Is the die cast for Avandia or can GSK reverse momentum?

Is the die cast for Avandia or can GSK reverse momentum?

Merrill Lynch has joined the growing list of companies downgrading GlaxoSmithKline (NYSE:GSK) over the Avandia controversy. Although the stock opened lower it has since recovered and is now trading in positive territory.

The question for GSK is can they reserve the negative momentum surrounding Avandia or is the die cast against the drug? Diabetic Investor sees the main problem being one of time or should we say the lack of time to prove their case. While endocrinologists and researchers debate the merits and motives of the study published in the New England Journal of Medicine, patients are dropping out of clinical trials involving Avandia and physicians are switching patients to alternate therapies. GSK is caught in the unfortunate situation of having to disprove a negative. The perception in the public domain is that there is a serious problem with Avandia.

The fact of the matter is any clinical trial designed to prove that Avandia usage does not cause adverse cardiovascular events will take time to complete. Time is something that GSK does not have. Facing further scrutiny by the FDA, GSK must rely on studies that have already been completed which where not designed to look for cardiovascular events as the primary endpoint. This puts the FDA in an equally difficult position as they may no choice but to issue a “black box” warning until new studies can be completed or existing data is reevaluated. The FDA may not believe that Avandia deserves such a warning but feeling the heat sees this as the safest move as it would allow them time to investigate. Should it turn out the concerns surrounding Avandia are unwarranted the warning can always be removed; if on the other hand the concerns are valid the FDA can state they took the appropriate action and was not over-reacting. Either scenario is not good for GSK as any warning would effectively kill Avandia sales.

Even if the FDA does nothing in the near term, an unlikely scenario, patients and physicians are taking matters into their own hands. Using the internet Avandia patients are aggressively researching what options are available. Physicians, many of whom believe in Avandia, must decide is it better to safe now than sorry latter. Many are opting to take the safe route and are switching patients to alternate therapies believing that if the FDA does nothing they can always go back to Avandia. The problem for GSK is once a patient goes off Avandia there is no guarantee they will ever return even if the FDA clears the drug.

It is difficult to come up with a scenario where GSK does not see serious erosion to this once valuable franchise. From Diabetic Investor’s perspective the clock is ticking and time is running against GSK.

David Kliff
Diabetic Investor
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