Dose of reality for QRx investors• REBECCA URBAN• THE...

Dose of reality for QRx investors
• REBECCA URBAN
• THE AUSTRALIAN
• APRIL 26, 2014 12:00AM
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QRxPharma managing director John Holaday. Picture: Alan Pryke Source: News Corp Australia
WHEN Bruce Hancox, a key investment adviser to billionaire Lang Walker, sat down last week to read the background documents released ahead of a key meeting that would ultimately decide whether QRxPharma’s new pain-relief drug would be cleared for sale, he was quietly confident.
The political backdrop in the US, where the abuse of opioid drugs is a major concern, looked to be the only potential roadblock for the new dual-opioid drug that, according to its developer, was a safer alternative to the drugs already on the market.
Or so he thought.
But by page five of the report, Hancox was of a vastly different view. “I immediately stopped reading and consulted the people whose money I represent and told them, ‘We’re screwed — it’s going to be 14-nil against’,’’ he revealed during an investor teleconference held this week.
Unfortunately, he was right.
In the early hours of Wednesday, local time, the US Food and Drug Administration’s Anesthetic and Analgesic Drug Products Advisory Committee voted unanimously against recommending the painkiller Moxduo for approval.
Shares in QRx, which has to date raised more than $120 million from investors, including Walker and fund manager Allan Gray, tanked 80 per cent that day. On Thursday, the price fell a further 25 per cent to close at a record low of 10.5c.
The unexpected knock-back for a company considered a shining light on the local biotechnology scene has raised serious questions for QRx, its investors and the broader industry in Australia.
And one of the more pressing of those questions is, if a 30-year veteran of the investment industry, such as Hancox, could be so blindsided by the ruling, what hope did ordinary retail investors stand?
Based out of Sydney, QRx listed on the Australian Securities Exchange in mid-2007. Billed as an advanced-stage drug developer, it ticked many of the boxes for savvy biotech investors; a high-profile board (chaired by Peter Farrell of ResMed fame), an experienced management team, and it had already attracted significant venture capital backing.
The company’s lead drug Moxduo was a combination of morphine and oxycodone, designed to deliver analgesia to ¬patients at materially lower doses than currently available opioids. The end result was to be fewer side effects and a lower risk profile, which was to prove attractive to prescribing doctors in a market where pain is the most common reason that people seek medical attention but opioids also happen to be a major contributor to the thousands of deaths caused by drug overdose each year.
QRx was also pursuing a ¬potentially accelerated path to market, opting to lodge a New Drug Application with the FDA under specific regulations that would take into account historical data on the drug’s two opioid components, given both were already approved drugs. According to the company’s announcement of its filing made in mid-2011, approval of an NDA typically took 10 to 12 months.
However, as any seasoned biotech investor knows, timelines can — and do — blow out.
Still, when QRx announced in June the following year that it had received a “Complete Response Letter” from the FDA, its share price took a significant hit.
According to the company, the issuance of such a letter provided an opportunity to respond to the FDA’s requests for ¬additional information regarding the safety and effectiveness of Moxduo. It was looking forward to a meeting to “clarify the steps required for approval” of the drug.
However, the FDA has a ¬decidedly less rosy take on what a Complete Response Letter, commonly referred to a CRL, means for a drug application.
In the briefing documents released ahead of this week’s advisory committee meeting, the FDA points out that a CRL is “essentially a letter that states that the application was insufficient to support approval of the product”.
Despite QRx appealing the decision twice (and losing) and being issued with a follow-up CRL in August last year, the company remained surprising upbeat throughout the process.
“We are confident that our refiled NDA will confirm the validity of the data defining the product’s … safety advantages and we are hopeful that the FDA will view them favourably,” QRx’s managing director John Holaday said in a release to the market in November. “We were encouraged by our candid dialogue with the FDA throughout the process.”
However a very different picture has since emerged, with the events of this week suggesting that the company and the FDA were not on the same page in -regards to various aspects of the three-year process.
Independent industry analyst David Blake, who had been betting on Moxduo’s approval up until recently, is struggling to make sense of the relentless picture of optimism presented by the company in the lead up to this week’s decision.
“I would have thought you would want to be downplaying things a bit, reminding investors that this is a hard business,” Blake says. “It’s like in the footy; you don’t go out at the start of the season and say you’re going to win the premiership.”
Hancox, who declined to speak to The Weekend Australian for this article, noted during the company’s investor briefing that there was obviously “a lot of confusion ... between the company and shareholders” in regards to how the regulatory process had been tracking.
A bone of contention with more than one participant during that call was the revelation that QRx had embarked on its phase three trial — a pivotal study that was to be conducted in order for the company to satisfy the FDA’s stringent regulations on drug combination — without securing the agreement of the agency on the proposed primary efficacy endpoint and statistical approach.
As a result, the FDA issued a “no-agreement letter”, according to the background documents. Interestingly, Holaday denied that claim repeatedly this week. He also declined an interview ¬request.
Another apparent divergence between the company and the drug regulator appears to be the interpretation of the FDA’s so-called combination rule.
Created to assure that the combination of two fixed dose drugs provided some benefit to patients that could not be obtained by prescribing the components alone, the rule states that two or more drugs may be combined when each component makes a contribution to the claimed effects and the combination is safe and effective for a significant patient population.
While QRx has repeatedly maintained that it had satisfied the rule, and been assured by the FDA of such, the advisory committee’s decision suggests otherwise.
“Without any benefit compared to the individual components, it would simply be an alternative opioid therapy employing two-fixed dose moieties that are generally not used in clinical practice,” the document said.
“This is not only a potential safety concern, particularly in light of current problems associated with opioid use, but it would also be a precedent-setting product approval.”
QRx management did not hold back in its criticisms of the FDA this week — a move that has surprised many industry observers given the FDA is still to make a final ruling on the drug.
Holaday has accused the FDA of applying excess scrutiny, being inconsistent in its decisions and misinterpreting some of the clinical data the company had presented.
However, the FDA has also levelled the inconsistency charge at QRx, claiming that early on the company had stated that its drug would provide a “synergistic -effect”, resulting in the need for lower overall opioid doses. ¬According to the FDA, after one such study showed no efficacy benefit, the company modified its thinking and its application contained no mention of “synergistic efficacy”, but rather an improved safety profile.
“While the applicant claims that they have a clear benefit in safety overall, and a specific benefit in the area or respiratory adverse events, the agency review team has been unable to conclude that there is a safety benefit,” FDA division director Bob Rappaport said in a memo this week.
It was a view that was ultimately backed up by the vote.
Graeme Shaw, an analyst with Allen Gray, is one of many investors currently grappling with how it all went wrong. His firm’s 13.3 per cent stake shed more than $12m in value in two days and is now worth a little over $2m.
Shaw says although some investors might be feeling misled about the regulatory pathway, he does not believe that QRx set about deliberately doing that given both the company and the FDA were walking an “unchartered path”. However, he does have some concerns over the differences in clinical findings presented by the FDA and those that were provided to investors by the company.
“What shocked us a bit … was the gap in regards to the data investors got and the data the FDA got,” he says. “And I think that investors would have benefited from access to the full data set.”