AVEO Pharmaceuticals– Attractive following recent de-risking events

AVEO (AVEO) is down 45% in less than 3 months due to uncertainties around its lead program, tivozanib. Tivozanib was recently submitted for FDA approval in renal cancer based on positive phase III data showing superiority over the approved drug, Nexavar. Although tivozanib led to superior progression-free survival (PFS) and was substantially safer than Nexavar, investors are concerned about Regulatory and market positioning risks.

The regulatory risk stems from concerns about a negative overall survival trend in the phase III trial. This might cause the FDA to require additional data or even worse, additional studies before approval. This uncertainty will be resolved next year, following FDA’s decision to approve or reject tivozanib. Despite the inferior overall survival trend, I believe there is still a high (75%) likelihood of approval for reasons I will discuss below.

From a market positioning standpoint, tivozanib will have to compete with 2 similar drugs that are already approved for 1st line renal cancer. Pfizer’s (PFE) Sutent is the market leader, approved in 2006. GSK’s (GSK) Votrient was approved in 2009 and is expected to steadily take market share from Sutent.

Originally, I was more worried about tivozanib’s market position, as AVEO’s trial did not include a comparison with Sutent. In a post published earlier this year, I suspected that based on the available data at the time, tivozanib was safer but less effective than either approved 1st line drugs or Inlyta, which was in phase III. Two recent data readouts imply my initial assessment was wrong and that tivozanib is indeed a best-in- class drug.    

Regulatory risk

The regulatory risk centers on FDA’s concerns over an inferior survival rate for tivozanib compared to the control arm (77% vs. 81% survival at 1 year). Although several renal cancer drugs have been approved based on PFS without a survival advantage, this is the first time where a PFS advantage is followed by a negative survival trend.

This discrepancy can be explained by the cross-over design AVEO used, which allowed patients in the control arm to receive tivozanib after progressing on Nexavar. As a result, almost 60% of patients in the control arm went on to receive tivozanib as a 2nd line therapy. Among patients in the tivozanib arm this rate was 24%, only half of whom received a targeted agent.

Although AVEO’s explanations sound more than plausible, some analysts are still concerned about FDA’s reaction. In particular, they claim the FDA cannot ignore even a non- statistically significant negative survival trend.

Market positioning risk

Tivozanib’s biggest selling point is its benign safety profile, which includes dramatically fewer side effect compared to Sutent and Votrient. While comparing efficacy endpoints between different trials is considered problematic, doing so with safety profile is considered more reliable. Consequently, when given the choice, patients are likely to prefer tivozanib assuming it is at least as effective as Sutent/Votrient.     

Interpreting tivozanib’s efficacy is trickier as it has never been directly compared to standard treatment lines. In its phase III, tivozanib led to a median PFS of 12.7 months vs. 9.1 months for Nexavar. Numerically, this compares favorably with historical data for Sutent and Votrient (~11 months), but Nexavar’s performance in that trial  was substantially better than its historical data (~5.5 months). This prompted me to suspect that patients in the tivozanib trial enrolled patients with better prognosis and therefore, tivozanib’s numbers should be taken with a grain of salt.

Two de-risking events

Recently, two important phase III readouts provided 1st line data which strengthened tivozanib’s bull case.

In September, GSK reported results from a phase III trial comparing Votrient vs. Sutent in 1st line renal cancer. Both drugs performed worse than previous trials, with median PFS of 8.4 and 9.5 months for Votrient and Sutent, respectively. This result keeps tivozanib’s 12.7 months as the highest PFS ever to be achieved in renal cancer. Although there is a reasonable chance tivozanib is indeed more effective, there is still no direct proof for that.  

Earlier this month, Pfizer reported that Inlyta failed to demonstrate superiority over Nexavar as 1st line treatment, which was very surprising given the drug’s strong performance in 2nd line patients. Actual data were not disclosed but it seems likely that the Nexavar arm demonstrated a similar PFS similar to that observed in AVEO’s trial, thus alleviating concerns about a “better” patient population in tivozanib’s study.

Combined, these readouts removed a major overhang and support tivozanib as a potential best in class.


The best benchmark for Tivozanib’s opportunity is Sutent, which had ~$1.2B in sales in 2011. Sutent derives the majority of sales from 1st line renal cancer, but it is important to note that not all patients are treated with Sutent and some patients discontinue treatment due to side effects. Therefore tivozanib should generate higher sales per patient based on longer average treatment duration.

AVEO partnered tivozanib with Astellas and has co-development rights for tivozanib in the US and EU. Estimates for AVEO’s revenues in renal caner in 2016 are in the $200M-$250M range. This factors-in the profit share with Astellas and royalties to Kyowa Hakko Kirin, from which AVEO licensed tivozanib in 2006.

Using a sales multiple of 5 and a discount rate of 8%, which reflects the low commercial risk, AVEO’s valuation is ~770M assuming tivozanib is approved next year. Applying a probability of approval of 75%, the risk adjusted worth of AVEO’s renal cancer franchise is ~$575M, 70% higher than its current market cap of $338M. This figure assumes zero value in case of a regulatory setback. It also excludes additional indications for tivozanib as well as AVEO’s pipeline (ErbB3 and RON antibodies), which is still in early stage.

Portfolio update 

We are initiating a new position in AVEO given the recent re-risking events.

         Portfolio holdings for Oct 21st 2012



36 thoughts on “AVEO Pharmaceuticals– Attractive following recent de-risking events

  1. Great article! Very good discussion about risk and evaluation.
    The news in August was that the FDA had some concerns over the data from the clinical trial and that AVEO plan to submit additional data. Did they provide the data and do you know what information was requested?
    Did they publish the OS data when the cross-over patients are excluded? This may clear the picture.
    About YMI – do you still plan to write an article about them? YMI dropped quite a bit recently and today I added to my position. But I am still concerned about the potential partner and Phase III trial. This info is overdue by at least half a year. Do you have any idea why it takes so long to find a partner?


  2. My gut instinct on this one is to wait until after potential FDA approval before ever considering a position. FDA approval doesn’t guarantee it will be a success in the marketplace and I imagine there will be lingering concerns after any potential approval about the fit in the marketplace. Obviously if there are any issues with FDA approval, there would seem to be further downside.


  3. Andre-
    We know what the FDA asked based on what AVEO reported. It looks like the OS HR was the main issue but there were probably others such as geographical distribution, early deaths while on treatment etc.
    I don’t know whether there were additional issues.
    I am not aware of an OS analysis based for patients who didn’t cross over but that analysis is confounded by many factors and might create two arms that are not comparable.

    Re YMI –
    I plan to write about a lot of things but eventually I am limited in the amount of time I have for writing.
    JMP just issued a note about expecting a meaningful announcement, either initiation of p3 alone or a licensing deal by JPM conference in January.Other than that I agree, it’s taking YMI more time than it should.



  4. mcbio, the underlying rationale behind buy AVEO is that the market assigns a lot of risk to the regulatory issues. You are right about the competitive landscape but according to the data that’s out there, tivo looks like the best VEGFR inhibitor in RCC.



  5. Thanks Hammer. As always, respect your opinion. Will continue to keep an eye on AVEO. Took a nice position in ARQL post-plunge. Hope ARQL works out for both of us going forward. Also took a small position in ASTX recently. Am hoping to add to that position soon.


  6. Ohad,

    Do you have an opinion on ASTX? They have now commenced a Phase II trial in NSCLC with their HSP90 inhibitor. To my untrained eye, the trial looks better designed than SNTA’s.


  7. I am following them but to date and like their diversified pipeline but i couldn’t find a compelling enough story there.

    SNTA has 2 different trials in ALK+ lung cancer, both in criz naive, so in that population we should get a good sense of the drug’s activity.



  8. Ohad: I’m long ASTX mainly for the 2nd gen Dacogen. ASTX reported before that a prior study of the 1st gen Dacogen+carboplatin yielded 35% RR in platinum-resistant/refractory ovarian cancer patients. And ASTX claims 2nd gen Dacogen has up to a 4-fold longer half-life than 1st gen. ASTX has now expanded testing of 2nd gen Dacogen into solid tumors.


  9. http:// ir.celldextherapeutics.com/releasedetail.cfm?ReleaseID=716788

    hi Ohad!

    what is your position on cldx right now, and also the recent news?


  10. ARRY

    “Array ended the first quarter of fiscal 2013 with $68 million in cash, cash equivalents, and marketable securities.”

    seems quite low by now – financing close?


  11. Christian: ARRY burned about $13M during last quarter, which equates to about 15 months of cash remaining at that burn and cash balace of $68M. ARRY may well do an offering soon but I also don’t think they are in dire straits financially. (They do have the debt but it’s not due until 2015/2016.)


  12. CLDX’s recent data is nice but the value of early stage cancer vaccines is limited. The primary catalyst for 2013 is cdx11, starting updated data at san antonio breast cancer meeting.

    Hard to predict when ARRY will raise funds, i would wait until azn starts p3 in lung cancer.



  13. Ohad,

    Any insight into today’s updates from AVEO and ARRY? I’ve read the transcripts but would like your experienced opinion.

    Good call on selling THLD.

    Thanks as always.



  14. Interesting on arry in that they think they have biomarker to predict 520 response. May help them better target patients for better response.


  15. AVEO – Restructuring doesn’t influence its prospects, regulatory risk is still the main overhang and we should expect to stay that way until FDA decision in mid-2013.
    Until then two milestones are FDA acceptance next month and updated OS data at ASCO GU next year.

    ARRY – I still view it as a great story, many irons in the fire. Agree with mcbio, a potential biomarker for 520 could be very important, but it’s hard to predict right now.



  16. Ohad,

    A doctor friend of mine thinks the real gems of the CLDX pipeline are CDX-1127 and CDX-1135. the latter for dense deposit disease, which this doctor believes will be a game-changer in that disease, although it is a limited patient population.

    Any thoughts on ECYT’s CC today?


  17. McBio,

    Where did you get the idea that ARRY’s cash burn last quarter was $13 million? Here’s Mike Carruthers, CFO, on the CC:

    “Our cash equivalents and marketable securities as of the end of September is $68 million, reflecting a net $22 million burn or use of cash during the quarter. This is about $3 million to $4 million higher than we had projected because the accounts payable on accrued expenses were at a very high level at the prior quarter ending in June and have since come down.”

    Guidance is for the same this quarter. About two quarters left of cash at the end of this calendar year.


  18. Richard:

    Sorry as that’s what I understood from the ARRY earnings PR. Sounds like burn was inflated and will come down in future. So maybe burn is more in range of ~$18-$19M/typical quarter. Sounds like ARRY has cash to get them to calendar 3Q13. They may well do a raise soon but that doesn’t scare me off personally (believe stock popped after last raise). I will continue to hold my shares here.


  19. Richard Baker,

    Both drugs are innovative and interesting but still no clinical data. DDD is an interesting indication, no doubt.

    ECYT – they’re making nice progress i m still skeptic about EU approval.



  20. Ohad: any thoughts on the ARRY ASH news/CC today? Per the CC, ARRY claims ONXX has had discussions with them about co-funding 520+carfilzomib trials. Thought that was interesting.


  21. Interesting indeed. 520 certainly has activity in myeloma and the response rate with dex looks ok (but not stellar) in very heavily pretreated patients. I wonder how it would look like in earlier treatment lines. The biomarker part is intriguing but very preliminary, hard to tell.



  22. imgn i ended up adding to my position at low 11 after the big drop (sold on your advise at high 16 1/3 of my holding). Could not see it going to 10 and today’s news might not give us better opportunities.


  23. If they do it under $4, it’s a great entry point. Their pipeline has undergone a transformation since last summer. Both MEKs will start p3 next year, 520 is active in myeloma, 797 has good efficacy data in OA not to mention many active partnered programs that could generate value next year.

    NVS are taking MEK162 to p3 in NRAS+ melanoma.



  24. Ohad: I completely agree with you on ARRY. I added again recently (too bad didn’t time it until after this financing). Note per the NVS R&D Day, that they are also pursuing MEK162 in combo w/two NVS PI3Ks in solid tumors. Agree with you on 520 and 797. You didn’t mention 614 (MDS) and I think that could end up being the most important drug in pipeline. 520 and 614 are key because both now have PoC, will be in pivotals next year, and ARRY has already said they intend to keep U.S. rights for both drugs. The economics are there if ARRY can deliver on the data (obviously no guarantees).


  25. Hello Ohad
    where can I find the timeline for fda approvals?
    you said AVEO – until FDA decision in mid-2013.
    where can I track this info?
    and giving that didnt you get into aveo to early?



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