Executives and investors in Thousand Oaks-based immunotherapy company Atara Biotherapeutics Inc. were left reeling last week after the U.S. Food and Drug Administration unexpectedly rejected the company’s lead drug candidate for the second time in less than a year.

The FDA notification came late on Jan. 9. Atara announced the rejection before market open on Jan. 12, sending its shares tumbling 57% over the course of the trading day. The stock price continued its slide the following trading day – by as much as 26% – resulting in the wipeout of more than two-thirds of the company’s market capitalization.

The FDA’s decision came as a total shock to Atara executives, said Chief Executive Cokey Nguyen. “We were completely blindsided by this,” he said in an interview with the Business Journal.

The drug, known as tabelecleucel, or tab-cel for short, and marketed under the brand name Ebvallo, targets a runaway immune cell condition involving the Epstein Barr virus in patients who have undergone organ or tissue transplants. Left untreated, some of the immune cells can turn malignant, leading to a lymphoma (blood cancer) that is difficult to treat and therefore often fatal. The drug is administered to patients with this post-transplant lymphoma condition where standard chemotherapy has been tried and proven unsuccessful.

While post-transplant lymphoma is relatively rare, Atara estimates that the market in the U.S. for the drug is still upwards of $500 million.

Success in Europe, but roadblocks in U.S.

Atara had been developing the drug in partnership with Paris-based pharma giant Pierre Fabre Laboratories, which now holds the rights to the drug. In late 2022, the European Commission approved Ebvallo for sale within the 27 European Union member countries.

Late last January, the FDA rejected the drug application to market the drug in the United States, citing deficiencies in the drug manufacturing process run by an unidentified third party. Representatives of Atara and Pierre Fabre Laboratories subsequently met with the FDA to map out a corrective course of action and then in August, the companies resubmitted the application to the FDA, fully expecting it to be approved. From that point forward, Pierre Fabre was the lead company on the application.

Instead of an approval, the FDA sent Pierre Fabre a “complete response letter,” the agency’s terminology for not granting an approval. According to Atara’s subsequent announcement, the FDA’s letter said among other things that the structure of the clinical trial for tab-cel was inadequate “to provide evidence of effectiveness for accelerated approval.”

“Never in our previous dealings with the FDA was there any mention of the clinical trial process being inadequate,” Nguyen said.

The FDA in its most recent rejection letter indicated for the first time the need for a “double-arm” clinical trial design, Nguyen said.

A double-arm clinical trial is what most think of when it comes to clinical trials: one group of participants is given the drug, while another group is given either a placebo or the existing standard therapy. The aim is to see how much more effective the drug is than those alternative options. Double-arm or even “multiple-arm” clinical trials are considered the gold standard.

But in cases of rare diseases or completely new therapies for conditions that might otherwise be potentially fatal, it can be acceptable to run a “single-arm” clinical trial where all participants are given the drug and outcomes are compared with predetermined or historical standards. This is the course that Atara and Pierre Fabre chose.

“For post-transplant lymphoma patients, this drug is a lifesaver,” Nguyen said. “It would have been unethical for us to choose a group of patients who would not be given this potentially lifesaving treatment. That’s essentially condemning many in that control group to death.”

Changed regulatory climate at FDA

As to why the FDA suddenly made clinical trial design an issue, Nguyen said he could only speculate at this stage. He noted that the FDA has been under pressure for decades from critics, who say lax clinical trial procedures lead to unsafe or ineffective drugs being given the green light to market.

One local bioscience expert agreed.

“We are seeing an environment where the FDA is increasingly rigorous,” said Stephanie Hsieh, chief executive of BioscienceLA, a Culver City-based industry catalyst group. “While I haven’t followed every granular change ‘on the ground’ under Commissioner (Martin) Makary this past year, it’s clear that a trial design considered acceptable a few years ago can face new scrutiny today.”

Of course, this can have devastating consequences for bioscience companies that spend years and tens of millions of dollars on clinical trials. Hsieh said that roughly 90% of pharmaceutical drugs that enter the clinical trial stage never make it to final FDA approval, with the vast majority being terminated after one or more clinical trials show the drug is unsafe or doesn’t significantly improve outcomes over and above the standard therapies.

Now, even the slim percentage of drugs that do make it through to the FDA for consideration of approval face tougher odds of getting through than before, Hsieh said. Particularly distressing is when the criteria for approval change.

“When the regulator changes its mind on ‘acceptable evidence’ mid-stream, it can catch even the most seasoned management teams off guard – not to mention being pricey,” she said.

All hopes on meeting with FDA

The next step is for Pierre Favre to request a “Type A” meeting with the FDA to go over the agency’s concerns and try to come up with a path to approval going forward. Once the FDA receives the request, the meeting must be held within 45 days.

For Pierre Fabre, a pharma giant with more than $3 billion in revenue in 2024 and over 140 marketable drugs in its portfolio – including tab-cel in Europe – this meeting would be about recouping its investment.

However, for Atara, which was founded in 2012 to commercialize a T-cell platform that the Thousand Oaks pharma giant Amgen Inc. had decided to pass up, this meeting could be existential. Tab-cel is Atara’s only revenue source for the foreseeable future as the company was forced last year to halt development of other drugs from its T-cell platform.

As it stands, Atara is now only a shell of its former self. Five years ago, as the company was conducting clinical trials on tab-cel and developing several other drugs from its T-cell platform, Atara had roughly 440 employees, according to its 2020 10-K annual report filing. This month, there are only 14 full-time employees remaining following multiple rounds of layoffs.

In its announcement of the FDA complete response letter, Atara said it had approximately $8.5 million on hand in cash, cash equivalents and short-term investments.

The company had been expecting a $31 million milestone payment from Pierre Fabre once tab-cel was approved by the FDA. But even in the best-case scenario, that payment will now be delayed months. And if after the Type A meeting with the FDA does not offer a clear path forward toward approval, the milestone payment will not come at all.

When asked about the length of the company’s cash runway, Nguyen said that was still being determined, based on a final reckoning of the company’s expenses last year.

“We have been cutting expenses dramatically, as our headcount shows,” he said. “Two years ago, our expenses were north of $200 million. Last year, they were about $50 million. And this year, the expenses will no doubt be much, much less than that.”

Nguyen said that the company’s fourth quarter and full-year earnings release due out in March should have more detail on the cash runway.

If no FDA approval, end of the road for Atara?

Nguyen said he remains optimistic that the presumed meeting with the FDA will result in a path forward for approval of tab-cel.

“I believe the fact that this same drug has been approved for sale in Europe for more than three years is a big factor in our favor,” he said. “In addition, this drug is vital for patients who have tried chemotherapy to combat post-transplant lymphoma only to see that treatment fail. It’s a very important drug to get to patients.”

If a path forward for the drug with a relatively short time frame does come out of the meeting, then Nguyen said things would return largely to where they were before the FDA’s complete response letter – except a little delayed.

However, if the Type A meeting with the FDA ends with a long path forward to approval or – worst of all – no path forward – the outlook for Atara’s viability is uncertain.

Walid Sabbagh, chief executive of the Southern California Biomedical Council, a Westwood-based industry trade group, said that since the drug has already been approved in the European Union, attempts could be made to get speedy approvals in other international markets while the process with the FDA plays out. Then, Atara could get more milestone payments down the road.

Even if Pierre Fabre were to pursue that strategy, it would do little to address the more immediate cash crunch that Atara is facing.

Nguyen said that if the meeting with the FDA does not result in a clear path forward, Atara will face some stark choices.

“It becomes an existential question for us if our lead asset is dead,” he said.

“I would note that we are a public company and, as such, there is always the option of a reverse merger, particularly as a cheaper alternative than an IPO for a private company seeking to go public,” he added. “We haven’t explored this and similar options thoroughly, but we know that people are out there in the wings if it comes to that.”