Biotech Buzz Post No. 5 - MACK

"When you hit a wrong note it's the next note that makes it good or bad"  -  Miles Davis (1926-1991), American jazz musician.

Merrimack Pharmaceuticals (Nasdaq: MACK) – The map is not the territory

The other day in this Blog I suggested that one of the big developments in cancer therapy going forward will centre on intracellular signalling pathways gone wrong. There are three reasons why this field is significant today and can only get bigger in the future. Firstly, signal pathways represents an enormous treasure trove of new cancer targets we’ve only begun to explore. Secondly, get a drug that works to block an aberrant pathway and the patient outcomes can be fantastic –Novartis’s Gleevec so successfully blocks the Bcr-Abl tyrosine kinase in Chronic Myeloid Leukaemia that patients can stay alive and perfectly healthy for a long period of time so long as they take their pills every day. Thirdly, the commercial outcomes can be great as well. Gleevec enjoyed US$4.7bn in global sales in 2012, and Amgen just agreed to pay US$10bn to acquire Onyx Pharmaceuticals (Nasdaq ONXX), a California specialty pharma company whose entire business from Nexavar on has more on less been built on drugs that target signal pathways.

When Gleevec gained FDA approval in 2001 the event has hailed as an important step forward for cancer therapy because for the first time there was a pill on the market that had turned a particular cancer from a death sentence into a manageable chronic disease. If you want to get inspired about the power of a drug company to create that kind of breakthrough product, I recommend the book that Novartis’s then CEO Daniel Vasella published in 2003 entitled Magic Cancer Bullet – How a Tiny Orange Pill may Rewrite Medical History. Once you’ve read it I hope you’ll feel, like me, that Vasella earned every cent of the US$78m he got paid when he stepped down as Novartis Chairman earlier this year. Gleevec is, in my view, a very good glimpse of the future of cancer therapy, and I expect to live to see most cancers make the transition that was started with Gleevec. I’m not saying it will happen ‘in the next ten years’, as most breathless commentators like to intone when they get optimistic about winning the War on Cancer. I’m giving medicine half a century to do it – I’m only in my early 40s now so I may just make it into the 2060s (God willing), if I eat my vegetables and keep exercising and Australia can still afford healthcare by then. Two things make me optimistic that signal pathways may provide the main answer to defeating cancer in the long run. Firstly, there aren’t many pathways to drug – the legendary Johns Hopkins cancer researcher Bert Vogelstein and his colleagues have done a lot of work to show that in cancer there are only around twelve (see a recent Science paper for more). Secondly, science is now getting pretty good at following these signal pathways, as MerrimackPharmaceuticals (Nasdaq: MACK), which did its IPO last year, has shown.

Merrimack (which is presumably named after the river in Massachusetts since the company’s headquarters lies on that biotech hothouse of Kendall Square in Cambridge, Ma.), is pioneering the commercial potential of Network Biology. Traditionally biologists have looked at things in isolation – how this particular protein or that particular molecule looks and behaves. Network Biology, which has only emerged as a field in its own right over the last fifteen years or so, has provided valuable conceptual and mathematical tools to show how everything interacts with everything else to create a whole that can be surprisingly different from just being the sum of its parts. This makes the field just perfect for looking at signal pathways in cancer. Merrimack’s founders have used the tools of Network Biology to create new maps of various signal pathways. What they’ve found is that the proteins within a pathway that you think would be important maybe aren’t so important. Consider the ErbB pathway. You’d think that EGFR, otherwise known as ErbB1, would be important in this pathway since it seems to be overexpressed in cancer and that’s why we have Tarceva, a US$1.3bn drug for Roche, to target it. Same story with ErbB2, otherwise known as HER2, where is why we got that legendary antibody Herceptin. Sure, ErbB1 and ErbB2 are important, says Merrimack. But the company’s models, which look more at duration and degree of signalling than at mere overexpression of a molecule in a pathway, told the researchers to take a look at the hitherto unimportant ErbB3 molecule. The result was MM-121, an antibody to ErbB3 which Sanofi liked so much it licensed it in 2009 for US$60m upfront and US$470 million in milestones as well as tiered double-digit royalties. Wow! This was a year after the Global Financial Crisis and MM-121 wasn’t even out of Phase I. The drug is now in mid-stage development for breast, ovarian and lung cancers. Mind you, Merrimack is responsible for development of MM-121 through Phase II proof of concept. Merrimack currently has six oncology therapeutics in clinical development, including MM-111, a bi-specific antibody that targets both ErbB3 and ErbB2, and MM-141, a tetravalent antibody that targets both ErbB3 and the IGF-1 receptor.

In 2013 US biotech stocks are on fire and the market has been betting that concepts like Merrimack’s in Network Biology are going to work out in the long run. Merrimack is currently capitalised at US$371m on Nasdaq. However this may turn out to be a somewhat rocky road. In April of this year Merrimack announced that one 50-patient cohort of lung cancer patients in a Phase II study of MM-121 had failed to hit a primary endpoint of 40% Progression-Free Survival (PFS) at four months. However that wasn’t really anything to worry about because Merrimack was also using the study to evaluate tissue samples from patient biopsies, the aim being to pick biomarkers that would predict treatment success. The right companion diagnostic will obviously lower the risk of clinical failure going forward. That, however, was cold comfort for the stockholders in the near term. Merrimack is now below US$4 as against the US$7 with which it went out in March 2012 when it raised US$100m.

Merrimack, however, like all good biotechs, has multiple arrows in its quiver. One other competency the company has developed beyond Network Biology is nanoliposomal formulation of oncology drugs for better localised delivery. The lead product here, called MM-398, is nanoliposomal irinotecan. MM-398 is in Phase III in metastatic pancreatic cancer where patients had failed gemcitabine. This study completes enrolment in the third quarter of 2013 and the Phase II data looked good, with median overall survival of 5.2 months. MM-398 may not be the Next Big Thing in the cancer signalling space, but if it makes it onto the market with a pancreatic cancer indication the payoff is likely to be lucrative given the poor patient outcomes at the moment for that cancer, with current five year survival down at a measly 6%. So Merrimack may still be worth paying attention to until MM-121 hits its strides. Then again, as with just about every US biotech, there’s an Australian comparable that’s a whole lot cheaper. Alchemia (ASX: ACL) delivers 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 in metastatic colorectal cancer for second line therapy off the back of a doubling in PFS at Phase II. How much would you expect to pay for all this? At the moment you can get it for A$136m.

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 analyst at the Sydney-based stockbroking firm Southern Cross Equities in April 2001, focused on the Life Sciences sector from February 2002. Southern Cross Equities was acquired by Bell Financial Group 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:
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
Regulus Therapeutics (Nasdaq: RGLS), 23 August 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.