This was the situation I found myself in last week. Shares of a small pharmaceutical company I had been following for some time were hit hard when an FDA advisory panel voted that a proposed leukemia drug should not receive federal approval.

While the FDA isn’t required to follow the advisory panel’s advice, it usually does, according to reports from numerous news outlets. And as far as I am concerned, this is the final blow to a company that has seen its fair share of bad luck over the past couple of years.

But like I said, this was an all-or-nothing deal. Here’s what I wrote on March 13: “If the FDA announcement is favorable, this $2 stock could double or triple in a week. If the announcement is bad, look out — the stock could fall to zero. Those are the stakes.”

Background

The company in question here is Genta Inc. (GNTA:NASDAQ). Last week, the FDA put the brakes on the company’s flagship medication called Genasense, a drug given to cancer patients to assist chemotherapy. Genasense is an antisense treatment, which consist of chemically-modified strands of DNA that bind to mRNA.

Without getting too technical, this inhibits the production of a protein — in this case, Bcl-2 — a protein that is found in many kinds of cancer cells that can “block” chemotherapy from killing them. By getting Bcl-2 out of the picture, Genasense makes chemo and other anti-cancer therapy more effective at targeting and eliminating these cancer cells.

Back in 2003 and 2004, Genta had a lucrative partnership with pharmaceutical giant Aventis to develop and commercialize Genasense. Yes, the same Genasense in advanced FDA trials today. At the time, the company believed Genasense could be used effectively to help treat malignant melanoma.

Then came the bad news. In May 2004, the FDA decided it would not approve the drug to be used with melanoma patients, and the stock lost most of its value, settling in around $2. Then in November 2004, Aventis — around the same time as its merger with a major European pharmaceutical giant, Sanofi — decided to terminate the agreement with Genta.

From the Sanofi-Aventis 2004 annual report: “In the wake of the FDA’s rejection of the NDA for Genasense in advanced melanoma, and in the light of unconvincing results in chronic lymphocytic leukemia (CLL), Sanofi-Aventis decided in November 2004 to terminate its agreement with Genta concerning the development of Genasense.”

The Final Word

In one of the trials I highlighted earlier this year, 241 patients underwent cancer treatment with or without Genasense. Seventeen percent of those on Genasense achieved complete or partial remission, compared to only seven percent of patients who were administered chemotherapy alone. Those who were given Genasense also were in remission longer.

With these results in mind, the FDA advisory panel went to work, and determined that while “the drug did meet its primary endpoint of showing statistically significant differences in response rates, the FDA wrote that the difference is ‘of questionable significance’ in its brief,” according to the Associated Press. There was also concern as to whether the drug would increase the toxicity of a patient’s chemotherapy treatments.

With the negative recommendation from its advisory panel in the bag, the FDA is set to make its decision on whether the drug can be marketed in the U.S. on October 28, 2006. I won’t be holding my breath…

And other investors don’t seem to be sticking around for the finale. Genta’s shares have lost much of their value in the past five days, sliding from about $1.50 to around 48 cents during trading this morning.

As I wrote earlier this year, I considered this drug application Genta’s last chance. After the first failed Genasense application, the dissolved partnership and now the second failed attempt to commercialize the drug in the U.S., I’d have to say that Genta’s days are numbered. While Genta’s CEO said after the advisory made its decision that the company is still dedicated to making Genasense work, I don’t see a payoff coming anytime soon.

Best,

Gunner
September 11, 2006

The Price of Speculation was originally featured in the Penny Sleuth.

This $235 million company has a treatment in the works that could make chemotherapy twice as effective in the quest for killing deadly cancer cells. Its treatment is in stage 3 clinical trials, and the FDA granted the company fast track status to bring this application to market since no other treatment like it exists. This fast-track approval is important — as I mentioned in a previous Sleuth. 60% of all drugs given fast-track status are brought to market successfully. That’s good news for this small-cap company. The odds are in its favor.

Now, the only thing that stands in its way now from potential million in profits is a few months and the FDA’s approval. And approval will either be granted or denied on Oct. 28, 2006 — less than seven months from today.

If the FDA announcement is favorable, this $2 stock could double or triple in a week. If the announcement is bad, look out—the stock could fall to zero. Those are the stakes.

The company in question is Genta Inc. (GNTA:NASDAQ). And the drug application waiting FDA approval is something called Genasense, a drug given to cancer patients to assist chemotherapy. Genasense is an antisense treatment, which consist of chemically modified strands of DNA that bind to mRNA.

Without getting too technical, this inhibits the production of a protein — in this case, Bcl-2 — a protein that is found in many kinds of cancer cells that can “block” chemotherapy form killing them. By getting Bcl-2 out of the picture, Genasense makes chemo and other anticancer therapy more effective at targeting and eliminating these cancer cells.

Genta’s goal is to see Genasense treatment as the preferred aid to chemotherapy for many different kinds of cancer. And based on recent clinical trial results, the company is well on its way.

In the trial, 241 patients underwent cancer treatment with or without Genasense. 17 percent of those on Genasense achieved complete or partial remission, while only 7 percent of patients who were administered chemotherapy only did. Those who were given Genasense also were in remission longer.

Translation: Genasense’s cancer application was twice as effective as normal chemotherapy.

Thanks to these tremendous results, the FDA accepted the company’s application for Genasense on March 1. The basis for the acceptance is that this treatment can help patients with relapsed or refractory chronic lymphocytic leukemia. The FDA is set to make its decision on whether the drug can be marketed on Oct. 28, 2006.

Given the fact that trial results have been fantastic and FDA has “fast-tracked” the approval process, how is this not a sure fire 100% gain in the makings?

When you are dealing with the FDA, nothing is certain.

Back in 2003 and 2004 Genta had a lucrative partnership with pharmaceutical giant Aventis to developand commercialize Genasense. Yes, the same Genasense in advanced FDA trials today. At the time, the company believed Genasense could be used effectively to help treat malignant melanoma.

Then came the bad news. In May 2004, the FDA decided it would not approve the drug to be used with melanoma patients, and the stock lost most of its value, settling in around $2. Then in November 2004, Aventis — around the same time as its merger with a major European pharmaceutical giant Sanofi — decided to terminate the agreement with Genta.

From the sanofi-aventis 2004 annual report:”In the wake of the FDA’s rejection of the NDA for Genasense in advanced melanoma, and in the light of unconvincing results in chronic lymphocytic leukemia (CLL), Sanofi-Aventis decided in November 2004 to terminate its agreement with Genta concerning the development of Genasense.”

Between the time its Genasense application was denied FDA approval and it lost its deal with Sanofi-Aventis, its stock price fell from $11.50 to $1.40.

The same thing could happen again. Despite the fast-track designation and the promise of a breakthrough drug, the FDA has already shot it down once. And if the company gets shot down again, that may be all she wrote.

Genta’s entire business model is based on the approval of its Genasense application. It has no existing product on the market that can throw off enough cash for it to stay in business. In fact, the only way Genta is able to operate now is to sell more stock, which it did last week.

Genta approved $40 million worth of shares to go on sale March 10. According to Genta’s year-end financials released this morning, the company believes this cash will fund its operations into the first quarter of 2007.

So what are the chances that the company can get this treatment approved in 2006?

Genta does have some experience in successfully bringing a drug to market. Dr. Raymond P. Warrell — Genta’s CEO — was co-fouder and chairman of a scientific advisory board that originated Trisenox, a drug used for acute promyelocytic leukemia. Other members of the management team had leadership roles with companies that put out drugs such as Topamax, Procrit and Eloxatin.

And Genta has successfully put one drug to market already. Ganite, an injection used in the treatment of cancer-related hypercalcemia, was approved in 2003. And the company’s management has scaled down its efforts to sell the drug to focus solely on the approval of Genasense.

There is no doubt Genta has the experience and the know how to get Genasense approved. But there are two major hurdles that still need to be cleared.

1: The company needs to partner with a major player in the drug market. Since Aventis left Genta high and dry, the company hasn’t had the support of a big sales and marketing staff and regular checks to cash to help pay the staggering R&D costs associated with bringing an experimental medication through the approval process.

And Genta absolutely needs the support of Big Pharma’s deep pockets to make a profit. Right now, they’re barely paying the bills, and the company has suffered. In August 2004, Genta closed its Salt Lake City research facility. The company also eliminated 85 employees that year — including its sales force — to conserve cash and focus on R&D costs for Genasense.

2: And then there’s the no-brainer: The FDA has to approve the new drug application for Genasense this time. If Genta gets Genasense approved and marketed, the effects could be far-reaching — putting the company at the front of oncology medication research. I don’t think the company can handle another setback if the drug is rejected for use with leukemia patients as it was for melanoma, especially if they’re going it alone and penniless.

As it stands, Genta is a speculative stock pick. It’s had its share of good news lately, but it has also had its problems recently — problems that could lead to another failed biotech with a list of rejected drugs.

I’ll be watching Genta closely over the next few months. And we’ll all find out in a little more that 6 months — on Oct. 28, 2006 — if this stock will punch out the ceiling.

Until next week,

Gunner
March 13, 2006

Why An October 28, 2006 Announcement Could Triple This Tiny Biotech Company’s Stock was originally featured in the Penny Sleuth.