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These Four Gold Miners Can Maintain Profitability at Current Prices

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PershingGold

What has happened to gold stocks since 2012 could be called even worse than oil stocks over the last year. The collapse in oil has bankrupted many a small marginal driller, though large companies like Exxon Mobil (NYSE:XOM) are still profitable. The collapse in the price of gold however has made it difficult for almost all producers, big and small, to mine gold profitably. Some analysts predict a near term turnaround, and some are not so optimistic. One thing is certain, however. That is, the seemingly universal agreement that in order to continue existing, gold miners of all sizes need to be able to mine gold at all in sustainable cash cost [AISC] of less than $1,000. Those that can will have a big leg up on the rest of the industry when gold prices finally recover.

With this in mind, here are four small cap gold producers that meet, or look set to meet this criterion.

Richmont Mines Inc.

Richmont (NYSE:RIC) has two primary mines – one in Ontario called Island Gold Mine and another in Quebec called Beaufor. The former is the more productive of the two, and Richmont is currently undertaking a host of drilling programs at the property with the goal of expanding its output. Results to date look promising, and we’ll get further insight into indicated resource figures between now and April next year. At the Beaufor property, Richmont reported AISC of $936 for the third quarter of 2015, on 5,700 oz. produced. At Island Gold, the company produced at $968 AISC on 15,000 oz. mined. Weighted against the respective production levels, average cost comes in at circa $955 –below the $1,000 threshold required to maintain profitability under current conditions, but any further dip in gold prices could put Richmont in jeopardy.

Pershing Gold Corporation

Pershing (NASDAQ:PGLC) remains a promising company in the junior gold space as we head into 2016. It has a fully permitted, ready to go facility at its flagship property Relief Canyon in Nevada. The property sits right in the middle of some already producing mines, and drilling to date has revealed a little over 800,000 oz., measured, indicated and inferred. Pershing’s CEO Steven Alfers reported earlier this year that the decision as to when to hit go on production is an economic one, meaning he’s likely waiting for some gold price strength before commencement.

Estimates suggest, however, that even at current prices Pershing could maintain a profitable operation. Conservative estimates give Relief Canyon an AISC just shy of $870 per oz. More optimistic predictions suggest the property cold produce as low as $725. Whichever of the two predictions proves valid, Pershing should have little problem on the cost end, and even has a little room to play with if the price of gold dips further before recovering.

Sabina Gold & Silver Corp. (OTCMKTS:SGSVF)

In September this year, Sabina reported the results from a feasibility study at its lead property – the Back River project. The study suggested that the company can generate NPV $480.3 million on approximately 250,000 oz. annually for eight years, followed by four further years of 200,000 oz. each. The project will require a little over $415 million to hit production, and the company is yet to submit permitting applications (these can often cause long delays in the gold space), but once production starts, Sabina expects the property to produce at an incredibly low AISC of $620 per oz.

This more than accommodates the current weak gold prices, and leaves plenty of room for gold to slide further while still allowing for potential profitability. The initial capital will be the hurdle in this one – Sabina only had $19 million cash and equivalents on its books at the end of September, and expects this to decline to $17 million by year end – so this is something to keep in mind when considering an exposure. If it can raise the funds, however, and get the site permitted, there could be plenty of upside as we head into the latter half of the decade.

Claude Resources, Inc.

Claude (OTCMKTS:CLGRF) reported its Q3 financials at the beginning of last month. The company reported $5.7 million net income, making it one of only a handful of producers to pull in a positive bottom line. It also raised full year guidance to 75,000 oz., up from the 70,000 reported at the end of the second quarter. AISC at the company’s producing mine comes in at $832 per oz. for the quarter, down from $976 during the comparable period last year and also down on the year to date figure of $896 – suggesting the company could tighten up this figure further going forward. With about $27 million cash and bullion on its books, and results expected early next year from what looks to be a promising exploratory program at its Santoy Gap project, there’s plenty of upside potential on the company’s current market cap of $107 million – just a little over 4X Q3 revenues.

Market Exclusive is a financial portal geared to engaging discussion on current financial topics. Market Exclusive is not an investment advisor. By reading this you authorize that you have read and understood our disclaimer.

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Post-Holiday Action: Movers and Shakers in Biotech

By
Jennifer Aldershot
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oversold

Markets have been a little subdued over the past few days, with the Christmas holidays weighing on volume. A few companies, however, have bucked the wider market quiet, and logged some notable action. Here are two of the biggest movers from across the period.

Cellectis S.A. (NASDAQ:CLLS)

Cellectis closed close to 4% up on it’s same day open on December 24, and premarket looks set to resume this bullish momentum as we head into a fresh day’s trading on December 28. The company has had a tough month, and the recent gains are more corrective than fundamentally driven, but noteworthy nonetheless. Early December, Cellectis held a joint conference call with Pfizer Inc. (NYSE:PFE), during which markets expected an update on the two companies’ joint oncology candidate UCART19. The drug is part of the high profile group of cancer drugs known as CAR-T therapies, which involves ex-vivo reprograming of T cells (the cells in our immune systems responsible for recognizing and neutralizing pathogens) to target cancer cells. Unlike the majority of other CAR-T candidates, however, Cellectis and Pfizer’s offering uses T cells from an outside donor, rather than from the patient being treated. This has two primary benefits. First, and from a development perspective, it makes conducting clinical trials much more straightforward – the drug can be developed in advance. Second, it means Cellectis can prepare the treatment as an off the shelf therapy, which should greatly reduce the cost and time associated with administration.

Getting back to the point, and as mentioned, markets expected an update as to the development timeline, with some analysts even expecting interim from early stage, ongoing trials. These expectations failed to materialize. Instead, the conference call simply reiterated the terms of the UCART19 partnership, outlining the roles of the parties involved. This is a classic case of buying the rumor, selling the fact – something that, in biotech, can dominate early stage expectations. Now things have settled, Cellectis looks like a discounted exposure, and this discount has translated to a correction. Near term, keep an eye on the $42 mark, and beyond that, $47 – the most recent swing high and the 2015 peak respectively. If the bulls remain in control, these are the levels that will close the discount.

WAVE Life Sciences Pte. Ltd. (NASDAQ:WVE)

This is an interesting one. Wave filed for an IPO in October, and under the terms of the 2012 JOBS Act, was able to conduct its offering a little over one month later, going public on Nov 11 and raising $102 million in the process. During the middle of last week, Wave’s market cap gained close to 25% on its IPO price (having initially declined 18% to December lows), but during the shortened session on the 24th, closed 8% off these highs. The reason this volatility is interesting, is that there haven’t really been any updates relating to the company’s pipeline. Indeed, there isn’t much of a pipeline to speak of. Wave has a couple of candidates in pre clinical development, but no clinical trials ongoing. The only explanation for movement is the release of a Q10, which outlined increased research and development costs and an increased net loss – up to $12.1 million for the nine months ended September 30, 2015, from $3.4 million for the same period last year. The ramp up in costs suggests momentum from a development perspective, meaning we could be in for some big announcements early 2016, but as things stand, it looks as though the volatility is purely speculative. Wave has some big names associated with it, most notably Paul Bolno as CEO, the man who previously headed up worldwide business development at GlaxoSmithKline (NYSE:GSK), and it seems investors are willing to get behind the company at its current price based on management’s potential to successfully execute its drug development strategy. Only time will tell whether its lead tech – the so called AntiSense technology – will have the impact outlined in its filings that Wave believes it will in the genetic therapy space, so keep an eye on the aforementioned updates to see where the money is being spent, and in turn, what impact its spending might have on Wave’s chances of success.

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Heron’s Big Day Is Just Around The Corner

By
Jennifer Aldershot
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biotech

The clinical development process can be a long and costly one. For some companies, however, it can be longer and costlier than others. In 2009, Heron Therapeutics, Inc. (NASDAQ:HRTX) submitted an NDA to the FDA, with the goal of getting its post-operative drug Sustol to market. The FDA responded with a complete response letter, and after three years’ worth of additional data collection, the company resubmitted. Fast forward to March, 2013, and the FDA yet again responded with a request for further data. The reasoning behind the request was – among some minor issues – a reevaluation of the data on which the trial was based, in accordance with the (then) new ASCO 2011 guidelines.

After six years of regulatory to and fro, the FDA has set a PDUFA for Sustol of January 17. 2016. Heron has publicly stated (and reinforced the opinion with a fresh data submission) that it believes all of the FDA’s concerns are resolved. IN anticipation of the regulatory agency’s decision, let’s take a look at the drug in question, and see if we can gauge the drug’s potential for approval. Here goes.

So, as mentioned, the drug is called, Sustol, and has target indication of post-operative discomfort. More specifically, it targets (in this indication) delayed nausea and vomiting induced through emetogenic chemotherapy (emetogenic here just means having the potential to cause sickness). The drug is what’s called a 5-HT3 antagonist; it targets the 5-HT3 receptor to suppress the serotonin response that causes the nausea in question. A host of 5-HT3 antagonists are already approved, but they primarily target the nausea and sickness that comes about as an immediate response to chemo. There is a subset of patients that experience sickness a few days after therapy (called delayed onset CINV) and this is what Heron is targeting with Sustol.

So what is the difference this time around? Well, the company has conducted an extended trial called MAGIC, which it believes addresses the FDA’s concerns. Relative to current SOC treatment, Sustol induced a 14% improvement in delayed onset CINV patients, with Sustol showing a 65% complete response rate, versus the 57% of SOC. Safety and tolerability came in on-point, and sustainable production (something that the FDA instructed Heron to revise) has reportedly been resolved. The MAGIC trial included more than 1300 patients – a pretty hefty number for this sort of trial – and so from a scale perspective the FDA should have no issues.

What’s the market potential if Heron gets approval? In the US, there are a little over 7 million chemotherapy administrations dosed each year. Of these, approximately 75%induce nausea and vomiting of the type that Sustol targets. This puts the company’s target market at a little over 5.25 million. Based on a market penetration of 20% (expectations published by the company a few years ago), analysts put a peak sales forecast for Sustol at $420 million – expected by 2023 (assuming approval in January).

So what are we looking for near term, and what is the upside potential in Heron on approval? The company currently trades for just shy of $30 a share, giving it a market capitalization of circa $1 billion. Near term resistance comes in at $42, so expect a test of this level as we approach the PDUFA date of January 17. If the company picks up approval, annual potential revenues come in at circa 50% of current market cap, which gives Heron considerable upside potential on the announcement. We’re looking at a medium term target of $55, with a top end market cap in the $2-2.5 billion range.

The downside? There is, of course, the potential for yet another FDA decline. The agency has requested a renewed NDA on two occasions, and there is every chance that it will do the same this time around. If it does, we might be looking at another multi-year delay before resubmission, or worst case, a dropping of Sustol as lead candidate altogether.

Takeaway – keep an eye on the FDA (and any advance review) as the key driver behind Heron’s valuation going forward. An approval could quickly double the company’s market cap, but its far from guaranteed, given the FDA’s historic approach to Sustol.

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What Medidur’s first success means for pSivida shareholders

By
Rafi Farber
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pSivida

pSivida Corp. (NASDAQ:PSDV) today announced its top-line results for the first of two of Medidur’s phase 3 trials. Medidur is an injectable ocular insert that administers sustained-release corticosteroids into the eye for three years. The insert is designed to treat posterior uveitis, a disease with no known cause that, untreated, causes blindness. The stock is up over 30% since yesterday, December 21st, so investors are obviously happy with the results.

What is significant about the data is not necessarily that Medidur showed efficacy in treating the disease. That was pretty much expected because the corticosteroids used in Medidur are known to be effective against uveitis. What is significant is that after the most recent follow-up, only 3.4% of Medidur-treated eyes compared to 2.4% of control eyes required surgery to reduce intraocular pressure.

Intraocular pressure (IOP) is pressure within the eye that corticosteroids are known to aggravate. The biggest potential problem with Medidur was that sustained release corticosteroids via the microinsert would cause dangerous increases in this pressure. The results show that this is not the case, and though for 3.4% of patients IOP did require surgery, this was not significantly more than placebo.

As a result, Medidur looks likely to succeed in its second phase III trial, after which it plans to submit an NDA to the FDA some time in early 2017.

Medidur’s target market tops 175,000 people a year in the US who suffer from posterior uveitis, which causes 30,000 cases of blindness annually. The cost of the insert is not yet determined, but since pSivida will be marketing Medidur on its own, it will take home all revenues. pSivida already has an older insert that treats uveitis on the market, but since it requires a surgical procedure, it is not very popular. Medidur on the other hand is inserted in an office visit via simple injection, and would address a much larger portion of the market than the older product Retisert.

pSivida is well capitalized for a small company with $25M in cash and receivables, which should be enough to bring it through its second phase III trial for Medidur together with the revenues it receives from ILUVIEN, the same insert as Medidur though for diabetic macular edema. Shareholders can expect another jump like the one we saw today when data from that trial is released in early 2017, assuming it is successful. If the first phase III showed little statistical difference between Medidur and placebo for IOP, it’s unlikely those results will change for the second.

By 2017 if the second and final phase III shows similar results to the first, pSivida could more than double its current market cap.

Disclosure: At the time of writing, the author was long PSDV.

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A Look at the Science Behind Bayer’s Latest Buy

By
Roger Hannington
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biotech

Shortly after markets closed on Monday, Bayer AG (OTCMKTS:BAYRY) announced a $335 million deal that will see it fund the research of a Massachusetts based biotech startup called CRISPR Therapeutics. The company is at the cutting edge of gene therapy, and gives Bayer a direct route to what many believe will be the next revolution in healthcare – gene editing. Let’s take a look at what both companies stand to gain from the partnership, and try to get to the bottom of the science behind what CRISPR is developing.

First then, the deal. It’s a two-part agreement. The first $35 million Bayer will pay upfront to CRISPR, and in doing so, will acquire a minority stake in the company. The remaining $300 million Bayer has earmarked for research support capital, and has committed to pay out to a joint venture, set up as the result of the agreement, in which both companies maintain a stake – initially fifty-fifty – across a five-year period. So Bayer get’s access to CRISPR’s tech and expertise, and CRISPR gets the backing of an industry behemoth.

So what is Bayer paying a third of a billion dollars to gain access to? CRISPR has developed what it calls CAS9. The science behind the technology is pretty complicated, but here’s a much simplified explanation. A large number of diseases (approx. 10,000 at last count) are caused by a mutation in a single gene. Over the last few decades, most treatments target proteins – i.e. the result of the mutation. Gene editing of the sort on which CRISPR is focusing involves targeting the gene at mutation level, rather than the resulting protein. The advantage of this (if it works) is that it can completely cure, or reverse, a disease, rather than just treating it. CAS9 is an enzyme (or endonuclease, as it is referred to in the gene therapy space, that the company has programmed to cut DNA in a specific location. By cutting out a specific part of DNA (namely, the mutation) CAS9 turns a gene from mutated to repaired, meaning it will code for a functional protein, rather than one that causes disease. The company uses a “guide” RNA to instruct CAS9 as to which part of the DNA to cut, and once complete, the DNA uses its own biological mechanism’s to repair and rejoin, minus the edited out element.

As mentioned, the range of potential target diseases is vast, and as yet, we’ve not got any indication from Bayer or otherwise what diseases the joint venture will go after. Indeed, we’ve not actually got any in-vivo examples of CAS9 working in humans – the majority of tests have been carried out in the lab. In light of this, we’re not going to see any human trials until at least the end of next year. Further, its going to be at least two years before we get a target indication – so we’re looking at 2020 before we see any significant trial progress. It’s in Bayer’s interests to be patient, however. We are still in the very early days of gene editing (CRISPR only discovered this process a few years ago), and the underlying technology will likely need refining before it can take on any commercial application, but there are some significant revenues on the table for the company that gets it right. Gene editing is a sort of holy grail in the biotech space, and it could be a game changer in anything from oncology to immunotherapy.

What are we looking for going forward? Primarily, we need to see some advance in the targeting side of the process, and this is the area towards which the majority of resources will allocate near term. We’ve got evidence that the cutting and repairing works – but without being able to target a specific cell (and in turn, a specific gene sequence) there’s no real world application. In light of this, we are looking for any evidence that the guide RNA can be put to use. Keep an eye out for the term “sgRNA” in future updates, and specifically, anything related to its efficacy. If the company announces the successful targeting of cell using sgRNA in humans, not only will it validate the concept, but it will also give us some idea of initial application – if we see an sgRNA successfully target a gene sequence in a cancer cell, for example, it would suggest Bayer is going after the oncology space.

All said, it’s very early days, and this partnership has a good few years to run before it bears any real, actionable fruit. That Bayer is taking the initiative and picking up an early exposure, however, makes for an intriguing play in what could prove a healthcare revolution across the next decade.

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Is Bellicum A Worthy Index/Portfolio Addition?

By
Jennifer Aldershot
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Stocks buying right now

Here at Market Exclusive, now and again we like to uncover small caps in the biotech space, and put them under scrutiny. Last week, Bellicum Pharmaceuticals, Inc. (NASDAQ:BLCM) announced it had been selected for inclusion in the NASDAQ Biotechnology (NASDAQ:^NBI). The company is very much in the development stage of its growth, but its inclusion on an index like the NBI (for some) will serve as validation of its potential. We know how volatile the space can be, however, so let’s take a look at Bellicum’s lead candidate in an attempt to gauge its potential.

Ballicum’s lead candidate is BPX-501. To get an idea of how the drug works, and what it is designed to treat, we’ve first got to look at what’s called hematopoietic stem cell transplantation (HSCT). For a number of late stage blood and bone marrow cancers, HSCT is the standard of care treatment. Physicians take stem cells from bone marrow (usually a patient’s, but sometimes from a donor) and store them, while the patient undergoes chemotherapy to the point that the stem cells responsible for producing blood cells are completely destroyed. This concurrently destroys the cancerous cells in the blood, and once complete, the physician grafts (reinserts) the previously extracted stem cells, which replenish the patient’s healthy blood cells. Simple. But there’s a problem. More often than not, a host’s own stem cells can’t be used. To overcome this, a type of HSCT called haploidentical HSCT is employed – essentially a physician uses stem cells from a close relative. However, this means the graft is extremely dangerous – it can lead to what’s called Graft versus Host Disease (GvHD), which is where T cells from the relative attack the host’s vital organs. This means that while the treatment is effective, it is often not used due to its associated risks. This is where Ballicum comes in to the picture.

The company has developed what it calls a CaspaCIDe safety switch, and has incorporated the switch into BPX-501. A patient takes BPX-501 after they undergo HSCT, and the drug sits dormant in their bloodstream. If the patient develops GvHD, they take a second drug, rimiducid, which activates BPX-501. When activated, BPX-501 induces apoptosis (programmed cell death) in the non-host T cells, which stops them from attacking the organs associated with GvHD.

The drug is currently undergoing four separate phase I/II trials, in both the US and Europe, having performed well in two trials over the last few years, DOTTI and CASPALLO. Topline is expected during 2017 from the first two trials, and about twelve months later for the second two. If we can get a repeat of the demonstrated efficacy in the ongoing phase I/II, the company will be ready to kick off what will likely turn out to be a pivotal phase II/III, and submit an NDA sometime around 2019. So, with these timeframes, this is a pretty long game allocation. This doesn’t mean, however, that there wont be any catalysts near and medium term. The nature of the trials – one patient, one treatment – offers up the potential for repeat interim data releases. Whether the company will opt for this approach (as opposed to a topline dump post-completion) remains to be seen, but if it does, Ballicum could be a nice volatility play over the coming 24 months.

So what’s the verdict? Is the company worthy of its recent addition to the Nasdaq index? Well, as mentioned, near term it is difficult to make any solid predictions as to the likelihood of approval for BPX-501, and in turn, success for Bellicum. We can say, however, that the drug looks promising, and is a prime candidate for both orphan designation and accelerated approval. Along with the remaining candidates in Bellicum’s pipeline, there is the potential for triple digit million dollar revenues; revenues that wont start to roll in before the end of this decade, admittedly, but the potential is there nonetheless.

As a speculative allocation, Bellicum looks intriguing. There is risk, of course, with the stock being such a long term play. The clinical development space can be unpredictable and, especially when dealing with something as deadly as GvHD, there is plenty of room for slip ups. Having said this, the market currently values the company at a little over $500 million, which looks low when considered against its cash and equivalent number of circa $100 million, on a burn rate of $10 million. One to watch.

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Clearing Up The Shkreli Confusion

By
Jennifer Aldershot
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shkreli

Shortly before lunchtime on Thursday, Turing Pharmaceuticals CEO, the FBI arrested Martin Shkreli at home, on charges of securities fraud. Much of the media is focusing on his Daraprim price rise, and it seems there exists some confusion as to the driving factor behind his arrest. We’ve got access to the official indictment documents, so let’s try and clear up the confusion.

We’ll begin by saying that, officially at least, the arrest has nothing to do with price hikes. What Shkreli did with daraprim, while questionable from a moral perspective, is perfectly legal and happens all the time in biotech. Having said this, bad press on a global scale makes you a hot target for the authorities, so there is always a chance that, indirectly, the Daraprim situation turned the authorities on to Shkreli and spurred the investigation. That, we will probably never know.

So to the case in hand. It’s all rooted in a hedge fund Shkreli started in 2009 called MSMB Capital. He, his lawyer and an unnamed (but known to the authorities) third party referenced in the indictment as Co-conspirator 1, reportedly attracted investor capital through the misrepresentation of performance records, capital under management and the retaining of an independent auditor.

Under the terms of any investment, Shkreli and partner was set to take a 1% management fee, and the general partner would receive 20% of the limited partners’ (the investors’) net profits for the year in question. The start of the case kicks off with Shkreli inducing a $700,000 investment from four unnamed partners, without disclosing that he had already lost all of the funds from his previous hedge fund, and that he had an outstanding $2.3 million default against him from Lehman Brothers that came about as a result of his previous trading activity.

He then went on to elicit a total of approximately $3 million across a period of about three months from an individual capital partner, having convinced this partner that MSMB had $35 million under management, and that the funds auditors were Rothstein, Kass & Company, P.C. Neither of these claims were true. The fund had no independent auditors at the time, and capital under management was less than $700, with Shkreli having lost the already mentioned $700,000 through his trading activities. Through a series of misrepresented shorts (one notable in Orexigen Therapeutics, Inc. (NASDAQ:OREX) for Shkreli’s misrepresentation to Merrill Lynch that he has located shares to borrow), the funds declined from low single digit millions to less than $60,000 in February 2011.

From here, things get messy. Shkreli starts fabricating performance reports, and sending out emails claiming that the new incarnation of MSMB – MSMB healthcare – now had $55 million under management and that its partners (investors) had all made good returns, when in reality their capital had depleted to practically nothing. This is where Retrophin, Inc. (NASDAQ:RTRX) comes in to the picture. Shkreli used a $900,000 equity investment in the biotech (reclassified as an interest bearing loan) to start transferring funds from Retrophin to MSMB, which he then used for a variety of purposes. Specifically, the repaying of the money owed to Merril Lynch, personal debts and a range of other MSMB liabilities.

It doesn’t end here, however. Over the next 12 months, Retrophin received nearly $5 million in investment from MSMB healthcare (according to the books) but when audited by an accounting firm, no such funds had come from either MSMB capital or Healthcare. The SEC started sniffing around, and Shkreli responded by saying he was shutting MSMB operations down and returning funds to its partners.

This is where things start to unravel. Here Shkreli and his lawyer conspire to pay MSMB investors off using Retrophin capital, recording the payoffs as a combination of Retrophin stock and cash payments listed as “consulting agreements”. By listing as consulting, the pair could avoid reporting the payments in the company financials.

And that’s an outline of the whole situation. Of course, a piece of this length far from does the case justice – the details are fascinating (they include email correspondence between the relevant parties). You can read the whole thing here. Hopefully, we’ve cleared up a bit of the confusion surrounding Shkreli’s situation, however. This is not about rising the price of drugs – it’s about misrepresentation.

As a final note, it’s worth mentioning that this is all as yet unproven, and as things stand the allegations are just that – allegation. It makes for great reading however, and finally offers some insight into the ongoing legal battle between Shkreli and Retrophin we’ve heard so much about over the last few months. Let’s see how things play out.

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Could the FDA Approve Both BioMarin and Sarepta’s DMD Candidates?

By
Roger Hannington
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biomarin

At the beginning of the month, we included BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) and its development stage candidate drisapersen as one of our drugs to watch before the end of the year. The treatment is up for review on December 26, 2015, and the review date will mark the end of a long road to approval for BioMarin; that is, of course, if the drug gets the green light. When we covered the drug briefly a few weeks ago, we promised we’d come back and take a closer look at it ahead of decision day – so, with this promise made, here goes.

We covered the science in a little detail last time, but let’s recap in a little more detail. Drisapersen is a Duchenne muscular dystrophy (DMD) candidate, and is part of a class of drugs known as 2′-O-methyl phosphorothioate oligonucleotides. Dystrophin is a protein that is responsible for providing structural stability in muscle tissue, coded by its eponymous gene, dystrophin. Patients with DMD have a mutation in their dystrophin gene, and this mutation means that higher than normal calcium deposits penetrate cell membranes. Higher calcium levels disrupt signaling pathways, and water builds up in the mitochondria of muscle tissue cells. Mitochondria (you may remember this from school) are the power houses of cells – they produce the energy needed for replication. When water enters mitochondria, the mitochondria bursts, and the cell dies. This creates a gradual, but persistent, degeneration in muscle tissue in DMD patients, which in turn causes the classic symptoms – awkward mobility, fatigue, falls, skeletal deformities, etc.

Drisapersen targets the dystrophin gene at its RNA phase, and alters it to stimulate the production of a partially functional dystrophin protein. In doing so, BioMarin hopes it can reverse, and improve going forward, the severity of the disease in DMD patients.

So what’s the issue? Well, the drug failed to meet its primary endpoint in the phase III on which BioMarin hoped to base its NDA. Further, in an FDA advisory review, the drug got severely criticized. A number (the majority, in fact) of the review panel refused to accept any benefit over placebo, and argued that the progress in the treatment arm (as measured by the distance a patient can walk in six minutes) fell in line with the standard progression of the disease. Additionally, a number of the panel pointed to the drug’s toxicity as reason enough to discourage approval.

However, in a presentation to the FDA, BioMarin presented pooled results from three separate trials that suggested efficacy. Further, we got a number of guest appearances at this presentation from parents of children involved in the trial. Two of these sets of parents represented children that had discontinued treatment. The first assumption before the presentation was that they would rather submit to the degenerative nature of the disease, than force their child to suffer the AEs associated with drisapersen. In reality, however, these parents merely switched to a alternative dev stage treatment, etiplirsen, which is up for review in January following an NDA submission by Sarepta Therapeutics, Inc. (NASDAQ:SRPT) earlier this year. We also got anecdotal evidence from parents whose children are part of the trial, suggesting that the drug is effective, and has a negligible AE profile – one for which the benefits vastly outweigh the costs.

So what is likely to happen come the 26th? Well, there are plenty of arguments against approval, not least of all the panel review, which pretty much flat out stated the FDA shouldn’t even consider approval. The FDA doesn’t have to listen to the panel, however, and we’ve got to remember this is a serious condition for which – at present – there is no real effective therapy that addresses the underlying cause of the disease. Anecdotal evidence from trial participants can be effective in swaying the FDA’s decisions, and this may come in to play when the agency comes to a conclusion. As a prediction, the FDA will approve the treatment, with the necessity for follow up data going forward. It will also approve Sarepta’s candidate, and let the open market decide which safety vs efficacy profile it prefers to accept.

All said, this is a real interesting one, and is likely to be one of the biggest market moving decisions of the year in the biotech space. Risk averse investors might want to avoid the DMD space outright over the next six weeks. For those with a little speculative capital they can afford to lose, however, there is plenty of reward on the table for the right call. Bring on the 26th.

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Array is Sitting on a Billion Dollar Melanoma Blockbuster

By
Roger Hannington
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biotech

Before the markets opened on Wednesday, Array BioPharma Inc. (NASDAQ:ARRY) reported the top line results from its lead pipeline candidate – binimetinib. The results come off the back of a phase III, which kicked off in partnership with Novartis AG (NYSE:NVS) in July, 2013. With a target indication of NRAS mutant melanoma, the drug has the potential to be a real blockbuster for Array, if the FDA gives it the green light and commercialization is a success. Here’s a look at what approval might mean from a revenues perspective, alongside a detailed look at binimetinib’s mechanism of action.

First then, let’s address the science. As we have said, the drug targets NRAS mutant melanoma. If you are familiar with the biotech space, and in particular with the oncology side of the space, you will likely have heard the term BRAF mutation. BRAF mutation steals the limelight in oncology when it comes to gene mutated cancer, primarily because of its prevalence – just shy of 50% of melanomas (melanomas are primarily skin cancers, but can also occur in the mouth, eye or intestine) harbor a BRAF mutation. Close to 25% of melanomas, however, harbor a NRAS mutation. There is rarely a crossover – i.e. a melanoma having both a BRAF and a NRAS mutation – but physicians estimate that 20% of BRAF mutations give up their mutation and take on an NRAS mutation at late stage cancer development. Anyway, back to the point. The letters here (NRAS, BRAF) simply refer to the gene that harbors the mutation. So, in the instance of this indication, the NRAS gene harbors a mutation which is vital to tumor cells being able to proliferate. You can think of it as that the tumor feeds on the mutation. Binimetinib is what’s called an MEK inhibitor. In our cells, we have something called the MAPK/ERK pathway, which is the string of proteins that allow signals to pass from the outside of a cell to the inside. One of the key elements of this pathway is the mitogen-activated protein kinase enzyme, MEK1, and to a smaller extent, MEK2. Binimetinib inhibits these enzymes, and in doing so, both stops cell proliferation (replication) and induces a type of programmed cell death called apoptosis.

The beauty of being able to inhibit MEK is that the pathway in which the enzyme plays a crucial role is not limited to melanoma. It plays a part in a wide range of cancerous cell proliferation, meaning binimetinib has the potential to treat an equally wide range of indications. Let’s not get ahead of ourselves though.

Sticking with melanoma, what data will form the basis of the company’s NDA? The primary endpoint was progression free survival when compared to dacarbazine, a commonly used single agent drug in melanoma, which Bayer AG (OTCMKTS:BAYRY) developed initially but that is now available generically. The drug hit statistical significance, with PFS coming in at 2.8 months for the Array treatment versus 1.5 months for the dacarbazine arm. We’ll get further insight over the next couple of months, but we know that the drug was well tolerated across the trial, so we expect the further data to relate purely to secondary endpoints – i.e. no big deal, just data that will support the approval if positive, but not negate the approval if negative.

So, let’s get to the numbers – what’s the market potential for the drug on approval? Every year, around 75,000 melanoma cases are diagnosed in the US. We’ve used the 25% NRAS mutation figure above, but let’s be conservative (estimates vary) and say 20% have an NRAS mutation. This puts us at circa 19,000 cases each year. The average cost of melanoma treatment is around $1,800 per patient, but we have a mitigating factor at play here – NRAS is primarily associated with poor prognosis (i.e. it is much more serious, and often later stage when diagnosed, than BRAF). As melanoma advances, average costs rise to $170,000, with the later stage costs often accounting for more than 90% of total treatment cost. It is not unreasonable to assume, therefore, that Array could put a conservative price tag of $100,000 on this treatment, if approved. This would give it potential revenues of $1.9 billion, based on the NRAS mutation figures. We mentioned earlier that Novartis funded development, but in a stroke of luck for array (and in a very unusual deal), Novartis paid Array $85 million to bow out of the agreement last year, returning global rights to the latter.

The takeaway? That Array could be sitting on a close to $2 billion blockbuster, having avoided the capital outlay to develop it to phase III. Dates to watch? NDA submission is expected during the first half of 2016, which would give us a PDUFA date somewhere in the first half of 2017.

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Atara’s Discontinuation Paints it as a Potential Short

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Atara

Before the markets opened on Monday, Atara Biotherapeutics, Inc. (NASDAQ:ATRA) announced its plans to discontinue the development of its lead candidate, PINTA 745. The drug was a phase II candidate with a target indication of protein energy wasting (“PEW”), a symptom associated with end stage renal disease (“ESRD”). On the news, the company lost more than 36% of its market capitalization, suggesting markets feel that the drug accounted for a large portion of its pipeline’s market capitalization. The question now is, can the company recover, or does the latest discontinuation present Atara as an intriguing short as we head in 2016? Let’s take a look.

First, let’s quickly address PINTA 745. The drug is what’s called a peptibody. It is a combination of a peptide and an antibody, and Atara hypothesized it could reverse the inflammation (and in turn muscle wasting) that comes about as a response to dialysis. As mentioned, the drug was in a phase II before Atara decided to halt development, with an endpoint of percent change from baseline in Lean Body Mass (“LBM”), as measured by what’s called DXA, 12 weeks into treatment. Needless to say, the drug missed the endpoint, as well as missing a number of secondary endpoints including controlling inflammation and improving physical function. In short, it didn’t work. On the bright side, the company has only spent $10 million from inception to discontinuation. When viewed against the backdrop of the company’s cash position – $334.3 million at last count – its not the deep financial setback that a similar discontinuation may be for a company in a more fragile financial position (something we often see at this stage of biotech dev).

Having said this, without a promising secondary candidate to direct its cash towards, there is little room for recovery from its current position. So, on this note, what has the company got up its sleeve?

Well, Atara’s development pipeline is split into two distinct categories – molecularly targeted and t-cell candidates. PINTA 745 is an example of the former, and its discontinuation, for now at least, puts an end to that side of its pipeline (the other candidate is STM 434, currently phase I, not expected to complete before the second half of next year). The real action is on the t-cell side, on which Atara has two candidates, each in phase II trials for two separate indications.

The first is EBV-CTL – a drug targeting Epstein-Barr Virus (“EBV”) malignancies. The two trials, NCT01498484 and NCT00002663 are investigating these malignancies in NHL patients and individuals with leukemia. Preclinical and phase I data shows promise, but the problem with this drug is it takes a long time to trial. The first trial kicked off in 2011, and is set to close in December next year. Assuming a phase III will require extended analysis (normally the case), we are looking at a 5-7 year trial time post phase II – meaning it could be 2023 before the company can file an NDA. The second trial is even more lengthy – it kicked off in March 1995, and should finish March 2016.

The second drug is CMV-CTL, with a target indication of cytomegalovirus infection. This one has a large patient population, if it can reach the commercialization phase of development. An estimated 50-60% of the US population come into contact with CMV at one point or another, and while symptoms are not all that serious in many cases, a large portion of sufferers seek treatment. Again, however, the problem here is time to market and, further, competition. In the two lead trials, completion dates are mid 2016 and early 2017 respectively. Add a five year trial time to end phase III, and assuming no complications, the best we can hope for is, again, a 2023 NDA submission. From a competition perspective, things look tough. Current SOC is marketed by Hoffmann–La Roche and Roche Holding AG (OTCMKTS:RHHBY). In order to gain approval, Atara will likely have to demonstrate stat-sig improvement over these two SOC therapies, and even if it does that, will then need to outdo the marketing efforts of two industry behemoths if it is to capture any sizeable portion of the market.

So what’s the takeaway? Well, the company has plenty of cash on hand – this gives it some breathing room. However, it is going to be at least 5 years before we see an NDA, and by that point Atara will need to raise funds for marketing. There is every chance its long tail pipeline could generate revenues for the company, but not before 2025, and investors in biotech are rarely that patient. As such, there is likely further downside in the company going forward, at least near term, as investors cut losses and pull out of their long exposures.

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