AVEO Pharma’s Tivozanib Likely To Be Approved

With the current record market run, small cap biopharmas have kept pace and continue to trend higher, being one of the best sectors for both trading and investing over the past year. With 39 new drugs approved, 2012 showed the most new approvals since 1996.

Aveo Pharma (AVEO) is one company that has a drug up for review May 2nd that I believe will gain FDA approval. Let's take a look;

A Food and Drug Administration (FDA) Advisory committee will convene on May 2nd to vote for or against recommending tivozanib for approval. Tivozanib is a low-molecular-weight inhibitor of the VEGF receptor designed for the treatment of metastatic renal cell carcinoma (RCC), which is more widely known as kidney cancer.

In January of this year, the company reported positive Phase III results from a study of 517 patients with RCC. The study compared tivozanib to sorafenib, which is the current front line treatment for RCC. Sorafenib is marketed by Onyx Pharmaceuticals (ONXX) under the trade name of Nexavar -- global Nexavar net sales topped over $1billion in 2011.

Perhaps the most important positive quality of tivozanib is the fact that patients tolerated the drug very well.

Dose reductions of the drugs compared were 11.6% with tivozanib versus 42.8% with sorafenib (P<.001). Discontinuations occurred in 4.2% of the tivozanib group versus 5.4% in comparison to the sorafenib group. Overall, there were fewer drug-related adverse events with tivozanib at 67.6% in comparison to sorafenib at 83.3%.

This is a clear indicator that patients tolerated tivozanib much better than sorafenib. Patient tolerability is perhaps the most important deciding factor for physicians to prescribe a drug other than efficacy. If a patient discontinues use of a drug, any possible benefit from the drug is obviously lost.

I am very confident that the adcomm will recommend Tivozanib for approval, but yet the stock has a healthy amount of short interest in it. Simply stated, the bears have it wrong here with tivozanib and are misunderstanding the lack of impact the overall survival (OS) numbers will have on the FDA's decision to approve the drug.

First off, the OS for tivozanib was 77% versus 81% for sorfenib, which is statistically about the same. The Phase III head to head study was based on one-way crossover to the experimental therapy after disease progression in the control arm.

According to MedicineNet.com:

Crossover studies are a type of clinical trial in which the study participants receive each treatment in a random order. With this type of study, every patient serves as his or her own control. Crossover studies are often used when researchers feel it would be difficult to recruit participants willing to risk going without a promising new treatment.

A one way cross over study is a trial design that is used in cases where two treatments are administered successively in the same group of trial subjects.

The company believes OS trended against tivozanib because more than 60% of the patients randomized to the Nexavar arm "crossed over" to receive tivozanib or some other therapy upon tumor progression. These Nexavar crossover patients might be surviving at a higher rate because they benefited from receiving treatments with two active kidney cancer drugs.

Furthermore, many "test subjects" were from Central and Eastern Europe, and access to good treatment options for RCC are limited in this part of the world. In North America and Western Europe where better treatment options exist, longer OS was observed.

It's worth noting that there are nine analysts covering Aveo who have an average target price of $11.30. If tivozanib is approved by the FDA, my one year price target opinion is $12,

After reviewing Aveo's website, the company seems to be highly confident that tivozanib will be approved by the FDA, and are taking the necessary prudent steps to ensure the product garners success.

Under career opportunities- clicking "view all open job positions" shows three pages of new positions, a majority of which are "Oncology Sales Specialist" positions and located all across the United States. Aveo is clearly confident tivozanib will be approved, as am I.

In addition, the 10-K SEC filing notes a $4.6 million increase in salaries, benefits, and other hiring costs in 2012 due to an overall increase in personnel in preparation for the potential launch of tivozanib. This was while completing a restructuring in October which included laying off forty-eight people. With the company claiming it still had an "overall increase in personnel," clearly a new type of employee had to be hired. A good portion of this includes the new sales force the company is still actively recruiting along with other people experienced in new product roll outs.

Aveo also has more drugs in its clinical pipeline, and an approval of tivozanib would give this pipeline more validity, which should equate to higher investor speculation. Considering the near-term large catalyst event of an Acomm combined with the factors I mention, Aveo has the potential to double from its current price in the next year or so.

Let's take a look at recent RCC drugs that were approved that had equal or lesser OS rates (assuming that OS is a bit off with tivozanib, which I believe for reasons mentioned, it isn't)

Drugs Approved for the Treatment of Renal Cell Carcinoma (Source: Robert Schwartz, Seeking Alpha)

As we can see above, many drugs with equal or lesser OS have been approved by the FDA.

While tivazanib by no means is a new break thru type drug, it clearly shows superiority to the standard of care front line drug, sorafenib. As mentioned prior, sora did 1b in revenue in 2011, so with patent protection for Tivo, I would expect the drug once approved (and I am confident it will be) to bring in $5B to $10B in its lifetime under patent. I also think because of this, Big Pharma might be interested in acquiring AVEO. For the record, I have not heard any chatter about AVEO being bought out, but that does not mean it's not being considered.

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