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Expert Financial Analysis and Reporting

A.P. Pharma: Ondansetron’s Link to QT Interval Prolongation is a Huge Positive for APF530 (APPA, $0.68)

Investment Thesis

The FDA issued a safety communication on June 29, 2012 further advising physicians on the link of ondansetron (Zofran) to QT interval prolongation; this condition can cause abnormal heart rhythms that  in some cases may be life threatening. This follows a previous communication on the same concern on September 11, 2011. Because AP Pharma’s competitive product in development, APF530, is not linked to QT interval prolongation, this gives APF530 a meaningful differentiation from ondansetron in terms of safety. In addition, ondansetron can no longer be given as a single 32 mg infusion and will have to be administered as three infusions spaced over twelve hours. Some contacts I have spoken with think that this will lead to a substantial erosion of ondansetron sales. Ondansetron now accounts for 33% of the market so that if my contacts are right, this is huge positive for A.P. Pharma. 


A.P. Pharma has been one of the best performing stocks in biotechnology so far this year. Since I published my initiation report on April 25, 2012 in which I recommended purchase, the stock has increased from $0.42 to $0.68 per share, an increase of 60%. This did not result from any single new catalytic event, but rather widening investor awareness of and excitement about the potential of the company’s lead drug APF530 for chemotherapy induced nausea and vomiting or CINV.


In my report, I cited three potentially important catalysts for the stock in 2012: the re-filing of the NDA in mid-2012, potential approval in early 2013 and a possible partnering deal in late 2012 or early 2013. I also pointed out that there was the potential that the second most widely used drug for CINV, ondansetron, was drawing the concern from the FDA for its potential to cause QT interval prolongation, a condition that can lead to heart attacks. Last Friday, the FDA took further action to inform health care providers and patients of this risk of ondansetron and changed the package label to try to prevent the use of high doses of ondansetron.


Another drug used to treat CINV that belongs to the same chemical class as ondansetron and APF530, Anzemet, was previously linked to QT interval prolongation; on December 17, 2010 the FDA warned against its use and sales plummeted from 100,000 vials sold per month to almost no vials. The FDA warning on ondansetron’s propensity to cause QT interval prolongation does not appear to be as strong as that for Anzemet but investors have to wonder what effect this will have in the marketplace. I think that the FDA was reluctant to take strong measures against ondansetron because of its long record of reasonably safe use; it was introduced in 1991 and has been used in millions of patients without widespread reports of QT interval prolongation. Still, this is a serious condition and I think that if ondansetron were a new drug seeking approval that its link to QT interval prolongation might prevent approval.


In a thorough study reported in March 2012, APF530 reported clean results in a QT interval prolongation study. The active pharmaceutical ingredient of APF530 is granisetron and in that study, APF530 and an older formulation of granisetron (Kytril) both came out with a clean bill of health, even at a dose 5 times the therapeutic level. This obviously confers an important safety advantage to APF530 over ondansetron in the clinic. It obviously can only be positive, but how much so is difficult to judge. A physician has to ask if this is an acceptable risk with ondansetron when another agent with comparable efficacy and without the risk is available.


There is also another important issue in that the 32 mg intravenous dose of ondansetron has been withdrawn from the market. Instead of the patient getting one 32 mg dose at one setting, a patient requiring this amount of dosage will be given three smaller doses spaced four hours apart. Instead of receiving one 32 mg dose of ondansetron and being done, the patient will have to spend almost twelve hours at the infusion center to receive the needed dosage. Some contacts I have spoken with think that this factor could cause a major erosion in ondansetron sales. 


With the diminished safety to benefit ratio of ondansetron, physicians at this point have two other options to consider, generic granisetron and Aloxi; neither are linked to QT interval prolongation. APF530 will be another option if it gains approval in early 2013. One of the major attractions of granisetron is that it is now generic and cheap. This could be attractive to some physicians or their institutions. However, some of this volume may also switch to Aloxi and APF530, whose longer acting formulations offer meaningful clinical benefits over the short acting ondansetron and granisetron formulations.


In 2011, Aloxi had 55% of the CINV market; ondansetron (Zofran) had 33% and granisetron (Kytril) 12% based on number of vials sold. I had projected that in 2016 Aloxi would have 35% of the market, APF530 17%, ondansetron 35% and granisetron 13%. My thinking was that APF530 would gain most of its market share from Aloxi. I think that there is now the potential for the ondansetron share to meaningfully drop and for the other three drugs to gain share. For the time being, I am not changing any projections, but it does give me greater confidence in my market share projections for APF530. I would point out that each additional percentage point share of the market that APF530 captures results in $11 million more of sales; my current estimate for 2015 sales of APF530 is $185 million.


In my initiation report, I established a price target of $5.40 for A.P. Pharma by 2015. This would be a thirteen fold increase and I recognize that a moonshot price target like this raises eyebrows and suspicions about the seriousness of my analysis. However, huge moves with biotechnology stocks can occur. Let me give you some recent examples. Arena (ARNA) was $1.92 on January 1, 2012 and rose to $11.68 at the close on June 21 (up 6 fold). Threshold Pharmaceuticals (THLD) went from $1.38 on January 1, 2012 to $8.80 on the close on March 30 (up 6 fold). Looking at some oldies but goodies, Human Genome Sciences (HGSI) soared from $3.32 on July 27, 2009 to $30.58 on December 31, 2009 (up 9 fold) and Dendreon (DNDN) from $4.02 on March 30, 2009 to $55.43 on May 3, 2010 (a 14 fold increase).


The common thread with each of these situations was the change in perception by investors from thinking that these companies had serious, perhaps intractable issues to a belief that the fundamentals were coming together. Now we know that Dendreon has subsequently dropped back to a recent price of $7.40 and Human Genome Sciences to $13.40 as initial optimistic projections were not met. However, my point is that when perceptions change dramatically huge price movements can occur in a short period of time. The examples of DNDN and HGSI suggest that the price can overshoot. If my price target for A.P. Pharma of $5.40 is reached it would likely be before 2015.


New Safety Announcement on Ondansetron from FDA

The FDA issued a letter to healthcare professionals on Friday June 29, 2012 advising that preliminary results from a recently completed study showed that ondansetron administered as a 32 mg single intravenous dose can affect the electrical activity of the heart (QT interval prolongation). This could result in an abnormal and potentially fatal heart rhythm known as Torsades de Pointes.


The letter advised that new information indicated that QT interval prolongation occurs in a dose-dependent manner, and specifically at a single intravenous dose of 32 mg; it advised healthcare professional and patients not to use the single 32 mg intravenous dose of ondansetron. Patients who may be at particular risk for QT interval prolongation with ondansetron are those with congenital long QT syndrome, congestive heart failure, bradyarrhythmias, or patients taking concomitant medications that prolong the QT interval.


The letter went on to state that a lower dose intravenous regimen of 0.15 mg/kg every 4 hours for three doses could be used in adults with chemotherapy-induced nausea and vomiting. However, no single intravenous dose of ondansetron should exceed 16 mg due to the risk of QT interval prolongation. The new information does not change any of the recommended oral dosing regimens for ondansetron, including the single oral dose of 24 mg for chemotherapy induced nausea and vomiting.


GlaxoSmithKline (GSK), the manufacturer of ondansetron (Zofran), was required by FDA to conduct a thorough study to assess the potential for the drug to prolong the QT interval.  This just reported preliminary analysis of that study shows that QT prolongation occurs in a dose-dependent manner. Specifically, at the highest tested single intravenous dose of 32 mg, the maximum mean difference from placebo was 20 milliseconds. At the lower tested single intravenous dose of 8 mg, the maximum mean difference in was 6 milliseconds. The FDA seems particularly uncomfortable with anything above 10 milliseconds.


In response to this finding, the ondansetron label has been updated. The 32 mg single intravenous dose has been removed from the label. The label now states that the lower intravenous dose can be continued to be used. This is a dose of 0.15 mg/kg administered every 4 hours for three doses. For perspective, a 160 pound man weighs about 73 kilograms so at this dose the patient would be given three separate doses of 11 mg or 33 mg in total. While this may be an effective formulation there is a problem in terms of administration. Instead of receiving one 32 mg dose of ondansetron and being done, the patient now has to spend almost twelve hours receiving the needed dosage.


The FDA said that it will evaluate the final study results when available and will work with Glaxo to find a single dose regimen that is safe and effective. As part of the ongoing safety review of ondansetron, FDA continues to assess data about the risk of QT interval prolongation and will update the public when more information becomes available. FDA previously issued a safety communication about the ongoing safety review of ondansetron in regard to QT interval prolongation in September 2011.


This new and latest information on QT interval prolongation does not change any of the recommended oral dosing regimens for ondansetron.  It also does not change the recommended lower dose intravenous dosing of ondansetron to prevent post-operative nausea and vomiting.


Previous Safety Communication on CINV Drugs

In recent years, the FDA has taken a very strict approach to potential cardiac effects of new drugs. On December 17, 2010, the FDA issued a safety communication stating that Anzemet causes a dose-dependent prolongation in the QT interval prolongation and other effects on heart rhythms and should no longer be used for preventing chemotherapy induced nausea and vomiting (CINV). The number of units of Anzemet sold per month dropped from 100,000 units to virtually zero units sold.


On September 15, 2011, the FDA issued its first safety communication on ondansetron. It stated that ondansetron may increase the risk of developing abnormal changes in the electrical activity of the heart, which can result in a potentially fatal abnormal heart rhythm. As a result of this risk, Zofran manufacturer GlaxoSmithKline was required to conduct a study, the subject of the June 29, 2012 press release, to assess the risk of QT interval prolongation.


APF530 Study in QT Interval Prolongation Shows No Problem

At the FDA’s request, A.P. Pharma conducted a trial that compared moxifloxacin, which is known to cause QT interval prolongation, with subcutaneous APF530 and IV high-dose granisetron. On March 26, 2012 A.P. Pharma, Inc. issued a press release announcing positive safety results. This study was a four arm cross over design conducted in 56 healthy patients that compared the effects of four treatments:

  • twice the proposed therapeutic dose of APF530 (1 g subcutaneous, 20 mg granisetron)
  • five times the therapeutic dose of granisetron (50 μg/kg IV over 3 minutes)
  • 400 mg oral moxifloxacin, and
  • placebo (0.9% normal saline)


The primary endpoint was to show that APF530 has no clinically meaningful effect on QT interval prolongation as defined by QTc < 10 milliseconds at all time points. This was determined with an electrocardiogram or ECG.  APF530 did not have a clinically meaningful effect on QTc or cardiac repolarization. The study also showed that there was no dose relationship between APF530 or granisetron and the QT interval prolongation. Moxifloxacin showed QT interval prolongation consistent with previous clinical experience.

Disclosure: The author of this article owned shares of A.P. Pharma at the time this note was written. This should be taken into account as it may introduce bias into the conclusions and interpretations that are made. In reading this note, you acknowledge that you have not used it as the sole basis of your decision making and that all investment decisions are based on your own analysis. An investment in A.P. Pharma carries substantial risk and investors could potentially lose much of their investment. The reader acknowledges that he/she has carefully read the Investment Approach, Terms/Conditions and Disclosures sections in the About Us section of the website. The reader acknowledges that he/she will not hold SmithOnStocks accountable for any investment loss that may be incurred if a decision is made to invest in A.P. Pharma.

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