Biotech Buzz Post No. 12 - VSTM

Verastem (Nasdaq: VSTM) is leading the field of cancer stem cells, one of those new areas expected to deliver better outcomes for patients.

Verastem (Nasdaq: VSTM) – Cancer stem cells have a new enemy

“I got the bill for my surgery. Now I know why the doctors were wearing masks.” – James Boren (1925-2010), American humourist.

Want to know how to get a US$720m take-out valuation for your biotech company and not even have to dose a patient? That’s easy. Get an Australian to start the company, because we Aussies know how to make good things happen. When David Sinclair, who got his PhD at the University of New South Wales in 1995, left Sydney to do post-doctoral work at MIT and later at Harvard he started getting ideas about genes that drive the ageing process. This led to a lot of work on how resveratrol, that well-known compound found in red wine, seemed to slow ageing in animal models. This in turn led in turn to the highly publicised Nature paper of late 2006 showing that resveratrol could extend the life of obese mice (click here). People had known for decades that calorie restriction would make mice live longer. Sinclair had, over the years, helped figure out why – it activates a couple of enzymes called the ‘sirtuins’, which are also activated by exercise. By 2006 the company Sinclair had started, Sirtris Pharmaceuticals, was working on small molecule sirtuin activators with potency markedly higher than resveratrol with the potential to treat Type II diabetes, among other age-related diseases. When Sirtris went public in mid-2007 the company was valued at US$278m, and by mid-2008 the pre-clinical work was so exciting that GlaxoSmithKline was prepared to stump up a cool US$720m by buy it. Yet more proof that us Aussies are world beaters.

Part of the beauty of working with an Aussie is that we are great team players and we’re happy to let Americans join in the fun. In Sirtris’s case Sinclair teamed up with Christoph Westphal who led the company from soup to nuts as CEO. Christoph Westphal is one of the great rain makers on the American biotech scene. He’s pretty young (ie in his mid-40s, which I argue is young) but he's already helped found or build other companies beside Sirtris that have been huge successes. The secret to Westphal's success to date has been zeroing in on an area that Big Pharma will need to care about in the near future - in the case of Sirtris it was chronic diseases of ageing - and then generating enough published papers to give his new field credibility. Another success factor is having all the smarts in the field in one place so that the acquirer can feel it controls everything. Then there's the culture part - Westphal's scientists are a pretty motivated bunch because he makes his companies great places to work. Other Westphal companies have included Alnylam (Nasdaq: ALNY - RNA interference), Momenta (Nasdaq: MNTA - carbohydrate drugs), Alnara (Orphan drugs - sold to Lilly in 2010), Acceleron (also Orphan Drugs) and Concert Pharmaceuticals (drug reformulation). Clearly this guy has the Midas Touch.

Which brings me to a more recent Westphal venture, a company from Cambridge, Ma. called Verastem (Nasdaq: VSTM) whose beat is the hot new field of cancer stem cells and which Westphal founded in 2010. I’ve written before in this Blog about some of those areas of cancer drug development that I expect will make huge contributions to patient survival in the decades ahead – things like drugs that target intracellular signalling pathways gone rogue, or drugs that promote cancer immunotherapy. One class of future wonder drug that I haven’t talked about yet are the cancer stem cell inhibitors. Cancer stem cells are simply those wily cells with the ability to build new tumour tissue, just like regular stem cells, only working for evil rather than for good. Kill cancer stem cells as part of a patient’s therapy – and these are the cells that are more resistant to conventional chemotherapy - and you make it a lot harder for the cancer to recur. In one sense the cancer stem cell story is an old – a couple of now more-or-less forgotten researchers working at the Rockefeller Institute first postulated their existence in the late 1930s. Intuitively the idea of cancer stem cells made sense because it helped explain why a patient could be apparently disease-free after some pretty brutal chemo and then get a relapse just a few short months or years later. However it took until 1994 before the Canadian scientist Dr John Dick was able to identify the first one – it was a leukaemia cell with a cell surface marker called CD34 (click here). Since 1994 science has made great strides in terms of identifying numerous markers of cancer ‘stemness’ like CD24, CD44 or CD133. The multiplicity of markers, and the fact that they sit on the cell surface so one can drug them with exquisite specificity using monoclonal antibodies, has got everyone excited that this is one of the Next Big Things in the cancer space.

The question, however, that researchers face when going after cancer stem cells is this – how do I get my hands on them long enough to study them and then drug them? Enter Verastem, and a scientific rock star even better known than Christoph Westphal. MIT’s Robert Weinberg, most of whose career has been spent doing basic research on the biology of cancer, has never won the Nobel Prize, but his lab has achieved three remarkable things – it discovered the first oncogene (a gene that when mutated gives rise to cancer) the first tumour suppressor (a protein that stops a cell from turning cancerous – cancer often starts because faulty tumour suppressors aren’t doing their work) and a near-cousin of the HER2 receptor that eventually gave us that cancer blockbuster Herceptin. If you ever read Natalie Angier’s wonderful 1988 book Natural Obsessions you’ll know Weinberg well, because it recounts the time she spent in his lab while the race to get the oncogene and the tumour suppressor was going on.

Weinberg founded Verastem because he had solved the problem of how to get enough cancer stem cells so that drug discovery via high-throughput screening became relatively easy. Weinberg and colleagues have shown in recent years that if you chemically induce a transition in a cancer cell from being ‘epithelial’, that is, stuck to other cells, to being ‘mesenchymal’, that is, able to move around and invade other tissues, you create a cancer stem cell. This EMT – epithelial-to-mesenchymal transition – allowed Weinberg et. al. to make a stable population of cancer stem cells, which was a big step forward because isolated cancer stem cells generally don’t remain stable in culture. It wasn’t too long before the Weinberg team had small molecules that showed activity against their cancer stem cells, and that early data allowed the company to IPO in early 2012. At that time Verastem raised US$55m at a post-money valuation of US$202m, which was remarkable because equity markets weren’t fantastic in the second half of 2011 and Verastem was still pre-clinical.

The Westphal and Weinberg involvement, the promise of cancer stem cells and a near term opportunity with mesothelioma and ovarian cancer, both Orphan diseases, have kept this company pretty popular with investors. The market capitalisation is now US$362m, and that’s in spite of Westphal stepping down as CEO in favour of Chief Operating Officer Robert Forrester in July (he remains Executive Chairman). Will it be another Sirtris? It may be better because this time we may actually get clinical outcomes.

Consider Verastem’s lead compound defactinib, previously known as VS-6063. It had a successful Phase I outing in advanced solid tumours last year and is headed to a potential pivotal trial in mesothelioma shortly. The success of Lilly’s Alimta drug (US$2.6bn in global net sales in 2012) more or less assures defactinib’s commercial success if the data is good. In July Verastem was able to report that, in a Phase I/1b in advanced ovarian cancer in combination with paclitaxel, defactinib had registered a complete response in one patient. For these kind of patients it’s generally too late for complete responses. Behind defactinib Verastem is also in the clinic with VS-4718, which looked good in animal models of breast cancer and started Phase I in this indication in June. VS-5584, which seems to work well with cells where the PI3K/mTOR signalling pathway is messed up, remains pre-clinical.

Alert readers may spot opportunity here because I have spoken about it before. Alchemia (ASX: ACL) is currently in Phase III with a product that delivers the conventional chemotherapy drug irinotecan using hyaluronic acid (HA) for better targeting. Because HA gets into cancer cells via CD44, we can confidently say that Alchemia’s product is knocking out cancer stem cells. And the product, called HA-Irinotecan, is in Phase III - that's right, Phase III - in metastatic colorectal cancer for second line therapy off the back of a doubling in Progression-Free Survival at Phase II. How much would you expect to pay for all this? On 26 August you could get it for A$136m. It’s now a bit higher, but not much, at A$143m. Click here for a story on Alchemia that appeared earlier this week on the ABC television show The Business (I'm in it too).

Before I conclude this Blog post, it’s worth considering what’s happened to the science behind Sirtris since the halcyon days of mid-2008. We all know Big Pharma blows hot and cold in various projects. Earlier this year GSK seemed to blow cold on sirtuin inhibitors when it chose to shut down the facility in Cambridge, Ma. where the ex-Sirtris team worked. But, no, said GSK, it still expected to get the right drug candidates out of Sirtris, and some ex-Sirtris employees were being offered transfers to the Philadelphia area. If you check the current GSK pipeline list the SIRT1 activator GSK2245840 is in Phase II in psoriasis. Meanwhile Sinclair’s lab got a Science paper in March (click here) showing how a SIRT1 activator actually works, which provides an answer to his critics that the science wasn’t real. Which proves you can’t keep a good Aussie down.

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
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.