The Ratings Game: Ionis stock drops 13% as FDA fails to approve key drug

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Ionis Pharmaceuticals Inc. shares dropped nearly 13% in extremely active Tuesday trade after the Food and Drug Administration failed to approve a key drug, Waylivra, a decision that came as a surprise to many.

Investors are now wondering whether another, similar Ionis IONS, -14.66%  therapeutic, called Tegsedi, will also fail to pass muster with the FDA.

Those concerns could weigh more heavily on the stock than Tuesday’s news, as the second product has higher commercial expectations.

“Given that Waylivra and Tegsedi are both Gen 2+ products and both have had platelet safety issues, we expect the market will naturally question if the risk of a [complete response letter] also extends to Tegsedi,” particularly because the FDA’s deadline for a decision on Tegsedi was pushed to October 6, said J.P. Morgan analyst Jessica Fye.

Related: Akcea, Ionis shares drop after disappointing FDA decision

Ultimately, the company may need to shift its focus “beyond Tegsedi and Waylivra, where platelet declines have been observed, and towards the next wave of assets,” she said.

Tegsedi was developed for familial chylomicronemia syndrome, a rare metabolic syndrome that causes serious and recurrent inflammation of the pancreas. Along with other complications of the disease, it can have a serious effect on patients’ lives, and the condition has no available treatments.

An FDA advisory committee voted 12 to eight in favor of recommending approving the drug, which is also called volanesorsen, in May. The regulator is not required to follow an advisory committee’s recommendation but it often does.

Nevertheless, serious safety concerns had been raised about the drug, particularly that patients in the clinical trial had reductions in blood platelets — raising concerns about thrombocytopenia, a condition with serious, extended bleeding, and other complications.

Moreover, “the FDA dismantled the company’s claims that volanesorsen leads to a benefit in pancreatitis,” EvercoreISI analyst Josh Schimmer said in May, noting that “it’s clear there is too much uncertainty around this to obtain FDA buy-in.” That raised big questions about the product’s risk compared with its benefit, he said.

Akcea Therapeutics Inc. AKCA, -25.85% which is affiliated with Ionis, saw its shares drop 26% in extremely heavy Tuesday trade.

Ionis
Tegsedi and Waylivra are two of the furthest-along products in Ionis’ pipeline, after already-approved therapies like Kynamro and the neurological product Spinraza. Ionis is also developing other neurological drugs, cardiometabolic and renal drugs and cancer products, among others.

Tegsedi, by contrast, is intended for nerve degeneration in patients with hereditary transthyretin amyloidosis (hATTR), a rare condition that can result in heart failure. The drug targets the protein transthyretin, while Waylivra targets another protein, apo-CIII.

Despite being a rare-disease with a small patient population, hATTR is seen as a potentially lucrative market; a competing drug being developed by Pfizer Inc. PFE, -0.28% for example, is expected to be a blockbuster.

Read: Pfizer stock drops 2% as positive rare-disease drug results won’t stop competitors and How a failed Pfizer rare-disease drug came back to flatten its rivals

Waylivra contributes about $2 per share to J.P. Morgan’s Ionis model, while Tegsedi adds more than $10, Fye said.

Ionis has other products that have been approved in the U.S., notably the spinal muscular atrophy therapy Spinraza.

But Tegsedi and Waylivra are some of Ionis’ furthest-along products in development. Waylivra is also being developed for the rare genetic disorder familial partial lipodystrophy.

Tegsedi was similarly connected to reductions in platelet count and the risk of thrombocytopenia. Patients are supposed to be monitored for any potential problems, with dosing adjusted as needed.

Even so, the medication was approved in Europe in early July, bolstering expectations for an eventual U.S. approval.

But some view the FDA’s extension of its deadline for Tegsedi’s approval decision as a sign that something may be wrong.

The FDA needed “additional time to review our responses to their standard information requests,” Sarah Boyce, president of Akcea, said in early May. The company continues to expect a potential U.S. approval and launch of Tegsedi this year.

Ionis shares have gained 4.1% over the last three months. The S&P 500 SPX, +0.09%  has risen 6.5% and the Dow Jones Industrial Average DJIA, +0.23%  has risen 5.4%.