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PropThink: Tivozanib and AVEO: Valuation Suggests Upside Ahead of FDA Decision

December 28, 2012 - London

It seems that shares of AVEO Oncology (NASDAQ:AVEO) may have finally found their bottom. The oncology drug-developer bounced off of support at $6 (a triple bottom) early this week before beginning a brief uptrend, in-part fueled by insider buying last week. More importantly in the long-run, however, the FDA has accepted AVEO's New Drug Application for tivozanib, a potential first-line treatment for Renal Cell Carcinoma (RCC), and set a July 28, 2013 PDUFA date for the VEGF inhibitor. Notably, tivozanib outperformed its potential competitor Nexavar (sorafenib) in the Phase III TIVO-1 study, which reported data earlier this year and compared the Progression Free Survival (PFS) benefit of the two drugs. But a secondary, arguably more important endpoint, Overall Survival (OS), proved a miss, as slightly more patients on tivozanib had passed away after one year. AVEO shares declined from $17 early this year to around $6 in November, an all-time low for the stock and a clear sign that expectations for tivozanib have gotten progressively worse following the survival data. Additionally, short interest in the stock climbed three-fold since March. What was once a high-expectation play in the oncology space has turned into a chancier investment as trial results proved less decisive than expected and FDA sentiment remains unclear. But if AVEO reports rosier OS data in February and tivozanib receives FDA approval in mid-2013, investors will see quality returns. The chances of approval, we believe, are good based on the FDA's acceptance of PFS as an endpoint in past oncology treatments (cabozantinib for instance), and the question of long-term success will then fall to tivozanib's marketability. We expect interest in AVEO to continue to increase in 1Q13 as a number of events approach - namely, pivotal OS data presentation in February - with trading peaking ahead of the mid-2013 FDA action date. With shares near their 52-week lows and the market largely discounting tivozanib's approval and success, AVEO stands a good chance of delivering returns.

Mixed results raise questions for Tivozanib's prospects. Tivozanib's efficacy will come under close scrutiny as it enters the review process, and although the FDA has not yet announced involvement from the Oncologic Drugs Advisory Committee, it seems likely considering tivozanib's mixed data. In the Phase 3 TIVO-1 trial, pitting tivozanib against the approved first-line RCC treatment sorafenib, tivozanib demonstrated a median PFS of 11.7 months compared to sorafenib's 9.1 (HR of 0.797, P=0.042). In a subset of treatment-naive patients (70% of total), tivozanib demonstrated a median PFS of 12.7 months vs. 9.1 for sorafenib (HR 0.756, P=0.037). While a statistically significant improvement, investors and the FDA have instead focused on the 77% of tivozanib patients who achieved one year OS, compared to the 88% of sorafenib patients who did the same. The FDA subsequently communicated that the OS data will be a concern going into the review process, and these issues have pressured the stock in the second half of 2012.

AVEO explains the OS results from TIVO-1 as a result of crossover between the two arms of the trial, a valid element that could certainly confound Overall Survival data. In the trial, 53% of Nexavar patients went on to receive subsequent therapy, primarily with tivozanib, while only 17% of patients treated with tivozanib followed with supplementary therapy. The benefit from multiple treatments are obvious, and certainly may have impacted the results. Additionally, says the company, not enough patients in the 517-patient trial had passed away at the time of the data release to properly determine a mature median OS figure. Continue reading.

See "Tivozanib and AVEO: Valuation Suggests Upside Ahead of FDA Decision" at 

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