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November 2, 2014 Newsletter

publication date: Nov 2, 2014
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November 2, 2014

 

Ebola Outbreak and vaccine breakouts

Can investors strike gold betting on Ebola treatment pay offs?  Well the answer is a mixed blessing at best and short term investors have already chased a new category of “Ebola stocks” as they look to capitalize on the global scare.

Several companies began getting Ebola related trading activity as the search for a prophylactic vaccine as well as a post-infection treatment began washing across the shores of stocks with “potential” solutions.

But sporadic virus outbreaks with potential decade long gaps don’t make for good capital investments.  Trades emerge for certain however.

The whole Ebola saga should raise the question about the role of global governments in “profitless” health solutions that have the potential to wipe out substantial portions of the human race.  Let’s face it there is a mismatch between developing something “nobody hopes to ever use or sell” and the free market incentives of selling as many vials as possible after a long sought after drug approval. 


That in essence is why there are so many ‘potential’ vaccines out there.  Solutions were at the ready (or at least at the ready for trials) without prior financial incentive to make those trials happen.  Well that was until Ebola started breaking from Africa into the U.S. and onto the evening news I suppose.  Where exactly has the World Health Organization (WHO) or National Health Institute been for so long on Ebola vaccines?

Now I for one can understand such a free market approach to psoriasis, acne, or even some rare types of cancer.  But solutions for a potential deadly localized and possible pandemic virus should rise to the level of scientific philanthropy or global government incentive at some point to ensure survival of the species.  Even Adam Smith would line up for a self-preservation shot without much profit incentive if it came to that. 

Yes I admit I digress but what’s the point of having access to a soapbox if you can’t stand upon it once in a while.  Adam Smith notwithstanding, it seems we are finally at the “fear meets necessity (or greed) point” for finding effective treatments for a deadly virus…however we finally got here.

 

Potential Ebola Players

Perhaps not surprisingly with the Ebola cat out of the bag so to speak the biggest beneficiaries of the global scare are companies that have drug treatments that might attack the disease after it has already infected a patient.  This applies to Chimerix and Tekmira each of which has risen substantially in the wake of Ebola.

The thought behind such drugs is that they will wind up as stockpile in government.  Ebola tends to flare out naturally from isolation (and unfortunately from patient death).  Personally I don’t like the stockpile versus active use model when trying to figure out valuation.  That is, a one-time shot at revenues from stockpile sales (if the drug is deemed useful) does not create much recurring revenue for long term investors.  As investing, the Ebola scare is for stock traders. 

That view aside, Tekmira has drawn our attention in the past for its RNAi assets.  Thus of the two companies mentioned above we like Tekmira though not really for Ebola and feel that the run up in the stock due to Ebola makes it a hard investment to get excited about today.  We might take a look at the stock as the Ebola froth clears away.

Chimerix really got a boost when the FDA authorized its candidate for emergency use as an investigational agent.  The drug was used unsuccessfully to treat the American Ebola patient Thomas Duncan who later died.

A slew of other companies have vaccines in various stages of development.  None are advanced in clinical trials and only NewLink Genetics (a portfolio stock), JNJ and Glaxo would appear on our radar as worth mentioning.  The idea with their compounds would be to use a traditional vaccine approach to immunize the population against the virus. 

Like Tekimra, NewLink arrived on our radar for a reason other than having rights to a Canadian developed Ebola vaccine.  Our primary interest in NewLink is in the IDO inhibitor program and that interest was strongly validated with a recent $1 billion licensing deal with Roche.  The combination of Ebola talk and the more tangible Roche deal have really repaired NewLink’s stock price.  Shares remain volatile with Ebola developments but we like the underlying deal with Roche as stabilizing and a confirmation of the long term investment thesis.

While the vaccine approach has little real effect on the outbreak condition currently faced, longer term it’s might be the way to go to avoid/prevent future Ebola scares.  The problem is nothing had incentivized development of Ebola vaccine until now.  And betting on which of a slew of vaccine proves out is not exactly the way we would look at investing here.  The thought of people globally lining up for “an Ebola shot” also seems daunting.

We continue to like the potential for NewLink in IDO inhibition so that makes the Ebola trials now rushing through the clinic more of a potential shot in the arm for the company down the line.  But waiting on its cancer program to deliver IDO partnering results has been rewarded with the Roche deal. 

Here’s a list of other players in the Ebola sphere: Chimerix (CMRX), Tekmira (TKMR), BioCryst Pharmaceuticals (BCRX), NewLink Genetics (NLNK), Sarepta Therapeutics (SRPT) and Novavax (NVAX).

Of these, NewLink is the only stock we are currently interested in.  Ebola developments likely put a bit of froth in current shares relative to clinical development bumpiness.  However we are long term confident in the valuation based on the company’s role in cancer immunotherapy and its recent deal with Roche (a foreseen development which was the foundation for investment enthusiasm in the name).


Ebola virus photo via CDC.gov

companiesInFocus

Curis reset to an early / mid-stage drug development company (CRIS, $1.31)

When Curis initially abandoned its multi-targeting drug CUDC-101 the company had a lot more going for it.  The basal cell drug Erivedge had been approved and the goal of expanding its use was clear through partner Roche.  Things have not panned out as planned.  The aforementioned CUDC-101 was essentially shelved and an IAP inhibitor licensed from Roche got an early safety scare that has not let the candidate regain any pipeline value with investors as it heads through the clinic.

The most significant development for building sentiment in the nearer term was the prospect of advancing the basal cell treatment population.  This failed to materialize in a positive way as Phase II data for Erivedge on basal cell carcinoma did not meet endpoints earlier in the year.  Roche, while somewhat encouraged by the activity of the compound, as it might actually assist dermatologists with difficult to treat BCC lesions considering using the drug prior to surgery, could not spin the news as a success for Curis shareholders. 

The bottom line with the BCC drug is that with the relatively low royalty the expansion of the drug into a much wider treatment population is needed for it to be meaningful.  The operable basal cell trial was the tool to lead this development.  While uptake of Erivedge continues, (Roche reported a healthy 40% gain in sales year over year) revenues to Curis do not amount to anything other than to serve as a tool to service debt taken on for pipeline development.  With only the HSP90 partnership with Debiopharm at Phase II or better it’s easy to say Curis is reset to an early stage drug developer.  Much still has to go right for the company with the basal cell drug failing (thus far) to deliver on substantial revenues.

 


Pipeline visibility and the market’s shrug of its value

The multi-targeting program now is limited to CUDC-907 (the HDAC/Pi3K combination therapy).  Curis is seeking to add a trial in HR positive breast cancer to accompany its ongoing investigations in blood cancers. 

The IAP inhibitor licensed from Genentech got the safety clearance needed to continue clinical trials.  But after a substantial scare on the program, and perhaps owing to the fact that Genentech was willing to part with the IAP inhibitor, the market is assigning minimal value to that drug candidate.

Neither candidate has thus far delivered meaningful clinical results to make the market take note.

Erivedge could eventually find its way to the operable market.  However the longer it takes to do so the less inclined the market is to assign any value expectations. 

It all adds up to a rocky showing for shares as Curis is essentially reverted to a drug development company with earlier stage candidates.  While its ties to Roche/Genentech remain an encouraging aspect of the investment, and the potential for BCC to deliver more profound revenue remain due to Roche’s determination, the market is reasonable to cut value as it waits for positive catalysts to emerge.  Right now shares are not faring well in the waiting game.

 

C-met inhibition down but not out (ArQule, ARQL: $1.15)

 

ASCO 2014 was not really kind to C-met inhibition in lung cancer.  After a setback in the setting for ArQule’s tivantinib candidate, Roche’s onartuzumab fared no better in lung.

While Arqule dreams of combating NSCLC with a C-met inhibitor might have evaporated, the goal of using the tivantinib in the liver cancer setting is certainly not dashed.  Two Phase III trials continue in liver cancer with success that can potentially to turn the ARQL ship around.

Admittedly Arqule has been a disappointment but this is due largely in the market reaction of the lead trials in lung.  There is a mismatch between the lung cancer trial disappointment and the HCC trial's potential that leaves us with the view the current share price is too low.  Of course a disappointment in the liver trials would change that view.

The market for small cap biotech is now looking for a winning story versus a bounce back or turnaround compound.  None of the voting machine mentality of the market changes the science and thus far we view the HCC data developed in earlier trials as compelling enough to hold the line with shares given the financial caution the company has undertaken in response to past failure.

Trials in Head and Neck cancer as well as kidney cancer offer additional bites at the apple of success for the C-met inhibitor program.  In our view no value is placed on the other earlier stage compound in the AKT pathway.  That’s perhaps fair given the relative stage of development.  Still the overall state of shares can easily be viewed as undervalued given the presence of two Phase III trials.

It’s not exactly a ringing endorsement for putting new money to work in ArQule.  It’s not meant to be.  But we are semi-optimistic that the liver trials will provide a substantially more attractive opportunity to exit the shares.

Holding here

(ARQL, $1.15)

 

Quick Takes on Portfolio stocks

 

 

Pharmacyclics (PCYC, $130.67)

We are quite encouraged to see the company partner with Genentech/Roche on studies in CLL and non-Hodgkin’s Lymphoma.  Pharmacyclics’ BTK inhibitor IMBRUVICA will be tested alongside the Roche’s GAZYVA (a CD20 targeting antibody that gets an assist from the immune system)

We have long considered the BTK inhibitor as destined for NHL in combination therapy.  It’s good to see a vested NHL player team up in the space.

Teva/Momenta (MNTA,  $10.91)

We continue to like Momenta as a long term investment in the area of biosimilars.  The deal with Baxter had a hiccup on the oncology candidate in development.  Two candidates continue with Baxter including the advancement of a biosimilar for Humira proceeding.  The branded market for Humira was over $11 billion worldwide in 2013.  And while Momenta will have some competitive company in going after the market, we consider current valuation as a disconnect between present day valuation (e.g. Capaxone overhang) and upside potential in the stock based on the large opportunity in biosimilars. 

That being said there remains enough regulatory uncertainty as to the approach Moneta is pursing (especially when bigger pharm is ponying up for large clinical trials to get their ‘biosimilar badges of approval’) to view Momenta’s biosimilar strategy as somewhat speculative in nature.  This is reflected in share price.

Capaxone overhang

Momenta has an overhang on the revenues from its generic entry for the multiple sclerosis drug Capaxone.  Teva needs a favorable decision from the Supreme Court in a patent case to hold off the generic competition.  For its part, Teva states in is “confident” in receiving such a decision though we are pretty skeptical about that confidence as such a decision could introduce lots of unnecessary appellate litigation through the Federal Circuit across all sorts of patent litigation and works against what the CAFC has essentially been doing in appellate review of claim construction for years. 

The bottom line however is that a generic will eventually emerge for Capaxone and Momenta will be there.  The long term interest we have in Momenta for biosimilars is not really impacted except as through potential (or lack thereof) for nearer term cash flow.  While the biosimilar space is getting somewhat crowded we do believe Momenta is positioned for the long term capability of moving their replacement compounds to interchangeable status within the biosimilar guidance of FDA.  Others may have the capability to do that, but its doubtful big pharma is too interested in a circular firing squad on each other’s biologics as interchangeable.

As an investment seeking a near term victory with Momenta may still be a bit premature with the market so focused on Capaxone and Teva’s relentless pursuit of continued patent protection.  This issue remains a prominent valuation determiner for Momenta in the shorter term. In the longer arc of time of patient investors, the company remains one to consider for its potential power in biosimilars and interchangeability.

Incyte JAKs it out of the park (Incyte, INCY: $67.06)  

We remain bullish on shares of Incyte.  The company delivered a healthy increase in Jakafi sales.  On a current quarter and rolling nine months royalties from Novartis went from roughly $8 and $20 million to $12 and $34 million.  Contract revenues swelled on the recent approval in Japan as well as the healthy milestone payment reimbursement from Europe of $60 million.

The investigation of use of Jakafi in solid tumor trials continue as well as the IDO inhibitor program which is now partnered with PD-L1 and/or PD-1 checkpoint inhibitors from Merck, AstraZeneca, Bristol-Myers, and Genentech.

We continue to view the JAK/STAT activation pathway a potentially powerful partnering component of attacking the cancer stem cell niche of tumors.

NewLink Genetics (NLNK, $31.88)

NewLink has been a stock caught up in the somewhat frenzied Ebola “trade” we highlighted above.  In the meantime a potential $1.1 billion deal with Genentech on the IDO inhibitor candidate has been delivered.  As we were investing NewLink largely on the promise of the IDO candidates delivering potentially transformative revenue event we are pretty excited to see their IDO candidate meet up with Genentech for investigation in solid tumors.  Further target investigation in the IDO pathway is also a part of the deal which could be truly transformative down the line.

Threshold (THLD, $2.93)

The trial of TH-302 plus gemcitabine met its endpoints in phase 2 and continues in Phase 3.  Another study was imitated to evaluate the triple combination of TH-302 + gemcitabine + Abraxane. 

As the combination of gem + Abraxane is now superior to gem alone it calls into question how the FDA will treat the results of the current phase 3 with TH-302 and gem alone.  Still a success in that trial is pivotal for the company as safety of the triplet will be available and likely drive the FDA to accept the doublet combination with further advancement promised on the horizon.


TH-302 has several bites at the apple in clinical trials including a combination trial with Avastin in glioblastoma.  The most significant of these trails are the later stage trials in soft tissue sarcoma and pancreatic cancer. 

The trial in NSCLC is interesting as the effectiveness of pemetrexed is greatly reduced in the presence of hypoxia.  The rational of the trial is sound in that regard as TH-302 would seek to reduce hypoxic cell regions.  The phase I/II trial showed good activity with refractory lung cancer patient’s PFS of 7 months and OS of 14.9 months which are encouraging in comparison to available therapies for refractory patients.

The bottom line is that with the buzz in oncology around immunotherapy and the potential leg up on TH-302 of the Abraxane/Gem combination the street has overlooked the overall potential for the novel hypoxia prodrug to find its rightful place in battling cancer.  The trials will tell the tale but we view this one as undervalued oncology asset capable of pairing with (and improving) traditional oncology.  While cytotoxic agents with somewhat nasty side effects are not the wave of the future, improvements to traditional oncology agents remains a potentially lucrative area that is indeed occupied by TH-302 clinical development.

 

gemsOn-the-Forefront

Cellceutix and the defensin –mimetic Brilacidin (OTC CTIX, $3.35)

Our investment is Cellceutix is beginning to pay off in a big way.  So too is the company’s investment in the antimicrobial defensin-mimetic Brilacidin.

The company picked up the asset at a bargain price from bankrupt Polymedix.  This may turn out to be one of the biggest steals since Pharmcyclics acquired the Celera assets that led to Imbruvica.

Brilacidin had positive phase 2 data and is now positioned to usher in a new class of compounds in the war against superbugs.  The company’s new Chief Operating Officer, Dr. James Alexander summed up the Brilacidin asset in a similar way when recently addressing shareholders.

 “My extensive background in development of compounds for infectious diseases has spurred my excitement about Brilacidin and the whole defensin-mimetic franchise of Cellceutix; I have never seen anything similar. When Cellceutix acquired these novel assets at such a low price last year I had hoped that there might be a larger role for me at Cellceutix eventually. That has indeed happened and at a time when we now have positive top-line data from the Phase 2b trial in Acute Bacterial Skin and Skin Structure Infections showing that a one-day treatment with Brilacidin — a single dose – produces results comparable to 7 days of daptomycin treatment. What I see — and what

I think many people still don’t fully grasp — is that Brilacidin is not just a potential blockbuster for the indication of ABSSSI, including infections caused by MRSA, but this trial provides proof-of-efficacy data for defensin-mimetics as a novel class of antimicrobials that may be used to treat a broad array of diseases and conditions with a very limited chance for drug resistance to develop. I don’t believe the potential efficacy of defenisin-mimetics was ever questioned by the scientific community, it was rather whether there would be any safety concerns. The results of this completed Phase 2b study provide reassuring top-line safety data for Brilacidin. We plan to leverage the clinical data we now have for Brilacidin to move quickly into mid-stage trials, while concurrently seeking every expedited pathway of the Food and Drug Administration available.”

In many ways the bargain pickup of Brilacidin has already transformed the investment. And that’s without the huge potential of the p53 activating Kevetrin having an opportunity to prove itself first in class in the search for guardian of the genome drugs in oncology.

 

 

 

 

Rick Currin

Editor, Currin BIOTECH

 

A couple of housekeeping notes:

We are adding a new feature to round out some of the coverage of breaking science and assorted developments.  We have developed several content curation elements (e.g. personalized medicine, cancer immunotherapy, to give you some additional insights from medical professionals, news flow, videos, etc. in these areas.  It pays to take a look at times at what we are taking a look at without going into a deep discussion of the topics.  We believe this will help round up our coverage for you in breaking science in particular as it can get a bit ‘science-heavy’ at times for the average subscriber based on your feedback.  It also will provide you access to a lot of what we dive into that never actually makes it to the newsletter.  Look for the first in a series of these curation elements soon. – Rick