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
+61 (0)447 247 909
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
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.
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