. For this to be true, patients and trial sites should be informed at least at the same time as investors.”

Nektar said it told outside researchers involved in the study at the same time it told investors, who it legally must inform as soon as it knows bad news to prevent insider trading. It cannot legally communicate directly with patients, Nektar said. Nektar shares closed Friday at $20.92.

Amarin has been one of biotech’s big success stories over the past year, ever since the company announced last September that its Vascepa, a highly purified fish-oil derivative, eicosapentaenoic acid, reduced heart attacks and strokes by 25% in patients with high levels of triglycerides, or particles of fat, in their blood. Shares increased 473% to $17.20 over the course of six trading days. If the FDA approves Vascepa to be marketed to those patients, sales could reach billions of dollars a year.

But some cardiologists raised concerns about the study, even though it involved a placebo and more than 8,000 patients. One concern was that the placebo contained mineral oil, which might have had a negative effect on heart attacks, though not one big enough to completely dismiss Vascepa’s efficacy. Another was that the drug’s benefit didn’t seem to line up with changes in triglyceride levels, previously thought to be its main, but not only, mechanism of action. Both the fact that Vascepa would be the first drug for a new use and those other concerns would normally lead the FDA to hold an advisory committee meeting to help it decide whether or not to approve the broader use and what the drug’s package insert, which is used in marketing a medicine, would say.

Amarin, however, both pooh-poohed the concerns of critics and, after initially expecting an advisory committee meeting, told investors one was unlikely.

On Thursday, Amarin said that the FDA had notified it that the agency would hold an “AdCom” — and no sooner than Nov. 14. That’s more than a month after the company had expected Vascepa’s new use to be approved. The company now assumes that FDA will decide on whether to approve wider use of Vascepa in late December. Amarin said that the FDA had asked it not to make the scheduling of the meeting public, but the company said that as a single-product company it had no choice but to issue a press release. Shares fell to $14.77.

Investors now have to wonder if the FDA found problems in the data they don’t know, or if it just feels a need to make sure it has dotted its i’s and crossed its t’s.

When it comes to drug development, never trust anyone. Even people who are telling the truth are often wrong.