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This Company Could Be The Next Big Autoimmune Buyout Target

By
Roger Hannington
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autoimmune

Vitae Pharmaceuticals, Inc. (NASDAQ:VTAE) just released topline data from the first part of its phase I clinical trial of VTP-43742 – an autoimmune therapy with an initial target indication of psoriasis. Autoimmune therapy is a real hot topic at the moment, and after a string of recent collaborations and buyouts from big pharma, early stage success has the potential to draw big name attention. While the recent data is only dose escalation, it paves the way for the second part of the trial – an efficacy endpoint in its lead indication. Ahead of the commencement of part two, let’s take a look at Vitae’s candidate and see where it fits into the AI therapy landscape.

VTP-43742 is a biologic that works to inhibit what are called T helper 17 (Th17) cells. Th17 cells mediate a select number of cytokines called interleukins – specifically IL17A, IL17F, IL21 and IL22. All of these interleukins are responsible for a particular element of the human immune systems effect on cells – inflammation, for example, or in the case of psoriasis, excessive cell proliferation. VTP-43742 (hypothetically) stops, or at least reduces the rate of, interleukin production. In doing so, Vitae believes it can be an effective treatment across a range of autoimmune disorders. For those interested in this sort of therapy (as we’ve said, its hot right now) take a look at Roche Holding AG (OTCMKTS:RHHBY) new candidate (picked up as part of the $580 million Adheron deal) – SDP051.

In its latest announcement, Vitae reported that across a patient sample of 40 volunteers, its candidate demonstrated safety and tolerability across all dose levels, with all patients completing the full ten-day dosing schedule without adverse events. Its worth mentioning here that these are healthy volunteers – not psoriasis sufferers – but 40 is a relatively large sample size at this stage of development, so the chances of something revealing itself in psoriasis sufferers that doesn’t crop up across 40 healthy volunteers are minimal.

Perhaps more interestingly, the company conducted some ex-vivo tests to try and pick up a proof of concept. Ex vivo basically involves taking a blood sample from a patient, introducing the treatment to the sample, and recording the response. Vitae was looking for reduced IL17A levels, as this would suggest that its candidate is successfully inhibiting the production of this interleukin. Ex vivo, the company saw a 90% suppression for 24 hours post dosing, across all doses except the lowest. That the suppression didn’t show up in the lowest dose isn’t necessarily a bad thing – it demonstrates dose dependence, something that can be a great leading indicator of efficacy.

So what’s next? Well, as mentioned, this is the first part of the trial. We’ve got an ex vivo proof of concept, but in order to carry the treatment through to phase II, Vitae will need an in vivo POC. This is where part two comes in. The company is kicking off a POC phase I continuation in psoriasis sufferers, and expects top line during the first quarter of next year. If we get a replication of ex vivo in vivo, topline release could be a real upside catalyst for Vitae’s market cap.

The company has had a pretty tough year. VTP-43742 is its secondary pipeline candidate; VTP-34072, a biologic in colab development with Boehringer Ingelheim is its primary. However, in a phase II that completed earlier this year, the drug missed its primary endpoint in a diabetes indication. It remains to be seen whether the psoriasis indication can reverse Vitae’s fortunes, but if we get POC early next year, we should definitely see some strength – purely based on the market potential that would come with commercialization. Psoriasis affects close to 8 million individuals in the US alone, and a biologic such as this would qualify (assuming efficacy and safety can be proven) for both single and combination administration. Looking at the other side of the coin, cost could come into play on approval. Biologics such as these (i.e. those that target select immuno-functions) are expensive to produce. Current therapies such as corticosteroids are far cheaper – meaning we will need to see a considerable efficacy advantage over the currently available treatments to warrant the high price that will inevitably filter through to end users. The takeaway? That autoimmune buyouts are closing left and right, and the vast majority seem to be on the back of phase I data. With top line from its psoriasis trial due early next year, Vitae is definitely one to watch as we head into 2016.

 

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This Company Could Be About To Disrupt A Million Patient Market

By
Jennifer Aldershot
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Arrowhead

This week, Arrowhead Research Corp. (NASDAQ:ARWR) reported data from a phase IIa clinical trial for its lead pipeline candidate ARC-520 in a hepatitis B indication. The company picked up a bit of strength on the announcement, but has since discounted to trade low single digit percentage points below its last Friday close. The data demonstrated efficacy, and so a decline seems counterintuitive. Is this, then, an opportunity to grab an exposure at a discount, or have markets picked up on a counterweight to the expected upside? To try and answer, let’s take a look at the science behind ARC-520, and decipher the trial results and their implications. Here goes.

So, the science. To understand how ARC-520 works, we’ve first got to look at how hep B is treated currently. Basically, there are two types of treatment – interferons and nucleotide analogues (NUCs). The former are naturally occurring signaling proteins that tell cells that surround virally infected cells to heighten their anti viral response. These can be effective therapies, but have some pretty bad side effects. The more commonly used therapies are NUCs, which attack virally infected cells by breaking down reproduced cells. This reduces replication and inhibits or slows increased levels of infection, but isn’t really an effective cure. ARC-520 is what’s called a simple interfering RNA (siRNA). It attacks hepatocytes (just another word for the cells that make up liver tissue) at the mRNA level. mRNA is the stuff responsible for the translation process in cells, which to simplify considerably, is the process through which amino acids that perform cell functions are created. By interfering with the mRNA, translation doesn’t happen and the virally infected hepatocyte breaks down, rather than replicate. In other words, ARC-520 attacks the core process through which a cell creates its own functionality; in doing so it can hypothetically be an effective cure for hep B.

Did the trial results support this hypothesis? In a word, yes. When a physician diagnoses hep B, he or she takes a blood test and looks for what’s called HBV surface antigens. These are expressed on the surface of infected cells, and are a sign that a patient is infected. In its trial, Arrowhead measured the reduction of these antigens as a primary endpoint. At 57 days’ post treatment, the drug presented a 99% maximum reduction in HBV surface antigens and a mean reduction (across 58 patients) of 96.8%. On top of this, Arrowhead reported safety and tolerability, reporting no serious adverse events, no discontinuations, and modest occurrence rate of 23%.

So why the decline? Well, it looks as though the decline has come from a couple of recent sell ratings issued by other publications.  Mainstream publications will often induce near term volatility as they affect public sentiment, and without any real adverse events, its looks as though that’s what has happened here. The next question, why the sell ratings? They look to be based on weak earnings and revenue growth. In development stage biotech, however, especially at this stage of development, financials can be misleading. It costs a lot to bring a drug through the FDA trial process, and small caps generally run at a loss and debt finance through share issue to fund trials. As such, judging a company like this on its trailing revenues can give an inaccurate representation of its potential future financial position. Of course, this is the risk we take when investing in biotech. Many companies like Arrowhead fail because they debt finance and don’t achieve approval for their pipeline.

So what’s the verdict and takeaway on this one? Well, first up, we’ll say Arrowhead is a risky allocation. The company is relying on two early stage candidates to justify its market cap (currently circa $330 million), and has only demonstrated efficacy across a small patient sample. Up to 1 million people die each year in the US from hep B (it is the leading cause of liver cancer by a long, long way, and such proliferation will certainly translate to the FDA requiring a far bigger trial before it thinks about accepting an NDA. However, risk aside, there is also potential. ARC-520 has performed well in an albeit small trial, and as we just said, there is a potentially huge market for the therapy if it can replicate this performance going forward. A discounted exposure at current rates? Perhaps.

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Tuesday’s Biggest Movers in Biotech

By
Jennifer Aldershot
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biotechnology

Yet again we’ve seen some considerable volatility across certain areas of the biotech space this week. Here’s a look at the movers and shakers so far, alongside a discussion if what’s driving the action.

Biotech 1: Clovis Oncology, Inc. (NASDAQ:CLVS)

This is the big biotech news of the week. Clovis just announced an FDA request for more data on the efficacy of one of its lead pipeline candidates, CO-1686, or rociletinib. This is a common occurrence, and Clovis has announced that it has the data prepared, so it wont need to initiate any further trials and add cost to the development total. So why is it an issue? Well, because the data the company has prepared reveals a drop in efficacy of nearly 20 base percentage points from the initial data submitted as part of the drug’s NDA. The difference is rooted in the disparity between confirmed and unconfirmed response rates. Anything interim, i.e. recorded before the trial evaluation period completes, is classed as unconfirmed. Many companies will submit an NDA based on unconfirmed responses, especially in indications granted priority review, as Clovis did with rociletinib. However, the request by the FDA suggests it is not willing to approve the drug based on unconfirmed data alone. At US open on Tuesday, Clovis is down more than 70% on its market capitalization last week, having lost nearly $2.8 billion on the news.

So what’s next? Is this an opportunity to pick up an exposure at a discount? Well, probably not. Not only has the confirmed data slashed the efficacy rate of a drug that just last week looked like a great candidate for approval early next year, it has also made it inferior to a direct competitor – AstraZeneca PLC (NYSE:AZN) – who’s drug got a surprise FDA approval just a few days ago. This could play into the FDA’s opinion as it considers whether or not to approve rociletinib. If there is already a comparable therapy approved, for an identical indication, with superior efficacy, why approve Clovis’s candidate? There are arguments against this suggestion, including the FDA’s desire to introduce competing therapies to market to encourage lower prices, but it all builds onto the newly introduced uncertainty as to rociletinib’s future. Expect further downside as we head into the middle of this week – this situation is unlikely to blow over for Clovis any time soon. We’ve already gotten word of lawsuits springing up, with the suggestion seemingly being that Clovis should have disclosed the confirmed data to investors, and these could further impact the company’s market capitalization going forward.

Biotech 2: Lipocine Inc. (NASDAQ:LPCN)

Moving to the other end of the biotech spectrum, Lipocine is a small cap with a market valuation in the region of $260 million at time of writing. On November 12, 2015, Lipocine closed out the session at a little of $10 a share. At US open on Tuesday, it traded at $14.38 – a 40% gain across the period. Why? Well, as ever with these development stage companies, it comes down to its lead pipeline candidate – LPCN 1021. The drug is a testosterone treatment with a target indication of testosterone replacement therapy (TRT). Every month in the US, pharmacists serve up more than half a million TRT prescriptions to patients. However, the vast majority of these prescriptions come with a black box warning – essentially, the side effects of each are so severe that the FDA requires specific and obvious label warnings at biotech commercialization. The primary reason behind the warnings is that most therapies are intravenous, which makes for obvious risks. LPCN 1021 is an oral candidate, which removes a large art of the risk associated with TRT. If approved, therefore, the company believes it can capture a large part of the TRT market very quickly. We got efficacy and safety in the phase III on which Lipocine based its NDA, which the FDA accepted on November 12, the day that kicked off the 40% gains we have seen since. A PDUFA date is always an upside kicker for a biotech, even more so for one of this size, and therein lies the market cap inflation. Often we’ll get an FDA advisory committee meeting and review ahead of PDUFA, but not on this occasion, with the FDA already having confirmed this as unnecessary. This is likely a positive indication, but it extends the time to next catalyst by a month or so. The date to watch is June 28, 2016, so a good few months away yet, but keep an eye out for any follow up data from Lipocine that supports the efficacy argument as potential catalysts leading up to the FDA’s decision.

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A Closer Look At Bristol-Myers Squibb’s Latest Collaboration

By
Jennifer Aldershot
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bristol-myers squibb

During the middle of last month, junior biotech Five Prime Therapeutics, Inc. (NASDAQ:FPRX) reported it had inked a deal with industry behemoth Bristol-Myers Squibb Company (NYSE:BMY); a deal that will see the latter foot the bill for the development and commercialization of Five Prime’s lead candidate FPA008. The announcement injected some immediate upside strength into Five Prime, and further strength came at the end of last week, when the company announced it had received HSR clearance for the collaboration. Five Prime is up close to 90% on the agreement, suggesting the BMS deal adds real value to its development efforts – $350 million upfront value to be exact, with further milestones in excess of $1 billion. The question is, what does BMS get for its money? $350 million up front seems a lot to pay for development rights, when pre announcement Five Prime only had a market cap of circa $450 million. The company must see promise in FPA008, so let’s try and figure out why.

In our bodies we have something called the colony stimulating factor 1 receptor (CSF1R), which is a protein found on the surface of cells. Its main roll is to bind to a cytokine called CS1, which then signals to the immune system promoting the production of, and controlling to a certain extent, macrophages. FPA008 is a CSF1R inhibitor. It blocks the receptor from binding with the CS1 cytokine, and in turn, halts the production of macrophages. But macrophages are good, why would we want to inhibit their production? Well, this is where Five Prime’s two lead indications come in to the picture. The first is a rheumatoid arthritis indication. Some macrophages are responsible for inflammation – one of the primary causes behind RA. Through inhibition of the CSF1R receptor, Five Prime believes it can reduce inflammation and, in turn, treat RA. The second indication is oncology. When a patient has a tumor, it creates what are called tumor-associated macrophages. The number of these types of macrophages generally correlates with the severity of the cancer in question – primarily because they suppress the immune response to the tumor cells. Again, through CSF1R inhibition, Five Prime believes it can reduce the number of tumor-associated macrophages, and in turn, the severity of the cancer. BMS was already actively involved with Five Prime in its cancer indications, on the back of a deal agreed in November last year that saw the initiation of a phase Ia/Ib trial combining FPA008 and BMS’s Opdivo, across a range of cancers, including lung cancer, melanoma and pancreatic cancer, among others. As a quick side note, the latest agreement will cover the continuation of these trials to maturity, with BMS bearing any ongoing costs.

So have we got any evidence of efficacy for FPA008? Well, the oncology trial is not scheduled to complete until late 2019, so from an oncology perspective, we’ve only got preclinical to go on. All this offered us was proof of concept. For RA, however, we’ve got something we can use. Just last week the company announced prelim data from its ongoing RA phase I at the American College of Rheumatology’s annual meeting. The trial is an open label dose escalating study, wit ha primary endpoint of safety and tolerability. As such, efficacy is not really the focus at this stage, but we can use the results to gain some insight nonetheless. First, across the issued dose, CSF1R inhibition induced by FPA008 translated to an increased level of CSF1 in serum. Basically, this shows that the drug is actively inhibiting CSF1R, as it is stopping the CSF1 from binding to the receptor, as illustrated by the higher concentration of the cytokine in serum. Second, FPA008 causes a dose dependent reduction of an inflammatory monocyte called CD16+, which is one of the monocytes associated with inflammation in RA. From a safety perspective, as yet things look promising. Low grade adverse events that fall in line with what’s expected from CSF1R inhibition (namely, eyelid edema) are the only real noteworthy negatives, and these should far from inhibit the trials continuation.

To answer the initial question then, regarding the value of the deal to BMS, we believe there is promise in Five Prime’s pipeline, but it will be a slow burner. The real value lies in the oncology indications, the trials for which wont complete for another 4 years (primary completion March 2018, study completion August 2019). The RA indication does have value, and if the two companies can push through a phase II that demonstrates efficacy we could see some strength, but BMS’s ROI will come if it can prove FPA008 enhances Opdivo.

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High Risk, High Reward on Telesta’s Panel Review

By
ME Staff
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telesta

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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Here’s Why Markets Overlooked Idera’s Financials

By
Jennifer Aldershot
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idera

On August 6, 2015, Idera Pharmaceuticals, Inc. (NASDAQ:IDRA) reported a third quarter loss of $11.3 million. Despite the loss, the company gained strength, and is currently trading at a circa 10% premium to its pre-announcement market capitalization. At first glance, this seems counterintuitive. However, a closer inspection reveals the market’s reasoning, and presents an intriguing opportunity for an exposure to the oncology and rare disease space. Here’s why.

First, what’s Idera. The company is a clinical stage biotech with a current focus on using toll like receptor antagonists in oncology indications. Its primary pipeline candidate is called IMO-8400. As mentioned, it is a TLR antagonist, which means it inhibits the signaling pathway of TLRs. TLRs are what are responsible for initiating an immune response in a wide variety of situations, so why would you want to inhibit this process? Well, in the indications Idera is targeting, the immune response is to create more cytokines – toxic cytokines – that cause the cells of whatever is causing the damage to replicate. By inhibiting the TLR signaling pathway in pathogenic tissue, the immune response doesn’t happen and the initial cells don’t replicate. That’s the essence of it anyway.

Idera is currently trialing IMO 8400 in a phase 1/2 clinical trial for a Waldenström’s Macroglobulinemia (WM) indication. WM is a rare type of B-cell lymphoma that is – at present – totally incurable. The day before the financials announcement, the company announced it is set to present data from the trial at the 2015 American Society of Hematology annual meeting, which is set to take place from December 5 to December 8 in Orlando. That Idera intends to present the data at the meeting suggests it is positive (otherwise there is no incentive to parade it in front of sector experts), and this suggests we could see some demonstration of efficacy from the trial. The company has said it also intends to bring safety and tolerability into the presentation, meaning we will be able to get an idea of the all round profile of the drug – a good thing at this early stage. It is only a small trial, 19 patients enrolled and dosed, but in a rare disease like this (1000-1500 new cases a year) small trials will often be enough to get a drug to the next stage of the development process, purely based on the fact that there is not a large enough patient population sample to conduct a bigger trial.

Just this week, Idera also announced it had kicked off the enrollment phase of a phase 2 for a second indication – dermatomyositis. Dermatomyositis is an inflammatory skin and muscle disease, in which the immune response elicited by the TLRs translates to an overproduction of inflammatory cytokines, adding to the inflammation. By inhibiting the production of these inflammatory cytokines, just as with its WM indication, the company hopes it can reduce and negate the symptoms of the disease. This one has a larger patient population in the US – somewhere circa 20,000 – and so the sample size for the trial is larger at 48 patients across 20 US centers. We don’t know exactly when top line is expected, but the trial is 24 weeks’ worth of dosing. Taking into account time necessary for recruiting the patients, we are probably looking at top line somewhere during the second half of next year – likely fourth quarter.

So that’s why the company is gaining strength. It got hammered over the last few months in the wake of the wider market decline, but with the data presentation a near term catalyst and the initiation of a fresh indication trial, there is plenty to keep it in the spotlight going forward. If it can maintain a positive track record in the ongoing trials, we could be looking at a phase 3 in its initial indication (WM) before second quarter next year. It’s a rare disease, currently with no available treatment, making it eligible for both orphan and breakthrough designations. If we get these, keep an eye on status updates as potential upside catalysts. Keep in mind that the company may need financing to complete a phase 3, if we get to that stage. Cash on hand comes in around $35 million, down from $92 million at the end of second quarter, and costs are likely to inflate in the wake of the second indication trial. Any financing will likely dilute the holdings of an early stage investor – not something that should necessarily negate an investment (it happens a lot in biotech) but something to consider when weighing up the risks. Roll on December.

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Two Potential Approvals to Watch Before the End of the Year

By
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FDA

In development stage biotech, FDA decision dates are what everything leads up to. Interim and top line data releases will always impact the near term capitalization of a company, but nothing makes or breaks its fortunes like an approval or a decline. Here are two companies with approval dates scheduled for before the end of the year, alongside a discussion of the treatments in question.

Eagle Pharmaceuticals Inc. (NASDAQ:EGRX)

On April 14, 2015, the FDA reported its acceptance of an NDA for bendamustine, Eagle’s lead pipeline candidate with an indication of chronic lymphocytic leukemia and non-Hodgkin’s lymphoma. The drug is an alternative version of an already approved therapy, Treanda, currently marketed by generics king Teva Pharmaceutical Industries Limited (NYSE:TEVA). Eagle has a pretty unique business strategy. Basically, it targets the date at which the first generic drug becomes available for a particular indication, and attempts to improve on the reference drug with an improved delivery system. In this instance, it is seeking to provide a prepackaged, pre-mixed version of Teva’s Treanda, which is what the company calls “rapid infusion” – i.e. it takes 10 minutes to administer rather than than traditional 30 minutes.

The great thing about this approach is that the company is not altering the administered compound, so efficacy is much easier to demonstrate in a clinical trial setting. As is safety and tolerability, assuming dosing remains comparable. All the company needs to show is that its new delivery system can demonstrate efficacy as defined by non-inferiority to the treatment it is looking to replace.

Interestingly, and of considerable note, is that back in February Teva picked up the commercial rights to Eagle’s rapid infusion bendamustine for $30 million up front and up to $90 million milestone. Why is this interesting? Because it shows that Teva feels Eagle’s version of its own Treanda could be a real threat to Treanda’s ability to generate revenues. If it didn’t view it as a threat, it wouldn’t have paid triple digit millions to commercialize it.

The PDUFA date (i.e. the date on which we will get the FDA’s decision) is December 13 – so keep an eye on the company’s press releases between now and then. We will likely get a panel recommendation before the end of November, and this will offer insight into the likelihood of approval. One to watch.

Merck & Co. Inc. (NYSE:MRK)

At the beginning of this week, we learnt that an FDA panel had recommended the approval of Merck’s drug sugammadex – a treatment used to reverse the effects of muscle relaxants used in patients undergoing surgery. The treatment is already available in close to 100 countries across the globe, but the FDA keeps rejecting it through concerns of its safety profile. This is the fourth time Merck has submitted an NDA for consideration, and the FDA has set a PDUFA date of December 19. There are a few of these sorts of drugs around, but they have pretty dangerous risk profiles and severe adverse events are common. The current options require the co-administration of what’s called a muscarinic receptor antagonist, and it is this element of the administration that leads to complications. Merck’s treatment does not, and so if approved, could be a real blockbuster product for the company.

As mentioned, the FDA advisory panel recommended approval (unanimously) but don’t take this as an indication of a sure fire marketing go-ahead. An advisory panel recommended the FDA approve the drug last time around (April 2015) and the same could easily happen again. What its going to come down to is whether the FDA believes that the safety issues associated with this treatment are fewer, or less severe, than the safety issues associated with the alternatives. According to the FDA, allergic reactions and bleeding are two of its primary concerns. Merck will have no doubt included data in its NDA that it hopes will alleviate these concerns – perhaps comparable data that shows higher levels of these reactions in alternative treatments. If it can demonstrate higher or similar levels of both allergic reactions and site bleeding in the currently available co-administered relaxant reversals, sugammadex could be in with a real chance. Again, keep an eye on December 19 for this one. If approved, Merck expects annual revenues in the region of $500 million by 2020, so a long awaited approval could translate to a moderate, but still significant, upside catalyst in the company’s market capitalization.

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Here’s Why Astellas Is Paying A 90% Premium For Ocata

By
Roger Hannington
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astellas

Post market close on Monday, we learnt that Astellas Pharma, Inc. (OTCMKTS:ALPMY) had entered into a material definitive agreement with Ocata Therapeutics, Inc. (NASDAQ:OCAT) that will see the former acquire the latter at $8.50 a share – a more than 90% tender offer premium on Ocata’s last close. As far as tender offers go, this is a pretty substantial premium, and with unanimous board member agreement across both companies’ boards, Astellas should have no problem bringing Ocata’s shareholders on board within the tender period. Even at a time when we are breaking all sorts of takeover records in biotech, 90% looks like a high price to pay. This begs the question, why is Astellas willing to pay such a high premium for Ocata? Let’s have a look at Ocata and see if we can get to the bottom of it.

Ocata is a development stage biotech (market cap pre-announcement circa $190 million) with a pipeline that targets primarily ophthalmic indications. More specifically, it uses stem cells to regenerate certain elements of the human eye; the deterioration of which cause the indication each therapy targets. The company’s pipeline targets six separate conditions, but its two lead indication are Stargardt’s disease (SD) and dry age-related macular degeneration (AMD). Ocata is targeting these two conditions with the same therapy – what’s called retinal pigment epithelial (RPE) therapy. At least near term, this therapy is the asset that likely drove Astellas’ decision.

The RPE is a key layer at the back of the eye that performs a range of functions, but to simplify its necessity, it basically feeds the photoreceptors; photoreceptors have no blood supply, so the RPE is necessary to keep them nourished. Degeneration of the RPE is pretty common in old age, and as the RPE degenerates, photoreceptors die. This leads to sight deterioration and eventually, blindness. AMD is the deterioration of the RPE in the older population, while SD is a similar degeneration in younger patients.

Ocata harvests stem cells from what is called a pluripotent source (basically these are cells that can form into any type of cell on maturity – embryonic cells, in other words) and transplants them into the RPE of a patient. These cells then mature into RPE cells, and the RPE regenerates; or at least this is what Ocata is trying to prove in trials.

There are no approved, useful therapeutics available for either condition on the market at the moment, meaning if Ocata get can its therapy approved it could very quickly expose itself to a multi billion-dollar market in the US alone.

So on that note, where are we in trials? Well, we have seen promising results from a phase I in both indications, and the company is actively enrolling in a phase II as we speak. Ocata reported the first patient enrolled in its AMD indication in September this year, and a phase II in SD is due to start recruiting before the end of the year. This means we could have data from the first cohort of the AMD indication before the end of the second quarter of next year – a real potential upside catalyst for what will likely be than an Astellas run trial.

And there we have it. Astellas has paid a premium for a company that looks to be leading the way in stem cell therapy (something that many of the bigger players have been reluctant to get into by way of ethical uncertainty) for two indications that – if efficacy can be proven – could each be a blockbuster revenue generator in their own right. Yes, $379 million for a $190 million company looks expensive now, but if topline from the phase II AMD shows efficacy it might look cheap a year from now.

Of course, the deal remains open until closing. If Ocata shareholders don’t accept the tender premium during the offer period, or if antitrust gets in the way, then things may never come to fruition. From our perspective, we don’t see either the former or the latter being an issue, but you never know. The tender offer period is scheduled for on or around November 25th, so we’ve not got long to wait until we find out – watch this space.

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Here’s What The Insiders Are Buying In Biotech

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Insiders

Buy activity from insiders can be a great indication that a company is fundamentally strong. Here’s a look at some of the latest insider buys in biotech, alongside a discussion of what’s likely driving the insiders’ decision to ramp up their exposure.

United Therapeutics Corporation (NASDAQ:UTHR)

This one’s a busy one. In the last week alone, five of United’s board of directors have picked up a position in excess of $120,000 spread across between 3,000 and 7,500 shares each. The company reported better than expected earnings at the end of October, coming in at $5.02 per share versus estimates of $2.44, on revenues of $386.2 million. The company’s lead commercial drug, Remodulin, generated $150 million revenues, and its secondary therapy, Orenitram, brought in $34.4 million. It is this latter therapy that serves as the most likely driver behind the board of directors increasing their respective exposures. The drug is generating double digit growth quarter over quarter, and between second and third quarters this year United reported a 22% increase in new patient starts. Back at the beginning of commercialization, there was some concern that these new patients would simply be patients switching from two of United’s other pulmonary hypertension (Orenitram’s approved indication) therapies – however reportedly 70% of new starts are patients that have previously not undertaken therapy. This is good news for United, and in turn, its shareholders.

Varian Medical Systems, Inc. (NYSE:VAR)

On November 6, Dow Wilson, President and CEO of Varian Medical Systems placed two separate buy orders for his company’s stock. Both orders saw him pick up 9,000 shares at a price per share of a little over $50, and totaled a combined $911,880. For those not familiar with the company, Varian is a medical device company that develops, builds and markets surgical and other type therapy implements, primarily in the cancer space. It is one of the biggest companies in the medical device sector, with a market capitalization just shy of $8 billion at last close. So what was the likely driver behind Wilson’s decision to pick up nearly $1 million worth of stock on Friday? Well, Varian is down more than 22% from 2015 highs, and the company posted an earnings miss at the end of last week. The miss initially translated to some intraday weakness, but revenues are up and fundamentally Varian looks sound, both from a product and a pipeline perspective. In all likelihood, Wilson saw the earnings miss and the overarching decline (driven primarily by wider market selling pressure) as an opportunity to increase his holding at a discount. The company just launched a new range of cancer products to general acclaim from the medical community, and from preliminary data, looks as though it will bring in record financials when it reports full year 2015. In other words, there is likely plenty of strength ahead.

Myriad Genetics, Inc. (NASDAQ:MYGN)

Finally, Myriad. The company’s Executive Vice President, General Counsel and Secretary, Richard Marsh, picked up 35,000 shares for a total of $802,550 on Thursday, bringing his total holding to 103,384 shares. This one was a pretty clever play – he unloaded 35,000 shares in September for a total value somewhere in the region of $1.44 million; a move that drove speculation that Myriad might be in trouble. However, with his latest buy, it now looks like he was simply booking profits on a longer term position in his own company, while fully intending to maintain his presell holding by replenishing on the downswing. Executed perfectly, he generated circa $700,000 on the sell high buy low. The company presented data yesterday American College of Rheumatology 2015 annual meeting – data relating to its proprietary treatment response blood test, Vectra DA. The data showed what looks to be efficacy across three separate presentations, and could be a near term catalyst for Myriad once markets digest its implications.

So there we go. Three big companies with large scale insider buying from executive level leadership. Biotech has corrected over the last couple of months, but as we have mentioned a number of times in the past, the healthcare sector is relatively inelastic to wider market sentiment. This has translated to an opportunity to pick up stocks at a discount in anticipation of capital injection into the sector, and from the looks of the purchases discussed here, c-suite agrees.

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Neos Selloff Might Be An Opportunity For A Discount – Here’s Why

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neos

On October 19, 2015, Neos Therapeutics, Inc. (NASDAQ:NEOS) reported that it had received a notification from the FDA regarding its lead pipeline candidate Cotempla. The FDA said it had identified what it referred to as “deficiencies” in the Cotempla news drug application (NDA). We didn’t get any specifics as to the deficiencies (reportedly neither did Neos) but we did learn that the deficiencies precluded labelling and post marketing discussion; basically meaning they need to be resolved before the FDA will consider approving the treatment. As the announcement hit, Neos collapsed from a little over $18 a share to $12 a share – losing a third of its market capitalization in a single session. Its stock has recovered slightly since, closing out the last session just shy of $14, but it is still trading at a discount as investors price in the potential for a delayed review date.

The question now is, does this discount represent an opportunity to pick up an exposure to Neos at a discount? Let’s take a deeper look.

First, what’s Cotempla? The drug is one of two XR-ODT (extended release, orally disintegrating) candidates for which Neos currently has a filed NDA with the FDA. Both treatments are targeting an indication of ADHD. As far as the active ingredient for Cotempla is concerned, there is no difference between it and some of the current standard of care therapies, Methylphenidate and Amphetamine. Cotempla contains the former, Neos’s second candidate contains the latter. What differentiates the two treatments from standard of care is the delivery system. As mentioned, both are XR-ODT. ADHD is primarily a pediatric condition, and there are a large number of the child patient population that have trouble swallowing pills – reportedly about 56%. Neos’s candidates are designed to disintegrate on the tongue, without the usual prohibitive taste and absorption issues that would come with applying a crushed pill to the tongue. This makes them far easier to administer and take.

So what might the FDA be concerned about? The active ingredients are already approved in the US, so the questions surrounding Cotempla become can the drug maintain equivalent levels of efficacy, safety and tolerability when compared to its counterpart delivery methods?

In a phase III, Neos’s Cotempla demonstrated a statistically significant improvement in ADHD symptom control across what the trial referred to as a “classroom day”, suggesting that efficacy should be no issue. This leaves safety and tolerability. This is a pediatric treatment, and the FDA often looks more harshly upon adverse events in Children than it does in adults – but in the same phase III discussed above the vast majority of adverse events were reportedly mild, and nothing out of the ordinary as far as the side effects from this sort of treatment go (nausea, decreased appetite, irritability etc.).

So what’s the issue? Well, of course, we don’t know exactly. What we do know, however, is that the drug is simply a redeveloped version of a formulation that has been standard of care for decades, and it has demonstrated efficacy with minimal adverse events in wide scale trials.

So does this mean there is an opportunity here? There is every chance it does – the initial market reaction looks to have translated to an oversell, and a 33% decline seems harsh for what essentially amounts to a delay. Of course, there may be deeper issues associated with Cotempla that we are not yet aware of, but the tone of the FDA notation suggests these are not issues that cannot be resolved. Even if Cotempla is thrown out, the company has its second XR-ODT candidate filed, with a PDUFA date of January 27. If either get approval, the revenues Neos stands to generate from either candidate greatly outweighs its current market cap (circa $220 million) – Shire plc (NASDAQ:SHPG) generates $1.3 billion annually from Vyvanse and Johnson & Johnson (NYSE:JNJ) $600 million from Concerta. Of course, all this becomes irrelevant if neither get approval – but that’s the nature of speculation.

All said, given the circumstances surrounding the FDA delay are not yet clear, it looks as though markets are erring on the side of caution. A time to be greedy when others are fearful? Perhaps, but tread carefully.

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