Affymax, Inc. (NASDAQOTH:AFFY)

CAPS Rating: 1 out of 5

The Company is a biopharmaceutical company developing novel peptide-based drug candidates to improve the treatment of serious and often life-threatening conditions.

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Player Avatar zzlangerhans (99.74) Submitted: 5/13/2012 4:21:47 AM : Underperform Start Price: $14.11 AFFY Score: +14.30

For a while there, it looked like Affymax was going to follow in the steps of numerous predecessors and ride their FDA approval straight down into the dumpster. Instead, the share price has been on an upswing since bottoming under 11 in April. However, I think at a market cap of 500M Affymax is overvalued for the prospects of peginesatide.

It's important to remember that in July 2010, Affymax was crushed after the company released the results of the phase III trials of peginesatide. That's because the goal was to show that peginesatide treatment resulted in reduced side effects than the current standard of care for erythropoeisis in pre-dialysis and dialysis patients, while being non-inferior with respect to efficacy. Instead, peginesatide had a higher incidence of adverse effects in the pre-dialysis population and an equal incidence of adverse effects in the dialysis population. Efficacy was non-inferior, but effects on blood counts seemed surprisingly poor in both the peginesatide and SOC groups in the dialysis population.

The share price was as low as 4 even after Affymax did the only thing they could do, which was submit the peginesatide NDA for dialysis patients only. Even after the Advisory Panel recommended peginesatide with a 15-1 vote in December, the share price was as low as 6. I figured at this point that the market had the drug pegged as a commercial failure. But in one of those phenomena that typifies the chaos of the sector, the share price proceeded to increase more than 100% ahead of the inevitable FDA approval.

Peginesatide must now displace entrenched competition in the dialysis population, despite the fact that it has neither stronger efficacy or better safety than the standard of care, and despite the fact that it had a worse side effect profile in the pre-dialysis population. Affymax's only avenue to compete is with a lower price, which I'm sure the makers of Epogen and Aranesp will find a way to counter. If I'm a nephrologist, I'm unconvinced.

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