More Valeant Humiliation: Will The Messiness Ever End?

Valeant experienced more humiliation last week, with Sequoia Fund completely exiting its position, the former CEO dumping about 5 million shares and the FDA raising suicide concerns with brodalumab, likely limiting its market potential.

As much as Valeant Pharmaceuticals International Inc.'s recently installed CEO Joseph Papa would like to turn things around, it's just not happening, with the firm taking more punches to the gut this past week on the news that Sequoia Fund – at one point its largest investor – sold its remaining stake, former chief Michael Pearson dumped about 5 million shares and the FDA raised suicide concerns with the company's experimental plaque psoriasis drug brodalumab.

Valeant is hoping the week ahead will turn things around, at least somewhat, for the company.

The FDA is expected to render decisions on the applications for oral Relistor (methylnaltrexone) as a treatment for opioid-induced constipation and Vesneo (latanoprostene bunod) as a medicine for patients with open angle glaucoma or ocular hypertension.

The Prescription Drug User Fee Act action date for oral Relistor, a peripherally acting mu opioid receptor antagonist, is July 19, while Valeant expects to hear from the FDA on July 21 for Vesneo, a nitric oxide donating prostaglandin receptor agonist.

Analysts have anticipated wins for Valeant in both cases.

And even with brodalumab's troubles, most on Wall Street think the FDA may permit Valeant to sell the drug in the US under certain restrictions, although most analysts think the product's commercial prospects are limited.

Analysts at Informa Pharma Intelligence's Biomedtracker, an affiliate of Scrip, have put the chances of brodalumab gaining an approval in the US at 83%.

Brodalumab Challenges And Uncertainties

In briefing documents released ahead of the July 19 meeting of the FDA's Dermatologic and Ophthalmic Drugs Advisory Committee, regulators said the safety review of the interleukin-17 inhibitor brodalumab "presented challenges," pointing out there were six completed suicides during the monoclonal antibody's clinical testing, with four of those in Phase III trials.

Valeant already knew about the suicides linked to brodalumab and surprisingly went eyes wide open into a deal last year with AstraZeneca PLC, whose earlier partner Amgen Inc., which originated the drug, unexpectedly jumped ship in May 2015 after declaring the labeling requirements would likely limit its market potential. (Also see "Amgen dumps brodalumab; AstraZeneca losing a blockbuster?" - Scrip, 22 May, 2015.)

Valeant agreed to pay $100m to AstraZeneca, plus additional prelaunch milestones of up to $170m and post-launch sales-related milestones of up to $175m, with the two companies splitting profits. (Also see "AstraZeneca Unburdens Itself Of Brodalumab" - Scrip, 1 Sep, 2015.)

Under the deal, Valeant holds the exclusive rights to develop and commercialize brodalumab globally, except in Japan and certain other Asian countries, where rights are held by Kyowa Hakko Kirin Co. Ltd. under a prior arrangement with Amgen.

AstraZeneca submitted the biologics license application in November 2015 seeking the FDA's approval to market brodalumab as a treatment for moderate to severe plaque psoriasis in adults, but notified regulators it had transferred all rights and ownership to Valeant.

Diverse Opinions

Regulators noted the brodalumab application involved reviews by eight different divisions at the FDA's Center for Drug Evaluation and Research, which had "diverse opinions" on the risks and benefits of the drug. (Also see "Valeant's Brodalumab Faces Conflicting FDA Views On Suicide Risk" - Pink Sheet, 15 Jul, 2016.)

Reviewers at the FDA's Division of Pharmacovigilance said they were uncertain about whether the signal for completed suicide was a risk related to treatment with brodalumab – declaring patients with psoriasis have a particularly high rate of psychiatric disorders and symptoms, including depression, anxiety, suicidal ideation and behavior and substance use disorders.

They suggested the FDA could put brodalumab on the US market with a label that "clearly" describes the potential risk of suicide and the relevant study results and emphasizes that "this is not currently an established drug-related risk."

Alternatively, they said the FDA could consider approving brodalumab only as second-line treatment labeled for patients with an inadequate response to other biologic treatments for psoriasis, or the agency could impose a risk evaluation and mitigation strategy plan, although reviewers at the Division of Risk Management pointed out that no such program would completely eliminate the risk of suicidal ideation and behavior.

Reviewers at the FDA's Division of Epidemiology said the agency could simply consider outright rejecting brodalumab, or at least restricting its use.

Given the uncertainty about the suicide risk, a reviewer at the FDA's Division of Psychiatry Products urged the FDA to require Valeant to conduct an active-controlled parallel group study of brodalumab prior to approval focusing on frequent monitoring for psychiatric symptoms.

"This will likely have to be a large study of considerable length," the reviewer said.

But if the FDA takes that route, Wells Fargo analyst David Maris said Valeant likely would abandon brodalumab.

The FDA's reviewers also quibbled over whether further evaluation about the risk of major adverse cardiovascular events with brodalumab was needed – something else the FDA's advisory panel will need to grapple with at the July 19 meeting.

Never-Ending Troubles

A loss at the panel review would be yet another blow to Valeant, whose shares have dropped 90% in the past year in the wake of the various scandals, which started with investigations into its pricing strategies, followed by probes into its dealings with the now-defunct specialty pharmacy Philidor Rx Services. (Also see "Ackman Warned Valeant 'Rome Was Burning,' Begged 'Tell The Truth'" - Scrip, 9 May, 2016.) (Also see "Valeant: Another Fine Mess" - Scrip, 2 Mar, 2016.)

On July 12, Sequoia Fund revealed it had sold its remaining position in Valeant, declaring that the drug company's massive stock decline had "badly penalized" the mutual fund's results.

Valeant was Sequoia's largest position at the start of the year, at one point accounting for more than 30% of its portfolio.

In March, Robert Goldfarb, CEO of Ruane, Cunniff & Goldfarb and co-manager of the Sequoia Fund, resigned after the mutual fund said its investment in the drug company "diminished a record that we have built over two generations and in which we take great pride." (Also see "Valeant Vilified Over 'Death' Drug; Fund Managers Vexed" - Scrip, 24 Mar, 2016.)

On July 14, Valeant confirmed former CEO Michael Pearson, who was essentially fired in March but stayed on until another chief could be found, had sold about 5 million shares in the company for close to $100m. (Also see "Valeant: Seeking Disaster Expert To Run A Hot Mess" - Scrip, 21 Mar, 2016.)

Securities and Exchange Commission filings showed that Pearson sold 288,441 shares on June 30 for $5.8m, 4,144,687 shares on for $82.9m on July 1 and 411,601 shares for $8.2m on July 5.

In a statement put out by Valeant, Pearson insisted he continued to believe in the company and its management team – asserting he trimmed his ownership position for "personal reasons."

He said he anticipated holding on to his remaining shares "until the company recovers and returns to being traded on fundamentals."

Valeant's Papa contended that Pearson's "personal stock transactions are not a reflection of the ongoing viability" of the company.

But Wells Fargo's Maris said that as the outgoing CEO, "we assume Pearson had insight into the state of the business and we consider this selling as a negative sign," given the prices at which he sold.

Maris emphasized that an "important and potentially negative event is on the horizon" for Valeant: its Aug. 9 second-quarter financial results, which could mean more humiliation for the company and anguish for investors.