* FDA says device not proven, could cause harm
* Agency staff say Mela needs a new clinical trial
* FDA advisers to review device on Thursday
* Mela shares down as much as 56 pct
* Analysts see new trial, Mela may need to raise money
(Adds analyst comments, details; updates stock movement)
By Susan Heavey and Esha Dey
WASHINGTON, Nov 16 U.S. health regulators said
Mela Sciences Inc's MELA.O experimental device to help
diagnose deadly skin cancer could cause harm because of the
potential for misdiagnosis, wiping out more than half of the
company's market value.
FDA staff pointed to numerous problems with Mela's study of
the device, called MelaFind, including a significant lack of
data, and urged a new clinical trial. But analysts saw major
stumbling blocks ahead and were doubtful the company had enough
resources to conduct another study.
"The FDA review team has significant concerns this device
has not been studied adequately for its current indications for
use and therefore puts the health of the public at risk," the
U.S. Food and Drug Administration said in documents released on
Irvington, New York-based Mela's shares were down 53
percent to $3.01 in heavy volume trading on Nasdaq. They had
touched a low of $2.80 earlier in the day.
The documents were released ahead of an FDA advisory panel
meeting Thursday to weigh whether to approve the device for use
in detecting melanoma. While the FDA will make the final
approval decision, it often follows the advice of its
The concerns raised by the FDA staff are "problematic at
its best" and investors should be warned, WBB Securities
analyst Steve Brozak said.
"This now comes down to two main questions -- does Mela
have enough resources to address the issues and, if not, what
is the salvage value of the technology," Brozak added.
As of Sept. 30, Mela had about $35.8 million in cash and
cash equivalents and said it was enough to fund operations for
at least 12 months.
However, the company had also said in a regulatory filing
that it might require additional funds to "achieve significant
commercialization of MelaFind."
Boenning & Scattergood analyst Greg Chodaczek said the
company would need to raise money to do a new trial.
Failing to raise capital could also prompt Mela to look for
a partner, Chodaczek said, noting that bigger firms with
diagnostics business such as General Electric Co's (GE.N)
healthcare unit GE Healthcare and Siemens AG (SIEGn.DE) might
be interested in the technology.
Chodaczek expects MelaFind to get approved by the first
quarter of 2011 and sees sales of $9.8 million in 2011 and
$42.1 million in 2012.
MELA DISPUTES FDA'S VIEW
The company has already seen various delays, with the FDA
asking for more data and later postponing the meeting of
outside advisers now scheduled for Thursday.
In its own documents, Mela outlined 13 areas of
disagreement with the FDA. The company has said its noninvasive
computerized system can help physicians diagnose early melanoma
when more information is needed in deciding whether a skin
biopsy is necessary.
Mela said the FDA staff believes that "the fatal risk of
missing melanomas (two of 127) is not worth the marginal
benefit of a clinically meaningless reduction in biopsy ratio
compared to dermatologists."
The company said this view was "completely without
Boenning's Chodaczek said that while the device missed some
melanoma cases, it still has significant benefits compared with
dermatologists, who miss more.
"You are comparing the device with the best of the best
dermatologists in the country ... who miss about 15 percent to
20 percent of the melanoma cases," he told Reuters.
Brozak, who has a "sell short" rating on the stock, said
the shares were heavily overpriced, but does not see Tuesday's
sell-off as an overreaction.
More than 10 million shares, which is 10 times the
company's 10-day average volume, had changed hands by Tuesday
The stock had fallen 38 percent this year, before Tuesday's
FDA posted the documents on its website at
(Reporting by Susan Heavey and Esha Dey; editing by John
Wallace and Gerald E. McCormick)