Biopharma Report

Achillion Pharma Breaks 52-week High, What’s Next?

2010-12-29T16:12:00.000-08:00

Achillion stock has been flat all year, underperforming the biotech indices as well as its peers in the Hepatitis C drug development community. The stock began to leap a couple days after the company announced that data from ongoing clinical studies of ACH-1625 has been accepted for presentation at the 21st Annual Conference of the Asian Pacific Association for the Study of the Liver (APASL 2011) to be held February 17-21, 2011. It has since climbed from $2.73 to close at $4.00 today, a 47% increase since the December 6th announcement.

So why all the excitement? Achillion had been making headlines all year; it promoted two new drugs into the clinic, began Phase II trials for lead candidate ACH-1625, presented at multiple industry conferences, and raised a total of $71.4 million in stock offerings.

The reason, I believe, is a key phrasing in the press release, “data from ongoing clinical studies of ACH-1625” was to be presented at the conference. There is only one ongoing study- a 144 patient Phase IIa randomized, double blinded trial of ACH-1625 in combination with ribavirin and peg-interferon alpha. The trial begins with a dose-ranging 28 day phase that will be evaluated to determine the optimal dose for the final 12 week treatment phase.

The company had initially targeted March 2011 for release of the first set of results. Having the ability to move the release date up to February speaks well for trial enrollment. This data will provide the first look at how Achillion’s lead candidate performs in a larger setting and importantly, in combination with current standard of care. ACH-1625 has already been shown to significantly reduce viral loads in patients by 3 to 4.25 log10 and maintain a sustained viral response even after therapy has stopped. It has also been shown to be safe up to 2000mg/day, a level far above the highest dose tested in this Phase IIa.

Pre-clinical studies show ACH-1625 to be additive-synergistic to ribavirin and peg-interferon alpha; this study will be a first look at how well those studies translate in the clinic. Although 28 days is still short, the multiple active drug doses as well as a placebo control will allow investigators to gauge in detail the effectiveness of ACH-1625 in this combination. In any case, a full profile of the compound and its potential as part of this three-drug regimen will be in known by the end of 2011. There’s a lot riding on it this study.

Aside from its lead compound, Achillion also has a lineup of several other HCV antivirals in development. The once promising ACH-1095, an inhibitor of the NS4A protease is in Phase I. It was originally developed collaboration with Gilead, but its rights have since been handed back to the company- though Gilead still retains the ability to op-in at a later stage in the compound’s development.

Early this year in January, a second NS3 protease inhibitor, ACH-2684, was nominated to enter clinical development. Interesting that they are developing additional NS3 inhibitors considering there are so many out there. This one is being positioned as more potent and effective against commonly seen viral mutants. It will enter Phase I trials in 2011.

The NS5A inhibitor, ACH-2928, was nominated in mid-year, it is also set to initiate Phase I testing in 2011. ACH-2928 is one of the few NS5A inhibitors currently in development. The most prominent competitor compound is BMS-790052 from Bristol Myers Squibb, currently in Phase II and looking pretty good. Both of these compounds have similarly high potencies in vitro.

Achillion also has some work in antibiotics and HBV, but they are not a major focus. The goal now is to push forward with their HCV pipeline. 2011 will be pivotal for the company as data comes in from its lead project. Funds raised during the year will allow it to complete both portions of the Phase II trial and at the same time initiate two separate Phase I studies. It will be interesting to see how the company chooses to proceed from there.

Long ACHN, BMY

Enzon Pharmaceuticals – A Two-Platform Company

2010-12-20T17:15:00.000-08:00

Enzon is a developmental stage company with a product in Phase II and two in Phase I. The biotech’s pipeline is powerd by two platform technologies- PEGylation, and Locked Nucleic Acid (LNA) antisense. I had a chance to speak with the company’s Chief Scientific Officer, Dr. Ivan Horak last week to discuss their drug pipeline.

The lead compound in Enzon’s pipeline is PEG-SN38, a PEGylated form of SN-38, the active metabolite of the chemotherapy, camptothecin. SN-38 is up to 1000 times more potent than its parent compound, but due to solubility problems, cannot be delivered on its own. Considerable research is being conducted to devise a workable solution, usually involving new formulations such as lipid encapsulation.

The solution Enzon came up with is the attachment of polyethylene glycol (PEG) using a special linker to enhance solubility, reduce toxicity, and increase stability. Dr. Horak believes the resulting compound they are developing is safer than that of other drug makers. In the Phase I setting, no dose limiting toxicities were seen, with only grade 2 fatigue and grade 2 neutropenia.

Dr. Horak suggests PEGylation of SN-38 has resulted in additional mechanisms of action not seen in the un-altered compound. SN-38 is known as a potent topoisomerase I inhibitor. PEG-SN38 is now being studied as an inhibitor of HIF-1α, a possibly oncogenic protein upregulated in tumors and involved in cell proliferation, survival, and angiogenesis. SN-38 does not have significant anti-HIF-1α activity. This behavior, Dr. Horak explains, makes PEG-SN38 more of a novel molecule than a new formulation.

The compound is now in a Phase II trials in 3rd line colorectal cancer and metastatic breast cancer. The colorectal trial will enroll a total of 220 patients, divided into 2 arms: in one arm, patients with mutated KRAS receive PEG-SN38 as single agent; in the second, KRAS wild-type arm, patients are randomized 2:1 to either PEG-SN38 plus Erbitux, or camptothecin plus Erbitux. The metastatic breast cancer trial will enroll 160 patients in a single agent study.

Enzon’s second platform is a third generation antisense technology called Locked Nucleic Acid (LNA), licensed from Santaris Pharma. According to Dr. Horak, LNA is a significant technological improvement over the previous generation, providing higher affinity, stability, and selectivity- so much so that the size of these new antisense molecules can be reduced from 20-22 bases (mers), down to between 10-15 mers while maintaining similar potency. Dr. Horak added that another benefit of these new molecules is lower immunoactivation compared older antisense molecules.

Aside from its lead compound, the rest of the company’s pipeline is built on LNA antisense. This includes EZN-2968, a molecule targeting HIF-1α and EZN-3042, which targets survivin. Both of these are in Phase I. A pre-clinical candidate targeting the androgen receptor is close to entering clinical trials.

Dr. Horak noted the NCI is working in collaboration with Enzon to test PEG-SN38 in combination with Avastin in a Phase I trial under the theory that suppression of HIF-1α by PEG-SN38 will disrupt an escape hatch used by tumors when treated with the anti-angiogenesis drug Avastin.

No Position

Biovista – a Dedicated Approach to Drug Repositioning

2010-12-20T14:30:00.000-08:00

Following up my previous piece on drug repositioning by Orexigen with its diet pill, Contrave, I spoke with Dr. Aris Persidis, President and co-founder of Biovista- a leading company in the drug repositioning business. Drug repositioning is the discovery and development of novel indications for approved drugs.

As Dr. Persidis told me in a phone interview, while studying drug treatment adverse effects (AEs), he and brother Andreas realized AEs themselves- as a result of a drug’s mechanism of action- represented therapeutic opportunities for that drug. Seeing a need in the pharmaceutical industry for such discovery services they launched Biovista together in 1996.

Biovista’s major technology is called Clinical Outcome Search Space (COSS). This technology is based on a computational approach to analyzing the mechanism of action (MOA) of all approved drugs of known diseases and adverse events. Based on this MOA approach, the technology is being applied both as a tool to predict adverse effects and discovery tool to find novel indications.

According to Dr. Persidis, of approved drugs, there are 23,000 indications and 29,000 possible clinical outcomes, creating significant opportunities for product development. While most drugs are developed for a single or multiple closely related indications, development for truly novel indications have usually been serendipitous- there has previously been little systematic effort to make these discoveries.

In Dr. Persidis’ view, this leaves many drug pipelines at risk of encroachment by competitor companies. Even while a drug is under patent protection, competitors who develop novel uses for that drug may file a patent on the specific use, leading to a lost opportunity for the innovator company. Dr. Persidis suggests Biovista’s technology can immunize their partner’s pipelines by identifying alternative uses before their competitors.

As a show of strength, Biovista signed a partnership deal with Pfizer on November 9 to identify three novel indications for a number of Pfizer drug candidates, for an undisclosed upfront fee and success based milestone payments. Dr. Persidis indicated that his company is on course to sign another such deal in 2011. Big Pharmas, he says, are now becoming increasingly interested in drug repositioning, with many forming dedicated units for that purpose.

Biovista’s AE prediction is another interesting facet of its technology. Through a licensing deal with the FDA, the company is working to predict patient adverse event to help guide healthcare providers. The collaboration is also being used to assist patient population selection with appropriate inclusion/exclusion criteria in clinical trials, based once again on mechanistic based AE prediction. According to Dr. Persidis, Biovista provides the analysis while the FDA works with the sponsor companies and ultimately makes the decisions.

Biovista is also developing its own pipeline of compounds through drug repositioning. While the company has not calculated the possible savings from developing repositioned drugs compared to novel entities, Dr. Persidis says they are able go from identifying a clinical need to pre-clinical development in a matter of weeks. On top of that, only two compounds need to be identified by the COSS system for actual laboratory testing, with 70% successfully achieving successful pre-clinical results. This compares well with the 3-5 years timeline for a typical discovery program.

The company now has candidates in Multiple Sclerosis, Epilepsy, among others. Dr. Persidis remarked that they intend to develop their compounds through proof of concept before contemplating licensing or partnership deals.

No Positions

Oncogenex Has Novel Products and Financial Flexibility

2010-12-14T11:15:00.000-08:00

Perhaps unprecedented in the realm of biotech companies, Oncogenex Pharmaceuticals has an astonishing four years of cash. It will end this year with approximately $83-85 million, enough to see it through the completion of three Phase III trials of lead candidate OGX-011 (custirsen) and two Phase II trials of the promising OGX-427.

Oncogenex is a developer of antisense-based cancer therapeutics. It shot out of obscurity during the 2009 ASCO with compelling data from a Phase II trial for custirsen in combination with docetaxel in late stage prostate cancer. Results showed custirsen was able to extend survival over docetaxel alone by 6.9 months and lowered the risk of death during the study by 39 percent.

Oncogenex ran up from a $5 stock in the months prior to ASCO to over $30. Investors had reason to be excited- Cougar Pharmaceuticals was recently purchased for $1 billion by J&J for their prostate cancer drug and Dendreon had just released results from their successful Phase III trial of Provenge, also for prostate cancer. Moreover, with only 6 million shares outstanding at the time, the stock was certainly prone to such volatility.

It would appear the company’s choice of partners has spoiled the fun. In December 2009, Oncogenex signed a deal with generics giant Teva Pharmaceuticals for $60 million upfront, $370 million in milestones, and tiered royalties from the mid-teens to the mid-twenties, with the opportunity to co-promote. The stock has since lost about half its value and now trades around $16.

Even as the stock has dropped, significant investor appetite remains. On October 22, the company was able to complete the sale of over 3 million shares, raising $46.7 million in gross proceeds. This is a huge dilution on a stock that today has only 11.8 million shares outstanding, fully diluted- yet it trades higher today than at the time of the offering.

Oncogenex has an interesting pipeline, but to make sure it gets over the goal line with the cash on hand, it is working only on custirsen and OGX-427, the two most advanced projects. Patients are enrolling in two ongoing Phase III prostate cancer trials.

The first, termed SATURN, was initiated in June 2010; its primary endpoint is whether durable pain palliation for 12 weeks or more is observed in a greater proportion of patients treated with docetaxel/prednisone plus custirsen compared to docetaxel/prednisone plus placebo in metastatic castrate-resistant prostate cancer (CRPC). The second, SYNERGY, compares overall survival in patients treated with either docetaxel/prednisone plus custirsen or with docetaxel/prednisone alone also in men with CRPC. Both trials are fully randomized. An eagerly awaited Phase III trial of custirsen in NSCLC will begin in 2011.

It is important to note that the costs for these Phase III trials are fully covered by Teva. The funds raised from the recent financing, therefore, allows for development to continue on the wholly owned OGX-427. Like custirsen, OGX-427 is an antisense molecule based on 2nd generation Isis technology. It inhibits the production of heat shock protein 27 (Hsp27)- a lesser known cousin of Hsp90, target of multiple drugs in development and subject of many large deals.

Both are what are called “molecular chaperones” that assist with protein folding and transport, and have been shown to be upregulated in a variety of tumors. While Hsp90 is well studied and has been well characterized, helping form the foundation of many of today’s ongoing development projects, Hsp27 on the other hand, is only now coming into its own as an oncology target.

OGX-427 is the most advanced candidate targeting Hsp27, and as far as I know, only one other biotech – a small European company – is also working on this target. This is a confirmation of the difficulty in targeting Hsp27 with small molecule compounds as well as testimony to the low level of characterization of the protein.

A Phase II study of OGX-427 sponsored by the British Columbia Cancer Agency has already begun in prostate cancer. The company will soon begin a second Phase II study of its own in metastatic bladder cancer- the 5th most diagnosed cancer. It will be a randomized three-arm trial enrolling 180 patients testing two doses of the study drug compared to control.

In summary, Oncogenex has candidates targeting two unique mechanisms through the novel antisense mechanism. On the plus side, antisense, unlike siRNA has overcome many of its delivery and targeting issues. To the extent results are an artifact of off-target effects- that should be put to rest by the biomarker results from the Phase I OGX-427 data. However, novel targets combined with novel technologies will certainly raise red flags during the regulatory review process, which may lead to delays.

My belief is these drugs will eventually prove themselves, but it is certainly a long-term play. Things may begin to get interesting after the Phase II OGX-427 as the company looks for a second partner to maximize the product’s potential.

No Positions

Has the Future Already Arrived for ImmunoCellular Therapeutics?

2010-12-12T20:25:00.000-08:00

Scientific and pharmaceutical-industry veterans were abuzz last week after the World Cancer Stem Cells Summit with the belief that cancer stem cells (CSC) are the future of oncology research and drug development.

Academic heavy-hitters, including Robert Weinberg of MIT and founder of The Whitehead Institute, University of Toronto's Peter Dirks, and Harvard Medical School's Kornelia Polyak, joined industry leaders in showcasing their latest findings on what very well may be the root cause of cancer.

In brief, the CSC hypothesis is based on evidence that tumors—like the rest of our tissues—are caused by stem cells, which encode instructions for generating tumor cells that don’t necessarily bear any resemblance to their creators. As a result, these CSCs may be immune to the treatments designed to target the tumors they create—and therefore are ready to cause relapse even when the tumor seems to have disappeared.

Says Dr. Weinberg, "The CSC hypothesis should provide a new way of targeting tumors since it should allow attacks on the CSCs, which may represent a major source, if not the major source of clinical relapse.”

He along with Dr. Dirks presented groundbreaking research showing that radiation- and chemotherapy-resistant CSCs are indeed the only tumor cells capable of causing cancer growth and metastasis. Effective, long-term cancer treatment therefore requires new therapies designed specifically to target these CSCs.

The recent proliferation of CSC-targeting drugs in pharmaceutical pipelines signals the shift of the CSC hypothesis from the fringe to the mainstream of cancer-drug development. Major industry players such as Pfizer, BMS and Medimmune presented preclinical findings on a wide range of CSC-based products and technologies.

While most of these programs are still years away from entering the clinic, what these companies presented were very much their vision for the future of cancer-drug development. For one of the smaller and lesser-known presenting companies, however, the future is already here.

Los Angeles-based ImmunoCellular Therapeutics provided an overview of its lead CSC-targeting vaccine program, which is starting a Phase II trial in glioblastoma multiforme (GBM). According to ImmunoCellular's President and CEO, Dr. Manish Singh, the company licensed the novel vaccine from Cedars-Sinai Medical Center, where it was developed based on research by preeminent CSC experts Dr. John Yu and noted brain surgeon Dr. Keith Black.

Similar to Dendreon's newly approved prostate-cancer vaccine Provenge, ImmunoCellular's vaccine, ICT-107, is made by harvesting special immune cells known as dendritic cells from the patient's body. These dendritic cells are then loaded with antigens that are highly specific to CSCs found in GBM tumors, effectively training them to seek out and destroy these CSCs once they are injected back into the patient's body.

Though it's still early, the Phase I data are highly encouraging.

"GBM is a notoriously progressive disease, with 90% of patients relapsing within 24 months," Dr. Singh explains. "In our Phase I study, about half of the patients remained in complete remission at two years, more than doubling the historical median disease-free survival time seen with the best standard of care."

Dr. Singh also notes that there have been no serious adverse events reported to date, being limited to fatigue and rash at the site of injection. The Phase II study, he says, will be a randomized, double-blinded, placebo-controlled trial in approximately 102 patients, which will be conducted at 15 leading centers in the US.

According to the CEO, ImmunoCellular Therapeutics is currently the only company focused exclusively on the development of CSC-targeting immunotherapies, with another "off-the-shelf" CSC vaccine expected to enter the clinic in the first half of next year.

No Positions

Orexigen’s Contrave- Making Waves Beyond Obesity Drugs

2010-12-10T15:10:00.000-08:00

The success of Orexigen’s weight loss drug, Contrave, with the FDA advisory panel highlights an important area in drug development- repositioning. Orexigen accomplished this by combining the off-patent drugs bupropion and naltrexone in a novel single pill fixed dose formulation. Bupropion is an antidepressant and smoking cessation drug while naltrexone is used to treat alcoholism and drug addiction.

This strategy is rarely used by Big Pharma companies, which prefer to pursue development of new chemical entities. But interestingly enough, three separate biotechs have developed just such products, all successfully completing clinical trials, each with significant sales potential.

Avanir has received regulatory approval with its PBA treatment, Nuedexta, a combination of dextromethorphan and quinidine. Vivus developed an efficacious fixed dose combo of topiramate and phentermine for obesity but received a CRL. It is, however, expected to gain approval sometime in 2011. And of course, there’s Orexigen’s combo diet pill, recommended by the FDA panel and now awaiting approval.

That is an amazing feat of coincidence, or perhaps it’s a wake-up call- after all, three diet drugs went up for approval, the one now furthest behind is the novel entity from Arena Pharmaceuticals.

The most often cited example of a repositioning success story is that of Thalidomide- going from a withdrawn treatment for morning sickness to cancer therapy. But the three drugs from Avanir, Vivus, and Orexigen, if successful, will surely go down in the record books as testimony to the possibilities available with drug repositioning of generics.

It is an old saw now to say that Pharma research productivity is declining. High failure rates and long development time lines result in the cost of each new drug reaching $1 billion dollars (estimates range from $800 million to well over $1 billion depending on the source). Even with this enormous cost, only 10% of a typical Pharma research budget is set aside for drug repositioning and reformulation [1]. Often, this work is part of a pipeline’s lifecycle management, not the pursuit of truly novel indications.

To escape the current cycle of patent expirations, Big Pharma has seemingly tried every trick in the book: inlicensing, outsourcing, cost cutting, mergers, generics, and geographic expansion. What is needed most is a way to continue innovating while managing the costs of discovery and development.

Finding new uses for old drugs fits that bill perfectly. The American Medical Association (AMA) estimates between 40-60% of prescriptions in the US are for off-label uses, indicating the potential of each drug to have multiple uses. While it may take between 12 to 17 years to develop a novel compound, this period can be reduced to between 3 to 12 years for a repositioned product [2]. This is in large part due to the considerable amount of data already compiled on older compounds. Repositioned drugs may also receive a somewhat easier FDA review process due to its long record of in-human use. If such data is used for the regulatory filing, a 505[b][2] application can save significant time and money.

There are certainly risks involved in repositioning generics, particularly with IP issues. But if companies can show the use of an old pharmaceutical product is new, surprising, or unexpected, they should be able to secure patent protection [3]. Additional layers of protection may come from proprietary formulations- such as the combination drug from Orexigen as well as a period of data exclusivity provided by the US and EU.

There is a large reservoir of generics in the marketplace. Some entrepreneurial biotechs are now sifting through them with a fine-tooth comb. Perhaps Big Pharma should follow suit.

1. Research and Development Strategies, Thomas Reilly and Nicole Yost
2. Getting The Drug Repositioning Genie Out Of The Bottle, Life Science Leader
3. Exploiting Newly Discovered Indications of Known Therapeutics, Melissa Hunter-Ensor, Ph.D, George W. Neuner, and Peter F. Corless of Edwards Angell Palmer & Dodge LLP

No Positions

Orexigen’s Contrave Receives Panel Backing- Great News For Vivus

2010-12-07T19:10:00.000-08:00

In a shock to watchers of recent developments in the area of weight loss drugs, the FDA panel of expert advisors voted 13 to 7 recommending the approval of Contrave from Orexigen. They also voted 11 to 8 with one member abstaining, that a long-term cardiovascular study should be conducted after approval of the drug.

Combined data from the Contrave trials involved a total of 4,500 patients, but only lasted one year. Results put it in the middle of the pack between Arena’s Lorcaserin and Vivus’ Qnexa. After the rejection of both Lorcaserin and Qnexa just months earlier, expectations were low for outright approval of Contrave. This was especially true considering Lorcaserin had been positioned as the safest candidate, yet dealt the heaviest blow.

Contrave is a combination of two well-known drugs, naltrexone and bupropion, in a sustained release formulation. It is thought to work through affecting both reduction of appetite and increase in metabolism. Both naltrexone and bupropion have known side effects, so not surprisingly the combination pill was linked to more cases of high blood pressure, some psychiatric side effects, dizziness and kidney dysfunction.

And although Contrave induced somewhat greater weight-loss than Lorcaserin, it too, only passed one of the FDA’s two benchmarks. On average, patients only had a 4.2% placebo adjusted weight loss. 5% is the FDA goal. It did hit the second goal with about 50% of patients achieving 5% weight loss. The FDA requires at least 35% of patients losing 5%, with that population equating to twice those on placebo. Success in either goal is deemed to be sufficient for efficacy.

Even with a positive recommendation, there is no guarantee of approval; after all, it is non-binding. A recent study shows the FDA only followed its panel recommendation 74% of the time. There may still be some doubt with panelists underwhelmed by the efficacy data and lack of sufficient safety data.

Suppose Contrave is approved in the first go round. Orexigen will have hit the jackpot. Some have estimated Lorcaserin sales could have peaked at $800 million (before the FDA panel meeting). With similar efficacy but a less optimal side effect profile, I would estimate peak sales for Contrave would be somewhat south of that. That leaves ample room in the market for a competitor drug.

This positive opinion bodes well for Qnexa. Vivus stock has risen significantly since the company received its relatively light complete response letter (CRL) from the FDA, which did not ask for any additional trials. It spiked another 10% on today’s news. Qnexa faced some similar concerns from the FDA as Contrave, involving cardiovascular and psychiatric side effects. The panel’s ability to take a balanced view and weigh the total risk/reward profile with only one year of data may signal a softening of stance at the FDA.

Vivus is now preparing its written response involving further analysis of its two-year trial data, which the FDA now has. The company will analyze cardiovascular data and assess the teratogenic risk of topiramate, one of the two ingredients in the combination drug. Topiramate’s possible teratogenicity is seen by many as a major reason for Qnexa’s rejection. Discussions are ongoing on a REMS plan for women of childbearing potential. The FDA is not requesting a complete REMS at the time of the written response, suggesting it may not be as overly concerned about this issue as the advisory committee.

This would only make sense considering topiramate has been on the market since 1996 and considered safe enough to treat migraines. An association between topiramate and birth defects is noted, but data is limited. One study published in the journal Neurology, Preliminary experience from the UK Epilepsy and Pregnancy Register, put the risk at about 4%. The average rate of birth defects is between 2 to 3%.

When Qnexa is approved, REMS measures will certainly impact sales, depending on the severity. But even if strictly limited to obese patients- that is, BMI >30, the target population is still very large with over 60 million obese adults in the US alone. I have no doubt Qnexa will do at least as well as Contrave despite being later to market.

Neither drug will work for every patient, but on average, superior efficacy combined with similar side effects gives Qnexa a clear edge.

Author has no positions

Revival of the One Trick Pony

2010-12-07T11:40:00.000-08:00

The In Vivo Blog had a very nice piece on the recent turnaround in Exelixis’ strategy- downsizing its broad portfolio to focus on its most advanced compound, XL184. This announcement came after promising results were reported for the compound in castration-resistant prostate cancer patients. Also being downsized is the company; following on the heels of a recent restructuring and change in CEO, Exelixis will cut its workforce by an additional 65% over the next two years, ending with around 140 employees. To paraphrase In Vivo, “as much as we like to talk about multiple shots on goal, many biotechs are ultimately forced to double-down on their best shot at success.”

Perhaps it is time we change our perception of the one-trick-pony. Biotechs with rich pipelines have historically been seen as lower risk investments due to the inherently high failure rate in drug development. Yet some of the most successful new crop of small drug developers began by focusing on a single drug. For example, Onyx has Nexavar, Dendreon has Provenge, Alexion has Soliris, and Imclone has Erbitux.

There are multiple benefits in devoting all of a company’s resources to a single project despite the concentrated risk. The project will receive management’s complete and undivided attention. Every lab assay, preclinical study, clinical site authorization will come under scrutiny; after all, success is paramount.

A high level of focus also forces companies to prioritize their drug candidates early in the development process. Only the best molecules with the highest chance of success go forward. This will increase management’s confidence in their candidate and conserve limited financial resources. Both will be necessary for the long approval process, especially considering the FDA’s extremely conservative stance of late.

A lower burn rate combined with higher quality candidates gives drug developers a significantly better chance of success relative to dollars spent. Even biotechs considered to have deep pipelines are focused on just a couple top priorities. This is a result of the new pragmatism in an economic environment of tight funding.

As witnessed with many biotechs, the launch of a single commercially successful product is a transformational event. With this, a one-product company can use its cash flows to build up a bona fide pipeline. Early stage projects once on hold can now be set free; acquisitions can give companies an instant pipeline boost. This is exactly what Onyx has done, combining internal research with licensing and acquisitions. Success with Soliris has given Alexion ample resources to develop its antibody for lymphoma.

In summary, rich pipelines may not be such a good predictor of success in biotech drug development. Sum-of-the-parts valuation may need to be re-evaluated.

Author is Long ALXN

Celgene Plunges on Revlimid Data

2010-12-06T16:32:00.000-08:00

Celgene shares lost over 8% in regular trading to close at $55.64 Monday after the company released clinical data for its multiple myeloma drug, Revlimid, at the American Society of Hematology (ASH) over the weekend. The stock lost another 3% after hours.

Revlimid is by far Celgene’s biggest selling product as well as major growth driver. In the third quarter, it accounted for 70% of total revenues, helping to drive YoY sales up 31% to $910 million.

The main concern brought up at ASH was data suggesting prolonged use of Revlimid increased the risk of developing secondary malignancies. Data presented from a study of Revlimid in long-term maintenance therapy showed 15 cases of secondary malignancies in Revlimid patients compared to six cases of secondary cancer in placebo patients. Perhaps more damaging was a pooled analysis of three studies involving 1060 patients compiled by ISI Group biotech analyst Mark Schoenebaum. Patients on long-term Revlimid treatment were associated with 32 secondary cancers, or 5.9%, compared to 9 secondary cancers, or 1.7%, in patients on placebo.

Growth in Revlimid sales has been driven in large part by progressively longer average use per patient. If this trend is stopped or reversed, sales will be negatively affected.

Meanwhile, analysts remained bullish on Celgene, maintaining the number of secondary cancers found in placebo patients seemed low for multiple myeloma patients. Thomas Wei of Jefferies for one continues to believe "Revlimid maintenance could become part of the gold standard treatment strategy for front-line myeloma."

In the mid to long term, the company is on track to file for Revlimid as front-line therapy in Europe by year-end and as front-line and maintenance therapy in the US next year. Analysts estimate such expanded usage may increase sales potential by 50%.

Author is Long CELG

MagForce- Revolutionizing Cancer Treatment With Nanotechnology

2010-12-05T22:49:00.000-08:00

MagForce is a Frankfurt listed company developing nanotechnology based therapies for solid tumors. Its patented technology is based on the superparamagnetism of iron oxide nanoparticles, which can be manipulated in a magnetic field. The company’s main product, NanoTherm, was approved in the EU in June 2010 for the treatment of glioblastoma.

Iron oxide nanoparticles is an active area of research in oncology. Initially studied as a cancer imaging agent for MRI scans, interest has grown in its use as a therapeutic. But aside from MagForce, all other developments are in the pre-clinical stage.

NanoTherm is an aqueous solution of iron oxide nanoparticles, each 12nm in diameter and coated in aminosilane. The aminosilane aids in preferential uptake and retention of the iron oxide by cancer cells. Studies in lung cancer cells showed a 15-fold increase in uptake by cancer cells over normal cells. The particles were also retained in the cells over multiple generations.

Treatment with NanoTherm involves injection of the magnetic solution directly into the tumor where it is actively taken up by malignant cells. This procedure is aided by CT imaging to determine subsequent treatment parameters and optimize the magnetic field strength. The patient is then placed in a unit that generates a magnetic field that can alternate 100,000 times a second, inducing rapid polarity changes in the iron oxide and causing significant heat build-up.

Heat generated from the iron oxide nanoparticles can raise the temperature inside tumors up to 51º C. A sustained temperature of 43º C is sufficient to kill tumor cells. NanoTherm involves a combination of direct cell killing through thermal ablation and sensitization of remaining cancer cells to radiation treatment in what is called hyperthermia. To this end, radiation is used as an adjunct therapy to NanoTherm.

Results from MagForce’s Phase II efficacy study were published earlier this year. The study accrued 66 patients with progressive or recurrent glioblastoma in a single arm trial, 7 were excluded based on study criteria. The primary endpoint was overall survival (OS) following the first diagnosis of tumor recurrence or progression. Median OS was 13.4 months, substantially greater than a historical OS of 6.2 months.

The trial also had a secondary endpoint of overall survival from the time of primary diagnosis. On this endpoint, patients treated with NanoTherm had a median OS of 23.2 months compared to 14.6 months in the same reference group.

Now that it has been approved in the EU, MagForce is initiating a staged launch of NanoTherm, beginning with Germany in Q1 2011. The company will be launching with its own sales force in the major European markets. Look for partnerships and licensing agreements as it prepares for the US, Japan, and other geographic areas.

Aside from glioblastoma, NanoTherm is also being tested in other solid tumors including: prostate, esophageal, and pancreatic cancers. But glioblastoma alone offers a significant opportunity due to a lack of good treatment options.

MagForce is a somewhat different business compared to other biotechs. For one thing, its cancer therapeutic is not a drug; rather, it is classified as a medical device. The company is also the maker of the oscillating magnetic field generator, NanoApplicator, used for performing the procedure and is in the final stages of developing software designed to assist the treating physician during planning and execution. In my view, this combination makes for a very compelling story and nicely differentiates the company from the crowded oncology field.

MagForce raised $32 million during the Q2 2010. Its current market cap is about $136 million. (Based on most recent exchange rates.)

Author has no positions

Are Analysts Underestimating Sales For Avanir’s Nuedexta?

2010-11-26T16:02:00.000-08:00

After first receiving a “complete response” letter from the FDA for its Pseudobulbar affect (PBA) treatment, Nuedexta, Avanir has finally won approval with a modified drug formulation and new clinical trial.

Nuedexta, also known as AVP-923, is a combination of two approved medicines, dextromethorphan, and quinidine. Dextromethorphan is unclear, but may act through antagonism of the NMDA receptor, modulating the excitatory effect of glutamate, a neurotransmitter. Quinidine inhibits a liver enzyme that would otherwise quickly degrade dextromethorphan.

PBA affects approximately 1.8 to 1.9 million individuals in the US and is often a secondary effect of stroke, traumatic brain injury, multiple sclerosis, ALS, Parkinson’s disease, and Alzheimer’s disease. It is neurologic disorder characterized by involuntary crying or uncontrollable episodes of crying and/or laughing, or other emotional displays.

There are no other approved treatments for the disorder. Current therapies often consist of off-label tricyclic antidepressants (TCA) and selective serotonin reuptake inhibitor (SSRI). Large numbers of patients remain untreated and are often undiagnosed.

In a study of stroke victims with PBA, 50% found their condition burdensome, but only 38% sought treatment. Of those, half were satisfied. I admit, these numbers are unlikely to apply to all PBA patients, but they do provide some important insights. It would appear the market is underserved in large part due to a lack of good treatment options. Nuedexta has the potential to expand the market due to its efficacy. As awareness of both the disease and treatment increases, the number of patients seeking treatment will increase as well.

Analysts estimate peak US revenue of between $350 and $500 million for Nuedexta. This is a very good number for a small biotech with only $4 million in annual license revenue. I believe this figure is too low. Management has said they expect to price the product between $3000 to $5000- likely on the high side. This amounts to total penetration of approximately 5% of the 1.8 to 1.9 million individuals suffering from PBA. As the only approved treatment for PBA, Nuedexta should certainly be able to achieve 10% penetration. Using managements given price range, 1.85 million patients, and 10% penetration, peaks sales should fall in the range of between $555 and $925 million. I’d tack toward the higher end.

Avanir stock has dropped about 10% since it announced its secondary offering to raise $88 million through the sale of $20 million shares. This will provide the firm over $100 million in cash as it ramps up its launch for Q1 2011 and hires a 75 person sales force.

The only possible hiccup is the likelihood of a patent challenge when the drug loses market exclusivity. Although the company has just been issued patents extending into 2025 in the US for Nuedexta, the first ones expire in 2010. Under the Hatch-Waxman Patent Act, it may receive at most an additional five years in patent term restoration.

Author has no positions

Biosimilar Antibodies- Another Win For Teva Pharmaceuticals

2010-11-21T23:14:00.000-08:00

Already the undisputed leader in generics for small molecule drugs, Teva stands to benefit enormously as biosimilars begin to gain momentum. Laws passed in recent years have paved the way for the approval of follow-on versions of biologic medicines. The EU is leading the way with 13 biosimilars approved compared to just one in the US through their respective approval processes. While these rules only applied to simpler protein therapeutics for now, the EU is set to release a new set of requirements for the development of follow-on antibodies.

The requirements are expected to be fairly strict, requiring clinical trials for every drug. The question to be answered is how extensive those trials will need to be. Teva has already planned for the worse case scenario; it has initiated full head-to-head trials of its version of Rituxan, TL011, against the original in both non-Hodgkin's lymphoma and rheumatoid arthritis.

Teva has partnered with the world’s largest API manufacturer, Lonza, to share in the risks of this venture- a necessary move considering the cost of each indication may be over $100 million. The reward is certainly enticing- worldwide Rituxan sales were close to $6 billion in 2009 across multiple indications including cancer and rheumatoid arthritis. Rituxan loses patent protection in the EU in 2014, and in the US, between 2015 and 2018. An approved copy of Rituxan would be the first follow-on antibody.

The risk and expense of developing biosimiar antibodies creates a high barrier to entry- few generics companies have the resources to conduct the full-scale clinical trials likely required for approval. This certainly works out well for the big players. A smaller field means less competition and higher profits for an extended period of time. Teva is among the few generics companies able to compete in this lucrative business. Rivals include Sandoz and Hospira on the generics side, Merck and Pfizer on the Pharma side.

This is a huge departure from the historical generics landscape, with dozens of drug makers, large and small competing for each drug as it goes off patent, each working independently. When a typical small molecule drug loses patent protection, the first generics company makes substantial profits during its first six months of exclusivity. But soon after, competition from fellow generics drug makers drives down prices and profits.

In 2009, the sale of all biologics reached $130 billion, with $35 billion of that attributed to antibodies; antibodies are the fastest growing therapeutic segment. It is estimated that between 2008 and 2014, $60 billion worth of biologics will lose patent protection. Teva already has a biosimilar to G-CSF approved in the EU and expects an approval for its copy of enoxaparin in the US later this year, however, both products had abbreviated approval processes. G-CSF was among the first set of biologics the EU built its approval process around, and generic enoxaparin did not require any clinical testing.

Biosimilar antibodies will be a boon for Teva. The upfront costs may be high, but downstream gains make it well worth the investment. Regulators, in an attempt to bring down drug costs by providing safe and efficacious follow-on biologics, has created another windfall opportunity for generics companies, especially for Teva.

Author is Long NVS, MRK

Pharma Emulating Biotech to Boost R&D Productivity

2010-11-19T10:25:00.000-08:00

Faced with multiple challenges of patent expirations, generic competition, increased government regulation, and most of all- low R&D productivity, many large pharmaceutical companies have decided a solution to their problem is to reorganize their research organizations to more resemble that of smaller biotech companies.

The idea is to cultivate a spirit of entrepreneurship and sense of urgency by forming small research groups with reduced bureaucracy, each held accountable for their projects. Research, it seems, just doesn’t work very well in large organizations.

This reasoning seems rather odd: Big Pharma has been “Big Pharma” for some time now- loss in productivity did no sneak up on them. From 1995 to 2005, the industry increased spending 2.5X to maintain the same number of FDA approvals. Pfizer did not suddenly grow too big and become unproductive.

In fact, size may be an advantage when it comes to R&D productivity. HBS professor Gary Pisano found in his research that biotech R&D was no more efficient than Big Pharma. Another study by Iain M. Cockburn and Rebecca M. Henderson in the Journal of Health Economics found larger firms had superior performance in drug discovery due to economies of scope.

To the cynical eye, it would appear these efforts to reinvigorate R&D are little more than vehicles for Pharma’s recent cost-cutting efforts.

Another idea for improving R&D productivity comes from Eli Lilly’s then head of research, Dr. Steven M. Paul, in an article titled “How to improve R&D productivity: the pharmaceutical industry’s grand challenge“ in Nature Drug Discovery. Simply stated: improve the Phase II and Phase III attrition rates. According to the article, improving the current attrition rate in Phase II from 66% to 50% and in Phase III from 30% to 20% will yield 2-3 times more NME approvals for the same amount invested.

Dr. Paul suggests target selection may be one of the biggest factors in determining a molecule’s attrition rate. This can be addressed by selecting more validated and druggable targets. A second step is initiating POC studies and using biomarker analysis earlier in the clinical trial process. With POC achieved in Phase I, molecules will have a higher likelihood of success in Phases II and III. Finally, prevent elevation of candidates to Phase III status before establishing solid safety and efficacy data.

These sounds fairly straightforward and are not radical ideas- though this is the first time I’ve seen hard numbers placed on the benefits of their implementation. It is ironic the article comes from Eli Lilly considering its current pipeline woes. Given time, perhaps success down the road will vindicate Lilly’s current strategy.

Author has no positions

Eli Lilly and the Cyclical Business of Drug Development

2010-11-13T23:32:00.000-08:00

What people seem not to have noticed with Lilly’s acquisition of Avid Radiopharmaceuticals is the significance of the company’s diversification into the diagnostics business. Until now, Lilly had been purely involved in drug discovery. True, it has collaborations with Dx developers, in particular GE for molecular diagnostics, and Almac for a companion diagonostic to its cancer drug, Alimta; but Avid will be its only wholly owned diagnostics business. This is particular important considering Lilly has eschewed generics and is determined to solve its patent problems without a big merger.

Lilly's problems are well known: patent expirations of four of its blockbusters by 2014 will lead to a loss of $11 billion, or about half its current revenue. At the same time, productivity has been sagging- with recent setbacks in late stage Alzheimer's disease and Diabetes candidates.

Avid brings to Lilly a diagnostic for detection of Alzheimer’s disease based on the molecular imaging compound florbepavir. This radiotracer is injected into patients and through PET scans, allows physicians to detect levels of amyloid plague, a hallmark of Alzheimer’s disease. Florbepavir is now under regulatory review. Marketing approval will bring Lilly annual revenue potentially worth hundreds of millions of dollars; this is the value placed on on a seperate Alzheimer’s imaging compound Bayer has licensed from Avid.

Based on the near term financial returns of florbepavir alone, it would appear Lilly’s $800 million purchase of Avid is worthwhile. But there is potential for more. Avid is also developing diagnostics for Parkinson’s disease as well as well as diabetes. These combined efforts play to Lilly's strengths in both neurology and diabetes. The diagnostics may improve Lilly’s drug discovery efforts as well as augment drug sales in these indications.

Drug development is a highly cyclical business. Research requires long timelines, with unpredicable outcomes; even when a drug makes it on the market, it has a finite life before generic competition ensues. Discoveries are not evenly spaced out, a bumper crop of hits in one year can lead to over a decade of success- but chances are, a lack of major approvals in the intervening years will lead to a sales gap as the these hits go off patent. This cycle has become inevitible as the realities of R&D meet with limitations imposed by regulators.

Many big phamas attempt to solve this problem through mega-mergers to replenish their pipeline as theirs begin to weaken. Lilly has decided to take its lumps and ride out the storm as its blockbuster go off patent in the next several years. Revenue and income will suffer as a result, however the company believes it has a pipeline rich enough to begin rebuilding after its 2014 low point. Investors are less optimistic after its recent pipeline failures.

Buying into management’s view, in a few short years, Eli Lilly will be a growing company. This may indeed be the case- several late stage molecules, if successful, have blockbuster potential. The problem is 10-15 years down the line, Lilly will likely be back to where it is today, facing another patent cliff.

But by diversifying into diagnostics with the acquisition of Avid, Lilly can put a damper on this cycle. Revenue from this segment is less prone to fluctuation than drug development. Though historically slow growing, this is no longer the case. Avid, I believe, will turn out to be a very successful investment.

Author has no positions

Pharmasset Riding High on Nucs

2010-11-03T21:05:00.000-07:00

Pharmasset is a biotech company focused on the development of HCV therapeutics. It has multiple drugs in development, all based on its core strength in RNA nucleoside analog chemistry.

The current standard of care for HCV is a combination of pegylated alpha interferon (IFN-α) and ribavirin taken for 48 weeks depending on patient response. Unfortunately, only 55% of patients on this regimen achieve a sustained virologic response (SVR), where levels of HCV RNA remain undetectable six months after treatment has stopped.

Both Vertex and Merck intend on launching new HCV treatments in 2011 based on a new class of compounds known as NS3 protease inhibitors (PI). These drugs herald a new breed of targeted medicines- sometimes called direct acting antivirals (DAA). The advantage is a significantly higher cure rate and shorter duration of treatment. However, these drugs are susceptible to viral resistance and require concurrent use with both interferon and ribavirin.

A second type of compound focuses on inhibition of the NS5B polymerase. Of these there are two classes, non-nucleoside polymerase inhibitors (non-nucs), and nucleoside polymerase inhibitors (nucs). Both have been shown to be effective in combination with interferon + ribavirin, but non-nucs, like protease inhibitors, are also prone to mutation driven resistance. On the other hand, nucleoside polymerase inhibitors have a high barrier to resistance.

In studies shown by Roche, no resistance was observed in cultures treated with R7128, its nucleoside polymerase inhibitor licensed from Pharmasset, for two weeks as monotherapy. Cultures treated with non-nucs or protease inhibitors all developed resistance. R7128 was also shown to reduce the formation of resistant colonies when added to either a non-nuc or PI. These studies show the flexibility of nucs in combination treatment.

The race is on to develop the next generation of HCV treatments even before the first generation has been approved. Side effects of interferon + ribavirin therapy include fatigue, flu-like symptoms, rash, and nausea. The goal for drug developers is a treatment that can dispense with these two drugs. Heavy viral loads and high mutation rates preclude the use of monotherapies, hence, multi-drug cocktails is the next best thing.

At least seven companies are pursuing the development of drug combos for HCV. Nearly all consist of a protease inhibitor combined with a compound of a different class. Additive or synergistic effects and non-overlapping resistance profiles drive the combo selection.

Pharmasset’s lead compound is currently in multiple Phase II trials. Results from the 12 week R7128 treatment portion of a 48 week triple combo PROPEL trial with interferon + ribavirin trial have been released showing high rapid virologic responses and a low rate of adverse events. Full SVR data will be available in 2011. A longer trial involving 24 weeks of dosing called JUMP-C is now dosing. Phase III studies are expected to begin in 2011 as well, with an NDA filing anticipated in 2013.

Roche is conducting a combination trial of R7128 with the protease inhibitor R7227 from Intermune. Results from a 14 day INFORM-1 trial showed the drugs were safe when administered together and resulted in a sustained viral load reduction. Continuing studies will add the drug Ritonavir to boost R7227 without increasing side effects.

The balance of Pharmasset’s HCV pipeline consists of PSI-7977, which is enrolling patients in Phase IIb and PSI-938, which has completed Phase 1b. The company is planning studies combining these two nucs; initial data should be available Q1 next year. Phase II combo studies are expected to begin around the second or third quarter of 2011.

Nucleoside polymerase inhibitors look to have significant potential in HCV therapy, with possible advantages over protease inhibitors and non-nucs. Pharmasset is the leader in nuc development. A bet on Pharmasset is a bet on the entire compound class.

Author is Long RHHBY.PK, VRUS, MRK

Are Generics Killing Drug Innovation?

2010-11-02T14:18:00.000-07:00

The pharmaceutical industry has created highly innovative medicines, and in years past, was one of the most profitable industries in the world. It has lost that status as the costs of developing a drug have grown, with the FDA demanding ever-higher standards for approval. Fewer than one in ten compounds entering the clinic are approved by the FDA- even then only one in three marketed drugs generate enough revenue to recoup the cost of their development.

Much of this is due to the increased competition from generics companies. Passage of the Hatch-Waxman Act in 1984 helped create a robust generics industry in the US by allowing companies to introduce low-cost versions of drugs once their patents expire by submitting data to the FDA showing their drugs are bioequivalent to the originals; no clinical trials were necessary. A second portion of the Act allowed generics companies to conduct court challenges of the legitimacy of drug patents before their expiration. Successful litigation provides 180 days of exclusivity to the challenger.

So successful have has this strategy been that the president of generics company Watson Pharmaceuticals, Paul Bisaro, warned their industry was locked in a “death spiral” which would potentially cut off future income as pharmaceutical companies forgo research into the development of novel small molecule drugs. Yet he has also lead Watson to become increasingly aggressive, arguing that if Watson didn’t do this, someone else will.

In a bid to confront the threat of a successful patent challenge, pharmaceutical companies have increasingly turned to authorized generics. When a patent has been overturned and a drug goes generic, the challenger has 180 days of exclusivity from other generics makers, but the original manufacturer remains free to continue selling the drug. Under the authorized generics scheme, brand name drug makers sell a generic version of their drug during that same 180 day period of exclusivity, leading to substantially lower prices and profits for the generics company.

With this leverage, a generics company may be willing to defer the launch of it copycat drug in return for a promise that the brand name manufacturer does not launch an authorized generic. According to the FTC, from 2004 to 2008, 25% of patent settlements resulted in brands agreeing to withhold authorized generic competition, leading to an average of 34.7 months of additional market exclusivity beyond the settlement date.

But patent litigation is not the only challenge to drug innovation. Another major problem is government policies in the US and abroad. Drug price controls in Europe are now starving the continent of innovative R&D. In the 1960s and 1970s, 65% of innovative drugs came from Europe; today, that number is below 40%. The US is now seen as the clear innovator in pharmaceuticals. R&D efforts are focused on the US and drugs are approved here on average one year before in the EU.

Price controls have indeed reduced the costs of brand name medicines in the EU, but at what cost? The region is losing its R&D competitiveness and access to cutting edge medicines is delayed. Moreover, price controls may not even be a money-saver. While branded drug prices in the EU are lower than in the US, those for generics are significantly higher with comparatively lower utilization rates. The US Department of Commerce, International Trade Administration has estimated that increased generics utilization in the EU can lead to savings that can potentially offset an increase in EU drug prices to US levels.

Not withstanding studies showing the detrimental effects of drug price controls, the US government is contemplating price controls of its own. The idea has been tossed around for some time but has yet to be implemented. Any type of price controls should be carefully considered. If the US is no longer seen as the best place for innovation, it will flow elsewhere.

Author has no positions

Big Pharma Embraces Branded Generics

2010-10-29T14:37:00.000-07:00

It seems not a day goes by without talk of an innovation crisis in the pharmaceutical industry. On, October 25, the German consultancy, Roland Berger, released an article titled “Fight of Flight” stating 65% of companies surveyed believe that the pharmaceutical industry is facing a strategic crisis. As the patent cliff nears, it appears the majority of Big Pharmas have taken to the “flight” path. At the top of the list of priorities for Big Pharma, diversifying into generics ranked as number one.

There appears to be a bit of a herd mentality, but perhaps Pharma may be heading down right path. It is ironic however, that while generic drug makers in developing countries are attempting to move up the value chain toward the development of innovative medicines, the big successful Pharma companies are now heading in the opposite direction.

Almost every large pharmaceutical company today, including Abbott, GSK, Lilly, Astra Zenecca, Pfizer, Novartis (via Sandoz), have been doing deals in the generics space. Much of the attention has been focused on branded generics. A branded generic as basically an off patent drug sold under a brand name.

Big Pharma has long flirted with branded generics, but this time it looks like the real thing. In the US, generics have gained a 75% share of all prescriptions in 2009, with 25% of all sales, totaling over $70 million. This is up substantially from the year 2000, when generics held only 49% of the market. Even as the share of all generics has grown, branded generics not kept pace. They made up 11% of all prescriptions in 2000, and only 9% in 2007- this despite their higher level of profitability relative to unbranded generics. Simply put, there is significant untapped opportunity in the branded generics space.

But Pharma is looking beyond the US borders for growth in the branded generics market. The world market for generic drugs now averages 25% of all drug sales- higher still in emerging markets. This is particularly important considering emerging markets are estimated to represent 30-40% of global drug sales in the next ten years. In many of these countries, health insurance is sorely lacking and patients pay out of pocket for much of their medicines, increasing the popularity of generic drugs.

This is where Western Pharma companies seek to leverage their brands, which have a perceived higher level of quality and effectiveness over local generics, often made by companies with lax quality controls. Even though patients pay out of pocket, they are willing to pay extra for the branded generics from big name Western pharmaceutical companies.

With so much at stake, it is odd then, that branded generics have made so little headway in the world’s largest drug market. Pharma companies spend hundreds of millions building up a brand name drug during its patent life, then leave it to die when the patent expires. They stop all promotions and cede nearly all sales to generics makers. The only sales that are retained are from die-hard loyalists.

Branded generics have the benefit of being a known entity and a recognizable name. This already differentiates them from plain generics. In large markets, a branded generic can return twice the sales of the high-priced brand name drug. Sold at a premium, to the no-names, they provide increased margins and preclude a fight to the bottom in a chase for market share.

Big Pharma has already embraced branded generics abroad; the same principles apply here. Branded generics have the ability to change the US generics landscape.

Author is Long NVS

Keryx Rallies, But Remains Undervalued

2010-10-27T14:36:00.000-07:00

Keryx Biopharmaceuticals is a developmental stage company with two drugs in the final stages of clinical development- quite an accomplishment for a company its size. With Zerenex, its drug for renal disease and Perifosine, its oncology drug, it appears to have good odds of passing FDA muster.

Keryx is developing the phosphate binder, Zerenex, for the treatment of hyperphosphatemia in chronic kidney disease (CKD) patients on hemodialysis. Without effective treatment, hyperphosphatemia may lead to renal osteodystrophy, a collection of bone diseases characterized by bone pain, brittle bones, skeletal deformities and fractures. Evidence also shows that hyperphosphatemia may contribute to cardiovascular disease. The compound is currently in Phase III trials, and by the end of this year, top line results will be available from a short term study, providing efficacy data from a broad patient population. A long term safety study has just been initiated in September of this year. With both sets of data in hand, the company expects to file an NDA in the first half of 2012.

The total market for phosphate binders is worth well over $1 billion, with $700 million of that going to Genzyme for its drugs Renvela and follow-on, Renagel. Keryx management is aiming specifically to take market share from Genzyme but also believes Zerenex has competitive advantages over smaller players including PhosLo and Fosrenol. Management believes $200 million in sales is highly achievable.

I believe $200 million in sales is a good starting point. Six Phase II trials have already shown Zerenex is effective, if it can be shown to have advantages over Renvela/Renagel, such as a substantially reduced pill burden- the treatment requires 3 pills taken 3 times daily- we can expect to see substantially higher sales. In that case, Zerenex alone would justify Keryx’s $375 million market cap (fully diluted).

Consider this; just three years ago, Amgen bought out Ilypsa of Santa Clara, CA. for $420 million to get its hands on its phosphate binder, ILY101. Ilypsa’s compound was only in Phase II development at the time. Analysts had estimated Ilypsa’s compound could at most take half of the Genzyme drugs’ market share.

Now add in Perifosine, the company’s AKT inhibitor and flagship compound. Keryx is taking the compound forward in metastatic colorectal cancer (mCRC), and relapased/refractory multiple myeloma (MM). Perifosine is licensed from the Canadian company, Aeterna Zentaris, with rights only in North America. Luckily, North America, particularly the US, is the world’s largest and most profitable market. If approved, Perifosine is expected to achieve blockbuster status.

Perifosine has performed remarkably well in both the mCRC and MM Phase II trials. In a double blind, placebo controlled study of 38 patients- most of whom were 5-FU refractory, 35 patients were evaluable. In the 5-FU refractory population, patients receiving Perifosine + Xeloda had an overall survival (OS) of 15 months, compared to 6.5 months for the Xeloda + Placebo control.

The Phase II MM trial consisted of a single arm Perifosine/Velcade combination with 84 Velcade relapsed/refractory patients enrolled, 73 were evaluable. Three complete responses (CR) and 13 (partial responses (PR) were observed, with median progression free survival (PFS) of 8.8 months compared to historically seen 6.5 months.

Enrollment for both the mCRC and MM Phase III trials are anticipated to be complete in the first half of 2011. If all goes well, approval can be expected as early as the middle of 2012. In the mean time, management is considering possible partnership opportunities for its two compounds. With a burn rate of $20 million its $32 million in cash should bring it pretty close to the goal line. A nice down payment from a partnership would alleviate worries of a dilutive stock offering while generating positive news as investors await trial results.

For the patient investor, an undervalued stock is but an opportunity.

Author is Long KERX

Alexion Pharmaceuticals: Room to Grow

2010-10-22T13:56:00.000-07:00

Since the launch of its drug, Soliris, in 2007, Alexion has achieved sales of over $386 million in 2009 and has upped guidance for total 2010 net product sales to between $536-$538 million, a 39% increase over the previous year.

Soliris is indicated solely for the treatment of Paroxysmal Nocturnal Hemoglobinuria (PNH), an ultra rare disease with an annual incidence of 1-2 cases per million. There are an estimated 5000 individuals living with PNH in the US. PNH is caused by a missing gene, allowing complement proteins to destroy red blood cells in a process called hemolysis. Soliris is an antibody targeted against complement C5, preventing its activation, thereby slowing the destruction of red blood cells.

Alexion is a rarity in the biotech world, launching its drug on its own, and building an international salesforce from scratch. With the drug’s commercial success, analysts have long speculated Alexion as a takeover target. Newly released interim results from a clinical trial for Soliris in atypical Hemolytic Uremic Syndrome (aHUS) only furthurs the takeover speculation. These early results show the drug to be effective in the treatment this disease, caused by dysregulation of the complement system, in severe cases leading to renal failure and death. It has been estimated Alexion could achieve sales of around $500 million in this indication. This is a tidy sum on top of the already strong sales in PNH.

Big Pharma has been showing a keen interest in the rare disease field. In the last couple years, Pfizer licensed Protalix BioTherapeutics’ Gaucher’s disease drug, GSK formed a collaboration with Prosensa to develop a Duchenne Muscular Dystrophy treatment, and Novartis developed its own drug, Ilaris, for the treatment of Cryopyrin-Associated Periodic Syndrome. This is not to mention Sanofi Aventis’ hostile bid for Genzyme, maker of multiple ultra rare disease treatments.

Rare diseases is a bright spot in pharmaceutical drug development. While total drug approvals have drifted downwards, approvals for drugs treating rare diseases have remained constant. Passage of the Orphan Drug Act in 1984 also provided financial incentives including shorter regulatory review times, and an extra seven years of exclusivity from competition.

The acquisition of Alexion would bring not only a blockbuster drug, but expertise in the development and sales of drugs for ultra rare diseases. Soliris’ success begins with its effectiveness, but it is only the beginning. The company’s ability to educate patients, advocacy groups, specialty doctors, and regulatory bodies served to increased awareness of this rare disease and Soliris as a treatment option. This combined with the adoption of state-of-the-art diagnostics tools helped make patient recruitment and fee reimbursements possible. Also, importantly, the company brings expertise in designing clinical trials with a very small number of patients.

Alexion is not a cheap stock, valued at over $6 billion, with a forward PE of 28. With continued penetraton in the US and Western Europe, expansion into Japan, Latin America, and Canada, among others, PNH sales should continue to increase. Anticipated success of Soliris in aHUS, and farther out, in other complement mediated diseases, will further drive sales growth. Acquisition or not, it will do just fine.

Author is Long ALXN, NVS

The Rx to OTC Switch: Growth Opportunities for Brand Name Drugs

2010-10-19T10:45:00.000-07:00

Jason Chew

In the US, patent holders are granted a 20-year term of exclusivity on their inventions. In the pharmaceutical industry, long drug development timelines combined with the Hatch-Waxman act have whittled the effective patent life of new drugs to less than 12 years on average. When this period ends, generic drugs enter the market almost immediately, leading to drastic market share and sales losses by brand name drugs. Switching a drug from prescription-only to over-the-counter (OTC) status can help retain some of these sales long after a patent has expired.

Worldwide OTC sales were worth $95 billion in 2009, but the market varies widely by country. OTC medicines make up 8% of total US drug sales, compared to 30% in developing nations. Sales in this category are also estimated to grow at a double-digit rate in the fast growing BRIC (Brazil, Russia, India, China) economies in 2010, in contrast to considerably slower growth in the US, Europe, and Japan.

Some of the most commonly purchased OTC drugs are antacids, analgesics, allergy, and cough/cold medications. Top selling brand name OTC medicines include Prilosec, Claritin and Zyrtec, Even after its patent loss, Prilosec remains the top-selling antacid in the US, and the launch of Claritin has been so successful that eight years after its patent expiration, it still maintains sales of about $400 million in the US alone. Other stalwarts of the branded OTC market include Johnson & Johnson’s Tylenol, and Bayer’s Aspirin, both thriving amid generic competition based on the strength of their brand.

Several drivers are in place to put the OTC market on a solid growth trajectory. As blockbuster drugs go off patent, many companies attempt to extend their franchises by switching the drugs to OTC status toward the end of the drug’s patent life. The above examples show this can be a highly successful strategy. Pfizer is currently attempting to switch blockbuster Viagra to OTC and is mulling the change for Lipitor. A couple European nations have allowed the switch, but the FDA has been so far hesitant. This may be about to change.

Patients are becoming increasingly sophisticated consumers of healthcare, especially concerning the medicines they take; they want to have a larger role in their healthcare decisions. For good or bad, large numbers of websites now make medical information widely available to the masses with the click of a mouse. Along with this, a plethora of at-home diagnostic test kits further empower the consumer. OTC products allow consumers the ability to seek moderately priced FDA approved treatments for easily diagnosed ailments without the inconvenience and cost of physician visits.

In recent years, rising healthcare costs have led many insurers to formulate tiered drug co-pay systems. In a scheme not too removed from reality, the co-pay for a generic drugs start at $10, branded drugs require co-pays of $20-25, and at the top, branded drugs with generic alternatives will cost patients at least $40 out of pocket. This system is intended to contain the growth in spending on drugs by pushing patients toward the use of generics. As the high cost of drugs and co-pays alike have increased, both insurers and patients have found that money can be saved with OTC drugs. Physicians are increasingly willing to instruct their patients to purchase common OTC drugs rather than write prescriptions for drugs with the same active ingredient.

To take full advantage of the OTC market in the US, significant changes in consumer purchasing habits along with regulatory changes will be required. As it currently stands, only about 32% of OTC drugs are purchased through drug stores, a whopping 21% comes from warehouse stores, with most of the rest from supermarkets. While drugstores can carry a large variety of medicines, by their nature, supermarkets, and especially warehouses, carry a much smaller assortment. Warehouses and supermarkets, therefore, focus on selling the most popular medicines- ones consumers are most familiar and comfortable with. As the market is currently structured, growth will be incremental due to the maturity and saturation of the popular OTC medicines.

In deciding which Rx drugs are allowed to switch OTC, the FDA looks at the safety and effectiveness of the product, the benefit-to-risk ratio, and whether the labeling can be written in such a way that consumers can use the products safely without the intervention of a healthcare provider. To grow the market, the FDA must first allow that patients are educated enough to make more complex medical decisions on their own behalf. To an extent, this has been complicated by industry’s overuse of brand extensions- mixing and matching cold, cough, allergy, analgesics- until consumers have no idea what they’re taking. This is leading to fears that patients may use their medicines in an inappropriate manner.

Aside from improving drug labeling, pharmaceutical companies need to shift their OTC distribution channel toward the drugstores and away from warehouses and supermarkets. In Europe, where OTC drugs enjoy a considerable higher share of overall drug sales, pharmacies have an 88% share of the OTC market. By purchasing at a drug store, consumers will have the opportunity to consult with a pharmacist should any questions arise. The consumer can learn about the active ingredient, dosing information, side effects, drug-drug interactions, and much more. This should provide some relief to the FDA.

For some of today’s more challenging Rx to OTC switch candidates, the seldom-used Behind-the-Counter (BTC) designation may be appropriate. BTC medicines are prescription-free drugs that must be purchased directly from a pharmacist. The emergency contraceptive Plan B is a BTC drug, as are allergy medicines containing pseudoephedrine. This third status is widely used in Europe, where it has shown much success. Its use should be expanded here in the US.

Many of the novel drugs now nearing the end of their patent life require a bit more knowledge from users than the general cough drop. They would do well in a BTC category if allowed by the FDA. These include drugs for: erectile dysfunction, osteoporosis prevention, contraceptives, and cholesterol control, among others. Most patients can self-diagnose themselves for these treatments; what they need is a small amount of guidance from a healthcare professional, guidance that can be provided by a pharmacist.

It will require a combined effort on the part of the FDA, pharmaceutical companies, and even pharmacies to grow the OTC market through increased Rx switching. Done right, this is a win-win situation as consumers save and pharmaceutical companies extend the life of their drugs. I expect this will take a long time to play out due in large part to the extremely conservative environment inside the FDA.

In summary, the OTC/BTC market provides considerable opportunities for the pharmaceutical industry. A patent has a finite life. A brand, if properly managed, is forever.

Author has no positions

Incyte’s Topical JAK Inhibitor: Throw it Over the Counter

2010-10-15T15:28:00.000-07:00

Jason Chew

Incyte’s topical formulation of its JAK inhibitor, INCB18424, doesn’t seem to get much respect from analysts. Even after showing robust activity and safety in a placebo-controlled multi-dose Phase IIb trial in mild to moderate psoriasis patients, most believe it has limited market potential. Management hasn’t given any guidance on revenues for topical 424, but is currently seeking a partner to take the program forward.

The current top selling drugs for psoriasis, as with RA, are anti-TNF biologics. First line treatments include methotrexate, cyclosporin, and steroidal creams. None of these drugs have been entirely satisfactory for psoriasis patients. Creams are the most convenient, but are less effective than injectables; overuse may lead to thinning of the skin. All the rest require injections, are immunosuppressive and may lead to an increased risk of infections. Methotrexate and cyclosporin may also cause organ damage.

Of this selection, anti-TNF drugs appear to have the greatest efficacy, but are also by far the most expensive, priced at over $10,000/yr. Few patients can afford such drugs for a disease some health care organizations deem to be more of a cosmetic than medical issue. As a doctor in a January 24, 2007 New York Times article said, “Have drug, need patients.”

Approximately 2-3% of the population suffer from psoriasis, the most common autoimmune disease in the world. While greater then 90% of patients have mild to moderate disease and are typically treated with topical creams, a significant number of patients with severe disease are treated with anti-TNF therapies. Sales of creams in 2008 were approximately $850 million- in contrast- sales of the far more expensive biologics were close to $2.5 billion.

Okay, so topical 424 will have no chance of being priced close to $10,000/yr. What it has going for it are advantages over current topical medicines. At least in an exploratory study, it has been shown to be as effective as currently available creams, does this without any thinning of the skin and with the convenience of once daily application.

Dermatologists are also more comfortable prescribing creams over other treatment options. In their target group of psoriasis patients, many who are unsatisfied with their current treatment options, topical 424 certainly has the potential for significant usage.

But what really excites me, is that topical 424 appears to be the perfect candidate for a dual-status Rx and OTC drug. In the 300 patient Phase IIb trial, it has been shown to be quite safe, and I believe a Phase III will confirm this. Incyte has already tested three doses: 0.5, 1, and 1.5 %, all of which met their primary endpoints. This means a lower dose can be offered for OTC while the higher dose will remain a prescription. OTC sales may cannibalize some prescription sales, but studies have shown that taken together, having both channels leads to increased combined sales.

J&J would make a nice partner. It has recently gained experience calling on dermatologists with its launch of Stelera for moderate to severe psoriasis, and of course, it has its vaunted OTC division. Whoever the partner ends up being, I hope they maximize the value of this product.

Author is Long INCY

Bringing Innovation Back to Bioscience Research

2010-10-07T09:57:00.000-07:00

Jason Chew

Innovation is the lifeblood of the economy. Exceptional basic research is crucial to private industry’s success in driving economic growth. This has been true in industries ranging from aeronautics to the internet. In both cases, much of the enabling technologies were developed in government-sponsored labs. This has been especially true in the life sciences, where much of the industry’s groundbreaking innovations have come out of government sponsored research labs. These new technologies often go on to spur new inventions, changing the way people live today.

Unfortunately, spending on basic research in the biosciences is on a downward trend. In the US, funding for the NIH has declined in real terms since 2004. And while bioscience funding has continued to increase in Japan and Europe, the money is being shifted toward later stage research, particularly translational medicine. As the cost of drug development has skyrocketed in the past decades, large pharmaceutical companies have increasing divested themselves of basic research to focus on clinical trials and marketing, leaving basic research functions to academic institutions.

Developing novel medicines is one of the costliest and riskiest ventures in business- the earlier the stage in a drug’s development, the greater the potential for failure. With diminishing returns on investment, pharma companies the world over can no longer afford to invest in basic research. There is already a slowdown in worldwide biotechnology patent applications; for the ten-year period from 1993 to 2003, patent applications were significantly lower in the second half of the decade compared to the first half.

Industry leaders and academics alike are now facing up to this “innovation gap”. Open source style research is now in vogue in the bioscience community, in recognition of the importance of free flowing information. Recent efforts have been made to open communication between scientists: Sage Bionetworks, with funding from Pharma, the NCI, and non-profits, was formed by four world-class scientists to connect researchers at leading research universities through a shared open database; CollabRx of San Francisco is using whole-genome profiling along with the open source approach to select the best available therapy for cancer patients. Many such organizations now exist, most as pubic/private partnerships.

Is this enough? In an op/ed in the Wall Street Journal, Eli Lilly CEO John Lechleiter suggests we don’t need another “Manhatten Project” to improve basic research. On the contrary- we need something even bigger.

The Manhattan Project brought together the brightest minds in theoretical and experimental physics to develop a nuclear bomb for the US. At the same time, similar projects were going on in countries around the world. This bears similarities to the competitive nature of international bioscience research. Billions are spent in an arms race for the largest number of patents filed, papers published. We have reached a point where the complexity of biology and its multidisciplinary nature requires collaboration, not competition.

Just as the international space station was formed as a joint venture between disparate national space programs to cut costs, a unified international research consortium consisting of the world’s top scientists will help defray costs and foster innovation. International collaboration is already common; many of today’s research papers and patents are issued to scientists working across borders. An international research institute focused on basic research, funded and staffed by the preeminent research bodies of participating nations can create an environment of creativity where long-term, high-risk projects can take place. Under this system, scientists will have the freedom to work unfettered by the whims of national politics and demands of private industry.

Unlike today’s university and public research labs, patenting and licensing discoveries coming out of the institute is not the goal. While IP is great at generating immediate profits, it hinders widespread adoption of important technologies. It is time to think big. The purpose of this institute is to provide a place where breakthrough technologies are invented. Just as VCs depend on the few investments that generate 10x or 100x returns to make a profit, this institute will place many bets, most will have little impact, a few may be revolutionary.

These technologies, on the order of siRNA, stem cells, nanotechnology, will be vastly more useful if made available to the public. Here, ideas will be fostered and grow without bounds, not tied up in patents. Returns to society will be the measure of the institute’s success.

Acknowledgements:
My appreciation to Mr. Reza Firouzbakht of Accenture for his insights and thoughtful input.

Incyte Pharmaceuticals’ JAK: Just Another Kinase?

2010-10-04T23:38:00.000-07:00

Jason Chew

With a nearly $2 billion market cap, Incyte is currently the most valuable biotech stock with no marketed product. Is it justified? Practically all of the company’s value is wrapped up in two related Janus Kinase (JAK) inhibitors, both of which are partnered. INCB18424 for oncology is partnered with Novartis and the related compound, INCB28050, for inflammation is partnered with Eli Lilly.

There is a tremendous amount of interest in the JAK inhibitor space. At least six other companies, including such giants as Pfizer, AstraZeneca, and Sanofi Aventis have compounds in mid to late stage development. Incyte, though, may be first to market, with final data in Myelofibrosis (MF) due end of this year and a regulatory filing expected the first half of next. MF is one of a closely related group of hematological malignancies known as Myeloproliferative disorders (MPDs) in which the bone marrow cells that produce the body's blood cells develop and function abnormally. According to the CEO, INCB18424 has an 18 to 24 month lead on its closes competition.

INCB18424 is also beginning a Phase III trial for a second MPD, Polycythaemia Vera (PV) this year. In this indication, the company feels it has an even larger head start on its competitors than in MF. As with MF, investors have high hopes for success in this trial due to exceptional early data. In addition, the compound is in Phase I/II trials for ALL and Phase II trials for AML, two blood cancer indications.

Focusing only on MF and PV, where INCB18424 is closest to market, Incyte looks well positioned to join the ranks of profitable biotechs. According to the MPD foundation, there are 30,000 patients in the US living with MF and 71,000 with PV. A recent Incyte presentation pegged the number of MF patients at 16,000-18,500 and PV at 95,000. INCB18424 will be priced on par with other new cancer medicines, somewhere between $40k and $60k. Penetration in the MF market is expected to be thorough with high levels of usage due to a lack of alternatives. In PV, the target population is the 20-25% of patients intolerant to hydroxyurea therapy. Usage in this population is also expected to be quite thorough.

Based on these assumptions and estimates, INCB18424 can conceivably achieve blockbuster sales in these two indications in the US alone. It has the potential to be a first in class drug, serving multiple unmet needs.

Incyte’s second JAK inhibitor, INCB28050, is only in mid-stage trials for rheumatoid arthritis (RA) so far. Partial data from an ongoing Phase IIa trial showed the compound to be comparable to Pfizer’s competitor JAK inhibitor, CP690550. Pfizer’s compound is further ahead in the clinic; Phase III results are expected later this year, with a possible launch in 2013. Incyte is to begin Phase IIb trials for its compounds later this year and is about two years behind Pfizer.

INCB28050, CP690550, together with Syk kinase inhibitor, R788, from Rigel/AstraZeneca make up the trifecta of oral compounds knocking on the door of the rheumatoid arthritis/autoimmune disorder market- one currently held firm by anti-TNF therapies. Anti-TNF drugs, including Humira, Remicade, Enbrel, and Cimzia, had sales of $16 billion in 2008. Sales of these biologics are projected to grow to $25 billion by 2014. The top selling drug, Humira, priced at $13,000 during its launch in 2003, is projected to reach sales of $13.7 billion in 2016, placing it solidy as the world’s best selling drug. One reason for its success- of all the anti-TNF drugs, it is the only one that can be self-administered.

This bodes well for the oral compounds. Based on early data, INCB28050 certainly appears efficacious. It also has the convenience of oral administration- no more needles. Another advantage: the compound appears to be active as a monotherapy. Compare this to current anti-TNF therapies, which must be taken concurrently with a methotrexate background treatment.

The biggest hurdle to approval remains safety. There is little safety data available for INCB28050 due to its relatively early stage in clinical development. So far, management has painted a picture of a compound with a very clean profile, “adverse events were mild to moderate in intensity with frequency similar to that observed in patients treated with placebo” is how they described results released this May from their ongoing Phase IIa trial. We’ll find out more details at the American College of Rheumatology (ACR) meeting come November. But already, management is on the lookout for total cholesterol increases and liver enzyme elevations- two events seen with Pfizer’s JAK inhibitor.

If these early results are maintained in late stage trials and the compound isn’t derailed by a previously undetected adverse effect, INCB28050 has huge potential. Both management and rheumatologists believe oral therapies will eventually become the standard of care for RA treatment before the use of anti-TNF and other biologics. If Incyte’s compound is able to penetrate just 5% of the anti-TNF market, it will be a blockbuster (I certainly see significantly higher penetration levels). It won’t all flow to Incyte. Worldwide rights have been licensed to Eli Lilly, Incyte has opted in to co-develop the compound and will receive somewhere between 20-30% in royalties. Not too shabby.

So while analysts are projecting Humira to be the world’s top selling drug in 2016, note that it will likely have three novel competitors by then. Don’t expect its reign to last.

Author is Long INCY, ABT

Seattle Genetics and Immunogen: Fabless Biotechs?

2010-09-30T16:55:00.000-07:00

Jason Chew

The results are in and it appears Seattle Genetics’ Antibody Drug Conjugate (ADC) technology does indeed work after all- not that it should be a surprise to anyone following the company. Results released early Monday morning showed 75% of relapsed or refractory Hodgkin's Lymphoma (HL) patients taking the drug Brentuximab Vendotin, or as I prefer to call it, SGN-35, in this pivotal Phase II trial achieved an objective response with a median duration of greater than six months. Applause.

This is the second major trial to validate ADCs. Last year, Genentech, in collaboration with Immunogen, showed impressive responses with their ADC, Trastuzumab-DM1, in a Phase II trial for refractory HER2 positive breast cancer patients.

With their lead positions in ADC technology, numerous biotechs and pharmas have signed on to use their technology. A couple, Genentech and Bayer, have hedged their bets by working with both companies. Pfizer has its own technology through its merger with Wyeth- inventor of the first marketed ADC, Mylotarg (however, it was recently removed from the market for lack of efficacy.) Bristol Myers Squibb also bought into the technology with the acquisition of Medarex, and now has an anti-CD70 conjugate in early clinical testing.

A good number of pharmas are still sitting on the sidelines. Anyone playing in the oncology space, and it appears practically everyone is, will be giving ADCs a good look. Build you own, or license a proven winner? Seeing as the goal in pharma is speed and efficiency, I’m betting lots of licensing deals are in the works.

I liken the technology platform portion of Seattle Genetics and Immunogen to a fabless semiconductor firm such as Qualcomm. Both biotechs are revolutionizing their industry through constant innovation- better linkers, more potent payloads. They design, tinker, and engineer a product for their customers, who then go on to (hopefully) sell to the public. Though the companies don’t do the selling, they must continually improve their technology or be surpassed by others. Just as Qualcomm has cornered the market on 3G wireless technology, Seattle Genetics and Immunogen seem poised to have the market cornered on ADCs, for now.

Author is Long SGEN, BMS, RHHBY.PK

The Rise of China as a Bioscience Leader

2010-09-29T16:13:00.000-07:00

Jason Chew

The US is far and away the leader in the bioscience industry for now, but under-investment by government and hesitation by the Venture Capital industry may allow other countries to take the lead over the long term.

In terms of statistics, America stands heads and shoulders above the competition:

Receives one-third of new technology patents, 39% biotech patents
Spends 40% of global R&D
Has 70% of Nobel Laureates
49% of all literature citations
66% of most cited individuals
75% world’s top 20 universities
Attract gifted scientists from around the world

These bode well since knowledge is a key driver in US economy- innovation accounting for up to 80% of economic growth. But in recent years, the US appears to be slowly losing its grip on its status as a science and technology superpower.

Beginning in 1990s, scientific publications by the 200 top R&D firms have declined; this has been accompanied by a slowdown in publications by the nations public universities. NIH funding, which provides the bulk of basic research grants, has decreased in real terms since 2004. Beginning in 2007, US biotechnology patent applications began to slow.

These problems have been compounded by recent strategic shifts in the private sector. It has been well established that pharmaceutical companies have long relinquished basic and early stage research to academic and biotech labs. But one of the key attributes of our bioscience ecosystem is the Venture Capital industry. Also considered risk capital, VC funds allocate the greatest proportion of investments in series A and series B financings, with small amounts dedicated to seed stage companies.

As the economic climate has deteriorated and returns have turned negative, VC funds have pulled back from early stage investing and almost completely abandoned seed stage funding. This dearth of financing for early stage companies has made it increasingly difficult for bioscience entrepreneurs to develop projects from concept to reality.

In the near term, our combination of rich educational resources, strong entrepreneurship, world-leading capital markets for biotechs (NASDAQ in particular), and history of VC participation in growing startups, will continue to favor the US. No single country or region is likely to usurp the US anytime soon. But with continued decline in funding for basic research and decline in VC appetite for funding early state startups, a trend of US leadership diffusing across Europe and Asia is has already begun.

With their bureaucracy and cautious governments, neither Europe nor Japan is likely to contend for heir to US supremacy. If there is a single country with even the remote capability to challenge America, it is China.

As the world’s second largest economy and with the largest population, it has plenty of weight to throw around. Increasing incomes and government planning have improved access to medications and fueled the growth of the country’s drug market to about $90 billion, just behind Japan for third place, and continues to grow at a rapid clip of between 20 to 25% per annum.

China is aiming to be a major player in biosciences. Its large pharmaceutical market and growth potential has attracted billions of dollars in investment from top pharma companies. Large pharmas are not only setting up manufacturing facilities, they are also designing state-of-the-art research centers to tap into China’s reservoir of scientific talent.

Only a decade ago, China barely registered as a place of scientific innovation. Now, as reported in the journal Nature, the country has become the second most prolific publisher of scientific papers and registered fifth in number of patents filed. True, quantity is not a measure of quality, and the impact factor of its papers and the low percentage of patents actually granted bears that out. Yet it shows China is certainly moving in the right direction, and quickly.

In areas such as genome sequencing and proteomics, two Chinese organizations, BGI and HUPO, have each taken respective leadership positions. Once a place for makers of active drug ingredients (APIs) and low quality generics, China is now home to full service contract research organizations (CROs) and hundreds of modern biotechs.

In a sign of the Chinese bioscience industry’s growth potential, VC investment in the biosciences in 2009 was greater than any other field, including for the first time, IT- according to GBI Source. The industry is still highly fragmented, with experienced executives difficult to find. But with nudging from the government, businesses are consolidating, creating more efficient and competitive companies.

The quality of China’s science and industrial output are continuing to improve. A combination of government support, foreign and domestic investments, and entrepreneurial spirit are helping to propel China into a major center for bioscience research and development. The brain drain the once sent the nation’s top talent overseas appears to have stopped, and perhaps even reversed, as scientists seek greater opportunity in a return to their homeland.

Just a final word; China’s rise as a scientific power should not be seen as a threat to the US, but a challenge. While a vast majority of Americans believe science and technology leadership is important for our country, the country’s general understanding of the sciences is outright pathetic. If we are to retain our status as the leader in bioscience innovation, we need to act now.

My appreciation to Mr. Reza Firouzbakht of Accenture for his thoughtful input.

Is Pharma Over Invested in Antibody Therapeutics?

2010-09-28T10:44:00.000-07:00

Jason Chew

There is no doubt that antibody therapeutics have revolutionized medicine in the last decades. Sales of antibody drugs are estimated to be $30 billion in 2009 and expected to grow at a 14% rate through 2012- this is more than double the rate of growth for all drug sales. Biotech companies have produced blockbusters such as Avastin, Humira, Remicade, and Rituxan based on the technology. Antibody drugs are seen as having an easier development path, from target validation through regulatory review. They are also viewed as having stronger IP protection due to their more complicated method of production compared to small molecule compounds.

Antibody drugs are touted as being highly selective with fewer side compared to their small molecule cousins due to a lack of off-target effects. While it is true they are highly selective, their side effect profile may not be as rosy as it appears. This is due to on-target effects, injection/infusion reactions, and immune reactions to the foreign antibody. Take Humira for example, this self-administered treatment for rheumatoid arthritis and Crohn’s disease often leaves patients feeling tired and at risk for infection. But that’s the nature of a TNF alpha blocker; these same effects are seen with competitors Remicade and Enbrel.

Big Pharma has jumped on the antibody technology bandwagon. Through acquisitions, partnerships, and internal research efforts, antibody drugs now make up a significant portion of most pharma company’s drug pipelines- in some cases 30% or more. Have they gone too far?

There are several mechanisms of action for antibody drugs:

Bind to a cell surface receptor, directly inhibit aberrant cell signaling
Bind cell surface receptors or antigens, recruit immune cells to kill the targeted cell in a process called Antibody Dependent Cell Mediated Cytotoxicity (ADCC)
Recruit Complement proteins which form pores in the cell, leading to cell death- termed Complement Dependent Cytotoxicity (CDC)
Bind signaling proteins, preventing its downstream activity

These mechanisms lend themselves to diseases involving cell killing and modulation of the immune system. Antibodies are used mainly in oncology and immunological diseases- particularly rheumatoid arthritis, the two accounting for the vast majority of sales. Global sales for all oncology and RA drugs were $68.6 billion in 2008, just 9% of all drug sales for the year. While sales in both indications are growing quickly thanks to the uptake of and high prices of new antibody drugs, neither compare to the size of the CNS or cardiovascular markets, both of which top $100 billion.

In light of such a limited market, it appears to me pharmaceutical companies are dedicating substantial resources for what may be marginal returns. With every biotech and now, pharma, crowding the oncology space, it will become increasingly difficult for companies to differentiate their products.

To take antibodies to the next level, companies will need to go after new markets. This is happening to a degree, with drugs now approved for Multiple Sclerosis and Osteoporosis. Late stage molecules are in testing for diseases ranging from Alzheimer’s to Diabetes. Yet oncology continues to takes the lion’s share of the effort by far. Additional scientific advances will be required before the full potential of antibodies will be reached in these other indications.

Perhaps the biggest Achilles heal of antibody drugs is their method of administration. All antibody drugs must be administered either by injection or infusion; none are orally available. This is okay in debilitating diseases such as cancer and RA, but as these drugs move into less severe indications such as CNS and asthma, patients may be more inclined toward easy to use oral medications.

Convenience has long been a selling point for pharmaceuticals. It has led to the multidrug combinations that are now a staple in HIV treatment, and though antibodies have a stronghold in oncology, small molecule drugs continue to hold their own due in part to their relative ease of use. Most recently, the drug Gilenya from Novartis, was hailed as the first orally available Multiple Sclerosis therapy.

For antibodies to maintain their robust growth and succeed outside their core therapeutic area, a non-invasive, or minimally invasive delivery system will need to be development. Potency and selectivity once thought attainable only with antibodies is now possible with small molecules. Only continued innovation will keep antibodies relevant.

Author is Long NVS

Biotech Startups: Begin With an Exit Plan

2010-09-14T11:40:00.000-07:00

Jason Chew

According to a 2007 study by the Ewing Marion Kauffman Foundation, a nonprofit devoted to entrepreneurship, 40% of youths between the ages of eight and 21 say they would someday like to start their own business. In our highly entrepreneurial society, risk-takers and innovators propel our continued economic growth. Garage and dorm-room start-ups have become legendary in hi-tech lore.

But what of the garage biotech?

Indeed, the seeds of a biotech startup often have their humble beginnings deep in the trenches of academic laboratories. A professor or post-doc may work on a promising technology for years before the outside world ever hears about it. Starting out in the world of “publish or perish”, the entrepreneurial researcher pursues an altogether different calling, where protection of IP is of utmost importance, where the world becomes, “publish AND perish.” Because of our antiquated patent system, any previously published invention cannot be patented. As the scientist becomes an entrepreneur, goals must be realigned.

“Science and technology count for little unless they help make a better drug more efficiently, saving time and money,” so says Peter Kolchinsky, author of The Enrepreneur’s Guide to a Biotech Startup. He goes on to explain that the ultimate goal of any enterprise is to make a sustainable profit. This goal has eluded the vast majority of biotechs. As of 2006, fewer than 20 biotechs were profitable, and these made up more than 80% of the value of the entire industry[1]. Solidly profitable companies including BioMarin, Onyx, and Alexion have since joined their ranks.

In an interview with Xconomy, angel investor Joe Caruso suggests that startups focus on getting customers rather than raising money. Adding that they should also spend less time thinking about an exit strategy, but instead pursue a bigger vision for their company. This has a certain appeal, and may certainly be true for hi-tech startups, but the reality may be somewhat different when it comes to biotechs.

During the early stages of development, startup biotechs have no saleable products- there is only an idea and a promise. At least initially, the customer is likely to be its investor; the startup therefore must take into account what this customer is shopping for. Investors such as VCs, pharma and biotech companies, and the public market, each have different expectations and requirements. The major investor for startups is likely the VC.

For a startup seeking Venture Capital financing, an exit strategy should be a an integral part of its planning. As Bob Mulroy, CEO of Merrimack Pharmaceuticals, advised in a presentation to the Harvard Biotechnology Club- Want to get your biotech start-up financed? Then begin by thinking of an exit strategy. This is not to say the exit is its focus- not at all. Rather, the start and exit are intertwined.

The purpose of a VC is to make money on its investments. Investing at an early stage in a company’s development, a high numbers of failures are expected; just a few successful blockbusters contribute the majority of a VC fund’s returns. Companies in a biotech VCs investment portfolio require long holding periods- often more than five years- and continued investments. A profit is only generated when investors are able to exit their investment. This is accomplished through the sale of their shares in the portfolio company, either through an IPO, cash acquisition, or stock-based acquisition by a public company.

In today’s environment, the entrepreneur must run through a gauntlet of obstacles before VCs will even consider providing the first round of financing. By the time a VC is willing to invest, the startup has proven the viability of its technology, developed a clear business plan, and formed a competent management team. In the eyes of the entrepreneur, a key hurdle standing between his company and success is the lack of financing. But for a VC, it is the company’s ability to succeed that will determine whether it receives an investment.

The startup can strengthen its position and improve its chances of success by forming a strong board of directors. The board will consist of only a few members, but they should be individuals who can provide guidance and connections. Along with the board of directors, a scientific advisory board consisting of experts in the company’s area of work will not only provide important counsel, but may also lend credibility to a young firm.

Generating interest from today’s risk-adverse VCs requires startups to show they can quickly reach important milestones without burning through too much cash. Having shifted their investments to more validated startups in order to reduce risk, VC funds have also substantially limited their potential upside. To recoup their investments, VCs need their portfolio companies to maintain a tight timeline and low budget. The current trend towards private biotechs means companies have been unable to access the public market to cheaply fund clinical trials, leaving VCs to provide the resources, a trend that is expected to continue[2].

With market conditions in mind, the startup can prepare an exit strategy- a likely scenario being a strategic acquisition. This may have repercussions in the type of partnerships formed, as well as the selection of partners. Although an acquisition doesn’t have the glamour of an IPO, pharma’s appetite for novel compounds has resulted in a wave of biotech acquisitions, keeping this door open.

On the other hand, institutional investors are increasingly demanding late stage data before participating in biotech IPOs, increasing the time and cost of financing a biotech startup. The cost of going public can also consume 10-30% of all the proceeds of an IPO. Add to this the continued distractions and costs of complying with Sarbanes-Oxley regulations and investor relations, and an IPO may not be in the best interest of a small firm[3]. However, for a fast growing biotech in advanced stages of development, access to the public markets can provide a significantly higher return to its shareholders. By staying independent, the company has the ability to continue growing, with the potential for an even larger payoff if its product succeeds.

A startup’s exit strategy may change over time, as drug development and the markets are impossible to predict. But without one, the entrepreneur may find it difficult to get his enterprise off the ground.

Reference:

1. Nature Biotechnology: The investment banker's view, David J Strupp, Jr
2. SF Business Times: Exit strategies put biotech firms between rock and a hard place, Daniel S. Levine
3. Park Life Scienc LLC: Biotech M&A as an Exit Strategy

Long ALXN

Crossing the Valley of Death: From Innovation to Cure

2010-09-05T22:50:00.000-07:00

Jason Chew
(Featured in TheBigRedBiotechBlog, Pharma-marketer, BiotechnologyIreland)

The term “Valley of Death” has come to describe the period of transition when a developing technology is deemed promising, but too new to validate its commercial potential and thereby attract the capital necessary for its continued development[1]. During this transition, there is often a funding gap due to the weariness of risk-adverse investors. This is especially true today with the depressed market, creating limited exit strategies for early investors.

Drug discovery often begins in academic research labs; many of today’s best selling and leading edge products have their roots in academia. These include Byetta, Copaxone, Geldanamycin, Emtriva, Alimta, Taxol, and Rapamycin. But the process of translating a laboratory discovery into a drug is fraught with difficulties. There is a tremendous gap between the time of the original discovery and the time to market.

Only 0.03% of VC funding goes into the seed stage due to the very high risk of failure[2]. For many researchers, the initial source of funding for discovery work often comes from the NIH in the form of SBIR grants. In bioscience research, the initial phase I grant can be around $150,000 for pilot research. The number of applicants for these grants has grown significantly in the past decades. In 1983, fewer than 1000 grants were sought, by 2006, there were more than 3000 applications; in that time period the percent approved remained between 20% and 30%, leaving an increasing number of applicants looking for alternative funding sources.

Universities and non-profit organizations (NGOs) also support early stage research, though for different reasons. Universities can receive millions of dollars in royalties if a product from their lab is developed. By spending small amounts and coaching their researchers, small investments may pay off handsomely in the long run. Many universities have formed technology transfer centers to help take discoveries from research labs to the hands of private companies for commercialization. NGOs typically invest in specific disease areas at an early stage in promising technologies to accelerate research toward the development of cures. Without pressure for financial payoffs, NGOs are able to take on these riskier investments.

The NIH also provides larger phase II grants of over $1 million each through the SBIR for proof of feasibility studies to assess the commercial viability of a project. Venture funding is often sought in conjunction with phase II grants. After these grants, the NIH provides no other funding for these projects. VC, angel investors, private equity, collaborations, or other government grants can all be sources of future financing.

Venture capital and biotechnology have worked hand in hand since the formation of Genentech and has been crucial to the development of the biotech industry. Between 1986 and 2008, VC biotech investors averaged net returns of 20.7%, although suffering a loss in 2008. In high risk biotech investing, 44% of VC investments ended in total or partial losses while two-thirds of winners required holding periods of five or more years[3]. Historically, about 18% of VC money has gone into the sector.

VC funding has dropped 33% in 2009 from 2007’s all time high, and investors have become especially conservative. While VCs have always tended to favor more de-risked assets- that is, after the proof-of-feasibility stage- they are now waiting even longer before pulling the trigger. This has left entrepreneurs in a bind, stuck between seed funding and VC funding. VCs are asking for ever-more data before investing, but money is needed to generate that data- a sticky situation indeed. Just at the point in development when costs are beginning to increase significantly, financing has become increasingly scarce[4].

Money is flowing disproportionately to top-tier companies, with little left over for companies in the lower tiers. This has served to widen the chasm in the Valley of Death. There may be a renaissance in biotech VC investing, but until then, the industry may need to undergo some changes to ensure its continued growth.

The biotech sector is in serious need of consolidation and rationalization. Worldwide, there are 4000 private and 600 public biotechs, half of them in the US, very few profitable. In 2007, there were 2742 compounds in the clinical pipeline. Surely some redundancies can be eliminated. As we have seen, more compounds does not equate to more drugs approved. Not every idea is a good idea and deserves funding. Consolidation will ensure the best ideas will receive sufficient funding to succeed.

With the weeding out of biotechs that is likely to come (I say likely because biotechs have a way of hanging on like zombies), two business models look to strengthen in today’s business environment:

Hybrid biotechs with strong platform technologies, well financed, with the ability to take drugs to market. Hybrids will have strong IP in a broadly applicable enabling technology with the potential to create improved drugs. Hybrids both license this technology to others and use it to generate their own pipeline. They have a high burn rare from their operations, which is partially offset from their technology licensing.
Virtual biotechs are comprised of a core management team with completely outsourced operations, and maintain their focus on speed and cost, which fits well with the mindset of many VCs today.

Virtual biotechs may be well suited to take inventions from labs to a validated stage where additional capital can be found to complete development of a project. A validation point can be successfully developing a compound through Phase I or Phase II POC. Compared to laboratory startups, they have the advantage of strong management teams and the ability to lower risk by taking on multiple projects at once. Lean operations provide greater flexibility and a better chance of bringing a project to POC on a low budget. Most of all, they have the financial muscle to bridge the translation gap- the Valley of Death.

With virtual biotechs, there is no need to constantly form new companies for the purpose of developing a single invention- both risky and a highly inefficient use of resources. Spinning off a company from an academic institution requires the build up of infrastructure, no matter how small. The researcher also bears the cost and risk of a project’s failure, lacks expertise in navigating regulatory pathways, and management of outsourcing contracts. Allowing a dedicated drug development company to take over a project allows the academic researcher to offload significant risk while maintaining the ability to participate in the upside.

References:

1. Venture Funding and the NIH SBIR Program, National Academies Press (US); 2009.
2. Challenges in a Biotech Startup, Kellog School of Management 2006
3. The Cost of Capital of Early Stage Biotechnology Ventures, Boston University, Harvard Universty
4. Desperately Seeking Cures, Newsweek, May 15, 2010

Big Pharma: In-licensing is Not the Cure

2010-08-28T21:15:00.000-07:00

Jason Chew
(Featured in TheBigRedBiotechBlog, digitalpathologyinsights)

Historically, the Big Pharma business model has been that of a fully integrated pharmaceutical company, complete with basic research and development, clinical trials, sales and marketing, focused on the development of blockbuster drugs. This model has recently been roundly criticized.

A research article issued in January from Morgan Stanley titled Pharmaceuticals: Exit Research and Create Value created a stir when it called for Big Pharma to toss out all small molecule research. A group of MDs, PhDs, MBAs, and CFAs calculated that reinvesting internal research to in-licensing would result in a three-fold increase in returns. This process, they said, would even triple the number of new drugs reaching the market each year. Research and Development, Morgan Stanley said, should be replaced by Search and Development. The core competency of Big Phama should shift from in-house research to late stage development and commercialization.

Aside from the first extreme suggestion of divesting all research, there isn’t much new in this prescription. Big Pharma has already shifted a large percentage of their early stage research spend outside the company. Pharma is in the midst of transferring ever more research to both CROs and biotechs alike. Where at one time only relatively simple functions were outsourced, nearly all research and development functions are now carried out by third parties to some extent. The fastest growing trend today is outsourcing biology research and transferring development work to lower cost markets, especially Asia. It has been estimated over $300 million can be saved by performing drug development in India1. In-licensing has increased to the point where approximately 30% of current Pharma revenue now comes from in-licensed compounds2.

Forest Labs is an example of a fully in-licensed pharmaceutical company. It did well for some time, but has recently suffered from the same problem as the rest of Pharma with its own pipeline gaps. Two drugs, Lexapro and Namenda, approved in 2002 and 2003, accounted for 87% of 2009 sales. Revenue growth is in the mid single digits, and its operating margin, at 18% is far below that of the average Pharma company- peculiar considering Forest has only 5000 employees and has no need to conduct discovery research. The stock has dropped by half since its 2007 high.

In any case, in-licensing is unlikely to be Big Pharma’s savior. As this trend has intensified, the cost of quality compounds has gone up. Pharma historically favored in-licensing compounds post Phase II to reduce risk, but with increased costs, they have turned to earlier stage compounds. Today, even these have become pricier. Many companies backed by VCs have begun pushing for buyouts for their portfolio companies due to the inability to access the IPO market, further increasing the cost of acquiring compounds.

In-licensing allows Pharma to access novel technologies and may have some cost efficiencies for now, but it will only buy time for Big Pharma as costs spiral upwards. While ROI for Pharma compounds is a lowly 5%, the increasing costs combined with increasing failure rates of in-licensed compounds has reduced the ROI of compounds licensed at the Phase III stage from 12% in the 1995-2000 period to just 6% from 2000-20023.

Even as Pharma pays higher prices for biotech compounds, they will need to increase their diligence in selecting them. As Harvard Business School Professor Gary Pisano noted, biotech is even less efficient than Pharma in developing drugs4. Pharma will certainly need to retain a highly innovative research group, and I imagine that is the case, if not for the sake of drug discovery, then at least to maintain the know-how to thoroughly vet compounds from biotech companies.

Another suggestion has been for Pharma to focus on limited therapeutic areas, citing biotech as examples of companies with core focuses that lead to greater levels of success in drug discovery. It appears this is not the case; a look at maturing companies such as Amgen, Gilead, Genzyme, and Biogen Idec shows they are all dependent on drugs discovered years ago. Indeed, they have all broadened their disease focus in recent years in an attempt to boost sagging growth. Of the largest biotechs only Celgene has maintained its focus on its core disease area. However, when it comes to successful drug discovery, Celgene is no different from the others, with only a single drug developed in-house driving most of its growth.

Genentech, often highlighted as the epitome of innovative biotechs, has some of the world’s best researchers, but even they have not developed a new drug since Avastin was approved in 2004. Their most recent attempt for accelerated approval with the antibody-drug conjugate T-DM1 has just been denied by the FDA- the new anticipated filing date is now 2012. Two other late stage molecules target HER2 and CD20, the same targets as Herceptin and Rituxan, two approved Genentech drugs. Contrast this with BMS, market cap $45 billion; since the start of 2005, it has received approval for five NMEs. It may receive approval for the novel cancer vaccine Ipilimumab as early as the end of this year. Pharma does not lack for innovation. The difference between Genentech and BMS? Genentech has yet to be hit by generic competition.

An interesting report from Accenture draws a line between two Pharma business models: Innovative Medicines and Integrated Therapeutics. Innovative Therapeutics companies focus on discovering novel medicines for high unment needs using world-class drug discovery capabilities. Integrated Therapeutics companies on the other hand provide a suite of medical solutions that include risk-sharing pricing contracts, drug delivery devices, companion diagnostics, or care management services. In this report, the authors suggest that companies must choose between these or models such as generics and OTC medicines5.

I believe the pure Innovative Medicines model can no longer survive in the long run in the current regulatory and business environment. In the current environment, there will continue to be pipeline gaps due to shortened patent exclusivity, generic competition, and difficulty in developing new drugs. Depending on discovery alone will lead to highly cyclical earnings. In a model by researchers from Kellogg School of Management, a company aiming to maintain 18% earnings growth over a period of 15 years would need to increase its number of drug launches five fold, with each launch reaching double the average peak sales of the original drugs. This is not sustainable. In the period from 1992 to 2002, only “a handful of companies” were able to bring on average one or more NMEs to market per year6. Even if one is lucky or resourceful enough to develop a drug, the regulatory environment is difficult, competition is fierce, and switching costs are low.

By deploying a model focused around Integrated Therapeutics, meaningful value is added to the product. The molecule alone is no longer the only differentiator. Done correctly, this creates a higher barrier to entry for competitors from both makers of novel drugs and generics. At the same time, it generates greater benefits for the many parties involved, including patients, payers, and drug makers.

References:

1. Pharmalicensing: The Productivity Tiger - Time and Cost Benefits of Clinical Drug Development in India
2. McKinsey & Co: The New Math for Drug Licensing
3. In Vivo: Rebuilding Big Pharma’s Business Model November 2003
4. Gary Pisano: Science Business: The Promise, the Reality, and the Future of Biotech
5. Accenture: The Era of Outcomes- Emerging Pharmaceutical Business Models for High Performance
6. Kellogg School of Management: Strategic Alternatives in the Pharmaceutical Industry

Author is Long RHHBY.PK

First in Class vs. Best in Class- The Economics of Drug Discovery

2010-08-20T18:52:00.000-07:00

Jason Chew
(Featured in TheBigRedBiotechBlog, Core Compass)

The genomics and proteomics revolution has produced thousands of new targets for drug discovery. Designing molecules with novel mechanisms is sexy and can be very rewarding but is risky and time consuming- though some would say this novelty and pursuit of innovation is the embodiment of the biotech industry. But the pursuit of innovation requires a large investment in research to define a target’s role in human biology, to validate its relevance in human disease. Even after this early validation, there is no guarantee that modulation of this target will result in an effective treatment in humans.

There is another path. Through years of research, many drug targets have already been validated. Academic and industry researchers alike have published peer-reviewed papers on many of the most interesting targets. A review of the scientific literature can provide an enormous amount of information on important targets. For even more highly validated targets, companies can look to the competition. Has the molecule entered clinical studies, if so, what stage? The farther along a molecule has progressed, the more the target has been de-risked. No longer does a company talk about “first in class,” the goal is to be “best in class”.

A first in class drug provides the manufacturer with a period of market exclusivity free of competition from similar drugs. Companies that pursue the development of a more validated target with a “follow-on” drug will face competition immediately upon approval even as the development risk has been reduced. To compete, they must differentiate their products. The benefits of being first to market, however, may be offset by the risk of developing drugs with novel mechanisms of action and unproven targets. (Drug Discovery Today, May 2009)

According to Tufts Center for the Study of Drug Development (CSDD), the average time to market entry of follow-on drugs has decreased to 1.3 years in the 1990s from 5.1 years in the 1960s. This is a very short time for a drug to be on the market before competition arrives. Although competition does not necessarily lead to price reduction, it can have a deliterious effect on market share. Moreover, an analysis by McKinsey & Company showed that “fast-followers”, those who arrive on the market between 2-5 years after the first drug, actually fared better than the innovators, with significantly higher median sales. Suprisingly, follow-on drugs coming to market even 15 years after the innovators were just as successful as the first drugs.

The fact is first-in-class drugs may not ultimately be the best-in-class drugs on the market. With the incredible pace of scientific research, each passing day leads to an increase in the understanding of a drug target- knowledge that may benefit the follow-on drug makers. While the innovator drug is in development, makers of follow-on drugs have the ability to survey the competitive landscape and decide on a project based on its scientific and financial merits. They can also glean information from drugs in development ahead of them, giving them the chance to improve on the first-in-class drug even before it hits the market.

Innovator drugs also end up paving the way for the follow-on drugs. They may face increased scrutiny from the FDA with their novel mechanism of action. Provenge is a good example: as a cancer vaccine, it was certainly in a class of its own- Dendreon, the drug’s maker, needed to assuage the FDA’s concerns on issues such as how the drug prolonged survival without shrinking tumors. But with its approval, future cancer vaccine makers will know what to expect when presenting their data to the FDA, and the FDA will be experienced in the handling of cancer vaccines.

Even after navigating regulatory hurdles, makers of innovator drugs must educate patients, physicians, and payers on the merits of their drugs, in essence, creating a new market that follow-on drugs can exploit. Before Viagra came along, the world had never heard of erectile dysfuntion drugs. Heavy advertising and other promotions by Pfizer made Viagra a household name. Even so, the follow-on drug, Cialis, from Lilly, eventually overtook Viagra in market share due to its improved convenience. In another example, Lovastatin heralded the market for the class of cholesterol lowering drugs known as statins in 1987 while Lipitor was not approved until 1997, but today, Lipitor is the world’s best selling drug.

What is the most exciting class of drugs in development today? Some would say Phosphoinositide 3-Kinase (PI3K) inhibitors. This is not a new target- the first paper on PI3K was published in 1990 and an inhibitor was identified in 1993. Such targeted therapies have made it easier for companies to make follow-on compounds quickly. Once a target has been validated, future competitors know exactly what to pursue. This is especially true with today’s popular kinase inhibitors, where compounds usually act on the target’s ATP binding site.

In December 2006, the first PI3K inhibitor, BEZ235, from Novartis entered the clinic; since then, at least ten more have joined it. Though none of these have yet to pass Phase II development, new generations of inhibitors are already close behind. That is the speed of follow-on drug development today.

The data show that it is financially more advantageous to pursue a follow-on drug than attempt to pave the way with an innovator drug and novel mechanism of action. This does not mean the end of innovative medicine, for there can be no follow-on drug without the initial pioneering drug to follow. What it shows is the follow-on drug strategy is a very good one and is well suited for managing the risks of drug development. It is also of benefit to patients, as drug makers attempt to improve on their predecessors with each new compound they put into the clinic, aiming for the best-in-class drug.

Author is Long NVS

The Virtualization of Drug Development

2010-08-14T14:54:00.000-07:00

Jason Chew
(Featured in FieceBiotech, BioSpace, TheBigRedBiotechBlog)

Virtual Drug Development has been around since the 1990s with little fanfare. In this model, only the key personnel to manage the core operations of a project are retained, while all other functions are outsourced. Roche was an early adopter of virtual drug development, forming a subsidiary called Protodigm in 1996 consisting of only nine members, and responsible for taking three drugs through clinical trials. Though successful- money was saved and projects were completed faster- Roche ultimately decided against the plan, spinning the unit off into a separate entity, Fulcrum Pharma Developments. Biotechs also experimented with the idea, but the easy access to capital at that time encouraged the formation of bigger, more integrated companies rather than stripped down, virtual ones.

In this past decade, attitudes have changed substantially. Among large pharmaceutical companies, patent cliffs and lack of growth have forced companies to reevaluate their new drug development models; one which has received renewed attention is virtual drug development. Eli Lilly took a bold step when it formed its experimental Chorus division in 2002, an independent unit comprised of just 22 people. It was responsible for the development of compounds Lilly had previously deprioritized, from preclinical to proof of concept (POC). POC is the point where there is sufficient evidence in humans to believe a compound is active. Arriving at this conclusion usually requires the completion of a Phase II clinical trial. The group designed the trials and experimental plans, but all the work was outsourced to CROs.

Over the course of five years, nine out of nineteen of these compounds reached POC stage. Chorus now has 24 employees with the capacity to handle 10 compounds at any one time.

Chorus appears to have accomplished its initial goals. According to the company, it was able to achieve POC 1.5 years faster than the industry standard, and at as little as 10% of the cost. Of the nine compounds that reached POC, two were selected by Lilly for further development. With a small crew, two compounds that had been sitting in the drawers have now been given a second chance to prove themselves, with minimal upfront costs.

At Chorus, the strategy was to push as many compounds through as fast as possible with the belief that most are destined to fail. Management spent as little as possible on processes not directly related to reaching its goal of POC. Long term toxicology studies, manufacturing processes, formulations- anything extraneous was put off until the goal is reached. After POC, the compound is returned to Lilly to complete its development. If Lilly decides to go forward with a compound, it’s researchers complete the work that Chorus had skipped over.

The virtual model may be well suited for biotech start-ups. Biotechs already outsource significant amounts of work to CROs on a regular basis. Few have the size and ability to perform all the necessary preclinical studies, CMC work, and clinical trials. CROs and consultants have allowed biotechs to perform this work without the expense of building up all the internal capabilities. With the increasing numbers and sophistication of CROs, almost all the functions a typical biotech performed can be outsourced. The key to making a virtual biotech succeed is a superior leadership team able to select the right CROs and manage those relationships to build enough trust so they can perform their work with minimal supervision.

Biotech startups have begun to embrace the formation of virtual companies now that access to capital has become difficult and IPOs have dried up. With the end of easy money, many VCs prefer to fund companies with low fixed costs and short time to exit. A virtual biotech fits the bill perfectly. With limited personnel and no need for laboratory space, virtual biotechs have very low fixed costs. Because practically all services are contracted out, nearly all costs are variable. On average, 25% of costs are fixed, 75% are variable- the opposite of a standard biotech. The small structure and low fixed costs allow a high degree of flexibility- companies are able to respond rapidly as opportunities arise and situations change. A fully outsourced model also allows a small group of individuals to work on a larger number of projects simultaneously.

Virtual biotechs typically bring in compounds at the preclinical stage, progressing them to POC. Reaching POC is a major value creating point in the life of a compound. At this stage, companies have the option of selling themselves, partnering with a larger company, or licensing their compound. If this point can be reached quickly and with little capital, the company’s backers stand a better chance of recouping their investment in a reasonable time. This compares to the large sums and long timelines required for a traditional biotech to develop its compounds to a stage where investors can obtain a sufficient return on their investment.

One example of a virtual biotech is Flexion Therapeutics, founded in 2007 by two of the creators of Lilly’s Chorus program. With a track record of cutting costs and expediting early drug development processes, they have found significant financial backing and have in-licensed compounds from major pharmaceutical companies. Flexion has seven employees and four compounds in development. The company specializes in anti-inflammatory therapeutics, with candidates for Autoimmune Disease, Ulcerative Colitis, Tinnitus, and Osteoarthritis. Its stated goal is to take a compound to POC for under $5 million and in less than two years, after which it will likely be licensed out. In certain cases, the company plans on taking their compounds through Phase III testing on their own.

As the number of virtual biotechs increase, it will be interesting to see how their success rate compares to that of the traditional, more integrated biotechs. It is already clear they have the advantage in bringing compounds from preclinical to POC. In January 2005, Pfizer acquired the virtual biotech Angiosyn, in a deal worth up to $500 million. Angiosyn had spent only three years and less than $5 million dollars to develop a compound for macular degeneration to the POC stage. Time will tell if this approach will speed the delivery of drugs to market- the ultimate goal in drug development.

If it is proved that virtual biotechs are indeed more efficient at bringing drugs to market, then one must wonder if traditional biotechs are overstaffed. It would make no sense having 30 people develop one or two compound when a group of less than ten can test several times that. And right now, there is no shortage of compounds to test. Industry consolidation in Big Pharma has led to the abandonment of many overlapping or redundant projects. Company restructurings, M&A activity, have all left compounds for the astute scientist/entrepreneur to comb through. And as always, many novel compounds continue to come out of the world’s academic research labs.

The changes are already occurring, with Big Pharma outsourcing their research to biotechs and now biotechs outsourcing to CROs. As more research has been taken over by contractors, their abilities have grown enormously. It will be up to managers of virtual biotechs to ensure critical IP is protected and core expertise remains in the company. Managers must strike a balance in sharing enough data with contractors to keep things running smooth without divulging too much. They must determine which skills are critical and which ones can be outsourced. Investing in a virtual biotech is truly an investment in its management team.

Multiple events have conspired this past decade to force change upon the biopharmaceutical industry. Significant outsourcing by Big Pharma and virtual biotechs appear here to stay. To what extent however, remains to be seen. But it is a near certainty that the glory days of IPOs followed by multiple secondary offerings is coming to an end.

Author is Long RHHBY.PK

Four Emerging Taiwan Drug Developers

2010-08-10T12:54:00.000-07:00

Jason Chew

Taiwan’s drug makers have largely focused on generics; few are in the business of developing novel medicines. This is partially due to the large resources required for such an endeavor combined with Taiwan’s small market potential. To justify the costs of developing a new drug, companies must have the ability to navigate across borders in the hopes of selling their drugs in far larger markets. Few have this capacity.

Of the ten largest drug manufacturers in Taiwan, four are publicly traded, none of which are drug developers. The largest of these, Yung Shin Pharma Industries, sells products ranging from generics to cosmetics, and has a market cap of over $8 billion. The other three are China Chemical & Pharmaceutical, Standard Chemical & Pharmaceutical, and Sinphar Pharmaceutical. The first two are makers of generic drugs and the latter makes Chinese herbal medicines and nutraceuticals.

Let’s take a look at four companies that have made the leap. All are private, all are drug developers, but each does drug development slightly differently. These are some of the leading edge biotechs in Taiwan, helping to reshape the industry.

TaiGen Biotech resembles a US biotech in that it is a pure-play drug developer. It has two compounds in US clinical trials- Nemonoxacin (TG-873870), an antibiotic licensed from Proctor and Gamble for the treatment of community acquired pneumonia and diabetic foot infections is in Phase II, and internally discovered TG-0054, a CXCR4 antagonist, is being tested in certain cancer indications. The company is well capitalized, having raised $37 million from investors in January 2009. It has operations in the US, China, and Taiwan.

TTY Biopharm remade itself from a generic drug manufacturer and distributor into a global company with a focus on developing new drugs. Founded in 1960, it slowly improved its technology over the decades through technology transfers from western pharmaceutical companies. It later partnered with then tiny Taiwan Liposome Company to develop and sell Lipo-Dox in 1997, transforming itself into a seller of branded generics. It now continues to partner with early stage companies in their drug development, providing technical resources and financial support.

AbGenomics has an early stage pipeline of antibody therapeutics. Its most advanced product, AbGn-168 targets CD162 on activated T-Cells and has been licensed to Boehringer Ingelheim and is in Phase I testing for the treatment of autoimmune diseases. AbGenomics’ other candidates are all preclinical and oncology focused. It seeks to partner its products either after the preclinical or Phase II stage. The company has offices in both the US and Taiwan.

Taiwan Liposome Company (TLC) began operations in 1997. It focuses on developing novel liposome formulations of off-patent drugs, improving its performance by reducing the drug’s toxicity, improving its stability, targeting its delivery. With its technology, it has developed Lipo-Dox, licensed to TTY Biopharm for sale in multiple Asian countries. It has also built a pipeline of newly formulated drugs in various stages of development. TLC has a US office driving the development of its compound, Lipotecan- a novel Topotecan analog in its proprietary liposome formulation. The compound is in Phase I studies.

Since the 1980s when the Taiwan government deemed biotech to be an important to the country, billions of dollars have been poured into industry. Industry however, has been slow to take root. We may have reached an inflection point. Generic drug companies have saturated the market, forcing drug makers to look for profit farther up the value chain. The large number of contract research organizations is now allowing small companies with nothing but an idea to outsource nearly all the necessary research, even conducting studies overseas.

This set of four companies represents just the first wave of innovative biotechs coming out of Taiwan.

Taiwan Liposome Company- Ahead of the Pack

2010-08-07T18:13:00.000-07:00

Jason Chew

Biotechnology is an emerging industry in Taiwan. After the country’s immense success in high tech, the government is searching for another engine of economic growth. There are now at least five science research parks and as of 2004, at least 238 biotechnology companies. Perhaps due, in part to Taiwan’s roots in computer sciences and manufacturing, a large number of these biotechs focus on genomics, bioinformatics, and pharmaceutical manufacturing. The industry is beginning to mature and companies are increasingly focused on working toward drug development. A couple, like AndroScience and TaiGen Biotechnology have some early stage pre-clinical compounds. A DPP-IV inhibitor for diabetes was recently hailed in the Asian press as the first novel drug to enter clinical trials on the island nation and is being developed by a consortium of six biotechnology companies. With a combination of homegrown scientists and repatriated talent, Taiwan is hoping to become a global biotechnology hub.

All About Liposomes

As the name suggests, Taiwan Liposome Company (TLC) is focused on liposomal technology; its goal is to use the technology as the core of their drug development. Its main operations are in Taipei, Taiwan, with a small unit in South San Francisco. TLC is a small privately held company founded in 1997 by Dr. Keelung Hong, an expert on liposomes, with 20 years research background at UCSF. An initial funding round of NT$27 million allowed the company to test and bring their version of liposomal doxorubicin (Lipo-Dox) to market in 2002 in Taiwan and other Asian countries, proving the viability of their technology. Lipo-Dox was soon licensed to TTY Biopharm for distribution and now has sales of over NT$220 million.

In a 2006 interview, TLC’s General Manager, George Yeh, described his company’s strategy as one based on a platform technology rather than product based. He believes their technology allows for the cost-effective development of drugs that can efficiently fulfill the needs of both TLC and other pharmaceutical companies.

Product lifecycle management is a mainstay of drug development today, but has become increasingly important as blockbuster drugs lose patent protection, with nothing fill in behind them. TLC’s technology has the potential to play an important role in lifecycle management. It can extend a product’s patent life through the enhancement of its performance- by reducing a drug’s toxicity, improving its stability, targeting its delivery. These improvements can be made possible by converting existing drugs into TLC’s proprietary liposomal formulation.

The following chart from Cutting Edge Information “Defending brand revenue - Pharmaceutical life cycle management planning” June 2005 shows the value creation of reformulations compared to other lifecycle management strategies.

From this chart, it appears only patent litigation is more effective than product reformulation.

An alternate use for TLC’s technology follows in the path of their first product, Lipo-Dox, where their liposomal technology was used to reformulate an off-patent drug and bring it to market with minimal testing while enjoying additional patent protection. With this blueprint, the company has developed a pipeline of reformulated generics. Along with these generics, they have also ventured into the development of novel drugs.

Developmental Products

Lead product ProFlo is a new Prostaglandin E1 emulsion formulation for the treatment of Peripheral Arterial Disease (PAD), Diabetic neuropathy, and Ulcers. It has the biological activity of Liple, but with a longer shelf life, sustained release, and targeted delivery. It is now going through regulatory approval.

Other reformulations include AmBiL, a generic form of AmBisome, and Doxisome, a generic of Doxil. Branded sales of the latter two drugs are about $800 million. Both AmBiL and Doxisome are in bioequivalence testing.

The company is developing a novel compound, Lipotecan, a modified version of topotecan in a liposomal formulation. It is the first new drug from Taiwan to be developed in the US and is currently in a dose-escalating Phase I study. Data presented this past ASCO showed prolonged stable disease in 5 of 32 patients with advanced solid malignancies. The best response appeared in a patient with sorafenib-refractory hepatocellular carcinoma. The authors indicated they intend to pursue further study of the drug in this indication as a result.

Finances and Future Plans

TLC set its sights on building an international presence early on, partnering with South San Francisco based Hermes Biosciences in 2003 (since acquired by Merrimack Pharmaceuticals) to develop liposomal vinorelbine (NanoVNB) for cancer. NanoVNB is being tested in Taiwan in Phase II. Of note, Hermes Biosciences was also a liposome technology company with roots at UCSF.

Back in 2006, TLC had been considering an initial public offering in the US as a way to raise cash and their international profile, but changing markets have made biotech IPOs here incredibly difficult. They are now setting their sights on a Taiwan listing sometime next year. Being acquired by another pharmaceutical company was also considered as a way for investors to obtain a return on their investments.

TLC completed its fifth financing round in July 2009 with participation from Burrill & Company, YFY Biotech Management Company, TaiAn Technologies Eminent VC, and Boston Life Science Venture Corp. This strong list of backers is a showcase to TLC’s leading position in a highly competitive industry. So even without a US IPO, this influx of cash now allows the organization to continue with its plans for expansion. A representative from Burrill & Company now sits on the company’s board.

Exchange rates as of 8/6/2010 (1 US dollar = 31.765 Taiwan dollars)

A Rash of Data Expected From Seattle Genetics

2010-08-04T14:30:00.000-07:00

Jason Chew
(Featured in FieceBiotech, TheBigRedBiotechBlog)

This autumn is turning out to be a busy season for Seattle Genetics. The company is expecting results from up to three clinical trials between September and October- each of which, if successful, may form the basis for the filing of an NDA.

Two trials are nearing completion for flagship compound SGN-35, or brentuximab vedotin. SGN-35 is an antibody-drug-congugate (ADC) targeted to CD30. The CD30 antigen is a marker for Hodgkin’s Lymphoma (HL), Anaplastic Large Cell Lymphoma (ALCL), as well as other T-cell lymphomas. The two pivotal trials are in refractory Hodgkin’s Lymphoma and ALCL.

All eyes are on the pivotal SGN-35 trial in refractory Hodgkin’s Lymphoma. Management has consistently said this is their top priority. Newly detected Hodgkin’s Lymphoma is highly curable; a combination of chemo drugs known as ABVD allows about 85% of patients to attain complete remission. However, over time, about one-third of all patients will become refractory to conventional treatment, and in this setting, there is no standardized care and prognosis becomes progressively worse over time.

In the Phase I dose escalating study, patients with advanced disease who were treated with at least 1.2 mg/kg of drug showed a better than 50% overall response rate and greater than 30% had complete remissions. The dose use in the pivotal trial is 1.8mg/kg. It is a single arm trial conducted under an SPA with the primary endpoint being objective response. Success in this trial is key to the success of the program.

A Phase I trial is underway to provide evidence for SGN-35 as an option for first line therapy in combination with ABVD. Another is testing the compound for use in re-treatment of patients who have already failed initial SGN-35 therapy. Promising interim results from the re-treatment trial were disclosed at ASCO. If confirmed, SGN-35 could become an agent used for long-term care in Hodgkin’s Lymphoma patients. Both studies are important in extending the use of the agent, but data will not be available until 2012. Only about 8000 new cases are diagnosed each year, but over 100,000 people are living with the disease, representing a significant market opportunity.

ALCL is another indication management has often alluded to as a possible route to regulatory approval for SGN-35. This disease is a form of T-cell non-Hodgkin’s Lymphoma and is very rare. It comes in two forms, cutaneous and systemic. While cutaneous ALCL is slow growing and may even disappear on its own, systemic ALCL is aggressive, often occurs in children, and is fatal without treatment. Standard chemotherapy typically results in remission, but few options exist for relapsed disease. SGN-35 has shown good efficacy in this setting. As I had mentioned, this is a rare disease; only about 2000 new cases are diagnosed each year. Sales in this indication will be significantly lower than in HL.

While the focus may be on SGN-35, a surprise may lie in store with its other advanced candidate, the naked antibody SGN-33 (lintuzumab). This is an antibody against CD33, an antigen primarily found on AML and MDS cancer cells. The company has downplayed this compound, maintaining that their focus is on SGN-35. Most analysts don’t give it much chance of succeeding- but there lies the upside. Phase I results for SGN-33 were not spectacular, only about 7% of patients in this single agent trial achieved a complete response, compared to 18% for cytarabine in a recent UK study in patients of a similar age. But remember, the SGN-33 results were for patients across all doses in the Phase I study.

The standard treatment for AML is high-dose daunorubicin plus cytarabine. This treatment regimen can put up to 70% of patients into remission. Unfortunately, patients over age 65 (the median age at diagnosis is 63) receive less benefit from this therapy, and often are not candidates for this type of intensive treatment. For them, cytarabine alone is the standard of care. If SGN-33 is able to provide an additional benefit on top of cytarabine, it would give many patients a much needed treatment option.

If successful in AML and MDS, SGN-33 has the potential to be a highly valuable asset. Celgene’s Vidaza for treatment of AML and MDS had sales of $387 million in 2009 and is estimated to hit $500 million in 2010- and it is still growing fast.

There is also SGN-70, SGN-75 and ASG-5ME in the clinic in Phase I, but I’ll skip over them.

In December 2009, Genentech terminated its SGN-40 (dacetuzumab) collaboration with Seattle Genetics- but don’t expect the compound to disappear. SGN-40’s target, CD40 is very compelling, it is found on malignant haemopoietic cells as well as solid tumors. Genentech had big hopes for SGN-40 and ran a broad range of trials that included Multiple Myeloma and Non-Hodgkin’s Lymphoma. It showed activity in the form of objective responses, but wasn’t quite good enough.

Seattle Genetics has seen this before. The naked antibody portion of SGN-35, SGN-30, had also failed in the clinic in Hodgkin’s Lymphoma for lack of activity; but with the addition of a drug conjugate, the newly empowered antibody is now close to a regulatory filing. I fully expect an ADC empowered version of SGN-40 to appear in the near future.

Seattle Genetics signed an agreement with Genentech August 3, 2010 expanding their ADC collaboration with $12 million upfront and up to $900 million in milestones and mid-single digit worldwide royalties. This only confirms my belief in the company’s ADC technology. Seattle Genetics’ technology provides Genentech the ability to increase the potency of its antibodies without sacrificing safety. It will surely help in the life-cycle management of its large stable of drugs and works out nicely for Seattle Genetics as well, since practically all the research will be carried out by its partner. The deal compares well with that of Regeneron, a highly regarded antibody company, which extended a drug development agreement with Astellas into 2018 for total payments of $295 million and mid-single digit royalties.

In a way, Seattle Genetics story has some resemblance to that of PDLI. Both companies developed disruptive antibody technologies that were broadly licensed while at the same time working on their own internal discovery projects. Multiple marketed drugs using PDLI’s technology provided the company with a steady stream of royalty payments though it struggled with its own pipeline.

If Seattle Genetics’ licensees succeed in the future- and there’s every reason to believe at least some of them will- it will get a boost from its own royalty stream. For now at least, it is looking like Seattle Genetics may succeed in the drug discovery game as well.

Author is Long SGEN, RHHBY.PK

Teva- Evolution of a Generics Company

2010-08-01T23:50:00.000-07:00

Jason Chew
(Featured on Bullfax)

It is difficult to characterize Teva- is it a generics company or a biopharmaceutical? It would appear it is the best of both worlds, a hybrid of the two. For the year 2009, Teva derived 67% of its revenue from the sale of generics and the rest from novel drugs and specialty products. Low margin generics were balanced by high margin branded drugs. It spends relatively little on research- around 6% of sales- improving operating margins are significantly. In fact, at 27%, its operating margins are in-line with those of the largest pharmaceutical companies.

Teva had $13.9 billion in net revenue in 2009, up 25% from 2008, due in large part to the acquisition of Barr Laboratories. The company’s stated goal is an annual 15% growth rate through 2015 with revenue of $31 billion in that year, while at the same time maintaining a product mix of 70% generics and 30% branded and specialty drugs. That would make it one of the fastest growing companies in the large cap pharmaceutical space. Only Celgene is currently growing faster, but no one’s prediction mid-teen growth rates into 2015. Investors appear to believe; Teva has a trailing PE of about 17, only Celgene’s incredible PE of 30 is higher.

Teva’s generic side:

Teva is the world’s largest generics company- its closest competitor is Sandoz, a unit of Novartis, and Rambaxy Laboratories. It has achieved this through a combination of organic growth and roll-ups of smaller generic companies, including the recently announced purchase of Germany’s Ratiopharma for about $5 billion. In the last decade or so, it has picked up Barr Laboratories in 2008 for $7.5 billion, IVAX in 2006 for $7.4 billion, Sicor in 2004 for $3.4 billion, Novopharm in 2000 for 4.2 million shares of stock, and Copley Pharmaceuticals in 1999 for $220 million.

In the US alone, Teva sells over 400 generic drugs; it is also awaiting approval from the FDA on another 216 generics for approval. Of those, 140 are Paragraph IV filings, which challenge the validity of a drug’s patent. This is according to its annual report. It also launched 19 new generics in 2009 and has been approved for another 27 in 2010. Teva’s size and structure allows it to pursue drugs that are difficult to produce, formulate, or source. Its financial strength allows it to pursue patent challenges, as evidenced by the large number of paragraph IV filings.

The company has benefited along with the rest of the generics industry from current political and demographic trends. As the population ages and more patients take medication, cash strapped governments in developed countries have aggressively encouraged switching from branded drugs to generics. According to the Generic Pharmaceutical Association, 69% of all prescriptions in the US are for generics.

Even with Teva’s spate of acquisitions, the generics industry is highly fragmented; in 2008, the 10 largest generics companies accounted for less than half the worldwide generics market. Teva led with 11%, followed by Sandoz, 9%, and Mylan with 8%. It appears increased consolidation is inevitable.

Today, Teva generates a whopping 85% of its revenue from the US and Europe. And while it is doing well in both of these markets, it cannot ignore the rapid growth offered by large developing nations, especially those in Latin America. The Wall Street Journal has highlighted its interest in acquiring Brazilian generics manufacturers- in particular, Teuto, which had 2009 revenues of $171 million.

Teva’s innovative side:

Teva’s sells two novel drugs, Copaxone for Multiple Sclerosis, and Azilect for Parkinson’s Disease. Although they account for only 19% of sales, they provide more than one-third of profits. Copaxone is Teva’s first novel drug and was launched in the US in 1997, it has gone on to become the world’s leading MS treatment with 2009 sales of well over $2 billion. Azilect followed considerably later with a 2006 US launch. It has successfully completed a recent clinical trial showing it may have the ability to delay the progression of PD- a first for any drug. Analysts project peak sales of the Azilect of anywhere between $500 million and $1 billion.

Teva’s dependence on novel drugs to drive profits requires it to maintain a pipeline of developmental candidates. It typically licenses compounds after proof of concept has been reached, and now has five compounds in Phase III testing. These products are: Laquinimod, an oral treatment for MS; Debrase, an enzyme for removal of burn tissue; Diapep-277, a treatment for Type 1 Diabetes; TV-1011, an antisense treatment for solid tumors; StemEx, a cell therapy for blood cancers. Results from a large Phase III trial for Laquinimod will be available 2011, and an EMEA filing is already being prepared for Debrase due to the early stopping rules in the EU.

So while Copaxone continues to run strong, and Azilect sales begin to boom, at least one new drug looks to join the novel drug lineup. Should Laquinimod succeed, it will bolster the MS franchise and give Teva an offering in the new generation of oral MS drugs.

Summary:

Teva looks to remain highly successful in the coming years. Its operating margins are close to double that of smaller generics companies such as Mylan, while its growth is far superior to the biggest pharmaceutical companies.

Meanwhile, Big Pharma has seen the potential in the sale of generics. Novartis was early with the formation of its Sandoz generics unit in 2003. Pfizer, GSK, and Sanofi-Aventis have all entered the generics fray. These moves by Big Pharma are defensive and they will always be careful when emphasizing generics so as not to eat into their bread and butter brand name drugs.

On the other end of the spectrum, generics companies are busy developing novel drugs. These companies include Rambaxy, Dr. Reddy’s, Mylan, Watson, Impax, and Momenta. It looks like Teva’s strategy has influenced its peers. Over time, as these companies grow and their pipeline of novel drugs fills out, expect the line between generics companies and biopharmas to continue to blur.

Author is Long NVS

Big Biotech- The End of An Era

2010-07-27T15:29:00.000-07:00

Jason Chew

In their heyday, big biotech companies rivaled some Big Pharma companies in market capitalization and epitomized innovation in pharmaceutical development. At the time of its acquistion by Roche, Genentech was valued at $106 billion. Amgen at one time reached a valuation of over $100 billion, Gilead- over $50 billion. Excluding Genentech, the top five biotechs- Amgen, Gilead, Celgene, Genzyme, and Biogen Idec have now lost a combined $89 billion in market value from their peak, about 40% of their value.

Each of these top biotechs were founded in the 1970s and 1980s, bringing life-changing innovations with them. Their technologies revolutionized healthcare. Once the backwaters of drug development, Genentech built its empire by developing novel cancer therapies; Amgen saw the benefits of cloned EPO, and buit an entire franchise around it; Gilead designed effective and convenient combination anti-viral pills, overtaking all others in the HIV market. These companies were driven by legends in the biotechnology field: Art Levinson, George Rathman, John Martin.

A confluence of factors has led to the slow decline of these big biotechs (Genentech is an exception.) The very thing that has driven growth for these biotechs has now become a reason for their drag. Their focus on targeted niches has made each a dominant player in their categories. For instance, Celgene is a leader in multiple myeloma, Genzyme in enzyme replacement therapy, and Biogen Idec in multiple sclerosis. This has given the companies pricing power and allowed for very high margins.

With patent expirations looming, investors began to focus on the companies’ product pipelines and realized they were quite empty; years of pouring money on internal research projects has come up dry. Big biotech was in the same predicament as Big Pharma- sales of blockbusters are slowing but there isn’t anything to replace them. On top of that, the companies are facing pricing pressure from government regulation both in the EU and the US.

Until last year, Genzyme was looking like the company that would succeed beyond its core enzyme replacement therapies. Although that segment made up about half its sales, its oncology unit was growing well, as was biosurgery. Then in June 2009, a bacterial contamination forced it to cease production of its two leading drugs Cerezyme and Fabrazyme at its main plant. With continued problems, its stock price was cut to a low of $45 in May from its $80 peak.

Wounded, Sanofi-Aventis approached Genzyme with an informal takeover offer on July 23, instantly putting the company in play. GSK is said to be interested as well. According to Bloomberg, Genzyme may command a price of $80 per share, a 48% premium to its closing price the day before reports of Sanofi’s interests surfaced.

Genzyme’s peers, Amgen, Gilead, Celgene, and Biogen Idec are often the subject of takeover speculation, though even with their now reduced market caps, perhaps only Biogen isn’t so large as to cause indigestion.

What happens then as the big biotechs are picked off by Big Pharma or join their ranks as slow growing behemoths? It appears there may be a second generation of biotechs waiting in the wings, on the cusp of greatness. As it so happens, this generation is the 1980s and 1990s set: Vertex, Human Genome Sciences, Dendreon, Alexion, Amylin, BioMarin. The dynamic biotech industry has produced another batch of companies, each with innovative, life-changing technologies.

Author Long ALXN, GENZ

GSK and Anthera: Novel Treatments for Cardiovascular Disease

2010-07-23T17:50:00.000-07:00

Jason Chew

The cardiovascular disease (CVD) market is worth approximately $100 billion today and makes up 12% of all global pharmaceutical sales. Unit sales of medicines for CVD are growing, but patent expirations for drugs such as Lipitor will hold revenues down. The advent of statins in the treatment of CVD was an incredible advance in the field, however, recent attempts to develop new products have been less successful.

In recent years, the novel target, PLA2 has become the subject of substantial research. PLA2s, or Phospholipases A2, are enzymes that catalyze the hydrolysis of fatty acid chains from phospholipids. PLA2s play important an important role in lipid metabolism and inflammatory response. There are 15 known members of the PLA2 family, ordered into four subgroups: secretory sPLA2, cytosolic cPLA2, calcium independent iPLA2, and lipoprotein associated Lp-PLA2. Much attention has been focused on sPLA2 and Lp-PLA2 due to their involvement in the production of biologically active metabolites implicated in the pathology of atherosclerosis. In the last few years, cPLA2 has also come under increased scrutiny.

In independent studies, activity of sPLA2 and Lp-PLA2 have been shown to be predictive biomarkers of an increased risk for coronary heart disease. This correlation combined with current understanding of the enzymes’ roles in vascular biology have made them prime targets for pharmacologic intervention.

The most advanced compounds targeting secretory PLA2 are from Anthera Pharmaceuticals. Anthera licensed a set of potent and specific sPLA2 inhibitors from Eli Lilly in 2006. The compounds, LY333010, a prodrug of LY315920, are now called A002 and A001, respectively.

In a Phase II trial, treatment with A002 resulted in a mean 84% reduction in sPLA2 levels, 15% reduction in LDL, and 20% reduction in the inflammatory biomarker, C-reactive protein (CRP). Anthera has begun enrollment of up to 6500 patients in a pivotal study called VISTA-16. The trial will attempt to determine if a 16 week treatment of A002 plus Lipitor helps prevent the occurrence of major adverse coronary events in patients who have recently experienced an acute coronary syndrome. It is anticipated to complete in 2012.

Meanwhile, GSK is placing its bet on Lp-PLA2. In the Phase II setting, GSK’s inhibitor, darapladib, showed 59% inhibition of Lp-PLA2 activity, but had no significant effect on levels of CRP. It did, however, reduce expansion of the necrotic core of plaques in coronary arteries. Two large Phase III trials are now underway for darapladib in two different patient populations.

The first study, termed STABILITY, was initiated in 2008 and enrolled 15,000 patients with chronic congestive heart failure; it is a long-term study intended to determine if darapladib combined with standard of care helps prevent major adverse cardiovascular events (MACE) and is expected to last three years. The second study, SOLID-TIMI 52, began in 2009 and will enroll 11,500 patients with acute coronary syndrone; the objective of the study is to determine if darapladib plus standard of care helps prevent a first occurrence of MACE. Unlike patients on Anthera’s VISTA-16 study, patients on this study will likely be dosed for more two years. Total time for completion of this trial is anticipated to take more than 3.5 years.

As you can see, GSK has put a lot of resources on Lp-PLA2 inhibition. Behind darapladib, it also has a follow-on compound, rilapladib, in Phase II.

Some of the most recent research is on inhibition of cytosolic PLA2 due to its key role in the production of pro-inflammatory prostaglandins and leukotrienes. There is nothing in the clinic yet, but it is an area of significant interest. Wyeth- now Pfizer- has its own cPLA2 inhibitors.

Specific inhibition of PLA2 is a compelling new mechanism for down-regulating inflammation in the treatment of cardiovascular disease. But so far, there is no definitive data to show this will result in a real benefit for the patient. Results to-date, though intriguing, only show the compounds are modulating their targets, with some hints of therapeutic effects. Pre-clinical data looks good and the targets are validated risk factors- the rest is a leap of faith.

Author is Long ANTH

A New Era In HCV Drug Development

2010-07-18T23:19:00.000-07:00

Jason Chew
(Featured in HCVAdvocate.org)

Pegylated interferon plus ribavirin is the current standard of care for HCV treatment. However, it is a 48-week treatment and is only effective in about 50% of patients. On top of that, patients must deal with the inconvenience of injections and side effects that include fatigue, depression, anemia, and rash.

Now, a new generation of so-called “direct acting” antivirals is expected to change the way HCV is treated, lead by the protease inhibitor teleprevir from Vertex. In a Phase III trial, it was shown that a short 12-week treatment of teleprevir on top of Peg-interferon plus ribavirin resulted in a cure rate of 75% compared to just 44% with Peg-interferon plus ribavirin alone for 48 weeks. In the most likely scenario, teleprevir will reach the market toward the end of 2011, with a similar drug from Schering-Plough, boceprevir, following soon after.

The World Health Organization estimates 200 million people worldwide are infected with HCV, with an additional 3 to 4 million contracting the disease each year. The global market for HCV treatment is currently around $2 to $3 billion. With the advent of new available treatments, this market is expected to increase to more than $8 billion by 2016.

Teleprevir and boceprevir are only the first in a long list of novel HCV treatments moving through the pipeline. There are now four main classes of direct acting oral antivirals in clinical trials:

· NS3/4A protease inhibitors- these are the most advanced agents; Teleprevir is among them

· Non-nucleoside NS5B polymerase inhibitors- many are in development

· Nucleoside NS5B polymerase inhibitors- these are showing a great deal of promise

· NS5A inhibitors- most recently developed

The market for these novel medicines is still in its infancy, with no drugs approved for by the FDA, yet there are no fewer than 14 companies working on these four classes of HCV treatments. Companies with market caps ranging from less than $100 million to greater than $100 billion are involved in this work.

To divine the future of HCV drug development, it may be intuitive to look at the history of HIV drugs. Both HCV and HIV are RNA viruses, and some of the most effective early drugs to treat HIV were protease inhibitors. Over time, new classes of drugs were developed that were more potent and had fewer side effects. Scientists found that combinations of multiple drugs taken together worked the best; HIV became highly treatable even though no cure was found. Single pills containing a cocktail of antiviral drugs became the standard of care. Importantly, the current leader in the HIV market was not among the first entrants, it usurped the throne by developing a superior treatment.

Now as teleprevir heads towards market, drug makers are already at work on combinations of direct acting drugs. None of the compounds in development today work as monotherapies. The first generation of these combination drugs are protease inhibitor plus non-nucleoside NS5B polymerase inhibitor or protease inhibitor plus nucleoside NS5B polymerase inhibitor. The former of these is slightly more advanced in the clinic. The ultimate goal is to find a combination of oral drugs, which will eradicate the virus without the need for the addition of Peg-interferon plus ribavirin.

With four drug classes, the number of drug combinations is quite large. It is expected that similar to HIV treatment, these drug combos will consist of from two to four different compounds. Certain combinations of three drugs have now been shown to be synergistic together. It is not necessary that each of the drugs in the combo come from a different drug class. For instance, multiple polymerase inhibitors, each attacking different sites on the polymerase, can be used together, allowing for an even greater diversity of drug combinations.

In my opinion, it is almost a certainty the neither of the first two protease inhibitors will reign as standard of care in HCV treatment for very long. They have a significant head start on other compounds, but both have similar weaknesses. Neither can be taken once-daily, and resistant strains have already been identified for both compounds. Early stage protease inhibitors are now being developed that are more potent against the NS3/4A protease by greater than 100 fold, may have the potential for once-daily dosing, and have been shown to be active against HCV strains resistant to teleprevir and boceprevir. It is also thought that nucleoside polymerase inhibitors may have an advantage over other compound classes due to the high barrier it presents to the creation of resistant viral strains.

With the rapid advances in drug development, some predict treatment time may be reduced to as short as six weeks. The HCV space will be fascinating to watch in the coming years as new treatments become approved.

Patients around the world have reason for optimism.

Author has no positions

Vivus Investors Flee to Arena Pharmaceuticals

2010-07-16T12:00:00.000-07:00

Jason Chew

Vivus shares tanked after an expert panel voted 10 to 6 against approving its obesity drug, Qnexa. The panel was particularly worried that Vivus only had one year data for its drug- not long enough in its opinion to gather long term safey data in light of Qnexa's CNS and Cardiovascular side effects. Qnexa was tested at three doses and was shown to be most effective at the highest dose. Unfortunately, that was the dose showing the highest number of adverse reactions. It was also the dose most of the active patients were enrolled, leaving scant data for the two lower, though still effective doses.

The panel showed a very forward-looking stance in its deliberations. Though many patients testified in favor of the drug, they were not swayed. The key point was this drug would likely be taken for a very long period by patients in order to control their weight. The safety hurdle was therefore extremely high since this drug was therefore assumed to be taken for a lifetime.

Panel experts, fresh from the Avandia debate, were also likely especially sensitive to cardiovascular issues. There must also have been a realization that it is much easier to postpone a drug from the market than waiting until later and decide on a recall.

One other issue which bedeviled Qnexa is the teratogenicity of the drug due to its topiramate component. Topiramate is an anticonvulsant thought to be teratogenic; however, pregnant women do take this medicine because the benefits far outweigh any possible risks. This risk/benefit analysis did not cross over to Qnexa. Due to the large number of women of child bearing age who would take Qnexa, the panel demanded that Vivus have a plan in place to keep pregnant women from taking the drug, with a special emphasis on unplanned pregnancies. The plan put forth by Vivus appeared unsatisfactory, especially under the panel's emphasis on "real world" circumstances.

Arena shares, initally plunging in after hours trading, have jumped 17% since Qnexa received its thumbs down. Analysts have upped their ratings. It's drug, Lorcaserin, is next in line for review, and unlike Qnexa, has two full years of safety data. And although less efficacious, it has a very clean safety profile. But a reminder to investors- it now appears the expert panel will not only look at the safety data, but how the drug will be used in real life. And in real life, doctors will likely want to prescribe Lorcaserin with Phentermine. What will Arena say if the panel asks if they believe the combination is safe?

No Positions

Gilead: Undervalued

2010-07-11T22:16:00.000-07:00

Jason Chew

Gilead’s stock has been in a funk. In the last three months, it has dropped 24% from about $46/share to about $35/share, this compares to a 15% drop for the Biotech HOLDERs index. It now has a PE of 11.1, lower than Pfizer, Novartis, and Sanofi Aventis, while having far higher growth and operating margins. Revenues soared 27% from 2008 to 2009 to $6.5 billion and are expected to grow another 15% in 2010 to about $7.4-$7.5 billion. Operating cash flow will be around a whopping $3 billion. It is an incredible money machine. Why is it selling at such a discount?

First the bad news:

Investors do have reason to worry. As with any maturing company, Gilead’s sales have slowed. Antivirals account for 90% of all product sales, with a full 75% coming from Atripla, and Truvada. While Gilead is the clear leader in the HIV market, competition is nipping at its heels. Low cost generics of older drugs may put pricing pressure on its brand name drugs. Competition is also coming from novel drugs such as Merck’s Isentress, an integrase inhibitor. Pfizer and GSK launched ViiV Healthcare in November 2009 to combine resources in HIV drug discovery; the new entity has multiple approved drugs and pipeline candidates for HIV. To date, companies have developed or are developing protease inhibitors, entry inhibitors, reverse transcriptase inhibitors, fusion inhibitors, integrase inhibitors, maturation inhibitors, and combinations of these- this must surely be one of the greatest leaps of innovation to combat one disease. But it sure keeps drug developers on their toes.

Another major issue plaguing Gilead is the patent expiration of Viread in 2017. Viread is the backbone of Gilead’s antiviral business. It is used as a treatment for HBV, and is a major component in Atripla and Truvada. Truvada and Atripla have US patents that run through 2021, but it remains to be seen how those hold up. Already, generics companies have filed ANDAs for Viread, Truvada, Atripla, and Ranexa- a recently acquired drug from the purchase of CV Therapeutics. Three other drugs will go off patent by 2016. Drugs with patents expiring by 2017 will impact a large majority of Gilead’s current lineup of products.

While Gilead leads in HIV and is doing well with two products in HBV, surprisingly, it has no offerings in HCV. Similar to the development of HIV treatments in the 1990s, a wave of novel treatments is sweeping over the field, led by Vertex Pharmaceuticals, which is developing telaprevir, the first in a class of protease inhibitors. Final results for its pivotal trial will be available 3Q this year. Merck is not far behind with its own protease inhibitor, boceprevir, now fully enrolled in a Phase III trial.

What else can go wrong? Beginning in 2006, Gilead has gone on a bit of an acquisition spree. It has picked up Myogen for $2.5 billion, bringing it two drugs, darusenten and ambrisentan. Darusenten has since been dropped, and ambrisenten, now called Letairis is estimated to have peak sales of likely less than $500 million. Next came Corus for $365 million; it’s antibiotic, Cayston, for Cystic Fibrosis received approval in February this year, but sales estimates are low, ranging from $100 to $300 million. CV Therapeutics, with heart drug Ranexa, was bought for $1.4 billion; Thomas Wei of Jefferies estimated peak sales of $500 million. Just this June, Gilead acquired CGI Pharmaceuticals for $120 million for its inflammation discovery capabilities. Of these, perhaps only the Myogen purchase can be called an outright bust. On the other hand, none of the others appear to be homeruns.

In just the past four years, Gilead has expanded its focus from virology to include cardiovascular disease, pulmonary disease, and inflammation. Hopefully, it hasn’t stretched itself too thin.

Accentuate the positives:

Despite intense competition, Gilead remains the leader in HIV treatment and has become a major player in the HBV market. Its sales are currently almost evenly divided between the US and five major European nations. Japan Tobacco has licensed Gilead’s products for sale in Japan. It is also increasing its international footprint, which will become increasingly important in the future as the share of drug sales increases in developing countries.

It isn’t sitting still as others develop new drugs and patents begin to run out on its own blockbusters. By the end of this year, Gilead anticipates filing an NDA for a once-daily pill combining Truvada with TMC275, a non-nucleoside reverse transcriptase inhibitor (NNRTI) from Tibotec. This will become, along with Atripla, only the second complete treatment regimen for HIV available in a single tablet taken once daily, fortifying Gilead’s leadership position.

Gilead is also developing the highly anticipated Quad pill, combining four of Gilead’s own drugs, including two novel compounds, elvitegravir and cobicistat. Elvitegravir, like Isentress from Merck, is an integrase inhibitor. Cobicistat is a PK enhancer, boosting the activity of its co-administered drug by inhibiting CYP3A4, an enzyme that plays a key role in drug metabolism. Both elvitegravir and cobicistat are being tested separately as well as together in the Quad pill.

The Quad pill began Phase III trials in April. In a head-to-head comparison with Atripla in Phase II, it was shown to be as good as, if not better than Atripla, but with fewer CNS side effects. If this is confirmed in Phase III, the Quad will be a multi-billion dollar drug.

Both elvitegravir and cobicistat may become successful products in and of themselves. If approved elvitegravir will join Isentress as just the second integrase inhibitor on the market. Cobicistat has the potential to be paired with multiple drugs currently in use as a boosting agent.

Merck’s successful launch of Isentress- it is expected to reach blockbuster status in 2011- shows effective and novel treatments have the ability to grow the market. New and better medicines will be able to grow the market. Drugs such as the Quad and the Truvada-TMC275 combo can do that.

In the field of HCV, Gilead is currently behind the competition. The market is expected to grow enormously in the next few years with the advent of a new era of direct acting antiviral drugs for HCV. The HCV market is expected to grow from about $4 billion today to over $8 billion by 2016. Vertex’s telaprevir is expected to become a staple in HCV treatment- an instant blockbuster. However, patients must still take telaprevir with interferon and ribavarin, along with all their unwanted side effects.

Gilead is now racing to develop a two-drug combination pill that would eliminate the need for the addition of interferon and ribavirin. Though it has ceded the lead for the first new drug, it is head to head with Vertex in developing a combination pill- both studies are in Phase II. The convenience of a pill without the inconvenience and side effects of interferon and ribavarin- now that will be big.

On the money side- although none of the recent acquisitions look to have produced blockbusters, the company is taking a slow and steady approach, building up expertise in cardiovascular and pulmonary diseases as it works to diversify its revenue mix. I give management credit for the persistence it has shown with the drugs it has acquired; they are definitely a determined bunch. Over time, sales growth in this category will begin significantly the company’s overall growth rate.

I also appreciate a company that doesn’t hoard cash, but returns it to shareholders. (I’d prefer a dividend, but the world is tilted toward buybacks.) Gilead is a very well run company with many catalysts to maintain both top-line and bottom-line growth. There have been a couple of setbacks with the end of development for darusentan and GS 9450. But the key drivers for future growth are performing well. I do not dismiss the multiple ANDAs that have been filed off hand, but I have faith in the company’s inventions. I believe that by the time Gilead’s true test comes around when Viread’s patent expires in 2017, investors won’t even blink an eye because Viread will no longer be at the core of all its products. GILD now trades at levels not seen since 2007. It is a steal at these prices.

Author is Long GILD, MRK, VRTX

Why Arena’s Lorcaserin Will Not Be Used In Combination With Phentermine

2010-07-07T16:49:00.000-07:00

Jason Chew

It is tempting to believe that once Lorcaserin has been approved, it will be used off-label in combination with phentermine to create a safe and efficacious version of Fen-Phen, the once popular diet drug. This is not to be the case.

Some history:
Fenfluramine, the “Fen” in Fen-Phen, a potent agonist of 5-HT2B receptors, a type of serotonin receptor found in the brain as well as in high quantities on heart valves. It was approved in 1973, its enantiomer, dexfenfluramine was approved by the FDA in 1996 to Wyeth. Neither fenfluramine nor dexfenfluramine were popular diet drugs due to their mediocre efficacy. It wasn’t until 1992 when an article was published showing fenfluramine combined with Phentermine led to 15% weight loss when the Fen-Phen diet craze began. While Fenfluramine and Phentermine each on their own led to similar weight losses of around 8%, the synergistic effect of the combination allowed for use of lower doses of both drugs, but resulted in a significantly better effect.

In 1997, the Mayo Clinic documented 24 cases of women with valvular heart defects who were taking Fen-Phen, playing large role in the recall of fenfluramine and dexfenfluramine from the market. Further testing by the Mayo Clinic found about 30% of patients on Fen-Phen who were asymtomatic for heart disease were found to had abnormal echocardiographic results.

To this day, scientists are still debating how exactly fenfluramine (fenfluramine will refer to both it and dexfenfluramine) causes the heart defects, but revolves around stimulation of the 5-HT2B receptors, leading to excess cell proliferation and vascular remodeling.

Lorcaserin:
Lorcaserin is designed as a potent agonist of 5-HT2C, with greater than 100 fold selectivity over 5-HT2B, the apparent culprit in Fen-Phen. It has been tested in thousands of patients and shows no signs of causing heart defects. Lorcaserin has been shown to have mild side-effects, however, its efficacy is similar to that of fenfluramine- modest. Would it not make perfect sense to boost its effects with a dose of phentermine? After all, phentermine was not taken off the market, in fact, it is currently the number one prescribed stimulant obesity drug in the US.

Not so simple. As previously mentioned, the exact mechanism of Fen-Phen induced heart valve defects has not been deduced. It is known that Fenfluramine by itself is a culprit; it is also known that Phentermine on its own is not. But the combination of the two may increase the risk of heart problems through multiple mechanisms. Though this is far from proven, Phentermine faces guilt by association- cases of heart defects were not noticed until the two drugs were used together. A large part of this is because relatively few people used fenfluramine before the study documenting the superior effects of its combined use with phentermine. Also, in a retrospective JAMA, 2000 study, researchers showed 4.1% of untreated patients had Aortic Regurgitation, compared to 8.9% of patients who took fenfluramine only, and 13.7% of patients on the Fen-Phen combo. (Note: this was a Wyeth sponsored paper.)

Arena, being smart, has not tested Lorcaserin in combination with phentermine. If it did, even preclinical, it would have to report the data to the FDA. There is just no way to predict exactly what will happen when you put two compounds together. Arena will not be able to promote Lorcaserin as a combination pill without the studies, it will depend entirely on doctors prescribing the combo off-label. Aggressive doctors may be tempted to do just that, but I believe the FDA, with its emphasis on safety, already has that in mind. Until there is evidence to the contrary, there is likely to be a warning against the use of Lorcaserin in combination with phentermine. This warning would deter most doctors from prescribing a Lorcaserin-Phentermine combo.

Author has no positions

Fail Early, Fail Fast- A Recipe For Failure

2010-07-06T13:10:00.000-07:00

Jason Chew

The mantra for big Pharma is to fail early and fail fast in preclinical studies, then push compounds out as quickly as possible into first-in-human testing, and gather as much information as possible to determine if it is likely to succeed before putting it into expensive Phase III trials. It sounds good, but instead of lowering the cost of drug development, this has lead to an increase in costs; more technology usage in preclinical testing combined with more compounds entering Phase I and II trials meant money spent in these areas have grown significantly. Phase III trials have become much more expensive partly due to their increasing trial size and complexity.

At the same time, productivity as measured by the number of new drugs approved by the FDA has decreased, as this familiar chart shows.

What does it mean to fail early and fail fast?

Part 1: Use predictive medicine early in preclinical studies.
Toxicity and PK testing will be integrated with compound screening in a feedback loop to weed out compounds that may have toxicity issues or poor PK early in the process. In the future, it is hoped much of this work can be accomplished in-silico rather than actually having to run assay, speeding up this process. I believe computer modeling of these issues will be very far off considering current assays and live animal models are problematic enough in their predictive abilities.

Part 2: Develop biomarkers early in a compound’s development
This allows clinicians to detect a drug’s effect early in its treatment cycle. Biomarkers are fantastic and will be an essential part of future drug development. However, biomarker development is an expensive and slow process. Also, simply because something is modulated during drug treatment, this does not necessary predict a drug’s efficacy. Biomarkers, like the drugs themselves, need to be validated as a part of the trial process. Otherwise, pushing compounds through due to positive biomarker results simply clogs the clinical pipeline.

Part 3: Use real patients in Phase I studies.
The idea is to give clinicians a head start on understanding a drug’s activity. This is simply wrong-headed. It is true, in oncology trials, actual patients participate in Phase I trials, providing safety, and sometimes, a hint of activity data. But the use of patients is due to the inherent toxicity of cancer drugs, which precludes the use of healthy subjects. In any case, oncology trials are no more successful than clinical trials for other indications- if anything- they have a higher failure rate. In studies of drugs that are to have a high safety profile, testing for safety in a sick population could confound the results of the study.

So far, compounds put into the clinic are certainly failing early and failing fast. But they are not failing cheap. Even with the leap in spending on preclinical studies, too many poorly designed compounds are making it into the clinic. It appears to me that with this new list of ADME, PK, and toxicity studies that need to be performed, companies are simply “checking the boxes”, then sending the compound on its way to an IND, showing the investment world their ability to quickly grow a pipeline.

According to Bain Consulting, between 1995 and 2000, one in eight drugs entering the clinic received FDA approval. Between 2000 and 2002, the rate was one in thirteen. Such a high failure rate is now an expected part of drug development, but a 92% clinical failure rate is clearly not feasible in the long run. Large Pharma companies from Pfizer to GSK are scrambling to build new business models. What really needs to change is their mindset. Stop focusing on clinical failure, instead, the goal should be on success.

Author has no positions

Celgene- On An Acquisition Spree

2010-07-05T22:06:00.000-07:00

Jason Chew

During the last decade, Celgene has been one of the best performing stocks. With a market cap in the year 2000 of just $2.4 billion, it has grown to become the third largest biotech company behind Amgen and Gilead, sporting a $22.9 billion market cap; however, that is down from its recent high of over $30 billion. Its stock has been trending downward since 2008.

It's top drug, Revlimid, was initially approved in 2005 for a subset of myelodysplastic syndrome (MDS) patients after a highly successful Phase II trial. It went on to gain approval in multiple myeloma (MM), with sales hitting $1.7 billion in 2009.

Celgene had four main products: Revlimid, Thalomid, Vidaza, and Alkeran, which together accounted for 99% of all sales. Thalomid sales fell 13% as a result of tough competition and continues to decline, while Vidaza saw a surge from $207 to $387 million due to full marketing approval in the EU. Its final year of regulatory exclusivity in the US is 2011, although it has until 2018 in the EU. Alkeran sales will disappear altogether; Celgene’s license from GSK to sell the drug expired March 2009. That means of its existing products, Revlimid and Vidaza will be the only drivers of growth.

Revlimid sales have slowed significantly in recent years. Between 2007 and 2008, sales increased over 71%, but between 2008 and 2009, it slowed to 29%. This year, Celgene is off to a good start, booking 46% and 60% first quarter year over year sales gains for Revlimid and Vidaza. Revlimid has benefited from a price increase and its increased usage as a maintenance therapy, lengthening the time each patient is on therapy. The company estimates overall revenues will be in the range of $3.3 to $3.4 billion- an increase of about 25% over 2009. Of that, $2.2 to $2.3 billion can be attributed to Revlimid.

Through its years of commercial success, Celgene has failed to develop much of a pipeline. Its only Phase III compound, Amrubicin, for small cell lung cancer came from the purchase of Pharmion. Sales of the drug could reach approximately $1 billion, though Celgene will owe royalties of 25% to Dainippon Sumitomo Pharma, the original licensor. Phase III results are expected Q4 this year. Amrubicin is an anthracycline, a class of drugs that includes Doxorubicin. Their usage has been hampered by side effects, particularly, cardiotoxicity. Only long-term data will determine if Amrubicin will have the same issue.

Phase III trials are being planned for two compounds. Pomalidomide, the follow-on drug to Revlimid, has shown promising results in multiple myeloma. A report from Piper Jaffray suggests Celgene intends to position it as a replacement for Thalomid in refractory myeloma, with potential sales of $500 million. The second compound planned for Phase III is Apremilast, an oral drug for psoriasis and psoriatic arthritis. It will complete with current anti-TNF therapies, but with the convenience of oral dosing compared to injection. The drawback is Apremilast does not appear to be quite as effective as the anti-TNF therapies. Apremilast may not be quite the multi-blockbuster Celgene describes.

In the last couple years, Celgene has been on an acquisition spree. It paid $2.9 billion in 2008 for Pharmion and with it, drugs Vidaza and Amrubicin. Vidaza is a leader in the treatment of MDS. Soon after Pharmion's acquisition, it was approved in the EU, leading to increased sales and becoming a revenue driver for Celgene. Vidaza is complementary to Revlimid in MDS- they are approved for different groups of patients, and may be effective when used in combination. If Amrubicin is approved and found safer than older anthracyclines, it could well have blockbuster potential.

In 2010, Gloucester was aquired for $340 million in cash and $300 million in milestones. Gloucester has Istodax, currently approved for cutaneous T-cell lymphoma (CTCL), a market valued at less than $100 million. The drug’s potential lies in peripheral T-cell lypmphoma (PTCL), with an estimated market of around $300 to $400 million. The pivotal trial has completed enrollment, if data is positive, an NDA will be filed late this year. Istodax will accelerate Celgene’s entry into the lymphoma market.

On June 30, a deal was announced for the purchase of Abraxis: $2.9 billion upfront with an additional $650 million in future milestones. This adds Abraxane to Celgene’s portfolio. Abraxane is currently approved only for breast cancer, with sales of under $400 million. In recent studies it has shown potential in non-small-cell lung cancer and pancreatic cancer. Celgene believes these additional indications in combination with its marketing muscle can drive sales to $1 billion for this product by 2015.

In each of these deals, the target company has a marketed product with significant untapped growth potential. Sales growth for each product is expected to come through increasing regulatory approvals, expanding geographic coverage, and improving marketing with Celgene’s sales force. The acquired products augment the company’s core strength in oncology. Some bolster its already thriving haematology business while others help make inroads in areas such as treatments for solid tumors, where Celgene is targeting its expansion.

It is nice to see a company maintain its focus on its core competencies rather than flailing around attempting to enter unfamiliar areas of business. Purchasing companies with approved drugs also lowers the risk of the deals. So far, it appears Celgene has done well with its acquisitions; I wonder though, if it will be successful with this strategy as a way to maintain revenue growth in the long run.

Author is Long GILD

George Scangos Named Biogen Idec’s CEO- Not Entirely a Head Scratcher

2010-06-30T16:37:00.000-07:00

Jason Chew

June 30, 2010- Geoge Scangos from Exelixis was officially named CEO of Biogen, replacing James Mullen who retired June 8 under pressure from the board. He has biologics experience from Bayer and has been an R&D head. However, he is probably best known as a dealmaker. At Bayer he drove a large in-licensing deal, while his tenure at Exelixis has been marked by a proliferation of out-licensing agreements with large Pharmaceutical companies. He has also initiated multiple reorganization efforts at Exelixis. And while he heads a relatively small biotech, he is well known throughout the industry, sitting on the board of Anadys Pharmaceuticals and holding roles at major universities.

Biogen is noted as having one of the best late stage pipelines of the large cap biotechs. Even so, the company has been in tumult since Carl Icahn pushed the company to put itself up for sale in 2007. The failed sale and poor performance from MS drug Tysabri eventually led to Mr. Mullen’s ouster. With only four marketed products, Biogen is heavily dependent on its MS franchise of Avonex and Tysabri, the two accounted for 73% of 2009 sales.

Revenue growth has been anemic, primarily due to a slowdown in sales of Avonex. Converting patients to the next-generation PEGylated-Avonex will be a top priority once that drug is approved.

While Mr. Scangos lacks experience in manufacturing and sales, he lead a company that at one time had close to a thousand employees and had operations on two continents. This should provide him some background in running a large corporation. With three quarters of its sales in MS and a late stage pipeline also geared toward that indication, Biogen intends to stay focused on MS, at the same time, it has diversified its pipeline with indications in neurology, oncology, and immunology. His scientific background and deep knowledge in oncology should be useful here.

Biogen recently lost out in a bidding war for Facet Biotech to Abbott, which offered a bid 54% higher than that of Biogen. With this, Biogen lost full development rights to the promising MS drug, daclizumab, as well as an early stage oncology compound. Mr. Scangos’ expert deal making will likely come in handy when it comes time for Biogen to do its next deal. One can be certain the two parties will not be this far apart on their valuations.

When Mr. Scangos spoke with analysts today, he talked about bringing a sense of urgency to the company. Biogen needs that. Activist investors are pushing for results. The company needs to start growing its revenues faster- and no more high profile pipeline blowups. Mr. Scangos certainly has deep boardroom support: Carl Icahn is a major shareholder in Exelixis and de facto Biogen board member, Stelios Papadopoulos, chairs the board at Exelixis. This is a chance for Mr. Scangos to really make a name for himself.

Author has no positions

Calistoga Pharmaceuticals and Plexxikon- Two Biotechs to Keep an Eye On

2010-06-29T14:36:00.000-07:00

Jason Chew

Calistoga and Plexxikon are on the leading edge of two of the hottest targets in drug development today. Both are privately held.

Seattle based Calistoga Pharmaceuticals was founded when Icos was acquired by Eli Lilly for its Erectile Dysfunction drug, Cialis. Former scientists acquired IP from the company in 2007 that formed the basis of their startup, Calistoga. They focused their research on developing isoform selective PI3K inhibitors, seeded with an initial $21 million in venture funding from Frazier Healthcare Ventures, Alta Partners, Three Arch Partners and Amgen Ventures.

Lead compound CAL-101, a PI3K delta specific inhibitor, is set to begin pivotal trials the second half of this year. CAL-101 has shown promising data in Phase I for leukemia and lymphoma. It is difficult to compare between trials, but CAL-101 appears to perform better than other PI3K inhibitors as a single agent. In all likelihood, however, these compounds will be used in combination with either other targeted therapies or chemotherapy. The compound will also be tested in solid tumors- a much larger market- as well as leukemia and lymphoma.

CAL-263, a second PI3K delta inhibitor is in Phase I for inflammation; it will enter Phase II later this year. A third compound is also expected to enter the clinic this year. PI3K delta is a very attractive target due to its clear role in mediating the inflammatory response. Aside from cancer, it has implications in the treatment of Rheumatoid Arthritis, asthma, and chronic obstructive pulmonary disease (COPD). This has piqued the interest of many small biotechs as well as large Pharmaceutical companies.

Calistoga has yet to partner any of their compounds. Indications are they are getting ready to do so, having recently hired a former dealmaker from Icos. Any partnership would be substantial. Looking at recent deals in this space: Exelixis partnered with Sanofi Aventis in 2009, with $140 million upfront and $1 billion in potential milestones for two Phase 1 compounds, and in 2008, Genentech paid $175 to purchase Piramed for its pre-clinical PI3K inhibitors, particularly interested in its PI3K delta selective compounds.

Calistoga has not had any problems raising money and will not be in a rush to partner with Pharma. Just last year it completed a $30 million Round B financing. Good data, an attractive target, and time are all on its side. In previous years, with a closed IPO market, Calistoga would have been ripe for a takeover. It has more options today as the economy mends and the biotech IPO window continues to stay open.

Plexxikon is an entirely different animal altogether. A Berkeley, CA company born in 2001, it is a drug discovery engine that seeks to partner its compounds at an early stage. Using its scaffold-based technology, it has developed compounds for a multitude of indications, including oncology, neurology, cardiology, inflammation, and metabolic disorders. The company has three compounds in various stages of clinical trials, including one in registration trials.

With only three rounds of financing netting $67 million in its nine years of existence, Plexxikon’s venture backers have faced minimal dilution. This is made possible by the significant sums the company commands for its early stage compounds. In 2004, Wyeth paid $22 million upfront for co-development rights to PLX-204, plus $350 million in milestones (recently discontinued). In 2006, Roche licensed PLX-4032 for $40 million and $660 million in milestones. Then in 2009, Roche took a second dip with PLX-5568 for $60 million and $275 million down the road. To date, Plexxikon has raised $170 million from licensing of its compounds.

Plexxikon’s most advanced compound is PLX-4032, a selective of the mutant B-RAF V600E. This mutation is a major driver of disease in more than 40% of melanomas, 80-90% of papillary thyroid carcinomas, and 8-30% of colorectal cancers. PLX-4032 has shown outstanding activity in B-RAF mutant melanoma patients in early stage trials. It has now initiated a Phase III trial in that indication with partner Roche.

RAF inhibitors took the scientific world by storm when Bayer received faster than expected approval for Sorafenib in renal cell carcinoma in 2005. Since then, a multitude of companies have also begun developing RAF inhibitors. Five years later, Sorafenib is still the only approved RAF inhibitor I know of, likely because much of its activity is attributed to inhibition of kinases other than RAF, particularly VEGFR2. PLX-4032, if approved, would be the only specific RAF inhibitor, and selective for B-RAF V600E as well. This will distinguish it from many compounds in development, as they are often non-selective, inhibiting multiple RAF isoforms. A regulatory filing for PLX-4032 in melanoma could come as early as 2011.

The specific RAF target in the PLX-5568 partnership with Roche has not been mentioned. My guess is it is likely to be B-RAF due to the enzyme’s involvement in Polycystic Kidney Disease, the indication to be pursued under the Roche partnership. Plexxikon is also developing PLX-5568 for pain management, but has yet to partner that program. Its chemistry expertise, particularly in designing highly specific kinase inhibitors, has served it well.

Both Calistoga and Plexxikon look to be on the verge of success. They have managed to make significant progress on their programs in a very short time, with relatively little spend. My hope is they go the public route and continue their growth rather than end up in the belly of a Pharmaceutical company; either one would make a nice addition to a biotech portfolio.

Author is Long RHHBY.PK

Bristol-Myers Squibb- High Dividend, Zero Growth

2010-06-27T17:40:00.000-07:00

Jason Chew

With a 5% dividend, Bristol-Myers Squibb provides one the highest yields you can find. This makes BMY a very attractive stock for income investors, especially considering today’s near-zero interest rate environment.

There are however, a couple hiccups for investors to be aware of- Bristol is set to lose patent protection on its best-selling drugs, Plavix in 2011, and Avapro in 2012. Plavix and Avapro had sales of $6.1 and $1.3 billion, respectively in 2009, together accounting for about 39% of all revenue. Some of this revenue will be made up by growth from its portfolio of approved drugs. Abilify, already a $2.6 billion drug, increased sales 20% in 2009, the virology franchise of Baraclude, Reyataz, and Sustiva total another $3.4 billion in sales and grew about 10% in the period. Orencia and Sprycel are also doing well, albeit from smaller bases. Both products have the potential to reach over $1 billion in sales. Recently launched Onglyza, however, is off to a rather slow start. I estimate growth from these products can make up for approximately 40% of the revenue lost by Plavix and Avapro by 2013.

What about the other 60%? To make up for this “patent cliff” Bristol has been busy cutting costs, divesting non-core operations, making acquisitions, and in-licensing drugs. Begun in 2007 with the acquisition of Adnexus Pharmaceuticals, this is known as its “string of pearls” initiative, to transform itself into to pure “Biopharma”. BMY went on to acquire Kosan and Medarex. Along the way, Bristol partnered with KAI Pharmaceuticals, PDL, Exelixis, ZymoGenetics, Nissan Chemical Industries, Alder, and Allergan. That’s quite a long string.

Today, Bristol has six drugs awaiting FDA approval: Ipilimumab- a cancer vaccine for melanoma; Brivanib- a dual VEGF/FGFR inhibitor for oncology; Necitumumab- an anti-EGFR antibody for oncology; Dapagliflozin- a SGLT2 inhibitor for Type I Diabetes; and Apixaban- a Factor Xa inhibitor for thrombosis. Belatacept- a CTLA-4 fusion protein for transplant rejection, received a complete response letter from the FDA requesting more long-term data. Cost cutting has maintained earnings growth in the last few years, but BMY estimates that in 2013, the first full year without Plavix, earnings will dip to $1.95 per share, down about 13% from estimated 2010 earnings of $2.15 to $2.25 per share. Earnings are projected to begin growing again in 2014 after 2013’s nadir. BMY has said it anticipates launching five new drugs by 2012 with sales analysts estimate could reach $4 billion by 2016, however, it is likely to be less than half that in 2013.

Total 2010 revenue for BMY will be in the $20 billion range. In 2013, it will likely be less by $2-3 billion, a 10-15% decline. This is in-line with the company’s earnings guidance.

Bristol has a pipeline gap between its most advanced drugs and its early stage compounds. As promising as it’s early stage pipeline is- there is a dearth of compounds in late phase clinical trials especially with its decision to end its work on c-Met inhibitor XL184. XL184, from Exelixis was in late stage trials in Thyroid Cancer and ongoing trials for multiple oncology indications, but on June 21, Bristol decided to pull out of the partnership, paying Exelixis $17 million to end its involvement.

Although the company has maintained that it’s interest is in doing multiple small deals, most analysts believe it will need to do something larger. This only makes sense; good late stage compounds will not come cheap. It is likely the company will either in-license or acquire a company with a high quality drug that is that is close to market. It has more than enough cash with a $10 billion war chest strategic acquisitions and partnerships. Bristol has been a good steward of its cash, having made an excellent purchase in Medarex and refusing to overpay for Imclone. I trust management will be successful in plugging its pipeline holes.

Over the last few years, BMY has transformed itself to a pure drug development company- a “Biopharma”, it says. However, for the next few years, the stock will be purely for income investors and speculators. There is only declining revenues to look forward to until 2014, and then slow growth. Growth from promising new drugs will be offset by patent expirations of existing franchises. Only a buyout or a major blockbuster on the order of Plavix will light up this stock.

Author has no Positions

Anthera Pharmaceuticals- IPO, What’s Next?

2010-06-25T13:23:00.000-07:00

Jason Chew

After the 2000 bubble and crash, the biotech IPO has finally begun to crack open a bit.

First, Ironwood tested the waters in February with the largest IPO in two years. Anthera soon followed March 4, raising just $37.1 million after cutting its IPO price from the $13-$15 range to just $7. An additional $17.1 million was raised in a private placement to existing shareholders for a combined $54.2 million. It ended Q1 with $56.7 million. The stock closed at $6.60 today.

Anthera has three drugs in clinical development: A-002 for Acute Coronary Syndrome, A-623 for Lupus, and A-001 for Acute Chest Syndrome.

Since its IPO, Anthera has begun recruiting patients into a pivotal Phase III trial for its lead drug, A-002 (varespladib methyl). A-002 is a novel inhibitor of sPLA2, an isoform of PLA2 implicated in acute inflammation. sPLA2 is a very interesting target- inhibition of this enzyme is thought to block the synthesis of a family of pro-inflammatory mediators known as Eicosanoids, which include Prostaglandins and Leukotrienes. COX inhibitors such as Celebrex also have this activity, but have potential side effects.

A-002 is a high-risk, high-reward proposition. The current trial will enroll 6500 patient and last 18 months. Anthera will need to bring a partner on board soon. And although its current Phase III trial is for Acute Coronary Syndrome, it has significant blockbuster potential as a cardiovascular treatment competing with the likes of Lipitor if it proves to be safe and shows improvements in efficacy. GSK has a similar compound in development now in a second Phase III trial. If approved, their drug, darapladib, is expected to reach sales of over $1 billion.

Anthera’s market cap of $150 million reflects the risk embedded in its drug. If GSK’s darapladib does well, I would expect investors to warm up to Anthera’s A-002.

Author has no positions in stocks mentioned

Cubist vs. Hatch-Waxman

2010-06-22T11:56:00.000-07:00

Jason Chew

In 2003, Cubist was granted approval for its novel antibiotic, Cubicin, for complicated skin and skin structure infections by Gram-positive bacteria, including drug-resistant strains. Over the next couple years, the stock doubled from about $10 to $20. The stock has languished in the $20 trading range for nearly five years now. There have been some pops and drops to be sure, but in general, the stock has barely budged.

At the same time, revenues have grown quite nicely, exceeding even management’s expectations. In 2009, sales reached $562 million; it is expected to reach up to $650 million in 2010 and peak at $1 billion.

Net income for 2009 was about $80 million and in fact, the company has been profitable since the third quarter of 2006. Cash flow is strong; the company currently has nearly $500 million in cash, with $245 million in debt.

Why then is the company valued at a mere $1.2 billion? Cubist has the same problem that faces many small biotechs- almost all its revenue is derived from one source, in this case, Cubicin. Investors initially fretted about the onset of competition from Pfizer’s Dalbavancin, J&J’s Ceftobiprole, and Theravance’s Telavancin. Only Telavancin received approval but is no longer considered competitive.

The larger problem is Cubicin’s IP position. Though Cubicin has three patents listed in the FDA’s Orange Book, (US Patent Nos. 6468967, 6852689) contain only method claims while the remaining patent (US Reissue Pat. No. 39071) contains compound, composition, formulation, and method claims. The first two expire in 2019 while the third expires in 2016. The gold-standard composition of matter patent has already expired. Also, Patent No. 39071 was reissued in 2006 because the original patent contained the incorrect structure. This left Cubist more vulnerable to challenges from generic drug companies. Sure enough, on February 9, 2009, Teva submitted an ANDA with the FDA for marketing approval of generic Cubicin.

This was made possible by the Hatch-Waxman Act, passed in 1984 as a way to promote generics while attempting to retain enough financial incentives for pharmaceutical R&D. Prior to this act, generic drug companies needed to perform clinical trials to prove their drugs’ equivalence to brand name drugs before they could be marketed. The Act allowed for generic companies to file an ANDA whereby the FDA could grant marketing approval based solely on bioequivelence studies.

Because of the long time lag between the issuance of a compound’s patent and its marketing approval, estimated to be 16 years by PhRMA, and a patent life of only 20 years, the Act granted a five extension of exclusivity to the patent holder to compensate for loss of revenue due to generic competition. After this period, the patent holder is open to challenges from generics. If the drug's patent has expired before it comes to market, all that is left is the five-year extension.

To any reasoned mind, this should sound like an incredibly short time to sell a drug that took 16 years and over $1 billion dollars to bring to market. According to a study by the Boston Consulting Group in 1996, “effective intellectual property protection for U.S. pharmaceuticals has deteriorated significantly since passage of the Hatch-Waxman Act” and have “eroded the incentives for pharmaceutical innovation.” The study also noted that prior to the passage of the Act innovator companies held market exclusivity of between 14 to 17 years, decreasing to an average of 11.7 years after its passage. Europe, Canada, and Japan have patent extensions of ten years. Making this change to the Act would significantly enhance the incentives for innovative drug discovery.

It is estimated that the cost of filing an ANDA is $5 million- a far cry from developing a drug. One of four certifications must be made when someone files an ANDA:

1. that the drug has not been patented
2. that the patent has already expired
3. the date on which the patent will expire, and that the generic drug will not go on the market until that date passes
4. that the patent is not infringed or is invalid.

Those certifications are now referred to as the paragraphs I, II, III, and IV certifications.

The ANDA filed against Cubist by Teva is a paragraph IV filing. According to an article by Matthew J. Higgins of the Georgia Institute of Technology and Stuart J.H. Graham of the University of California, Berkeley Law School, between 1992 and 2000, 72% of paragraph IV filings resulted in litigation, with generic companies winning 42% of the cases. Those are pretty good odds for relatively little money spend. After all, the first generic company to receive approval for an ANDA gets 180 days of sales exclusivity on the drug. Not surprisingly, Teva had 92 pending paragraph IV filings in 2007 alone.

Under the Hatch-Waxman Act, Cubist filed suit against Teva for patent infringement, resulting in a 30-month stay, preventing Teva from selling generic Cubicin. It is now awaiting a Markman hearing before a US District Court, a pre-trial hearing where a judge "constructs the claim", examining the evidence from the parties and deciding on the appropriate meaning of the claim's language. This hearing may be more important than the trial itself, as its results may determine the strength of each side’s arguments at trial. These hearings often determine whether the lawsuits get settled or go into litigation. Originally scheduled for June 9, the hearing was canceled and has yet to be rescheduled.

Most analysts believe Cubist has a solid case and will settle with Teva in order to delay entry of generic Cubicin, perhaps until 2018. Teva is expected to attack the reissued Patent No. 39071. Experts are divided on the effectiveness of this stragedy, though it has received considerable attention.

The two remaining patents cover methods of use for Cubicin. These types of patents are often considered relatively weak. In this case, however, I believe they may be the strongest patents and most likely to be upheld.

According to the USPTO’s evidence of nonobviousness is a major factor in determining whether a patent is granted. Several factors that can be used to demonstrate this are:

1. Commercial Success- Success may demonstrate the invention is an important advance in the field that was not obvious to others
2. Long-felt need - If the need had been there for a long time without this invention, it must have been nonobvious
3. The necessity for a Nexus- Demonstrate that commercial success is directly related to the innovative aspect of the patent and not merely marketing

This plays into Cubist’s hand if one follows the history of Cubicin. The drug was originally developed by Eli Lilly. It had good antibacterial activity, but also skeletal muscle toxicity- leading Lilly to give up on the project. Cubist decided to license to compound in 1996 and worked to reduce its toxicity levels. This is where scientists at Cubist succeeded where giant Lilly had failed. They discovered a dosing regimen at which Cubicin was safe and efficacious, getting the drug approved as the first antibiotic in a class called lipopeptides. The drug was added to pharmaceutical formularies in 2004 and studies found that its usage helped limit the occurrence of certain drug resistant bacteria. In 2006, additional indications were approved for Cubicin, further increasing its sales potential. To date 500,000 patients have been treated with Cubicin, with less than 4000 patients reporting side effects. Because of the discoveries by Cubist scientists, half a million patients have benefited, directly resulting in the Cubicin’s commercial success.

With the success of Cubicin, and Cubist’s lack of a pipeline, speculation of acquisitions swirled. It has been suggested Cubist even shopped itself around. Pharma was interested, but there were no takers. They were too risk-adverse to pick up a company with patent issues. They had enough of their own patent problems to deal with.

Cubist did not sit around waiting for an acquirer. Using the strong cash flow from Cubicin, it has slowly built up a pipeline through internal research and strategic deals. From its own labs it now has a Phase I drug for Gram-negative bacteria and a Phase II drug for CDAD infections. Externally, it had licensed a drug from Dyax, but the clinical trial failed and the program was quickly dropped. An RNAi program started with Alnylan that went into the clinic is now back in preclinical studies.

In December 2009, Cubist acquired privately held Calixa for $92.5 million up front and $310 million in milestones. This could be a potential blockbuster. Calixa’s compound, CXA-201, is designed to treat a broad range of Gram-negative infections, including urinary tract infections and nosocomial pneumonia. It is now in Phase II trials; Cubists has very high hopes for it and expects to file an NDA for the drug in 2013.

Cubist’s patent problems have held down its stock for a very long time. Much of the uncertainty should be lifted after the rescheduled Markman hearing. If it goes into litigation, the trial date will be April 25, 2011. Except in the very unlikely event Cubist loses at trial, I expect that within one year’s time, it will be far from a $20 stock, and certainly will not need to shop itself around.

In summary, Cubist’s story makes the perfect case for reform of the Hatch-Waxman Act. Drug development is expensive, risky, and time-consuming. As noted earlier, Cubist was the only company in recent years to develop a financially successful antibiotic. And even in its own studies, it has had multiple failures. The Act hands too much power to generic companies without thoughtfully and adequately compensating the original inventors. It has accomplished half its goal in developing a flourishing generics industry- now it needs to fulfill its other half with the promise to maintain the financial incentives for original research and development. It needs to do this by adding greater protection to pharmaceutical patents, the lifeblood of the industry.

Targacept- Ready to Take Off

2010-06-19T20:27:00.000-07:00

Jason Chew

Targacept is a company focused on CNS diseases and disorders, targeting Neuronal Nicotinic Receptors (NNRs). As a company spun off from R.J Reynolds and still located in Winston-Salem, it knows a thing or two about this subject.

NNRs are ion channels that open in response to the binding of the neurotransmitter acetylcholine allowing the flow of sodium and potassium ions across the cell membrane. NNRs have effects on learning, memory, reward, and other functions. Neuronal Nicotinic Receptors are called such because they are bound and activated by nicotine as well as acetylcholine. Two of most abundant NNR subtypes are α4β2 and α7. These two subtypes are thought to be involved in a host of disorders including: Alzheimer’s Disease, nicotine addiction, schizophrenia, Parkinson’s Disease, among others.

Targecept’s most advanced drug, TC-5214 acts as an antagonist (blocker) of both the α4β2 and α7 subtypes, though most of its activity is attributed to α4β2 antagonism. It is being tested for Major Depressive Disorder (MDD)- in essence- as an antidepressant. Results from a randomized, placebo controlled Phase IIb trial for TC-5214 as an add-on therapy released July, 2009 showed patients who did not respond to the Selective Serotonin Reuptake Inhibitor (SSRI) Celexa, from Forest Laboratories, may respond to Celexa + TC-5214.

In this trial, 579 patients were initially treated with Celexa for eight weeks. After this period, investigators measured their response to the drug; patients who did not respond or had incomplete responses continued on to the second, randomized phase of the trial, which included 265 patients. During the second, eight week phase, patients received either Celexa + placebo, or Celexa + TC-5214. By the end of the eight weeks, twice as many patients in the TC-5214 arm compared to the placebo arm achieved remission.

Upon release of these results the stock rocketed from around $2.50 to about $22, a level it has lingered at ever since. In December of that year, AstraZeneca partnered with Targacept for a worldwide license to TC-5214, paying a whopping $200 million upfront, with over $1 billion in milestones, and double-digit royalties on net sales- quite the deal for a company worth less than $100 million just a few months earlier.

Treating depression is a very large market, with worldwide antidepressant sales of approximately $20 billion. SSRIs, including Celexa, Lexapro, Zoloft, Prozac, and Paxil, make up a significant portion of antidepressant sales. Though initially quite effective, greater than 60% of patients will eventually become resistant to SSRI therapy. If TC-5214 can help these patients, the market opportunity looks to be quite substantial.

Recently, several large Pharmas, AstraZeneca included, have decided to pull back from their internal research in depression, calling it “high risk” and complaining about the difficulties of measuring success in these trials. This is a positive development for Targacept. If its drug makes it to market, it will be one of the few standouts in the next generation of antidepressant therapies.

TC-5214 is set to begin Phase III trials in the middle of this year with completion set for 2012. The trial design will be similar to the Phase II trial, providing a higher degree of confidence in the outcome of this trial. If all goes well, it could be approved by 2013. Decision Resources analyst Alana Simorellis said “Phase IIb trials demonstrated the efficacy of TC-5214 as an augmentation therapy for major depressive disorder; should Phase III trials demonstrate both efficacy and tolerability, TC-5214 will have a significant market advantage and may earn blockbuster sales in the major depressive disorder market.”

Targacept has a deep pipeline beyond TC-5214. These compounds are designed to be highly selective modulators of either the α4β2 or α7 subtype. There are three additional compounds in Phase II development. Among them, TC-5619, which could complete a large Phase II trial by the end of this year for the treatment of cognitive dysfunction in schizophrenia, for which there is no currently available treatment. According to Targacept, 70% of schizophrenics suffer from this condition. The compound has recently entered Phase II testing in ADHD and will also go into development for Alzheimer’s disease. AstraZeneca has the option to license this compound. If it chooses to do so, Targacept will receive $30 million in upfront payments.

Two other compounds have already been licensed to AstraZeneca. One, TC-1734, has shown recent success in a Phase II adult ADHD trial and is set to begin an expanded Phase IIb trial to include younger patients. The other, TC-6683 is set to complete a Phase II trial later this year in Alzheimer’s Disease.

There are earlier stage Phase I and preclinical compounds in the works as well. These are programs in Parkinson’s Disease, inflammation, and pain. I find the pain indication particularly noteworthy, though it is still very early stage. Several years ago, Abbott Laboratories made headlines when it synthesized a painkiller based on the poison from a dart frog that was 200 times more effective than morphine but non-addictive. The compound exerted its effect through modulation of NNRs. It was unfortunately sidelined due to gastrointestinal side effects. A drug with this level of efficacy without the side effects would herald a new paradigm in pain management.

Research on NNRs is not without competition. Others working in the field include Roche (it acquired Memory Pharmaceuticals in 2008 for their pair of α7 agonists (activators), now in Phase I and II trials), Abbott Laboratories licensed a Phase 1 compound from Neurosearch for cognitive disfunction, and EnVivo Pharmaceuticals has an α7 agonist in IIb trials for schizophrenia and Alzheimer’s Disease. Still, Targacept is clearly the leader in this field.

The company is very well capitalized, with $285 million in cash and practically no debt. Excluding any milestones or royalties it may receive, it expects to have sufficient cash to last into 2013. In the biotech world, a three-year cash run way is practically unheard of. With a market cap of under $650 million, this is a company worth keeping an eye on.

Author is Long TRGT, RHHBY.PK

Curis Drug GDC-0449 Fails Colorectal Trial

2010-06-16T16:10:00.000-07:00

Jason Chew

Curis released results today for its hedghog pathway inhibitor GDC-0449 in a pivotal Phase II colorectal trial run by Roche. The company said its drug failed to extend the time of disease progression or death in patients with metastatic colorectal cancer. Curis stock plunged from yesterday's close of $3.26 to $1.69, a 48% drop.

This reaction is more akin to that of the failure of a drug. This is not the case. GDC-0449 has only failed a single indication in a complex multi-drug combo trial. This does not predict failure in the 18 other trials for this drug, where it has shown much promise in a broad range of indications including basal cell carcinoma, childhood medulloblastoma, and ovarian cancer. Cancer is not a single disease, it is very heterogeneous,
where each indication may be driven by different or multiple mechanisms. One drug will not be effective for all indications.

It is true that Curis is now set back a year because the next set of pivotal data will not be due until 2011. However, by the end of this year, results will be available from a large Phase II for advanced ovarian cancer. Good results should give the stock some legs until the pivotal basal cell carcinoma data come out next year.

There is much literature evidence linking aberrant signaling in the hedgehog pathway to tumor growth. I fully believe GDC-0449 will be the first drug to prove in humans that inhibition of this signaling will reverse this event.

Author is Long CRIS, RHHBY.PK

Ariad is Set For Success

2010-06-15T16:20:00.000-07:00

Jason Chew

For years, much of Ariad’s value had been tied to its mTOR inhibitor, Ridaforolimus. Ridaforolimus is an orally bio-available analog of Rapamycin- an immunosuppresent discovered decades ago- the “R” in mTOR. Thus far, there are two other analogs, or Rapalogs, as they are called, approved in oncology indications ahead of Ridaforolimus, the first-to-market Torisel from Wyeth, and Afinitor from Novartis. Torisel is a pro-drug given by infusion while Afinitor is an oral medication. Should Ridaforolimus be approved, it will compete most directly with Afinitor.

mTOR is currently a very hot target in oncology due to its central role in the convergence of multiple signaling pathways. It is involved in cell proliferation, angiogenesis, and metabolism. Inhibition of this kinase by Rapamycin and its analogs has been shown to be effective against both solid tumors and leukemia as a monotherapy or in combination with chemotherapy or targeted agents.

Of the three analogs: Torisel, Afinitor, and Ridaforolimus, it has been suggested Ridaforolimus could be “best in class”. This may be due to the compound’s long half-life and good tolerability profile.

In 2007, Ariad signed a major partnership deal with Merck to develop their mTOR inhibitor, which provided Ariad $75 Million upfront and $850 Million in potential milestone payments. US profits would be split and Ariad would receive royalties on ex-US sales with both companies sharing development costs. At the time of the deal, Ariad’s CEO Harvey Berger called it “…an extraordinary partnership,” adding that Merck was selected “partly because the deal gave 16-year-old Ariad a chance to transform itself.” Ariad was determined to leave the ranks of the many biotechs that have languished as developmental stage companies and become a full-fledged commercial company.

Fast-forward three years: Merck’s bet appears to be paying off; Ridaforolimus is months away from completing Phase III trials for Sarcoma, with an anticipated regulatory filing end of this year. Rapalogs are now an accepted cancer treatment paradigm. Torisel brings in $500 million/annum, while Afinitor is poised to become a mega-blockbuster. Ridaforolimus looks to have blockbuster potential.

Ariad has also matured during this period, nurturing a promising multi-kinase inhibitor, AP24534, and an ALK inhibitor to its pipeline. However, its finances appear to have been strained by the cost sharing with Merck for the mTOR inhibitor trials, with multiple Phase IIs running in parallel to the ongoing Sarcoma Phase III trial, and additional Phase IIIs on the drawing board. In 2009 alone, Ariad paid about $30 million to support the mTOR program, about half its R&D budget. Realizing the costs for supporting the Ridaforolimus would continue to grow as the drug advanced toward commercialization, Ariad renegotiated its partnership deal with Merck for the development of the compound.

May 5, 2010- Ariad announces it has renegotiated its mTOR deal with Merck. The partnership deal became a licensing deal, with Merck assuming all costs associated with the development, manufacture and commercialization of Ridaforolimus. In return, Ariad received an infusion of $50 million plus the $19 million it had spent in 2010 on the program. It will now receive $514 million in milestone payments and greater than 10% royalties from worldwide sales.

Digging into this deal a bit, it seems Ariad has done quite well for itself, with impeccable timing. For simplicity, let’s first assume Ridaforolimus sales of $1 billion/yr, profit margins of 30% in the US, and one-third of drug sales in the US.

Under the original deal, Ariad was to receive half the US profits- that amounts to $50 million. It would also receive 7.5% of ex-US sales- also amounting to $50 million, for a grand total of $100 million.

What a coincidence, in the new deal 10% of royalties on $1 billion in sales is $100 million.

The only difference is Ariad sacrificed some future milestone payments for $69 million in immediate, non-dilutive cash to strengthen its balance sheet, giving it enough run way to last until end of 2011. By then, it will likely have received multiple additional milestone payments from the Ridaforolimus deal.

With Ridaforolimus taken care of, Ariad can turn its focus to its multi-kinase inhibitor, AP24534, set to begin randomized Phase II trials later this year in CML. It is in the very enviable position of nearing success on its first proprietary compound while having the cash to put a second, and promising compound into pivotal trials. Results for AP24534 have compared favorably against Tasigna and Sprycel in multiple parameters including complete cytogenic response and complete hematologic response. AP24534 differentiates itself from its competitors with its ability to inhibit a larger range of resistant mutations that occur in CML patients. It will be tested initially as a third line treatment, after patients fail Gleevec, then Tasigna or Sprycel. This is estimated to be a $300 million market.

Earlier this year, both Tasigna and Sprycel have been shown in large clinical trials to be superior to Gleevec in CML. Analysts and physicians alike believe these two drugs will now vie for first line treatment status as a result of these studies. Sales of Gleevec for CML alone were about $3 billion. If Tasigna and Sprycel move into first line, AP24534 has the potential to become a second line drug. Ariad suggests this is a $600 million dollar opportunity. As a multi-targeted drug, AP24534 may be active in multiple indications beyond CML. Success beyond CML would expand its value significantly.

The last compound in Ariad’s arsenal is its ALK inhibitor, AP26113. Inhibition of the mutant ALK fusion gene (ELM4-ALK) by Crizotinib from Pfizer has been shown to be effective in NSCLC harboring this mutation. Preliminary results appear very good, though resistance to the drug appears over time. Pfizer estimates 45,000 NSCLC patients have this mutation. Although the patient populations are considerably smaller, ELM4-ALK is also found in neuroblastomas as well as a rare lymphoma, ALCL.

Pfizer’s Crizotinib has the overwhelming lead and may well become a blockbuster, but if AP26113 can prove its superiority over time with its increased potency against ELM4-ALK and lack of susceptibility to drug resistance, it has a chance at competing with Crizotinib in this niche.

These are all favorable developments as Ariad sets on the path toward becoming a revenue-generating biotechnology company. This is a small company with lots of promise.

Author is Long MRK, NVS

Genomic Health- Possible Takeover Candidate

2010-06-08T15:17:00.000-07:00

Jason Chew

Genomic Health is a pure-play oncology in-vitro diagnostics company with approved products and a pipeline to drive future growth. It fits in well with the growing importance of personalized medicine in the pharmaceutical industry. Personalized medicine is comprised of two parts- the drug, and the diagnostic, a combination sometimes referred to as Dx/Rx. Biomarker and companion diagnostic development have been most notable in the oncology field. The high clinical trial failure rate coupled with the advent of targeted therapies have certainly been drivers in this trend.

According to a report by PriceWaterhouseCoopers (PWC), the diagnostics market is only 2% the size of the overall drug market. With encouragements from the FDA and current industry trends toward personalized medicine, this market is set for growth.

PWC also noted the high levels of M&A activity in this already highly consolidated industry in recent years. Acquisitions have rearranged the rankings of the top diagnostics makers since 2004. Interestingly, Siemens, which was not even a top ten player in 2004, jumped to number two by 2008. With GE now getting into the game, the industry can only become more consolidated. Smaller and midsized players will have trouble getting attention from big Pharma and Biotech collaborators unless they bulk up to expand their product offerings and expertise.

Genomic Health has two diagnostic assays on the market: Oncotype DX Breast Cancer and recently approved Oncotype DX Colon Cancer. The Oncotype DX Breast Cancer assay is a RT-PCR assay that tests for the expression of 21 genes selected to predict chemotherapy outcomes and chances of recurrence in certain breast cancer patients, helping physicians with the decision of prescribing therapies. Oncotype DX colon Cancer assay is based on the same technology as Oncotype DX Breast Cancer, but tests for 12 genes to predict the likelihood that a Stage II colon cancer will return after surgical removal. Tests for NSCLC, melanoma, and prostate cancer are in the pipeline.

A companion diagnostic is in the works with Pfizer for its blockbuster, Sutent, in Renal Cell Carcinoma, also with the Oncotype DX technology.

Revenues have increased about 35% from $111 Million to $150 Million between 2008 and 2009. Losses narrowed from $18 Million to $9 Million. Growth is however dependent on the Breast Cancer test and its expanded usage. Although the Colon Cancer test has been approved since this January, the company does not expect to see significant revenue generation from it for several years due to difficult negotiations with payers for reimbursements.

The stock price for GHDX has dropped from its 52 week high of $22 to its current $13.88 and valued at less than $400 Million.

Genomic Health would make an ideal addition for a company that wants to selectively add to its in-vitro diagnostics portfolio. In return, Genomic Health would gain the expertise to succeed in getting reimbursements for its new products.

Author has No Positions

Celldex Sets it Straight at ASCO

2010-06-06T22:33:00.000-07:00

After Celldex’s flubbed pre-ASCO abstract release led investor to question interim Phase II data for its cancer vaccine CDX-110 (PF-04948568), also with the generic name Rindopepimut, they made sure to get things straight at ASCO. As a reminder, the abstract stated 70% of patients on drug were alive and progression free at 5.5 months. This stood in sharp contrast to previously presented data of ~95% alive and progression free at 6 months. Celldex tried to assure investors the numbers were equivalent, but questions remained.

On June 5 at ASCO, Anthony Marucci, President and Chief Executive Officer of Celldex Therapeutics declared, "70 percent of ACT III patients were progression-free at 5.5 months after initiating treatment with rindopepimut, which corresponds to the 8.5 months seen in ACT II and ACTIVATE when measured from diagnosis and surgery. The earlier ACTIVATE and ACT II trials reported progression free rates at 8.5 months of 70 and 80 percent, respectively.”

It is unlikely this clarification will move CLDX’s stock price as there were no surprises in the actual results. Investors have had weeks to digest the initial data and no doubt understand the reasons for the discrepancies now. The next move will likely be information on initiation of Phase III trials once those decisions have been finalized between Celldex, Pfizer, and the FDA.

One should not count on CDX-110 to bring in huge revenues. With only 10,000 new GBM cases per year, and 30% with the EGFRvIII mutation, the market only consists of 3000 patients. CDX-110 will be no blockbuster. Dendreon has set the bar for a cancer immunotherapy, pricing Provenge at $93,000. Given the data seen to date, CDX-110 should easily get that or more. Assuming $100,000/yr will still only bring in $300 Million. There is likely to be off-label use for other EGFRvIII positive cancers and each patient may be on CDX-110 for over a year, so the gross may be somewhat higher.

A product that holds a great deal of promise for Celldex is CDX-011, their Antibody-Drug-Conjugate directed toward glycoprotein NMB (GPNMB). This drug has shown very good results in advanced breast cancer patients in a small Phase I/II study, especially those with expression of GPNMB. For all patients treated at the highest dose, me Progression Free Survival (PFS) of 9.1 weeks was reached. For the subset of patients expressing high levels of GPNMB, PFS was increased markedly to 17.3 weeks.

Celldex has now developed a new diagnostic test for detection GPNMB for use in their planned Phase IIb trial. This will be a controlled, randomized, multicenter trial enrolling 120 patients. If successful, it would seem this trial could form the basis of an NDA filing.

In the near future, there should be pivotal trials ongoing for two Celldex drugs. One, CDX-110, has been licensed to Pfizer. The second, CDX-011, is still wholly owned by Celldex. Investors should start to focus on the latter.

Author is Long CLDX

Vivus Has a Hit in Qnexa

2010-06-04T16:26:00.000-07:00

Obesity has a high prevalence in the US and is now frequently cited as being a national health issue. It is on the rise in almost every industrialized and some industrializing nations. There are currently no blockbuster weight loss drugs due to lack of efficacy, though many have failed due to unwanted side effects.

Some statistics:
33% population over 20 years of age in the US are considered obese, meaning BMI >30. 14% have BMI >35, 6% BMI >40. A BMI >40 is considered morbidly obese. With 72% US population over age 20 and 33% of these obese, the addressable population is 52.7 million individuals in the US alone.

A recent 10 year NEJM study of 527,265 individuals showed obesity increased the risk of death in otherwise healthy individuals by between two and three fold for both men and women. A 2005 CDC report states 112,000 deaths in the US are due primarily to obesity related causes. Treating a single person annually for obesity is cited as costing $1723

Weight loss drugs are no longer considered “cosmetic”; they treat real health and quality of life issues. Weight loss in the range achieved with Qnexa have been shown to improve risks of developing diabetes and improve cardiovascular health. These benefits will likely be considered along with the degree of weight lost when the FDA convenes to consider Qnexa’s NDA filing.

GSK’s Xenical has a wholesale cost of about $2000/yr. It is accompanied by gas, oily discharge, possible liver damage, and iffy efficacy. Even with that- Xenical together with little sister Alli, containing half the active ingredient, orlistat, have managed over $650 million sales in 2009.

When Acomplia from Sanofi came around in 2007, analysts were estimating worldwide peak sales of $7 Billion, 10 times that of Xenical, for an increase in efficacy from 3% to 5% weight loss. Unfortunately, Acomplia was never approved in the US due to its strong link to depression.

There’s a very large untapped market for a safe and effective weight loss drug. Qnexa fits the bill.

Let’s look at the results.
Vivus has run three large Phase III trials for Qnexa for the treatment of obesity: EQUIP examined Qnexa in a population of 1267 morbidly obese patients, comparing three doses of Qnexa vs. placebo; CONQUER examined Qnexa in 3750 overweight and obese patients with two doses of Qnexa vs. placebo. In both of these 56-week trials, all patients were asked to cut 500 calorie/day from their diet and advised to implement a simple lifestyle modification program. (Results for all doses not shown)

EQUIP trial of morbidly obese patients

CONQUER trial of overweight and obese patients

*p<0.0001 vs. placebo
ITT-LOCF: Intent-to-treat with last observation carried forward

In these two trials, completion rates of up to 69% were significantly higher than placebo at all three doses of Qnexa. Another way to put this is more patients on placebo dropped out from the trial than patients getting Qnexa. For full dose Qnexa, patients had a mean placebo-adjusted greater than 10% weight loss in both trials. That’s pretty impressive. These results are on par with the infamous Fen-Phen combo, without the heart-valve disease.

The third Phase III trial, EQUATE, of 28-week duration in 756 patients also showed good activity. Patients taking full-dose and mid-dose Qnexa achieved an average weight loss of 9.2 percent and 8.5 percent, respectively, as compared to 1.7 percent reported for the placebo group

These are the side effects listed from the EQUATE trial:

15-20% reported paresthesia (a feeling of “pins and needles” on the skin) versus 3% in the placebo group
12-18% reported dry mouth versus 0% in the placebo group
8-15% reported altered taste versus 0% in the placebo group
6-11% reported constipation versus 6 percent in the placebo group
0.9-1.9% reported depression and altered mood versus 1.8 percent in the placebo group

Not noted in the EQUATE results, but difficulties with attention and memory led less than 2% of patients on high dose Qnexa in the EQUIP and CONQUER trial to drop out.

Altogether, 5773 patients have been tested in Phase III alone for Qnexa in obesity. Phase IIs trials for diabetes and sleep apnea are ongoing. There should be more than enough data to put to rest any safety skeptics. Qnexa may not be Tylenol, but it treats serious problems with a very good safety profile.

What size the market
GSK and Roche have been able to enlarge the market for Xenical by cutting the pill in half to create Alli. While Xenical is prescription only and is for clinically obese, Alli is for all overweight. Vivus certainly has its eye on the overweight market as well as the obesity market as seen by its CONQUER trial which enrolled both the overweight and obese.

The following uses conservative assumptions and will focus on the obesity market. The weight loss drug market is very small due to the lack of safe and efficacious drugs. It is estimated only 2% of Americans use weight loss drugs at all. An available good drug would grow this market enormously. The obesity market is even more underserved than the overweight market. Sales of Xenical have fallen recently with reports of liver injuries and even death. If Qnexa even manages just 1% of the obesity market, at Xenical’s price of approximately $2000, sales in the US alone would be $1 Billion.

Of course, Qnexa is far more efficacious than Xenical. A 10% weight loss will provide huge benefits to both the physical and mental health of an obese individual. Tingly skin, dry mouth, altered taste? Try preventing or improving diabetes, improving cardiovascular health, improving sleep apnea, and looking better.

There looks to be some upside to this estimate.

Author is Long VVUS

Alexion Pharmaceuticals- Poster Child for Ultra-orphan Treatments

2010-06-02T14:15:00.000-07:00

Alexion got some good news today, receiving earlier than expected approval for its drug, Soliris (eculizumab), for the treatment of PNH in Japan- the world’s second largest pharmaceuticals market. Having received approval from the FDA and the European Commission only in 2007, Soliris has rocketed to expected 2010 sales of over $500 Million. It has been profitable since the second quarter 2008; that speaks highly to a disciplined management team and quality of Alexion’s sales efforts.
What is Soliris?

Soliris is a monoclonal antibody that targets and prevents the cleavage of Complement protein C5. The complement proteins form a cascade beginning with C1which lead to the eventual lysis (killing) of target cells. Preventing the cleavage of complement C5 to C5a and C5b disrupts part of this pathway, and in systems gone awry, preventing excessive cell lysis. Soliris is the only approved monoclonal antibody to target the Complement pathway.

The approved indication for Soliris is treatment of Paroxysmal Nocturnal Hemoglobinuria (PNH). PNH is a potentially life-threatening disease caused by the destruction of red blood cells (hemolysis) by complement proteins. It is an extremely rare disease, a census bureau estimate in 2005 estimated there are approximately 4700 such cases in the US. The incidence may be somewhat higher in Europe so the number of cases could well also be a bit higher. For patients who have received Soliris as part of their treatment, the effects have been stunning. The drug had a profound improvement on quality of life from the first dosage: hemolysis decreased, transfusions became unnecessary for some.

For such a small patient population, each an every patient added to the program is a success. With limited data on patient statistics, the Alexion sales team has done an incredible job with patient outreach, training doctors to identify and diagnose new patients, and increasing the general awareness of this ultra-rare disease. When Soliris first launched, clinical trial patients were converted to payers, generating the first revenues. Using today’s guidance of revenue between $515-530 Million this year, and a $400,000 price tag, this suggests only 1300 patients will be on drug. This leaves lots of room for growth in PNH alone.

There is still the problem of counting on one drug for all its sales. Although Alexion is highly profitable- excluding items, it earned $87 Million on sales of $387 Million in 2009, with sales growth from 2008-2009 a blistering 49%. Growth this year will slow to 34%, still good, but down from the stratosphere. Approval in Japan may cushion growth until new indications come along.

Alexion is focusing development efforts for Soliris in atypical Hemolytic Uremic Syndrome (aHUS), a rare, inherited, and life-threatening complement-inhibitor deficiency disease, Kidney Transplant, and other Complement-mediated disorders.

Results for aHUS is a near term milestone. Four multicenter trials are ongoing in North America and Europe with the company planning on presenting data later this year. In a case report published in 2009 by the NEJM, two patients, an 18 month infant and a 37 year old woman suffering from aHUS with quickly deteriorating conditions and no other treatment options were administered Soliris by their physicians. Conditions of both patients quickly improved soon after treatment with Soliris.

The company is also planning international, multicenter trials for Soliris in kidney transplant rejection. In abstracts presented at the American Transplant Congress in 2009 and 2010, Alexion showed treatment with Soliris lead to reduced rejection and injury of transplanted kidneys in patients at high risk for complement mediated transplant rejection.

Due to the extraordinary activity and unique mechanism of action of Soliris, many independent academic groups have initiated their own exploratory trials of the drug for complement-mediated diseases. Some of these include: Myasthenia Gravis (MG), Membranoproliferative Glomerulonephropathy type II (dense deposit disease), Age Related Macular Degeneration (AMD), and Multifocal Motor Neuropathy (MMN). Alexion is engaging the FDA in the design of a multi-center, international clinical trial for the use of Soliris in MG, and considering future actions on some of the others.

PNH alone should drive Soliris sales to over $1 Billion. aHUS has been estimated as representing a possible $500 Million market opportunity while kidney transplant is smaller at $250 Million.

Aside from Soliris, Alexion has only one other drug in development, an early stage anti-CD200 antibody for chronic lymphocytic leukemia and Multiple Myeloma. It is in the process of expanding the initial Phase I/II trials.

So although Alexion is indeed a one-trick-pony- it’s got a pretty good trick.

Author is Long ALXN

Roche- Leading the Way in Personalized Medicine

2010-06-01T15:44:00.000-07:00

(Featured in TheBigRedBiotechBlog)

This Swiss pharma is the third largest pharmaceutical company both by revenue and market cap. It is one of the fastest growing companies in its peer group, with sales growth of 7% in 2009. This compares to approximately 4% YoY growth for Pfizer, Sanofi-Aventis, and Johnson & Johnson.

With the purchase of the 44% of Genentech it didn’t already own in March 09, Roche gained full control of some of the world’s top selling biologics and at the same time transformed itself into an oncology focused company, with greater than 50% of its drug sales for oncology indications. One could say Roche is now the world’s largest biotech company. It sports a forward PE of 15, a premium to its peers. This is due in large part to its young and robust pipeline. Patents for its major drugs Rituxin and Herceptin do not expire until 2015- even then, the path to approval for biosimilars in the US is still uncertain.

With profits so big in biologics drugs, every large Big Pharma has now turned their focus on biotechnology. It is quite possible Roche will face competition for its drugs from branded biologics before biosimilars are approved.

What sets Roche apart from the rest of Big Pharma is its unique integration of drug discovery along with its less heralded diagnostics division. While the Diagnostics division makes up only 20% of total sales, its contribution to the company is considerably larger. Combining a Diagnostics division allows easy access by drug researchers to the latest and most advanced equipment and analysis tools for performing experiments. Feedback between the two groups allows for the creation of tools that fit the need of researchers within and outside the company.

More importantly, within the last decade, the pharmaceutical industry has made real advances toward the delivery of personalized medicine based on the use of biomarkers. It is true; biomarkers have been used in medicine for quite some time now. In particular, measurements of PSA levels for detection of Prostate cancer, HbA1c levels for diabetes, and triglycerides for heart disease. These however, were not definitive measurements of disease.

More recently in oncology, biomarkers have become commonly used throughout the drug development process due to the advent of highly targeted therapies. A highly cite case is the development of Herceptin (trastuzumab), a HER2 targeted antibody, by Genentech. Beginning with patient recruitment, Genentech used HER2 gene amplification as a main criteria in entry into the clinical trials. Without this criteria, Genentech would not have been able to see the effect of its drug on breast cancer patients in the trials it conducted.

Working with the FDA, Genentech partnered with privately held diagnostics firm Dako to have a HER2 companion diagnostic kit approved at the same time as Herceptin. Together, the drug and the companion diagnostic changed the face of breast cancer treatment.

Today, the co-development of targeted drugs along with companion diagnostics is a very hot area of development. The FDA released a draft concept paper in 2005 which would require sponsoring drug companies to commit to the co-development of companion diagnostics “very early in the drug development process”, though it received considerable push-back from industry- claiming such a process would be too costly. A new, refined draft is expected from the FDA.

In a 2007 paper from a workshop held between the FDA and industry, FDA officials continued to throw their weight behind drug-diagnostic co-development, illuminating some possible paths for such an approval. In one case, a company working on a project discovers a clinically relevent mutation in Phase II trials. It then discusses with the FDA a method to proceed with a prospective Phase III using a laboratory diagnostic test, with the clinically validated test ready upon drug approval. A second case is similar to the one in the 2005 concept paper- it involves early identification of a relevent biomarker and co-development of diagnostic tests along with the drug from early stage to post-approval.

Whichever the case may be, Roche is perfectly situated to benefit from these developments. It has the in-house expertise to develop diagnostics for start-to finish. A case-in-point is its B-RAF compound, PLX4032 from Plexxikon, now in pivotal trials. This is a specific inhibitor of the mutant b-RAF V600E and is currently being tested in melanoma. B-RAF V600E is found in approximately 60% of this very deadly form of skin cancer. From the start, Roche has used diagnostic testing to select patients for its clinical trial. In the initial Phase I trial, patients without the V600E mutation treated with PLX4032 had no response while 70% of those with that mutation experienced tumor shrinkage.

To this end, Roche is planning on launching PLX4032 along with its companion diagnostic. The beauty of a companion diagnostic is its predictive value- knowing which patients are most likely to benefit allows for smaller clinical trials with greater chances of success, excluding patients who are unlikely to benefit and are better off trying other treatments.

Healthcare providers- the payers are certain to embrace companion diagnostics in the quest for personalized medicine. No longer will they have to pay for drugs that only work in a random number of patients- now, the drugs they pay for are very likely to benefit the patient. It’s a win-win for all involved.

It may seem that drug companies will lose money as the increased use of biomarkers slices up their target population. I do not believe this will be the case. The advantages afforded by personalized medicine will allow these drugs to command a premium in the market, additional revenue will come from the use of diagnostic tests.

Roche has embraced the personalized medicine paradigm. The future is here.

Author is Long RHHBY.PK

Next Generation Antibody Technologies- Seattle Genetics Leads the Way

2010-05-28T14:52:00.000-07:00

Next Generation Antibody Technologies- Seattle Genetics Leads the Way

Monoclonal Antibody Technology has revolutionized medicine. Since 1986, more than 20 Antibody drugs have been approved, with sales of $26 Billion in 2007 and expected to nearly double to $49 Billion by 2013. Sales are highly concentrated, with the top five drugs- Avastin, Rituxin Herceptin, Humira, and Remicade accounting for 78% of 2007 sales. It is rather amazing that Avastin and Herceptin has maintained such strong sales in the face of a deluge of cheaper small molecule competitors for their respective targets: VEGF and HER2.

Rituxin and Herceptin look to have patents expire in 2015 and will be vulnerable to generic biosimilars- Teva is currently running clinical trials on a Rituxin biosimilar and is already selling one in India. To that end, Roche has looked to new technologies to extend the life of its Anti-CD20 and Anti-HER2 franchises.

Roche is developing a follow-on fully humanized Anti-CD20 it claims is more potent than Rituxan. Roche is applying a technology called glyco-engineering, where a post-translationally added sugar called fucose is removed from the antibody. This helps to increase the antibody’s binding to the receptor as well as increase antibody-dependent cellular cytotoxicity, aiding in the destruction of target cells.

As for Herceptin, its Anti-HER2 drug, Roche is in late stages of developing an Antibody-Drug-Conjugate (ADC) in partnership with Immunogen, consisting of Herceptin linked to a toxic payload. After Herceptin binds to its receptor, the toxin is released into the cell. (In this case, a potent anti-microtubule.) Results from a phase IIb trial for this drug, called T-DM1 were deemed good enough that Roche will use the data to file for an NDA.

Cue Seattle Genetics. As with the development of fully humanized monoclonal antibodies, Antibody-Drug-Conjugate technology is concentrated in a few hands. Seattle Genetics, along with Immunogen are clear leaders in applying this technology. The key to this technology is the linker between the antibody and the toxin. The linker must remain stable long enough in the bloodstream to reach its target and allow the toxin to enter the cell where it is either enzyme cleaved or pH cleaved. These toxins are much more potent then those used in typical chemotherapy. Too much release in the bloodstream would lead to unwanted side effects. If the linker is too stable, the toxin will not be released.

Seattle Genetics has two proprietary ADCs in the clinic, one in late stage trials for Hodgkin’s Lymphoma and a second in early stage trials for non-Hodgkin’s Lymphoma and Renal Cell Carcinoma. An ADC being co-developed with Agensys is also in Phase I. Results for SGN-35, their promising late stage compound, are expected later this year. Analysts expect very good data second half this year. The company expects to file for approval first half 2011.

ADC technology from Seattle Genetics is being used by a host of companies. Late last year, it signed lucrative deals with Takeda/Millenium for $60 Million upfront and $230 Million in milestones, with GSK for $12 Million upfront and $390 in milestones. In September last year, Bayer made a milestone payment to SGEN as it filed an IND for an ADC using this company’s technology. This March, SGEN also received a milestone payment from Genentech when an IND was filed for a compound using their ADC technology.

In the clinic, Medimmune has advanced a Seattle Genetics ADC into Phase I. The company furthest along in developing ADCs with their technology is Celldex. It recently announced initiation of randomized phase IIb trials for an ADC.

Seattle Genetics is also on the front lines of Antibody Glyco-engineering. Much of the current work in this area requires the use of recombinant cells- this is how Roche engineered their new Anti-CD20 antibody. Seattle Genetics invented a technique, Sugar Engineered Antibody (SEA), where modified sugars added to cell culture media inhibit the addition of Fucose incorporation into the mature antibody. Their technology is cost-effective, easy to implement, and can be used across multiple cell lines for antibody production.

Seattle Genetics has said it intends to license out the SEA technology as well as using it in their own programs.

One company, two ways to empower antibodies. Both technologies are validated. ADCs are in all phases of clinical trials, with one approved (Mylotarg). Roche’s Glyco-engineered 3rd generation Anti-CD20 antibody is now in Phase 3 trials.

Just as PEGylation improved and advanced recombinant protein therapies, ADC and Glyco-engineering will change the development of therapeutic antibodies.

Author is Long SGEN, CLDX

Incyte Pharmaceuticals: JAK it Up

2010-05-25T12:01:00.000-07:00

Incyte Pharmaceuticals: JAK it Up

Incyte Pharmaceuticals has one of the most promising pipelines in the small to mid-cap space. It has two very promising compounds in development, INCB18424 for the treatment of Myelofibrosis (MF), a disease classified under the Myeloproliferative disorders (MPD) family, and other oncology indications, and INCB28050 for the treatment of Rheumatoid Arthritis (RA).

Both of these compounds belong to a class of compounds called JAK inhibitors- currently an area of very hot development. Pfizer is farthest ahead with a JAK inhibitor for RA with pivotal trials ongoing, but Incyte has been granted orphan status for MF. Although MF is a small market, with a prevalence of fewer than 18,000 patients in the US, it will allow Incyte a quick path to market and revenue generation. Incyte has estimated that at a price of $50,000/patient, it has a market potential of $800M/year in the US from MF treatment alone. This does not take into account any other indications INCB18424 is currently being tested for.

The JAKs are intracellular Tyrosine Kinases that transduce signals by activating the STAT transcription factors. JAKs have some overlapping but also unique functions. For example, JAK1 is vital in IL-6 signaling, JAK2 for G-CSF, JAK3 in B-Cell function, and TYK2 can mediate both pro and anti-inflammatory responses.

Incyte has promoted INCB18424 as a specific inhibitor of JAK1 and JAK2. By suppressing JAK1, IL-6 signaling is decreased. IL-6 is a key component in the pathogenesis of autoimmune diseases, inflammation and certain cancers. In fact, Roche has just received approval for its anti-IL-6 antibody Actemra for RA this January.

Just as important, JAK2 is a well-studied and validated target in MF. A mutation called JAK2 V617F is found in greater than 30% of MF patients. This makes this the JAK2 mutation an ideal target for MF.

Incyte had shown stellar activity with INCB18424 in earlier Phase II MF trials. The compound showed quick onset of clinical activity, improved constitutional symptoms, reduced number of cells with mutant JAK2 (allele burden), reduced need for blood transfusions, reduced inflammatory cytokine levels, and most of all caused a marked reduction in spleen size. Thrombocytopenia (decrease in platelets) was observed at high dose, but no other toxicities were observed. No patients dropped out. This is important because one other JAK2 inhibitor, XL109 from Exelixis was dropped due to unresolved toxicities.

On November 27, 2009, Incyte entered into a partnership with Novartis to form a worldwide development plan for INCB18424. For an initial payment of $210M, Novartis gained the ex-US rights to the compound. Incyte retained all rights to the compound in the US. Each company will pay for studies in their own territories. If successful, Incyte will also receive up to $1,100M in developmental in commercialization milestone payments along with tiered double digit royalties.

Following quickly on the heals of this deal, Incyte announced a partnership with Eli Lilly for a worldwide license agreement to INCB28050. This deal netted Incyte $90M upfront and $665M in milestones. Although these numbers are smaller than the previous deal, the deal gives Incyte a higher royalty and a potentially greater share of profits. Royalties will begin around 20%, but if Incyte should decide to opt in and share 30% of development costs with Lilly, its royalty rate jumps to the high twenties.

With upfront payments from these two deals along with a secondary offering placed in September 30, 2009 netting $132.7M, Incyte now has a strong balance sheet with over $400M in cash. This is more than sufficient to take it into the launch of INCB18424 in 2011, and the leeway to co-develop INCB28050 should it so desire, generating greater future returns.

High expectations are built in for INCB18424 due to the impressive Phase II data. In the ongoing Phase III trials, the US trial is placebo controlled, with the primary endpoint set at a statistically significant proportion of patients achieving a 35% reduction in spleen volume at 24 months. Patients in the placebo arm are allowed to cross over to the treatment arm. The EU trial is compared to best of care; the endpoint is the same, but the timeline is 48 months. Management has said they fully expect to meet these endpoints based on their knowledge of the compound. Data is expected at the end of this year. Talks with the FDA are ongoing to determine trial designs for a Phase III study for PV, a disease lessor in severity to MF, but also catorized as an MPD.

On May 6, Incyte revealed top-line three-month Phase II results for INCB28050 from an ongoing six month trial. In this 125 patient trial, they showed that at the three doses tested, ACR scores improving rapidly for the 4 mg, 7 mg and 10 mg dose groups. On the ACR20, 50 and 70 measures, patients demonstrated response rates of 60 percent, 36 percent and 16 percent. All three dose groups had similar ACR responses, adverse events were described as mild to moderate. These results were said to be comparable to Pfizer’s JAK inhibitor as well as current biologics used in the treatment for RA. The company indicated that in the planned Phase IIb trial, they intend on dropping the 10 mg dose and adding a lower dose due to the compound’s potency.

In current RA treatments, patients first receive drugs such as NSAIDS and Methotrexate, then biologics such as Embrel if their conditions do not improve. Incyte management has speculated that due to the safety profile and ease of administration (oral vs. injection), JAK inhibitors may upend the current therapy regime, with the use of biologics following the use of oral JAK compounds.

Incyte is now trading at just below $13, off its recent April high of $14.78 during the anticipation of interim INCB28050 RA data. In the last three months, it has continued to out-performed both the Nasdaq and Amex biotech indices.

Here are some catalysts that could cause a spike in the stock price:

1: INCB18424 Phase III trial is ended early due to overwhelming signs of success

2: Partnership announced for topical INCB18424 in psoriasis

3: Initation of INCB18424 in Phase III for PV under SPA

4: Unveiling of final 6 week Phase II data for INCB28050 at the American College of Rheumatology in November

Author is long INCY

Biotech's One-Trick Pony

2010-05-24T15:16:00.000-07:00

The One-Trick Pony

We’ve heard this many times- never bet on that one-trick pony. Risky bet. You’ll lose your shirt.

So what does this one-trick pony thing look like? What should we be looking out for? Where do we find this three-horned beast?

But seriously, what defines a biotech as a one-trick pony? Here I list 24 biotech drug stocks with market caps between $500 Million and $7 Billion, along with the number of compounds in their pipeline.

From this list, there do not appear to be any one-trick ponies here; every company has at least two compounds in its product pipeline.

Let’s take a closer look.

In Biotech investing, time is of the essence. Time lines range, but in clinical development, Phase I and II trials each require approximately one to two years to complete while Phase III trials take from three to four years. More importantly, clinical trial costs rise exponentially as drugs progress through these three phases, costing up to $50 Million for Phase III trials- 10 times that of a Phase I trial. This is due to the large patient numbers and increased complexity of Phase III trials.

A full three quarters of clinical compounds make it through Phase I due to the widespread adoption of technologies used to profile compounds’ bio-physical properties in pre-clinical settings before they are tested in humans, allowing good predictions of toxicity and compound distribution in patients.

Unfortunately, the hurdle is much higher in Phase II testing when clinicians typically look for clinical activity. Here, the success rate drops to one in two. Together, only one-third of compounds make it through the first two phases of testing.

Should these compounds make it into Phase III testing, on average, better than 60% succeed.

As an investor, one needs to focus on return on investment. Bet on a Phase I and you have an 80% chance of failure; Bet on a Phase III and your odds of failure are cut in half.

Better yet, a company with a product has already has already succeeded. On top of that, management has the experience to bring a compound to market.

Let’s do a little more digging. Now if we subtract the Phase I and II compounds from our list, add up the approved drugs and compounds in Phase III, this is what we are left with:

A cursory glance shows the highest valuation stocks tend to have the most compounds either marketed or in Phase three while the lower value stocks have a limited number of such compounds. DNDN and ALXN stick out like a sore thumb, but they are unique. Though both have only one compound each in this category, both own all the rights to their drugs. And as everyone knows, DNDN has just received approval for the world’s first cancer vaccine. ALXN sells the world’s most expensive drug for the ultra-orphan disease PNH; both drugs are expected to be blockbusters.

Here’s a simple regressions of Total Marketed and Phase 3 compounds vs. Market Cap, excluding DNDN and ALXN:

That’s not too shabby- any economist would be proud of a fit this good. It's obviously too simplistic but it helps make my point: Generally speaking, when evaluating biotech drug companies, almost all the value is assigned to compounds that are approved or in Phase III development.

If the company doesn’t have more than one of these, it’s just a one-trick pony.

Author is Long VRTX, ALXN, INCY, SGEN

The Promise Behind Celldex- ASCO 2010

2010-05-22T16:53:00.000-07:00

The Promise Behind Celldex

Celldex shares climbed steadily in the months leading up to the release of its ASCO abstracts, rising from $4.71 at the start of the year and hitting a high of $9.43 on May 18. Shares 9% the day the abstracts were released on May 21, closing at $6.97. Share prices have not recovered.

The run-up in Celldex shares was due to the extraordinary results the company had achieved in two previous Phase II trials of its cancer vaccine CDX-110 for Glioblastoma Multiforme (GBM). CDX-110 targets EGFRvIII, an activating and transforming EGFR mutation found in about 40% of GBM. The vaccine itself consists of consists of a 13 amino-acid long peptide from the mutated portion of EGFRvIII, along with a vaccine adjuvant and GM-CSF to boost its efficacy. EGFRvIII is found only on cancer cells. Because of CDX-110s targeted nature, clinicians have noted its low toxicity profile and benign side effects, other than injection-site reactions.

The two completed Phase II trials are ACTIVATE and ACTII. Both trials were single arm and recruited newly diagnosed EGFRviii positive GBM patients with optimally resected tumors.

The following table was presented at last year’s ASCO.

Though both were small trials, both ACTIVATE and ACTII showed nearly identical results, and were far better than historical controls. Time to Progression of 14-15 months far better than 6 month control; Progression-free survival at 6 months 95% vs. 59%; Median Overall Survival 23-26 months vs. 15 months.

In 2008, Pfizer signed on as a global partner. The deal called for a $40M upfront payment and all development costs to be covered by Pfizer, along with $390 in milestones. Celldex would receive double digit royalties.

A Phase II/III called ACTIII was initiated and intended to be a larger pivotal, multi-center, open-label, randomized trial. However, patients, when learning of their placement in the placebo group, dropped out of the trial at a very high rate (14 of 16 patients, leading the company to change the trial to a Phase II single arm.

The data presented in the ASCO abstract for ACTIII is very early stage. No Time to Progression or

Survival data were included. The trial calls for 65 patients to receive treatment. Of 40 patients treated so far, 28 (70%) were alive and progression free at 5.5 months.

These results are excellent! Then why the sell off? In ACTIVATE and ACTII, ~95% of patients were shown to be alive and progression free at 6 months. That’s a huge disparity. The reason for this is the method in which Time to Progression is calculated in these three trials. In the first two trials, analysis started from the time of surgery. In ACTIII, analysis did not begin until the patients received their first dose of vaccine. There is a three month lag from time of surgery to vaccination because after surgery, patients need to get their first radiotherapy and chemo and show they are free of disease before they can even enter the clinical trial. Accounting for this difference, Celldex reps have stated that a median Time to Progression of about 14 months can be extrapolated. This is identical to both the ACTIVATE and ACTII trials.

Perhaps all is not lost. These three Phase II trials have not been complete wastes. Through these small trials, Celldex has been able to clearly show the profound activity of CDX-110 in GBM, making it an easy decision to start a large pivotal Phase III. After all, attempts at cancer immunotherapies have been paved with failures. These trials also allowed Celldex to show temozolomide can actually work to enhance the effect of CDX-110, aiding in future clinical trial design.

Pfizer is now working with Celldex to finalize the Phase III design.

Celldex is in good shape financially with $75M in the bank, burning about $9M a quarter.

Author is Long CLDX