Shares of Affymax plunge on recall news

NEW YORK (AP) -- Shares of Affymax Inc. plunged 85 percent Monday after severe allergic reactions and the deaths of some kidney dialysis patients prompted the recall of its anemia drug.

THE SPARK: Affymax and its partner, Takeda Pharmaceutical Co., said Saturday that 0.2 percent of the patients who have received Omontys, about 50, have reported severe allergic reactions. Around 0.02 percent of patients, about five, died following their first dose.

THE BIG PICTURE: Omontys, known chemically as peginesatide, is the only drug money-losing Affymax has on the market, so the recall essentially means a halt in revenue.

"We really haven't identified the root cause of these reactions," said CEO John Orwin during a conference call Monday. "And clearly, among all the things that we'll be investigating, we'll be looking very closely at drug products in all its forms and in all stages of manufacturing, distribution, supply chain handling at the sites. We can't speculate, obviously. It's too early in our investigation."

The expensive intravenous drug is designed to treat anemia caused by chronic kidney disease, limiting the number of blood transfusions patients would otherwise need. The drug was approved in late March and reached the market in late April. More than 25,000 patients have received the drug so far.

Through the first three quarters of 2012, Affymax reported $79.6 million in Omontys collaboration revenue. The only other revenue listed was $9 million in licensing and royalty payments.

It competes with well-established injections from drug giants Amgen Inc. and Johnson & Johnson. But Omontys has the advantage of only requiring one injection a month, compared with a few times for the rival drugs, which have combined sales exceeding $6 billion a year. The drugs all work by stimulating the kidneys' production of erythropoietin, the protein that controls production of red blood cells.

Affymax recently reported to the U.S. Securities and Exchange Commission that the world's biggest provider of dialysis service and equipment, Germany's Fresenius Medical Care AG & Co. KGAA, wrote to Fresenius staff on Feb. 13 that it is pausing expansion of its pilot program for Omontys. Fresenius has been administering the drug to patients in a small number of its U.S. dialysis clinics. The company provides kidney treatment to hundreds of thousands of patients at 2,100 dialysis centers in the U.S., Canada and Mexico.

Fresenius has administered Omontys more than 56,600 times to more than 18,000 patients. It wrote that it has seen "infrequent allergic reactions" — a small number of them serious — in about one in 1,000 patients getting their first dose. Fresenius said the drug has been managing anemia effectively, so it recommended continuing use in current patients.

Just seven weeks ago, Affymax and Takeda, Japan's biggest drugmaker, announced an agreement to supply the drug to another major U.S. dialysis provider, DSI Renal. They said then that DSI planned to start using Omontys in selected treatment centers and then evaluate whether to expand to more centers.

THE ANALYSIS: At least five analysts following the company slashed their ratings immediately.

Stifel Nicolaus analyst Joel Sendek stripped the company of his previous 'Buy' rating, saying Affymax is worth about $1.90 per share without the drug.

He noted the reactions occurred when the drug was administered intravenously, but it can be injected just below the skin, which requires an extra needle stick. He wrote that the company "does not appear to be pursuing this as a salvage strategy."

Robert W. Baird & Co. Inc. analyst Christopher J. Raymond downgraded the shares to "Neutral," with a new $4 price target, in a note to investors titled: "Will Be Tough to Recover from This One." Raymond wrote that "very little can be said or done in the near term to repair this drug's reputation," even if the Food and Drug Administration allows a relaunch.

He thinks limited distribution could resume in the fourth quarter at the earliest, but that it would take a long time to regain the faith of kidney specialists.

THE SHARES: Affymax Inc. fell $13.96 to $2.56 in midafternoon trading. Over the past 52 weeks, the shares have traded between $10.20 and $27.74, but are down about 40 percent from their October peak.