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Celgene Sees Opportunity in Epizyme, Should We?

By
ME Staff
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Epizyme Celgene

With all the hype surrounding the potential biotech bubble and the flurry of IPOs we’ve seen over the last few weeks, it is easy to forget that there is actually some meaningful research and design going on behind the scenes of a number of incumbent/mid-stage partnerships. One of these partnerships is between industry giants Celgene Corporation(NASDAQ:CELG) (which took a $1 billion position in T-cell therapeutics company Juno just last week) and Epizyme, Inc. (NASDAQ: EPZM). On June 9, 2015, shortly after the markets closed in the US, we learned that Celgene had extended its research collaboration with Epizyme, with the target being a minimum of a further three-year research into the latter’s pipeline of three first-in-class preclinical epigenetic targets. We’ve mentioned before that biotech can be different from other industries in that – if we see an overall market downturn – the sector may not respond as strongly as, say, the financial sector or energy sector. This “inelasticity” is rooted in the fact that healthcare itself is not dictated by market forces, and – while it is obviously likely that there will be some correction in the event of an overall market correction, biotech is a) likely not to fall quite as far and b) likely to pick up a little quicker than other industries. This phenomenon is further supported by the onset of the affordable care act in the US. With this said, biotech incumbents will be more than aware that there stocks have gained in the hundreds of percent over the past four or five years, and that now is not the time to be allocating non-core capital to speculative targets. For this reason, it is reasonable to conclude that Celgene must see promising Epizyme’s pipeline, and in turn, that there is an opportunity as investors for us to get in at a discount. So, with this said, what are the renewed terms of the collaboration, what is the treatment in question, and how far from any potential marketing phase of it are we at the moment?

First, let’s look at the deal. There are five or six primary points worth addressing. The first is that Epizyme will take a $10 million extension fee from Celgene, and in return, Celgene will pick up an option that allows it to gain individually licensed global rights for two of the three treatments in question, and international rights (i.e. outside of the US) for the third. Next up is the fact that Epizyme will be responsible for taking each target through phase 1 clinical trials. After this, Celgene is to make an additional payments and help to carry any one of the treatments through phase 2a/b or 3. A number of other cash payments are due according to certain milestones, with $610 million in total combining $75 million development and license fees, $365 million in regulatory milestones and $170 million in sales milestones. There is also a low double-digit percentage on worldwide net sales for two treatments in the deal for Epizyme, alongside a similar percentage for international sales on a third. One of the great things about this agreement is that it presents us with a timeline to approval. Often, in biotech, it can be difficult to project returns, but – in this instance – and as we have already commented upon, the collaboration is expected to last an additional three years. This means that both companies expect (assuming efficacy and safety can be proven) to carry the three treatments in question through to approval within 36 months from now.

So what are the three drugs in question? The third is as yet to be decided, but the primary two (the ones for which Celgene has the option to individually licensed global rights) are tazemetostat and pinometostat. The former targets non-Hodgkin lymphoma, and works through inhibiting an enzyme called EZH2, which – in patients with large B-cell lymphoma – is misregulated and can cause rapid cancer cell proliferation. Through innovation, Epizyme expects tazemetostat to halt this proliferation.

Next up is pinometostat, a small molecule inhibitor of DOT1L for the treatment of patients with a genetically defined acute leukemia. For those interested, the genetic definition is as follows:

MLL-r subtype of acute myeloid leukemia, or AML, and acute lymphoblastic leukemia, or ALL, in patients with a chromosomal translocation involving the MLL gene, which includes partial tandem duplications of the MLL gene (MLL-PTD)

This mechanism of action on this one is little more complicated to define, but to simplify; through inhibiting a small molecule called histone methyltransferase (one of a class of enzymes that regulate gene expression) an oncology treatment can kill cancer cells in vitro, without damaging non-cancer cells in a patient. By targeting the DOT1L HMT, a specific member of this class of enzymes, Epizyme hypothesizes that pinometostat can kill MLL cells in patients.

So what’s the takeaway on this one? Well, Celgene has reaffirmed its support for both Epizyme as an investment opportunity and its gene therapy treatments as approvable candidates. We’ve got a fixed timeframe of three years that we can set as our target scope, and what looks to be the funds to carry us through this timeframe if safety and tolerability can be proven in phase 1. At a time when it’s getting harder and harder to pick valuable biotech opportunities from an already overvalued bunch, Epizyme doesn’t look like a bad choice.

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IPO Watch: Novartis Majority Held GenSight; Hit or Miss?

By
ME Staff
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Gensight

2015 has been pretty hot year for biotech IPOs. The space as a whole has expanded close to 400% over the past five years, drawing both speculative and long-term investor attention. A number of news media outlets are now reporting that we are coming to the end of what has now reached bubble status in biotech, and as such, we will likely see a flurry of small companies rush through IPO filings in order to draw benefit from the current bull market before it (potentially) collapses. When something like this happens, it means that we must be vastly more diligent in the IPOs we take part in, and try to separate the proverbial wheat from the chaff as far as gaining exposure is concerned. One company that falls into this upcoming IPO category is Paris based GenSight Biologics – a development stage biotech working on gene therapy treatments for rare retinal diseases. So, with this said, let’s take a look at GenSight in order to try and figure out which of the two sides of the fence it falls on – wheat or chaff.

First, let’s have a quick look at the company itself and its pipeline. The company’s primary focus is to combine its proprietary integrated development platform with a gene therapy-based approach, primarily targeted at preserving and restoring vision through intravitreal or subretinal injection. Intravitreal here means an injection directly into the eye, while subretinal (as you might expect) means an injection underneath the retina. The company’s pipeline currently comprises two primary candidates – GS010 and GS030 – with the former being lead and the latter secondary. GSO10 targets Leber hereditary optic neuropathy (“LHON”), which is a rare mitochondrial genetic disease that arises from a mutation in a gene called “ND4”, which leads to a number of missing key mitochondrial proteins in the eye. GS010 allows physicians to deliver the missing mitochondrial proteins into the mitochondrion, and (as hypothesized by GenSight) allows for a restoration of mitochondrial function. What makes this treatment particularly interesting is its rare disease status. Approximately one in 30,000 people suffer from LHON, or approximately 9000 people in the US. This puts it as a candidate for orphan drug designation by the FDA, something that – if received – could speed up and help to fund approval if GenSight can demonstrate efficacy in trials. A phase 1/2 has already completed, with safety and tolerability results positive, and the company plans to initiate a phase 3 trial during the latter half of this year.

The second primary treatment in the company’s pipeline is GS030. GS030 is currently targeted at the treatment of retinitis pigmentosa, which is an inherited, degenerative eye disease that can lead to night blindness and tunnel vision (as a result of the inhibition of peripheral vision). GS030 uses a “viral vector to introduce a DNA sequence that encodes a photosensitive proteins belonging to channelrhodposin (ChR) family, into the nucleus of the target cells.”

In short, it changes the nucleus of target cells to make them express a protein that makes them more sensitive to light. Once again, this treatment is a candidate for orphan designation, with retinitis pigmentosa affecting between 50,000 and 100,000 people in the United States (the cut-off for orphan drug designation as defined by a “rare disease level” is 200,000 people). The treatment is currently preclinical, but GenSight expects to initiate a GLP toxicity study during the second half of this year for the aforementioned incidence.

What are the details of the IPO? Well, GenSight is targeting between $100 million and $115 million for a US listing, with the majority of the funds slated to go towards the pushing forward of its GS010 phase 3 trials later this year. We saw a €35 million series A led by Novartis AG (NYSE:NVS) back in 2013, making the company GenSight’s largest shareholder with an approximate 20% stake. The IPO comes quick on the heels of the January IPO of Spark Therapeutics Inc. (NASDAQ:ONCE), another company targeting ocular therapy, which raised $161 million and is widely considered to be the most successful biotech IPO of the year.

So what’s the takeaway here? Well, as we’ve mentioned, with us approaching what could be the end of a long-term bull run in biotech we must be careful to which IPOs we expose ourselves. In this instance, however, GenSight could be a valid candidate for allocation. The company has two lead treatments targeting unmet medical needs with far less than 200,000 prevalence in the US, making both potential orphan drug designations, and this could hold it in good stead going forward if efficacy can be proven in trials.

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What Entresto Means for Novartis

By
ME Staff
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Novartis

Biopharmaceutical incumbent Novartis AG (NYSE:NVS) stock has struggled of late, having had something of a bumper first half of the year, reaching May highs of a little over $105, but having since corrected to around 7% from these highs on a number of troubling announcements. One of which, was the potential for a $3.3 billion fine over reported kickbacks used by the company to boost revenues from two drugs that come under the remit of Medicaid and Medicare.

Now, however, it looks as though we are finally going to get some reprieve, and we may see this recent correction as just that – a profit-taking from highs and, in turn, an opportunity to get in at a discount on any potential upside we still have left in biotech this year. So, with this said, what sparked the turnaround in sentiment, and why might it be important for Novartis?

Well, we heard on July 7, 2015, that the FDA approved Novartis’s novel heart failure treatment Entresto. The treatment is the first of a class of drugs referred to as Angiotensin Receptor Neprilysin Inhibitors (“ARNIs”) to receive approval in the US, and the news comes more than a month and a half in advance of its expected approval date – primarily as a result of fast-track designation and an expedited review process. News/media is referring to the drug as a blockbuster, and one that could add a significant revenue stream to Novartis’s pipeline ahead of the upcoming patent cliff that threatens to unhinge a number of the mega-bio companies over the next five or ten years. So, let’s have a quick look at the drug, see how it works and what it could mean potentially for Novartis going forward.

Compared with other drug mechanisms we have tried to simplify over the past few months, this one is relatively easy going. In our blood system, we have what’s called an angiotensin II receptor, the type 1 version of which is responsible for vasoconstriction, which is a key component of maintaining blood pressure in the human body. Entresto is an inhibitor of this receptor, meaning it causes vasodilation and increases excretion of sodium and water by the kidneys. The first serves to reduce blood pressure and the second translates to a reduction in blood volume, also reducing blood pressure on aggregate.

The trial on which we got approval was an 8442 patients study called PARADIGM-HF, in which the company compared Entresto with enalapril, a current standard of care treatment. Results showed a reduced risk of death from cardiovascular causes across the trial size of 20%, a reduced rate of heart failure hospitalizations of 21% and a 16% reduction in the risk of all-cause mortality. The primary endpoint – a composite measure of CV death or time to first half failure hospitalization came in at a 20% reduction. On approval, Dr. Milton Packer, Professor and Chair for the Department of Clinical Sciences at University of Texas Southwestern Medical Center, Texas, USA had this to say:

The very meaningful survival advantage of Entresto seen in the PARADIGM-HF trial should persuade physicians to consider Entresto for all appropriate patients, in place of traditional ACE inhibitors or angiotensin receptor blockers… Entresto is expected to change the management of patients with HFrEF for years to come.

So how big is the market? Well, there are close to 6 million people in the US that suffer from heart failure, with about 3 million of these having the reduced ejection fraction form – the form at which Entresto is targeted. This subsector of heart failure patients represent a global market size of more than $5 billion, with approximately $2.5 billion of this $5 billion generated out of the US.

So how will this play into the whole patent cliff situation? Well, between now and 2020, there are an estimated $32 billion in global sales expected to be lost across 10 major treatments currently under patents and held by biotechnology incumbents. Novartis already fell foul to one of its leading treatments (in fact, is leading treatment for about a decade) Diovan, as its patent for the treatment expired in 2011 and translated to about $4 billion in annual revenue loss for the company. In response, the big biotech’s are looking to branch out into potential blockbuster markets, and the approval of this treatment is one of Novartis’s wins in the space. While only a number of other blockbuster treatments to counter any revenue slides that come about as a result of the ongoing patent cliff situation, it’s a small step in the right direction.

So, what’s the takeaway here? Well, we will almost definitely see some upside momentum in Novartis stock throughout the latter half of this week – primarily as a result of the event driven volatility we always see in the biotech space on approvals. However, investors need be aware that we are currently in what seems to be the latter stages of a bubble in the sector, and that any investment at this stage must be considered late stage and for small, speculative gains, rather than a long-term holding.

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Is the Axovant IPO a Biotech Red Flag?

By
ME Staff
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Axovant

Shortly before markets closed in Europe yesterday evening, we got news that an analyst at Evercore ISI named Mark Schoenebaum was bullish on Axovant Sciences (NYSE:AXON). His proclamation, based pretty much entirely on the pending success or failure of an Alzheimer’s candidate, has done little to boost Axovant stock so far, but – in combination with a buy initiation reported out of RBC Capital Markets yesterday, we could see some upside momentum injected into the company’s market capitalization as we head into the middle of this week. There is, however, one fundamental problem with both this buy recommendation and the Schoenebaum bullishness; namely, that the candidate in question has already been rejected by GlaxoSmithKline plc (NYSE:GSK) – having failed to reach any statistically significant end points in a number of mid-range combination studies conducted during the first couple of years of this decade. Axovant, of course, has its reasons for picking up a retrial in the treatment, but in light of its current valuation, the question has to be, is there really potential here, or will we look back on this day as the peak of a biotech bubble – one in which investors are willing to value a development stage company at multiple billions of dollars based on the potential of an already failed treatment candidate? To try and figure this out, let’s have a quick look at the treatment in question, the companies involved, and how this might play out.

So, first, let’s take a look at the treatment. The discarded treatment is what’s called a 5-HT6 antagonist, and Axovant purchased it from GlaxoSmithKline for just $5 million earlier this year. Known as RVT-101, the drug is an orally administered, potent antagonist of the 5-HT6 serotonin receptor. Basically, the treatment works as a type of inhibitor, antagonizing against the release of serotonin. In doing this, it promotes the release of primarily acetylcholine, glutamate, but also a number of other neurotransmitters that scientists believe improve cognitive behavior in a range of dementia sufferers, including those suffering from Alzheimer’s. GlaxoSmithKline trialed the treatment in more than 1250 patients, and – despite proving safety and tolerability – were unable to demonstrate any real significant benefit when compared to placebo. This said, in a combination study in patients that have previously been treated with donepezil therapy, markets did see some slightly delayed decline when compared to placebo in mild to moderate Alzheimer patients. It is this latter fact that Axovant is basing its claim on, and was primary driver behind the company’s IPO at the beginning of June 2015.

As a result of its IPO, the company raised about $315 million based on around 21 million shares sold. The shares sold at IPO at an average price of $15 per share, but before 24 hours were out, were trading just shy of $30. At last close, the company is posting at $19 a share. The company looks to have had a strong IPO, so what are we concerned about? Well, there is so much risk here that a successful IPO seems counterintuitive – and in turn – representative of a wider biotechnology bubble either peaking or at least approaching its end. It goes without saying that Axovant has to-date generated no revenues, and as with any development stage biotechnology company with a limited pipeline, it expects to absorb a large amount of further losses before (and if) it achieves profitability. In addition, even if RVT-101 gains approval, Axovant is obliged to make royalty and milestone payments to GlaxoSmithKline – reportedly in the millions of dollars. All this combined with a 29-year-old CEO who, not to discredit the guy, has very little experience as far as a successful track record in the development stage biotech space goes (Harvard biology, Yale Law and a serving chairman of Tekmira Pharmaceuticals (NASDAQ:TKMR) – see link for our opinions on Tekmira) suggests the buyers of 21 million IPO shares either know something we don’t or have a very very high tolerance for risk. Either that, or they have made a mistake.

Of course, only time will tell. Even with milestone payments, if Axovant can hit the market with a blockbuster Alzheimer’s treatment it could quickly validate its current valuation. However, we’ve got a number of years to go before it does, and in the meantime all this stock has is the potential for event driven volatility. The takeaway? Not one for us, but a potentially rewarding highly speculative punt for those who like a gamble.

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Baxalta’s Pipeline Makes it an Interesting Opportunity in Biotech

By
ME Staff
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Baxalta

On July 1, 2015, we learnt that Illinois-based biotech company Baxter International Inc. (NYSE:BAX) had finally spun out its pharmaceutical operations into the newly named and listed Baxalta Inc (NYSE:BXLT). On launch, the company has billed itself as a global biopharmaceutical company dedicated to delivering transformative therapies to patients with orphan diseases and undeserved conditions. Bringing forward with it a pretty strong portfolio of legacy treatments already marketed by Baxter, the company kicks off its life in the bioscience space as a $6 billion revenue generator with a robust pipeline of potential further revenue generators going forward. So, with this said, what is the new company all about, what does its pipeline look like, and is it a valid investment opportunity at this stage, or should we be waiting until it is slightly more established before getting in? Let’s take a look.

First of all, let’s look at the company’s current operations. Baxalta has achieved seven regulatory approvals to date, across a range of incidences but primarily focused on hemophilia – a condition in which patients’ blood does not clot properly and so they can suffer high levels of damage from small injuries. Of the company’s current annual revenues, approximately 50% of its total $6 billion generated comes from hemophilia treatments, while the remaining 50% derives from inhibitors and immunoglobulin treatments (weighted towards immunoglobulin). Similarly, 50% of this total revenue comes from the US,  and about 35% comes from international established markets and the remaining 15% from international emerging markets. In its previous incarnation – Baxter Science – the company achieved 6% annual sales growth year over year between 2012 and 2015, and has become a self-proclaimed leader in the hemophilia space. Some of its leading marketing approvals have exceeded this growth, two examples being ADVATE and FEIBA, which recorded a compound annual growth rate of 9% and 10% respectively between 2012 and 2014.

Going forward, and as illustrated by the table below, the company expects to match this growth across the board.

2015-07-02_1502

Source

As you can see, between 2016 and 2020, Baxalta is targeting a sales growth of between 6% to 8% on a compound annual growth rate basis, and operating earnings growth of 8%, and operating margin of between 30% and 31%, and an EBITDA margin of just over 35%. An area in which the company is currently not generating that much activity revenue is oncology, but according to its most recent investor presentation (reported upon the announcements of the company’s listing), Baxalta expects to be generating between $500 million and $700 million revenues from the oncology space by 2020. Sticking with this last area, two of the company’s most promising candidates in the oncology space. The first is nal–IRI (MM-398), and IRI cytotoxic treatment targeting metastatic pancreatic cancer, with the company is developing in collaboration with Merrimack Pharmaceuticals (NASDAQ:MACK). The treatment is currently awaiting a response from an EU approval filing, having demonstrated an overall survival rate of 6.1 months in phase 3 trials, and a progression free survival of 3.1 months. The second is Pacritinib, currently being developed in partnership with CTI BioPharma (NASDAQ:CTIC). This treatment targets myelofibrosis – a type of blood cancer – and is scheduled to be filed for approval in the EU this year. Once again, this treatment is produced positive phase 3 results, showing a 35% spleen volume reduction (primary endpoint in the trial) at 24 weeks.

These aside, Baxalta has a pipeline of possibly 20 new products, which it expects or hopes to launch by 2020. From these 20 new products, the company hopes to generate 2.5 billion sales annually by 2020 deadline. The treatments and their timelines or illustrated in the below chart.

2015-07-02_1613

Source

So what’s the takeaway here? Well, as with any biotech company, there are risks associated with an investment in Baxalta. However, the company offers a rare opportunity to get in at the very early stages of an already established biotech with a pipeline that is already generating revenues. Add to this the potential for extra $2.5 billion dollars revenues by 2020, and an extensive pipeline in development, and there could be some considerable upside from current market capitalization over the next five years.

 

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MabVax Receives Coverage with a $5 Near-Term Price Target Based on Upcoming Catalysts

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MabVax Main Banner_Green Background.jpg.opt1258x492o0,0s1258x492

MabVax Receives Coverage with a $5 Near-Term Price Target Based on Upcoming Catalysts

NEW YORK, NY / ACCESSWIRE / July 1, 2015 / Market Exclusive announces that today, John H. Ford, who primarily focuses on undervalued situations has initiated coverage in MabVax Therapeutics (OTCQB:MBVX).

 

Ford explains that Mabvax is attractive due to multiple potential upcoming catalysts. According to the report, “This is an exciting time for MabVax (OTCQB:MBVX), shareholders because the company’s share price could rise from $2 to over $5 in the next few weeks based on MabVax’s extreme level of undervaluation and 2 imminent catalysts.”

 

Today Mabvax is trading on strong volume based on the continued investment by Dr. Phillip Frost and Opko (NYSE OPK), which has the shares trading slightly higher.

 

The report can be found at http://seekingalpha.com/author/john-h-ford/instablog

 

 

Some of the highlights from Ford’s research:

 

  • MabVax is completely undiscovered by Wall Street and would be undervalued even if the share price doubled.
  • Phillip Frost and Opko (NYSE OPK) just invested in MabVax and given Dr. Frost’s track record, MabVax could be another home run trade.
  • In neuroblastoma trials MabVax demonstrated its drug is almost twice as effective as the standard of care.
  • The Cancer Immunotherapy Index has risen almost 50% this year and MabVax is a major contender in that sector

 

 

About Market Exclusive

Market Exclusive Is a financial portal geared to engaging discussion on current financial topics. Market Exclusive is not an investment advisor.

 

 

 

The owner of this announcement warrants that: (i) the releases contained herein are protected by copyright and other applicable laws; and (ii) they are solely responsible for the content, accuracy and originality of the information contained therein.

 

 

 

SOURCE: Market Exclusive

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Celgene Values Juno at Twice Market Rate; Valid Upside Target?

By
ME Staff
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Juno Therapeutics

Just last week, we published an article highlighting the potential of CAR-T therapeutics in the oncology space, and suggested that – as a result of the continuing advancing of its pipeline – one of the most attractive methods of gaining exposure to the space for a large biotech was through an acquisition or a collaboration with Juno Therapeutics Inc. (NASDAQ:JUNO). At the time, we highlighted a quote from AstraZeneca (NYSE:AZN) Chief Executive Officer Pascal Soriot suggesting that his company may be interested in acquiring Juno, and we saw that this comment translated to what eventually amounted to an approximate 10% gain in Juno stock during the New York session that day. Now, off the back of our previous suggestion, an incumbent biotech company has indeed made a large investment in Juno and – in doing so – has leapfrogged a number of its competitors and become one of the leading companies in the CAR-T oncology space. However, it was not Astrazeneca. So, with this said, what is involved in the recently announced deal, is set to benefit, and what can expect going forward? Let’s take a look.

Shortly after markets closed yesterday evening, Celgene Corporation (NASDAQ:CELG) and Juno announced jointly that they had embarked upon a global corporation targeted at the development and commercialization of immune therapies. Specifically, that the corporation will leverage T-cell therapeutic strategies to target oncology and autoimmune sufferers. Alongside the announcement, both company CEOs put forward statements in support of the corporation. Bob Hugin, Chairman and CEO of Celgene had this to say:

“This transaction strengthens Celgene’s position in the emerging and transformative area of immuno-oncology… Juno has assembled world class experts and built impressive capabilities and technologies in the areas of T cell biology and cellular therapy.”

While Hans Bishop, CEO of Juno stated:

“Celgene is the ideal partner for Juno to help us realize the full potential of our science and clinical research while maintaining the independence we, our employees, partners, and investors believe is so critical for true innovation.”

That both sets of management are pleased with the collaboration comes as no surprise; after all, Celgene now has access to a strong pipeline of oncology breakthrough treatments and Juno has a huge financial backer going forward. What is a surprise, however, is the terms of the deal. At deal close, Juno will receive $150 million outright, and Celgene will purchase more than 9 million shares of Juno stock at – wait for it – a whopping $93 per share. Juno traded at last close around $46 a share. Meaning, that Celgene is paying a 100% premium on market valuation. The total amount Celgene is paying to gain access to Juno’s pipeline is close to $1 billion – just shy of 25% of the latter’s current market capitalization. On the news, Juno stock soared 40%, and will likely gain further throughout the rest of this week. With this said, any corrective behavior could present an opportunity to get in on a bull run at a discount.

So, why has Celgene taken such a position? Well, as mentioned, Juno has a number of candidates currently in development for oncology treatment – primarily based around immune therapies, which are hot topic in the biotech space at the moment. You can see the company’s pipeline here, but just to address the most recent advance, Juno announced on June 29 – just hours before the Celgene announcement – that the FDA had accepted the application for an investigational new drug called JCAR017 – and that’s right, you guessed it, it’s another CAR T cell product candidate, this time targeting non-Hodgkin’s lymphoma. The treatment has already expressed positive results in a phase 1 study when targeting lymphoblastic leukemia in children, and this fresh incidents could add value to an already promising candidate.

So, with all this said, what can we expect going forward? Well, the collaboration has a ten-year lifespan. During this period Celgene will develop a number of Juno pipeline candidates globally, while Juno will develop them domestically in the US. Rights will be shared, and global costs will be shared 70% Celgene and 30% Juno. The deal is expected to close around Q3 2015, so the primary takeaway here is that – with Celgene valuing Juno at $93 a share – there will likely be some upside momentum in the company’s stock between now and the closing of the deal. Therefore there is, it would seem, an opportunity to get in a a large discount to potential future value at current prices.

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As Good News Flows Out, Smart Money Flows into Juno Therapeutics

By
ME Staff
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juno

At the beginning of this month, in an interview with Bloomberg, AstraZeneca (NYSE:AZN) Chief Executive Officer Pascal Soriot said that, in an attempt to gain exposure to the current boom in CAR T treatment for oncology, he would certainly consider acquiring a company like Juno Therapeutics Inc. (NASDAQ:JUNO) . The full quote is below:

“If at some point we conclude we need to make an acquisition, we certainly would consider it, there’s no question about it.”

On release of the the statement, Juno stock gained nearly 7% during the day’s New York session, but has since declined to trade relatively flat as compared to pre-statement levels. While this is an example of the media driven volatility we often see in the biotech space, it has drawn a number of investor eyeballs to consider Juno’s potential, and question whether it could a) become a potential acquisition target for current incumbents looking for exposure, or b) expand to become a blockbuster in the oncology space on its own. Since Soriot laid his cards on the table, we have seen a number of updates worth highlighting regarding Juno and its ongoing pipeline, and so the question for today is, what are these updates, and – in light of their implications – is Juno undervalued at its current market capitalization? Let’s take a look.

First, let’s have a quick look at what Juno is working on so we can get an idea of the market potential for its pipeline. The company is a development stage biotech company that develops cellular immune therapies on two distinct and complementary platforms. The first is what’s called chimeric antigen receptors (CARs) and the second, T-cell receptors (TCRs). Both types of technology are used to target cancer cells, and once targeted, activate the T cells, CARs and CARs in the human’s own immune system to attack and destroy cancerous cells. It is the former of these two different types of technology – the CAR-T technology that is currently a hot topic in oncology. The science behind it is pretty complicated but it can be simplified by saying that the antigen receptor uses what’s called a single chain variable fragment, or scFv, to recognize a protein of interest. The scFv comes from an antibody that will automatically recognize a target protein on a cancer cell, and, when binded, triggers a T-cell response. There are lots of different types of T cells in the human immune system, but these ones serve to flag up the cancer cells so that other T cells in the immune system can destroy them.

So what have we seen that plays in Juno’s favour over the last few weeks? Well, first of all, we saw an initiation of coverage of Juno therapeutics by well-known research organization Maxim Group. Maxim initiated coverage when Juno was trading at $51 per share back on June 17, and pinned a buy rating with a $78 price target on the biotech. For reference, Juno is currently trading at $49 a share. Among other things, the organization puts the complete response rate of up to 91% seen in clinical trials to date, and the potential for CAR approval by early 2017 as primary drivers behind its initial rating. The price target comes without consideration of potential acquisition by a company like Astrazeneca, and – therefore – looks conservative from an optimist’s perception.

Second, we heard on June 16, 2015, that billionaire investor and fund manager George Soros had expanded his position in Juno. For those not familiar with Soros, he is the brains behind the Quantum fund, famous for achieving returns that exceeded 30% per year during the late 70s and 80s. He is also famous the shorting the UK sterling ahead of Black Wednesday and netting more than $1 billion on a single trade. Anyway, back to the present, in mid-June this year, we learned that over the last reported quarter (Q1 2015) Soros had increased his overall position in Juno through his fund “Soros Fund Management” by more than 300% to reach approximately 105,500 shares – or in dollar terms – $6.4 million. Now, for a company worth $4.62 billion as Juno is, this doesn’t seem – on the face of things – like a particularly large position. However, it is the growth in position size that we are looking at primarily, and – a 300% expansion in any position size is a vote of confidence. Further, a vote of confidence from one of the world’s leading investors.

So, what’s the takeaway? Well, things look to be going well for Juno. We have a number of key data releases scheduled throughout the latter half of this year, and these could prove medium-term momentum drivers for those looking for a speculative entry on news driven volatility. However, looking longer-term, recent releases and the potential for a mega cap acquisition seems to suggest that the good news continues to pour out of Juno, while the smart money looks to be getting in.

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Tekmira’s Ebola Drug Out Of the Race; Who’s Left in?

By
ME Staff
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Tekmira

On June 19, 2015, Canada-based biotech company Tekmira Pharmaceuticals Corporation (Nasdaq:TKMR) gave markets an update on its phase 2 clinical trial of TKM-Ebola-Guinea. The treatment and its trial – a reformulation of another one of its Ebola treatments designed for use in Sierra Leone, has led to close scrutiny of Tekmira stock throughout the duration of the Ebola crisis that still continues to kill thousands in West Africa daily. As a result of this scrutiny, and as outbreaks have spread and things have gotten worse, Tekmira shares have bounced up and down on event driven volatility. Now, unfortunately, it looks as though Tekmira and its TKM-Ebola-Guinea the repeated will not be hitting markets anytime soon, and while this is a great shame for West Africa as a whole, it has also translated to some downside momentum in Tekmira shares. On June 18, 2015, the company closed out at a little over $15. By market close on June 22, the company was trading at a little over $13 – a 12% decline in just two trading days. With this said, what is the drug in question, why did it fall down, and what can we expect moving forward from the Ebola therapeutic space in general?

First, let’s have a quick look at the science behind the treatment. Tekmira’s TKM-Ebola is a combination of small interfering RNAs, which, simply put, inhibit the expression of a specific and home town beatable gene in a particular nucleotide sequence. By doing this while targeting certain genes in patients suffering from Ebola, Tekmira hypothesized that it could use the drug to treat sufferers in West Africa. The treatment has had a rocky ride so far. In January last year, Tekmira kicked off with a phase 1 trial of TKM-Ebola, the precursor to TKM-Ebola-Guinea, but the trial was put on hold just six months later by the FDA as a number of patients experienced flulike responses. A month later the FDA change this to a partial hold, meaning that the drug could be tested in people with the Ebola infection, but the phase could not continue in its current form. In April this year, and bullied by a $140 million contract with the US Department of defense, the trial resumed. With regard specifically to the trial in question, the company developed this second inference of its Ebola treatment last October, and has been trialing it since. However, as the recent release details, the trial reached a predefined statistical endpoint (about which we do not yet have details and for which we will have to wait until full results are released), with the endpoint indicating that “continuing enrolment was not likely to demonstrate an overall therapeutic benefit”.

It is this last statement that translated to a tanking of Tekmira’s market capitalization, and that will likely continue to weigh on the company’s value as we head into the middle and latter half of this week. Alongside the announcement, Dr. Peter Horby, Chief Investigator on the study, had this to say:

“It is a great tribute to the team in Sierra Leone that the trial has been run so efficiently and that we now have substantial experience on the use of TKM-Ebola-Guinea in patients with Ebola. While the trial has reached a statistical endpoint, final conclusions on the efficacy and tolerability of the drug must await full analysis of the data.”

So what do expect going forward? Well, GlaxoSmithKline (NYSE:GSK) and Merck (NYSE:MRK) currently have ongoing phase 2 trials in Liberia, while Johnson & Johnson (NYSE:JNJ) has a mixed data trial ongoing in Sierra Leone. In addition, BioCryst Pharmaceuticals (NASDAQ:BCRX) announced at the end of March that it had one in 18 month trial $.1 million contract from the US government to advance its drug BCX4430, currently being tested in early stages on healthy volunteers. What does this mean? Well, that there are yet more promising candidates for Ebola therapeutics despite the recent setback from Tekmira. However, increasingly, these aforementioned are willing into issues. The biggest of which – while this doesn’t seem like an issue short-term – is that the rate of infection is declining in West Africa. This is excellent news for those currently affected by the outbreak, but it means that the company is searching for a cure or vaccination have a dwindling pool of potential candidates, and are therefore failing to reach recruitment targets as predefined by their trial outlines. Again, short-term, this is great news and as a result of the hard working medical professionals in the region. However, with so much resources dedicated to Ebola and a potential vaccination over the last 12 months, it would be a shame to lose focus now.

So, what’s the takeaway? Well, just because Tekmira has announced that it will likely not be continuing its trial of TKM-Ebola-Guinea, it is not the end of the line for a potential Ebola treatment. There are a number of other pipeline treatments under trial from both incumbent and younger companies, many of which have government backing from the US. If these treatments can find a candidate base for trial completion, the event driven Ebola space could be one to watch as we head into the second half of 2015.

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Opko Shorts Should Know That For Every Short Seller, There’s a Buyer

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Frost Opko

If you invest on the short side, it is generally considered sensible to do so when a stock is at its highs. But there’s one other criterion that needs to be met before shorting at a high can succeed. That is, there must be no reason, or at least very little reason, why shares of a particular stock are rising at all. If they’re rising for a reason, they will likely keep doing so, squeezing shorts on the way.

Opko Health (NYSE:OPK) may fit the first condition of being at or near its highs, but it does not fulfill the second. Those short Opko don’t seem to mind all that much, being that 44.92M shares are currently held short, constituting 67% of the float. That’s about a million more shares than last month, representing over $15M in capital spent on shorting the stock in one month, at least.

While shorting itself may tend to discourage some retail investors from taking a position, institutional investors as well as company insiders are usually astute enough to know that for every short seller, there is a buyer of those shares on the other side. Close to 70% of Opko’s float is held by either insiders or institutions, and it is doubtful that any of those shares will be put on the open market any time soon. And even if some are, the company’s founder and CEO, Dr. Phillip Frost, is picking shares at the same pace that shortsellers are borrowing them to sell.

As mentioned, about one million shares have been sold short in one month (1,050,000 to be exact). In that same timeframe, counting from May 13, Dr. Frost has picked up a total of 990,662 shares. The ongoing battle is almost one to one, and could very well exceed that ratio any day as Frost has been buying shares nearly every day this month.

Aside from Frost absorbing nearly all the short bets himself for a month, the fundamentals behind Opko continue to strengthen. Besides having deep pockets, if you know a little about Frost’s history, the fact that Opko remains near its highs specifically now is no surprise.

By the tone of Opko’s last conference call, it’s apparent that Opko’s Charles Bishop, CEO of the Renal Division, is practically certain that the company’s lead drug candidate Rayaldee will be approved. A new drug application was submitted at the end of May already, and from this point it should take another 11 months maximum for official FDA approval. Rayaldee’s target patient population is the estimated 84,000 patients per year in the US that are diagnosed with secondary hyperparathyroidism due to vitamin D insufficiency, most of whom are on or near dialysis. The estimated market size is $12B. Here are some of the more telling lines during the call:

Rayaldee has been clearly shown in four clinical efficacy studies to correct vitamin D insufficiency in virtually every treated patient. The response rates are essentially maximum. These studies taken together also show that effective and long term correction of vitamin D insufficiency causes a gradual but progressive reduction in elevated parathyroid hormone levels with increasing numbers of patients achieving the ultimate outcome which is normal parathyroid hormone levels…

Rayaldee’s gentle efficacy is unaccompanied by any significant side effects. In fact, the adverse event profile for the product is essentially the same is that for parallel administration of placebo. Most surprising, Rayaldee’s efficacy is unaffected by the progressing of kidney disease.

There was also one more paragraph that should ring some bells for those more familiar with Dr. Frost’s early career. 40 years ago, Frost bought Key Pharmaceuticals and helped get its lead asthma drug Theo-Dur approved by removing its cough suppressant, putting it in a capsule to control release instead of administration via inhaler, and most importantly, marketing the drug directly to doctors with technical material rather than lay marketing to consumers.

With that in mind, this paragraph is telling (emphasis added):

As you know our intention is to sell Rayaldee with our own dedicated sales force that will be targeting nephrologists and endocrinologists. In parallel with that effort, we have a lot to do to prepare for marketing of Rayaldee. Those preparations line areas of assembling the right message together to nephrologists and endocrinologists, so that uptick of the product is accelerated. We also have significant work to do with the payers in order to make sure that we can have Rayaldee on the formulary as quickly as possible. And we are also contemplating beginning more development efforts to expand the approved indications for Rayaldee and one of those is already going as I mentioned in the oncology area.

This outlines the play-by-play plan of a company that is confident, organized, targeted, and ready to hit the ground running. Its marketing plan is falling into place a year in advance, and it worked for Frost in the past. Opko believes it will work again.

In terms of balance sheet risk, that used to exist for Opko before last December when it announced a payment of $295M from Pfizer for its Long-Acting Human Growth Hormone. That prevented dilutive financing, and was basically the equivalent of an investor purchasing $295M of stock in the middle of a short position. Opko now has close to $400M in current assets and over $1.5B total. Its quarterly burn rate over the past year is only $60M, which means it has nearly two years of capital, well within the time Rayaldee should hit its potential $12B market running.

Its recent acquisition of Bio-Reference Labs (NASDAQ:BRLI) had the predictable effect of knocking Opko shares down a bit, but that is typical on an all-stock transaction like this. Bio-Reference absorbed that market value, as the two stocks look like mirror images since the acquisition. This means that the market has not valued Opko any less since, despite share dropping. That value was merely transferred over to Bio-Reference labs. Eventually the two stocks should start trading together again, signs of which are evident even in the last few days. Additionally, the Bio-Reference acquisition works well with the release of Opko’s diagnostic platform including 4Kscore and Claros 1, which can take advantage of Bio-Reference’s specialties in marketing diagnostics. This is probably why Opko bought the company specifically now.

All this considered, there is little evidence that the market is valuing Opko any less despite a heavily shorted float, or even its acquisition of Bio-Reference Labs. If that market value was not transferred over to Bio-Reference shares which will eventually be merged in to Opko anyway, OPK would still be at its high. Shorting a company with a potential blockbuster within a year of approval that has completed phase 3 with flying colors is quite a risky bet, especially when that company’s CEO has been personally absorbing nearly the entire shorted float over the last month alone.

Market Exclusive Is a financial portal geared to engaging discussion on current financial topics. Market Exclusive is not an investment advisor. Please read our full disclaimer at http://marketexclusive.com/about-us/disclaimer/

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