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.

Genetic mutations may alter the instructions for making proteins.  Some mutations are very severe and prevent the production of a specific protein, while other mutations can lead to the production of faulty proteins in cells that do not achieve their correct three-dimensional shape and are generally referred to as “misfolded” proteins.  Many well known diseases, including neurodegenerative diseases such as Parkinson’s, Alzheimers, and Huntington’s, in addition to many cancers, arise when misfolded proteins are unable to perform their intended biological function or when they are not recognized as defective and eliminated by the cell’s own internal processes.

Protein misfolding can also result in rare diseases, such as lysosomal storage disorders [Gaucher disease, Fabry disease, Pompe disease, and Mucopolysaccharidosis Type I  and Type II].  Historically, these disorders have been described as being caused by a missing protein, with each one involving a different lysosomal enzyme.  However, recent evidence reveals that many individuals who have lysosomal storage disorders actually do make lysosomal enzymes – they are just misfolded and unable to perform their intended biological function.

Despite the fact that lysosomal storage disorders are less common [defined as affecting fewer than 200,000 people], companies have found the markets extremely profitable.  In addition, the Orphan Drug Act [ODA] of 1983 provides incentives for sponsors to develop products for rare diseases, such as seven years of marketing exclusivity upon regulatory approval, as well as the opportunity to apply for grant funding from the U.S. government to defray costs of clinical trial expenses, tax credits for clinical research expenses and potential waiver of the FDA’s application user fee.  The ODA has been very successful – more than 200 drugs and biological products for rare diseases have been brought to market since 1983. In contrast, the decade prior to 1983 saw fewer than ten such products come to market.

To date, the primary therapeutic strategy for lysosomal storage disorders has been enzyme replacement therapy [ERT], which involves the administration of exogenous recombinant human enzymes into the patient.  For example, people with Gaucher disease are deficient in the enzyme glucocerebrosidase, which is responsible for breaking down a certain fat molecule called glucocerebroside. This causes a buildup of glucocerebroside in certain cells, called Gaucher cells.  Clinical manifestations of the disease are the simultaneous enlargement of both the liver and the spleen [hepatosplenomegaly], skeletal disorders, and, in some instances, lung, kidney, and central nervous system impairment with the progression sometimes ending in death.  It is estimated that Gaucher disease affects approximately 8,000 to 10,000 people worldwide.

Genzyme Corporation (GENZ) markets Cerezyme® [imiglucerase for injection] to replace the missing enzyme in Type 1 Gaucher disease.  Cerezyme is a a mammalian cell expressed version of glucocerebrosidase that is created using recombinant DNA technology.  It has been used since 1994 in thousands of patients around the world with reported annual sales of $1.24 billion in 2008.  

On June 16, 2009, Genzyme announced the disruption of Cerezyme manufacturing due to a viral bioreactor contamination and that current product inventories would not be sufficient to meet projected global demand.  Genzyme indicated that the period of constraint for Cerezyme should last approximately 6-8 weeks beginning in August, but that the manufacturing plant should be fully operational again by the end of July 2009.  Production of Fabrazyme® (agalsidase beta) at the plant was also interrupted.  While the news resulted in a significant decline in Genzyme’s common stock, several other companies have benefited.

For example, the FDA requested treatment protocols from Shire plc (SHPGY) and Protalix Biotherapeutics, Inc. (PLX) for their competitive ERT products.   If approved by the FDA, the treatment protocols would allow physicians to treat Gaucher patients ahead of commercial availability in the US.  Shire is currently developing velaglucerase alfa, a version of glucocerebrosidase made from a human cell line that has the exact human amino acid sequence and carries a human glycosylation pattern.  Shire reported filing a treatment protocol with the FDA on July 6, 2009 with plans to file a New Drug Application [NDA] as early as possible.  Protalix only indicated that the company “expects to submit” a treatment protocol to the FDA for its prGCD product candidate, a plant-cell expressed recombinant form of glucocerebrosidase that is currently the subject of a pivotal Phase 3 clinical trial being conducted under the FDA’s Special Protocol Assessment [SPA].  However, shares of Protalix have risen more than 40% since Genzyme’s announcement. 

Shares of Amicus Therapeutics, Inc. (FOLD) also gained more than 40% following news of the Genzyme manufacturing disruption.  Amicus Therapeutics is currently conducting a Phase 2 study of Plicera™ [afegostat tartrate] for Gaucher disease as part of a strategic collaboration with partner Shire to develop novel, oral therapeutics known as pharmacological chaperones for the treatment of a range of human genetic diseases.  Amicus Therapeutics’ pharmacological chaperone technology involves the use of small molecules that selectively bind to and stabilize proteins in cells, leading to improved protein folding and trafficking, and increased activity.  Amicus previously reported that enrollment has been completed for the Phase 2 Gaucher study with results to be available in the third quarter of 2009.  Amicus has also commenced the U.S. registration Phase 3 trial for Amigal™ [migalastat hydrochloride] for the treatment of Fabry disease and is studying AT2220 [deoxynojirimycin] in a Phase 2 clinical trial for the treatment of Pompe disease, although this particular study was placed on clinical hold by the FDA in February 2009.

While not working in the area of lysosomal storage disorders, shares of CytRx Corporation (CYTR) have also risen dramatically since Genzyme’s manufacturing disruption announcement.  CytRx is developing novel compounds that amplify the production of endogenous molecular chaperones.  In January of 2008, CytRx announced that a Phase 2b study with the company’s drug candidate arimoclomol for the treatment of amyotrophic lateral sclerosis [ALS, or Lou Gehrig’s disease] was placed on clinical hold by the FDA pending additional data and preclinical toxicology studies.

Amicus and CytRx are taking different approaches to small molecule chaperone technology.  One potential advantage for Amicus is that their pharmacological chaperones directly stabilize the misfolded proteins, while CytRx’s molecule will indirectly stabilize a misfolded protein through upregulation of endogenous molecular chaperones, possibly leading to cellular desensitization with chronic drug intervention.

Lysosomal storage diseases are rare and debilitating diseases, but with the advancement of ERT are becoming more manageable.  However, as the pharmacoeconomic landscape changes, difficult decisions need to be made about the costs for some of these therapies.  In fact, several insurance companies refuse to pay for ERT for adults (click here for reference).

Amicus Therapeutics and others have several small molecule compounds in development that may offer improved patient outcomes at a significant reduction in cost.  Upcoming clinical trial results will be critical for the evaluation of improved efficacy in these patient populations. 

In addition, there is the possibility for combination therapy with ERT and pharmacological chaperones leading to improved patient outcomes. 

# # #

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.

By 2003, the U.S. Food and Drug Administration [FDA] had approved two radioactive labeled monoclonal antibodies for the treatment of patients with “relapsed” or “refractory”, low-grade or follicular B-cell NHL.  Refractory NHL is disease that never responded or has stopped responding to standard therapies.  Relapsed NHL is disease that has returned after successful initial treatment. 

Both products utilize monoclonal antibodies that target an antigen expressed by certain normal and malignant B-cell lymphocytes [CD20] combined with the killing power of radiation to eradicate tumor cells.  Zevalin® [ibritumomab tiuxetan] by Spectrum Pharmaceuticals, Inc. (SPPI) in the United States and Bayer Schering Pharma ex-United States employs yttrium-90 as its therapeutic payload, while Bexxar® [tositumomab] by GlaxoSmithKline (GSK) uses iodine-131. 

In April 2008, the European Commission extended the marketing authorization for Zevalin in Europe to include first line consolidation therapy for patients with NHL.  The decision by the European Commission to expand Zevalin’s indication was based on data from the pivotal Phase 3 First-Line Indolent Trial [FIT] demonstrating that the addition of Zevalin significantly prolonged the median progression-free survival time from 13.5 months [control arm] to 37 months [p<0.0001].  The data were presented for the first time at the 49th Annual Meeting of the American Society of Hematology [ASH] in December 2007. 

In November 2008, the FDA accepted and granted priority review status for Spectrum Pharmaceuticals’ supplemental Biologics License Application [sBLA] for expanded use of Zevalin as a first line consolidation therapy for patients with NHL.  A Prescription Drug User Fee Act [PDUFA] target date of July 2, 2009 has been established by the FDA for a decision regarding the Zevalin sBLA, although PDUFA dates appear to be a moving target with the agency nowadays. 

Assuming the sBLA is approved, which appears likely based on the European Commission decision, Spectrum Pharmaceuticals stated that Zevalin’s addressable patient population would increase by approximately 18,000.  At an approximate cost of $25,000 per treatment, the additional market for Zevalin would be worth $450 million.  Not bad. 

Unfortunately, despite the fact that both Zevalin and Bexxar have been demonstrated as safe and effective treatments for patients with relapsed or refractory NHL for years, it has been reported that fewer than 10% of patients who are candidates for the products ever receive them.  Recall the aforementioned statistic regarding NHL relative survival rates, indicating that a significant number of patients experience relapsed or refractory NHL.  According to Spectrum Pharmaceuticals, Zevalin’s annual sales in the United States were a mere $11.4 million in 2008. 

Therefore, while an expanded indication for Zevalin is nice, the fact that the product has yet to penetrate the market indication afforded approximately five years ago implies that there are other obstacles to the product’s success.  For example, while medical oncologists are the key prescribing audience for Zevalin and Bexxar, most aren’t licensed to administer radiopharmaceuticals – resulting in patient referrals to radiation oncologists and/or nuclear medicine physicians in the hospital setting.  This may provide an economic incentive to medical oncologists to exhaust all non-radioactive options, such as chemotherapy, before referring NHL patients to receive products that will not improve their bottom line.  Sad but true, this and other factors were discussed in my opinion editorial for Oncology Business Review [OBR] back in September 2007 titled “Radiopharmaceuticals Need a Jump-STaRT.” 

Spectrum Pharmaceuticals’ stock has been strong as of late – but perhaps more a result of Russell Investments adding Spectrum Pharmaceuticals to the Russell Global®, the Russell 3000® and the Russell 2000® Indexes.  For investors, significantly improved sales of Zevalin in future quarters will be much more important to Spectrum Pharmaceuticals than near-term approval of the sBLA.

# # #

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.

As noted in our recent articles, investors have been “irrationally exuberant” towards biotechnology companies working in the field of prostate cancer – even those in the early stages of development.  In keeping with this theme, the Mayo news drove shares of Medarex, Inc. (MEDX) up more than 20% on Monday morning with significant volume, as the immunotherapy referenced in the investigator-sponsored study involved the company’s ipilimumab product candidate.  Ipilimumab is a fully human antibody that binds to CTLA-4, a molecule on T-cells that plays a critical role in regulating natural immune responses.

Enough has been written about the fact that the positive results were demonstrated in a mere two prostate cancer patients and the lack of information provided in the Discovery’s Edge publication (see Associated Press article), so I won’t belabor the point.

It is interesting to note, however, that Medarex included a summary of the Mayo report from two patients under the news section of the company’s website, yet the company didn’t report Phase 2 study results with ipilimumab in aggressive prostate cancer that were reported by researchers at Memorial Sloan-Kettering Cancer Center (MSKCC) during the Annual Meeting of the American Society of Clinical Oncology (ASCO) held May 29-June 2, 2009.  See abstract #5138 titled “Initial phase II experience of ipilimumab (IPI) alone and in combination with radiotherapy (XRT) in patients with metastatic castration-resistant prostate cancer (mCRPC).”

In the MSKCC study reported at ASCO, 45 patients with mCRPC received ipilimumab in 3 groups:

1. ipilimumab alone, n=16
2. ipilimumab + XRT, n=15, in chemotherapy naïve
3. ipilimumab + XRT, n=14, in chemotherapy experienced patients

In the study, PSA declines ≥ 50% were seen in 10 of 45 (22%) patients.  Only one patient from Group 1 (ipilimumab alone) demonstrated a PSA ≤ 0.05 ng/ml and complete resolution of bone, nodal and prostate lesions that continued for 54+ and 84+ weeks, respectively.

While Medarex issued a press release on May 31, 2009 summarizing the results from three Phase 2 studies of ipilimumab in metastatic melanoma at ASCO, there was no such communication regarding the Phase 2 results from MSKCC in prostate cancer that certainly don’t live up to the hype generated by the results from the Mayo Clinic report.

In healthy patients, insulin is released from pancreatic B cells in response to elevated glucose which causes depolarization through the closing of ion gated K+ channels and opening of Ca2+ channels.  The increased intracellular Ca2+ levels results in insulin release from the B cells entering the circulation.  The primary target of insulin is the insulin receptor found in many tissues including the liver, brain, and muscle.  Activation of this receptor initiates a complex signaling network resulting in energy storage, cell growth, and metabolism. Circulating insulin is cleared through the liver (60%) and the kidneys (40%).

Diabetes is a chronic, long-term disease with treatments focusing on disease management.  This includes drugs and devices that alter and monitor insulin levels.    Patients with abnormal insulin levels or who are insulin resistant may develop a series of complications as a result of metabolic derangements such as cardiovascular disease, stroke, nephropathy, retinopathy, peripheral neuropathy, renal failure, and amputations of the extremities. Therefore, new medications that allow for tighter control of insulin levels are needed. 

There are a number of drugs available for patients with type-2 diabetes mellitus. The oral anti-diabetic agents are categorized in four classes based on the mechanism of action: biguanides (reduced gluconeogenesis) thiazolidinediones (PPAR-g ligands), insulin secretagogues (closure of K+ channels on B cells), and a-glucosidase inhibitors (inhibitors of a-glucosidases).  Many of these drug classes have more established profiles such as the insulin secretagogues and biguanides and are the first line of therapy for early stage type-2 diabetes.  In addition, several of these drugs are available in generic forms.  Many patients with type-2 diabetes unable to make lifestyle modifications are unable to achieve normal glucose levels and require a combination of oral anti-diabetic medicines and insulin analogs. 

Several different insulin analogs are available for type-1 and advanced type-2 diabetic patients.  The injected insulin types differ in their onset and duration.  The main players in this area are many of the larger pharmaceutical companies including Lilly (LLY), Sanofi-Aventis (SNY), Novo Nordisk (NVO) and Pfizer (PFE).  Total sales of insulin analogs in 2006 were greater than $4 billion. 

Current strategies for physicians treating diabetics are through the drug classes mentioned above resulting primarily in diabetes management.  Many new insulin altering drugs have entered the market in the past 10 years, but there is mixed evidence that these new drugs are superior to more established therapies (Ref 2-5) probably because many of these drugs are active on the same molecular sights as previously approved drugs.  Importantly, as the number of patients with diabetes increases, developing new medicines that reduce the cost of long-term treatment for this chronic disease will become a necessity. 

PPAR and GLP-1 receptor agonists

As discussed at the recent ADA meeting, new technology and approaches for treating these patients is changing and the competition to secure the growing market is fierce (see Table 1 below for a summary). Eli Lilly and Co. and Amylin Pharmaceuticals Inc. (AMLN), makers of Byetta, recently announced a new formulation of this drug that changes the dosing from twice daily to weekly.  Positive results from this clinical trial are encouraging for many of the patients who are non-compliant with this medication.  Roche (RHHBY) also announced that it would begin a phase 3 trial for its PPAR-g agonist R1439, which demonstrated improved cardiovascular morbidity in high-risk diabetes patients.

Xoma

XOMA (XOMA) presented data from one of its diabetes antibody candidates XOMA-52, which is a clinical stage IL-1b antibody for patients with type-2 diabetes.  IL-1b plays a role in the auto-inflammatory response leading to decreased beta cell function.  XOMA-52 is unique to other IL-1b inhibitors because of its high affinity (K_D is fM) and long half-life (22 days).  As a result, patients need to be injected with XOMA-52 once monthly and should increase patient compliance.    In addition to safety and pharmacokinetic data, the Phase I trial demonstrated decreased HbA1c levels, a key indicator of blood sugar control, and improved beta cell function.  XOMA-52 is an attractive drug candidate because it preserves endogenous insulin production in patients with advancing type-2 diabetes. In addition to clinical data, XOMA also presented detail mechanistic rodent and in vitro data on XOMA-52, confirming the results seen in the clinical study.   

Halozyme

For patients with type-1 diabetes, Halozyme (HALO) recently presented Phase 2 data that showed improved pharmacokinetics and glucodynamics with patients receiving Lilly’s Humalog and co-administration of Halozyme’s PH20 enzyme. PH20 is a recombinant hyaluronidase enzyme that catalyzes the hydrolysis of hyaluronic acid, a major constituent of the interstitial barrier, and increases tissue permeability. This study demonstrated an improved blood glucose metabolism profile in patients taking the combination therapy, reflecting a more physiologic glucose profile thereby likely reducing the amount of exogenous insulin needed along with some potential complications such as hypoglycemia.

Appetite Control

In addition to reformulations, several companies presented data on new drug targets and technologies. VIVUS, Inc. (VVUS) presented data from a year-long Phase 2 trial with Qnexa demonstrating reduced HbA1c levels and helped patients achieve and maintain significant weight loss through appetite suppression.  Qnexa is a combination therapy of FDA approved phentermine and topiramate, which in combination have synergistic effects through unique molecular targets resulting in reduced appetite and increased satiety.  Arena Pharmaceuticals, Inc. (ARNA) presented Phase 3 data from its BLOOM (Behavioral modification and Lorcaserin for Overweight and Obesity Management), demonstrating significant weight loss and reduced secondary endpoints associated with cardiovascular disease after one year of treatment compared to placebo. Lorcaserin is a novel serotonin 2C receptor agonist; selective activation of this Gq-coupled GPCR in the hypothalamus leads to appetite control and increased metabolism. 

Isis

Isis Pharmaceuticals, Inc. (ISIS) presented preclinical data on ISIS-SGLT2Rx, an antisense biologic targeting knockdown in sodium dependent glucose co-transporter type 2 (SGLT2) levels that resulted in a significant reduction in blood glucose levels in multiple animal species. Isis is experienced in RNA targeting drugs and has already commercialized the world’s first antisense drug.   This novel technology allows Isis to target dysfunctional proteins through decreased transcriptional levels thus modifying signaling pathways not attainable through small molecule inhibition.  Antisense technologies may play a key role in finding drugs with unique targets previously unreachable ultimately leading to improved disease management and quality of life.  

Sangamo

Sangamo BioSciences, Inc. (SGMO) presented data from its Phase 2 trial for SB-509 as a treatment for diabetic neuropathy (DN) resulting in statistically significant and clinically relevant improvements in subjects. DN is a severe physiological consequence of chronic elevated blood glucose levels and is seen in many patients with advanced diabetes.  SB-509 is an injectable plasmid encoding a DNA-binding Zinc Finger DNA-binding Protein (ZFP) Transcription Factor (ZFP TF™) designed to upregulate the endogenous expression of the gene encoding vascular endothelial growth factor (VEGF), a peptide responsible for angiogenesis. 

The preclinical and clinical data presented at the ADA gives investors, physicians, and patients a preview of the new drugs and technologies to come.  Many of these drugs are several years away from commercialization; however, because of the new technology, new target, or new delivery method, the outlook remains positive for these drugs and companies in the expanding market of diabetes control.

Table 1: Summary

References

1. Canaccord Adams. Diabetes 2007 and Beyond: Innovation, Demographics and Lifestyle Trends Drive Industry Growth. August 2, 2007
2. UK Prospective Diabetes Study Group. Effect of intensive blood-glucose control with metformin on complications in overweight patients with type 2 diabetes (UKPDS 34). Lancet 1998; 352: 854–65.
3. UK Prospective Diabetes Study Group. Effect of intensive blood-glucose control with sulphonylureas or insulin compared with conventional treatment and risk of complications in patients with type 2 diabetes (UKPDS 33). Lancet 1998; 352: 837–53.
4. Kahn SE, Haffner SM, Heise A, et al, for the ADOPT Study Group. Glycemic durability of rosiglitazone, metformin or glyburide as monotherapy in type 2 diabetes. N Engl J Med 2006; 355: 2427–43.
5. Nathan DM. Finding new treatments for diabetes—how many, how fast… how good? N Engl J Med 2007; 356: 437–40.

# # #

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.

As noted in our May 31, 2009 article, investors appear to be gravitating towards biotechnology companies working in the field of prostate cancer. Consider the following:

• Shares of Dendreon Corporation (DNDN), which traded in the low single-digits earlier this year, currently trade above $25 following positive Phase 3 results for the company’s prostate cancer vaccine study in April 2009
• Shares of Cougar Biotechnology, Inc. (CGRB), a development stage company with an oral prostate cancer treatment being studied in two Phase 3 clinical trials, traded as low as $16.35 over the prior 12-months before the company received a $43.00 tender offer from Johnson & Johnson (JNJ) in May 2009
• Shares of OncoGenex Pharmaceuticals, Inc. (OGXI), which were trading around $6.00 at the end of April 2009, recently reached a 52-week high as $27.00 following the presentation of positive Phase 2 trial results for the company’s prostate cancer treatment at the Annual Meeting of the American Society of Clinical Oncology (ASCO)
• Shares of Poniard Pharmaceuticals, Inc. (PARD), which traded as low as $1.00 in December 2008, recently reached a 52-week high of $5.50 following the presentation of positive Phase 2 data for the company’s picoplatin product candidate in patients with metastatic hormone-refractory prostate cancer at ASCO

Therefore, it may not be surprising that shares of Molecular Insight Pharmaceuticals, Inc. (MIPI) nearly doubled over the past month following the presentation of data demonstrating that the company’s investigational imaging agents can rapidly detect the spread of prostate cancer to soft tissues and bone at the recent annual meeting of the Society of Nuclear Medicine. Shares of Molecular Insight Pharmaceuticals, which traded as low as $1.15 in March 2009, nearly reached $8.00 this month on heavy volume.

Currently, simple blood tests to determine the amount of prostate-specific antigen (PSA), a protein produced by the cells of the prostate gland, are used to help initially detect prostate cancer and to monitor patients with a history of prostate cancer to see if the cancer has come back, or recurred. Unfortunately, PSA levels cannot directly identify the extent or location of disease.

Molecular Insight’s two product candidates (MIP-1072 and MIP-1095) are small molecules that target prostate-specific membrane antigen (PSMA), a protein abundantly expressed on the surface of prostate cancer cells. An imaging radioisotope (Iodine-123) is linked to the small molecules, which are administered intravenously into the patient. The small molecules travel through the bloodstream and bind to PSMA. The radioactivity from the isotope that has been attached to the small molecules can be detected from outside the body by camera equipment found in the nuclear medicine departments of most hospitals. The image captured by the camera assists in the identification of the location of the radiolabeled molecules, thus identifying the sites of tumors.

The first commercial molecular imaging agent targeting PSMA was cleared for marketing by the Food and Drug Administration (FDA) in 1996. Unlike Molecular Insight’s small molecule approach, Eusa Pharma’s ProstaScint® (capromab pendetide) consists of a monoclonal antibody directed against PSMA that is linked to the imaging radioisotope Indium-111. Publicly-reported sales of ProstaScint were $9.6 million for the year ended December 31, 2007.

Theoretically, Molecular Insight’s small molecule approach to targeting PSMA represents an advantage over monoclonal antibodies, as the imaging session can be done in a single day. In fact, the company’s compounds were able to detect metastases within one to two hours after injection. This is not possible with current monoclonal antibody approaches, which require that the patient make a second visit for imaging between 72 and 120 hours after infusion.

Molecular Insight’s product candidates may also have the potential to treat metastatic prostate cancer. The company is conducting preclinical studies for product candidates using the same small molecules attached to a therapeutic (as opposed to imaging) radioactive substance called Iodine-131.

Although investors are enthusiastic about biotech companies working in the field of prostate cancer right now, it is worth reminding readers that drug development is a long and expensive process and Molecular Insight’s prostate cancer compounds are in the early stages. According to the company, the plan for 2009 is to complete a proof of concept and dosimetry trial for imaging prostate cancer. Fortunately, Molecular Insight also has later-stage programs in development, including a molecular imaging product candidate for the diagnosis of cardiac ischemia, or insufficient blood flow to the heart.

# # #

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.

Michael D. Becker, moderator and president and chief executive officer of MD Becker Partners, made a number of key points and observations in his opening remarks, beginning with some upbeat comments regarding the approximate 2,000-point rebound in the Dow Jones Industrial Average (DJIA) from its low in March 2009. He also indicated that some biotechnology companies have been able to successfully access the capital markets. Specifically, investors have been backing companies with later stage pipelines that have been executing on their milestones and have solid management. Examples of financing transactions cited at the time were Allos Therapeutics, Inc. (ALTH), Micromet, Inc. (MITI), and Seattle Genetics, Inc. (SGEN).

Mr. Becker also observed improving trends in clinical trial results and regulatory approvals, such as the recent Phase 3 results for a prostate cancer vaccine by Dendreon Corp. (DNDN) and the FDA approval of a schizophrenia product by Vanda Pharmaceuticals, Inc. (VNDA).

The roundtable session that followed was an open discussion for participants from diverse backgrounds to offer shared insights and perspectives on strategies to enhance visibility and access capital. There was general agreement among the expert panelists on five key principles that biotechnology companies may want to consider in order to not only survive – but thrive – in the current environment. Participants underscored the following:

1) Communicate simply, succinctly and consistently

Biotechnology companies would benefit by embracing Albert Einstein’s famous quote “nothing is so complex that it cannot be explained simply.” In contrast to direct communications with more sophisticated investors, press releases, informal pitches for media coverage, and other general communications are not times to showcase technical terms, acronyms, and professional jargon. In a complex industry, such as biotechnology, there is a delicate balance between providing the information simply and concisely while including key scientific data. “It helps to talk to somebody who understands the business of communication,” says James E. Dentzer, Chief Financial Officer at Amicus Therapeutics, Inc. (FOLD). “Walk them through your business model and ask them for advice.”

But be succinct. “I also get a lot of people who write a pitch where they start out with a paragraph of background – most of which I already know – and I’m still looking, “where is the news, where is the news?” says Linda A. Johnson, Health/Business Writer at The Associated Press. “The best thing you can do is at the top of your press release, which should be written in English, put three maybe four sentences summing up what your news is and why it’s important. That’s the way to get a reporter to pay attention.”

Consistency is also critical, especially taking into consideration how the internet has immortalized certain aspects of investor relations. People can go online and find a wealth of past and present information about a company.

2) Engage competent and experienced external advocates

In the current environment, businesses are faced with decreasing human and financial resources, which is increasing the strain on management’s limited time and attention. Outsourcing can help a company shift its focus from peripheral activities toward work that serves the underlying enterprise of the business, which in biotech is science. For smaller organizations, outsourcing can also help companies act “big” by giving them access to the same level of expertise that large companies enjoy.

Panelists agreed that competency and experience are key criteria to look for when a company is considering outsourcing – especially when it comes to handling investor or public relations. Look for a person or firm that brings the breadth of real-world, in-house experience necessary – expertise in financial, scientific, medical and communications – all operating within the legal parameters required. “I want someone who, when I ask questions, can actually answer them instead of having to say I’ll get back to you, I’ll find out, I’ll ask someone,” says Linda A. Johnson, Health/Business Writer at The Associated Press. “That’s wasting my time. So you need somebody who really knows their stuff and who is prepared.”

Cost-cutting may be another reason for companies to outsource. Outsourcing converts fixed costs into variable costs, releasing capital for investment elsewhere in the business. This may be especially important for early-stage companies.

3) Credibility and management experience

With the crisis in confidence, now more than ever companies need to establish personal relationships with the financial community. Investors are increasingly focused on credibility. Are you achieving milestones, are you putting out information in timely fashion, are you being forthright with your investors? “Once companies lose their credibility, whether it is data release or just over embellishing a situation, it’s very hard to get that credibility back,” says Michael A. Margolis, R.Ph., Managing Director at Merriman Curhan Ford (MERR).

Be upfront, be honest, and do not hide the bad stuff. “If somebody tries to slip something by, that does create a lasting memory and you will look at what they file a little more closely,” says John George, Biotechnology Staff Writer at the Philadelphia Business Journal.

Just how important is the credibility or experience of the management team in contrast to the science and the market opportunity? “I think we’re all going to say the same thing because it’s a very critical – it’s probably the most critical – aspect of the business,” says Todd C. Brady, M.D., Ph.D., Principal at Domain Associates.

4) Be proactive

Companies have different philosophies and different approaches to investor relations, with some viewing it as largely reactive – responding to inquiries from analysts or investors as they come in. “For companies, I think one thing to be very careful of though, is to keep in mind that investor relations has to be an active – not a passive – event,” says John W. Chambers, Managing Director at Merriman Curhan Ford (MERR). “The folks that have had a reasonable investor relations campaign that’s been in existence not just in the bad market – they’re not going in for the first time in this type of market to see someone – are getting an audience.”

In the current environment, another common mistake by companies is to reduce their investor relations activity or curtail outreach to the investment community. When competing for capital, however, a company must have the proper resources to distinguish itself in the market. The more a company makes investors aware of its existence, business, and strategies – the more likely it is to be rewarded with access to capital, potential partnerships, and a fair valuation.

The process of raising capital is much longer than companies are used to in the past where they could have raised money in a matter of days or weeks. In addition, it is unusual for investors to invest in a company after hearing the story for the first time. Accordingly, time and effort spent now to get in front of investors is time well spent.

5) Growing stronger through adversity

At the start of the year, MD Becker Partners provided a positive outlook for the biotechnology industry in 2009, citing the sector’s defensive characteristics, favorable technical aspects, and improving fundamentals, such as the number of new product approvals, products in clinical trials and the brisk pace of industry consolidation and licensing transactions. Some of the panelists agreed and even hinted at a stronger biotechnology industry going forward.

“If we’re going to weather the tsunami, I see the end kind of coming because you’re seeing fundamental investors that are willing to take meetings, they’re willing to see a differentiated story,” says John W. Chambers, Managing Director at Merriman Curhan Ford (MERR). “The type of investors that folks are targeting has changed while we’ve gone through this financial upheaval, but I think we’re on a very good track to create a stronger, fundamental driven and institutionally driven market place for life sciences once we get out the other end.”

“I would expect that we are going to see the market get better over time,” says James E. Dentzer, Chief Financial Officer at Amicus Therapeutics, Inc. (FOLD). “It’s not going to get better overnight, and it’s going to be led by people who are investing in companies they already know well.”

# # #

The roundtable was successful in producing valuable information and insights as well as suggestions for the future. Click here to request a complimentary electronic reprint of the 19-page “Successful Strategies for Raising Visibility and Capital” event transcript.

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/

Investor enthusiasm may be warranted, as this pathway is mutated or amplified more frequently than any other pathway in cancer. Activation of the PI3K-AKT-mTOR pathway is associated with cell survival, malignant transformation, tumor invasiveness, and resistance to chemotherapy, radiation therapy and other agents.

In terms of hierarchy, PI3K is at the top, AKT in the middle, and mTOR resides furthest downstream in the pathway. Generally speaking, activation of PI3K results in activation of AKT, which ultimately leads to activation of mTOR in a sequential manner.

Helping to validate the pathway, earlier this year Novartis (NVS) received Food and Drug Administration (FDA) approval for Afinitor® (everolimus), an oral inhibitor of mTOR, for patients with advanced renal cell carcinoma after failure of treatment with Pfizer Inc.’s (PFE) Sutent® (sunitinib) or Nexavar® (sorafenib) by Bayer HealthCare Pharmaceuticals, Inc. and Onyx Pharmaceuticals, Inc. (ONXX). Afinitor® is expected to generate several billion dollars in annual sales, as Phase 3 trials are underway to explore potential of the product in treating multiple additional cancers.

Unfortunately, it has previously been demonstrated (Cancer Res. 2008 Sep 15;68(18):7409-18) that inhibition of downstream targets such as mTOR can activate upstream targets such as AKT through various feedback mechanisms, which may eventually counteract the anticancer efficacy of mTOR inhibitors. In other words, although mTOR inhibition may initially treat the disease, it ultimately turns on a part of the pathway that leads to enhanced tumor survival.

Accordingly, the apex of the pathway (either PI3K or AKT) might be a more effective target and less susceptible to the effects of feedback loops associated with mTOR inhibition. This may explain why Sanofi-aventis (SNY) recently entered into a collaboration with Exelixis, Inc. (EXEL) that could be worth more than $1 billion for the discovery of inhibitors of PI3K for the treatment of cancer. Under the agreement, Exelixis receives an upfront payment of $140 million and guaranteed research funding totaling $21 million over three years.

The Sanofi-aventis/Exelixis collaboration appears consistent with other recent PI3K transactions. In April 2008, Roche acquired Piramed Limited, a privately-owned UK company focusing on therapeutics targeting PI3K, for approximately $175 million in cash. Back in November 2005, Piramed entered into a collaboration with Genentech, Inc. (now Roche) for the development of compounds targeting PI3K for the treatment of cancer. Under the terms of that agreement, Piramed received an undisclosed upfront payment and was eligible for milestone payments during development and on product approval up to a potential aggregate of approximately $230 million.

So it is not surprising that Keryx Biopharmaceuticals, Inc. (KERX) became yet another major beneficiary of the ASCO-effect when the company announced positive data from a Phase 2 combination study of its novel AKT inhibitor (KRX-0401, also known as perifosine) for the treatment of advanced metastatic colon cancer. Keryx also presented positive single agent Phase 2 data of perifosine in the treatment of advanced metastatic renal cell cancer – especially in patients that had previously failed treatment with mTOR inhibitors (either everolimus or temsirolimus). The company’s stock, which was trading around $0.25 at the end of April 2009, recently traded as high as $1.45 on the news. However, even with the recent increase, Keryx has a current market capitalization of just over $60 million.

The stock of AEterna Zentaris Inc. (AEZS) also rose on the news. AEterna licensed North America perifosine rights to Keryx, but kept the rest of the world rights and is seeking partnerships for Asia.

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.

It is no wonder that ASCO is closely watched by biotechnology industry observers. According to the Pharmaceutical Research and Manufacturers of America (PhRMA), there are 633 medicines and vaccines developed through biotechnology in human clinical trials – the majority of them (254) for the treatment of cancer. Even more impressive, all of these products are either in human clinical trials or under review by the Food and Drug Administration (FDA).

The need for new cancer treatments and diagnostics is compelling. This year alone, the American Cancer Society estimates nearly 1.5 million new cases of cancer will be diagnosed with more than 562,000 Americans expected to die from the disease. Not only is cancer the second leading cause of death in the US (exceeded only by heart disease), the economic impact is massive. University of Chicago economists Kevin Murphy and Robert Topel reported that a permanent one percent reduction in mortality from cancer alone has a present value to current and future generations of Americans of nearly $500 billion and that a cure would be worth about $50 trillion.

For biotechnology companies working in the field of cancer, double or triple-digit stock price increases from the end of April through the ASCO meeting (usually held in late May or early June) are not unprecedented. I first dubbed this the “ASCO-effect” in May 2000 while presenting a review of the top five performing stocks from companies issuing ASCO-related news from 1996 through 1999. Ironically, more than a decade has passed, but some of the same companies are once again benefiting from the ASCO-effect.

For example, Peregrine Pharmaceuticals, Inc. (PPHM), known as Techniclone Corporation at the time, saw its stock price nearly triple as a result of the ASCO-effect back in 1998. The stock, which was trading below $0.40 at the end of April 2009, recently traded as high as $1.13 on news that preliminary data from a Phase 2 clinical trial evaluating the company’s bavituximab in combination with docetaxel in advanced breast cancer patients would be the subject of an oral presentation at ASCO.

In addition, the stock of Poniard Pharmaceuticals (PARD), known as NeoRx Corporation at the time, nearly doubled as a result of the ASCO-effect in 1998. The stock, which was trading around $3.00 at the end of April 2009, recently traded as high as $5.19 on news that data from two Phase 2 clinical trials evaluating the company’s picoplatin in metastatic prostate and colorectal cancer would be presented at ASCO.

Since there are over 4,000 scientific abstracts being presented during ASCO 2009, it would be impossible to detail all of them in this setting. However, following recent positive Phase 3 results from Dendreon Corporation (DNDN) regarding its prostate cancer vaccine study; it is not surprising that investors appear to be gravitating towards companies working in the field of prostate cancer treatment. This enthusiasm only increased when Johnson & Johnson (JNJ) announced that it would acquire Cougar Biotechnology, Inc. (CGRB), a development stage company with an oral prostate cancer treatment being studied in two Phase 3 clinical trials, for approximately $1.0 billion.

With this in mind, OncoGenex Pharmaceuticals, Inc. (OGXI) appears to be one of the early beneficiaries of the ASCO-effect in 2009. The company’s stock, which was trading around $6.00 at the end of April 2009, recently traded as high as $22.00 on news that the company will be presenting final results of a Phase 2 trial of its prostate cancer treatment at ASCO. On Monday, investors will react to the data presented over the weekend.

At the start of the year I provided a positive outlook for the biotechnology industry in 2009, citing the sector’s defensive characteristics, favorable technical aspects, and improving fundamentals, such as the number of new product approvals, products in clinical trials and the brisk pace of industry consolidation and licensing transactions. With these fundamental and technical characteristics intact, it is possible that this year’s ASCO meeting could be the spark that reignites investor enthusiasm for the sector.

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.

Figure 1: A history of NDAs relative to the NIH budget. The NIH budget has grown steadily from 1980 through 2000 at which time the budget has remained flat until 2008. The number of NDAs has remained around 100 annually despite increased federal spending on academic research through the 80s and 90s. Data source: NIH website (http://www.nih.gov/about/budget.htm) and FDA website (www.fda.gov)

Despite the fact that the NIH budget has increased from a little less than $4B in 1980 to about $25B in 2008, the number of New Drug Applications (NDAs) to the FDA has remained somewhat constant, indicating that there remains a gap between NIH funded academic discoveries and translating the ideas into FDA approved products. Accordingly, it is unlikely that in its current form, increasing NIH funding will lead to a proportional increase in NDAs. The primary source of the bottle neck may begin with the challenges associated with starting, running and funding an early-stage biopharmaceutical company.

Starting a biopharmaceutical company based on academic discoveries takes a great scientific mind, yet relatively few top academic scientists accept this challenge. One reason is the funding “trap” associated with running an NIH sponsored academic lab. Principal Investigators (PIs) spend a great percentage of their time writing grants, which is the primary source of funding for their labs. Once a grant is received, their time is spent training new scientists and generating preliminary data needed for the next grant. It is simply not feasible, especially for some of the less-funded labs, to allocate resources to start a spin-off company. Small Business Innovation Research (SBIR) grants are available to some PIs, yet these are only a small fraction of the money needed to start and run a successful biopharmaceutical company. Incidentally, the NIH SBIR budget was not increased in NIH stimulus bill. Thus, the risks of starting a new company, while potentially losing NIH funding, are simply too high for many PIs to undertake.

If the technology is licensed out of an academic institution, a life-science entrepreneur is faced with arguable the most difficult aspect of starting a company: fund-raising. Sources of early-stage funding for start-up biopharmaceutical companies is primarily venture capital, angel investors, or other sources of private equity. With the current economic conditions, these sources of investments are decreasing and there is more competition for what remains. On a local level, even Ben Franklin Technology Partners (BFTP), a proven job-generator that has contributed substantially to Pennsylvania’s overall gross state product, is at risk for reduced funding according to a May 20, 2009, opinion editorial by Terry Singer, Director of Statewide Affairs for BFTP.

About half of the biotech companies on the NASDAQ, many of which have promising long-term pipelines, have less than six months of cash remaining. As a result, they are either reducing their investment in drug discovery and development or closing their doors completely. As discussed at our recent roundtable event, this type of “financial” failure is unique for biotech companies compared to traditional failures that are based on poor clinical trial data. Since investors do not have the ability to determine in advance if a drug is slow to develop for scientific reasons or destined to fail because it is a bad drug, many potential drugs may be abandoned due to these financial shortfalls.

Small biopharmaceutical company executives need to find ways to act lean, keep focused, and effectively communicate their merits to investors in order to remain competitive and survive. Additionally, CEOs need to adapt to changing market conditions and technologies by understanding their product relative to these outside forces and positioning them accordingly. CEO leadership and decision making is critical to the success of the company at this stage of development as they look to partner for a successful exit.

Despite the adversities discussed above, life science financings are still happening, such as the recent series A financings of Sagent Pharmaceuticals and Aragon Pharmaceuticals and $34.5 million series D financing for Avid Radiopharmaceuticals. The challenge for early stage companies is to find ways to distinguish their products, technology, and team from the many other companies in a similar position. Unfortunately, many scientific entrepreneurs are either strong in terms of scientific knowledge or business skills, but it is the rare exception that master both. A broader vision of all aspects of a life science company is needed to compete for the limited resources. Many of the important issues were recently discussed at the MD Becker Partners round-table event titled “Successful Strategies for Raising Visibility and Capital.” A full transcript of the event can be obtained by contacting MD Becker Partners.

The difficulties associated with the development of a drug from academic discovery through NDA approval are vast in a good economy, but are amplified in today’s volatile economy. There is no one single solution and the creativity of our researches, entrepreneurs, and investors will be challenged as new collaborations emerge. Still, there remains a significant desire to find new medicines to treat many of our unmet medical needs. A review of the data indicates that the problem is not a lack of scientific ideas developed in academic institutions but rather early stage company development and funding. More funding should be focused on helping early stage companies with preclinical studies allowing them to de-risk so that they are more attractive for private equity financing in these difficult economic times. In this regard, government-funded agencies exist that support early stage life science companies, such as Ben Franklin Technology Partners. While their model has proven highly successful, their greatest challenge in the years ahead will be limited capital resources due to proposed budget cuts.