• Sector’s defensive characteristics and impact on future economic growth
• Highest number of annual new product approvals since 2004
• Record number of products in clinical trials and annual industry research and development [R&D] investment
• Improving access to capital
• Brisk pace of industry consolidation and licensing transactions
• Many small- and mid-capitalization companies remain undervalued

With 2010 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 38% in 2010, while the broader NASDAQ Biotech Index (NBI) advanced 15%.  Performance of the NASDAQ Biotech Index was in line with the Dow Jones Industrial Average (INDU), S&P 500 (SPX), and NASDAQ Composite (COMP), which were up 11%, 13%, and 17%, respectively.

Why the huge discrepancy in returns between the two major biotechnology indices?  Unlike the equal-weighted NYSE Arca Biotechnology Index, the NASDAQ Biotech Index 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 capitalizations, or the greatest values, will have the highest weighting in the index.

During 2010, most of the large capitalization biotechnology companies [greater than $10 billion] underperformed the median return of 11% for the 130 companies in the NASDAQ Biotech Index.  For example, Celgene Corporation (CELG) was up 6%, Cephalon, Inc. (CEPH) was down 1%, Amgen, Inc. (AMGN) was down 3%, Teva Pharmaceutical Industries (TEVA) was down 7%, and Gilead Sciences, Inc. (GILD) declined by 16%.  Bucking the trend of underperformance among large capitalization biotechnology names were Shire plc (SHPGY), along with Genzyme Corporation (GENZ) and Biogen Idec, Inc. (BIIB), both of which were targeted by shareholder activist Carl Icahn [see our August 2009 article “Three Recent Biotechnology Activist Wins by Carl Icahn”].

Accordingly, the relative underperformance of large capitalization biotechnology companies in 2010 masked the fact that many smaller, innovative companies performed well, as evidenced by the fact that 30 of the 130 companies comprising the NASDAQ Biotech Index produced greater than 50% returns during the period.  This performance is consistent with our thesis that small and mid-capitalization companies with positive clinical or regulatory catalysts would continue to outperform their larger industry peers in 2010.  See Table 1 for a list of the top ten gainers from the NASDAQ Biotech Index in 2010.

Noticeably absent from the list of 2010 winners, however, were the staggering quadruple-digit returns witnessed in 2009 [Vanda Pharmaceuticals, Inc. (VNDA) +2,150% and Human Genome Sciences, Inc. (HGSI) +1,342%].

Table 1. Top ten gainers from NASDAQ Biotech Index (NBI) in 2010

Last Year’s Laggards Become 2010 Winners

After declining 22% in 2009, shares of Akorn, Inc. (AKRX), a niche generic pharmaceutical company, staged an impressive comeback by becoming the largest percentage gainer within the NASDAQ Biotech Index during 2010.  In November 2010, the company announced that core business revenue is projected in the range of $79.0 million to $80.0 million in 2010, a 76%-79% increase over 2009, and up from the company’s prior guidance range of $71.0-$75.0 million.

In another dramatic reversal of fortune, three of the top ten gainers from the NASDAQ Biotech Index in 2010 made the list of top ten decliners in the prior year.  Questcor Pharmaceuticals, Inc. (QCOR), Idenix Pharmaceuticals, Inc. (IDIX), and NPS Pharmaceuticals, Inc. (NPSP) rebounded sharply in 2010, each posting triple-digit returns due in part to the following:

• Questcor’s performance was largely due to strong revenue growth from its H.P. Acthar® Gel (repository corticotropin injection), which is indicated for the treatment of acute exacerbations of multiple sclerosis in adults, as monotherapy for the treatment of infantile spasms in infants and children under 2 years of age, and for the treatment of several other diseases and disorders.
• Despite news in September 2010 that the U.S. Food and Drug Administration [FDA] placed two of the company’s HCV drug candidates on clinical hold, Idenix Pharmaceuticals benefited from its drug candidate for the treatment of HIV/AIDS advancing into a Phase 2b trial by its corporate partner, ViiV Healthcare.
• Interest in NPS Pharmaceuticals can be attributed to the fact that in early 2011 the company expects to report top-line results from a Phase 3 study of teduglutide, a proprietary analog of GLP-2, in patients with short bowel syndrome who are chronically dependent on parenteral nutrition.

Losers Brought to You by the Letter “A”

Affymax, Inc. (AFFY), AMAG Pharma (AMAG), Arena Pharma (ARNA), Alexza Pharma (ALXA), and Alnylam Pharma (ALNY) were among the top ten decliners from the NASDAQ Biotech Index in 2010 [see Table 2].

Affymax, Inc. (AFFY), which hopes that its investigational anemia drug peginesatide could ultimately compete with Amgen Inc.’s Aranesp® [darbepoetin alfa], posted the largest percentage decline within the NASDAQ Biotech Index for 2010.  Top-line results from the Phase 3 clinical program released in June 2010 showed that the frequency of death, stroke, myocardial infarction, congestive heart failure, unstable angina, and arrhythmia was higher in non-dialysis patients taking peginesatide than those taking Aranesp, which sent shares of Affymax plummeting.   In November 2010, Affymax and partner Takeda confirmed their goal of submitting a new drug application [NDA] for peginesatide for the treatment of anemia in chronic renal failure patients on dialysis in the second quarter of 2011.

AMAG Pharmaceuticals, Inc. (AMAG) launched Feraheme® (ferumoxytol) to treat iron deficiency anemia in July 2009, but anemic sales earned the company a spot in the top ten decliners of 2010.  Net product revenues from Feraheme were $15.1 million in the third quarter of 2010, well below the $500 million to $1 billion in annual sales originally projected by Wall Street analysts.  See our February 2010 article “Iron Safety Hits AMAG Pharmaceuticals.”

Table 2. Top ten decliners from NASDAQ Biotech Index (NBI) in 2010

Our Top Ten Articles

In the spirit of analyzing statistics from 2010, we reviewed our website traffic to identify the top ten articles from the past year.  The list below is ranked in descending order, starting with the most popular article:

1)              Cancer vaccine therapies: failures and future opportunities (Apr ‘10)

2)              Investment opportunities with five frontline therapies for AML (Sep ‘10)

3)              Cancer immunotherapy to take center stage at ASCO (Jun ‘10)

4)              Monoclonal antibody companies command premiums (Jul ‘10)

5)              Stem cell competition heating up (Aug ‘10)

6)              Buyout buzz at ASH hematology confab preview (Dec ‘09)

7)              Cyclin dependent cancer confab preview (Apr ‘10)

8)              Drug development spotlight: the mTOR’s new clothes (Nov ‘10)

9)              Past pitfalls and potential promise for pancreatic cancer (Oct ‘10)

10)            Five key factors weighing on Dendreon (Jul ‘10)

Interesting to note that despite popularity among readers, companies focusing on cancer immunotherapy, hematological malignancies, monoclonal antibodies, or stem cells did not make the list of top ten gainers from the NASDAQ Biotech Index in 2010.

2011 Outlook

Most of the drivers supporting our favorable outlook for the biotechnology industry 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 should continue to outperform their larger industry peers in 2011.

The key exception relates to the number of 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.

With Opening Day less than a month away, it seems only fitting to reference one of the most quoted personalities of our time to describe our analysis of the biotechnology sector in 2010.  In this article, we review our favorable outlook for the industry, draw comparisons with the prior year, and introduce the results of our recent “Life Sciences Industry Outlook” survey that targeted industry executives, investors, analysts, and members of the media.

Bullish Outlook

Our favorable outlook for the biotechnology industry in 2010, which builds upon many of the same catalysts we proposed for 2009, is based on the following key drivers:

• Sector’s defensive characteristics and impact on future economic growth
• Highest number of annual new product approvals since 2004
• 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 small and mid-capitalization companies remain undervalued

In fact, several of these themes were reinforced by the results of our industry survey.

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 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.

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 October 2009 article “Innovative New Medicines are Key to Economic Growth,” a permanent one percent reduction in mortality from cancer alone has a present value to current and future generations of Americans of nearly $500 billion and a cure would be worth about $50 trillion.

New Drug Approvals

In a repeat of last year, 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 2009 was the highest since 2004.  Of course, cynics will rightfully call attention to the modest year-over-year increase [25 in 2009 versus 24 in 2008] and that recent performance is still more than 50% below the high of 56 new approvals in 1996.

However, we believe that viewing the number of FDA approvals in the context of new risk evaluation and mitigation strategies [REMS] that were introduced in 2008 and internal resource constraints that have plagued the agency provides optimism going forward.  While legislation passed in 2008 gave the FDA more money and resources, hiring and training hundreds of new employees takes time.  With that process well underway, combined with increased familiarity of the REMS program, we believe the drug approval process should improve going forward.

In terms of therapeutic areas, oncology represented one out of five [20%] approvals by CDER in 2009 according to a recent publication [Nature Reviews Drug Discovery 9, 89-92, February 2010].  Not surprisingly, oncology was our highest ranked survey response with regard to attracting investment and/or business development activity in 2010.  See Table 1 below.

Table 1. In terms of raising capital and/or business development activity, which key therapeutic area do you expect to attract the most interest/visibility during 2010?

* Numbers may not add up to 100% due to rounding

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 drugs currently in development.  In the US alone, there are 633 biotechnology medicines being developed, including 254 medicines for cancer, 162 for infectious diseases, 59 for autoimmune diseases, 34 for HIV/AIDS and related conditions, 25 for cardiovascular disease, and 19 for diabetes and related conditions.

Annual research and development expenditures by PhRMA member companies also reached a record $50.3 billion in 2008, more than tripling the $15.2 billion level of investment in 1995.

Access to Capital

In 2010, companies at all stages of development will try to attract investors and the competition will be fierce.  However, in terms of access to capital for life sciences companies, our survey indicated that more than 46% of respondents expect favorable conditions in 2010, with modest improvement over 2009.  Another 46% of respondents indicated that they expect access to capital to be about the same as 2009.  Only 4% of respondents expected access to capital to improve markedly with initial public offerings [IPO] possible.

In 2009, venture capital investment in biotechnology declined by 19%, both in dollars and deals, from the prior year according to the MoneyTree™ Report by PriceWaterhouseCoopers and the National Venture Capital Association, based on data from Thomson Reuters.  However, biotechnology was the single largest investment sector for 2009 with $3.5 billion going into 406 deals.

In terms of initial public offerings [IPOs], only three biotechnology companies successfully tested the public markets in 2009.  In 2010, two IPO’s have already been completed, albeit both below the expected offering price, and several others are in queue, including Prometheus Laboratories, Aveo Pharmaceuticals, Trius Therapeutics, Aldagen, Alimera Science, and Tengion.  See Table 2 for recent biotechnology IPO performance.

Table 2. Recent Biotechnology IPO Performance

In terms of public financings, several companies have already completed offerings in 2010, including Amicus Therapeutics, Inc. (FOLD), BioSante Pharmaceuticals, Inc. (BPAX), Cell Therapeutics, Inc. (CTIC), Chelsea Therapeutics International, Inc. (CHTP), Cleveland Biolabs, Inc. (CBLI), Cyclacel Pharmaceuticals, Inc. (CYCC), Derma Sciences, Inc. (DSCI), EntreMed, Inc. (ENMD), InterMune, Inc. (ITMN), Palatin Technologies, Inc. (PTN),and XOMA Ltd. (XOMA).

Improving access to capital could lead to an acceleration of merger and acquisition activity and licensing deals, as large pharmaceutical companies begin to lose their leverage and company valuations start increasing.

Consolidation

More than 82% of survey responders expected merger and acquisition activity to accelerate in 2010 compared with 2009.  In view of two recent deals, the paucity of merger and acquisition activity and decline in both the quantity and value of licensing & partnering transactions announced during the JP Morgan Healthcare Conference in 2010 appears to have been the pause that refreshes [see “Biotech Deal Activity Declines…The Pause that Refreshes?”].

For example, on February 23, 2010, Cephalon, Inc. (CEPH) exercised its option to acquire Ception Therapeutics, Inc. for $250 million in view of positive Phase 2 data from a clinical study in adults with eosinophilic asthma.  In January 2009, Cephalon paid Ception $100 million upfront for the option.

On March 1, 2010, Astellas Pharma, Inc. offered to acquire all outstanding shares of common stock of OSI Pharmaceuticals, Inc. (OSIP) for $52.00 per share in cash, or an aggregate of approximately $3.5 billion on a fully diluted basis.  The offer represented more than a 40% premium on the closing price of OSI Pharmaceuticals’ common stock of $37.02 per share on February 26, 2010, and shares have subsequently traded above $57 on expectations for a higher bid.

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 activity to remain brisk.

Small Versus Large

As highlighted in our “Biotech’s 2009 Stealth Small Cap Rally” article, small capitalization biotechnology companies were among the best performers of 2009.  The relative underperformance of many 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.  Vanda Pharmaceuticals (VNDA), Human Genome Sciences (HGIS), and Targacept, Inc. (TRGT) led the way, with stock prices up 2,150%, 1,342%, and 487%, respectively.

Similar to 2009, we expect that small and mid-capitalization companies with positive clinical or regulatory catalysts will continue to outperform their larger industry peers in 2010.

Beware the Ides of March

In our February 2009 article “Chink in the Biotechnology Armor,” we cited the spate of high profile clinical setbacks and regulatory delays during the month as the reason for the sector’s precipitous decline.  The NASDAQ Biotech Index, which traded as high as 772 during the first week of February, traded as low as 605 by the first week of March – losing more than 21% of its value during the 30-day period.

In February and March 2010, there have also been a significant number of clinical and regulatory setbacks.  Consider the following:

• AMAG Pharmaceuticals, Inc. (AMAG) – Purported safety concerns regarding Feraheme® [ferumoxytol], the company’s marketed product for the treatment of iron deficiency anemia in adult patients with chronic kidney disease, kicked off a 27% decline in shares of AMAG Pharmaceuticals, Inc.  The stock, which traded as high as $45.61 on February 3, 2010, subsequently traded as low as $33.29 despite assurances from the company that the rate of serious hypersensitivity reactions related to Feraheme are consistent with the product’s label.
• Cell Therapeutics, Inc. (CTIC) – On February 8, 2010, the FDA released its briefing documents for the company’s lymphoma drug, pixantrone, in advance of an Oncologic Drugs Advisory Committee [ODAC] meeting originally scheduled for February 10, 2010.  Shares of Cell Therapeutics, Inc., which closed at $1.06 the prior week, traded as low as $0.53 that day.  Among other issues, the FDA raised concerns about pixantrone’s efficacy in view of the fact that the randomized study was stopped at less than 50% of its planned patient target because of poor accrual.  The ODAC meeting was subsequently rescheduled for March 22, 2010.
• Isis Pharmaceuticals, Inc. (ISIS) – On February 10, 2010, the company and its partner, Genzyme Corporation (GENZ), announced results from a Phase 3 study of mipomersen in patients with heterozygous familial hypercholesterolemia [heFH].  While the trial met its primary endpoint with a highly statistically significant 28 percent reduction in LDL-cholesterol after 26 weeks of treatment, the results raised safety concerns and apparently fell short of Wall Street’s expectations.  Shares of Isis Pharmaceuticals, which closed above $11 the day before the results were released, traded as low as $8.85 the next day.
• XenoPort, Inc. (XNPT) – On February 17, 2010, XenoPort, Inc. and its partner GlaxoSmithKline plc (GSK) received a Complete Response letter from the FDA, delaying approval for Horizant™ [gabapentin enacarbil] Extended-Release Tablets, an investigational non-dopaminergic treatment for moderate-to-severe primary Restless Legs Syndrome.   Shares of XenoPort, Inc., which closed at $19.60 the day before the news, hit an all-time low of $6.39 the next day.
• Novelos Therapeutics, Inc. (NVLT.OB) – On February 24, 2010, the company announced that the primary endpoint of improvement in overall survival was not met in a pivotal Phase 3 trial for advanced non-small cell lung cancer [NSCLC] with its lead product, NOV-002, in combination with first-line chemotherapy.  Shares of Novelos Therapeutics, Inc., which closed at $1.65 the day before the results were released, traded as low as $0.28 the next day.
• Adventrix Pharmaceuticals, Inc. (ANX) – On March 1, 2010, the company announced that it received a refuse to file letter from the FDA regarding its New Drug Application for ANX-530 [vinorelbine injectable emulsion].  In the letter, the FDA indicated that the data included in the initial submission from the intended commercial manufacturing site was insufficient to support a commercially-viable expiration dating period.  Shares of Adventrix Pharmaceuticals, Inc. which closed at $0.29 the prior week, traded as low as $0.16 that day.
• Medivation, Inc. (MDVN) – On March 3, 2010, the company and its partner, Pfizer, Inc. (PFE), announced that the investigational drug dimebon [latrepirdine] unexpectedly failed in a Phase 3 trial in patients with Alzheimer’s disease.  Shares of Medivation, Inc., which closed above $40 the day before the results were released, traded as low as $12.55 the next day.

Helping to offset the negative impact of these setbacks, 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 impact on the index.  Further, several companies experiencing clinical or regulatory setbacks were not included in the NASDAQ Biotech Index.

In addition, recent merger and acquisition activity may also help mask the effects of the aforementioned clinical and regulatory setbacks.  For example, the NASDAQ Biotech Index closed up 2.7% the day that Astellas Pharma, Inc. offered to acquire OSI Pharmaceuticals, Inc.

Upcoming Catalysts

When it comes to raising visibility and capital, 40% of survey respondents cited general risk aversion in the financial markets as the single greatest challenge facing most life sciences companies in 2010.   Another 28.8% of respondents cited the average market capitalization of life sciences companies being too small and/or lack of liquidity as the single greatest challenge.

In view of the aforementioned clinical and regulatory setbacks, investors will be closely monitoring the following events, as there is no discounting the negative impact of continued clinical and regulatory setbacks on biotechnology investor’s appetite for risk:

• MannKind Corporation (MKND) – In January 2010, the company announced that the FDA would be unable to complete its review of Afrezza™ before the mid-January Prescription Drug User Fee Act [PDUFA] date in order to complete an inspection of a manufacturing-related facility belonging to one of the company’s suppliers.  Alfrezza is a novel, ultra rapid acting mealtime insulin therapy under review for use in adult patients with type 1 and type 2 diabetes mellitus for the treatment of hyperglycemia.  The company has not been given a new PDUFA date by the FDA.
• InterMune, Inc. (ITMN) – A Pulmonary-Allergy Drugs Advisory Committee [PADAC] meeting is scheduled for March 9, 2010, to review the NDA for pirfenidone, the company’s investigational drug candidate for the treatment of patients with idiopathic pulmonary fibrosis [IPF] to reduce decline in lung function.
• Amylin Pharmaceuticals, Inc. (AMLN), Eli Lilly and Company (LLY), and Alkermes, Inc. (ALKS) – Following a weather delay, the FDA has set a new PDUFA action date of March 12, 2010, for its review of the NDA for exenatide once weekly.  Exenatide is being developed in collaboration with Eli Lilly and based on technology from Alkermes, Inc.
•  Cell Therapeutics, Inc. – The rescheduled ODAC meeting for pixantrone takes place on March 22, 2010.
• Delcath Systems, Inc. (DCTH) – On February 4, 2010, the company announced that sufficient events have been reached to allow data analysis to begin on its Phase 3 trial for a novel drug delivery platform to deliver ultra-high doses of anti-cancer drugs to the liver while preventing these high doses of drug from entering the patient’s bloodstream.  The 92 patient, randomized, multi-center, Phase 3 trial used the drug melphalan to treat patients with metastatic melanoma in the liver.  Assuming a successful trial endpoint, the company expects to file a new drug application [NDA] with the FDA in April 2010.
• Dendreon Corporation (DNDN) – A Biologics License Application for Provenge® [sipuleucel-T] for the treatment of men with metastatic, androgen-independent prostate cancer, has been assigned a PDUFA date of May 1, 2010.

Conclusion

While the capital markets remain turbulent, 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.   Combine these positive attributes with yet to be seen benefits from decoding the human genome, an improvement or stabilization in the capital markets, greater resources for the FDA and a novel blending of technology, chemistry and biology and many of the necessary ingredients for The Biotechnology Revolution remain intact.  Or, as Yogi Berra simply said, “You can observe a lot by watching.”

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

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

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

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

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

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

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

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

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

Icagen, Inc. (ICGN)

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

Adolor Corporation (ADLR)

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

Xenoport, Inc. (XNPT)

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

Endo Pharmaceuticals (ENDP)

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

Allergan, Inc (AGN)

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

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

Avigen, Inc. (AVGN)

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

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

Newron Pharmaceutics SPA (Swiss: NWRN.SW)

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

Phosphagenics Limited (PPGNY)

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

Aegera Therapeutics, Inc.

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

NsGene A/S

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

Nitec Pharma AG

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

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

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

References

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

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About MD Becker Partners LLC

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