Biotech Buzz Post No. 18 - SIGA

SIGA Technologies (Nasdaq: SIGA) sells its Arestvyr smallpox drug to America's Strategic Stockpile. Watch where the Dengue program goes.      

SIGA Technologies (Nasdaq: SIGA)  – Prepared for big things

“In science the credit goes not to the one who first thinks of the idea, but to the one who convinces the world." - Sir William Osler (1849-1919), famous Canadian medical researcher and physician.


If you want to read a book that’ll make you scared and sad at the same time get hold of Biohazard by Ken Alibek. This is the story, told in 1999 (with Steven Handelman), of the Soviet Union’s biological weapons programme. Ken Alibek had worked in the 1980s on covertly weaponising anthrax, Ebola and tularaemia, just to name a few really bad microbes, before he defected to the United States in 1992. Alibek and his colleagues didn’t do things by halves when they created a biological weapon. They scoured the world looking for the worst possible viruses and bacteria and inevitably they ended up with tonnes of the stuff in storage. And this is the scary part – no-one seems to know where it all went after the Soviet Union came to a screaming halt in 1991. If you read the book you might have a little more sympathy with the Bush Administration over its decision to invade Iraq in 2003 to deal with all those Weapons of Mass Destruction said to be lurking there. You might also feel a bit sad that a historically destructive virus that was supposed to have disappeared from Planet Earth forever – smallpox – is in fact still around thanks to those devious Communists.

Back in the 1950s the Soviets had championed a clever smallpox eradication strategy where teams of health workers would quickly converge on the scene of a smallpox outbreak and vaccinate the nearest 50-200 people. This ‘ring vaccination’ strategy markedly reduced transmission rates. By the late 1970s the outbreaks had become rare enough to say that smallpox was no longer a global health concern, and in 1980 smallpox was officially declared history. The same strategy had almost rid us of polio ten years ago but these days the world’s population is much more mobile and less organised, politically speaking, so it doesn’t surprise me to learn that there’s an outbreak in Peshawar in Pakistan going on right now. With smallpox the idea post-eradication was that only two samples of the virus would remain, one with the US and the other with the Soviets. Once the genome of smallpox had been sequenced, these would be destroyed. The Soviets, regrettably, were so caught up in their Cold War mindset that they decided to secretly weaponise their sample instead. So smallpox is still with us, and since 2002 US military personnel have been vaccinated. Most of the rest of the human race is vulnerable because routine vaccination ended decades ago. If you wanted proof that ideas have consequences, this is it. When I was a kid back in the 1980s a lot of people thought Das Kapital was relatively harmless. Well, this is one of the evil things that book led to.

That’s the bad news part of today’s Biotech Buzz post, and sorry if I wrecked your day making you think about what a dangerous place the world has become. The good news is that SIGA Technologies (Nasdaq: SIGA) can make it a little less dangerous. That’s right – there’s a Nasdaq-listed biotech company in America whose core competency is ‘pharmaceutical solutions for some of the most lethal disease-causing pathogens in the world - smallpox, Ebola, dengue, Lassa fever and other dangerous viruses’. Its CEO is Dr Eric Rose, a heart surgeon who ran the heart transplant programme at Columbia Presbyterian in New York for a long time and was once Silviu Itescu’s colleague at that hospital. Rose now sits on the board of Itescu’s world-leading stem cell company Mesoblast (ASX: MSB) down here in Australia, but his main gig is looking after Life Sciences investments at MacAndrews & Forbes, which is the holding company of the billionaire investor Ron Perelman (the world's 79th richest person) and which has a sizable investment in SIGA.

SIGA has been built on the fact that since the US Congress passed the Project BioShield Act of 2004 Uncle Sam is obliged to maintain a Strategic Stockpile of drugs and vaccines that could deal with acts of bioterrorism. The lead product cooked up by SIGA’s drug developers out in Corvallis, Oregon is Arestvyr, a small molecule specific for smallpox, and in May 2011 the company signed a contract with BARDA, the US Biomedical Advanced Research and Development Authority, to sell two million courses of Arestvyr into the Strategic Stockpile. That’s enough to treat a smallpox outbreak in one US city. The contract is worth US$463m and runs until 2020. SIGA started delivering into the stockpile in March 2013 and became eligible to receive payments under the contract in July after the first half-million courses were delivered. This makes SIGA almost unique among biotech companies – it is able to commercially sell a drug (albeit to only one customer) for which there is no FDA approval. The biotech intellectual heirs of Karl Marx wouldn’t have blinked an eyelid at the thought of double-blind placebo-controlled ‘challenge’ studies of a smallpox drug in humans but, this being ethically unacceptable in civilised countries today, one has to rely on animal studies to show efficacy. The FDA revised the ‘Animal Rule’ to allow SIGA and others to do this. Arestvyr has worked in non-human primates challenged with smallpox’s cousin, monkeypox, but in the case of Arestvyr the Agency has not yet formally said Yes.

Clearly Arestvyr is valuable or the company wouldn’t be locked in legal proceedings with a competitor from Annapolis, Md named PharmAthene (NYSE MKT: PIP), which wants a piece of the drug (click here for some background on that matter). However the question needs to be asked: Is Arestvyr the base for a real business? In one sense it is. The day the bioterrorists strike with smallpox Uncle Sam will want much more than 2 million courses of Arestvyr, since smallpox is as contagious as influenza (where there are 80 million courses of Tamiflu in the stockpile) but kills a whole lot more people once it has incubated. However you can’t really build a company on the expectation of really bad things happening. Look at it another way. When CSL Ltd (ASX: CSL), now the world's 27th largest pharma company, was awarded a contract by the Australian government for influenza vaccines to deal with the H1N1 outbreak of 2009, my old colleague Charlie Aitken at Bell Potter remarked that for valuation purposes the contract ought to be ‘put on a P/E of 1'. It was, in his view, a one-off event that didn’t justify an increase in the notional value of CSL’s vaccine business. I broadly agree with this approach even though I would have argued that the probable effect of the outbreak was to boost routine influenza vaccination rates in the long-run, which would be good for CSL’s regular vaccine business. Since there’s no comparable ‘GP vigilance effect’ here, the real value for SIGA from Arestvyr from an investor’s perspective lies in where the company is parleying its revenues from that drug.

Which is why SIGA’s Dengue programme will be worth watching. For a long time Dengue held no appeal for drug developers. This mosquito-borne virus, the cause of 50-100 million cases of Dengue fever a year and perhaps 25,000 deaths, was only a problem in that tropical part of the world where poor people lived, even though those poor people constituted a third of the world’s population. Then in 2009 Dengue showed up in the continental US for the first time in 65 years (click here). Okay, it was only the Florida Keys, but this was clear evidence that Global Warming, man-made or natural, was bringing tropical diseases onto Rich World turf. Nowadays if you tell the Business Development folks at Big Pharma you have a potential Dengue drug in the pipeline they are all ears because there’s no current vaccine and Sanofi’s vaccine candidate, now in Phase III and expected to launch commercially in 2015, has pretty low efficacy (click here). SIGA is a great way to play the Dengue story because the folks in Corvallis have developed small molecules with activity against all four serotypes of the virus and they’ve been able to register efficacy in a mouse model. SIGA announced in August 2013 that it had selected a lead candidate for Dengue.

Of course, there’s still value to be created from the next Arestvyr. Even if he doesn’t think he needs another drug to combat bioterrorism, Uncle Sam still has to think about fighting wars in tropical countries, and that’s where a drug from SIGA specific for arenaviruses – the ones which cause haemorrhagic fevers such as Lassa in Africa and Junin in South America – may come in handy. Beyond that SIGA is working on a broad-spectrum antiviral specific for a range of viruses. So long as Congress reauthorises Project BioShield, which it has to do before the end of the year if it wants to keep the programmes going, there will likely be plenty of American taxpayer dollars out there for SIGA to develop new drugs against bioterror threats. It’s a reasonable bet that Congress will do something. 9/11 may have happened 12 years ago but we’re all still scared stiff, especially those of us who read Ken Alibek’s book. It’s good to know that this amazing biotech industry that has emerged in the last 30 years can come up something to help us to sleep a little better at night.

Stuart Roberts, Australian Life Sciences consultant, with global focus

Nisi Dominus Frustra

+61 (0)447 247 909

sroberts2164@gmail.com

Twitter @Biotech_buzz

About Stuart Roberts. I started as an equities analyst at the Sydney-based Southern Cross Equities in April 2001, focused on the Life Sciences sector from February 2002. Southern Cross Equities was acquired by Bell Financial Group (ASX: BFG) in 2008 and I continued at Bell Potter Securities until June 2013. Over the twelve years to 2013 I built a reputation as one of Australia's leading biotech analysts. I am currently consulting to the Australian biotech industry. Before joining Southern Cross Equities I wrote for The Intelligent Investor, probably the most readable investment publication in Australia. I have a Masters Degree in Finance from Finsia. My hobbies are jazz, cinema, US politics and reading patent applications filed by biotechnology and medical device companies.

Previous Australian Biotechnology Buzz posts:

Advanced Cell Technology (OTCBB: ACTC), 4 September 2013

Alcobra Pharma (Nasdaq: ADHD), 17 September 2013

Amicus Therapeutics (Nasdaq: FOLD), 22 September 2013

Aradigm (OTCBB: ARDM), 8 September 2013

BioSpecifics Technologies (Nasdaq: BSTC), 26 September 2013

Cellular Dyamics (Nasdaq: ICEL), 3 September 2013

ImmunoCellular Therapeutics (NYSE MKT: IMUC), 27 August 2013

Immunomedics (Nasdaq: IMMU), 21 August 2013

Inovio Pharmaceuticals (NYSE MKT: INO), 24 August 2013

Merrimack Pharmcaceuticals (Nasdaq: MACK), 26 August 2013

Oncolytics Biotech (Nasdaq: ONCY),  22 August 2013

Pharmacyclics (Nasdaq: PCYC), 2 September 2013

Regulus Therapeutics (Nasdaq: RGLS), 23 August 2013
SIGA Technologies (Nasdaq: SIGA) - 30 September 2013

Sunshine Heart (Nasdaq: SSH), 28 August 2013

Synta Pharmaceuticals (Nasdaq: SNTA), 1 September 2013

TrovaGene (Nasdaq: TROV), 15 September 2013

Verastem (Nasdaq: VSTM), 5 September 2013

Disclaimer. This is commentary, not investment research. If you buy the stock of any biotech company in Australia, the US or wherever you need to do your own homework, and I mean, do your own homework. I'm not responsible if you lose money.

Biotech Buzz Post No. 17 - BSTC

BioSpecifics (Nasdaq: BSTC) is the company that developed Auxilium’s Xiaflex drug. FDA approval for a Peyronie’s indication is coming.        


BioSpecifics Technologies (Nasdaq: BSTC) – Firming up the Peyronie’s opportunity
“It's not that I'm so smart, it's just that I stay with problems longer” - Albert Einstein (1879-1955)


One of the great things about biotechnology is that you can be intimately involved in science and, unlike physicists or mathematicians, still be able to go to parties and talk to ordinary people about what you do. After all, just about everyone is interested in health, or other things biotech is good for like fixing the environment, enriching crop yields or coming up with alternative energy sources. And every now and then you can hold forth on a biotech story that will have everyone at the party gathered around you ready to hear more. In the old days a good ice breaker was to talk about Icos, the Seattle-based company the late biotech legend George Rathmann (1927-2012) founded which gave the world Cialis. This weekend I recommend that you tell the guys around the barbeque about Biospecific Technologies (Nasdaq: BSTC) from Lynbrook, NY (the setting for the TV situation comedy Everybody Loves Raymond) and all the wonderful things they’ve been able to do with collagenase Clostridium Histolyticum.

Doubtless you’ve heard about Clostridium because of C. Difficile, the bacterium which causes diarrhoea and, occasionally, fatal inflammation of the colon – it’s one of the bugs for which hospitals have to be on the lookout because antibiotic therapy, by altering the balance of good bacteria in the gut, allows Difficile to multiply. Difficile comes from a large family of around 200 species of Gram-positive bacteria. If you haven’t met Difficile then you may have encountered his cousin C. perfringens, one of the most common causes of food poisoning in the United States, or C. botulinum, which, as the name suggests, produces a nerve toxin that can result in that rare but serious paralytic illness called botulism. C. Histolyticum we’ve known about since 1916 when it was discovered as a cause of gas gangrene, a rare condition in which gas-emitting bacteria cause tissue death. It was only natural that this bacterium be named Histolyticum, from the Greek histos, meaning ‘tissue’, and lytikos, meaning ‘dissolving’. In 1953 the Hungarian-born American biochemist Ines Mandl, searching through around 80 strains of this bacterium in a lab at Columbia, was able to isolate from one particular strain an enzyme called collagenase. That protein, by breaking down collagen, was partly responsible for Histolyticum’s tissue-dissolving capability.

Collagen, which makes up around 30% of the protein content of the human body, is the major constituent protein of connective tissue. More often than not when you hear about collagen the story is about injections of the protein to give people younger-looking skin, since the collagen that makes skin look youthful breaks down over time. What Ines Mandl gave the world back in the 1950s, in the form of a collagenase which had the ability to break down collagen and scar tissue without harming healthy tissue, was the ability to get rid of collagen when it is not needed.

Which brings us to BioSpecifics Technologies, which I call the Oil Search of US biotechnology. For those of you who don’t know the Australian equities market, Oil Search (ASX: OSH) is a Top 100 company in Australia today, with major oil and gas production from the Southern Highlands and Western provinces of Papua New Guinea. However it took a long time to get there. The company started exploring in PNG in the Depression years but didn’t discover PNG’s first major oil field, at Kutubu, until 1986. The story is about as long for BioSpecifics. It started in 1957, not long after Ines Mandl did her work, when an entrepreneur out on Long Island named Edwin Wegman founded the company which became BioSpecifics in order to commercialise collagenase. This same company gained FDA approval in 1965 – that’s right, 1965, the year Lyndon Johnson gave America Medicare - for Santyl, an ointment with collagenase as the active ingredient that is used to remove dead tissue from skin ulcers and burns. Santyl is still around today, marketed by Smith and Nephew, but BioSpecifics never made much money out of it. The next product BioSpecifics worked on, an injectable collagenase, didn’t hit the big time until 2010, the year of the next major healthcare reform after Medicare, that of Barack Obama. February 2010 was when the FDA approved Xiaflex, which is collagenase Clostridium Histolyticum, for the treatment of Dupuytren’s contracture, a condition in which people can’t straighten one of more or their fingers.

The beautiful part about Xiaflex for BioSpecifics is that over half a century of knowledge about what collagenase can do means that, potentially, you’ve got another Botox in the works. What I mean by that is this: Botox, which is injectable botulinum toxin type A originally from the aforementioned C. botulinum, started out in 1989 as a treatment for two rare eye muscle disorders - strabismus and blepharospasm. All the other therapeutic and, importantly, cosmetic uses – and these enabled Allergan (NYSE: AGN) to sell US$1.7bn worth of Botox last year– came later. Xiaflex started out with Dupuytren’s contracture and is now in poll position to gain FDA approval for use in Peyronie’s disease. I bet you’ve never heard of either of these conditions unless you’ve done what I did, which is read up on the BioSpecifics licensee Auxilium Pharmaceuticals (Nasdaq AUXL), whose first product was the testosterone replacement gel Testim (no, I don’t need the product, but I used to cover Acrux, ASX: ACR, which has a competing product). You can probably make good money out of Dupuytren’s and Peyronie’s. But just think how much money BioSpecifics and Auxilium can make from Xiaflex’s use in – wait for it – the removal of cellulite, something that just about every woman in the industrial world has not only heard of but is afflicted with and would like to get rid of it if at all possible.

Let me tell you about Dupuytren’s contracture and then we can get to Peyronie’s, which is the part that the guys at the barbeque are really going to want to hear about. Dupuytren’s contracture is what happens when nodules composed primarily of collagen form in the palms of one’s hand. Eventually these nodules build into a palpable cord in the hands that make it impossible for it to be fully open. Xiaflex, by dissolving the cord, can fix this problem without surgery, which was never all that effective anyway. If the estimated US annual incidence is any guide (3 cases per 10,000 adults – click here) around 72,000 Americans will be diagnosed with Dupuytren’s this year, which at US$3,250 per dose (click here) makes for a >US$200m market potential at the very least. Auxilium made US$55m out of it last year. Not bad for a starter. However I think that it is Peyronie’s that will really make people take notice of this product and drive its use across a range of indications.

That’s because Peyronie’s is what happens when scar tissue forms in the tunica albuginea, the thick sheath of tissue surrounding the corpora cavernosa. The result of this is that one’s penis bends when tumescent. That’s right – your hard-on can be at 90 degrees from where it is supposed to be. Aha, now I’ve got you attention (click here for what it looks like – don’t worry, it’s just a diagram). So, how many of us gentlemen have this curvature-of-the-penis problem, which the French surgeon François Gigot de la Peyronie (1678-1747) described way back in 1743? One prevalence estimate in Germany estimated 3% (click here). Another in the US suggested 9% (click here). BioSpecifics cites a 2007 estimate that goes for a rough midpoint of these two at 5% (click here). That could mean six million men in the US alone for whom the Phase III data suggests Xiaflex can help. One of them may be Bill Clinton, if you can believe the deposition material related to the Paula Jones sexual harassment case (click here).

How much help Xiaflex will give is indicated by a Journal of Urology paper from January 2013 (click here), which reported that the product brought about a ‘mean 34% improvement in penile curvature’ for the treated patients in clinical studies. Because this is partly about sex, there was a high placebo effect, with a mean 18.2% improvement for those guys, but the p value was less than 0.0001. Meanwhile – and I quote -‘the Peyronie disease symptom bother score’ went down 2.8 points for the treated patients versus only 1.8 for placebo (p = 0.0037). Now, you need to know if you’re hoping to get Xiaflex treatment someday that in the Peyronie’s studies there were three cases of ‘corporeal rupture’ (ouch), but these were surgically repaired. So this product seems to be more-or-less safe and it works. The data is now before the FDA in a supplemental Biologics License Application for Xiaflex where, after a delay announced last month, the PDUFA data is now December 6.

One can imagine FDA approval of Xiaflex for Peyronie’s getting a lot of people talking around a lot of barbeques the way Pfizer's Viagra got talked about back in March 1998. The difference between Xiaflex and Viagra is the pipeline. The data suggests that Xiaflex is also good for Frozen Shoulder (a clinical syndrome of pain and decreased motion in the shoulder joint also called adhesive capsulitis), but also for lipoma and cellulite. A lipoma is a benign fatty tumour that occurs as a bulge under the skin. I’ve got one of those. While it doesn’t bother me much, it is unsightly, and BioSpecifics has suggested that 575,000 patients in the US are diagnosed with one every year. I don’t have to tell you how much Edematous Fibrosclerotic Panniculopathy – ie cellulite - there is out there for which Xiaflex is a potential solution.

BioSpecifics is basically a royalty play from Auxilium related to Xiaflex. It’s low double-digits, but when you have only five employees it doesn’t cost much to maintain this royalty stream, as shareholders of the abovementioned Acrux, which is a royalty play related to Lilly’s commercial success with Axiron, have found. One man who would have been pleased with how BioSpecifics turned out was Edwin Wegman. He never lived to see Xiaflex go live in the US, having died in 2007 at the age of 87. So when you get to that barbeque where they’re talking about Peyronie’s and how it’s treatable, I suggest you raise a glass in his memory and remember something I told you about back on 24 August - Good things, like Hilton, IBM and Amgen, sometimes take time.

Stuart Roberts, Australian Life Sciences consultant, with global focus

Nisi Dominus Frustra

+61 (0)447 247 909

sroberts2164@gmail.com

Twitter @Biotech_buzz

About Stuart Roberts. I started as an equities analyst at the Sydney-based Southern Cross Equities in April 2001, focused on the Life Sciences sector from February 2002. Southern Cross Equities was acquired by Bell Financial Group (ASX: BFG) in 2008 and I continued at Bell Potter Securities until June 2013. Over the twelve years to 2013 I built a reputation as one of Australia's leading biotech analysts. I am currently consulting to the Australian biotech industry. Before joining Southern Cross Equities I wrote for The Intelligent Investor, probably the most readable investment publication in Australia. I have a Masters Degree in Finance from Finsia. My hobbies are jazz, cinema, US politics and reading patent applications filed by biotechnology and medical device companies.

Previous Australian Biotechnology Buzz posts:

Advanced Cell Technology (OTCBB: ACTC), 4 September 2013

Alcobra Pharma (Nasdaq: ADHD), 17 September 2013

Amicus Therapeutics (Nasdaq: FOLD), 22 September 2013

Aradigm (OTCBB: ARDM), 8 September 2013
BioSpecifics Technologies (Nasdaq: BSTC), 26 September 2013

Cellular Dyamics (Nasdaq: ICEL), 3 September 2013

ImmunoCellular Therapeutics (NYSE MKT: IMUC), 27 August 2013

Immunomedics (Nasdaq: IMMU), 21 August 2013

Inovio Pharmaceuticals (NYSE MKT: INO), 24 August 2013

Merrimack Pharmcaceuticals (Nasdaq: MACK), 26 August 2013

Oncolytics Biotech (Nasdaq: ONCY),  22 August 2013

Pharmacyclics (Nasdaq: PCYC), 2 September 2013

Regulus Therapeutics (Nasdaq: RGLS), 23 August 2013

Sunshine Heart (Nasdaq: SSH), 28 August 2013

Synta Pharmaceuticals (Nasdaq: SNTA), 1 September 2013

TrovaGene (Nasdaq: TROV), 15 September 2013

Verastem (Nasdaq: VSTM), 5 September 2013

Disclaimer. This is commentary, not investment research. If you buy the stock of any biotech company in Australia, the US or wherever you need to do your own homework, and I mean, do your own homework. I'm not responsible if you lose money.

Biotech Buzz Post No. 16 - FOLD

Amicus Therapeutics (Nasdaq: FOLD) got some apparently equivocal data from a Fabry trial late last December. The stock has yet to recover.

Amicus Therapeutics (Nasdaq: FOLD) – Knowing when to fold ‘em.

“Our wretched species is so made that those who walk on the well-trodden path always throw stones at those who are showing a new road” – Voltaire (1694-1778).

One of the more inspirational works of non-fiction I have read in the last twelve months is Geeta Anand’s 2006 book The Cure: How a father raised $100 million – and bucked the medical establishment – in a quest to save his children. I picked it up because at the time I was doing a lot of research on Orphan drugs in order to understand Neuren Pharmaceuticals (ASX: NEU), and was intrigued to learn that Sanofi/Genzyme’s Myozyme product, for the treatment of Pompe’s disease, had become the basis for a 2010 Hollywood film called Extraordinary Measures starring Brendan Fraser and Harrison Ford. Moreover as a father, and as someone who’s helped raise well in excess of $100m in order to buck at least parts of the medical establishment, I figured I’d have a bit in common with the hero of Geeta Anand’s story, a man from New Jersey about my age named John Crowley.

Back in the late 1990s Crowley was living in the Bay Area and putting his newly minted Harvard MBA to good use as a securities analyst. Then his two children were diagnosed with Pompe’s disease, a rare lyosomal storage disorder that results in profound muscle weakness. Before Genzyme brought out Myozyme, an enzyme replacement therapy (ERT), kids with Pompe didn’t live much past the first few years of school. Now the prognosis is a little better, thanks in part to Crowley. Like Augusto Odone before him (you can learn his story from the 1992 film Lorenzo’s Oil, another inspirational drug development quest) Crowley took a decidedly activist approach to saving his children’s lives. He moved his family back to New Jersey and worked on the sales side of Bristol-Myers Squibb in order to be close to the doctors treating the kids. He started learning as much as he could about Pompe. And he started a foundation in order to fund Pompe research. Then things got really interesting. The foundation invested in a company called Novazyme Pharmaceuticals, which was developing an ERT, and Crowley became its CEO. He was such a bad one that at least one VC backing the company was ready to throw him out until that VC realised what a great corporate culture Crowley had created – one where everyone was motivated to do the best work possible because they had met kids with Pompe and their caregivers and understood that their company could actually change these people’s lives for the better. Novazyme’s investors ended up doing very well because Genzyme bought the company for US$120m in 2001, while it was still pre-clinical, in order to strengthen the suite of candidates from which the future Myozyme would be selected for further development. And Crowley was able to achieve his mission – a Pompe drug for his children - because even though his own candidate drug didn’t become Myozyme, Genzyme was able to gain FDA approval for its drug in 2006. In 2012 Sanofi enjoyed €462m in net sales from Myozyme.

Now fast forward several years beyond the close of Geeta Anand’s book. These days John Crowley knows a lot more about drug development than he did a decade and a half ago, and is putting that accumulated knowledge to excellent use as CEO of Amicus Therapeutics (Nasdaq: FOLD), from Cranbury, NJ. It isn’t the easiest job in the world – on 19 December last year Amicus stock came down 47% on the back of some equivocal, albeit early, data from a Phase III trial in Fabry disease, and the stock is today only capitalised at US$128m, which is tiny for an Orphan drug developer in Phase III – but the fact that Amicus has a strong partnership with GSK and just started collaborating with Biogen Idec suggests to me that there might be something worth taking a look at with this one. Knowing the Crowley story, it didn’t surprise me to learn that there’s a Next Generation therapy for Pompe in the Amicus pipeline behind the lead programme in Fabry.

As Amicus’s Nasdaq ticker of ‘FOLD’ may have suggested, Amicus’s beat is drugs to correct protein misfolding. One of the things you learn very early in biology is that a protein may be just a string of amino acids, but if that string doesn’t fold into the correct three-dimensional shape after it has been assembled, the resulting protein won’t do its job properly. Amicus’s small molecule ‘pharmacological chaperones’ are designed to bind to their target proteins and increase their stability so that they won’t unfold. The company’s lead product, Amigal (migalastat hydrochloride), is designed to stabilise α-galactosidase, the protein that is replaced in Fabry.  As we noted above, it’s now in Phase III. Duvoglustat hydrochloride is designed to stabilise α-glucosidase, the protein replaced in Pompe. It’s in Phase II. Behind these two products are pre-clinical programmes in Gaucher’s disease and Parkinson’s disease.

The reason Amicus stock crashed last December, and has yet to recover, is concern that Amigal won’t work in Fabry disease. Fabry, which afflicts perhaps 5,000-10,000 people globally, results from a deficiency of α-galactosidase, which means that another protein called globotriaosylceramide, or GL-3, builds up in various cells including those of the kidney, where it can contribute to kidney failure. Fabry is treated using Genzyme’s Fabrazyme ERT (€292m in 2012 net sales), as well as a competing ERT from Shire called Replagal (2012 net sales US$498m). However some Fabry patients are still able to make their own α-galactosidase, and Amicus’ thinking is that Amigal would be an excellent monotherapy for these patients as well as a great adjuvant product for patients on ERT. GSK has proven a big supporter of this treatment alternative. It initially paid US$30m and agreed to US$170m in milestones in an October 2010 partnering deal, when it also took a US$31m equity stake in Amicus. In July 2012 Amicus and GSK agreed to co-develop the drug (Amicus taking USA rights, GSK rest-of-world) and GSK put another US$18m into the company to raise its stake to 19.9%.

The equivocal December 2012 data came from Study 011, the first of two Phase III trials of Amigal as a monotherapy in patients making some α-galactosidase. The investigators wanted to show that Amigal would reduce the buildup of GL-3 in the kidneys, and that’s what the data seemed to show, with 41% of treated patients seeing a 50%-or-more reduction in GL-3 in the kidney interstitial capillaries at six months. Trouble is, the comparable rate for placebo was 28%, meaning that the outcome for Amigal patients was far from statistically significant. Overall the treated group had seen a 41% median reduction in GL-3 in the kidney interstitial capillaries versus only 6% of the controls, but the p value here was still a little high at 0.093. So does Amigal work to treat Fabry? The 12-month data is due out soon, and if it continues the trend seen with the six month data the market is likely to be encouraged. A post-hoc subgroup analysis reported in February showed that for patients with a higher baseline disease burden Amicus’s drug seems to work very well, with a 64% responder rate versus only 14% for placebo.

The news has been good for Amicus on other fronts. In February, at the Lysosomal Disease Network World Symposium in Orlando, Fl., Amicus was able to report on Phase II data showing that Amigal boosted enzyme activity in ERT compared to Fabrazyme and Replagal alone. It also had good Phase II data to report at that meeting on Duvoglustat in ERT for Pompe. Amicus announced in June that it was working on a chaperone-plus-ERT for Mucopolysaccharidosis Type I (MPI I), using a grant from a private donor. Then early this month Amicus announced that it was collaborating with Biogen Idec looking for new drugs for Parkinson’s disease.

The Parkinson’s collaboration is exciting because at the moment there’s nothing much out there that works for very long, even though Parkinson’s prevalence in the over-50s population is greater than 1% and patients can often live 10-20 years on therapy, making for a huge potential drug market. The thinking that guides the Amicus/Biogen collaboration is that Parkinson’s is partly the result of a protein called α-synuclein going wrong – the buildup of α-synuclein in so-called ‘Lewy bodies’ in the brain is a hallmark of Parkinson's disease. If you can stop that buildup happening by increasing activity of a lysosomal enzyme called glucocerobrosidase, you may have a new treatment. Amicus and Biogen Idec will be going after chaperones that target glucocerobrosidase. The fact that the collaborator is Biogen Idec, a company that prides itself on its CNS expertise, suggests that Amicus has something worth taking seriously. It’s also worth noting that only two years ago a group at Brigham and Women's Hospital in Boston figured out the correct structure of α-synuclein in healthy cells, which was a folded protein, not unfolded as everyone had previously thought (click here). This means that a good strategy for tackling Parkinson’s via α-synuclein is keeping the folded form of the protein stable, not preventing unfolded α-synuclein from aggregating. Keeping folded proteins stable is something right up Amicus’s alley.

So the Parkinson’s programme at Amicus is one to watch. However go back to the Fabry/Pompe angle, if you will. At the moment there’s a boom going on for companies with Orphan drugs in the works. Orphan drugs often sell for high prices due to the big difference they can make in patient outcomes, and they can have a short path to market compared to drugs for large market diseases. Throw in the benefits that came the Orphan Drug Act of 1983 like guaranteed market exclusivity for seven years regardless of patent protection, the fact that Big Pharma has become more interested in recent years, and the fact that the Orphan drug pioneers like BioMarin (Nasdaq: BMRN) are now established players, and a good Orphan story can attract a lot of investor attention. That magic, however, doesn’t seem to be working for Amicus at the moment even with the guy portrayed cinematically by Brendan Fraser in the CEO's chair. All of which could make it worth some homework.

Stuart Roberts, Australian Life Sciences consultant, with global focus
Nisi Dominus Frustra

+61 (0)447 247 909

sroberts2164@gmail.com

Twitter @Biotech_buzz

About Stuart Roberts. I started as an equities analyst at the Sydney-based Southern Cross Equities in April 2001, focused on the Life Sciences sector from February 2002. Southern Cross Equities was acquired by Bell Financial Group (ASX: BFG) in 2008 and I continued at Bell Potter Securities until June 2013. Over the twelve years to 2013 I built a reputation as one of Australia's leading biotech analysts. I am currently consulting to the Australian biotech industry. Before joining Southern Cross Equities I wrote for The Intelligent Investor, probably the most readable investment publication in Australia. I have a Masters Degree in Finance from Finsia. My hobbies are jazz, cinema, US politics and reading patent applications filed by biotechnology and medical device companies.

Previous Australian Biotechnology Buzz posts:
Advanced Cell Technology (OTCBB: ACTC), 4 September 2013
Alcobra Pharma (Nasdaq: ADHD), 17 September 2013
Amicus Therapeutics (Nasdaq: FOLD), 22 September 2013
Aradigm (OTCBB: ARDM), 8 September 2013
Cellular Dyamics (Nasdaq: ICEL), 3 September 2013
ImmunoCellular Therapeutics (NYSE MKT: IMUC), 27 August 2013
Immunomedics (Nasdaq: IMMU), 21 August 2013
Inovio Pharmaceuticals (NYSE MKT: INO), 24 August 2013
Merrimack Pharmcaceuticals (Nasdaq: MACK), 26 August 2013
Oncolytics Biotech (Nasdaq: ONCY),  22 August 2013
Pharmacyclics (Nasdaq: PCYC), 2 September 2013
Regulus Therapeutics (Nasdaq: RGLS), 23 August 2013
Sunshine Heart (Nasdaq: SSH), 28 August 2013
Synta Pharmaceuticals (Nasdaq: SNTA), 1 September 2013
TrovaGene (Nasdaq: TROV), 15 September 2013
Verastem (Nasdaq: VSTM), 5 September 2013

Disclaimer. This is commentary, not investment research. If you buy the stock of any biotech company in Australia, the US or wherever you need to do your own homework, and I mean, do your own homework. I'm not responsible if you lose money.

Biotech Buzz Post No. 15 - ADHD

Israel's Alcobra Pharma (Nasdaq: ADHD) has great Phase IIb data in ADHD with MG01CI, a non-stimulant drug.                                                                                                                     

Alcobra Pharma (Nasdaq: ADHD) – Another fast-mover from the Startup Nation

“Time is what prevents everything from happening at once” – John Archibald Wheeler (1911-2008), US physicist.


Nothing is certain in this world and, I assure you, everything is far from certain in the game of drug development, but I’ll tell you one of the things I am almost certain about: Come up with a better drug to treat ADHD than what’s out there at the moment, and you’ve got a billion dollar molecule on your hands. It’s estimated that between 5% and 12% of kids in your typical industrial country have Attention Deficit Hyperactivity Disorder, and that around half of them won’t grow out of it. I don’t care if you think ADHD isn’t real (it’s only really been an ‘official’ disorder since ‘Attention Deficit Disorder’ made it into DSM-III, the 3rd Edition of the American Psychiatric Association's Diagnostic and Statistical Manual of Mental Disorders, in 1980) and that it’s one of those made-up disorders like Female Sexual Dysfunction that drug companies latch on to every now and then. Meet a kid with ADHD and you’ll know he’s a nightmare to parent or to teach, and when he grows up he’ll potentially be difficult to live and work with. Behavioural therapy to set the kid straight is expensive. That leaves drugs. The need for better drugs to treat the vast numbers of inattentive and hyperactive kids out there is the reason why Vyvanse did US$1.03bn in 2012 net sales for Shire and one of the reasons why Randal Kirk, who sold New River Pharmaceutical to Shire for $2.6bn in 2007 so they could get the drug just after it had gained FDA approval, is now the world’s 613th richest person.

The thing about the ADHD drug scene is that the products may sell in the billions but they have noticeable shortcomings. Let’s start with the one everyone knows about, Ritalin, from Novartis. It’s a short-acting version of methylphenidate, an amphetamine derivative that the Novartis precursor Ciba-Geigy first synthesised in the 1940s and started marketing in the 1950s for things like depression and narcolepsy. The reason certain kinds of amphetamines are drugs of abuse that the DEA has been going after since the mid-1960s is because they’re stimulants – you get a high from all that dopamine they help pump into your brain, and that can be addictive in a bad way. Don’t get me wrong. Dopamine is actually good for you – the reason people have ADHD in the first place is that dopamine helps you pay attention and Ritalin works by bringing it back to normal levels. But that leaves the potential for Ritalin to be abused by people looking for the high, and you’ve probably heard stories by now of playground drug dealers whose main product is Ritalin (click here for a good one).

Now, there have seen improvements in the kinds of drugs that doctors prescribe, but not much. J&J’s Concerta (FDA approved in 2000), is simply long-acting methylphenidate, but that’s good for a US$1.07bn in 2012 net sales. Focalin (FDA approved in 2001) is d,l-methylphenidate, the active isomer of methylphenidate, and that helped keep Novartis’s ADHD franchise at US$554m in 2012 net sales. The abovementioned Vyvanse, real name lisdexamfetamine dimesylate, is a prodrug of d-amphetamine that allows for longer therapeutic action. The problem with all these drugs is that they’re still stimulants – like amphetamines they can mess with your head, interfere with sleep and appetite, and increase your blood pressure, among other things. Moreover, they don’t work for everybody – possibly 30% to 50% of those who are prescribed stimulants either don’t respond or can’t tolerate the drug, meaning that only around a fifth of patients come back for more next month. That’s why, when Eli Lilly gained FDA approval for Strattera in 2003, people got excited. Here was the world’s first non-stimulant ADHD drug, it being a selective norepinephrine reuptake inhibitor. Trouble is, that drug takes up to 10 weeks to start working, and patients complain about things like fatigue and sexual problems when they’re on it. But it’s still a non-stimulant, which is why Lilly made US$621m in net sales out of it in 2012.

Which brings us to an Israeli company recently listed on Nasdaq which may be in a position to make some more progress in this somewhat troubled if lucrative drug market. Two years ago Alcobra Pharma (Nasdaq: ADHD), from Tel Aviv, completed Phase IIb with a drug candidate called MG01CI and showed that it had the makings of a great new ADHD therapy. If you’ve read Dan Senor and Saul Singer’s Startup Nation (and if you’re like me, a Gentile with a high regard for the character and achievements of Israel’s 7.7 million people, I highly recommend the book) it won’t surprise you to learn that Alcobra didn’t come up with MG01CI from scratch. Israelis are good at drug discovery – just look at Teva’s Copaxone – but they can be an impatient lot, so they’re even better at reprofiling existing drugs where they can get to market faster. MG01CI started life as metadoxine, an alcohol detox drug used clinically in Europe since the 1980s. Alcobra, which only started up in 2008, took intellectual property over the drug's use in ADHD and created a combined rapid onset/extended release formulation before going to the clinic.

MG01CI’s Phase IIb study was a six-week affair in 120 adults with ADHD randomising 1:1 either to 1,400mg of MG01CI or placebo. The drug was found to be well-tolerated, with nausea being about the only thing bothering perhaps a fifth of treated patients, and even with that factor 95% of treated subjects still completed the six weeks of treatment. However the thing that will have impressed people when they read the results in the Journal of Clinical Psychiatry (click here) is its effectiveness. Measured using CAARS (the Conners’ Adult ADHD Rating Scales) and TOVA (Test of Variables of Attention), MG01CI was beating placebo with statistical significance after as little as two weeks of treatment. This will have been considered a big deal in psychiatric circles because MG01CI isn’t a stimulant and it’s not dopaminergic. It works through a serotonin receptor called 5-HT2b. Science has had clues for a long time that abnormal levels of serotonin had something to do with ADHD (click here). The field now has a validated target that allows ADHD to be treated using the serotonin system, with the prospects for a whole lot of safer drugs in the future than what we have now.

The beautiful part of the Alcobra story is the speed with which MG01CI can now move forward because of the short dosing window before they get data readout. The company expects to have interim Phase III data by the middle of next year and be completing both its pivotals by the end of that year. This puts Alcobra on track to have FDA approval for MG01CI sometime in 2015. And there may be more for MG01CI beyond ADHD. Earlier this month Alcobra announced that it had done a mouse study of its drug in Fragile X Syndrome and found ‘significant improvement in cognitive and social functioning’. So there could be an Orphan designation in MG01CI’s future. But leave that news aside and ask yourself this: Given what Vyvanse has achieved for Shire and Strattera for Lilly, how much would you expect to pay for MG01CI going into Phase III? Alcobra did its IPO and listed on Nasdaq in May, raising US$25m, at US$8 per share. The stock is now US$15.68 but that only capitalises Alcobra at US$175m.

There’s an interesting Australian angle to this ADHD story that I think is worth paying attention to. Here in Sydney my friend Dan Segal, formerly a great equities analyst covering the telco sector, has spent the last 13 years building Brain Resource (ASX: BRC, OTCQX: BRRZY), owner of the world’s largest database of brain function. Dan’s company now has a treatment prediction engine that can be used to pick the right ADHD drug for each patient, potentially cutting out the sort of hit-and-miss on prescriptions that I alluded to above. A similar engine does the same thing for anti-depressants, and Brain Resource is now workshopping with the FDA on the appropriate approval path for this system. In each case there are millions of scripts that can be written a whole lot more efficiently once the engine is in widespread clinical use. If you think Alcobra is tiny compared to its potential you should see Brain Resource. At the moment you can get it down here for A$41m.

Stuart Roberts, Australian Life Sciences consultant, with global focus
Nisi Dominus Frustra

+61 (0)447 247 909

sroberts2164@gmail.com

Twitter @Biotech_buzz

About Stuart Roberts. I started as an equities analyst at the Sydney-based Southern Cross Equities in April 2001, focused on the Life Sciences sector from February 2002. Southern Cross Equities was acquired by Bell Financial Group (ASX: BFG) in 2008 and I continued at Bell Potter Securities until June 2013. Over the twelve years to 2013 I built a reputation as one of Australia's leading biotech analysts. I am currently consulting to the Australian biotech industry. Before joining Southern Cross Equities I wrote for The Intelligent Investor, probably the most readable investment publication in Australia. I have a Masters Degree in Finance from Finsia. My hobbies are jazz, cinema, US politics and reading patent applications filed by biotechnology and medical device companies.

Previous Australian Biotechnology Buzz posts:
Advanced Cell Technology (OTCBB: ACTC), 4 September 2013
Alcobra Pharma (Nasdaq: ADHD), 17 September 2013
Aradigm (OTCBB: ARDM), 8 September 2013
Cellular Dyamics (Nasdaq: ICEL), 3 September 2013
ImmunoCellular Therapeutics (NYSE MKT: IMUC), 27 August 2013
Immunomedics (Nasdaq: IMMU), 21 August 2013
Inovio Pharmaceuticals (NYSE MKT: INO), 24 August 2013
Merrimack Pharmcaceuticals (Nasdaq: MACK), 26 August 2013
Oncolytics Biotech (Nasdaq: ONCY),  22 August 2013
Pharmacyclics (Nasdaq: PCYC), 2 September 2013
Regulus Therapeutics (Nasdaq: RGLS), 23 August 2013
Sunshine Heart (Nasdaq: SSH), 28 August 2013
Synta Pharmaceuticals (Nasdaq: SNTA), 1 September 2013
TrovaGene (Nasdaq: TROV), 15 September 2013
Verastem (Nasdaq: VSTM), 5 September 2013

Disclaimer. This is commentary, not investment research. If you buy the stock of any biotech company in Australia, the US or wherever you need to do your own homework, and I mean, do your own homework. I'm not responsible if you lose money.

Biotech Buzz Post No. 14 - TROV

Molecular diagnostics is hot thanks to low cost gene sequencing. TrovaGene (Nasdaq: TROV) is pioneering urine-based diagnostics.                                                                                                                               

TrovaGene (Nasdaq: TROV) – The next frontier in molecular diagnostics

“Wisdom and knowledge shall be the stability of thy times” – Inscription above the main entrance to the GE Building at the Rockefeller Center in New York City, taken from Isaiah 33:6.

Greetings from Sydney, Australia. I had intended to Blog actively while I was in New York last week but the trouble with that city is that there’s too much going on to be able to settle down and write a good Blog post. Now that I’m back home I can be a little more productive. To all the folks I met in New York last week, thank you for your insights and hospitality and a word of advice: watch what’s going on in Australian Life Sciences because there’s big profits to be made from what I think is a much undervalued sector.

I mentioned a while ago in this Blog my belief that one of the big steps forward in cancer therapy in the near future will come from better diagnostics. The trouble with cancer is that it is often diagnosed too late to do much good. If there were easier ways to detect a tumour early, the survival rate for a whole range of cancers could rise markedly. Take ovarian cancer as a good example. Diagnosed at the local stage, a woman’s five year survival chances can be over 90%, but that only happens 15% of the time. Diagnosed late, which is at least 60% of cases because for a long time the disease is more or less asymptomatic as far as the patient is concerned, five year survival drops under 30%.

Easier cancer diagnosis is one reason why I am intrigued by the San Diego-based TrovaGene (Nasdaq: TROV), because it has technology to do cheap molecular diagnostics from urine. That’s right, molecular diagnostics from urine.

Molecular diagnostics are simply diagnostics for specific nucleic acids or proteins associated with disease. Traditionally in diagnostics you detected a chemical associated with disease. Then in the 1980s science gave us the ability to use antibodies for detection of specific disease proteins but, more importantly, the Polymerase Chain Reaction (PCR) to detect specific disease DNA and RNA. Then came the Human Genome Project, which made the identification of disease genes relatively easy, and subsequent advances in DNA sequencing that cut the cost of sequencing a human-sized genome from the US$1bn of the original human genome down to US$5,000-6,000 today – a massive drop in just over a decade (click here for an eye-opening chart showing how gene sequencing is like Moore's Law on steroids). No wonder, then, that there’s a boom going on in the clinical use of molecular diagnostics based on nucleic acids, with typical double-digit growth for companies playing in the field like Qiagen, Cepheid, Abbott, Roche and Myriad. TrovaGene now wants to get in on this boom with genetic tests that use non-invasive and easy-to-obtain urine samples rather than the traditional, more invasive methods of blood testing as well as bone marrow and tissue biopsy.

TrovaGene’s contribution to the molecular diagnostics field has been, firstly, to prove that circulating cell-free nucleic acids cross the kidney barrier and can be found in the urine as ‘transrenal nucleic acids’ (TrNAs – click here for the original 2000 paper), and then to develop methods to isolate and amplify short TrNA fragments, something that you couldn’t do cost-effectively with existing technologies prior to the TrovaGene team’s work. TrovaGene now thinks that it can detect more than six times more mutations in a TrDNA sample than any other PCR-based assay now on the market. The company has a CLIA-certified lab in San Diego that can perform urine-based molecular diagnostics using these technologies, and TrovaGene is now seeking to build a business from this with new diagnostics for Human Papilloma Virus (HPV) and other infectious diseases, as well as for cancer, transplantation monitoring and prenatal disorders.

The potential for TrovaGene’s diagnostics is huge. Consider the cancer field, where the company has done a lot of work on TrNA diagnostics that can detect the various genetic mutations that drive cancer such as those in proteins like p53, KRAS and BRAF and PIK3CA. A lot of new therapies are coming on the market that only work where the patient’s tumour is carrying a particular mutation. For example, the melanoma drugs Zelboraf (Roche) and Tafinlar (GSK) specifically treat patients with a mutation in a kinase called BRAF. Since BRAF mutations shows up in around 20% of all cancers it’s a reasonable bet that more BRAF inhibitor drugs are coming. So it’s very interesting that in January TrovaGene announced a collaboration with MD Anderson Cancer Center in Texas to detect transrenal BRAF mutations in the urine of patients with advanced or metastatic cancers. TrovaGene and MD Anderson will track how BRAF changes during treatment and how BRAF tracks with patient outcomes. The ability to do this with urine points towards a genuinely convenient and real-time diagnostic that can guide decisions on targeted therapy.

Obviously it’ still early days for TrovaGene, but the current ~US$150m market capitalisation reflects in part the fact that the company is now going commercial in a hot market space The HPV test, which detects 15 known high-risk HPV strains and has the potential to displace the traditional and not-well-appreciated Pap smear, launched in March, and other tests are under validation now. If TrovaGene does its homework right on bringing together the right diagnostics into its stable, then it has a shot at some pretty strong growth ahead – competitor Myriad  (Nasdaq: MYGN), which started out with just the breast cancer genes BRCA1 and BRCA2, is now a US$2.1bn company thanks to a portfolio of molecular diagnostics across a range of cancers.

Stuart Roberts, Australian Life Sciences consultant, with global focus
Nisi Dominus Frustra

+61 (0)447 247 909

sroberts2164@gmail.com

Twitter @Biotech_buzz

About Stuart Roberts. I started as an equities analyst at the Sydney-based Southern Cross Equities in April 2001, focused on the Life Sciences sector from February 2002. Southern Cross Equities was acquired by Bell Financial Group (ASX: BFG) in 2008 and I continued at Bell Potter Securities until June 2013. Over the twelve years to 2013 I built a reputation as one of Australia's leading biotech analysts. I am currently consulting to the Australian biotech industry. Before joining Southern Cross Equities I wrote for The Intelligent Investor, probably the most readable investment publication in Australia. I have a Masters Degree in Finance from Finsia. My hobbies are jazz, cinema, US politics and reading patent applications filed by biotechnology and medical device companies.

Previous Australian Biotechnology Buzz posts:
Advanced Cell Technology (OTCBB: ACTC), 4 September 2013
Aradigm (OTCBB: ARDM), 8 September 2013
Cellular Dyamics (Nasdaq: ICEL), 3 September 2013
ImmunoCellular Therapeutics (NYSE MKT: IMUC), 27 August 2013
Immunomedics (Nasdaq: IMMU), 21 August 2013
Inovio Pharmaceuticals (NYSE MKT: INO), 24 August 2013
Merrimack Pharmcaceuticals (Nasdaq: MACK), 26 August 2013
Oncolytics Biotech (Nasdaq: ONCY),  22 August 2013
Pharmacyclics (Nasdaq: PCYC), 2 September 2013
Regulus Therapeutics (Nasdaq: RGLS), 23 August 2013
Sunshine Heart (Nasdaq: SSH), 28 August 2013
Synta Pharmaceuticals (Nasdaq: SNTA), 1 September 2013
TrovaGene (Nasdaq: TROV), 15 September 2013
Verastem (Nasdaq: VSTM), 5 September 2013

Disclaimer. This is commentary, not investment research. If you buy the stock of any biotech company in Australia, the US or wherever you need to do your own homework, and I mean, do your own homework. I'm not responsible if you lose money.

Biotech Buzz Post No. 13 - ARDM

Aradigm has secured a major partner, in Grifols, for its inhaled ciprofloxacin. The product is going to Phase III after good Phase II data.

Aradigm (ARDM.OB) – Breathtaking opportunity

“A business succeeds not because it is long established or because it is big but because there are men and women who live it, sleep it, dream it, and build great future plans for it” – J. Willard Marriott (1900-1985), founder of the Marriott hotel chain.


Hello from West 39th Street in New York, from whence I’ll be blogging for the next few days as a guest of J. Willard. One of the things I love about biotech is how a drug or medical device developer can be more or less ignored by mainstream investors for a long period of time, trading at a not-very-respectable market capitalisation (and sometimes even over-the-counter as we saw with Advanced Cell last week), and then along comes another much larger and established company that, seeing the strategic value of what the smaller company has to offer, takes everyone by surprise by paying what seems like an outrageously high price to access to the relevant products or technology. A classic example of that happened in 1995 when Genentech began a collaboration with a small San Diego-based antibody drug developer called IDEC Pharmaceuticals. IDEC had done its IPO during the 1991 biotech boom at $US15 per share, but by March 1995 its stock was down to under US$2 per share. IDEC’s lead antibody was IDEC-C2B8, for the treatment of non-Hodgkin’s lymphoma. The drug had completed Phase II with good results but IDEC had only US$22m in cash so it couldn’t fund Phase III. Consequently in early March 1995 IDEC was capitalised on Nasdaq at only US$46m. Then along came Genentech and agreed to a US$57m funding package to complete the Phase III work. By the time IDEC-C2B8 had gained FDA approval two and a half years later, ahead of its launch as Rituxan, IDEC stock had risen nine-fold. Today Rituxan is one of the world’s biggest selling drugs with US$6.9bn in global sales in 2012. Meanwhile IDEC’s successor company, Biogen Idec, is the world’s 34th largest pharma company with a market capitalisation of US$53.5bn. That’s right, billion. Not all of those billions were the result of Rituxan but that drug provided an excellent start. Investors who bought IDEC in March 1995 have now made over 360 times their money. By contrast the Nasdaq Biotechnology Index has only increased a mere 18-fold, from 119 then to 2,105 points now.

In the light of that model recovery story, let’s take a look at Aradigm (OTCBB: ARDM), a pulmonary drug delivery company from the Bay Area. No two biotech stories are the same but Aradigm has, shall we say, certain parallels to the IDEC of two decades ago. Aradigm’s market capitalisation back on 20 May was around US$25m. Its lead product, an inhaled antibiotic called Pulmaquin, has completed Phase IIb with strong numbers. In May 2013 Aradigm was able to announce that Pulmaquin had been licensed to the Spanish plasma products company major Grifols (MCE: GRF), in a deal where the Spaniards, whose market cap is around US$5bn, agreed to take it into Phase III and spend US$65m on clinical development. And Aradigm’s current CEO, Igor Gonda, is, like IDEC’s William Rastetter in 1995, an ex-Genentech man.

Aradigm came to my attention because Igor Gonda is an old friend who has lived a couple of times in Australia. Igor hails from what used to be called Czechoslovakia. In 1968 he was taking advantage of Prague Spring to study chemistry in England, at the University of Leeds, when he got the call from his family that the Soviets had decided, somewhat peremptorily, to call off Dubček’s experiment in running a free country. Igor stayed at Leeds and never went back. He was in academic chemistry for a long time, and that included a stint at the University of Sydney, but by the early 1990s he had discovered the Dark Side, going to work for Genentech in South San Francisco as a senior member of the development team that gave us Pulmozyme, an inhaled enzyme for the treatment of cystic fibrosis the FDA approved in 1993. I first met Igor during his second Australian assignment, where from 2001 to 2006 he was CEO of Acrux (ASX: ACR), a Melbourne-based transdermal drug delivery company. Acrux had developed a transdermal spray to deliver various drugs, and clinical data was starting to come in. My first meeting with Igor was memorable not just because he has a noticeable Eastern European accent but because of what we were talking about. This was around 2005, in the days when transdermal testererone delivery for women was still regarded as future blockbuster territory. It’s well known that raising the level of circulating testosterone in women boosts their libido, and the only reason we have yet to see this would-be ‘Viagra for women’ approved is the cardiovascular risks (click here). In 2005 Acrux had been working with Susan Davis at Melbourne’s Monash University to show, in a Phase IIb study, that libido would go up in premenopausal women using Acrux’s spray-on testosterone formulation. I asked how efficacy had been measured. Well, said Igor enthusiastically, that’s simple. The test subjects had to keep a diary and record in it every sexual thought and act they engaged in. It didn’t matter whether the activity was hetero or not. The investigators could still score the diaries using reliable methodologies that P&G had helped develop in their efforts to bring such a patch to market. I joked that I’d be interested in being an investigator in this study, if that was at all possible. It occurred to me years later that Igor et. al. could have been sitting on an early draft of 50 Shades of Grey and that in those diaries he could have had a highly profitable product without ever having to go to the FDA. Indeed, the profits would be obscene. If you want to see how good the testosterone product could have been, check out Davis et. al.’s study of P&G’s Intrinsa patch in post-menopausal women.  The 2008 New England Journal of Medicine paper isn’t exactly E.L. James but nonetheless makes for interesting reading (click here).

Igor didn’t get to see Acrux reach its payday before he returned to California in 2006 to become CEO of Aradigm. However the payday did come, and only three years later, when Acrux read out Phase III data for Axiron, a testosterone spray for hypogonadal men, demonstrating that the product worked well in normalising testosterone levels in the treated patients. That data prompted Eli Lilly in 2010 to license Axiron for US$50m upfront payment, plus US$87m on FDA approval and US$195m in sales milestones. Axiron launched in the US in 2011 and it’s the main reason why Acrux is currently capitalised at A$519m. I give Igor credit for helping Acrux get ready for that success. Seven years later and Igor would argue that his second stint at Aradigm – he previously ran R&D there in the late 1990s and early 2000s – has set up that company for similar success to Acrux.

Aradigm is being built on a better way to deliver the antibiotic ciprofloxacin to people with bronchiectasis, a rare respiratory disorder. Bronchiectasis is what happens when chronic inflammation damages the lung’s bronchi and bronchioles, impairing lung function. Just like people with cystic fibrosis or COPD, that is, Chronic Obstructive Pulmonary Disorder, people with bronchiectasis – and there may be 100,000-120,000 of them in America – are more susceptible to lung infections than healthy patients, and such infections can result in damaging lung inflammation. One of the baddest bugs attacking them is Pseudomonas aeruginosa, but that Gram-negative bacterium can be dispatched fairly easily by ciprofloxacin, one of the last great antibiotics to be brought to the market (in 1987, by Bayer – its US exclusivity ended in 2004). At the moment there are oral and injectable versions of ciprofloxacin. Aradigm hopes that its Pulmaquin product, now moving into Phase III, can become the first inhalation version of ciprofloxacin. Pulmaquin has Orphan Drug status for its use in bronchiectasis, and approval would make it the first ever product indicated for this disease.

The reason inhalable ciprofloxacin would be desirable is that you can quickly deliver the active to the site where it is actually needed instead of relying on the slower and less efficient gut and/or bloodstream routes. Currently there are inhaled antibiotics out there for patients with lung disorders, although not specifically indicated for bronchiectasis – TOBI, from Novartis (delivering tobramycin), and Cayston, from Gilead (delivering aztreonam). The trouble with these formulations is that they have to be delivered more than once a day (twice daily for TOBI, three times daily for Cayston) because the half-life in the lungs is short. Aradigm has been able to develop Pulmaquin as a once-daily product by wrapping most of the ciprofloxacin dose in liposomes, leaving just a little in an aqueous solution. The liposomes ensure controlled release of drug for better efficacy.

The Phase IIb data suggests that Pulmaquin works very well as a once-daily product. In top-line data from the 42-patient ORBIT-2 trial available in late 2010 Pulmaquin reduced P. aeruginosa in the sputum of bronchiectasis patients (unlike the testosterone in women trial, this trial had a significant ‘yuck’ factor) by 4.2 logs from baseline (ie almost 16,000-fold) over 28 days versus only 0.1 log for the controls (p=0.004). The number of patients needing supplemental antibiotics was more than halved in the treated patients, with statistical significance, while the number of days until first pulmonary exacerbation was more than 50% higher for the treated patients, again with a low p value. A related product called Lipoquin had just used liposomal delivery, and this was also tested in bronchiectasis patients in a Phase IIb trial called ORBIT-1, but the data from ORBIT-2 was slightly better, presumably because having some drug in aqueous solution lets the formulation go to work faster. The ORBIT trial data encouraged Aradigm to try to go to Phase III with Pulmaquin, under an IND which cleared in March 2012.

Now enter Grifols. On 21 May 2013 the Spanish company took exclusive, worldwide licenses over both Pulmaquin and Lipoquin for all severe respiratory diseases, in return for providing US$65m in funding for upcoming bronchiectasis Phase IIIs, as well as US$25m in development milestones payable to Aradigm. The American company will receive tiered royalties on worldwide sales. Grifols also agreed to take a US$26m equity stake worth 35% of the company, at the same time as various third party investors also took another  US$15m in new stock. The deal closed in late August. Aradigm thinks this is a pretty important development. Grifols isn’t quite a household name like Genentech but it is the No. 3 player in the global plasma products market alongside Baxter, the world’s 21st largest pharma company, and CSL, the 27th. Grifols itself sits at No. 39 of the list of the world’s largest pharma companies with US$3bn in sales. A key attraction for Grifols to do this deal was the perceived fit between Pulmaquin and Grifols’s Prolastin C, an Alpha-1 proteinase inhibitor for the treatment of Alpha-1 antitrypsin deficiency. If you have that kind of deficiency you have inherited COPD. With Pulmaquin, Grifols would have effectively have a new product that could take market share away from CSL and Baxter, in addition to all the upside in treating patients with bronchiectasis as well as (later on) COPD and cystic fibrosis.

Investors have liked the Grifols deal, re-rating Aradigm back to its current US$114m market capitalisation. The attraction of the deal for Aradigm shareholders is that the company became amply funded to complete Phase III for its lead product and it will now have cash to develop its next products and technologies. This will likely involve more work Aradigm’s AERx nebuliser. AERx is potentially a big step forward in pulmonary drug delivery because its latest iteration is a hand-held device considerably smaller than today’s nebulisers that can deliver drugs in a fine mist in just one or two breaths rather than in the 15 minutes or so currently required. It may not have the market reach of monoclonal antibodies, but there’s a lot of drugs out there that could benefit from new or improved pulmonary delivery formulations.

Stuart Roberts, Australian Life Sciences consultant, with global focus
Nisi Dominus Frustra

+61 (0)447 247 909

sroberts2164@gmail.com

Twitter @Biotech_buzz

About Stuart Roberts. I started as an equities analyst at the Sydney-based Southern Cross Equities in April 2001, focused on the Life Sciences sector from February 2002. Southern Cross Equities was acquired by Bell Financial Group (ASX: BFG) in 2008 and I continued at Bell Potter Securities until June 2013. Over the twelve years to 2013 I built a reputation as one of Australia's leading biotech analysts. I am currently consulting to the Australian biotech industry. Before joining Southern Cross Equities I wrote for The Intelligent Investor, probably the most readable investment publication in Australia. I have a Masters Degree in Finance from Finsia. My hobbies are jazz, cinema, US politics and reading patent applications filed by biotechnology and medical device companies.

Previous Australian Biotechnology Buzz posts:
Advanced Cell Technology (OTCBB: ACTC), 4 September 2013
Aradigm (OTCBB: ARDM), 8 September 2013
Cellular Dyamics (Nasdaq: ICEL), 3 September 2013
ImmunoCellular Therapeutics (NYSE MKT: IMUC), 27 August 2013
Immunomedics (Nasdaq: IMMU), 21 August 2013
Inovio Pharmaceuticals (NYSE MKT: INO), 24 August 2013
Merrimack Pharmcaceuticals (Nasdaq: MACK), 26 August 2013
Oncolytics Biotech (Nasdaq: ONCY),  22 August 2013
Pharmacyclics (Nasdaq: PCYC), 2 September 2013
Regulus Therapeutics (Nasdaq: RGLS), 23 August 2013
Sunshine Heart (Nasdaq: SSH), 28 August 2013
Synta Pharmaceuticals (Nasdaq: SNTA), 1 September 2013
Verastem (Nasdaq: VSTM), 5 September 2013

Disclaimer. This is commentary, not investment research. If you buy the stock of any biotech company in Australia, the US or wherever you need to do your own homework, and I mean, do your own homework. I'm not responsible if you lose money.