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Avenue Therapeutics – No Pain, Lots Of Gain?

In an earlier post, I posted a teaser for a new investing thesis:

Best. Mar……….. You Know The Drill!

Yup, the numbers look absolutely horrendous:

848) financials

The company has no revenue, and losses are chalking up y-o-y.

849) negative equity

Balance sheet looks terrible too. Negative equity! Ouch.

So why is TTI even bothering to look into this, much less take up a position?

Here’s the story. And it’s going to be a long one.

860) pills.jpg


AVENUE THERAPEUTICS

Background

Now, this investing thesis is likely going to be packed with medical jargon, and as far as possible, I’d try to dumb it down a few notches for the layman. Where that’s not possible, I’d at least try to explain the lingo a bit.

First up, some background on the company.

“We are a specialty pharmaceutical company focused on the development and commercialization of an intravenous, or IV, formulation of tramadol HCl, or IV Tramadol, for the management of moderate to moderately severe postoperative pain.”

The company listed recently in 2017, and its sole purpose is to develop and get FDA approval for intravenous tramadol (IV Tramadol).

Tramadol is a type of analgesic (a collective term for painkillers). Intravenous means it’s given to the patient via a jab directly into the blood stream. (vs taking it orally, or by inhalation, or intra-muscularly aka injected into the muscles etc)

What is interesting here, is that Avenue Therapeutics has an acquisition agreement with InvaGen, which is a subsidiary of Cipla, the India based pharmaceutical giant. The acquisition agreement has already been approved by the majority of Avenue Therapeutics’ shareholders.

Basically, if Avenue Therapeutics is able to get FDA approval for IV Tramadol in the US, Cipla promises to buy out Avenue Therapeutics.

Here are the terms of the agreement:

858) Avenue Therapeutics.jpg

Cipla (via its subsidiary InvaGen), has already completed the 1st stage closing of the acquisition agreement, paying for 1/3 of Avenue Therapeutics at 6 USD per share.

For the 2nd stage:

“At the second stage closing, InvaGen or its affiliates will acquire the remaining shares of Avenue’s common stock, pursuant to a reverse triangular merger with Avenue remaining as the surviving entity, for up to $180 million in the aggregate, which is currently expected to represent approximately $13.92 per share, subject to certain terms to be outlined in the Form 8-K and proxy statement to be filed by Avenue with the SEC in connection with the proposed transactions. The second stage closing is subject to the satisfaction of certain closing conditions, including conditions pertaining to U.S. FDA approval, labeling, scheduling and the absence of any REMS or similar restrictions in effect with respect to IV Tramadol.”

In other words, if Avenue can meet certain conditions, the key of which is to successfully develop and attain US FDA approval for IV Tramadol, Cipla has agreed to buy over the remainder of the company for $13.92 per share, and on top of that, reward shareholders further with contingent value rights (CVRs) that’s determined by the sales targets and annual profits of commercialization of IV Tramadol.

Let’s put aside the CVRs first, cos that’s variable and hard to determine at this stage. But the $13.92 buyout offer, is massive, considering that as I type this, the share price is $4.57!

That represents a 204% ROI if the deal goes through successfully!

There are other conditions aside from just merely getting FDA approval, but I’d say getting approval is like the big elephant in the room.

“REMS” refers to Risk Evaluation and Mitigation Strategy, and is basically something additional that FDA requires of drug manufacturers, in cases where the drug is assessed to have “high risk” of adverse side effects. It’s basically to assess whether the benefits outweigh the potential risks.

IV Tramadol is very unlikely to require REMS as Tramadol is already an approved drug by itself, it’s the intravenous form that requires approval; I’d illustrate this further later.


FDA Submission Process

So here’s the lowdown: if the deal goes through, shareholders would be in for a big payday.

If the deal DOESN’T go through, well…. seeing that the company’s SOLE objective is to get FDA approval for IV Tramadol, that’d be very bad news.

The company would be basically worthless.

The big premium, 204% of potential returns, would already hint that this is a dangerous endeavor. FDA approval is notoriously hard to predict and uncertain. But if we are able to assess this with a certain level of accuracy, you can see the potential rewards here.

To understand how FDA approval is obtained, we gotta first understand the submission process and how this works.

Below is a chart indicating the probability of success of various FDA submissions:

859) FDA approval success.jpg

IV Tramadol falls under Non-NME. (NME = New Molecular Entity)

Tramadol is already a widely used painkiller. It’s already approved in the US and widely prescribed in its oral form (tablet), it’s the intravenous form that requires approval.

Hence, it’s “Non-NME” (It’s the mode of the drug that requires FDA approval, the drug, Tramadol itself, is already approved and widely used worldwide)

The company has to conduct a series of clinical studies or Phases, each with targeted results to achieve. (study goals to obtain)

FDA requires that the company successfully conducts 2 Phase III trials that meet its end goals, with the 2nd being a confirmatory study to the results of the 1st Phase III.

Currently, Avenue has already successfully completed the 1st Phase III study, with the 2nd Phase III study ongoing. Results of this 2nd Phase III are slated to be in by mid 2019.

Based on the chart above, this means that there’s a 74% chance of getting from Phase III to submitting a New Drug Application (NDA) to FDA.

If the 2nd Phase III results meet the end goals, the company has guided that they’d submit a NDA to FDA by the end of 2019, with an expected approval arriving not later than 12 months after the submission is accepted by FDA.

Again, based on the chart above, apparently there’s a 90% chance of success after a NDA is submitted and accepted by FDA.

Bear in mind that these are merely statistics, and IMO, do not accurately reflect the likelihood of a successful application by Avenue, which is better assessed by the merits of the case.

Also, as stated in the chart above, Avenue will be using 505 (b) (2) pathway for submission, and this is expected to expedite the whole process.

505(b)(2) pathway for submission basically uses data or study results from other studies NOT conducted by the company. This can be done if the drug is already approved (doesn’t make sense to require the company to conduct more studies if the drug’s safety profile for eg, has already been previously established and it’s already commonly prescribed)

Alright, if you think all this is very confusing, errrrr, we haven’t even started yet.

Basically this chart suggests to us that the project has been somewhat de risked as the earlier, more volatile phases, have already been cleared and the company just needs to get data from the 2nd Phase III, and submit to FDA.


Role Of IV Tramadol In Pain Therapy

There are already several intravenous painkillers that clinicians can give. Why would FDA need to approve yet another IV painkiller? This is an important question to answer, as 1 of the determining factors for FDA approval is a comparison against other existing similar drugs in the market.

There are a ton of factors to compare against: safety profile, level of analgesia obtained, side effects – both the number as well as the intensity, whether it is suitable as a monotherapy (single drug used in the treatment), time taken for the drug to reach the level of analgesia etc

So if IV Tramadol has a real role to play in the market, with a favorable risk-reward ratio, it’d be approved. That’d be 1 of the key considerations that FDA undertakes in its fact finding process to determine whether approval is given.

To proceed further, we next have to understand the options of analgesics available for pain management in post-operative care.

In certain cases, taking painkillers via the usual oral route (gulping down some pills), is not an option. For example, in cases whereby surgery was done in the gastrointestinal tract, or in the throat area. Thus, the analgesic is given directly into the bloodstream (IV).

So what are the current options that the clinician has in the management of pain via the IV route?

  1. IV Acetaminophen – Also commonly known as paracetamol (or locally, as panadol, which is the brand name). I think we all know what’s panadol. Paracetamol can also be given in an IV form. It is basically 1 of the weakest form of analgesic, and is used in cases of relatively minor surgeries. Although the level of analgesia obtained is relatively low, it is also a pretty safe IV drug to use, with little side effects. However, since paracetamol is metabolized (broken down) in the liver, it’s use is contraindicated in cases of severe hepatic impairment (basically, liver cannot function well)
  2. IV NSAIDs – NSAIDs stand for Non-Steriodal Anti-Inflammatory Drugs. They are a huge class of analgesics, very commonly given by drs as well. The IV form would give a higher level of analgesia compared to IV Paracetamol. It has more side effects compared to IV Paracetamol, but is still a very effective class of analgesic to use. (There are many types of NSAIDs, each with slight differences. NSAIDs collective refer to all these drugs)
  3. IV Opiods – Now, this is pretty much the strongest form of analgesics. Opioids, as the name suggests, derives its name from the word “Opium”. This class of drug provides a high level of analgesia, but is unfortunately addictive if used for long periods of time. Heroin for example, falls under this class. It also has other stronger and potentially more fatal side effects. Currently, there’s an ongoing “opioid crisis” within the US, whereby many Americans got addicted to this class of analgesics. It’s a big problem in the US, and this is a key focus of this current investing thesis. More on this later.

So where would IV Tramadol lie?

This chart illustrates it perfectly:

860) unmet need.jpg

IV Tramadol would form a new class in IV analgesics in the US, sitting right in between IV NSAIDs and IV Opioids.

This is an important selling point by Avenue Therapeutics. If IV Tramadol gets approved, in future, if the patient requires a higher level of analgesia compared to IV NSAIDs, the clinician has the option of giving Tramadol instead of jumping to the Opioids class.

To illustrate the effectiveness of IV Tramadol, I went on PubMed and trawled for a few clinical studies:

This study directly compares the use of IV Tramadol, vs IV Ketorolac in pain management after OMF surgery:

https://link.springer.com/article/10.1007%2Fs10006-018-0700-3

(Ketorolac is an NSAID)

“Although both drugs resulted in significant decrease in pain intensity from the 2nd to 24th postoperative hour, intravenous tramadol always resulted in better pain control than intravenous ketorolac at every postoperative hour (p value < 0.05) except at 2nd hour where changes are non-significant (p value > 0.05).”

This is another study directly comparing the effectiveness of IV Tramadol against IV NSAIDs when used via continuous infusion:

https://www.sciencedirect.com/science/article/pii/S0011393X05806393?via%3Dihub

Comparative study of tramadol versus NSAIDS as intravenous continuous infusion for managing postoperative pain

In this study, the effectiveness of IV Tramadol was compared against several types of IV NSAIDs.

The results:

“The analgesic efficacy of tramadol was found to be greater than that of the three NSAIDs. Tramadol also was statistically significantly better than the other three agents……. “

“The results of this study confirm that tramadol, a central analgesic, is better for controlling postoperative pain than the NSAIDs with which it was compared.”

Yet another study comparing the use of Tramadol in Acute Pain:

https://link.springer.com/article/10.2165%2F00003495-199700532-00007

“Comparative studies have generally shown that tramadol is more effective than NSAIDs for controlling post operative pain. Use of a combination of tramadol and NSAIDs allows the tramadol dose to be reduced and results in a lower incidence of adverse effects.”

In short, there’s a wealth of clinical studies detailing the effectiveness of IV Tramadol. It’s safe to say that at least strictly from the clinical point of view, IV Tramadol has a role to play in providing a high level of analgesic effect, whilst significantly moderating the side effects of comparative analgesics, particularly the addiction of opioids.

There are all these studies available as IV Tramadol is not a novel drug. It’s just novel in the US, but is already available in many parts of the world. More on this later.


Opioid Crisis

Currently, there is a massive movement in the US against the widespread practice of prescribing opioids, due to the addiction problems.

And it is a HUGE problem right now, with the government going full on crazy in a bid to control what is looking like an epidemic already.

The National Institute On Drug Abuse describes this the best:

https://www.drugabuse.gov/drugs-abuse/opioids/opioid-overdose-crisis

“Every day, more than 130 people in the United States die after overdosing on opioids. The misuse of and addiction to opioids—including prescription pain relievers, heroin, and synthetic opioids such as fentanyl—is a serious national crisis that affects public health as well as social and economic welfare. The Centers for Disease Control and Prevention estimates that the total “economic burden” of prescription opioid misuse alone in the United States is $78.5 billion a year, including the costs of healthcare, lost productivity, addiction treatment, and criminal justice involvement.”

$78.5 billion a year. That’s how big a size this problem is. And btw, that was in 2013, god knows what’s the number right now.

The most recent paper studying this issue was published in 2016, taking data from 2013. Here, it’s available for free on PubMed, and is a pretty good read:

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5975355/

How did this crisis of epidemic proportions arise?

In the late 1990s, pharmaceutical companies reassured the medical community that patients would not become addicted to prescription opioid pain relievers, and healthcare providers began to prescribe them at greater rates.

This subsequently led to widespread diversion and misuse of these medications before it became clear that these medications could indeed be highly addictive. Opioid overdose rates began to increase.

In 2017, more than 47,000 Americans died as a result of an opioid overdose, including prescription opioids, heroin, and illicitly manufactured fentanyl, a powerful synthetic opioid.

That same year, an estimated 1.7 million people in the United States suffered from substance use disorders related to prescription opioid pain relievers, and 652,000 suffered from a heroin use disorder (not mutually exclusive).

In short, American drs have been prescribing opioids hand over fist, and America is addicted.

And no, drs are not all saints. Many of these prescriptions are not 100% driven by what’s in the best interests of the patient, but by financial considerations.

https://www.bbc.com/news/business-48143094

Not sure how many of you dear readers would’ve gotten to this point, and how many more would actually bother to click on the link to read it, but I’d just cut out this statement that’s relevant to this investing thesis:

“The court heard that Kapoor – who was arrested in 2017 on the same day President Donald Trump declared the opioid crisis a “national emergency” – ran a scheme that paid bribes to doctors to speak at fake marketing events to promote Subsys.”

“His conviction marks a victory for US government efforts to target companies seen to have accelerated the opioid crisis.”

“The US Centres for Disease Control and Prevention has said that opioids – a class of drug which includes everything from heroin to legal painkillers – were involved in almost 48,000 deaths in 2017.”

In the words of Trump himself, it is a public health emergency.

https://www.bbc.com/news/world-us-canada-41756705

And if that’s not enough for you, this chart shows how big a problem opioid addiction related deaths are in the US:

861) US opioid overdose deaths

Credits to National Institute on Drug Abuse (from which, I got a lot of my data during my DD)

In short, what I’m trying to impress on readers who are not medically trained, is the magnitude of this problem in the US. It’s a big problem, and the US government is motivated to contain it.

So the question is…

How “motivated” would the FDA be, in approving IV Tramadol, when it’s going to be presented as an alternative to IV Opioids, the same stuff that’s causing a nationwide health emergency?

You can see where I’m going with this.

Final evidence of how much attention both the government and the American public are  paying to the opioid crisis?

John Oliver spoke about it recently.

Nuff said.

If there’s just 1 link that you wanna click on in this post, click on the John Oliver one and watch it. He’s a genius. TTI is a massive fan. I watch, and rewatch all his videos when I’ve nothing to do. (And sometimes, even when I have something to do)

And if you’re wondering why it says “Opioids II”, it’s cos…. there was an Opioids I that he did in 2016!!!

I told you he’s a genius!!! He saw it long ago!


Tramadol’s Mechanism Of Action

Now, is IV Tramadol REALLY going to be accepted as an alternative to IV Opioids?

Cos as we’ve established above, if it is an appropriate alternative, or at least, an earlier line of treatment before Drs reach for the Opioids, then given the groundswell against Opioid addictions, it’s really hard to see how FDA can decline approving it, especially since I’ve already shown earlier that there’s a wealth of clinical studies backing up its efficacy.

How exactly do Opioids work? They work by binding to receptors in the cell membranes of neurons in the nervous system, and thus trigger a cascade of chemicals that ultimately block the transmission of signals along the nerve, so you don’t perceive the pain.

Tramadol, has 2 mechanism of actions (MOA). The 1st MOA is actually similar to how opioids work. In fact, Tramadol is an opioid agonist (has similar chemical structures that resembles opioids), and binds to the same receptors that Opioids bind to. So they work in the same way.

The 2nd MOA is by blocking certain channels and preventing the reuptake of chemicals by the nerve cells at the spinal level, thus blocking the transmission of pain signals.

Because Tramadol is an opioid agonist, it can also be addictive. But because it has a 2nd MOA that doesn’t involve the opioid receptors, the risks of a tramadol addiction are much lower than that of opioids.

The US Drug Enforcement Agency (DEA) classifies addictive drugs under different “schedules” according to their risk of addiction, with schedule I being the most addictive with no medical use, and schedule V being the least addictive:

https://www.dea.gov/drug-scheduling

Opioids are classified as “Schedule II”

863) Schedule II.jpg

“Drugs with a high potential for abuse, with use potentially leading to severe psychological or physical dependence……”

Whereas….

864) Tramadol.jpg

Tramadol is schedule IV

“….. drugs with a low potential for abuse and low risk of dependence”

In fact, Tramadol is so low risk, addiction-wise, that it’s used as a replacement therapy in the treatment of opioid addicts! (I didn’t know that myself until I did a PubMed search)

Maintainence Treatment of Opioid Dependence with Tramadol

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5602271/

So there. Even the DEA looks at Tramadol a lot more favorably than Opioids.

Avenue Therapeutics has a slide talking about this, I’d include it here:

865) MOA.jpg

In TTI’s opinion, I think presenting IV Tramadol from the perspective of a less addictive form of analgesics compared to Opioids, is a pretty compelling case for FDA approval.

Of course, it’d be naive to think that FDA would ONLY look at this from the level of addiction perspective. There are tons of other stuff they use to assess, and it’s very hard for anyone to look into these factors, without being intimately involved in the submissions process. (For example, stuff like the study design, the interpretation of clinical trials data, level of analgesia achieved etc)

And that ties in nicely with the next part. The good news is, IV Tramadol has already been assessed multiple times by the various drug regulatory bodies worldwide, in countries where IV Tramadol is available.


IV Tramadol’s Global Footprint

Tramadol is already widely prescribed all over the world, so you already know there’s this role it plays in the world of analgesics.

Because it’s already widely approved and available, we know that certain parameters like the safety profile and the level of efficacy shouldn’t be a bone of contention for FDA.

There’s a wide body of studies supporting IV Tramadol’s use and safety, as I’ve shown earlier. Here, I’d just include another published study. This directly studies the use of IV Tramadol as an emergency medicine, which is a bit unique as it’d then likely be administered by frontline healthcare personnel and NOT necessarily by doctors.

This further increases the scope of indications for IV Tramadol. Up to now, I’ve only illustrated the role of IV Tramadol as an analgesic in the post-operative setting, but this study highlights a different indication altogether.

https://www.ncbi.nlm.nih.gov/pubmed/10187002

Evaluation of intravenous tramadol for use in the prehospital situation by ambulance paramedics.

Conclusion:

“Pain was significantly decreased by the administration of tramadol. It was safe with only minimal side effects, the major one being nausea. Suggestions are made for areas of further study.”

In fact, IV Tramadol is also approved in Singapore.

I wasn’t sure if it was available in Singapore initially, and most of my colleagues don’t know either, so I did a search with HSA:

862) Tramadol.jpg

Yup. So it’s available in the injectable form.

IV Tramadol is also already approved and being utilized in most of Europe, as well as in the UK:

https://www.medicines.org.uk/emc/product/4454/smpc

This table illustrates the results of a survey of drs in South East Asia, and their opinions on how significant a role Tramadol plays in pain management in the following conditions:

https://www.dovepress.com/tramadol-a-valuable-treatment-for-pain-in-southeast-asian-countries-peer-reviewed-fulltext-article-JPR

866) Use of tramadol.jpg

“Almost all the specialists treat moderate cancer pain with tramadol, a modality that is supported in the literature. Most of them rated it as significant or highly significant in managing this condition. Important factors influencing their choice of analgesic was tramadol’s efficacy in both nociceptive and neuropathic pain, which often occur concurrently in cancer pain, its position as a step two analgesic on the WHO “pain ladder”, and patients’ preference for it over low-dose strong opioids.”

So yeah, we know now that IV Tramadol is already a mainstream analgesia option in many countries, yet the US currently doesn’t have it.

But a word of caution: Longs shouldn’t get their hopes too high yet.

It might be a tad too simplistic to think that “it’s approved in other countries, so it’d likely be approved in the US too”.

US FDA is notoriously famous for being…. “independent” in their drug approvals. There have been many other instances of new drugs that have been approved pretty much, all over the world, yet FDA rejects it.

They kinda do their own stuff. All other drug regulatory bodies kinda take their direction from FDA. Drug companies/distributors who wanna bring in drugs into Singapore for example, would also need to do the usual submissions with HSA, similar to what they’d do for FDA.

HSA would make their own decisions, supposedly independently of FDA, but if FDA has already approved of the drug, it’s kinda of a home run when it comes to HSA approval.

I got this info from someone who literally does this. (His/Her job)

So in short, the fact that IV Tramadol is approved in many other countries, doesn’t necessarily mean it’s a shoo-in for approval by the FDA, but……. it’s a strong plus point and will surely sway the panel of doctors tasked to assess this. At the very least, it speaks favorably of the clinical factors that FDA would assess.


FDA New Regulations On Developing Analgesics

Alright, thus far, I’ve already shown that IV Tramadol’s clinical use is widely accepted and proven. Don’t think FDA will have any bone to pick there.

I’ve also attached studies showing the safety  profile of IV Tramadol. Coupled with its use as an alternative modality of pain management prior to the use of Opioids, I kinda think I’ve covered most bases when it comes to FDA’s assessment.

To top it off, I tried to look into the exact guidelines and the exact protocol that FDA would follow to assess a drug, and see if I could put myself in the shoes of FDA to assess. It took some time to find this, cos if you go to FDA’s website, it’s a huge, massive, non-user friendly mess:

https://www.policymed.com/2014/02/fda-draft-guidance-analgesic-indications-developing-drug-and-biological-products.html

FDA Draft Guidance Analgesic Indications: Developing Drug and Biological Products

Here’s the catch though. If you read the guidelines, a lot of it focused on the study design for the different Phases. This is something difficult to assess as Avenue Therapeutics wouldn’t release specific details of how their study is designed thus far.

Well, they did talk about the broad picture of the Phase III trials, but not to the extent that I’d be able to compare against the FDA guidelines and decide if the study is properly designed. In any case, I think it’s also a waste of effort to do so, as I’m sure CEO Lucy Lu would’ve gotten that right.

On top of that, there’s currently ongoing changes to these regulations.

In August 2018, FDA indicated that they will be withdrawing their current existing guidelines on approval of analgesics, which has been in place since 2014, and will update with new guidelines.

This is in response to the opioid crisis in the country.

Since then, 4 new guidelines have been announced:

The new guidance documents will explore the following:

  • Non opioid alternatives. This guidance “will set forth the FDA’s current thinking on how sponsors can demonstrate a clinically meaningful reduction in the use of opioid pain medications when used for acute pain,” Dr. Gottlieb said.
  • Charging drug makers with assessing the benefits and risks when new opioid pain drugs are put into development. “This will include an updated framework for evaluating the risks associated with intentional or illicit misuse or abuse of drugs.”
  • Developing extended-release local anesthetics, which can serve as an alternative to the systemic use of oral opioid drugs. “This guidance will address the clinical pharmacology, the proper evaluation of safety and efficacy, and the types of studies that may support approval of these products.”
  • Assisting sponsors with the development of new non opioid pain medications for chronic pain that can provide therapeutic alternatives to the use of opioids.

Since these are the first 4 new guidelines, (there’d be more coming out soon), it’s safe to say that FDA would be paying particular attention to these guidelines when assessing new submissions.

Let me assess IV Tramadol based on these guidelines.

  1. Non opioid alternatives. Well, Tramadol is certainly not a pure opioid, but then again, it is also an opioid agonist, so there is still a risk of addiction. However, as shown above, in both the study and as evidenced by DEA guidelines, Tramadol is shown as an effective alternative to taper down opioid addiction, and has a low risk of addiction. I’d think FDA will think of IV Tramadol as an alternative to IV Opioids.
  2. Since Tramadol is already widely used, this guideline itself is not very relevant. The benefits vs the potential risk profile is already well documented.
  3. This guideline pertains to ER local anaesthetics instead of analgesics.
  4. FDA sure can help assist sponsors (“sponsor” is the term describing drug manufacturers who submit drugs for approval) by approving IV Tramadol. 1 of the indications for IV Tramadol is in the use of long term chronic pain management, particularly in cancer patients. This itself, would provide an alternative to the use of IV opioids.

Hence, we can see that the new guidelines, and the attention currently heaped on the opioid crisis, is probably highly favorable to Avenue Therapeutics planned submission.

References taken from:

https://www.ada.org/en/publications/ada-news/2018-archive/august/fda-outlines-plans-for-new-guidance-on-developing-pain-drugs


Comparing Against Other Similar Cases

Now, thus far, I’ve illustrated the clinical uses and safety profile of IV Tramadol with several papers.

I’ve also illustrated how it’s already widely used worldwide.

On top of that, I’ve given substantiation as to why I think IV Tramadol has a role as an adjunct therapy in combatting the opioid crisis. This is Avenue Therapeutic’s selling point to FDA as well.

Finally, I’ve (tried to) reconcile the FDA’s actual guidelines for analgesic approval, in particular, their latest guidelines.

To wrap things up, I thought it’d be instructive to find other comparable cases of similar drugs that have undergone FDA submissions, and see if there are issues/problems that can be applicable here.

Nobody would know FDA’s deliberations when Avenue submits the application, so looking at past cases may throw up some similarities or at least flag up some stuff that I might have otherwise missed.

I’ve looked at quite a few, but I’d just highlight 1 significant one that’s the most similar, and more importantly… got rejected. (Finding rejected applications would be more useful than merely looking out for successful ones that wouldn’t tell you anything…)

Recro Pharma’s FDA appplication for IV Meloxicam got rejected. Now, Meloxicam is an NASID, so it’s a painkiller as well. It’s IV as well, so we can see the similarities between this case vs Avenue’s IV Tramadol:

https://www.reuters.com/article/us-recro-pharma-fda/recro-pharma-shares-plummet-after-fda-rejects-non-opioid-pain-shot-idUSKCN1IP1O5

In FDA’s complete response letter (CRL), it stated that:

“Although late-stage trials of the drug showed statistically significant outcomes on their main goals, it was unable to approve the marketing application in its current form.

Data from ad hoc analyses and selective secondary goals in the trials suggest that the pain-relieving effect of the drug did not meet expectations”

Recro Pharma updated their application, and tried again, only to get rejected a 2nd time.

This time, the 2nd CRL contained a bit more details regarding the reasons for the rejected application:

https://ir.recropharma.com/press-releases/detail/137/recro-pharma-receives-complete-response-letter-from-the-fda

“The FDA’s comments in the CRL focused on onset and duration of IV meloxicam, noting that the delayed onset fails to meet the prescriber expectations for intravenous (IV) drugs.  The  CRL also cited regulatory concerns about the role of IV meloxicam as a monotherapy in acute pain, as well as how it would meet patient and prescriber needs in that setting, given the FDA’s interpretation of the clinical trials data. “

OK, for the layman, I’d interpret this is simple words.

Basically, FDA seemed to focus on the slow onset of the perceived effects of analgesia (painkilling property) of meloxicam. This means after the 1st dose of the drug is given, the patient still suffers from pain for some time, before the painkilling effect kicks in.

This delayed onset is of course, deemed to be unacceptable to FDA. My personal industry experience tells me that this is so, especially since there are so many other IV NSAIDs in the market, so it really doesn’t make any sense for FDA to approve something that takes a bit too long to work.

The 2nd concern is, I guess, somewhat related to the 1st. Due to the less than ideal properties of meloxicam, FDA is concerned about how it can be used as a monotherapy. This means that the clinician ONLY gives meloxicam for pain relief, and not in combination with any other analgesic.

Right. So just by studying past cases, even without the actual detailed guidelines outta the horse’s mouth, TTI sorta distill 2 main parameters that IV Tramadol would’ve to prove itself:

  1. Time taken for onset of analgesia
  2. Use in monotherapy

What follows next, logically, is to compare the properties of IV Meloxicam vs IV Tramadol right?

I mean, if IV Tramadol is inferior to IV Meloxicam, and Recro Pharma already got their application rejected, then there’s no way in hell I’d be plonking in capital into Avenue Therapeutics, makes sense?

So again, this set off a long series of PubMed research, seeing that prior to this, I haven’t even heard of Meloxicam before.

Turns out Meloxicam isn’t some iffy, useless analgesic. There’s a body of evidence, and several studies have confirmed it’s effectiveness:

https://www.ncbi.nlm.nih.gov/pubmed/8862936

“This study therefore demonstrates that meloxicam 15 mg i.v. followed by oral therapy is both efficacious and well tolerated in the treatment of acute lumbago, and compares favourably with the standard NSAID, diclofenac, in this indication.”

This study though, is the most important to note, IMO:

https://journals.lww.com/clinicalpain/Fulltext/2018/10000/Efficacy_and_Safety_of_Intravenous_Meloxicam_in.5.aspx

It’s a double blind, randomized controlled trial, with placebo control. In other words, it’s the gold standard of the gold standards when it comes to clinical trials.

I’d use the data in this study (in blue) to compare against that of IV Tramadol’s, and it’d suddenly get clearer.

“…..meloxicam IV, administered once-daily, showed onset of analgesic effect within 15 minutes after dosing and maintained analgesia throughout 2 sequential 24-hour dosing periods”

In this study, the onset of IV Meloxicam is within 15mins. In the failed application by Recro, the onset was given as “within 30mins”.

In Avenue’s IV Tramadol, 1st Phase III clinical trial, the onset was at the 30mins mark.

This means that thus far, the onset for IV Tramadol is slower than that of IV Meloxicam.

“…. Moreover, an opioid-sparing effect was apparent for meloxicam IV 30 mg, indicated by the significantly longer time to first use of rescue analgesia (P=0.0076 vs. placebo), the significantly lower number of patients utilizing rescue analgesia in each assessment interval (P<0.001 vs. placebo), and the significantly lower mean number of per-patient rescue doses at each assessment interval (P<0.05 vs. placebo).”

 Meloxicam has an opioid sparing effect as well. This is similar to Avenue’s selling point in IV Tramadol’s role to play in combating the opioid crisis as explained above.


What does all these mean?

Having delved deeper and having done a comparative analysis, I’m suddenly a lot less optimistic about Avenue’s prospects in getting IV Tramadol approved.

Now that I’ve done the necessary DD and felt sufficiently informed on this topic to conduct an intelligent conversation, I thought the next logical step is to bring my concerns to the company’s management, to see if I could get a response of some sorts. Perhaps there was something I missed.

So I did.

870) Lucy lu.jpg

871) Lucy Lu.jpg

872) Lucy lu.jpg

Well, first up, kudos to CEO Lucy Lu for the rapid response. I sent an email at 5am on a Monday, which would’ve been 5pm on a Sunday for her, and got a reply within 2 hours. (and she cc-ed my email and her replies to a bunch of colleagues, whom I later found are colleagues from the major shareholder cum sponsor cum holding company of Avenue Therapeutics)

That’s where the good news end.

Essentially, I was asking extremely probing questions, comparing Recro’s application to Avenue’s, as well as cross referencing key studies that put in doubt, why Avenue’s application would be approved whereas Recro failed in theirs.

The similarities between the 2 drugs are striking.

1st up, onset of action.

As indicated in the study above regarding Meloxicam, the onset was given as 15mins. In Recro’s application, it was given as 30mins, and was 1 of the factors cited in FDA’s CRL in its rejection.

In Avenue’s 1st Phase III, the onset for IV Tramadol was given as 30mins as well. In Lucy Lu’s reply, she stated that the onset was earlier than 30mins, but the 1st pain score measurement was at 30mins.

Hmmm. I’m not so sure that’s a solid enough case for FDA.

As for the 2nd part regarding monotherapy, well, I did some digging around again, and it turns out that just like IV Tramadol, IV Meloxicam is readily available in Europe. This is a list of the countries, in Europe, that is is approved in:

https://www.ema.europa.eu/en/documents/psusa/meloxicam-list-nationally-authorised-medicinal-products-psusa/00010474/201607_en.pdf

There are like 16 pages of this:

873) List of EU countries with meloxicam.jpg

So this right here, is kinda a perfect example of why I said earlier, that FDA is it’s own animal.

Meloxicam is approved and widely used in Europe, but that just doesn’t cut it with FDA.

IV Tramadol’s in a similar situation.

FDA also gave it’s concerns over IV Meloxicam’s use in monotherapy as 1 of the reasons for the rejection in the CRL.

Well, it seems there’s doubt over IV Tramadol’s use in monotherapy as well. This is WHO’s update review report on Tramadol, published in 2014:

https://www.who.int/medicines/areas/quality_safety/6_1_Update.pdf

I’ll quote:

“………tramadol monotherapy does not usually provide sufficient analgesia and that there is little evidence from German medical guidelines for the use of opioids, including tramadol, for more than three months in chronic non-cancer pain” (Page 24)

“Nevertheless, recent meta-analyses show that tramadol monotherapy does not
always provide sufficient analgesia. ” (Page 15)

“The authors added that tramadol monotherapy does not usually provide sufficient analgesia and that there is little evidence from German medical guidelines for the use of opioids, including tramadol, for more than three months in chronic non-cancer pain” (Page 15)

Now, obviously if TTI knows all these, I’m sure the folks at Avenue know this as well.

CEO, as well as some members of the board, are all doctors. Why would they proceed if they know these risks? I got this question answered by a contact within the industry.

It’s sometimes not that straightforward. The board would’ve to assess their sunk costs, and whether it makes sense to at least try (regardless of the odds).


FINAL WORD

Congrats if you got to this point. Like I warned, this is not an easy post to digest, and I’ve already skipped all the technical data, only cutting pasting the relevant paragraphs.

If you’d notice, the tone of optimism at the start of the post, changed into 1 of skepticism towards the end.

In the bar chart I pasted right at the start of the post:

859) FDA approval success.jpg

the odds of successfully getting approval seems really good.

This is indeed, also the same sentiment the reader who brought this idea to me, had after seeing this chart.

As I’ve illustrated, it’s really not  that easy and major risks remain.

As of the time when I type this, I’m still in contact with Avenue’s CEO with some further queries, so perhaps my thoughts may evolve further.

Currently, I’m vested with a small position of just under 10,000 shares, accumulated at a price of around USD 4.9 or so.

My rationale for a current position is that Avenue’s 2nd Phase III results are likely to be released within the next couple of months.

I’m expecting the Phase III study to meet all it’s end goals, and the relevant data would then support the NDA.

Correspondingly, I’m expecting a bump in the share price upon the successful conclusion of the 2nd Phase III, and a resulting FDA submission.

As for whether Avenue can go all the way to get approval, that, I’m a lot more skeptical.

While it’s not a foregone conclusion that IV Meloxicam’s failure would mean IV Tramadol is not likely to be approved, still, the risks are real.

Lucy Lu didn’t give much away in her replies, but it does seem that FDA’s beef with Recro lies not just in the clinical characteristics of IV Meloxicam, but in the company’s interpretation of the clinical data obtained from it’s trials.

There really is no way I can assess this, seeing that Recro doesn’t release the entire CRL, and I can’t assess where the disagreement lies. So perhaps Avenue’s application would be looked at more favorably if FDA’s interpretation of the data from their trials is favorable.

I’d likely maintain a position, perhaps even add to it, and wait till NDA submission, before assessing again.

I’d leave interested readers with a video interview of Lucy Lu:

I welcome any readers with any questions, and/or some thoughts to share them with me. I actually do have more data and stuff to add, but this post is getting too long and draggy and frankly, I doubt most readers can comprehend, or am interested to, the specifics.

So I’d end the investing thesis here.

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Portfolio Divergence From Benchmarks – Thanks Trump!

The 1 major headline in the past few days has certainly been all about the US-China trade negotiations and Trump’s threat to hike tariffs 2 days from now.

In the midst of all the uncertainty, the global markets have been roiled and US markets have taken a tumble this week.

868) trade negotiations.jpg

Whilst I have not predicted this, and neither do I try to, my US portfolio has benefited and continued it’s relentless upward march, even while the world burns and the indices FINALLY start turning down:

867) divergence

Finally.

Everything starts turning red for once. Everything except TTI’s portfolio.

Hitting a new high of 41.62% ROI YTD, and especially since it’s coming at a time where there aren’t many stuff that’s not red… is very satisfying.

US portfolio NAV hit a new high too, but I’d just judge it again at the end of May. It’s also a double boost, since in the midst of the market volatility, USD has strengthened considerably against SGD. I’ve taken the chance to swap out some USD into SGD.

Even my SG portfolio is pretty green: I attribute it to the fact that it was pretty red previously, and the impossibly low valuations mean that there’s next to zero downside…

Well, how did my US portfolio buck the trend?

I always think it’s actually easier to outperform the market when everything’s green…. than to try to remain green while everything’s red.

Cos that requires you to take up really contrarian positions, and not just that, but to hold on to these positions despite the pain, unpopularity, and seeming stupidity in doing so.

Here are the specific reasons for my current divergence from market indices:

Contrarian positions. 

1 of my core positions continued performing well. Wirecard announced new (and improved) guidance for 2019 following the Q1 results release. FCF continued climbing, and is up by 37% yoy. In fact, every metric shows continued rapid growth across the board.

869) wirecard performance.jpg

Having a concentrated position in a contrarian play certainly allows you to buck the trend, but beware, it could jolly well be in the wrong direction if you get it wrong!

Shorts. 

Now, I don’t short for the sake of shoring, but market were just roaring non stop since the start of the year. As I mentioned in earlier posts, it’s >16% returns since the start of the year for S&P, so the downturn now is a relief.

It’s a relief because I’ve shorted some companies earlier, in the belief that they are either over valued, or are unlikely to show significant improvements in their financials anytime soon.

Most of these shorts have been very much uncomfortable in the past month, being a dead weight to drag around while my portfolio tries to open up the gap against the indices. Fortunately, I managed to use options to keep the costs of shorting in check. Still, it hasn’t been fun since they’ve been in the red practically from the second I shorted. (until now, of course)

In looking for candidates to short, I try to look for guys with negative FCF, and/or companies that are unlikely to suddenly hit rapid earnings growth. Or stuff with potential road bumps that are pretty obvious (to me). Perhaps an acquisition that the markets are cheering, but the integration remains uncertain?

Prior to this bout of market weakness, I was short GDS, EB, MU, TSLA, JD, NKE and SPY itself (S&P index)

I wouldn’t go into specific details as to why I shorted those names, but just very briefly, I think EB’s integration would show more hiccups than they are letting on, and it’s proven in the last ER. Think I discussed about this somewhere in IN at that time.

TSLA was an obvious short to me, and actually, still kinda is. Sorry Elon, I’m on Einhorn’s side now.

GDS is another short that has given me lotsa heartburn, but as of this week, it’s finally payback time. I don’t know what Temasek sees in GDS.

I also now learnt that I should NOT structure my S&P shorts by selling SPY calls, esp naked ones.

S&P can move upwards really relentlessly. It’s almost logic defying. Also, the IV is low, and premiums are kinda pathetic for the level of exposure each option contract requires.

Of course, in times like now, thank god for my shorts!

Still, my impatience got the better of me. In just 2 days of the market turmoil, I’ve covered most of the shorts, taking almost everything off the table. Perhaps it’s cos a part of me is just relieved and happy that the shorts have worked out. Having to constant struggle against a relentlessly upward market is not fun.

Yet, as of now, that’s looking like a dumb move cos Trump does look serious in raising tariffs on Friday, and it definitely doesn’t look like something concrete will get finalized by then.

In short, I think we should expect more volatility, and I probably left way too much on the table.

Should’ve gone to bed early instead of tinkering around.

Speaking of volatility, that leads me to the 3rd reason:

Volatility.

Having built up a position in VXX, the current volatility and redness in the market has been a godsent.

For example, VXX shot up 16% yesterday (Tuesday) alone! 

Yes, in a single day!

That’s the nature of VXX and actually, most volatility derivatives. When times are good, the rollover just simply kills any VXX longs, but right when the times are at its darkest……. the upwards movement is scary.


So that’s it for this short post.

It’s just to explore the reasons for my portfolio divergence against the current market weakness, and how I structured certain contrarian positions.

I’m sure everybody has their own ways to do so.

My next post would be an investing thesis, and a highly contrarian one too. Credits to a reader who brought this to my attention, but since he declined to be named or identified, so I’d just leave it as such.

It should be fun to read.

If you understand it, that is.