High Risk, High Reward on Telesta’s Panel Review

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On June 29, 2015, Telesta Therapeutics Inc. (OTCMKTS:BNHLF) reported that the FDA had accepted its Biologics License Application (BLA) for its lead pipeline candidate – MCNA. The FDA will review the BLA with a priority designation, giving it a PDUFA date of February 27, 2016. This is three months away you say – why are we talking about it now? Well, on Wednesday next week, an FDA panel will sit down and discuss the BLA, and report its recommendation. If it recommends approval, it greatly improves the chances of a positive outcome for Telesta come February, and as such, could be a strong upside catalyst for the company’s market capitalization. Of course, if we get a negative recommendation, upside turns to downside. Let’s have a look at the treatment in question, its target indication, and figure out what a recommendation of approval might mean for the company.

So, MCNA. The drug is a biologic, meaning it derives from mammalian cells rather than just being a mix of certain chemicals (as is the case with traditional drugs). Biologics are extremely complicated, but let’s have a go at a simplified explanation. Biologics are incredibly complex proteins that – as humans – we are unable to produce manually (we lack the sophistication). Luckily for us, cells make proteins very efficiently, as instructed by the genes in their composition. By inserting specific genes into cells, we can turn that cell into a protein making machine. Scientists insert the combination of genes into a cell that is required to create the complex protein (the biologic) and voila. Again, this is extremely simplified, but the truth is even the scientists often don’t know why this process works – only that it does.

So MCNA is a what’s called a cell wall nucleic acid composition – the constituent components have been shown to elicit an immune response to cancer cells in patients and, additionally, mediate proliferation. In other words, the drug makes the immune system attack cancer while also stopping tumor cell replication.

The company completed a phase III earlier this year for a target indication of non-muscle-invasive bladder cancer (NMIBC). Interestingly (in light of the BLA acceptance) the trial missed its primary endpoint, showing a 1-year and 2-year overall disease free survival rate of 25% and 19% respectively versus a primary endpoint of 40% at 12 months. This said, Telesta demonstrated the safety and efficacy of the drug, reporting majority mild to moderate adverse events and just a couple of discontinuations across a sample of 129 patients. Post completion, the company sat down with the FDA and both parties agreed that 25% 12 months DFS was significant enough to warrant a BLA submission, and that’s where things stand.

What’s the market potential for the treatment if approved? Well, there are six separate stages of bladder cancer, the first three of which are classed as non muscle invasive (i.e. the cancer is confined to bladder and connective tissue). These are the three target stages for MCNA. Standard of care for these sufferers is BCG treatment, but many patients fail to respond. After this, there is only one available current alternative – cystectomy, which is basically a ripping out of the bladder and some surrounding organs. Very dangerous and obviously invasive. This is where MCNA comes in – Telesta is pitching it as an alternative to cystectomy.  With premium oncology pricing (the company has stated it expects no reimbursement issues at premium cost), Telesta believes it can hit peak US market sales for MCNA in excess of $400 million. Globally, the company slates a similar revenue potential; the company has partnerships already in place with Ipsen S.A. (OTCMKTS:IPSEY) globally (excluding Japan) and Endo International plc (NASDAQ:ENDP) in Canada and Mexico for distribution and commercialization on approval in the respective regions.

So what’s the takeaway? Well – there is risk here, there’s no question about that. The drug failed to hit its primary in the phase III on which Telesta has based its BLA, and that makes for an increased likelihood of the FDA requiring further data before it approves MCNA. These are long term trials, and any such requirement could push approval back by a couple of years at the low end. However, as always, there is also potential for reward. Telesta currently comes in at less than $200 million market cap, and if it gets approval, it could be generating annual revenues at a two times multiple of this cap with just one indication. All eyes on the 18th. If the panel recommends approval, expect some instant upside momentum and a continuation of this expansion as we approach PDUFA.

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