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What Is the Real Cost of AstraZeneca’s Eye Cancer Flop?

By
ME Staff
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Astrazeneca

On July 22, 2015, we learned that AstraZeneca’s (NYSE:AZN) oncology candidate selumetinib had disappointed in a recent phase III trial. The news hit markets overnight on Tuesday, and as a result, pre-session trading put pressure on AstraZeneca’s stock, and we are now trading above 2% down from the levels we were looking at pre-announcement. The value of the treatment itself is obviously a setback for the company, but it is a wider perception of AstraZeneca’s current standing and outlook that markets will take heading forward. Just last year, CEO Pascal Soriot walked away from a $120 billion takeover from rival incumbent Pfizer (NYSE:PFE), pledging that he would raise revenues by 75% between then and 2024 – targets that, at the time, analysts suggested as leaving the company very little room for error over the succeeding decade. AstraZeneca is currently trading about 20% lower than it was when the takeover was on the table, and about 30% lower than the premium price at which Pfizer was willing to pick up outstanding shares as part of the deal. It goes without saying, therefore, that the latest announcement puts considerable pressure on Soriot from a shareholder perspective. However, the question is, is the selumetinib absorbable in terms of staying on progress for a 75% ten-year revenue expansion, or has it derailed this prospect? To answer, let’s take a look at the treatment, how it fared in the recent phase III, the revenues AstraZeneca stands to miss out on as a result of the failure, and finally, whether or not it can claw back any of these revenues on alternate indications for the treatment.

First, let’s address the science. Selumetinib blocks an enzyme called MAPK kinase, which is an integral part of the MAPK pathway – a chain of proteins that communicates and processes input from a range of growth factors in a cell. In cancerous patients, this communication can activate a mutation in a gene called BRAF, and can lead to further mutations and proliferation of cancer cells. By blocking the MEK1 and MEK2 subtypes of the MAPK kinase gene, selumetinib (hypothetically) can be put to use treating a range of cancers – and in this instance – uveal melanoma, a cancer that causes tumor cells to grow in ocular tissue and has an incidence rate of about 2000 in the US annually. The company did not report specific figures as far as trial data is concerned, but instead chose to simply announce that the phase 3 study of selumetinib in combination with dacarbazine (an older, standard of care treatment) failed to reach its primary endpoint of progression free survival. The results also showed an unreported adverse event profile compared with the aforementioned standard of care. It’s worth mentioning that markets reacted particularly negatively to the release, as mid stage data suggested blockbuster results and had AstraZeneca investors poised for a quick approval.

So what sort of revenues were we looking at four AstraZeneca if the company succeeded in phase III and achieved approval? Well, as mentioned, the incidence rate for this treatment is relatively small. However, the cost for current treatment options is high. The two standard of care treatments are either radiation therapy or surgery to remove the eye altogether. Since we are looking at treatment rather than removal, it is reasonable to compare the former with selumetinib rather than the latter. The two types of radiation therapy available are what are called brachytherapy and proton beam therapy, which according to a National Cancer Institute study that compared the treatment on a base case incremental cost effective ratio with a enucleation (complete removal), come in at $77,500 and $106,100 respectively. While it is unrealistic to suggest that AstraZeneca could have achieved high percentage saturation within 3 to 5 years, low double-digit market share is not unreasonable. At a conservative cost of $50,000 per treatment, selumetinib could very easily have become a mid double-digit million dollar candidate for the company.

All this aside, AstraZeneca continues to develop the treatment for a number of different indications, including thyroid cancer and non-small cell lung cancer. With these further indications, analysts put 2020 sales at a little over $305 million. This, of course, is assuming we don’t get a turnaround in fortunes as we have seen with the ocular indication.

So what’s the takeaway here? Using some rough calculations, it looks as though the recent failure stands to cost AstraZeneca at least $40 or $50 million in forsaken revenues – approximately 18% of its total forecast for selumetinib revenues in 2020. However, it’s not by any stretch of the imagination a fatal blow for the company’s projections. With a number of larger incidence rate target cancer treatments in the pipeline, including AZD9291, Lynparza and MEDI4736 – all of which could be billion-dollar blockbusters if approved – the company is still on track for its 75%, decade long revenue increase. Long term on track, yes, but temporarily derailed – undoubtedly.

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Phase III Success Makes this Company a Potential Blockbuster Biotech

By
ME Staff
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Exelixis

It’s been a big week in biotech. First we had the announcement that DBV Technologies (NASDAQ:DBVT) was all set for a follow-up financing round in which it expects to raise more than $240 million to fund phase III of its peanut allergy treatment. Then we heard that Tekmira Pharmaceuticals Corp (NASDAQ:TKMR) is set to change its name to Arbutus Biopharma Corporation under the ticker “ABUS” to fall in line with a new focus on Hepatitis B. Now, as markets kick off for a fresh day in the US, we have got yet another piece of big news out of the biotech space, namely that oncology junior Exelixis, Inc. (NASDAQ:EXEL) has finally achieved some level of success with its renal cell carcinoma candidate cabozantinib. Those of you following this company will remember the treatment’s phase III failure in a prostate cancer indication last September, and the ensuing turmoil that surrounded Exelixis as a result. Within hours of the failure announcement, the company’s market capitalization halved, and Exelixis slashed 70% of its workforce before the beginning of 2015.

Sellers at that time can be forgiven for wanting to get out of what looked like a Jr biotech in real trouble – something that, if held onto for an extended period of time – can wipe out an exposure. However, for the more risk tolerant participants that held on to their Exelixis allocation, there is finally some reprieve. On July 20, 2015, the company announced that – in a trial that compared cabozantinib to everolimus (current SoC) – the treatment reduced the risk of disease progression or death by 42% across a sample size of 658 patients with metastatic renal cell carcinoma (kidney cancer that has spread beyond the kidneys). Reduction of progression or death risk was the primary endpoint, meaning the trial passed with flying colors. At time of writing, Exelixis is up more than 50%, and looks likely to close out today even higher.

So why all the action? Well, the recent announcement has brought the company to trade at fresh yearly highs, breaking resistance from mid-2014 of around $4.5, and with what looks like it could be a fast-track route to approval there will likely be further upside revaluation throughout the latter half of 2015 and as we head into the beginning of next year.

So let’s take a quick look at the treatment and the science from which it derives its method of action. Cabozantinib is what is called a tyrosine-kinase inhibitor (“TKI”) – which, as its name suggests, is an agent that inhibits tyrosine kinases. These are the enzymes that are responsible for protein activation that can lead to proliferation in cells, and therefore, can be responsible for metastasis, growth and reproduction of cancerous cells. By inhibiting tyrosine kinases, Exelixis hypothesizes that cabozantinib can reduce tumor size and – in turn – effectively treat cancer across a variety of indications.

So what sort of timeline are we looking at before we will likely see any approval? Well, the drug is one of a number of the FDA’s fast-track designations, meaning that, assuming the NDA filing takes place before the end of this year, we could be looking at an approval during the first quarter of 2016. The treatment is currently approved for a medullary thyroid cancer indication, however, there are only between 200 and 300 patients suffering from this indication in the US. If we get approval for the kidney cancer indication, this number will increase to nearly 20,000 potential patients. Therefore, it goes without saying, that this indication can be a potential blockbuster for the company. There is also a kidney cancer indication trial ongoing, with results expected 2017, and a combination trial using cobimetinib, another of the company’s pipeline candidates, and Zelboraf, an already approved treatment currently being marketed and manufactured by Roche (OTCMKTS:RHHBY). This, combination treatment could receive approval as early as November this year.

So, what’s the takeaway here? Well, that there is real potential in this stock. The company took a beating late last year, and its shares have been trading at what now look to be a deep discount ever since. Investors that got in at the base of this discount are already looking at a decent upside return, but the potential for further return exists. With approvals looking likely at both the end of this year and at the beginning of next, as well as phase III trial results expected during early 2017 for a second indication, now looks like a great time to get an exposure to any potential upside revaluation in this company going forward.

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Here’s What Markets are Asking About DBV’s Follow Up

By
ME Staff
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NASDAQ

In October last year, DBV Technologies (NASDAQ:DBVT) hit the markets with a pretty disappointing IPO, closing out at an average of around $21 per share versus its pre-IPO target of a little over $23 a share. However, over the last eight or nine months, the company has really found its stride, and we are now trading around $42 a share – 85% up on its IPO pricing and a nice return for those that got in last October. Just this week, we learnt that the company is taking advantage of its current rosy market situation, and launching a follow-up share offering to fund – among other things – a phase 3 program for its lead candidate – Viaskin. The question now facing potential contributors to this follow-up offering is simple. With hindsight, a $21 a share offering presented a discounted opportunity to gain exposure to what would turn out to be one of the hottest development stage biotech’s of the last six months. However, with the stock now up nearly 85%, is an entry at this price still a discount on a long-term valuation? If the answer is yes, then the follow-up is worth taking part in. If no, it is best left alone until we actually see some progress from the trial that the company is looking to fund. So, with this said, let’s have a look at the offering itself, and attempt to come down on either side of the question.

So, first, let’s take a look at the drug the company is looking to fund. As we have said, the candidate is called Viaskin, and currently has two primary indications – peanut allergy and cow’s milk protein allergy (CMPA) in children. In both incidences, the treatment uses a patch that contains an allergen protein in its original antigenic state. When exposed to the skin, the allergen is exposed to the allergen protein over an extended period of time. This extended exposure translates to activation of regulatory T cells, which not only treat allergies during exposure, but also (due to the nature of the human immune system) for a period once exposure ceases. Because the allergen is delivered to what are called Langerhans cells, they avoid the bloodstream and – in turn – avoid systemic allergic reactions, something that can vastly improve the safety profile of the treatment and give it an advantage over current standard of care.

So where are we with trials? The vast majority of the funds will go towards advancing the former of these two indications – the peanut indication – into phase 3 trials. With this in mind, let’s focus on the peanut indication for the purposes of judging the company’s current position in the market.

In September last year, we learnt the topline results for a phase IIb trial of 221 peanut allergic subjects across four treatment arms (three variable and increasing dosage levels and one placebo). At the beginning of this year, we heard a full study report during the 2015 AAAAI Annual Meeting in Houston, Texas. The trial showed efficacy, with 50% reaching primary endpoints compared to 25% on the highest dose level across all responders, and further, 53% exhibiting efficacy versus 19% in the child focused arm of the trial, designed to study children ages six to 11. Further, and just as importantly, safety was confirmed, with no treatment-related adverse events reported.

Things look promising so far, so what are the terms of the offering? Well, the company is offering 3.6 million shares in the form of 7.2 million American depositary shares (ADS), with each ADS representing one half of one ordinary share. Estimated net proceeds come in at around $230 million, slated to a public offering price of $34 per ADS. As we have said, the vast majority of the proceeds will go towards the phase 3 trial, and it is this trial that could be the primary driver behind any upside revaluation in DBV stop going forward.

So what are the risks? Well, as usual, there is the risk of non completion of the trial. Some of this is mitigated by the upcoming financing round, but if we fail to see the efficacy seen in the phase IIb, progress could falter. We also have to consider competition, and potential market size/saturation. Interestingly, in this instance, not from a direct comparable treatment, but from current standard of care – EpiPen, manufactured by generic drug incumbent  Mylan NV (NASDAQ:MYL) in conjunction with King Pharmaceuticals, which since a recent takeover is now an arm of Pfizer Inc.(NYSE:PFE). Sales of the EpiPen reached $1 billion for the first time early this year. Obviously the EpiPen controls the market at present, and unlike the treatment offered by DBV is a responsive treatment rather than preventative, but with a current market cap of $1.5 billion, it is easy to see how an approval for the peanut indication, followed by a small grab of market share (low double digit percentage) could turn Viaskin into a hit for DBV. Further, this is only one indication – the potential going forward is even bigger.

So, with all this said, where do we stand on the follow-up offering? Well, simply put, it looks attractive. Yes, DBV is 85% up on its IPO price, but as we head into phase III trials, all and any news releases have the potential to drive volatility. Get on the right side of this volatility, and we could see another similar upside revaluation during the next 12 months.

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This Deal Suggests Biotech Is Far from Its Peak

By
ME Staff
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Receptos

The fact that global biotech markets could be in the late stages of a bubble that kicked off between four and five years ago is making some investors, both private and institutional, wary about allocating capital to the space. After a number of temporary corrections during which analysts suggested we may start to finally see a turnaround in the sector, we continue to trade higher and higher in the major biotech indices, outstripping the vast majority of other industries along the way. However, there are a number of companies that seem to remain extremely bullish on biotech prospects. One of these is Celgene Corporation (NASDAQ:CELG). How do we know? Through its spending and acquisition activity. Over the last few weeks, we’ve seen Celgene acquire Juno Therapeutics Inc. (NASDAQ:JUNO) at nearly twice its open market rate in a $1 billion deal, we’ve seen the company expand its deal with Epizyme, Inc. (NASDAQ: EPZM) in what, over time, could be a close to $650 million deal, and finally, a realignment of its partnership with bluebird bio, Inc. (NASDAQ: BLUE) to the tune of a reported $225 million per product. If an incumbent biotech like Celgene is taking twice open market rate positions on developing stage companies, it is reasonable to conclude that it does not believe in the near-term turnaround in the overall sector, otherwise the company would wait for said turnaround and acquire the assets at a discount. After all, development stage companies like those mentioned are likely to fall further than mega caps such as Celgene. So, why are we discussing this? Well, Celgene has done it again. This time with a $7.2 billion acquisition of Receptos Inc (NASDAQ:RCPT) – its biggest spend so far this year and one that underlines its market outlook. So, with all this said, what is the deal look like, and how can investors on either side of it expect to fare near-term? Let’s take a look.

So, first up, let’s look at the agreement itself. For those poised with a fine tooth comb, you can see the 8K filing here, however, here is a simple outline of what’s involved. Celgene is to acquire all the outstanding shares of common stock of Receptos at a purchase price of $232 per share. At market close on Tuesday, just before the announcement, Receptos hit $207 a share, meaning Celgene is paying a little over a 12% premium on market rate. However, with around 31.5 million shares outstanding, it is reasonable to conclude that if Celgene was to actually purchase the shares in the open market, we would have seen more than 12% increase in price throughout purchase period. Therefore, it is reasonable to say that Celgene got market, is not slightly below market, rate on its latest acquisition – a far cry from the aforementioned Juno deal. In connection with the acquisition, JPMorgan Chase Bank has committed to providing Celgene with an unsecured bridge loan facility of up to $5 billion, which will cover two thirds of the costs of Receptos.

So what does Receptos bring to the table? Well, this is where things get interesting. The company’s primary focus is autoimmune drug development, and it currently has five candidates in its pipeline. The leader of these candidates – and the one which it is reasonable to conclude Celgene has paid so much for the acquisition of – is RPC1063, an orally administered modulator and trafficking agent currently targeted at the treatment of relapsing multiple sclerosis and two chronic, autoimmune, GI inflammatory disorders; Ulcerative colitis (“UC”) and Crohn’s disease (“CD”). In both instances, the treatment modulates the receptor pathway on white blood cells, and in doing so, achieveds sequestration (a complicated word for separation) of water reactive lymphocytes (responsible for disease proliferation) and the area in the body around which the disease resides. Basically, the treatment stops autoimmune diseases from spreading. Receptos initiated a phase 3 trial called SUNBEAM for RPC1063 in its MS incidence back in December 2014, and an update is expected during the third quarter of this year. For the UC and CD incidences, we saw a very promising results from a phase 2 trial that concluded last year, with the standout figure being 58.2% of patients on the 1 mg dose of RPC1063 achieved clinical response, as compared to 36.9% of patients on placebo. Again, during the third quarter this year, the company plans to initiate phase 3 trials for both of these targets.

So, the big question is, has Celgene overpaid for its new asset? The answer is – at present at least – a resounding no. The company expects to hit peak sales for RPC1063 (assuming approval) of more than $6 billion annually, and with the addition of the extended pipeline, expects net annual product sales in excess of $21 billion within the next five years.

Now back to the initial question: what does the deal look like from investors on both the Celgene and Receptos side of the deal? Well, from a Celgene perspective, it looks like a blockbuster acquisition. The company can make that its costs in a little over 18 months upon approval of RPC1063, and has diversified its current portfolio, which is heavily reliant on just a handful of treatments. From a Receptos perspective, the deal looks like an equally good one. Receptos shares have gained nearly 450% over the last 12 months on buyout rumors, and longer-term holders are now able to sell at this rate of gain, without fear that large scale selling will drive down price per share. All in all, a good deal all round. Well, assuming, that is, that approval follows.

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Anacor Soars; The Two Sides of the Investor Coin

By
ME Staff
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Anacor Pharmaceuticals

On Monday, July 13, 2015, we heard an Anacor Pharmaceuticals Inc. (NASDAQ:ANAC) topline results announcement from two phase 3 studies of one of the company’s lead pipeline candidates. Premarket, the stock traded from its Friday close a rate of four dollars a share to Monday’s open at $117 a share – a 40% gain, and continue to pick up strength throughout the day, eventually closing at $131 – a 56% gain in what effectively amounts to one US session. A couple of questions face investors going forward, let’s try and answer these by way of an investigation into the company and its potentially successful candidate. First of all, let’s outline the questions. The first is for those who held Anacor stock prior to the announcement and who are now more than 55% up on their position. Should they take some profit or hold on for further gains? The second is for those who do not yet have an exposure to the company. Is the candidate likely to receive FDA approval, and – in turn – is their further upside potential medium to long-term? Let’s take a look.

The treatment in question is a topical ointment called Crisaborole, an anti-inflammatory, non-steroidal PDE-4 inhibitor targeting patients with mild to moderate atopic dermatitis. Also called atopic eczema, atopic dermatitis is a common type of eczema that causes inflammation, cracking, itchiness and pain in patients. The treatment works by inhibiting an enzyme called phosphodiesterase 4 (“PDE-4”), and through this inhibition, reducing the production of what’s called tumor necrosis factor alpha (TNF-alpha). TNF-alpha is widely regarded as one of the primary precursors of inflammatory skin diseases such as psoriasis and eczema, and Anacor hypothesizes that its innovation can also lead to a reduction in severity of the aforementioned atopic dermatitis. So, did the trials support this hypothesis?

Over the past 12 months or so, the company has trialed the treatment across two primary phase 3 pivotal studies, each of which studied in the 750 patients each of ages two years or over. Using an Investigator Static Global Assessment (“ISGA”) score, Anacor targeted a primary endpoint of efficacy, defined by the ISGA score. ISGA is an industry standard scoring method which alters depending on what is being tested. In this instance, the score was based on erythema, which is reddening of the skin caused by irritation and causing dilation of blood capillaries. The score split into two potential results that qualified as meeting the endpoint – 0 meaning clear and 1 meaning almost clear. In the first of the trials, we saw 30.8% of patients achieving one of these two scores, the second 31.4%, versus a vehicle rating of 25.4% and 18% respectively. Regarding secondary endpoints, these also used the same scoring system but did not require the candidates to be a minimum of two base points above starting point. In this instance, we saw results of 51.7% 48.5%, and again, these beat the vehicle alternatives of 40.6% for the first study and 29.7% for the second study. Alongside the release, Paul L. Berns, Chairman and Chief Executive Officer of Anacor said:

“We are extremely pleased by the top-line results from our Phase 3 pivotal studies of crisaborole. We believe there is a significant unmet medical need for a novel non-steroidal topical anti-inflammatory treatment option for the patients who are affected by mild-to-moderate atopic dermatitis.”

The company plans to file a new drug application for the treatment during the first half of 2016, and it is this fact that answers the first of our questions – should current holders remain exposed. The answer, is that it could be worth taking some profit of the table, as a number of other exposures will likely do the same on the basis that we will probably not have too much market moving news over the next seven or eight months. This means that a correction is likely short term at least, and offers the opportunity to take profits now and get in at a discounted exposure once the correction completes. Looking longer-term, with a view to answering the second question, there are about 20 million people suffering from atopic dermatitis in the US, and approximately 90% of these suffer from the disease on a mild-to-moderate level, meaning they are potential candidates for this treatment. While price points have not yet been revealed, it is likely that this treatment would fall under the affordable care act in the US, and – as such – with 20 million patients suffering, it could very easily become a $1 billion candidate for Anacor on approval. With this in mind, the answer to the second question – i.e., does the company have more upside potential going forward – has to be yes. Once again, it may be worth waiting for the inevitable correction as short-term speculative holders take profits of table, and then getting in at a discounted price on a medium to long-term exposure.

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The How, What and When of Semaglutide

By
ME Staff
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novo
novo

At the end of last week, we learned that Denmark based Novo Nordisk A/S (ADR) (NYSE:NVO) had achieved promising results in its once weekly diabetes candidate. The treatment, referred to currently as semaglutide, is the latest in a line of diabetes treatments that have come out of the Novo labs, and – according to the company – is considered critical as far as maintaining a strong lead in the diabetes space is concerned. It’s been awhile since we looked at a phase 3 treatment for a company as big as Novo, but this is not through lack of investment opportunity. While it is true that phase 3 approval would mean a lot more as far as short-term upside potential was concerned for a development stage junior biotech, an approval can translate to some upside momentum even in a company of this size. So, with this said, let’s have a look at the treatment, what it does, how it performed in the latest trials, and what potential impact it might have on Novo’s market capitalization going forward – assuming approval.

So, what is semaglutide all about? Well, it is a modern take on the traditional treatment called Glucagon-like peptide-1 agonists, or more succinctly, GLP-1 analogues. There are a number of already approved GLP-1 analogues already available for the treatment of type II diabetes, including the two most famous, Tanzeum, approved in 2014 and marketed by GlaxoSmithKline (NYSE:GSK) and Trulicity, approved in 2014 and marketed by Eli Lilly (NYSE:LLY). However, Novo’s treatment differs from these two in one key area, which we will look at once we’ve addressed its mechanism of action.

As mentioned, semaglutide is a GLP-1 analogue, which means it is an agonist of the glucagon-like peptide 1 receptor (“GLP1R”). GLP1R is a gene inside the human body expressed in pancreatic cells that – when activated – stimulates what’s called the adenylyl cyclase pathway, which is an enzyme pathway responsible for a number of key regulatory roles in pretty much every cell in the human body. One of these roles is the production of insulin. Semaglutide is an agonist, which means that (unlike inhibitors, which stop genetic expression) it promotes expression, and in this instance, boosts insulin production. An increasing so the production in the human body translates to manageable blood sugar levels, hence its efficacy in treating diabetes. Okay, so where does this treatment have an advantage over those already approved? Well, a number of the currently approved treatments require dosages of every other or every three days throughout the week. This frequent dosage can translate to some pretty nasty side-effects, including (using the example of those mentioned above) nausea, diarrhea, kidney issues and – sometimes – pancreatitis. Novo believes that through reduction of dosage and dosing, it can reduce the side-effects associated with its GLP-1 analogues when compared to those currently available. Further, Novo currently has a GLP-1 treatment on the market – Victoza – that is a once-daily treatment. The new alternative offers even larger benefits over this already approved treatment than it does those currently approved with other companies. So what did we see in the trials? In a phase 3a, we saw an improvement of 1.5% and 1.6% for doses of 0.5 mg and 1.0 mg of semaglutide respectively, in patients with baseline HbA1c reading of 8.1%. HbA1c is a type of hemoglobin they can be used to measure blood glucose levels over a period of time, and in turn, can be used to determine efficacy of a particular diabetes treatment. Further, we saw an associated weight loss with the treatment. From the mean baseline and 90 kg, individuals on the smaller dose lost 3.8 kg and those on the larger dose lost 4.6 kg in weight. This compares for weight loss of an average of 1 kg for placebo patients.

And what can we expect going forward? Well, there is a snag, but one that is not impossible to overcome. Basically, this new treatment is a combination of the one we have already mentioned Victoza, and something called degludec. The latter of these two is not yet approved in the US, although it is approved in Europe under the name Tresiba. Before we see semaglutide approved, we will likely have to see degludec approved. An application is with the FDA at the moment, having been submitted in April, but it could be the end of the year before we get the final go-ahead. Having said this, if we do get a yes, there are currently 30 million people in the US suffering from diabetes Type II, and analysts expect Novo to generate more than $1 billion in revenue from the treatment. For a company generating a little over $12 billion annually, this could be a real blockbuster move forward for Novo, and in turn, any investors looking to take a speculative position of the approval of semaglutide. One to watch, definitely.

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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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