Whenever you add a speculative play to your portfolio, it’s important to be honest about its potential. Any stock could fall to zero, but many of those speculative picks with the tempting “make-it-or-break-it” stories are the ones that could most likely break not only new 52-week lows, but also your spirit.

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

Penny Sleuth Contributor

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