Approval of ipilimumab is the second victory for the field of active immunotherapy in oncology within a year.   On April 29, 2010, the FDA approved the very first active immunotherapy for the treatment of cancer – Dendreon Corporation’s (DNDN) Provenge® [sipuleucel-T] for metastatic castrate-resistant prostate cancer [CRPC].  The fact that two active immunotherapies have demonstrated improved survival in randomized Phase 3 trials and subsequently been approved by the FDA has reignited enthusiasm for the field of active immunotherapy, which has experienced nearly a dozen failures in Phase 3 clinical trials.

A Long Time in the Making

The idea to stimulate one’s own immune system to treat cancer dates back to 1891 when William Coley, Professor of Clinical Surgery at Cornell University, noticed the curative effect of an accidental bacterial infection in a patient with inoperable sarcoma.  It would be 119 years since Dr. Coley’s discovery before the FDA approved the first active immunotherapy for the treatment of cancer.

As the scientific understanding of the immune system has significantly increased since Dr. Coley’s time, scientists and physicians developed successful immune system related strategies to fight cancer, viral infection and autoimmune diseases.  Today, mAbs are among the most successful modern immunotherapies and provide clinical benefit to a vast array of diseases – with three blockbuster mAbs generating approximately $17 billion in sales in 2009.

Melanoma Losing Streak

In addition to helping renew interest in the field of active immunotherapy, the FDA’s approval of ipilimumab provides a much-needed boost to companies developing product candidates for melanoma.  Among the eleven Phase 3 failures with active immunotherapies for the treatment of cancer, more than one-third of them have occurred in melanoma [see Table 1].

Table 1. Select Active Immunotherapy Failures in Phase 3 Trials

Crowded Market

While ipilimumab is the first new drug approved for the treatment of melanoma in 13 years, there are four competitive active immunotherapy programs in Phase 3 development [see Table 2].  In fact, melanoma is second only to prostate cancer as the most crowded clinical development segment within the active immunotherapy field.

Table 2. Select Phase 3 Active Immunotherapy Product Candidates in Melanoma

Five by 2015

As highlighted in our firm’s April 2010 report titled “Cancer Vaccine Therapies: Failures and Future Opportunities,” there are a number of additional catalysts that could ignite further interest in the field of active immunotherapy for cancer.  Nearly 50 clinical programs are currently underway, including nearly a dozen that are in pivotal Phase 3 development.

Using the history of passive immunotherapy development as a guide, it would not be surprising to see five active cancer immunotherapies approved within five years, which leads to our “5 x 2015″ projection.  With the approvals of both sipuleucel-T and ipilimumab in hand, the next three may come from the following list of Phase 3 product candidates [in alphabetical order]:

• Amgen (AMGN), OncoVEX[GM-CSF], melanoma and head & neck
• AVAX Technologies (AVXT.PK), MVAX, melanoma
• Bavarian Nordic (BAVA.CO), Prostvac®, prostate cancer
• Biovest International (OTCQB: BVTI), BiovaxID®, NHL
• Cel-Sci (CVM), multikine, head & neck
• Celldex Therapeutics (CLDX), rindopepimut/CDX-110, glioblastoma
• GlaxoSmithKline (GSK), MAGE-A3 ASCI, NSCLC and melanoma
• Novarx (private), Lucanix™/belagenpumatucel-L, NSCLC
• Oncothyreon (ONTY)/Merck KGaA, Stimuvax®/BLP25 liposome vaccine, NSCLC
• Oxford BioMedica plc (OXB.L), Trovax®, renal cell
• Transgene (TNG.PA)/Novartis (NVS), TG4010/MVA-MUC1-IL2, NSCLC
• Vical (VICL)/AnGes, Allovectin-7®, melanoma

• Tier 1: market capitalization in excess of $10 billion
• Tier 2: market capitalization greater than $2 billion but less than $10 billion
• Tier 3: market capitalization of at least $1 billion but less than $2 billion

At that time, the 30 companies in these three groups had a collective market capitalization of approximately $240 billion. Assuming that investors reinvested the entire $47 billion in cash they received from the Roche/Genentech transaction into these groups, it would have represented nearly 20% of the total value.  While some of the money may have been reinvested in Roche, such an imbalance between supply and demand could have resulted in relative outperformance from members of the three groups.

Following today’s news that Sanofi-aventis (SNY) is acquiring Genzyme Corporation (GENZ) for approximately $20 billion in cash [plus a contingent value right], we reviewed the performance of our three tiers to determine which companies, if any, benefited the most from the reinvestment of $47 billion following the Roche/Genentech transaction.

From the date that the Roche/Genentech transition was announced [March 12, 2009] through February 15, 20111, the NASDAQ Composite (COMP) was up approximately +97%.  In contrast, the NBI only increased +50% during the period.  Recall that the NBI is calculated under a modified capitalization-weighted methodology, taking into account the total market value of the companies it tracks and not just their share prices.  Accordingly, companies with the largest market capitalization have the highest weighting in the index – making the NBI a good proxy for the performance of larger capitalization biotechnology companies.

Contrary to expectations, the largest biotechnology companies did not appear to benefit from a reallocation of funds from the Roche/Genentech transaction and posted the worst overall performance during the period.  In fact, all six members of the Tier 1 group underperformed the NBI, which includes Genzyme [see Table 1].  The companies in Tier 1 should have been the closest to Genentech with regard to their risk/return profile.

Table 1: Tier 1 Group

With market capitalizations greater than $2 billion but less than $10 billion around the time that the Roche/Genentech transaction was announced, Tier 2 represented the best performing group.  While Tier 2 contained both winners and losers, more than half of the Tier 2 companies outperformed the NBI, including four with triple-digit gains during the period [see Table 2].

Table 2: Tier 2 Group

* Acquired by Astellas Pharma in May 2010, price as of 3/31/2009 and the acquisition price, respectively

Tier 3 was the second best performing group.  Half of the Tier 3 companies outperformed the NBI, including four with triple-digit gains during the period [see Table 3].

Table 3: Tier 3 Group

* Acquired by Gilead in March 2009, price as of 3/31/2009 and the acquisition price, respectively

** Acquired by Dainippon Sumitomo Pharma in September 2009, price as of 3/31/2009 and the acquisition price, respectively

In conclusion, the reallocation of funds following a significant merger & acquisition [M&A] transaction for cash doesn’t appear to benefit larger biotechnology companies with similar risk/reward profiles in terms of relative stock performance [Tier 1].  While a comprehensive analysis of the data is beyond the scope of this article, this could result from the reallocation of capital into the acquiring company, sufficient liquidity from larger biotechnology companies to withstand the increased demand, and/or other factors.   However, using history as a guide, those companies with a market capitalization between $2 and $10 billion appear most likely to benefit from reinvestment following the recent Sanofi/Genzyme transaction.

NEW – Click here to view this article in PDF format.

Since the early 1990s, cancer immunotherapy has provided hope to patients, physicians, and investors as a new treatment modality with limited side effects and superior efficacy.  Cancer immunotherapy broadly includes passive immunization, active immunization, and immunostimulation [1]. 

Passive immunotherapy is the transfer of an exogenous therapeutic agent to a patient where the therapy has a direct pharmacological action on the desired target.  The best examples of passive immunotherapy are monoclonal antibodies [mAbs], which were hailed as “magic bullets” when they were developed in the 1970s.  

Clinical results with mAbs were largely disappointing for the first 10 years of development[2].  In fact, it wasn’t until November 1997 that the first mAb for cancer therapy, Rituxan® [rituximab], was approved by the U.S. Food and Drug Administration [FDA].  Developed by IDEC Pharmaceuticals, Rituxan® is a chimeric monoclonal antibody against the protein CD20 that is currently approved for the treatment of chronic lymphocytic leukemia [CLL], non-Hodgkin’s Lymphoma [NHL], and rheumatoid arthritis [RA][3].  

After reporting its first year of profitability in 1998, shares of IDEC Pharmaceuticals traded at a new all-time high of $140 with a market capitalization above $3.3 billion. Worldwide net sales of Rituxan® reached $1.5 billion in 2002 and the following summer IDEC Pharmaceuticals acquired Biogen, Inc. in a stock transaction valued at approximately $6.65 billion to create Biogen Idec, Inc. (BIIB). 

While the success of Rituxan® spurred the development of other anti-CD20 mAbs, it wasn’t until October 2009 that Arzerra® [ofatumumab] was approved by the FDA for the treatment of CLL.  Ofatumumab, which was developed by Genmab A/S (GNMSF.PK) and GlaxoSmithKline plc (GSK), is a human mAb that targets an epitope different from Rituxan® and other anti-CD20 mAbs[4]. 

Today, passive immunotherapies represent one of the most successful therapeutic classes and there are currently ten mAbs approved for cancer therapy [see Figure 1: FDA Approval of cancer mAbs from 1997-2010].  Three blockbuster products sold by the Roche Group (RHHBY) – Avastin® [bevacizumab], Rituxan®, and Herceptin® [trastuzumab] – collectively represented nearly US$17 billion in revenue for 2009[5].  As useful as many of these mAbs have become in cancer therapy, they often have the greatest efficacy impact when used in combination with other therapeutic modalities, particularly cytotoxic agents[6]. 

Figure 1: FDA Approval of cancer mAbs from 1997-2010

Similar to passive immunotherapy with mAbs, the early development of active immunotherapies has proven to be an enormous challenge[7].  In fact, we identified nearly a dozen product candidates that failed in Phase III trials.  Active immunotherapies are therapies that contain a specific antigen or set of antigens that are designed to activate the patient’s own immune system to seek out and destroy cells that carry the same antigen.  They have no direct therapeutic action, but rather rely on the patient’s immune system to recognize and destroy the intended target. 

While no active immunotherapeutics are currently approved for the treatment of cancer, the FDA has assigned a Prescription Drug User Fee Act [PDUFA]) date of May 1, 2010, by which time it will respond to Dendreon Corporation’s (DNDN) amended Biologics License Application [BLA] for Provenge® [sipuleucel-T].  Dendreon is seeking licensure for Provenge® for men with metastatic castrate-resistant prostate cancer [CRPC].  This event has reignited enthusiasm for the field of active immunotherapy and shares of Dendreon, which traded below $5 in March 2009, recently hit all-time highs above $40 and a market capitalization greater than $5 billion. 

As with any first-in-class product, regulatory delays are possible.  For example, the BLA for Rituxan® was originally submitted on February 28, 1997, and the FDA requested additional data on certain aspects of the production process related to the bulk drug manufacture on August 29, 1997, which delayed approval until later that year [November 26, 1997].  In view of the complexities of manufacturing and distributing an autologous cancer therapy, a similar request by FDA for Provenge® would not be unexpected and would likely occur around the PDUFA date using Rituxan®’s history as a guide. 

If approved by the FDA, Provenge® would represent the first active immunotherapy for the treatment of cancer.  However, unlike Rituxan®’s market monopoly that lasted for nearly 12-years, Provenge® could face competition in a relatively short period of time.  Numerous active immunotherapies are in late-stage clinical development for prostate cancer – including a promising off-the-shelf vaccine set to begin a pivotal Phase III trial in 2010.  In fact, nine product candidates are in clinical trials for the treatment of prostate cancer, representing the largest therapeutic area within the active immunotherapy market 

Beyond Provenge®, there are a number of additional catalysts in 2010 that could ignite further interest in the field of cancer immunotherapy.  Nearly 50 clinical programs involving active cancer immunotherapies are currently underway, including nearly a dozen that are in pivotal Phase III development with several BLAs planned in 2010. 

For example, Bristol-Myers Squibb Company (BMY) has announced its intent to potentially file for regulatory approval for ipilimumab [with or without vaccine therapy] in metastatic melanoma in 2010 and has submitted Phase III data for presentation at the American Society for Clinical Oncology [ASCO] annual meeting held June 4-8, 2010.  In addition, GlaxoSmithKline plc (GSK) is conducting the largest ever Phase III clinical trial in lung cancer treatment with its investigational MAGE-A3 ASCI immunotherapy, with the possibility for data presentation at ASCO 2010.  Lastly, following the presentation of positive Phase III trial results at ASCO 2009, Biovest International, Inc. (BVTI.PK) expects to file a BLA for BiovaxID in NHL in 2010. 

Accordingly, in our latest industry report titled “Cancer Vaccine Therapies: Failures and Future Opportunities,” we provide an overview of the cancer immunotherapy market, feature profiles of nearly 40 companies, include interviews with several key opinion leaders, and review some of the scientific, medical, clinical, and financial aspects of the major industry participants.  For more information regarding the report, please click here or send an email to: info@mdbpartners.com

Objectives of the Report

Some of the objectives of this report are to:

• Provide an overview of the cancer immunotherapy market
• Identify disease indications currently being studied with cancer immunotherapy
• Identify the companies currently involved in cancer immunotherapy development
• Identify specific product candidates that offer the greatest market opportunities
• Assess the risks of cancer immunotherapy development and commercialization

Research Methodology

MD Becker Partners adopted a three-fold approach for this study:

• Primary research focused on interviews with key opinion leaders involved in the field of cancer immunotherapy
• Secondary research focusing on utilizing information from peer-reviewed journal articles and reports on cancer immunotherapy
• Quantitative and qualitative analysis of the primary and secondary data using our industry experience and knowledge of the marketplace 

References:  

1. Rüttinger, D. et al. Oncologist. 15(1): 112-8 (2010). 
2. Ritz, J. et al. Blood. 59:1-11 (1982). 
3. Rituxan® (rituximab) prescribing information (www.rituxan.com) 
4. Teeling, JL. et al. J Immunol. 177(1): 362-71 (2006). 
5. Roche Annual Report 2009 (www.roche.com/gb09e.pdf) 
6. Goldenberg, DM. Cancer. 116(4): 1011-2 (2010). 
7. Rescigno, M. et al. Biochim Biophys Acta. 1776(1): 108-23 (2007).

With 2009 officially on the books, it appears an appropriate time to review the sector’s performance along with some of the themes highlighted in our previous articles.

Big Versus Small

The twenty-member NYSE Arca Biotechnology Index (BTK) was up 46% in 2009, while the broader NASDAQ Biotech Index (NBI) was only up 16%, underperforming the Dow Jones Industrial Average (INDU), S&P 500 (SPX), and NASDAQ Composite (COMP), which were up 19%, 24%, and 44%, respectively.  Why the huge discrepancy in returns between these two major biotechnology indices?  Unlike the equal-weighted NYSE Arca Biotechnology Index, the NASDAQ Biotech Index is market value-weighted, taking into account the total market capitalization of the companies it tracks and not just their share prices.  Accordingly, companies with the largest market capitalizations, or the greatest values, will have the highest weighting in the index.

During 2009, large capitalization biotechnology companies [greater than $10 billion] dramatically underperformed their smaller peers.  For example, Celgene Corporation (CELG) was essentially flat, Amgen, Inc. (AMGN) was down 2%, Gilead Sciences, Inc. (GILD) declined by 15%, and Genzyme Corporation (GENZ) dropped 26% [earning Henri Termeer the coveted Nance Trophy for worst biotech CEO of 2009 by TheStreet.com’s Adam Feuerstein].  Some of the reasons for this poor performance include concerns over generic competition and pipeline progress – ironically some of the same issues that have plagued big pharma.

Accordingly, the relative underperformance of large capitalization biotechnology companies in 2009 masked the fact that many smaller, innovative companies performed well, with 20 of the 125 companies comprising the NASDAQ Biotech Index producing triple-digit returns during the period.  In fact, two biotechnology companies were among the largest percentage gainers in the NASDAQ Composite with their staggering quadruple-digit returns: Vanda Pharmaceuticals, Inc. (VNDA) +2,150% and Human Genome Sciences, Inc. (HGSI) +1,342%.  See Table 1 for a list of the top ten gainers from the NASDAQ Biotech Index in 2009.

Table 1. Top ten gainers from NASDAQ Biotech Index (NBI) in 2009

Oncology: Prostate Cancer Spotlight

Driven by positive Phase 3 results from Dendreon Corporation (DNDN) regarding its prostate cancer vaccine study, investors gravitated towards biotechnology companies working in the field of prostate cancer treatment as noted in our May 2009 article.  This enthusiasm only increased when Johnson & Johnson (JNJ) announced in May 2009 that it would acquire Cougar Biotechnology, Inc., a development stage company with an oral prostate cancer treatment being studied in two Phase 3 clinical trials, for approximately $1 billion. 

While not a member of either major biotechnology index, shares of Oncogenex Pharmaceuticals, Inc. (OGXI) started the year around $3.00 and ended above $22 for a 643% return.  Oncogenex is developing OGX-011, which is designed to inhibit the production of clusterin, a protein that is associated with cancer treatment resistance, and has completed Phase 2 clinical trials in prostate, lung and breast cancer.  OGX-011 received Fast Track designation from the FDA for the treatment of progressive metastatic prostate cancer in combination with docetaxel.  Shares of Oncogenex had traded higher than $42 in August 2009, but the stock price declined following a license agreement with Teva Pharmaceutical Industries (TEVA) for OGX-011 that apparently did not meet investor’s expectations.

Not all biotechnology companies working in the area of prostate cancer were as fortunate as Dendreon, Cougar, and Oncogenex.  Shares of GTx, Inc. (GTXI) were the second largest industry decliner for 2009 due to a complete response letter from the Food and Drug Administration [FDA] that cited clinical deficiencies regarding the company’s New Drug Application [NDA] for toremifene 80 mg to reduce fractures in men with prostate cancer receiving androgen deprivation therapy.  See Table 2 for a list of the top ten decliners from the NASDAQ Biotech Index in 2009.

Shareholder Activist Wins

In view of past major coups with MedImmune and ImClone, in August 2009 we reviewed Carl Icahn’s biotechnology holdings as reported in SEC filings and identified three companies that significantly underperformed the NASDAQ Biotechnology Index over the past five years, but with recent successful shareholder activist outcomes that could positively impact future performance.  In particular, we noted that Alexander Denner, who has served as Managing Director of entities affiliated with Carl Icahn and as a director of ImClone, had recently been elected as a director at each company.

During 2009, those three companies, Biogen Idec, Inc. (BIIB), Amylin Pharmaceuticals, Inc. (AMLN), and Enzon Pharmaceuticals, Inc. (ENZN) produced positive returns of 12%, 31% and 81%, respectively.  While Biogen Idec underperformed the sector, it notched the highest return among large capitalization biotechnology companies.

In other shareholder activist news, holders of Vanda Pharmaceuticals (VNDA) are likely pleased that the company’s Board of Directors spurned a request by Tang Capital Partners, LP to liquidate the company in February 2009.  Shares of Vanda were up 2,150% for the year [see Table 1] following FDA approval in May 2009 to market the company’s Fanapt™ [iloperidone], a novel antipsychotic for the acute treatment of adult patients with schizophrenia, and a subsequent marketing agreement for the product with Novartis AG (NVS).

CNS: Developments for Parkinson’s Disease

Vanda Pharmaceuticals wasn’t the only company working in the area of central nervous system [CNS] disorders to make news.  Shares of Impax Laboratories, Inc. (IPXL), which were trading around $7.50 at the time we published our August 2009 article titled “Treating Parkinson’s Disease: Investment Opportunities and Challenges,” continued to reach new 52-week highs and ended up 172% for the year [see Table 1].  Impax recently initiated the second of two Phase 3 studies designed to support marketing approval of its IPX066 product candidate for the treatment of Parkinson’s disease.  IPX066 is an investigational extended release carbidopa-levodopa product intended to rapidly achieve and then sustain effective blood concentrations of levodopa, potentially improving clinical symptom management.

Gastrointestinal Disease: 3 Hits, 3 Misses

First, the good:

Both Salix Pharmaceuticals, Inc. (SLXP) and Santarus, Inc. (SNTS) appear in the list of top ten biotechnology gainers for 2009 with triple-digit returns due to favorable regulatory progress reported during the year [see Table 1].  In September, Salix announced the successful outcome of two Phase 3 trials to evaluate the efficacy and safety of Xifaxan® [rifaximin] for the treatment of non-constipation irritable bowel syndrome.  Salix is planning an NDA submission for the first half of 2010.  In December, Santarus announced that the FDA approved the company’s New Drug Application [NDA] for its prescription tablet product for all of the indications being sought, including for the treatment of heartburn and other symptoms associated with gastroesophageal reflux disease. 

While not a member of either major biotechnology index, shares of Soligenix, Inc. (SNGX.OB) increased 317% during 2009.  In January, the company reached agreement with the FDA on the design of a confirmatory, pivotal Phase 3 clinical trial evaluating its lead product orBec® for the treatment of acute gastrointestinal Graft-versus-Host Disease [GVHD].  The following month, Soligenix announced a potential $30 million North American partnership agreement with Sigma-Tau Pharmaceuticals for orBec and in October 2009 initiated patient enrollment in the confirmatory Phase 3 trial that is expected to complete with clinical data available in the first half of 2011.

Next, the bad:

As discussed in our December 2009 article “Graft Versus Host Disease: Failures and Future Opportunities,” Osiris Therapeutics, Inc. (OSIR) recently reported preliminary results from two Phase 3 trials evaluating its Prochymal product candidate for the treatment of acute GVHD.  Unfortunately, neither trial reached its primary endpoint, sending shares from $14 to a 52-week low of $5.35 by November 2009, earning the company a spot in the top ten decliners for the year [see Table 2]. 

The other two casualties working in the area of gastrointestinal disease and appearing in the top ten decliners for 2009 are:

• Progenics Pharmaceuticals, Inc. (PGNX), which announced in October 2009 that the company regained worldwide rights to Relistor® [methylnaltrexone bromide] for the treatment of opioid-induced constipation from Wyeth Pharmaceuticals.  Global net sales of Relistor for the third quarter of 2009 were a mere $3.3 million, as compared to $3.2 million in sales for the previous quarter.
• In the absence of any negative clinical or regulatory news, NPS Pharmaceuticals, Inc. (NPSP) stated it remains on track to reach full patient enrollment before the end of the first quarter of 2010 for a confirmatory Phase 3 trial with Gattex™ (teduglutide), the company’s proprietary analog of naturally occurring human glucagon-like peptide 2 [GLP-2], for the treatment of short bowel syndrome [SBS].  NPS believes that positive results from the trial, expected to complete in October 2010 according to ClinicalTrials.gov, will enable the company to seek U.S. marketing approval for Gattex.

Table 2. Top ten decliners from NASDAQ Biotech Index (NBI) in 2009

2010 Outlook

The capital markets remain turbulent and there may be casualties along the way among undercapitalized companies, but many of the biotechnology industry’s fundamentals, such as the number of products in clinical trials, new product approvals, profitable biotech companies and industry mergers & acquisitions remain favorable for 2010. Similar to 2009, small capitalization companies with clinical or regulatory catalysts should continue to outperform their larger industry peers in the year ahead.

What is your outlook for the biotechnology industry in 2010?  Take a moment to complete our survey, which is only ten questions long and will take just minutes to complete.  The results of this important survey along with our industry outlook will be communicated in early 2010 through a future article.  Take the survey now by clicking here.

1. Nociceptive pain, which is caused by physical activation of pain receptors due to tissue damage, such as breaking a bone; or
2. Neuropathic Pain (NeP), which is caused by dysfunction of the somatosensory system resulting from abnormal nociceptive pathway signaling or nerve injury.

There are a number of disease states that lead to NeP including: diabetes, multiple sclerosis (MS), cancer, spinal cord injury, stroke, and HIV infection along with many others.

The NeP pain signal begins with sensory receptors [nociceptors] that are activated through pain stimulation.  NeP results from traumatic, inflammatory, ischemic, or metabolic insults directly to the nerve, often causing the pain receptors to fire spontaneously [1].   NeP is characterized by both chronic and acute pain or sensitivity.  The underlying pathophysiology of NeP is not completely understood and as a result pharmacotherapy is frequently unsatisfactory with only about 30% of Food and Drug Administration [FDA] approved pharmacological drugs meeting satisfactory endpoints [1,3]. NeP remains one of the most debilitating symptoms in the clinic and improvements, characterized by lessening pain and improving the overall quality of life, represent a large unmet medical need.

There are several FDA approved medications available today to treat NeP with a high variability of success [2].  Analgesics are often prescribed based on safety, tolerability, drug interaction, and cost and less on the efficacy of the drugs.  Lidocaine, secondary amine tricyclic antidepressants [off label use], selective serotonin and norepinephrine reuptake inhibitors, calcium channel ligands [gabapentin and pregabalin], and tramadol are first line therapies [2].

Many of the aforementioned analgesics have limited success and physicians often turn to opioids as a treatment option for NeP.  Opioid analgesics, including morphine and oxycodone can be very effective in treating patients with severe pain but have limited success in NeP.  Opioid analgesics, which have a wide range of adverse side effects such as nausea, clinical constipation, and addiction, produce pain relief mainly by stimulating opioid receptors in the central nervous system.

Despite the limitations for NeP medications, the market for pain therapies is large. In 2007, the worldwide sales of prescription opiods surpassed $9.5 billion and they are expected to grow to $11.9 billion in 2018 [4].  In the US alone, over 200 million prescriptions were written for opiod medications.  Yet there remains a large opportunity for new drugs with greater efficacy and reduced side effects to address the unmet need.

The development of drugs to treat patients with NeP is challenging with many pharmacotherapy development failures. For example, neurokinin antagonists demonstrated very strong preclinical efficacy yet proved to be a huge failure in clinical development. There are several reasons that finding a truly effective therapy for NeP has been elusive:

• Clinical trials for pain drugs often have a high placebo rate, which makes it difficult to demonstrate efficacy and regulatory approval.
• Abuse potential is a major factor for the opioids, especially oxycodone and the FDA is requiring drug companies to submit a risk management program.
• Responses to single drugs are very rare.  This is because of the complexity of NeP disease and the high inter-patient variation of disease mechanism*.
• The mechanism may change based on the underlying disease course.
• Difficulty in diagnosing and measuring pain for physicians.
• Failure to understand conditions which influence pain response.
• High drug-drug interactions, especially given that most patients are on medications to treat the underlying disease state.

The challenges and opportunities for NeP drug development create optimal conditions for large pharmaceutical companies to license compounds from smaller development-stage biopharma companies.  Large pharmaceutical companies may be better equipped to design and implement the requisite clinical studies, while development-stage biotechnology companies may be more adept at drug discovery. In the text that follows, we highlight a few biopharmaceutical companies with promising technologies or products that are collaborating with large pharma, as well as a few companies that may be the next to partner:

Icagen, Inc. (ICGN)

Icagen is a biotechnology company with scientific experts in ion channel discovery and ion channel drug development.  Icagen has a collaboration with Pfizer, Inc. (PFE) for some of its ion channel pain targets.  Icagen has cloned over 300 ion channel genes and has developed a proprietary ion channel high-throughput screening and development technology allowing for the discovery of small molecules that modulate the state of each receptor.  One area of focus for Icagen are small molecules that activate potassium channels of the neurons. Icagen’s lead compound for NeP is ICA-105665, which specifically activates the KCNQ ion channel leading to increased neuron polarization thereby decreasing the excitability state of the nerve cells.  By shifting the membrane potential to be more negative, ICA-105665 is most effective when the neurons are actively firing in response to painful stimuli making the mechanism of action very specific for active neurons.  KCNQ channels are attractive drug targets because these ion channels are found at key areas of the peripheral and central nerve terminals as well as in the brain region involved in pain processing.  ICA-105665 has completed its Phase I safety study and the company expects to begin a proof of mechanism study later in 2009.

Adolor Corporation (ADLR)

Adolor, also in collaboration with Pfizer, is developing novel, first in class, small molecule agonists that selectively stimulate the human delta opioid receptor, a key receptor in the modulation of pain.  Adolor’s technology involves selecting novel agonists that specifically activate the delta opioid receptor without the side-effect profiles of other opioid receptor agonists including drug dependency. Adolor’s lead compound, ADL5859, is currently being developed for neuropathic pain with acceptable preclinical safety and toxicology profiles.  ADL5859 is in Phase IIa clinical trials for patients with neuropathic pain associated with diabetic peripheral neuropathy.  Adolor and Pfizer plan to re-formulate ADL5859 before commencing additional Phase IIa clinical trials.

Xenoport, Inc. (XNPT)

Xenoport, in collaboration with GlaxoSmithKline plc (GSK), recently presented its top-line results from its Phase IIb clinical trial of XP13512 for the treatment of NeP associated with Post-Herpetic Neuralgia or shingles.  XP13512, also known as Solzira [gabapentin enacarbil], is being co-developed for restless leg syndrome.  Solzira is a gabapentin pro-drug with several advantages over gabapentin such as dose proportional and sustained exposure through high-capacity transport mechanisms in the gastrointestinal tract. Gabapentin is a GABA analogue with actions on voltage gated Ca2+ ion channels that increase the synaptic and non-synaptic release of GABA.  In the phase IIb study involving 376 patients, XP13512 showed a significant improvement in pain intensity score compared to placebo and was generally well tolerated with only minor adverse events.

Endo Pharmaceuticals (ENDP)

Endo Pharmaceuticals is a specialty pharmaceutical company engaged in the research, development, sale and marketing of branded and generic prescription pharmaceuticals used primarily to treat and manage pain. The company is developing axomadol, a patented new chemical entity licensed from German analgesics and oral contraceptives producer Grunenthal, which is currently in Phase II development for the treatment of moderate to moderately severe chronic pain and diabetic peripheral neuropathic pain. Preclinical studies of axomadol demonstrated excellent efficacy in the treatment of pain in arthrosis and a reduced side-effect spectrum. Moreover, it has been found that in the chronic inflammation pain model, axomadol shows a better analgesic efficacy compared to conventional analgesics such as morphine, oxycodone and tramadol.

Allergan, Inc (AGN)

Allergan, in collaboration with ExonHit Therapeutics (Alternext: ALEHT) is developing AGN 0001 for the treatment of NeP. Phase I studies have been completed and the compound is now being considered for Phase II development.

In a separate collaboration with ACADIA Pharmaceuticals, Inc. (ACAD), Allergan is developing small molecules that activate the alpha adrenergic receptor as a novel pain therapy target including the lead molecule AGN XX/YY. Preclinical studies have demonstrated highly effective pain relief without the side effects of current pain therapies.  Allergan has completed Phase I studies for AGN XX/YY and is currently conducting Phase II development. Allergan has reported preliminary data from its Phase II program, including positive proof-of-concept in a visceral pain trial in patients that had hypersensitivity of the esophagus, and efficacy signals in two chronic pain trials in the areas of fibromyalgia and irritable bowel syndrome.

Avigen, Inc. (AVGN)

AV411 is Avigen’s lead molecule for the treatment of neuropathic pain. AV411’s active ingredient is ibudilast, a drug found in Japanese markets for the treatment of asthma with a well-experienced safety profile.   However, Avigen holds the patent for ibudilast for the treatment of NeP in the US and Europe.

Glial cells surround neurons and play an important role as mediators of NeP by enhancing the release of neurotransmitters and by increasing the excitability of neurons. Glial cells also release pro-inflammatory cytokines such as TNFa and IL-1, which are upregulated in NeP.  AV411 blocks the release of several Glial cell derived cytokines through the inhibition of MIF and TLR-4.  Preclincal studies by members of Avigen have demonstrated that blocking the activation of glial cells reduces pro-inflammatory cytokines and reverses pathological pain. AV411 is currently in a Phase IIa clinical trial.

Newron Pharmaceutics SPA (Swiss: NWRN.SW)

Newron is currently developing three compounds at various stages for the treatment of NeP.  Newron’s lead compound is ralfinamide, a potential first in-class therapy for Neuropathic Low Back Pain [NLBP] with potential in other neuropathic pain conditions. Ralfinamide is an inhibitor of several ion channels including Nav 1.7, N-type Calcium channels and the NMDA receptor. Several models of NeP have indicated that these ion channels are overactive leading to hyperexcitability and increased pain sensation.   NAV1.7 is an attractive target for pain inhibition due to its role in nerve excitability state and lack of cardiac side effects.  Newron recently initiated a Phase IIb/III study [SERENA] with Ralfinamide in patients with NLBP.  The market for NLBP is estimated at over 55 million patients.

Phosphagenics Limited (PPGNY)

Phosphagenics is investigating new ways to improve upon opioid therapies.  Phosphagenics has developed a platform delivery technology called alpha tocopheryl phosphate mixtures [TPM] that allows for improved delivery and formulation control using Vitamin E phosphates.  Applying TCM technology, Phosphagenics has demonstrated in their preclinical and Phase I studies that their reformulated oxycodone can be delivered non-invasively in a non-irritating patch.  In addition, Phosphagenics is applying their TPM technology to the $750 million lidocaine market.  Their human trial using the TPM technology has demonstrated significantly increased dermal [local] levels of TPM/lidocaine compared to lidocaine with no changes in systemic levels.  Phosphagenics plans to file an IND and initiate a Phase I clinical trial early next year.

Aegera Therapeutics, Inc.

Privately held Aegera Therapeutics recently initiated a phase 2a clinical trial for AEG33773, an orally bio-available small molecule for diabetic NeP.  AEG33773 is a first-in-class oral small molecule allosteric HSP90 modulator/JNK pathway inhibitor. It is efficacious in multiple preclinical models of neuropathic and inflammatory pain. Aegera recently completed a multiple dose Phase I trial.  The Phase 2a study, entitled A Multicenter, Randomized, Double-Blind, Placebo-Controlled Study Comparing the Safety and Efficacy of AEG33773 versus Placebo in Patients with Painful Diabetic Peripheral Neuropathy will evaluate the efficacy, safety and tolerability of three dose levels of AEG33773 in diabetic patients suffering from significant neuropathic pain.

NsGene A/S

NsGene, which was founded in December 1999 as a spin-off from NeuroSearch A/S (OMX CPH: NEUR), recently initiated a 28 patient Phase I study in Australia for NeP.  The company’s lead molecule, Neublastin, is a GDNF neurotrophic factor that has been shown to increase survival and function of peripheral sensory neurons.  NsGene has a collaboration with Biogen Idec, Inc. (BIIB) for Neublastin, but has retained rights to develop Neublastin for the treatment of other diseases of the central nervous system.

Nitec Pharma AG

Nitec Pharma, a spin-out of Merck KGaA , is developing TruNoc™, an NFk-B and AP-1 specific inhibitor for the treatment of NeP.  Activation of NFk-B and AP-1 have both been shown to be critical pathways in the initiation of pain signaling.  TruNoc’s parent compound is flurbiprofen, which has been marketed in the US since 1977; however TruNoc is the R enantiomer from this known analgesic. Unlike fluribiprofen, TruNoc does not possess COX I/II inhibition and the associated harmful side effects. TruNoc is currently in Phase II proof-of-concept studies.

NeP remains a large market with a huge unmet medical need, yet developing medicines to treat these patients has been difficult.  This has created an environment where large pharma is de-risking the initial proof of concept phase by acquiring later stage products from companies that cannot afford the costly clinical trials.  The small and  development stage biotech/biopharmaceutical companies  may retain rights  to market  their NeP compounds to physcian specialist  niche markets and/or  selective geographic  territories  as well as manufacturing rights.  While several excellent collaborations already exist, we expect the number of acquisitions and licensing deals in the NeP segment to increase.

* There is growing scientific evidence that biological changes in neurons play an integral role in the progression of NeP.  For example, NMDA receptor levels and Protein Kinase C [PKC] are elevated in several animal models of NeP.  As more information is known about several of these pathobiological changes, new targets are being explored with the potential to alter the way NeP is treated.

References

1. Finnerup NB et al., Algorithm for neuropathic pain treatment: an evidence based proposal. Pain 2005; 218 289-305
2. McGreeney BE, Pharmacological Management of Neuropathic Pain in Older Adults: An update on Peripherally and Centrally Acting Agents
3. Mizoguchi H et al., New Therapy for Neuropathic Pain. International Review of Neurobiology. 2009 Vol 85.
4. March 2009 Data Monitor Report

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About MD Becker Partners LLC

MD Becker Partners is a boutique management and strategy consulting firm focusing on both public and private companies in emerging growth industries, such as pharmaceuticals, biotechnology, medical devices, and cleantech. The firm’s mission is to bring experience-based insights gleaned from the three independent disciplines of investor relations, strategic advisory and operational improvement together and apply them to carefully conceived and expertly enacted strategies that help companies increase visibility, unlock value and access resources to grow their business. For more information, visit the website: http://www.mdbpartners.com/

Disclaimer: This article contains the author’s own opinions, and none of the information contained therein constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. To the extent any of the information contained in the article may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.

In the 1990s, the U.S. Food and Drug Administration [FDA] cleared for marketing the first intravenously delivered, particle emitting radionuclides for the treatment of pain arising from the spread of cancer to bone. Termed Systemic Targeted Radionuclide Therapy (STaRT), this new approach offered the promise of selectively irradiating disease sites while sparing normal tissue. Metastron® [strontium-89 chloride injection] was introduced in 1993 and Quadramet® [samarium-153 EDTMP] was later introduced in 1997.

In 2003, the FDA cleared for marketing two different radioactive labeled monoclonal antibodies for the treatment of patients with relapsed or refractory, low-grade or follicular B-cell non-Hodgkin’s lymphoma [NHL].  Both of these STaRT products utilize monoclonal antibodies that target an antigen expressed by certain normal and malignant B-cell lymphocytes.  However, Zevalin® [ibritumomab tiuxetan] employs yttrium-90 as its therapeutic payload, while Bexxar® [tositumomab] uses iodine-131.

Despite great promise and STaRT’s established safety and efficacy, a July 14, 2007, article in the New York Times stated that only 10% of patients who are suitable candidates for the drugs ever receive treatment.  Spectrum Pharmaceuticals, Inc. (SPPI) reported that U.S. sales of Zevalin were $11.4 million in 2008; while a similar non-radioactive product Rituxan® [rituximab] is a top-selling cancer drug by Genentech and Biogen Idec, Inc. (BIIB), with reported U.S. sales of $ 2.6 billion in 2008.

The lack of commercial success for existing STaRT products may be due to a mixture of clinical and commercial factors, including the following:

• Clinical considerations
  • Half-life, or the amount of time required for a given amount of radionuclide to lose 50% of its strength or activity
    • In general, a half-life of 10 days or less is considered optimal, as longer half-lives may create waste management issues and clinically, are more likely to show toxicity problems.
  • Particle range
    • Higher particle ranges may result in greater damage to surrounding normal tissue, leading to side effects such as myelosuppression.
  • Specificity
    • Some radionuclides, such as strontium-89, have general disease-targeting properties, while others are conjugated to antibodies or other carriers to reach the intended target.
• Commercial considerations
  • Production
    • Radioisotopes utilized for STaRT are produced commercially in nuclear reactors, cyclotrons or linear accelerators, and radionuclide generators, the selection of which can impact the cost-effectiveness of manufacturing.
  • Shipment
    • Radionuclides that have very short half-lives or that require extensive shielding as a result of high-energy gamma ray emissions [eg, iodine-131] create logistical issues for shipment and handling and may even require a local production unit close to the treatment center.
  • Administration
    • Marketers often assume that oncologists’ decisions about therapy are driven purely by the scientific data.  While medical oncologists are the key prescribing audience for marketed STaRT therapies, most aren’t licensed to administer radiopharmaceuticals – resulting in patient referrals to radiation oncologists and/or nuclear medicine physicians.  Therefore, these physicians may not be economically incentivized to prescribe products that they are not paid to administer.
  • Reimbursement
    • Reimbursement by the Centers for Medicare and Medicaid Services [CMS] and private insurance carriers is critical to the commercial success of any product.  In a letter by GlaxoSmithKline plc (GSK) to CMS regarding changes to the Hospital Outpatient Prospective Payment System [HOPPS], the company indicated that the proposed 2008 payment rate for Bexxar “results in a reimbursement rate that is approximately 50% below hospitals’ actual acquisition cost for the therapy.”

While some commercial considerations, namely administration and reimbursement, still need to be addressed, “next-generation” STaRT product candidates appear to address many historical clinical considerations and could ultimately fulfill the promise of this therapeutic class.

For example, Algeta ASA (OSE: ALGETA) is developing Alpharadin, the first in a new class of STaRT therapies based on the alpha-emitting radionuclide radium-223. Phase 2 studies in patients with hormone-refractory prostate cancer [HRPC] have already demonstrated that Alpharadin can prolong patient survival, improve quality of life and offer a benign safety profile.  A Phase 3 trial is underway to confirm Alpharadin’s efficacy and safety as a targeted treatment for bone metastases in patients with HRPC.

Radium-223 appears to offer the perfect mix of clinical characteristics (see table 1 for a comparison of STaRT products).  It has an 11.4 day half life, which is significantly shorter than the 50.6 day half-life for strontium-89, but not too short to create logistical issues with shipment.  Further, radium-223 has an extremely short particle range of 0.04 millimeters, which is equal to approximately 2-10 cell diameters.  This likely explains Alpharadin’s benign toxicity profile.

Table 1: comparison of STaRT products

Lending credibility to the future of next-generation STaRT products, Algeta today announced an $800 million global agreement with Bayer AG for the development and commercialization of Alpharadin.  In view of the fact that Bayer currently markets Zevalin outside of the U.S., this news could be interpreted as either good or bad news for investors betting on an acquisition of Spectrum Pharmaceuticals.

The bullish case is that Bayer is making a fresh $800 million investment in the field of STaRT, which could lend support to a consolidation of Zevalin marketing rights by Bayer.  However, the bear case is that Algeta has already demonstrated in vivo the potential of linking alpha-emitting radionuclides to existing monoclonal antibodies, including rituximab, which could ultimately pose quite a competitive threat to earlier-generation STaRT products like Zevalin.  In view of recent 52-week highs for Spectrum Pharmaceticals, however, it appears for now that investors are opting for the bullish thesis.

# # #

About MD Becker Partners LLC

MD Becker Partners is a boutique management and strategy consulting firm focusing on both public and private companies in emerging growth industries, such as pharmaceuticals, biotechnology, medical devices, and cleantech. The firm’s mission is to bring experience-based insights gleaned from the three independent disciplines of investor relations, strategic advisory and operational improvement together and apply them to carefully conceived and expertly enacted strategies that help companies increase visibility, unlock value and access resources to grow their business. For more information, visit the website: http://www.mdbpartners.com/

Disclaimer: This article contains the author’s own opinions, and none of the information contained therein constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. To the extent any of the information contained in the article may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.

Perhaps the most prominent shareholder activist in biotechnology is billionaire investor Carl Icahn, largely through his Icahn Management LP investment fund.  He has created value for some biotechnology stakeholders, including a very quick return with MedImmune, Inc. and a longer-term payoff with ImClone Systems, Inc.

MedImmune, Inc.

On February 14, 2007, Icahn Management LP disclosed that it purchased 2.8 million shares of MedImmune, Inc., or just over one percent of the company.  The stock had ranged from $25 to $37 over the prior 12-months and Icahn had threatened to nominate a slate of opposing directors to MedImmune’s board unless the company put itself up for sale, adding that the firm suffered from “very lackluster management.”  In less than two months, MedImmune announced that the company hired investment bank Goldman Sachs to help evaluate whether third parties would have an interest in acquiring the company at a price and on terms that would represent a better value for its stockholders than having the company continue to execute its business plan on a stand-alone basis.  Less than two weeks later, AstraZeneca plc (AZN) announced the $15.6 billion acquisition of MedImmune Inc. for $58 per share in cash, representing a premium of approximately 53% to MedImmune’s share price the day before it was disclosed that the company was for sale.  At the time, MedImmune had several marketed products and posted $1.3 billion in 2006 sales.

ImClone Systems, Inc.

Icahn Management LP’s success with ImClone Systems, Inc. took a little longer to materialize – in fact, nearly a decade.  Icahn first reported a 5.1% stake in ImClone in October 1999 through a Securities and Exchange Commission [SEC] filing, including the purchase of 594,100 shares from September 29, 1999 to October 10, 1999 at prices ranging from $22.09 to $32.05 a share.  At that time, Icahn Management LP reported owning a total of 1.29 million shares of ImClone.

The price of ImClone’s stock reached a high of $74 in early December 2001, but dropped to $14 by February 2002 after the U.S. Food and Drug Administration [FDA] raised serious doubts about test results for the company’s Erbitux® (cetuximab) product candidate for the treatment of colon, head and neck cancers.  Investigations, scandals [eg, Martha Stewart] and lawsuits ensued.

By March 2002, Icahn received clearance from the Federal Trade Commission and the Department of Justice under the Hart-Scott-Rodino Act to acquire up to $500 million of ImClone’s stock, or about 40% of the company.  In August 2006, Icahn reached an agreement with ImClone to avoid a possible proxy contest by accepting the company’s offer to have him and three of his recommended candidates on the management slate of director nominees for the 2006 annual stockholders meeting.  The three nominees were Alexander Denner, a current ImClone director, as well as Charles Woler and Richard Mulligan.  Icahn replaced David M. Kies as chairman of ImClone and ousted Joseph L. Fischer, ImClone’s interim chief executive officer [CEO].  At the time, Icahn also reported in the filing that he increased his stake in ImClone to 12.89%.

It wasn’t until October 2008 that Eli Lilly (LLY) agreed to pay $70 per share in cash for a total of $6.5 billion for ImClone Systems, a 51% premium to ImClone’s closing price on July 30, 2008, the day before an initial $60 per share offer by Bristol-Myers Squibb (BMY) was made public.  At the time, ImClone had one drug on the market, Erbitux, which posted $1.3 billion in 2007 sales worldwide, up 18% from 2006.

Three Recent Activist Wins

In view of major coups with MedImmune and ImClone, we reviewed Icahn’s current biotechnology holdings as reported in SEC filings (see Table 1) and identified three companies that have significantly underperformed the NASDAQ Biotechnology Index (NBI) over the past five years, but have very recent successful activist outcomes that could positively impact future performance.  In particular, Alexander Denner, who has served as Managing Director of entities affiliated with Carl Icahn and as a director of ImClone, has recently been elected as a director at each company.  Consider the following:

• Biogen Idec Inc. (BIIB): On June 9, 2009, Biogen Idec Inc. reported that Icahn won two seats on the board, giving him leverage to push for change at the company.  Alexander Denner and Richard Mulligan, both formerly with Icahn at ImClone, were appointed to Biogen Idec’s board.  Icahn owns about 5.6% of Biogen Idec, his largest current biotechnology holding, and has urged the company to consider a break-up or sale to a large pharmaceutical company.  Biogen Idec, with more than $4 billion in annual revenue for 2008, sells three FDA approved drugs for cancer, multiple sclerosis [MS] and rheumatoid arthritis.  While Biogen Idec possesses a strong pipeline with several drugs in Phase 2 and Phase 3 development, the company’s flagship product Avonex® (interferon beta-1a) will soon face competition from Extavia®, a branded version of interferon beta-1b by Novartis AG (NVS) for the treatment of MS that will be introduced this fall.  Avonex represented more than half of Biogen Idec’s revenue in 2008.
• Amylin Pharmaceuticals, Inc. (AMLN): On August 24, 2009, three months after a high profile proxy battle resulted in the ouster of its chairman, Joseph C. Cook, Jr., Amylin Pharmaceuticals announced the appointment of a new chairman.  Paulo F. Costa, who formerly headed the U.S. operations of Novartis AG as President and Chief Executive Officer of Novartis U.S. Corporation, took over as chairman after gaining a seat on Amylin’s board in May 2009.  At that time, two board members recommended by Icahn and Eastbourne Capital Management, Kathleen Behrens and Alexander Denner, were also elected.  Amylin’s top drug Byetta® (exenatide), which it sells with partner Eli Lilly & Co (LLY), is a GLP-1 agonist for patients with type 2 diabetes that is administered twice daily as a subcutaneous injection.  Amylin, with more than $840 million in annual revenue for 2008, has set a goal of becoming operating cash flow positive by the end of 2010.  An important near-term catalyst for the company, Amylin, Eli Lilly, and Alkermes, Inc. (ALKS) are working together to develop exenatide once weekly, which would represent the first weekly therapy to treat type 2 diabetes with glucose control and weight loss.  A New Drug Application [NDA] for exenatide once weekly was accepted for review by the FDA in July 2009.
• Enzon Pharmaceuticals, Inc. (ENZN): In May 2009, Alexander Denner and Richard Mulligan, both formerly with Icahn at ImClone, were appointed to Enzon’s board.  More recently, on July 23, 2009, Enzon appointed Alexander Denner as non-executive Chairman of the Board, separating the role of CEO and Chairman.  Jeffrey H. Buchalter, who previously served as executive Chairman, continues to serve as a Director as well as President and CEO.  DellaCamera Capital, which beneficially holds approximately 8.3% of the shares of Enzon had been making a case for removal of Jeffrey Buchalter as CEO due to excessive compensation, poor stock performance, and questionable expense levels.  DellaCamera recently withdrew its consent solicitation to remove the CEO in order to better allow the Company`s new Chairman and new independent director to bring positive change to the Board.  Enzon, with more than $48 million in annual revenue for 2008, has a portfolio of four marketed products, Oncaspar®, DepoCyt®, Abelcet® and Adagen® along with a royalty revenue stream from licensing partnerships for other products developed using Enzon’s PEGylation technology.

Table 1: Icahn’s biotechnology holdings (as of 6/30/09)

A Word of Caution

Not all of Icahn’s biotechnology investments turn out like MedImmune and ImClone, so investors should conduct their own due diligence regarding Biogen Idec, Amylin, and Enzon before blindly following the billionaire investor.  For example, shares of Telik, Inc. (TELK) plunged more than 70% in a single trading session – falling from over $16 per share to below $5 per share – in late December 2006 after the company reported that its most advanced development compound, Telcyta® (canfosfamide HCI), failed to improve survival in patients with advanced lung cancer or in patients with ovarian cancer.  At one point, Icahn Management LP reported nearly a 10% holding in Telik but reported holding zero shares as of December 31, 2008.  Shares of Telik recently traded below a dollar.

# # #

About MD Becker Partners LLC

MD Becker Partners is a boutique management and strategy consulting firm focusing on both public and private companies in emerging growth industries, such as pharmaceuticals, biotechnology, medical devices, and cleantech. The firm’s mission is to bring experience-based insights gleaned from the three independent disciplines of investor relations, strategic advisory and operational improvement together and apply them to carefully conceived and expertly enacted strategies that help companies increase visibility, unlock value and access resources to grow their business. For more information, visit the website: http://www.mdbpartners.com/

Disclaimer: This article contains the author’s own opinions, and none of the information contained therein constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. To the extent any of the information contained in the article may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.

Last week, Genentech (DNA) and Biogen Idec (BIIB) reported that a Phase 3 study of Rituxan® failed to meet the primary endpoint as a treatment for patients with a form of lupus. This was the second setback for patients with lupus in less than a month, as La Jolla Pharmaceutical (LJPC) recently announced that the Independent Data Monitoring Board for its Riquent® Phase 3 study in lupus completed the first interim efficacy analysis and determined that continuing the study is futile.

Also during the week, Human Genome Sciences (HGSI) announced that Albuferon® met its primary endpoint of non-inferiority to peginterferon alfa-2a in a Phase 3 clinical trial for patients with chronic hepatitis C. Unfortunately, investors apparently had higher expectations for the study and sent the company’s stock to an all-time low on the news. Recent clinical setbacks in the area of lupus also likely weighed on Human Genome Sciences. The company is investigating LymphoStat-B®, a human monoclonal antibody that inhibits the biological activity of B-lymphocyte stimulator, in two Phase 3 superiority trials for patients with systemic lupus erythematosus (SLE). Human Genome Sciences expects to have the first Phase 3 data available for LymphoStat-B® by mid-2009, and all Phase 3 data to support regulatory filings available in fall 2009.

Putting disappointing clinical updates aside, last week’s big news came from Roche (ROG.VX) and Genentech, which announced a merger agreement under which Roche will acquire the outstanding publicly held interest in Genentech for a total payment of approximately $47 billion in cash. This positive development fueled speculation as to where investors might redeploy their proceeds (see related article by Thomson Reuters).

Seeking biotechnology companies of comparable size and liquidity, investors will likely gravitate towards the larger companies among the 135 members of the NBI that we divided into the following three groups using data obtained through Gridstone Research:

Tier 1: market capitalization in excess of $10 billion (6 companies)
Tier 2: market capitalization greater than $2 billion but less than $10 billion (12 companies)
Tier 3: market capitalization of at least $1 billion but less than $2 billion (12 companies)

The 30 companies in these three groups had a collective market capitalization of approximately $240 billion at the end of last week. Assuming that investors reinvested the entire $47 billion in cash they receive for their Genentech shares into these groups, it would represent approximately 20 percent of the current value. Of course, it is unlikely that the entire $47 billion will return to the biotechnology sector, as index funds and other Genentech holders may reallocate their proceeds to other industries. Nonetheless, it is reasonable to assume that the majority of funds will be reinvested within the biotechnology sector.

Tier 1 consists of Amgen (AMGN), Biogen Idec (BIIB), Celgene (CELG), Genzyme General (GENZ), Gilead Sciences (GILD), and Teva Pharma (TEVA). Not surprisingly, this group performed exceptionally well during the past week. Year-to-date laggard Celgene (CELG) benefited the most and advanced 17 percent during the period.

Tier 1 Graph

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Tier 2 consists of Shire plc (SHPGY), Life Technologies (LIFE), Vertex Pharmaceuticals (VRTX), Cephalon (CEPH), Illumina (ILMN), Myriad Genetics (MYGN), Qiagen N.V. (QGEN), Alexion Pharmaceuticals (ALXN), Warner Chilcott (WCRX), Gen-Probe (GPRO), OSI Pharmaceuticals (OSIP), and Perrigo (PRGO). In addition to possibly benefiting from the reallocation of Genentech proceeds, Tier 2 includes some of the sector’s best performing stocks year-to-date, including Myriad Genetics, Life Technologies and Illumina.

Tier 2 Graph (partial list)

Copyright ©1999-2008 by StockCharts.com Inc., Redmond Washington. All rights reserved. Used with permission.

Tier 3 consists of Endo Pharmaceuticals (ENDP), Techne (TECH), ONYX Pharmaceuticals (ONXX), Sepracor (SEPR), United Therapeutics (UTHR), Amylin Pharmaceuticals (AMLN), CV Therapeutics (CVTX), Isis Pharmaceuticals (ISIS), Auxilium Pharmaceuticals (AUXL), BioMarin Pharmaceutical (BMRN), Regeneron Pharmaceuticals (REGN), and Acorda Therapeutics (ACOR). Tier 3 represents a number of companies that have been rumored as takeover targets themselves, including ONYX Pharmaceuticals, Amylin Pharmaceuticals, and Acorda Therapeutics. Just last week, Gilead Sciences and CV Therapeutics announced the signing of a definitive agreement pursuant to which Gilead will acquire CV Therapeutics for $20.00 per share, which topped an unsolicited proposal from Astellas Pharma Inc. to acquire CV Therapeutics.

Tier 3 Graph (partial list)

Copyright ©1999-2008 by StockCharts.com Inc., Redmond Washington. All rights reserved. Used with permission.

The brisk pace of merger and acquisition activity along with licensing transactions is central to the bullish outlook for biotechnology proposed at the start of 2009. However, new product approvals and positive clinical trial results are an equally important theme. As such, investors will likely be closely monitoring near-term events, such as results from the first Phase 3 trial of Human Genome Sciences’ LymphoStat-B® for lupus in mid-2009, AMAG Pharmaceuticals (AMAG) obtaining approval for Feraheme™ to treat anemia, final results from Dendreon’s (DNDN) Phase 3 trial of Provenge® for prostate cancer expected in April, and results from Genentech’s Phase 3 study of Avastin® plus chemotherapy in adjuvant colon cancer expected in mid-2009.