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

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

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

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

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

Table 1: Tier 1 Group

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

Table 2: Tier 2 Group

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

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

Table 3: Tier 3 Group

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

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

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

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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.

Standard frontline therapy for AML patients under the age of 60 consists of cytarabine  [AraC] combined with an anthracycline [such as daunorubicin or idarubicin] in what is commonly referred to as the 7+3 regimen.  While 45% of elderly patients with AML [70+ years old] achieved a complete response [CR] using this regimen, there was no improvement in overall survival and more than a third of patients died within the first eight weeks of treatment according to a recent study published in the journal Blood[i].  This is consistent with the CR rates of 40%–60% with conventional chemotherapy and disease-free survival of less than 20% at three years referenced in the literature[ii].

Since more than half of AML cases occur in patients over 60 years old, there is a need to develop better frontline therapies in this setting.  With five agents being investigated as frontline therapy for elderly AML patients in late-stage trials, the purpose of this article is to compare and contrast these programs – several of which have near-term catalysts for investors.

Hypomethylating Agents

SuperGen, Inc. (SUPG), Eisai Co. Ltd. (ESALF), and Johnson & Johnson (JNJ)

On June 30, 2010, preliminary results from a Phase III trial of Dacogen® [decitabine] as a frontline treatment for elderly patients [65+ years old] with AML were released.  While Dacogen did not meet the primary endpoint of overall survival, a trend was reported to be evident.  However, the failure to demonstrate an improvement in overall survival was surprising given the favorable Phase II results and the fact that the comparator arm received low dose AraC instead of the aforementioned 7+3 regimen.  Low dose AraC predominantly works in patients with favorable cytogenetics, so it should have been relatively easy for Dacogen to demonstrate a survival benefit.

Shares of SuperGen, which climbed as high as $2.89 on expectations for positive trial results, reached a new 52-week low of $1.71 in July.  Supergen receives a 20-30% royalty on worldwide sales of Dacogen from its development and commercialization partners – Eisai in North America and Johnson & Johnson outside of North America.

While investors appear to be discounting approval of Dacogen as a frontline therapy for elderly AML, there may be reasons for optimism.  For example, both Eisai and Johnson & Johnson are continuing to analyze the data and planning to move forward with North America and European regulatory filings in 2011 based on the primary analysis and secondary endpoints.  In addition, the Phase III study was conducted under a special protocol assessment [SPA] with the U.S. Food and Drug Administration [FDA].

Celgene Corporation (CELG)

In view of Dacogen’s negative Phase III trial results, investors may be skeptical about Vidaza® [azacitidine], another hypomethylating agent currently approved for the treatment of myelodysplastic syndromes [MDS], a pre-cancerous condition that can often progress to AML.  According to ClinicalTrials.gov [Identifier NCT01074047], Celgene is currently enrolling patients in a Phase III, multicenter, randomized, open-label, study of Vidaza versus conventional care regimens for the frontline treatment of elderly patients [65+ years old] with AML.

In December 2008, the European Commission granted marketing authorization for Vidaza as a treatment for patients with higher-risk MDS, chronic myelomonocytic leukemia [CMML], and MDS that transforms into AML with a blast percentage of 20-30% in the peripheral blood or bone marrow.  While Vidaza demonstrated a clinically relevant increase in median survival of 9.4 months [24.4 vs. 15 months] in these settings[iii], it is unclear how the drug will work in AML de novo patients with a higher blast percentage [greater than 50%] that represent half of the elderly patient population.  In view of the fact that Dacogen is more myelosuppressive than Vidaza [see Table 1], and for this reason may be preferred over Vidaza for off-label use in AML, the recent failure of Dacogen only adds to this uncertainty.

Table 1. Percentage of Patients with Myelosuppression from Prescribing Information

Monoclonal Antibodies

Seattle Genetics, Inc. (SGEN)

Seattle Genetics is developing SGN-33 [lintuzumab], an unconjugated IgG1 antibody for the treatment of AML.  Lintuzumab has been shown to induce cell death by both complement and/or antibody-directed cellular cytotoxicity, or as a direct effect of the engagement of the CD33 receptor, which is expressed in most leukemic blast cells but also in normal hematopoietic cells.

In a Phase II study in relapsed/refractory AML patients, single agent lintuzumab demonstrated efficacy in patients with advanced AML; however, the positive effects were confined to patients with low disease burden [blast percentage 5% to 30%].  This suggested that additional development of this agent would be best achieved by combining lintuzumab with chemotherapy.  However, while the addition of lintuzumab to salvage induction chemotherapy was safe, it did not result in a statistically significant improvement in response rate or survival in patients with refractory/relapsed AML in a subsequent Phase III trial[iv].

Seattle Genetics is now conducting a 210 patient Phase IIb study in frontline treatment of elderly patients [60+ years old] with AML with results expected in the August to October 2010 timeframe.  See ClinicalTrials.gov [Identifier NCT00528333] for more information.

While lintuzumab relies on a different mechanism of action, investor’s are understandably skeptical about the success of another anti-CD33 monoclonal antibody in AML.  In June 2010, Pfizer, Inc. (PFE) agreed to withdraw Mylotarg® [gemtuzumab ozogamicin] from the U.S. market, effective October 15.  Mylotarg is an IgG4 monoclonal antibody to CD33 linked to a cytotoxic agent from the class of calicheamicins.  Developed by Wyeth, the drug was fast-tracked to treat patients ages 60 and older with recurrent AML who were not candidates for other chemotherapy.  The FDA approved Mylotarg in May 2000 based upon a surrogate endpoint due to the fact it treated relapsed disease with no other viable therapy.

Four years later, a confirmatory trial was begun to confirm the results of the 142 patients who participated in the three previous clinical trials.  The 2004 trial showed that adding Mylotarg to existing chemotherapy for the treatment of AML provided no benefit and even showed a higher death rate.

Nucleoside Analogs

Genzyme Corporation (GENZ)

In September 2009, the FDA’s Oncologic Drugs Advisory Committee [ODAC] voted 9 to 3 that a randomized, controlled trial is needed to support the proposed label expansion for Clolar® (clofarabine) as a frontline treatment for elderly [60+ years old] patients with AML.  Consistent with the decisions for both Johnson & Johnson’s Zarnestra® [tipifarnib] and Vion Pharmaceuticals’ Onrigin® [laromustine], the committee determined that single-arm clinical study results were not sufficient for approval.

Despite the setback, Genzyme stated in a press release that the company remains committed to the clinical development of clofarabine in this patient population and that the drug is being investigated in clinical trials by most of the leading AML experts and major cooperative leukemia investigation groups in the United States and Europe.

Beyond the frontline setting, Genzyme is also conducting a randomized Phase III trial comparing clofarabine in combination with AraC to AraC alone in relapsed and refractory adult AML patients 55 years old or older [ClinicalTrials.gov Identifier NCT00317642]. Results are expected in 2011.

Note: At the time of writing, Sanofi-Aventis (SNY) has offered to acquire Genzyme for $69 per share.

Cyclacel Pharmaceuticals, Inc. (CYCC)

Cyclacel is developing sapacitabine for the treatment of AML, MDS and non-small cell lung cancer [NSCLC].  Sapacitabine is unique among the frontline, elderly AML landscape as it represents the only oral agent in late-stage clinical development and the only product candidate to demonstrate a survival benefit in a randomized study.

In December 2009, Cyclacel reported interim results from an ongoing Phase II study involving 60 patients aged 70 or older with either untreated AML [80%] or AML in first relapse [20%] randomized across three dosing schedules of sapacitabine [ClinicalTrials.gov Identifier NCT00590187].  The three-day dosing schedule in Arm C was selected for further clinical development in elderly patients with de novo AML based on a 1-year survival rate of 30% and an overall response rate of 35%.

In the first quarter of 2010, Cyclacel submitted a SPA request for a randomized, registration-directed, Phase III study of sapacitabine in elderly patients with AML and, pending the response, expects to initiate a pivotal Phase III study in 2010.

Summary

While many companies are developing therapies for AML [see Table 2], there is a need to focus on better frontline therapies for elderly patients given the lack of efficacy and significant toxicity associated with the current 7+3 treatment regimen.  Investors will be watching the following catalysts to help handicap which of the five product candidates [decitabine, azacitidine, clofarabine, sapacitabine, or lintuzumab] will win the race and become the first agent approved by the FDA in this setting:

• Phase IIb results for lintuzumab expected in the August to October 2010 timeframe
• FDA response to SPA request for Phase III study of sapacitabine; initiation of pivotal Phase III study in 2010
• Supplemental new drug application [sNDA] for decitabine by March 31, 2011 and subsequent response from FDA
• Results from frontline clofarabine clinical trials by AML experts and major cooperative leukemia investigation groups in the United States and Europe; relapsed/refractory AML Phase III results in 2011
• Phase III results for azacitidine expected around 2013

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Table 2. Late-stage Therapeutic Landscape for AML

References

[i] Kantarjian H, Ravandi F, O’Brien S, Cortes J, Faderl S, Garcia-Manero G, Jabbour E, Wierda W, Kadia T, Pierce S, Shan J, Keating M, Freireich EJ.  Intensive chemotherapy does not benefit most older patients (age 70 years or older) with acute myeloid leukemia. Blood. 2010 Jul 28. [Epub ahead of print]

[ii] Amadori S, Suciu S, Willemze R, Mandelli F, Selleslag D, Stauder R, Ho A, Denzlinger C, Leone G, Fabris P, Muus P, Vignetti M, Hagemeijer A, Beeldens F, Anak O, De Witte T; EORTC leukemia group; GIMEMA leukemia group.  Sequential administration of gemtuzumab ozogamicin and conventional chemotherapy as first line therapy in elderly patients with acute myeloid leukemia: a phase II study (AML-15) of the EORTC and GIMEMA leukemia groups.  Haematologica. 2004 Aug;89(8):950-6.

[iii] Edlin R, Connock M, Tubeuf S, Round J, Fry-Smith A, Hyde C, Greenheld W.  Azacitidine for the treatment of myelodysplastic syndrome, chronic myelomonocytic leukaemia and acute myeloid leukaemia. Health Technol Assess. 2010 May;14 Suppl 1:69-74.

[iv] Eric J. Feldman, Joseph Brandwein, Richard Stone, Matt Kalaycio, Joseph Moore, Julie O’Connor, Nancy Wedel, Gail J. Roboz, Carole Miller, Raj Chopra, Joseph C. Jurcic, Randy Brown, W. Christopher Ehmann, Philip Schulman, Stanley R. Frankel, Daniel De Angelo, David Scheinberg.  Phase III Randomized Multicenter Study of a Humanized Anti-CD33 Monoclonal Antibody, Lintuzumab, in Combination With Chemotherapy, Versus Chemotherapy Alone in Patients With Refractory or First-Relapsed Acute Myeloid Leukemia. Journal of Clinical Oncology, Vol 23, No 18 (June 20), 2005: pp. 4110-4116.

With few exceptions, companies with monoclonal antibody platforms have significantly outperformed the NASDAQ Biotechnology Index® (NBI) since the end of 2008 [see Table 1].  Accordingly, the purpose of this article is to offer several key factors that help explain the above average returns for monoclonal antibody companies during this +18-month period – a trend that we believe is likely to continue.

Table 1: Select public companies with monoclonal antibody platforms

Higher rate of success

In order to determine the appropriate current value for a biotechnology company, an investor would normally consider projected future cash flows resulting from product sales, probability of success, and a discount rate to reflect the risks that the company faces.

With regard to probability of success, one of the greatest considerations for a biotechnology company is the fact that new drug candidates must receive approval from the Food and Drug Administration [FDA] before they can be marketed in the United States.  Receiving FDA approval is dependent, in part, on the drug candidate successfully passing a series of clinical trials that are generally conducted in three sequential phases.

Successfully transitioning from the early stages that establish safety [Phase I] to later phases where efficacy is demonstrated [Phase III] will improve the approval success rate [e.g., the odds that the drug will ultimately reach the market].  Interestingly, researchers from the Tufts Center for the Study of Drug Development at Tufts University recently analyzed the average approval success rates for investigational drugs first tested in humans from 1993 to 2004 [Ref 3] and found substantial differences between large molecules [32% success rate] and small molecules [13% success rate].  Monoclonal antibodies represented the largest group [47%] of the large molecules evaluated in the study.

In view of the fact that nearly one-third of large molecule product candidates entering the clinic ultimately receive FDA approval and that they are nearly 2.5-times more likely to ultimately receive approval than small molecule compounds, companies that are developing monoclonal antibodies should be awarded higher valuations due to the higher probability of success.

Reduced concerns from biosimilars

The Patient Protection and Affordable Care Act [PPACA], which was signed into law on March 23, 2010, included a provision amending the Public Health Service Act [PHSA] to permit approval of biosimilar biological products through an abbreviated biological license application [ABLA] submitted to the FDA.  Under the law, originators have a 12-year exclusivity period before a biosimilar is approved.

While many questions remain about the specifics of the ABLA process until the FDA releases its guidance, the PPACA does state that to support approval of a biosimilar, the sponsor must show that the product is “biosimilar to the reference product” based upon data derived from analytical, animal, and clinical studies.  As a result, it is unlikely that monoclonal antibody products will represent the first class of biosimilars on the market due to the fact that they have very specific binding properties and are typically larger and more complicated than other biologic drugs.

Regardless, according to a recent article by Ludwig Burger for Reuters, analysts expect price discounts of only 20 to 30 percent in markets affected by biosimilar competition, which compares with an average markdown of 90 percent for generic versions of small molecule drugs. This is likely due to the fact that development, production and marketing of a biosimilar costs more than making a generic copy of conventional chemical drugs.

Lastly, for those individuals that believe manufacturing biologic drugs is easy, a review of Genzyme Corporation’s (GENZ) recent challenges offers a different perspective.  See “Genzyme’s Manufacturing Disruption Highlights Investment Opportunities in Lysosomal Storage Disorders.”

Manufacturing processes have improved

In contrast to small molecule therapeutics that can be synthesized for $1 per gram and simple proteins like insulin that can be efficiently produced in bacterial hosts, monoclonal antibodies are normally produced in mammalian cells at a cost of $300-$5,000 per gram [Ref 4].

Fortunately, in parallel with the clinical and commercial success of monoclonal antibodies there have been major advances in cell line development, bioreactor construction and operation, purification strategies and analytics. For example, cell culture productivity has improved more than 100-fold in the last 15-years.  With these advances, global protein output using mammalian cell culture increased from under 500 kilograms in 2000 to 3,600 kilograms in 2005 and manufacturing costs have been reduced.

In addition to the aforementioned advances, new sources of inexpensive antibody production are being explored.  For example, antibodies have been expressed successfully in genetically modified plants and have been shown to retain their native functional forms.

Evolution from acute to chronic treatment

In the early 1980’s, most monoclonal antibodies were derived from mouse genes with major limitations such as inducing human anti-mouse antibody [HAMA] responses in patients, lack of effector functions and short plasma half-life [Ref 5].  Later that decade, genetic engineering techniques made chimeric and humanized versions available for study.  Until this point in time, most therapeutic monoclonal antibodies had been studied as acute treatments for cancer or immunological diseases [Ref 6].

By the late 1990’s, methods to produce human monoclonal antibodies were developed, including phage display and transgenic mice.  With the availability of human antibodies with reduced immunogenicity and increased efficacy, the biotechnology industry began studying monoclonal antibodies for the chronic treatment of non-life threatening diseases, which opened new market opportunities.

In this regard, KaloBios Pharmaceuticals, Inc. (private) is applying its proprietary Humaneering™ technology platform to produce antibodies that are close to human germ-line in sequence while retaining the specificity and improving the affinity of the reference antibody.  KaloBios is developing an anti-GM-CSF human monoclonal [KB003] for the treatment of patients with autoimmune and chronic inflammatory conditions, such as rheumatoid arthritis and asthma.  Sales of two marketed monoclonal antibodies indicated for the treatment of rheumatoid arthritis, Humira® [adalimumab] and Remicade® [infliximab], are projected to reach $15.8 billion in combined sales by 2016 according to Evaluate Pharma [Ref 2].

In January 2010, KaloBios partnered with Sanofi Pasteur, the vaccines division of sanofi-aventis Group (SNY), to develop the company’s Humaneered™ antibody fragment KB001 for the prevention and treatment of Pseudomonas aeruginosa (Pa) infections. KaloBios received an upfront payment of $35 million and is eligible for development, regulatory and commercial milestones totaling $255 million in addition to royalties on eventual product sales.

In addition, MacroGenics, Inc. (private) entered into a global strategic alliance with Eli Lilly & Co. (LLY) in October 2007 valued at approximately $500 million for teplizumab, a humanized anti-CD3 monoclonal antibody currently being studied in a global pivotal Phase II/III clinical trial for individuals with recent-onset type 1 diabetes.

Licensing, merger, and acquisition dynamics

The higher average approval success rates with large molecules compared with small molecules appears to be partially reflected in the economics of some recent licensing and M&A transactions.

For example, in June 2010 OncoMed Pharmaceuticals, Inc. (private) partnered with Bayer Schering Pharma AG (BAYRY.PK) to discover, develop and commercialize novel anti-cancer stem cell therapies including multiple antibody, protein therapeutics and small molecules targeting the Wnt signaling pathway.  For each drug candidate successfully developed through Phase III clinical trials and regulatory approval, OncoMed’s payments from Bayer could total up to $387.5 million for each biotherapeutic drug compared with $112 million for small molecule drugs.  Accordingly, potential payments for large molecules are 3.5 times greater than for the small molecules.

As another example, Eli Lilly & Co. (LLY) acquired ImClone Systems, Inc. for $6.5 billion [5x sales of $1.3 billion], while Astellas Pharma, Inc. paid $4 billion for OSI Pharmaceuticals, Inc. [3.3x sales of $1.2 billion].  Both ImClone and OSI received royalties on product sales from corporate partners.

ImClone’s marketed product Erbitux® [cetuximab] is a monoclonal antibody that inhibits the epidermal growth factor receptor [EGFR] and is indicated for the treatment of certain types of colorectal cancer and as a single agent or in combination with radiation therapy for head and neck cancer.  OSI’s comparable product Tarceva® [erlotinib] is a small molecule antagonist of EGFR and is indicated for the treatment of non-small cell lung cancer and pancreatic cancer.  While this is not an apples-to-apples comparison, it does help support the fact that premiums are being paid for monoclonal antibodies versus small molecules.

Investors are also likely placing M&A premiums on monoclonal antibody companies due to robust activity during the past five years [see Table 2].  In fact, there has been at least one deal announced each year during this period.

Table 2: Select M&A among monoclonal antibody companies

Access to capital

Despite a challenging financing climate, many public monoclonal antibody developers referenced in Table 1 have been able to raise capital through public offerings.  For example, ImmunoGen, Inc. (IMGN) raised $77.6 million at $8.00 per share in May 2010, Micromet, Inc. (MITI) raised $80.5 million at $7.00 per share in March 2010, and Seattle Genetics, Inc. (SGEN) raised $136 million at $10.75 per share in August 2009.  This demonstrates strong investor appetite for monoclonal antibody companies, which could bode well for future initial public offerings [IPOs] given the paucity of public options in the sector due to M&A activity over the past few years.

Summary

Biotechnology companies developing monoclonal antibodies have been outperforming the broader sector for the past 18-months, a trend that is likely to continue based on higher average approval success rates, reduced concerns from biosimilars, improvements in manufacturing and resulting impact on margins, broadening utility beyond treating cancer and inflammation, robust partnering and M&A activity, and access to capital.

References

1. Roche Annual Report 2009 (www.roche.com/gb09e.pdf)
2. Evaluate Pharma World Preview 2016 Report
3. DiMasi, JA. Et al. Clin Pharmacol Ther. 2010 Mar;87(3):272-7. Epub 2010 Feb 3.
4. Chen, C. Trends in Bio/Pharmaceutical Industry. 2009 5(3).
5. Chan, A. Et al. Nat Rev Immun. 2010 May;10.
6. Reichert JM. Curr Pharm Biotechnol. 2008 Dec;9(6):423-30.

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

Big Versus Small

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

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

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

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

Oncology: Prostate Cancer Spotlight

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

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

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

Shareholder Activist Wins

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

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

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

CNS: Developments for Parkinson’s Disease

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

Gastrointestinal Disease: 3 Hits, 3 Misses

First, the good:

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

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

Next, the bad:

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

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

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

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

2010 Outlook

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

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

While the precise cause of PD is not fully understood, it is associated with the loss or impairment of the dopaminergic neurons [nerve cells] in the middle region of the brain called the substantia nigra [SN] that leads to an alteration in the activity of the brain networks that control movement.  These neurons produce a chemical called dopamine, which allows smooth, coordinated function of the body’s muscles and movement.  When approximately 80% of a patient’s dopamine-producing cells are damaged, the symptoms of PD appear.  These include impaired motor skills and speech, muscle rigidity, tremor, slowing of physical movement [bradykinesia], loss of balance, and a loss of physical movement [akinesia] in extreme cases.

There are a number of effective medicines that help to ease the symptoms of PD rather than slowing disease progression or curing the disease.  While global sales of PD therapeutics exceed $3 billion, most of these approved medications do not work over long periods of time due to the progressive nature of the disease.  For this reason, biotechnology companies continue to develop new therapies to potentially slow the progression of the disease and death of nerve cells.

One of the most commonly prescribed medications is levodopa [L-dopa].  L-dopa is converted into dopamine by enzymes in the brain.  The drug reduces the symptoms of slowness, stiffness and tremor and most patients initially benefit from the treatment.  Over time, the dose of L-dopa may need to be increased in patients with advanced PD, which can lead to drug-related complications such as involuntary, repetitive movements [dyskinesia] and motor fluctuations.

Impax Pharmaceuticals, Inc. (IPXL) commenced a Phase 3 trial of IPXO66 for the treatment of PD patients with mild symptoms in April 2009.  IPX066 is an extended release carbidopa-levodopa product which is intended to produce a fast and sustained concentration of L-dopa.  In June 2009, Impax announced positive interim results based on data from the first 13 patients of a Phase 2 active–controlled, multi-center crossover study in advanced PD patients.  The interim results demonstrated that IPX066 provided more than two additional hours of reduction in motor off time during waking hours as well as increased duration of finger tapping speeds and prolonged improvements in walking speeds in comparison with generic Sinemet [cardiodopa-levodopa].  IPX066 extended release formulation is designed to enhance patient compliance as a result of less frequent dosing.  By early 2010, Impax anticipates initiating a second Phase 3 trial of IPX066 in patients with advanced PD.

Another class of drugs called dopamine agonists may be used instead of L-dopa or in combination with it.  Other medications that do not stimulate dopamine receptors and improve movement in PD include amantidine, anticholinergic medications and selegiline, an inhibitor of the enzyme monoamine oxidase B [MAO-B].

As PD progresses and medications no longer improve the patient’s mobility or cause significant side effects, surgical treatment may be considered.  In advanced PD, deep brain stimulation [DBS] surgery is an alternative that may be utilized.  DBS surgery involves placing a thin metal electrode into a brain target site and attaching it to a computerized pulse generator, which is implanted under the skin in the chest.  This surgery improves the patient’s movement in the “off-medication” state to be more like movement in the “on-medication” state.  The most serious potential risk of DBS is bleeding in the brain that can lead to stroke, with infection representing another serious potential risk of DBS. 

Efforts by biotechnology companies to find a cure or treatment that slows the progression of PD have been challenging and complicated due to a variety of issues, including:

• Late diagnosis of PD after substantial nerve cell death has occurred
• Long history of dramatic placebo effects in PD
• Difficulties with drug delivery
• Challenges in assessing clinical outcomes resulting in expensive clinical trials 

Neurotrophic factors, such as neurturin [NRTN], glial cell line-derived neurotrophic factor [GDNF], and brain-derived neurotrophic factor [BDNF], were incorporated into the first biotechnology therapies for PD and other neurodegenerative diseases.  While none of these products have been commercialized to date and several clinical studies have disappointed, there is reason for optimism going forward. 

To date, the major difficulties encountered in the use of neurotrophic factors for the treatment of PD may relate to drug delivery issues.  For example, neurotrophic factors do not cross the blood-brain barrier and cannot be taken orally.  In addition, there are side-effects associated with systemic administration resulting from binding to extra-target receptors.  Local administration of neurotrophic growth factors is therefore required to achieve therapeutic concentrations in the tissue, although the site of administration and method of delivery have represented significant barriers to date.

For example, Amgen, Inc. (AMGN) discontinued its randomized, double blind placebo controlled Phase 2 study of recombinant GDNF for the treatment of advanced PD in 2004.  By way of background, Amgen acquired GDNF and several other product candidates through the 1994 acquisition of Synergen, Inc. for approximately $240 million  [although Synergen had about $125 million in cash at the time – resulting in an enterprise value closer to $115 million].  The clinical trial of GDNF did not meet its primary endpoint of symptom improvement after six months of treatment as defined by the Unified Parkinson’s Disease Rating Scale [UPDRS].  The company also later identified potential safety issues, as high doses of the drug damaged some monkey brains and a few patients developed antibodies against the drug.

The failure of Amgen’s Phase 2 GDNF trial may have been related to the site and method of delivery, which included monthly injections of GDNF into the lateral ventricle.  In other words, sufficient concentrations of GDNF may not have diffused through the ventricular wall and brain parenchyma to the putamen.  This is supported by the success of chronically infusing a low dose of GDNF into the dorsal putamen using an implantable pump [SynchroMed™ by Medtronic, Inc. (MDT)].  Although primarily a safety study in only five patients, chronic GDNF infusion resulted in improved motor function in all patients, reduction in off-time duration and severity, reduction in dyskinesia duration and severity, and a corresponding increase in on-time duration.  After 12-months, there was a 39% improvement in the off-medication motor sub-score of the UPDRS and 61% improvement in the activities of daily living sub-score.

In addition to implantable pump delivery technology, gene therapy is considered one of the most promising approaches to developing a novel effective treatment for PD.  In this regard, Amsterdam Molecular Therapeutics (Euronext: AMT) obtained a license from Amgen to use their GDNF gene for the development of a treatment for PD in September 2008.  Amsterdam Molecular Therapeutics intends to combine the GDNF gene with their proprietary adeno-associated virus [AAV] gene therapy platform, which the company believes may provide a solution for delivering GDNF to the brain to protect and enhance the function of nerve cells that produce dopamine.

While gene therapy offers hope, a Phase 2 trial of CERE-120 in advanced PD patients conducted by privately-held Ceregene, Inc. still underscores the importance of drug delivery to the appropriate portion of the brain.  CERE-120 is an AAV vector carrying the gene for NRTN, a naturally occurring protein which repairs damaged and dying dopamine-secreting neurons.  In November 2008, the company announced that the Phase 2 clinical trial did not meet the primary endpoint of improvement in the UPDRS motor off score at 12-months of follow-up, although several secondary endpoints suggested a modest clinical benefit.  In May 2009, Ceregene announced that at the 18-month additional protocol described analyses of the Phase 2 clinical trial; CERE-120 demonstrated a clinically modest improvement and statistically significant treatment effect in the primary efficacy endpoint.

Ceregene, which expects to conduct a follow-on Phase 2 trial later this year, suggests that the deficient axonal transport of the degenerating nigrostriatal neurons in advanced PD impaired transport of CERE-120 from the putaminal terminals in the putamen region of the brain where the therapy was delivered to the nigral cell bodies.  The company believes that it can overcome the transport problems associated with degenerating neurons by modifying the dosing paradigm of CERE-120 to also directly target the cell bodies in the SN.  Genzyme Corporation (GENZ) has licensed ex-North American rights for the development and commercialization of CERE-120 from Ceregene.

Several additional gene therapy programs are currently in clinical development for the treatment of PD:

Neurologix, Inc. (NRGX) is developing NLX-P101, an AAV vector delivering an inhibitory therapeutic gene [glutamic acid decarboxylase, or “GAD”] which is inserted in the subthalmic nucleus [STN].  Among the most clinically advanced gene therapy solutions for PD, NLX-P101 is currently in Phase 2 trials.  GAD catalyses synthesis of gamma-aminobutyric acid [GABA], the major inhibitory transmitter in the brain.  Neurologix’s non-dopaminergic approach aims to restore function to GAD to increase the production of GABA to turn off hyperactivity in the STN.  NLX-P101 may avoid some of the off-target side effects typical of dopamine stimulating agents.  The open label Phase 1 clinical trial in 12 patients with advanced PD demonstrated statistically significant improvements in both clinical symptoms and improved brain network activity and NLX-P101 was safe and well tolerated.  Researchers reported the clinical outcomes were encouraging, with the treated patients showing significant improvements in both the “on” and “off” states of their illness.  Neurologix anticipates completing patient enrollment in the Phase 2 clinical trial by the end of 2009.

In July 2009, Oxford BioMedica (LSE: OXB) announced an update on its Phase I/II clinical trial of ProSavin in patients with mid-stage PD.  ProSavin is a novel gene therapy which uses the company’s LentiVector® system that delivers three enzymes required for the synthesis of dopamine.  The product is administered locally to the striatum and requires several hours of surgery.  Interim trial results demonstrated that three patients in the first cohort [lowest dose level] have maintained their improvement in motor function after one year, with an average improvement of 29%.  The investigator assessments of the three patients in the second cohort [2X dose level] demonstrated the patients have achieved a similar benefit at three-months.  One patient in the second cohort to reach the six-month assessment has shown further improvement.  The motor function is assessed according to the UPDRS in the “off state”.   ProSavin has been safe and well tolerated in all patients treated to date.  Based on PDQ-39 score, a standard measure of clinical benefit that is recorded by the patient answering a questionnaire, Oxford BioMedica plans to proceed to the third patient cohort [5X dose level] utilizing its new delivery technology for the administration of ProSavin.  The new, less invasive technique reduces the surgical time and facilitates delivery of higher doses.  Oxford BioMedica intends to complete the ongoing study in the second half of 2010.

Separate from its deal with Ceregene, Genzyme Corporation is conducting a Phase 1 open label safety study of an AAV encoding human Aromatic L-Amino Acid Decarboxylase [AADC] in patients with PD.  Genzyme acquired the rights to AAV-hAADC-2 from Avigen, Inc. (AVGN) in December 2005.  The enzyme AADC converts L-dopa into dopamine.  Over time in patients with PD, the brain loses its ability to convert the L- dopa to dopamine and thus the treatment with L-dopa becomes less effective.  The investigational drug, AAV-hAADC-2, is injected into the striatum and is intended to provide, directly to the brain, the missing enzyme AADC.  It is designed such that advanced PD patients will respond to a lower dose of L-dopa without experiencing the debilitating side effects.  Primate studies demonstrated the investigational drug to be effective, long-lasting and safe.  A single administration of AAV-hAADC-2 in the striatum of primates with Parkinsonian symptoms demonstrated stable expression of AADC and significant behavioral responses to low levels of L-dopa without developing dyskinesias or other debilitating side effects.

In addition to drug delivery and gene therapy advances, other promising neurotrophic factors have recently been discovered and are in preclinical development.  For example, a 2003 issue of the Journal of Molecular Neuroscience described the discovery of mesencephalic astrocyte-derived neurotrophic factor [MANF] that selectively protects nigral dopaminergic neurons, versus GABAergic or serotonergic neurons.  MANF, which is being developed by privately-held CNS Protein Therapeutics, Inc., is also more selective in the protection of dopaminergic neurons at lower and middle concentrations, although GDNF is more selective at higher concentrations.  The discovery of MANF and other novel neurotrophic factors may renew investor interest in this class of drugs.

Beyond solving scientific and clinical issues, another challenge facing biotechnology companies developing promising PD therapies is obtaining the funding necessary to continue the preclinical studies and clinical trials.  In the current economic environment, some companies will not have the capital to move these product candidates forward and will discontinue development unless they have access to capital through financing or collaborations. 

For example, Neurogen Corporation (NRGN) announced that it suspended the enrollment of additional patients in its ongoing Phase 2 clinical trials for PD and restless leg syndrome in order to conserve capital in May 2009.  The company has eliminated approximately fifty percent of its staff positions and plans to further decrease staff consistent with its planned reduction in operations and efforts to conserve capital.  Neurogen announced it is pursuing strategic options including a sale of the company or sale of its assets.

While a comprehensive review of PD development is beyond the scope of this article, additional public biotechnology firms in early [eg, preclinical or Phase 1] development for the treatment of PD include Addex Pharmaceuticals Limited (SIX: ADXN), Amicus Therapeutics, Inc. (FOLD), Depomed, Inc. (DEPO), and Prana Biotechnology Limited (PRAN).

Treatment of PD represents a critical unmet medical need that may be addressed by the aforementioned technologies.  Current medications only address the symptoms of this debilitating disease and do not halt the progression of PD.  As demonstrated by the significant increase in Impax Pharmaceuticals’ stock price since the initiation of its Phase 3 trial, recent advances in drug delivery, the promise of gene therapy, and the discovery of novel neurotrophic factors may encourage investment in biotechnology companies developing novel therapies that ease the symptoms of PD, slow disease progression, or offer hope to cure the disease.

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About MD Becker Partners LLC

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

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

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. 

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About MD Becker Partners LLC

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

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