On the heels of such a miserable year, it may have seemed counterintuitive to provide a positive outlook for the speculative biotechnology industry in 2009, but that’s exactly what we did.  Our bullish thesis was reiterated for both 2010 and 2011.

The AMEX Biotechnology Index (BTK) ended 2008 at 647.17 and climbed to 1,091.42 by the end of 2011 for a gain of approximately 69% during this three-year period.  Comparing this performance with the general market, the NASDAQ Composite increased 65% from 1,577.03 to 2,605.15 during the same period.

Our favorable outlook for the biotechnology industry remains intact for 2012 and is based on the following key drivers, which build upon many of the catalysts we first proposed in 2009:

• Sector’s defensive characteristics and impact on future economic growth
• Improving number of annual new product approvals since the low set in 2007
• Record number of products in clinical trials and annual industry R&D investment
• Improving access to capital
• Brisk pace of industry consolidation and licensing transactions
• Many micro, small and mid-capitalization companies remain undervalued

Defensive Sector and Economic Driver

During periods of economic uncertainty, the biotechnology sector is often portrayed as defensive given that disease is relentless in both good economic times and bad.  Despite recent medical advances, there remains a need for quality, innovative products to diagnose and treat a broad variety of diseases such as cancer, central nervous system disorders, cardiovascular diseases, diabetes, respiratory and infectious diseases.

Beyond its defensive characteristics, the sector plays a critical role in the United States [US] economy.  Innovative new medicines developed by life science companies provide better patient outcomes, improved quality of care, increased life expectancy, and lead to economic gains and job creation.

While the strengths and weaknesses of the US healthcare system remain the subject of great debate, we believe new medicines should be viewed as investments in the future, not only in patient health – but also in economic recovery and growth.  For example, as indicated in our article “Innovative New Medicines are Key to Economic Growth,” a permanent 1% reduction in mortality from cancer alone has a present value to current and future generations of Americans of nearly $500 billion and a cure would be worth about $50 trillion.

New Drug Approvals

As we highlighted in recent years, legislation passed in 2008 gave the FDA more money and resources, but hiring and training hundreds of new employees takes time.  With that process well underway, combined with increased familiarity of the risk evaluation and mitigation strategies [REMS] program, we expected the drug approval process to gradually improve.

Encouragingly, the total number of approvals for new molecular entities and biologic license applications by the US Food and Drug Administration’s [FDA] Center for Drug Evaluation and Research [CDER] in fiscal year 2011 was 35.  This is an improvement from 21 approvals in 2010 and 25 approvals in 2009.  In fact, according to a press announcement by the FDA, this is among the highest number of approvals in the past decade, surpassed only by 37 approvals in 2009.

However, an article in Nature Reviews by Asher Mullard listing the annual number of drug approvals going back to 1996 shows that 36 approvals in 2004 [not 2009] was the record for the past decade.  The same article also shows that new drug approvals peaked at a high of 56 in 1996.

Notable new drug approvals in 2011 include Johnson & Johnson’s (JNJ) Zytiga® [abiraterone] for late-stage prostate cancer, Roche’s Zelboraf® [vemurafenib] and Bristol-Myers Squibb’s (BMY) Yervoy™ [ipilimumab] both for melanoma, Human Genome Sciences’ (HGSI) Benlysta® [belimumab] – the first new drug for lupus in 50 years, and Seattle Genetics’ Adcetris™ [brentuximab vedotin] for a rare lymphoma known as systemic anaplastic large cell lymphoma [ALCL].

Record Pipeline and Investment

According to the latest report by the Pharmaceutical Research and Manufacturers of America [PhRMA], there are a record number of biotechnology product candidates currently in development.  In the US alone, there are more than 900 biotechnology products in development, including 300 monoclonal antibodies, 298 vaccines, 78 recombinant proteins, 50 gene therapy products, 64 cell therapy products, and 23 antisense products.  More than one-third of these product candidates are targeting cancer and related conditions and more than 20% are targeting infectious diseases.

Annual research and development expenditures by PhRMA member companies for 2009 was an estimated $45.8 billion, more than tripling the $15.2 billion level of investment in 1995.  However, skeptics will point to the fact that despite growing R&D expenditures, the number of new drug approvals has declined since the mid-1990s [see chart below].

Access to Capital

During the second week of January, more than 8,000 registrants gathered in San Francisco, California for the 30^th Annual J.P. Morgan Healthcare Conference [JPMHC] to hear 25-minute presentations from 395 life science companies.  For industry executives and investors, the annual event typically serves as a good barometer for the rest of the year.

Between meetings, we roamed the familiar halls of the Westin St. Francis Hotel to assess the mood among participants and also monitored social media outlets throughout the event.  In general, the plane flights and networking receptions were crowded as usual, industry observers “Tweeted” a sense of optimism, and attendees appeared more upbeat than in 2011.

The recent closing of three new funds may support increased optimism as it relates to access to capital.  First, on January 3, 2012, Vivo Ventures announced the final closing of a $375 million fund targeting later development stage pharmaceutical and medical device companies in the US and in revenue stage healthcare companies in greater China.  Second, during the JPMHC Canaan Partners announced the closing of a $600 million fund, with one-third of the fund designated to healthcare investments in biopharmaceutical, medical device and healthcare infrastructure companies.  Also during the JPMHC, Flagship Ventures announced the closing of a $270 million life sciences fund, its largest fund to date.   According to Flagship’s press release, in addition to investing in early-stage companies, a portion of the new fund will be dedicated to “later-stage value investing opportunities resulting from the current capital-constrained environment.”  Finally, Luke Timmerman of Xconomy recently reported that Frazier Healthcare is also aiming for its first biotechnology fund since 2007.

Last year wasn’t too bad either.  In 2011, venture capitalists invested $28.4 billion in 3,673 deals, an increase of 22% in dollars and a 4% rise in deals over the prior year, according to the MoneyTree™ Report by PricewaterhouseCoopers LLP and the National Venture Capital Association [NVCA], based on data from Thomson Reuters.  In fact, venture capital investing in 2011 ranks in the top three years for venture capital investing in the past decade.  Biotechnology was the second largest investment sector, with $4.7 billion going into 446 deals.  This represents a 22% increase in investment dollars, but a 9% drop in terms of the number of deals.

2012 is also off to a solid start with regard to follow-on financings.  Synageva (GEVA), Arena Pharmaceuticals (ARNA), iBio (IBIO), Talon Therapeutics (TLON), ImmunoCelluar Therapeutics (IMUC), Vical (VICL), Synta Pharmaceuticals (SNTA), Chelsea Therapeutics (CHTP), Sequenom (SQNM), ZIOPHARM Oncology (ZIOP), Neurocrine Biosciences (NBIX), and NeuroMetrix (NURO) have each announced offerings since the start of the year.

Consolidation and Licensing

Adding to the optimism among industry executives and investors during the JPMHC, Bristol-Myers Squibb announced its $2.5 billion acquisition of Inhibitex, Inc. (INHX) on January 7, 2012.  In view of the fact that US pharmaceutical companies stand to lose billions of revenue due to patent expirations from 2010 to 2012, we expect merger and acquisition [M&A] activity to remain brisk.

In other M&A news, ISTA Pharmaceuticals (ISTA) is still being pursued by Valeant Pharmaceuticals (VRX), which recently increased its previously proposed price to acquire ISTA from $6.50 to $7.50 per share in cash. Valeant also communicated to ISTA that it could achieve a price of up to $8.50 per share following confirmatory due diligence.

Licensing deal activity is also off to a strong start in 2012, as evidence by Xenon Pharmaceuticals’ strategic alliance with Genentech, a member of the Roche Group (RHHBY), to discover and develop compounds and companion diagnostics for the potential treatment of pain.

According to the deal, which was announced during JPMHC, Xenon is eligible to receive research, development and commercialization milestone payments, totaling up to $646 million for multiple products and indications.  In addition, Xenon will receive royalties on sales of products resulting from the collaboration.

In other licensing news, BioDelivery Sciences (BDSI) recently signed a worldwide license and development agreement with Endo Pharmaceuticals (ENDP) for the exclusive rights to develop and commercialize BEMA Buprenorphine for the treatment of chronic pain.

Small Versus Large

Similar to recent years, we expect that small and mid-capitalization companies with late-stage programs and/or positive fundamental catalysts will continue to outperform their larger industry peers in 2012.

For example, after being the third worst performer in the prior year, Medivation (MDVN) became the largest percentage gainer within the NASDAQ Biotech Index during 2011 based on encouraging results with MDV3100, the company’s lead product candidate in Phase 3 development for the treatment of castration-resistant prostate cancer.

In another dramatic reversal of fortune, after declining 22% in 2009 shares of Akorn, Inc. (AKRX), a niche generic pharmaceutical company, made an impressive comeback by becoming the largest percentage gainer within the NASDAQ Biotech Index during 2010 and again making the list of top ten gainers in 2011 [see Table 1].

However, the prior year’s winners may not always stay hot.  Both Human Genome Sciences (HGSI) and Dendreon Corporation (DNDN) were among the top ten gainers from the NASDAQ Biotech Index in 2009 with dizzying returns of 1,342% and 474%, respectively.  In 2011, both names appear on the list of top ten decliners [see Table 2].

Table 1. Top ten gainers from NASDAQ Biotech Index (NBI) in 2011

Table 2. Top ten decliners from NASDAQ Biotech Index (NBI) in 2011

2012 Outlook

The drivers supporting our favorable outlook for the biotechnology industry remain intact for 2012, such as the record number of products in clinical trials and annual industry R&D investment, improving access to capital, brisk pace of industry consolidation and licensing transactions, and attractive valuations among many small- and mid-capitalization companies, which should continue to outperform their larger industry peers.  In particular, 2012 represents a period with particularly robust news flow for emerging immuno-oncology companies, as indicated in our article “2012 Preview: Cancer Immunotherapy Catalysts.”

One recent example of this inherent volatility and achieving a lofty valuation prior to commercialization is Dendreon Corporation (DNDN).  On April 29, 2010, the FDA approved the very first active immunotherapy for the treatment of cancer – Dendreon’s Provenge® [sipuleucel-T] for metastatic castrate-resistant prostate cancer [CRPC].  This event reignited enthusiasm for the field of active immunotherapy for cancer and shares of Dendreon, which traded below $5 in March 2009, subsequently reached an all-time high above $57 and a market capitalization of approximately $7.8 billion.

It has been said that a rising tide raises all boats and Dendreon’s success lifted shares of other companies working in the field of active immunotherapy for the treatment of cancer.  Table 1 below depicts the stock price performance of select cancer immunotherapy companies from April 1, 2010 to April 30, 2010, the month Provenge was approved by the FDA.

Table 1: High Tide for Cancer Immunotherapy Around Approval of Provenge

On August 3, 2011, however, Dendreon withdrew its previous guidance of $350-400 million in revenue for 2011, with modest quarter over quarter revenue growth expected for the remainder of the year.  The news not only caused a dramatic decline in Dendreon’s stock, but also cast a shadow on other companies working in the emerging field of active immunotherapy for cancer.  Table 2 below depicts the stock price performance of select cancer immunotherapy companies from August 1, 2011 to August 31, 2011, the month that Dendreon withdrew its revenue guidance.  Dendreon’s stock recently traded around $7 per share, down nearly $50 from its all-time high, and the company’s market capitalization is just over $1 billion.

Table 2: Low Tide for Cancer Immunotherapy Around Dendreon’s Withdrawal of Revenue Guidance

While FDA approval of the first active immunotherapy for cancer was a watershed event for the industry, the future for companies working in this emerging area should not be judged solely by the commercial success of this product.  Growing evidence indicates that the field of cancer immunotherapy, broadly defined as including passive immunization, active immunization, and immunostimulation, is undergoing a renaissance.

Beyond the approval of Provenge in 2010, the FDA approved Yervoy™ [ipilimumab] by Bristol-Myers Squibb (BMY) for the treatment of patients with unresectable or metastatic melanoma on March 25, 2011.  With the news, ipilimumab became the eleventh monoclonal antibody [mAb] approved for the treatment of cancer since 1997.  Ipilimumab is unique among other mAbs for cancer treatment, as it represents the first immune checkpoint modulator.

In addition, positive results from several randomized studies with active immunotherapies have recently been published in peer-reviewed journals.  The first study published in the March 1, 2010, edition of the Journal of Clinical Oncology was a Phase II randomized controlled trial of Bavarian Nordic’s (BAVA) poxviral-based, PSA-targeted immunotherapy [Prostvac®] in metastatic CRPC.  Patients receiving Prostvac had an 8.5-month improvement in median overall survival versus control. These provocative data supported initiation of a pivotal Phase 3 trial that began enrolling patients in November 2011.

Another study published in the June 2, 2011, edition of the New England Journal of Medicine, demonstrated that patients with metastatic melanoma receiving high-dose interleukin-2 (IL-2) plus a gp100 peptide vaccine had a significant improvement in centrally verified overall clinical response (16% vs. 6%; P=0.03), as well as longer progression-free survival (2.2 months versus 1.6 months; P=0.008).  There was a trend toward longer overall survival in the gp100 vaccine arm (17.8 months versus 11.1 months; P=0.06), although the results were not statistically significant.

As discussed in our report published in June 2011 titled “Cancer Immunotherapy: A Roundtable Discussion,” there are more than 40 unique active cancer immunotherapies currently being tested in over 60 clinical trials, including nearly a dozen that are in pivotal Phase 3 development.  With nearly a dozen readouts from randomized Phase 2 or Phase 3 trials expected during the next 12-months, 2012 could be a breakout year for the field [see Table 3 below].  While not all programs will be positive, success with even just one of these key trials could reignite investor interest in the field and demonstrate that the clinical success with Provenge was not a fluke.

Table 3. Expected Active Immunotherapy Catalysts for 2012

* Based on company reports, analyst reports, and/or MD Becker Partners’ projection

It is worth noting that mAbs were hailed as “magic bullets” when they were developed in the 1970s.   However, clinical results with these passive immunotherapies were largely disappointing for the first 10 years of development.  It wasn’t until November 1997 that the first mAb for cancer therapy, Rituxan® [rituximab], was approved by the FDA for the treatment of non-Hodgkin’s Lymphoma [NHL].  Today, mAbs represent one of the most successful therapeutic classes and eleven such products have been approved for cancer therapy.  Three blockbuster products sold by the Roche Group (RHHBY) – Avastin® [bevacizumab], Rituxan, and Herceptin® [trastuzumab] – collectively represented nearly $17 billion in revenue for 2009.

As stated in our firm’s April 2010 report titled “Cancer Vaccine Therapies: Failures and Future Opportunities,” using the history of mAb development as a guide, we expect to see five active cancer immunotherapies approved by 2015 [5x15] that will revolutionize the treatment of cancer owing to their potential to be more targeted, more effective, and less toxic.  2012 represents a period with robust news flow for emerging immuno-oncology companies and while volatility is expected, any good news could serve as a spark to reignite investor enthusiasm for companies working in the area and raise the tide once again.  In addition to clinical progress, major licensing and/or merger & acquisition transactions could also serve as catalysts for the sector.

Adjuvants are substances that can:

• Accelerate the generation of robust, longer lasting immune responses
• Generate antibodies with increased avidity and neutralization capacity
• Enhance immune responses in individuals with weakened immune systems
• Reduce the amount of antigen and number of doses needed; reducing the cost of vaccination programs
• Activate the cellular arm of the adaptive response, specifically T helper type 1 and cytotoxic T cell responses

For next generation cancer vaccines that require T cell immunity or a broader range of antibody response, adjuvants are playing an essential and central role[1]. For example, GlaxoSmithKline’s (GSK) melanoma antigen epitope-3 [MAGE-A3] antigen-specific cancer immunotherapeutic [ASCI] uses the company’s AS15 adjuvant system[2], which incorporates three different adjuvants [QS-21, MPL, and CpG] and is currently in pivotal Phase III trials for both non-small cell lung cancer [NSCLC] and melanoma with data expected in 2012.

History

During the last 80 years many adjuvants have been used in experimental settings, but due to various shortcomings of most of them only three have made it into regular clinical usage[3] – largely for infectious diseases.  Of the three adjuvants, only two have been used in vaccines licensed by the US Food and Drug Administration [FDA].

Alum (1930s)

For infectious disease vaccines, the most commonly used adjuvants are aluminum salt based [aluminum phosphate and aluminum hydroxide; alum], which are safe and effective for antibody induction.  Alum is a component of many licensed human vaccines, including diphtheria-pertussis-tetanus [DPT], diphtheria-tetanus [DT], DT combined with Hepatitis B virus [HBV], Haemophilus influenza B or inactivated polio virus [IPV], hepatitis A [HAV], Streptococcus pneumonia, meningococcal, and human papilloma virus [HPV].

MF59™ (1997)

MF59 is a potent vaccine adjuvant that has been licensed for more than 13 years for use in an influenza vaccine focused on elderly subjects [Fluad®] by Novartis (NVS)[4].  It consists of an oil-in-water nano-emulsion composed of shark oil [squalene] and has been licensed in Europe for use in influenza vaccines, but not in the US.

MPL® (2009)

MPL [monophosphoryl lipid A] is a derivative of bacterial endotoxin and a potent immunostimulant.  MPL was the second FDA licensed adjuvant molecule and is used in Cervarix® by GlaxoSmithKline, which is a prophylactic vaccine against HPV types 16 and 18.  GlaxoSmithKline obtained MPL through the $300 million acquisition of Corixa Corporation in 2005.  MPL is also the first and only toll-like receptor [TLR] ligand approved in a human vaccine.  TLRs are a class of proteins that play a key role in the innate immune system[5].

Few adjuvants approved

Adjuvants do not receive FDA approval as stand-alone products, but rather as part of a registered vaccine adjuvant–antigen combination[6].  The fact that safety regulations are often much more stringent with vaccines, as they are prophylactic and the main targets are often pediatric patients, partly explains why there are so few adjuvants approved to date[7].

Several recent developments have favorably altered the landscape for adjuvant development.  First, GSK’s Cervarix vaccine received approval in 2009 and contained the first adjuvant [MPL] licensed by the FDA since the approval of Alum back in the 1930s.  The second development has been FDA approval of sipuleucel-T [Provenge®] by Dendreon and ipilimumab [Yervoy®] by Bristol-Myers Squibb, which has renewed interest in the concept of immunotherapy as an approach to cancer treatment.  In the cancer setting, adjuvants are being tested as part of a therapeutic vaccine as opposed to being use as a prophylactic vaccine, which may result in a shorter duration of exposure and reduced safety concerns.  Third, if an influenza pandemic were to occur, such as the 2009-10 H1N1 pandemic, the potential vaccine supply would fall several billion doses short of the amount needed to provide protection to the global population[8]. The antigen-sparing effect of adjuvants could allow for expansion of vaccine supply to meet the necessary global demands during a pandemic, as evidenced by supporting grants from the Biomedical Advanced Research and Development Authority [BARDA], part of the US Department of Health and Human Services.

Investigational adjuvants

Several companies are developing promising new candidates that may finally adjunct or displace aluminum substances as a popular adjuvant:

Agenus (AGEN)

Agenus Inc. (AGEN) is developing QS-21, a saponin extracted from the bark of the Quillaja saponaria tree, also known as the soap bark tree or Soapbark, an evergreen tree native to warm temperate central Chile.  Quillaia raw material has been used for decades as an ingredient to create the foaming in beverages such as root beer, low-alcohol beers and foaming carbonated beverages.  It has also been widely used as an adjuvant in veterinary vaccines.

QS-21 has extensive clinical experience with thousands of patients receiving vaccines containing QS-21 adjuvant.  Agenus has licensed QS-21 to various Big Pharma partners and today there are 15 vaccine candidates using QS-21 in clinical development for infectious diseases, oncology, and central nervous system disorders, including the following Phase III programs by GlaxoSmithKline that could address large markets:

• MAGE-A3 ASCI vaccine candidate, which is being studied in the largest-ever trial in the adjuvant treatment of NSCLC and also in Phase III trials for melanoma, with data expected in 2012
• Mosquirix (RTS,S), the world’s most advanced malaria vaccine candidate, with Phase III data expected by the end of 2011

Agenus is entitled to receive milestone payments and royalties from corporate partners that have licensed QS-21.

Antigen Express, Inc., a wholly-owned subsidiary of Generex Biotechnology Corporation (GNBT)

Antigen Express is advancing its proprietary Ii-Key hybrid technology.  Ii-Key modification entails attaching a four-amino acid peptide [LRMK] to virtually any antigen and results in increased stimulation of CD4⁺ helper T cells and a more robust specific response to the antigen.  Using this technology platform, Antigen Express is building a deep pipeline of therapeutics aimed at a variety of major diseases, including cancer, infectious diseases and autoimmune-based syndromes.

The company’s lead product candidate using Ii-Key modification is AE37, a peptide vaccine derived from a fragment of the HER-2/neu protein, which is expressed in a variety of tumors including 75-80% of breast cancers as well as a high percentage of prostate, ovarian and other cancers[9].

A controlled, randomized, and single-blinded Phase II clinical study of AE37 in HER-2 expressing breast cancer patients is currently underway to establish clinical efficacy.  The study endpoint is a reduction in cancer relapse after two years compared to the current standard of care treatment.  There are currently over 200 patients enrolled in the study with either node positive or high-risk node-negative breast cancer.

Celldex Therapeutics (CLDX) and 3M Company (MMM)

3M Drug Delivery Systems has a portfolio of patent protected TLR agonists that have shown promise as vaccine adjuvants. The lead candidate, resiquimod [TLR7/8 agonist] has shown promising results in a number of animal models and has an extensive toxicology and clinical data package to support further development as a vaccine adjuvant.

Celldex Therapeutics entered into a non-exclusive clinical research collaboration with 3M Drug Delivery Systems to access resiquimod for clinical study with the company’s Antigen Presenting Cell [APC] Targeting Technology™ in exchange for an undisclosed licensing fee, milestones and royalties.  Celldex is developing CDX-1401, a fusion protein consisting of a fully human monoclonal antibody with specificity for the dendritic cell receptor DEC-205 linked to the NY-ESO-1 tumor antigen, which is currently in a Phase I/II trial in combination with immune stimulating agents [resiquimod and/or poly-ICLC] for advanced cancers of the bladder, breast, ovary, non-small cell lung cancer, myeloma, sarcoma or melanoma.

Colby Pharmaceutical Company (private) and Juvaris BioTherapeutics (private)

In September 2011, Juvaris BioTherapeutics, Inc. entered into an exclusive license agreement with Colby Pharmaceutical Company for the worldwide development and commercialization of Juvaris’ Cationic Lipid-DNA Complex [CLDC] technology and related JVRS-100 product candidate. Gene array studies with JVRS-100 show up-regulation of multiple immune response pathways compared to competing technologies. When combined with a vaccine antigen, JVRS-100 stimulates the adaptive immune response including specific antibodies and T-cell responses.

Idera Pharmaceuticals (IDRA)

Idera is developing numerous compounds that act as agonists for TLRs 3, 7, 8, or 9, which the company believes have the potential to be used as adjuvants in vaccines.  In preclinical animal models, Idera’s TLR agonists have shown adjuvant activity when combined with various types of antigens.

In December 2007, Idera entered into an exclusive, worldwide licensing and collaboration agreement with Merck KGaA for the research, development, and commercialization of Idera’s TLR9 agonists, including IMO-2055, for the treatment of cancer, excluding vaccines.  Merck KGaA refers to IMO-2055 as EMD 1201081.

Merck KGaA expects to complete an ongoing Phase 2 clinical trial of IMO-2055 in combination with cetuximab [Erbitux®] in second-line cetuximab-naïve patients with recurrent or metastatic squamous cell carcinoma of the head and neck [SCCHN].  However, based on increased incidence of neutropenia and electrolyte imbalances reported in its Phase 1 trial of IMO-2055 in combination with cisplatin/5-FU and cetuximab in patients with first-line SCCHN and subsequent re-evaluation of its clinical development program, in July 2011 Merck KGaA informed Idera that it will not conduct further clinical development of IMO-2055.

Immune Design Corporation (private)

Founded by the co-founder of Corixa Corporation, Immune Design Corporation is developing its proprietary adjuvant known as glucopyranosyl lipid A [GLA].  GLA is a novel, clinical-stage, human TLR-4 agonist, representing the next generation of MPL.  According to the company, GLA is unique because: it is a pure synthetic small molecule, straightforward to manufacture with excellent stability, rationally designed to optimally activate human TLR-4 receptors, induces Th1 CD4 helper cells and elicits broad humoral immunity and active in multiple formulations and compatible with most antigens.  GLA was also shown to be safe and well-tolerated in humans subjects in a Phase I clinical study in combination with the influenza virus vaccine Fluzone® by Sanofi Pasteur, the vaccines division of sanofi-aventis Group (SNY).  Immune Design Corporation is developing its own proprietary pipeline of vaccine candidates formulated with the GLA adjuvant for evaluation in further human clinical trials.

Vical Inc. (VICL)

Vical is developing Vaxfectin®, a novel proprietary cationic lipid-based formulation that has been shown to effectively enhance plasmid DNA-based [as well as protein- and peptide-based] vaccines. It is a commixture of a cationic lipid [GAP-DMORIE] and a neutral phospholipid [DPyPE] which, when combined in an aqueous vehicle, self-assemble to form liposomes.  In mechanism of action studies, Vaxfectin® has been shown to increase a number of cytokines and chemokines, while Toll-like receptor signaling was contributory.

Vical is developing several products that utilize Vaxfectin® as an adjuvant. These include CyMVectin™, the company’s prophylactic vaccine against cytomegalovirus [CMV] infection, and its pandemic influenza vaccines.

Conclusion

Beyond their established role in infectious diseases, adjuvants will also likely become important in cancer immunotherapy where they will be critical for targeting weakly immunogenic tumor antigens in order to overcome various tolerance mechanisms and facilitate induction of cytotoxic T lymphocytes.  Several promising new adjuvants are currently being developed that offer superior properties and a set of desired characteristics, with clinical data expected in the near future.

The topic of adjuvants in cancer immunotherapy will covered in an upcoming panel session at the second annual Cancer Immunotherapy: A Long-Awaited Reality conference being held in New York City on October 6, 2011.

References

The similarities don’t end there, as both ipilimumab and sipuleucel-T have reignited enthusiasm for the field of active immunotherapy.  Accordingly, the purpose of this article is to highlight some of the other parallels between these two innovative agents.

Both Studied in Prostate Cancer

While ipilimumab was recently approved for the treatment of melanoma, the product has also been extensively studied in prostate cancer.  In fact, there are eight clinical studies with ipilimumab in prostate cancer according to ClinicalTrials.gov, including five that are currently active or recruiting.

One particular prostate cancer study made headlines in June 2009 when investigators at the Mayo Clinic reported in the online research magazine Discovery’s Edge that the combination of a single dose of ipilimumab [3 mg/kg] with androgen ablation therapy dramatically reduced the tumor size in two patients, making surgery possible for both patients whose prostate cancer had been previously considered inoperable. The controversial results from a handful of patients were met with skepticism and the complete Phase 2 results with 108 patients with advanced prostate cancer were later reported at the American Society of Clinical Oncology [ASCO] 2010 Genitourinary Cancers Symposium [abstract #168].  According to the ASCO abstract, patients treated with androgen ablation either alone or in combination with ipilimumab demonstrated a greater than 97% decline in testosterone levels, underscoring the possibility that the tumor reductions in a few patients could have been associated with androgen ablation.  Patients treated with ipilimumab, however, were more likely to have undetectable prostate specific antigen [PSA] by three months [55% vs. 38%].

A Phase 3 trial with ipilimumab following radiation therapy in patients with CRPC that have received prior treatment with docetaxel is ongoing [ClinicalTrials.gov identifier NCT00861614].

Two is Better than One

As the first two active immunotherapies approved for the treatment of cancer, it wouldn’t be surprising to see the products studied in combination in prostate cancer – especially in view of the fact that ipilimumab has already been studied in this disease.  Sipuleucel-T may help build an effective immune response to kill tumor cells, while ipilimumab may stimulate the immune system through T-cell activation and proliferation and stop tumor cells from growing.  Accordingly, giving vaccine therapy together with ipilimumab may be an effective treatment for prostate cancer.  Interestingly, the only such combination study listed on ClinicalTrials.gov relates to a completed Phase 1 trial with ipilimumab in combination with Bavarian Nordic’s (BAVA.CO) Prostvac®, an “off-the-shelf” therapeutic cancer vaccine moving into pivotal Phase 3 clinical development [ClinicalTrials.gov identifier NCT00124670].

Pricing Controversy

Both Dendreon’s sipuleucel-T and Bristol-Myers’ ipilimumab have been criticized as overly expensive new therapies.

The cost of sipuleucel-T is approximately $93,000 for a course of treatment, which consists of three infusions at two-week intervals.  In view of the fact that the product has been demonstrated to extend median survival by 4.1 months, this translates into an average cost of $23,000 per month of added survival.

In comparison, Taxotere® [docetaxel] by Sanofi-aventis (SNY) is indicated for the treatment of CRPC and is administered every 3 weeks for 10 cycles.  Assuming an average monthly cost of $4,000 for docetaxel [source: Cancer Res 2009;69(24 Suppl):Abstract nr 1076], this is an approximate total cost of $40,000 per patient.  In the pivotal TAX 327 study, median survival for prostate cancer patients receiving docetaxel was 18.9 months versus 16.5 months in the control arm, which results in an average cost of $16,666 per month of added survival or about 28% less than sipuleucel-T.  Updated survival analysis of the TAX 327 study demonstrates a 2.9-month survival advantage, which lowers the average cost to $13,793 per month of added survival or about 40% less than sipuleucel-T.  Unlike sipuleucel-T, however, treating common adverse reactions with docetaxel, such as infections, neutropenia, anemia, nausea, diarrhea, and others, increases the total cost of therapy – and more importantly negatively impacts the patient’s quality of life.  As such, the pricing of sipuleucel-T doesn’t appear completely out of line.

According to the prescribing information, ipilimumab is administered intravenously [3 mg/kg] over 90 minutes every 3 weeks for a total of four doses.  Bristol-Myers is pricing each dose at $30,000, which translates into a total cost of $120,000 for a full course of therapy.  In the pivotal ‘020 study, median survival for melanoma patients receiving ipilimumab was 10.1 months versus 6.4 months in the control arm.  The average cost per month of added survival is approximately $32,432, which is 41% higher than the only other active immunotherapy for cancer, sipuleucel-T.

However, on March 21, 2011, Bristol-Myers announced that the ‘024 study [ClinicalTrials.gov identifier NCT00324155] met its primary endpoint of overall survival.  Minimal details were provided, but an abstract of the ‘024 data is expected to be submitted to ASCO for potential presentation at the Annual Meeting in June 2011.  The ‘024 study is in patients with untreated Stage III [unresectable] or IV melanoma receiving dacarbazine plus 10 mg/kg ipilimumab versus dacarbazine with placebo.  If the median survival for patients in the ipilimumab arm is 5.2 months or greater than the placebo arm [versus 3.7 month difference in the ‘020 study], then the pricing of ipilimumab per month of added survival would be comparable to sipuleucel-T.

Prostate and Melanoma Highly Competitive

Melanoma and prostate cancer are the two most crowded clinical development segments within the active immunotherapy field.  As such, both ipilimumab and sipuleucel-T may face competition from other active immunotherapies in the near future.  In addition, the products may soon encounter small molecule rivals.

For example, Johnson & Johnson’s (JNJ) abiraterone acetate significantly improved overall survival for patients with metastatic advanced prostate cancer.  Based on the positive Phase 3 results, the company has filed marketing applications for abiraterone acetate with regulatory authorities worldwide for the treatment of metastatic advanced prostate cancer that has developed resistance to conventional hormonal therapies. Not far behind, Medivation, Inc. (MDVN) is evaluating its MDV3100 product candidate in collaboration with Astellas Pharma, Inc. (ALPMY.PK).  The Phase 3 AFFIRM trial with MDV3100 has completed enrollment of men with advanced prostate cancer who were previously treated with docetaxel-based chemotherapy and the Phase 3 PREVAIL trial with MDV3100 is currently enrolling men who have not yet received chemotherapy

In addition, Plexxikon, Inc. [being acquired by Daiichi Sankyo Company, Limited] and co-development partner Roche Holding (ROG.VX) are advancing PLX4032, an oral drug candidate that targets the oncogenic BRAF mutation present in about half of melanoma cancers and about eight percent of all solid tumors.  Interim data from a Phase 3 controlled study of PLX4032 in previously untreated metastatic melanoma patients with the BRAF mutation met both co-primary endpoints.  Patients treated with PLX4032 had improved overall survival (OS) and improved progression-free survival (PFS) compared to patients treated with dacarbazine, the current standard of care.  A New Drug Application [NDA] for PLX4032 is expected in 2011.

Some new agents might actually be synergistic with active immunotherapies instead of representing potential competition.  This was a central theme at the recent Cancer Immunotherapy Consortium’s 2011 Scientific Colloquium titled “Schedule and Dose for Combination Therapy.”

Summary

Both ipilimumab and sipuleucel-T represent important clinical advances for the field of active immunotherapy in oncology and for patients with melanoma and prostate cancer, respectively.  Further, with nearly 50 clinical programs currently underway, including nearly a dozen that are in pivotal Phase 3 development, we expect to see five active cancer immunotherapies approved by 2015.  Beyond these clinical accomplishments, however, industry observers will be closely monitoring the commercial success of these innovative agents in view of the product pricing, supply constraints, and competitive dynamics identified to date.

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

Table 1. Old Versus New Paradigm in Biotechnology Collaborations

In addition, the negative considerations from large pharmaceutical partnerships are often overlooked, which begs the question: is it better to partner, or go alone?  To help address the topic, this article focuses on the oncology segment of the life science industry – one of the most popular therapeutic areas for partnering and merger & acquisition [M&A] activity.

Luck Vs Skill

Prior to addressing the question of whether or not a small biotechnology company should collaborate with a larger pharmaceutical organization, we solicited investor views regarding the process of corporate partnering.  Some of the feedback indicates there is a lack of transparency.

“As an investor, partnering activity is the most opaque part of our companies’ business,” said David Sable, portfolio manager, Special Situations Life Sciences Fund.  “Every small biotech CEO tries to create an image of limitless interest on the part of big pharma in each of the company’s projects, a dynamic that will inevitably result in a value-maximizing transaction.  Many management teams deliver on these promises; in retrospect, however, at least as many seem to have parked their molecule in the front yard with a ‘For Sale’ sign and hoped for the best.  While we can validate the importance of a molecular pathway, double-check market size predictions, run our own statistics and reality-check pricing assumptions, we have no way to identify talent in business development.”

Left at the Altar

One of the most important negative considerations for biotechnology companies looking to partner is that large pharmaceutical companies often shift resources and the focus of their pipeline development candidates over time, which may put their collaborators at risk.  Although sometimes done for strategic reasons rather than due to new clinical insight, the sudden departure of a large pharmaceutical partner can reflect poorly on an otherwise promising product candidate.

For example, Celldex Therapeutics, Inc. (CLDX) announced in September 2010 that the company would regain full worldwide rights to develop and commercialize rindopepimut [CDX-110] from Pfizer, Inc. (PFE).  The companies had entered into a global development and commercialization agreement in April 2008 for rindopepimut, an experimental therapeutic cancer vaccine that targets the tumor-specific molecule epidermal growth factor receptor variant III in patients with glioblastoma multiforme.  Pfizer informed Celldex that the rindopepimut program was no longer a strategic priority of Pfizer and terminated the agreement despite the fact that the product candidate met or exceeded all pre-determined safety and efficacy objectives across three clinical studies.  Shares of Celldex, which traded as high as $9.49 during 2010, reached a 52-week low of $2.91 on the news.

More recently, Transgene (TNG.PA) announced on February 22, 2011, that Roche Holding (ROG.VX) terminated their 2007 agreement under which Roche had been granted exclusive global development and commercialization rights to TG4001/RG3484, a therapeutic vaccine candidate currently in a 200 patient Phase IIb study to treat notably high grade cervical intraepithelial neoplasia [CIN] lesions [CIN2/3] caused by human papilloma virus [HPV] infection.  While Transgene stated that Roche’s decision to terminate the license agreement was based on strategic reasons and wasn’t data driven, the company’s shares reached a 52-week low on the news.

Hopes and Dreams Vs Revenue Streams

Another potential negative is that by partnering a product candidate, the “hope and dream” multiple of a potential partnership or acquisition may be replaced by the realities of a “revenue stream,” such as milestone payments and future product royalties.  By discounting the economics of a partnership deal for certain risk factors, investors can assign a net present value to the company that may be quite different than the speculative valuation in the absence of a partnership.  Representing a unique opportunity to review the effect of partnering on market capitalization, three separate deals were announced for late-stage product candidates aimed at treating prostate cancer during 2009, while two companies have remained independent [see Table 2].

As the first transaction announced that year, Johnson & Johnson’s (JNJ) acquisition of Cougar Biotechnology for nearly $1 billion in cash in May 2009 initially looked attractive.  However, following approval of Provenge® [sipuleucel-T] in April 2010, the market capitalization of Dendreon Corporation (DNDN) exceeded $7 billion, which demonstrates the potential benefit of remaining independent or retaining worldwide rights.  In contrast, more than a year after partnering their late-stage programs, the market valuations of two other companies, Medivation, Inc. (MDVN) and OncoGenex Pharmaceuticals, Inc. (OGXI), are $605 million and $150 million, respectively.

Using Dendreon’s valuation as an example, it isn’t surprising that Bavarian Nordic A/S (BAVA.CO) announced earlier today that the company is reviewing alternate options to maximize value for shareholders and fund the pivotal Phase 3 trial of its “off-the-shelf” therapeutic vaccine product candidate Prostvac® on its own.  Keeping its options open, however, Bavarian Nordic is exploring opportunities to pursue independent development in parallel with continuing partnership discussions.

Table 2. Late-stage Prostate Cancer Programs

A Means to an End

The biggest argument against partnering is the fact that some of the most successful biotechnology companies to date are those that have commercialized their own products, such as Amgen, Inc. (AMGN), Celgene Corporation (CELG), and several others.

“Celgene is a unique example of success by taking a slightly different approach,” said Charles Duncan, managing director and senior biotech analyst at JMP Securities LLC.  “The company built a pipeline and worldwide infrastructure for Revlimid® [lenalidomide] that was funded and supported through its early sales of Thalomid® [thalidomide].”

“We viewed partnering our lead product as a critical strategic decision that would shape the company and significantly impact our vision,” said Sol J. Barer, Ph.D., Executive Chairman of Celgene Corporation.  “We felt that our pursuing the development of Revlimid worldwide alone was the best option consistent with our vision a of becoming a major global biopharmaceutical company over the next few years.  We clearly recognized the short versus long term trade-offs in the decision; nevertheless, our belief in the product and in our ability to manage the product globally was important in our decision not to partner.”

Some companies have also partnered a specific program in certain geographies or disease settings and use the validation and resulting economics to help advance their own pipeline – sometimes even in competitive areas.  For example, Amgen originally developed Epogen® [epoetin alfa], which the company commercialized as a treatment for anemia in dialysis patients and partnered non-dialysis rights with Johnson & Johnson [sold as Procrit®].  Amgen later developed and commercialized Aranesp® [darbepoetin alfa], an erythropoiesis stimulating protein with a longer half-life and increased biologic activity that was not partnered.

Similarly, Oncothyreon, Inc. (ONTY) has granted a license to Merck KGaA of Darmstadt, Germany for the clinical development, manufacturing, and marketing of Stimuvax®.  Oncothyreon is eligible for cash payments based on the achievement of certain process transfer events, regulatory submissions in first and second cancer indications, regulatory approval for first and second cancer indications, and for sales milestones.  Oncothyreon will also receive a royalty based on net sales.  If successful in the clinic, Stimuvax could also help validate another Oncothyreon product candidate, ONT-10, which is a completely synthetic MUC1-based liposomal glycolipopeptide cancer vaccine that could compete with Stimuvax.  Merck KGaA has a right of first negotiation with respect to ONT-10.

Geographically Undesirable

Although selective encumbered assets can still attract buyers, partnering a product candidate in certain geographies with one large pharmaceutical company may preclude an acquisition by another that is only interested in worldwide rights or control of key markets.  On the other hand, some partnerships can later lead to an acquisition – a strategy employed by Bristol-Myers Squibb Company (BMY) on more than one occasion.

For example, Bristol-Myers Squibb and Medarex, Inc. formed a worldwide collaboration in 2004 valued at more than $530 million to develop and commercialize Yervoy® [ipilimumab, MDX-010], which was in Phase III clinical development at the time for the treatment of metastatic melanoma and multiple Phase II clinical trials in other oncology indications.  In 2009, Bristol-Myers Squibb acquired Medarex for $16.00 per share, a 90% premium over the prior day’s closing price of $8.40 per share, for an aggregate purchase price of approximately $2.4 billion.

What started as a lawsuit for infringement of its patents related to fusion protein technology in 2006, ZymoGenetics, Inc. signed a deal with Bristol-Myers Squibb in 2009 worth more than $1.1 billion for PEG-Interferon lambda, a novel type 3 interferon in Phase Ib development for the treatment of Hepatitis C, and its related development program.  The following year, Bristol-Myers Squibb acquired ZymoGenetics for $9.75 per share in cash [an 84% premium to the prior day close] in a transaction valued at approximately $885 million.

While ultimately thwarted by Eli Lilly & Co.’s (LLY) superior offer in October 2008, Bristol-Myers also attempted to acquire its partner ImClone Systems.  Back in September 2001, Bristol-Myers had entered into an agreement with ImClone to co-develop and co-promote Erbitux® [cetuximab, IMC-C225] in the United States, Canada and Japan.

All that Glitters is not Gold

Maintaining worldwide rights and commercializing a product without a partner doesn’t necessarily translate into a lofty market valuation.  Several companies have struggled to commercialize oncology products on their own.

Allos Therapeutics, Inc. (ALTH) developed Folotyn® [pralatrexate injection], a folate analogue metabolic inhibitor, and began commercializing the product in the U.S. for the treatment of patients with relapsed or refractory peripheral T-cell lymphoma [PTCL] in October 2009.  Since the product’s launch, Folotyn sales have been below Wall Street analyst’s expectations and shares of Allos recently reached a 52-week low of $2.64.

Despite an inauspicious launch in the U.S., some analysts believe that Allos may finally be executing on a regional strategy with the recent filing of a Marketing Authorisation Application for European approval and the potential for a partner in Asia as highlighted during the company’s recent quarterly teleconference with investors.

“If Allos gets traction with an ex-U.S. approval and partnership, investor sentiment will most certainly improve as this will provide some external validation on the viability of a regulatory path and market opportunity in PTCL, despite it being a rare disease and there being emerging potential competition from Celgene’s Istodax® [romidepsin],” said Charles Duncan.  “At this point, all but the most patient, value-oriented investors have extricated themselves from the Allos story due to what we believe to be a lack of confidence in senior management, and having another company to shoulder the risk ex-U.S. will provide a much-needed boost to the capabilities and capital needed to profitably market Folotyn.  Perhaps this too could be an example where a collaboration discussion turns into an acquisition, although we anticipate that should such a scenario materialize, it would likely involve contingent-value rights [CVR’s] given the uninspiring early revenue trajectory.”

Summary

Looking ahead, the trade-off between equity dilution and asset dilution represents an important crossroad that many late-stage biotechnology companies will face in the near future [see Table 3 for a select list].  While one size doesn’t fit all, the fact that Dendreon has achieved the largest market valuation of any company in the late-stage prostate cancer segment of the market by commercializing its product without a partner helps support the notion that going alone may provide the highest value to stakeholders.  Such a strategy requires that the company can access resources and capital to develop and launch its product globally.  If not, a selective or global partnership may be the next best options – provided the terms are attractive and that there is a remaining pipeline to be leveraged in the future.  In the end, whether a company proceeds alone or with a partner, there is an attractive landscape of motivated buyers for late-stage and marketed products that may ultimately lead to M&A.

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Table 3. Select Companies with Phase III Oncology Programs Not Yet Partnered

While the FDA usually follows advice stemming from its AdCom meetings, it isn’t required to do so.  In fact, there have been several high-profile situations where the FDA has gone against such recommendations.

For example, many investors recall the volatility of Dendreon Corporation’s (DNDN) stock around the time of an AdCom meeting for the company’s Provenge® [sipuleucel-T] product candidate back in March 2007.  Share of Dendreon, which were trading below $5 per share before the AdCom meeting, reached $25 following a positive 13-4 vote in favor of the product’s efficacy.  Several months later, however, shares of Dendreon once again traded at $5 after the company received a CRL from the FDA.

More recently, InterMune, Inc. (ITMN) suffered a similar fate with its EsBriet™ [pirfenidone] product candidate for the treatment of mild to moderate idiopathic pulmonary fibrosis [IPF], a progressive and fatal lung disease.  Despite a 9-3 AdCom vote in favor of approving the drug, InterMune received a CRL from the FDA in May 2010, causing the value of its stock to decline from nearly $50 per share to less than $10.  Ironically, shares of InterMune rebounded significantly in December 2010 following a positive recommendation from the scientific body of the European Medicines Agency [EMA], which is responsible for reviewing all Marketing Authorization Applications [MMAs].

With this in mind, we tabulated the results from select FDA AdCom meetings conducted during 2010-2011 and compared the outcomes with the FDA’s ultimate decision to gauge how often the agency goes against its AdCom recommendations.  For the period, we found outcomes from 27 AdCom meetings for new drug applications [NDAs].  Of the 27 AdCom meetings, the FDA has not yet ruled on seven NDAs.  See Table 1 for details.

No Means No

Of the 20 AdCom meetings with corresponding decisions from the FDA, the agency agreed with all 9 of the negative AdCom recommendations and sent each of the sponsors a CRL.  In other words, a “no” vote from an AdCom meeting was unlikely to be overturned by the FDA during the period.  This doesn’t bode well for Eli Lilly & Co.’s (LLY) liprotamase product candidate for pancreatic insufficiency, which received a negative AdCom recommendation in January 2011 and is awaiting final FDA action.

In one situation where the AdCom vote was negative, the sponsor took action before the FDA rendered its final decision.  On December 17, 2010, King Pharmaceuticals, Inc. (KG) and Acura Pharmaceuticals, Inc. (ACUR) submitted an NDA for Acurox® (oxycodone HCl) without niacin following a 19-1 AdCom vote in April 2010 against approval of Acurox® with niacin.

Yes Means Maybe

During the period, the FDA went against the positive recommendation of its AdCom members 5 out of 10 times [50%] and issued a CRL to the sponsor.  This includes one unanimous vote [13-0] in favor of the efficacy for ezogabine, which is being developed by GlaxoSmithKline plc (GSK) and Valeant Pharmaceuticals International, Inc. (VRX) for the adjunctive treatment of adults with partial-onset seizures.  GlaxoSmithKline and Valeant indicated that the FDA cited non-clinical reasons for the CRL, but investors aren’t privy to the content of such documents.

The FDA is transparent with regard to drug approvals and withdrawals, but the contents of CRL’s are considered confidential because they represent part of an ongoing dialog between the agency and drug sponsor.  While many companies disclose whether or not a CRL contains a request for new clinical studies, translating into an investment of more capital and time, ambiguous phrases describing the contents of a CRL often leave investors in the dark with regard to handicapping the sponsor’s ability to address the issues in a timely and efficient manner – if at all.  Such secrecy has come under fire by members of the media, as evidenced by an October 2010 Forbes article titled “Why FDA Communications Must Be Public.”

For now, investors are warned that in the face of a positive AdCom recommendation, there is only a 50/50 chance that the FDA will promptly approve a product based on recent data.

Going Forward

The FDA has yet to rule on 7 product candidates with recent AdCom meetings, as indicated by “TBD” under FDA Action in Table 1.  While many of these AdCom meetings have positive outcomes, industry observers can flip a coin to determine whether or not the FDA will ultimately follow the AdCom’s advice in these situations based on recent data.  Even unanimous, favorable recommendations from AdCom members do not necessarily guarantee success with the FDA, although both Bayer AG (BAYRY.PK) and Oceana Therapeutics, Inc. (private) received such support for approval of their respective product candidates.

Investor’s expectations are very high for Human Genome Sciences, Inc. (HGSI), which was among the largest percentage gainers in the NASDAQ Composite with a staggering quadruple-digit return of +1,342% in 2009 following positive Phase 3 study results with its Benlysta® [belimumab] product candidate for the treatment of systemic lupus erythematosus [SLE].  The FDA is expected to render its decision by the Prescription Drug User Fee Act [PDUFA] date of March 10, 2011, and the company’s stock remains relatively unchanged around $25 per share following a positive 13-2 AdCom vote in November 2010.

Of the pending group, MELA Sciences, Inc. (MELA) appears to have the lowest probability of success with the FDA in view of the very narrow 8-7 AdCom vote in favor of the product candidate’s safety, efficacy and risk/benefit ratio, which led to new 52-week lows for the company’s stock.  The company is developing MelaFind®, a non-invasive and objective multi-spectral computer vision system designed to aid physicians in the detection of early melanoma, or skin cancer.

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Table 1: AdCom Meetings and FDA Outcomes During 2010-2011

Adding to an already hectic schedule of one-on-one meetings during the week, the success of JPMHC has spawned numerous satellite events, such as Biotech Showcase, OneMedForum, New Paradigms Conference, and China Forum.  The latter event provides further evidence that China is emerging as an important component of the international biotechnology landscape, as 16 China-based life science companies also presented during an inaugural China Track at JPMHC.

In between offsite meetings, we roamed the familiar halls of the Westin St. Francis Hotel to assess the mood among participants and also monitored online media commentaries throughout the event.  In general, the plane flights and networking receptions were crowded as usual, industry observers “Tweeted” a sense of optimism, and attendees appeared more upbeat than in 2010.  However, we once again sought to construct a less subjective assessment by analyzing year-over-year statistics from the conference.

Accordingly, we extensively reviewed press releases issued by biotechnology companies during JPMHC from 2009 to 2011, with a particular focus on identifying the number of merger & acquisitions [M&A], licensing & partnering transactions, and financing deals announced each year during the four-day event.

Merger and Acquisitions

Back in 2009, several large M&A transactions were announced during JPMHC.  That year, four M&A transactions with an aggregate value of $702 million were disclosed during the first two days of the event.  The largest deal went to Cephalon, Inc. (CEPH), which announced a $100 million option agreement providing the company with an opportunity to purchase all outstanding capital stock of Ception Therapeutics, Inc., a privately held biopharmaceutical company, for an additional $250 million.

Despite ongoing discussions between Sanofi-aventis (SNY) and Genzyme Corporation (GENZ), only one significant M&A transaction was announced during JPMHC in 2011, marking the second year in a row with a paucity of deals.  Finland-based Biotie Therapies Corp., a drug developer focused on central nervous system [CNS] and inflammatory diseases, announced that it is acquiring Synosia Therapeutics Holding AG in an all-share deal that values the private Swiss company at approximately $125 million.  Synosia Therapeutics Holding AG is a biopharmaceutical company focused on developing and commercializing a portfolio of CNS product candidates licensed from Roche Holding AG (RHHBY.PK), Novartis AG (NVS), and Syngenta AG (SYT).

Table 1. Select M&A Transactions Announced During JPMHC from 2009-2011 ($ in millions)

Licensing and Partnering

In 2009, ten strategic licensing and/or partnering transactions with an aggregate value exceeding $2.4 billion were announced during JPMHC. The transactions included a $1.1 billion deal between ZymoGenetics, Inc. and Bristol-Myers Squibb Company (BMY), a $500 million deal between Peptimmune, Inc. and Novartis AG (NVS), a $396 million deal between Micromet, Inc. (MITI) and Bayer AG (BAYZF.PK), and a $200 million deal between FORMA Therapeutics the Novartis Option Fund to develop inhibitors for an undisclosed protein-protein interaction target in the field of oncology, among others. Interesting to note, Bristol-Myers Squibb later acquired ZymoGenetics Inc. for $885 million in cash during September 2010.

In 2010, there were only six transactions totaling $314 million announced at JPMHC, driven primarily by a $290 million agreement between privately held KaloBios Pharmaceuticals, and Sanofi Pasteur, the vaccines division of the Sanofi-aventis, for the development and commercialization of KB001, an investigational new biologic for the treatment or prevention of Pseudomonas aeruginosa [Pa] infections.

In 2011, three major licensing and/or partnering transactions totaling more than $3 billion were announced during JPMHC, although three-quarters of the total value came from a single agreement:

• Eli Lilly and Company (LLY) and Boehringer Ingelheim announced a $2.4 billion global agreement to jointly develop and commercialize a pipeline of oral diabetes agents and basal insulin analogues.  The alliance also includes the option to co-develop and co-commercialize Eli Lilly’s anti-TGF-beta monoclonal antibody.
• Privately held Epizyme, Inc. announced a strategic alliance with GlaxoSmithKline plc (GSK) that could be worth over $650 million.  Epizyme is involved in the discovery and development of small molecule histone methyltransferase inhibitors, a new class of targeted therapeutics for the treatment of genetically-defined cancer patients, based on breakthroughs in the field of epigenetics.  Epigenetics refers to the regulation of genes with mechanisms other than changes to the underlying DNA sequence and such processes are widely believed to play a central role in the development and progression of almost all cancers.
• Takeda Pharmaceutical Company Limited and Zinfandel Pharmaceuticals, Inc. announced an exclusive, worldwide licensing agreement regarding Zinfandel’s TOMM40 assay as a biomarker for the risk of Alzheimer’s disease, including potential use of the assay in combination with pioglitazone in high-risk older adults with normal cognition.  Pioglitazone is the active ingredient currently marketed in Takeda’s ACTOS® (pioglitazone HCl). Under the terms of agreement, Zinfandel will receive an upfront payment of $9 million and subsequent payments of up to $78 million for development milestones from Takeda.

Table 2. Select Licensing and Partnering Deals Announced During JPMHC from 2009-2011 ($ in millions)

Financing

While the quantity of public and private financing transactions announced during JPMHC has remained essentially flat from 2009-2011, the aggregate dollar value increased more than 60% in 2011.  Note that we excluded the $500 million convertible senior note transaction announced by Dendreon Corporation (DNDN), as it occurred after the market closed last Thursday [the last day of JPMHC].

Table 3. Select Financing Transactions Announced During JPMHC from 2009-2011 ($ in millions)

Outlook

At the start of 2009, we provided a positive outlook for the biotechnology industry.  Most of the drivers supporting our favorable view remain intact for 2011, such as the record number of products in clinical trials and annual industry R&D investment, improving access to capital, brisk pace of industry consolidation and licensing transactions, and attractive valuations among many small- and mid-capitalization companies, which we believe should continue to outperform their larger industry peers in 2011.

The +60% year-over-year increase in the aggregate value of financing transactions announced during JPMHC in 2011 supports our improving access to capital thesis, offset in part by the fact that both the quantity and value of M&A and licensing/partnering transactions during the period were below 2009 levels [excluding a single agreement for $2.4 billion in 2011].   Using 2010 as a guide, the mixed bag of activity emanating from JPMHC is simply the pause that refreshes and activity should accelerate throughout the year.

Looking beyond JPMHC, the key risk to our positive outlook in 2011 relates to the number of U.S. Food and Drug Administration [FDA] drug approvals, which declined in 2010 and is more than 50% below the high of 56 new approvals in 1996 despite the fact that legislation passed in 2008 gave the FDA more money and resources.  There is no discounting the negative impact of clinical and regulatory setbacks on the psyche of biotechnology investors, as evidenced by the greater than 10% decline in the NASDAQ Biotech Index in late February 2009 following a spate of high profile disappointments.

For an industry segment known for both hope and hype, it is no surprise that stem cell therapies are once again making headlines.  On July 30, 2010, the U.S. Food and Drug Administration [FDA] lifted the clinical hold on Geron Corporation’s (GERN) Phase I trial using its embryonic stem cell-based therapy for the treatment of patients with acute spinal cord injury.  Within days of the news, shares of Geron increased more than 30%, going from $4.80 to $6.39.

More recently, StemCells, Inc. (STEM) announced the publication of preclinical data demonstrating that its non-embryonic stem cell therapy was able to restore lost motor function in mice with chronic spinal cord injury.  The August 19, 2010, news sent shares of StemCells as high as $1.19 compared to the prior day closing price of $0.87 with volume greater than 17 million shares.

While Geron is already in human trials for the acute phase and StemCells plans to initiate its clinical trial in the chronic setting next year, two competitors vying for the treatment of spinal cord injury using allogeneic approaches [“off-the-shelf,” like a traditional pharmaceutical product] highlights yet another risk for investors in the already complex stem cell sector: competition.

In fact, of the mere 15 publicly traded biotechnology companies currently developing stem cell therapies [see Table 1], more than half of them have competing programs in three major disease areas:

• Cardiovascular
• Gastrointestinal
• Central nervous system [CNS]

Accordingly, the purpose of this article is to review the key players in each of these segments and contrast their different approaches.

Cardiovascular – critical limb ischemia

Critical limb ischemia [CLI] is a severe obstruction of the arteries that seriously decreases blood flow to the extremities [hands, feet and legs] and is manifested by pain at rest, non-healing wounds, and tissue necrosis [gangrene].

Three stem cell developers are currently conducting clinical trials with competing approaches for the treatment of CLI:

Aastrom Biosciences, Inc. (ASTM)

Aastrom represents the most advanced clinical stage company that is developing a stem cell therapy for the treatment of CLI.  The company is completing a Phase IIb clinical trial in patients with CLI and interim data were presented at the Society for Vascular Surgery annual meeting.  Similar to Dendreon Corporation’s (DNDN) personalized vaccine for prostate cancer, Aastrom’s procedure is autologous – meaning that a small amount of bone marrow cells are taken from the patient and processed to expand the number of early stem and progenitor cells before being administered to the patient to promote healing of the affected tissues.  In July 2010, Aastrom announced plans to pursue a Phase III clinical program for CLI through the FDA’s special protocol assessment [SPA] process.

Aldagen, Inc. (private, S-1 filed)

Similar to Aastrom, Aldagen is also developing an autologous product [ALD-301] derived from a patient’s bone marrow for the treatment of CLI.  In a 21-patient Phase I/II clinical trial, ALD-301 was well tolerated – although four of the 11 patients in the ALD-301 treatment group and two of the 10 patients in the unsorted bone marrow treatment group experienced serious adverse events that investigators determined were related to the underlying disease [CLI].  Accordingly, the company expects to commence enrollment in a Phase II clinical trial in 2010.

Pluristem Therapeutics, Inc. (PSTI)

In contrast to the autologous approaches by both Aastrom and Aldagen, Pluristem is conducting a Phase I trial of an allogeneic stem cell therapy for the treatment of CLI.  Similar to Celgene Corporation (CELG), Pluristem obtains stem cells for its product from human placenta.  In April 2010, Pluristem reported interim top-line results from Phase I clinical trials of PLX-PAD that demonstrated the cell therapy is potentially safe, well tolerated and effective in patients with CLI.  The company is currently planning two Phase IIb trials in CLI.

Cardiovascular – myocardial infarction

Myocardial infarction [MI] or acute myocardial infarction [AMI], commonly known as a heart attack, is the interruption of blood supply to part of the heart, causing heart cells to die.  Cardiac muscle cells do not have the ability to regenerate, so if enough dead tissue forms, patients suffer heart failure and may eventually die.

Three stem cell developers are conducting clinical trials with competing approaches for the treatment of AMI:

Osiris Therapeutics, Inc. (OSIR)

Osiris is developing Prochymal, one of the most advanced stem cell therapeutic product candidates for the treatment of AMI.  Prochymal is an allogeneic stem cell product derived from bone marrow that is currently being studied in a Phase II clinical trial for the treatment of AMI [ClinicalTrials.gov identifier NCT00877903].  Results from the two-year follow-up of the Phase I clinical trial demonstrated that a single dose of Prochymal administered within 10 days after the patient’s first AMI was safe and well tolerated.  Prochymal also showed significant improvements, including a reduction in chest pain events and cardiac arrhythmias and improvement in cardiac and lung function compared to placebo.  Osiris has partnered with Genzyme Corporation (GENZ) for the development and commercialization of Prochymal.

Athersys, Inc. (ATHX)

Similar to Osiris, Athersys is developing its allogeneic stem cell therapy product, MultiSem®, in collaboration with Angiotech Pharmaceuticals for the treatment of AMI.  MultiStem consists of a special class of stem cells obtained from adult bone marrow or other non-embryonic tissue sources.  In July 2010, Athersys announced positive results from an ongoing Phase I study of Multistem [ClinicalTrials.gov identifier NCT00677222] demonstrating that the product candidate was well-tolerated at all three dose levels studied and also suggested improvement in heart function in treated patients.  Athersys and Angiotech are working on plans for a Phase II trial.

Cytori Therapeutics (CYTX)

In May 2010, Cytori reported results from a European clinical study using its medical device, called the Celution® System, as an autologous treatment for AMI.  As part of the company’s procedure, small amounts of fat tissue are removed from a patient’s abdomen.  Stem and regenerative cells are then separated at the point-of-care and subsequently injected into the patient’s coronary artery.  The six-month results from the fourteen patient, double-blind, placebo controlled trial demonstrated an improvement in the infarct size, the amount of blood supply to the heart muscle, and functional improvement in the amount of blood supply to the heart muscle.  Cytori expects to initiate a 150-250 patient pivotal study for European approval in late 2010 or early 2011.

Gastrointestinal

Crohn’s disease is an inflammatory disease of the intestines that may affect any part of the gastrointestinal tract, mainly causing abdominal pain, diarrhea, vomiting, and weight loss.   There is no known pharmaceutical or surgical cure for Crohn’s disease and treatment options are restricted to controlling symptoms, maintaining remission, and preventing relapse.

Two stem cell developers are conducting clinical trials with competing approaches for the treatment of Crohn’s disease:

Celgene Corporation (CELG)

In April 2010, Celgene Corporation (CELG) reported positive results from a Phase I study of patients with Crohn’s disease receiving PDA-001, an allogeneic stem cell product candidate derived from human placental tissue.  The Phase I trial consisted of 12 patients with active moderate-to-severe Crohn’s who were unresponsive to at least one prior therapy.  Patients received two infusions of PDA-001, with six patients receiving a lower dose of the cells and the remaining six patients receiving a higher concentration.  According to the company, the study met its primary safety goal and demonstrated encouraging signs of clinical benefit, including clinical remission among four patients in the low dose group.  ClinicalTrials.gov currently lists a Phase IIa study with PDA-001 for the treatment of adults with moderate-to-severe Crohn’s disease that is not yet open for patient recruitment [identifier NCT01155362].

Osiris Therapeutics, Inc. (OSIR)

In May 2010, Osiris Therapeutics resumed enrollment in its Phase III trial of Prochymal for treatment-resistant Crohn’s disease [ClinicalTrials.gov identifier NCT00482092].  Enrollment was suspended in 2009 over concerns the trial design would make it difficult to detect a treatment effect with its allogeneic stem cell product derived from bone marrow.  According to the company, an interim analysis of 207 patients enrolled in the study revealed that the difference between the Prochymal and placebo response rates was consistent with the original statistical assumptions of the protocol in one active arm and is significantly outperforming placebo, although it is not clear whether this active arm is the low or high dose Prochymal group.  It is also worth noting that Prochymal previously failed to meet the primary endpoints of two Phase III studies for the treatment of graft-versus-host disease [GVHD].

Central nervous system

Beyond the aforementioned competition between Geron and StemCells in the area of spinal cord injury, two stem cell companies are pursuing treatments for amyotrophic lateral sclerosis [ALS], often referred to as “Lou Gehrig’s Disease.”  ALS is a progressive neurodegenerative disease that affects nerve cells in the brain and the spinal cord, resulting in the loss of muscle control and paralysis.

Neuralstem, Inc. (CUR)

In September 2009, Neuralstem received FDA approval to commence a Phase I trial to treat patients with ALS using its allogeneic stem cell therapy derived from human spinal cord stem cells.  The trial is designed to study the safety of Neuralstem’s cells and the surgical procedures and devices required for multiple injections directly into the grey matter of the spinal cord.

The FDA has approved the first stage of the trial, which consists of 12 patients who will receive five-to-ten stem cell injections in the lumbar area of the spinal cord.  The patients will be examined at regular intervals post-surgery, with final review of the data to come about 24 months later.

Preclinical work has shown that Neuralstem’s cells extended the life of rats with ALS and also reversed paralysis in rats with ischemic spastic paraplegia.

BrainStorm Cell Therapeutics, Inc. (BCLI.OB)

In February 2010, BrainStorm entered into a collaborative agreement with the Hadassah Medical Center to conduct a Phase I/II clinical trial in ALS patients at the Hadassah Ein Kerem Hospital.  BrainStorm’s NurOwn™ technology uses stem cells obtained from adult bone marrow and the company’s research team is among the first to have successfully achieved the in vitro differentiation of adult bone marrow cells into characteristic neuron-like cells capable of releasing dopamine as well as into astrocyte-like cells capable of releasing several neurotrophic factors, including glial-derived neurotrophic factor [GDNF].

Unlike the injections in the lumbar area of the spinal cord, BrainStorm expects that early ALS subjects will receive intramuscular injections into clinically unaffected [or only mildly affected] upper arm biceps and triceps muscles.  Progressive ALS subjects will receive intrathecal cell transplantation via a standard lumbar puncture.

According to the company, BrainStorm initiated manufacturing runs using its proprietary cell growth process in preparation of producing clinical trial materials under good manufacturing practice [GMP] standards at the Hadassah Medical Center GMP facility.  Upon completion of this process, the Phase I/II trial for patients with ALS is expected to begin pending approval from the Israeli Ministry of Health, which BrainStorm expects during the second half of 2010.

Summary

Given their unique regenerative abilities, stem cells offer new hope for treating cardiovascular, gastrointestinal, CNS, and other diseases.  However, with more than half of the 15 publicly traded biotechnology companies currently developing stem cell therapies in three major disease areas, competitive positioning will be an important additional consideration for prospective investors.

Table 1. Stem cell companies