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FDA Panel Nod for J&J's Esketamine Is Good News for Allergan, Vistagen

- By Matt Winkler

In what could be called an unexpected and pleasant surprise this week for Johnson & Johnson (JNJ), an FDA panel voted overwhelmingly in favor of approval for esketamine, trade name Spravato, for treatment-resistant depression (TRD).

Esketamine is the molecular mirror image of the sedative ketamine, often prescribed off-label for severe cases of depression involving the risk of suicide. The recommendation itself perhaps wasn't entirely unexpected, but the lopsidedness of the vote in favor in light of both efficacy shortcomings and obvious risks of addiction associated with esketamine was what made the vote so surprising.

A 14-2 vote in favor was certainly a great outcome for the pharma giant, as two out of three Phase III trials for esketamine failed to meet primary endpoints. Further, some truly weird side effects including dissociation, hypoesthesia (body-wide numbness) and dysgeusia (disturbance in taste), in some cases severe at higher doses, were reported. These concerns were not enough though to persuade most panelists to vote down the drug.

While the implications for Johnson & Johnson itself are of course positive, they could be even bigger for two other companies developing similar drugs. These are Allergan (AGN), developing Rapastinel, and Vistagen (VTGN), trialing AV-101.

Both drugs in development are similar to esketamine as far as mechanism of action, but much different insofar as side effects go. All three drugs work to relieve symptoms of depression by affecting the NMDA receptor in the brain, though each in different ways. Esketamine, like ketamine, blocks the receptor directly, while Rapastinel and AV-101 bind to a different neighboring site to modulate rather than block the receptor.

The vote is very positive news for both companies because the panelists seemed to be particularly impressed with the fast-acting nature of esketamine and the fact that its mechanism of action is different from other antidepressants. Contrast this with an FDA panel vote back in October that overwhelmingly rejected Alkermes' (ALKS) depression drug ALKS-5461 by 21-2 because panelists were wary of its mechanism of action as an opiate. Esketamine may eventually end up being as addictive as an opiate, though this didn't seem to factor in to the final voting considerations.

What this means is that Allergan and Vistagen do not have a very hard act to follow. Their drugs could theoretically fail two out of three pivotal trials, exhibit severe side effects and still be approved with esketamine as a precedent. The chances of a similar side effect profile for either of them compared to esketamine, however, are remote. Early trials for both show a much less extreme side effect profile.

In terms of who's ahead, Allergan is at the tail end of Phase III trials with results expected any time now, though approval is not expected until after 2020 because long-term maintenance data needs to come in first. Vistagen's AV-101 is undergoing Phase II trials now with results expected in the first of half of the year, though the ongoing trial is small with only 20 patients enrolling.

So Allergan is clearly ahead here developmentally, but Vistagen does have two advantages. First, AV-101 is oral, while Rapastinel is an IV injection that can only be administered in a clinical setting. Esketamine by comparison is a nasal spray. This makes AV-101 much more marketable, so even if Rapastinel is the first to market, AV-101 could quickly overtake it if approved as well. Second, AV-101 is also being trialed for Parkinson's dyskinesia and neuropathic pain. These trials are a ways off, but would bolster AV-101's market value longer term.

Both Allergan and Vistagen moved higher on the back of the Johnson & Johnson news, though Vistagen has settled back down. Of the three companies involved in this new space, Allergan is probably the safest pick here, the stock being down over 58% from all-time highs set in 2015. Johnson & Johnson still has to deal with ongoing talc lawsuits that are a dark overhang on shares until the appeals process is exhausted, which could take years. As for Vistagen, it probably has the highest upside since the company's value is almost entirely based on AV-101's prospects, but it is also the highest risk.

Disclosure: No positions.

This article first appeared on GuruFocus.