MelaFind Approval Is Positive for Verisante

September 26, 2011 |

V.VRS

MelaFind Approval Is Positive for Verisante
Brian Marckx, CFA

This morning MELA Sciences (MELA) announced that the FDA issued an approvable letter in response to its application seeking regulatory approval for its MelaFind skin cancer detection device.  The approvable letter requires MELA to finalize their labeling, package insert, users guide, training program and clinical protocol for a post-approval study before the agency will grant approval.  MELA held a conference call this morning and noted that they expect to have everything finalized for a planned Q1 2012 U.S. launch.   

As a reminder, MelaFind has been tied up in the regulatory approval process since MELA's June 2009 initial filing as a result of less than compelling clinical trial data.  In clinical trials MelaFind was shown to have 98% sensitivity but only 9.5% specificity.  Specificity was (statistically) significantly higher than that of dermatologists (3.7%) but the data did not impress well on regulators.  In March 2010 the FDA returned with an approvable letter and later convened an advisory panel to weigh in on the decision whether to approve.  After digging into the details of the data, the FDA concluded that MelaFind was actually less accurate than dermatologists in detecting melanoma.  The agency characterized the benefit seen in the data as “clinically meaningless” as the device not only does not reduce the number of biopsies, it actually increases the number that doctors would need to perform.

Despite this, the FDA advisory panel actually voted 8 – 6 in favor that MelaFind is effective, 10 – 6 in favor that it is safe, and 8 – 7 in favor of approval based on the potential benefits outweighing the risks.  While this morning's approvable letter still requires MELA to clear a few hurdles, they are relatively low and FDA approval now seems highly likely.  

While MELA will have first mover advantage in the U.S. (we model Aura to launch in the U.S. in 2014), in our opinion, MelaFind's impending FDA approval is an overall positive event for Verisante and its Aura skin cancer detection device.  We point to two reasons why this is good news for Verisante;

1)  MelaFind's clinical data showed 9.5% specificity (i.e. - MelaFind's false positive rate was very high) which compares to specificity of about 70% (with sensitivity of 100%) for Aura from top-line data from a 1,000+ lesion study.  While the full data set may show lower accuracy than the top-line data did, FDA has indicated with it's impending approval of MelaFind that the bar is set very low which may be a relatively easy hurdle for Aura to clear.

2) MelaFind's intended use is restricted to lesions with signs of melanoma but it is not indicated for detection of non-melanoma skin cancers.  Aura has demonstrated that it can detect both melanoma as well as non-melanoma skin cancers such as basal cell carcinoma and squamous cell carinoma.  Non-melanoma skin cancer represent approximately 96% of all skin cancer cases (and cause ~ 25% of skin cancer related deaths) - if Aura can gain an indicated use for non-melanoma skin cancers, it's target market would be extraordinarily larger than MelaFind's.


Verisante Technology with an Outperform rating and recently increased our price target from $2.25 to $2.60.  As noted, we view this morning's news as an overall positive event for Verisante and are maintaining both our Outperform rating and $2.60 price target.  


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