The Life Sciences Report: Vernon, up to 30,000 people currently have a vital and pressing need for experimental therapeutic and immunization agents to protect them from the ongoing Ebola virus disease (EVD) outbreak in West Africa. That 30K is a conservative estimate, according to University of Oxford epidemiologist Oliver Brady, who wrote an op-ed piece for the World View column of Nature last month. He said even that conservative approximation far exceeds the current supplies of experimental products. Even if drugs and vaccines in development work, can this current outbreak of EVD in West Africa be managed?
Vernon Bernardino: I think so, for two reasons: Although we don’t have anything that fights the disease itself at this point, we can identify people who are actually infected, and we can manage the process of transmitting the disease.
Because therapies are so far away from approval, it’s about identification and quarantine of patients, and then providing acute, concentrated care. That’s how you contain the outbreak. I believe some of these experimental therapies work, and when they do come on board as approved products, the logistics of administering them are not going to be that difficult.
TLSR: In early/mid-August, the World Health Organization (WHO) recommended, and even blessed, the use of experimental therapeutic and immunization agents to battle the EVD outbreak. Two American missionaries and a Spanish priest received an experimental cocktail of three humanized (from nonhuman species; modified to enhance similarity to human) antibodies called ZMapp, which is being developed by Mapp Pharmaceutical Inc. (private) in San Diego. This is actually a preclinical product, which has not even entered Phase 1 trials, right?
VB: That’s right, it is preclinical. But ZMapp did show activity in treating the two medical missionaries from the U.S. who contracted EVD in West Africa.
“Immune Pharmaceuticals Inc.’s bertilimumab is a powerful antibody.“
Unfortunately, the priest and a Liberian physician also treated with ZMapp have since died, likely because their infections were treated too late. This would be in line with my view that the implementation of early identification and quarantine strategies is key. The two others treated with ZMapp have recovered and since been released from quarantine and intensive care.
These results also speak to how ZMapp is not a panacea, which opens the door for other therapies. This is supported by recent grants by the National Institutes of Health funding further evaluation of several potential therapies, including ZMapp.
TLSR: As a sellside analyst, your business is stock valuation. On one hand, developing a successful Ebola treatment looks like a tremendous opportunity for a biotech to create value. But if there’s a problem with administration, or a severe adverse event or death, this can represent a tremendous risk and downside for these small companies, can’t it?
VB: Yes. If the drug actually did not work, and the biotech generated negative data, that would definitely affect future prospects for that company. That’s a huge risk.
TLSR: You have one company under coverage that has an Ebola disease product. Would you speak to that?
VB: Yes. I cover BioCryst Pharmaceuticals (BCRX). It’s rated “buy” with a $15 price target, and at almost $12 per share, is close to that valuation/price target right now. The reasons for its current valuation are twofold and related to the company’s fundamentals.
First, BioCryst has a very promising pipeline for a disease called hereditary angioedema (HAE), which is an orphan disease that causes edema attacks. It doesn’t affect a whole lot of people, but there aren’t many therapies for HAE, especially ones that actually prevent the attacks, though some may lessen the number of attacks. BioCryst’s oral molecule is intended as a prophylaxis for HAE. It’s a plasma kallikrein inhibitor called BCX4161, and has completed a Phase 2a study called OPuS-1.
“I expect results from NeoStem Inc.’s Phase 2 PreSERVE-AMI trial in Q4/14; that will be proof of concept for this approach.”
The second reason for the current valuation is that BioCryst is evaluating several early-stage drugs, including BCX4430, which has shown preclinical activity in Marburg virus disease and Ebola virus disease. Marburg virus is closely related to Ebola. The U.S. government has awarded BioCryst grant funding of about $25 million ($25M) for this project. BCX4430 has been a driver of the stock’s valuation, especially since the Ebola outbreak became more prominent in the news.
TLSR: BCX4430 is a broad-spectrum antiviral that could work against more than Marburg and Ebola. When could it get into the clinic? Also, even though it is preclinical, could it be a candidate for an expanded access program for critically ill patients — sort of like ZMapp was?
VB: BCX4430 definitely could be a candidate for expanded access. To your second question, we estimate that the antiviral could be in a Phase 1 trial in Q1/15. Why not test it in humans now, in these critically ill patients? The U.S. Food and Drug Administration (FDA) wants these drugs, whether BCX4430 or somebody else’s drug, to be tested in two animal species, with one species being a nonhuman primate. After showing safety and effectiveness there, the company can go right into human clinical testing. These studies will not need to be large, but the company must establish safety first. It’s not so much that the company would be liable; it is the FDA being rigorous as far as enforcement of its mandates.
TLSR: Vernon, I’m noting that the company’s market cap is under $1 billion ($1B). This is largely because of its Ebola product; the first drug you mentioned, BCX4161 for HAE, is only in Phase 2a with just 25 patients. Is this stock overvalued currently, given the early stage of the company’s entire pipeline?
VB: The compounds that BioCryst has for HAE show promise. In addition to BCX4161, a second-generation plasma kallikrein inhibitor is also in preclinical development. The Phase 2a trial with BCX4161 has only enrolled 25 patients because HAE is an orphan indication. But orphan drugs have realized ready reimbursement because patients don’t have suitable therapies to utilize, and so pricing is quite high.
Even a small number of patients can make a drug worth hundreds of millions of dollars each year. Alexion Pharmaceuticals (ALXN) antibody Soliris (eculizumab) is reimbursed at more than $400,000 per year/patient in the U.S. for a rare and life-threatening disease called atypical hemolytic uremic syndrome (aHUS), which is a form of thrombotic microangiopathy. Genzyme — a unit of Sanofi (SNY) — actually has a handful of orphan disease drugs that can cost as much as $300,000 per year. The orphan space can mean hundreds-of-millions-of-dollars to a billion-dollar opportunity.
TLSR: How has BCX4161 performed in the clinic with HAE? How were the OPuS-1 data?
VB: Results from OPuS-1 were released back toward the end of May. It met the primary endpoint for efficacy by significantly reducing the number of angioedema attacks. What we look forward to now is the start of the OPuS-2 study, which will test higher doses in sick patients. That’s planned to start by year-end, and it should be a mild catalyst for the stock.
TLSR: Shire (SHPGY), which is being taken out by AbbVie (ABBV), has a drug for HAE called Cinryze (C1 esterase inhibitor [human]), but it’s injectable. That implies that an oral drug such as BCX4161, which would be taken on a chronic basis, could be a tremendous value proposition for patients and, of course, for investors. Is that the way you see it?
VB: Yes. Cinryze does have some activity in the acute setting, when patients are having an attack, but it, too, is directed toward prophylaxis.
What these patients need is a drug that lessens or prevents the number of angioedema attacks, which is what BCX4161 has shown so far in OPuS-1. With some of the other therapies for HAE, patients can lapse into noncompliance because of the side effects or the route of administration. If you have to have an infusion, then you have to go to a clinic, and maybe you’re not that close to the clinic geographically. That may lead to noncompliance, which means the drug is no longer helping because you’re not getting it. With BCX4161 being oral, a patient would take the drug at home three times a day to prevent HAE attacks.
TLSR: Could you select another company to talk about?
VB: We really like a stock that is very small and is not suitable for all investors — it’s really only for those who can tolerate a lot of risk. The company is Immune Pharmaceuticals (IMNP), and we have a target price of $6 per share on this stock. It was just recently trading at around $3.30 per share, with a market cap of about $54 million.
“Some of these experimental therapies work, and when they do come on board as approved products, the logistics of administering them are not going to be that difficult.”
Immune Pharmaceuticals has an interesting fully human monoclonal antibody called bertilimumab that’s directed toward blocking the activity of eotaxin-1, a protein that attracts eosinophils and makes them move toward inflammatory sites. Bertilimumab is a powerful antibody, and most investors don’t realize it has already been validated in many ways due to the fact that so many drugs from its prior innovator, Cambridge Antibody Technology Group, have reached the market. Cambridge Antibody is now part of MedImmune, the biotech unit of AstraZeneca (AZN). Bertilimumab is definitely an opportunity for a company like Immune Pharmaceuticals, which has such a small valuation. As Immune Pharma is domiciled in Israel, it also has some tax advantages. In addition, Immune Pharmaceuticals is very austere in its use of money. In fact, I think its burn rate is only about $1M/month, which is very efficient for a drug development program.
The company has taken a more targeted, or even personalized, therapeutic approach, because bertilimumab shows its best activity in patients with high levels of eotaxin-1 and resulting eosinophilia, meaning high levels of eosinophils as part of the white blood cell count. Eosinophilia is seen in certain irritable bowel conditions, such as ulcerative colitis and Crohn’s disease, as well as other autoimmune inflammatory diseases, such as asthma, multiple sclerosis and lupus, where the antibody has also shown activity. The strategy is to target diseases in which patients are likely to have high levels of eotaxin-1.
This therapy could actually work better than the current standards of care for ulcerative colitis and Crohn’s. In these conditions, the first line of therapy is an anti-tumor necrosis factor (TNF) antibody called Remicade (infliximab; Janssen Biotech, a unit of Johnson & Johnson [JNJ]), which has sales of $3 billion to $4 billion per year and costs $18,000 to $24,000 per year, depending on the regimen the patient is receiving.
TLSR: There are a lot of autoimmune diseases around. What is Immune Pharmaceuticals’ lead indication?
VB: I would have to say the lead indication is bullous pemphigoid, an inflammatory skin disease that causes blisters to form, because it’s an orphan disease. It affects the elderly, with mortality rates of 15% – 40% within the first two years of developing the disease. Many of the elderly cannot tolerate therapies like Remicade, where side effects can accumulate over time, and there is also a phenomenon with Remicade in which patients no longer respond to the medication. There is great need for additional and better therapies.
The company can target bullous pemphigoid to get bertilimumab to the market fastest. Because it’s an orphan disease and there are a small number of patients, the FDA would look favorably on small studies, which would, of course, entail smaller costs, shorter enrollment periods and a quicker time to completion. That’s to get the drug approved. But the larger opportunity is actually in ulcerative colitis, an indication where we think bertilimumab could reach $1B in sales.
TLSR: Vernon, I’m looking at another product in the Immune Pharmaceuticals pipeline called AmiKet (amitriptyline + ketamine in a topical formulation). The indication is central neuropathic pain, and in this particular case it is being tested in post-herpetic neuralgia (PHN), which is caused by shingles. This pain can last for six months and affects about a million people each year in the U.S. Is this a value driver?
VB: AmiKet is a moderate value driver, in the sense that it’s a Phase 3-ready pipeline product for the company. Actually, it has already completed a Phase 3, but the FDA asked for another Phase 3 study. Many alternative therapies are available in the PHN market, but doctors are looking for certain advantages that AmiKet might have.
We believe AmiKet is worth about $1 per share, an incremental amount, because the company will likely outlicense the therapy. Therefore, the economics would be realized by the partner. At the same time, partnering the product would reduce the company’s risk. First, Phase 3 development of AmiKet will cost a bit of money. In fact, it will probably be more expensive than developing bertilimumab for bullous pemphigoid, because so many more patients would have to be included in the study. Second, AmiKet is not core to the company’s portfolio anymore, because Immune Pharmaceuticals is targeting autoimmune diseases.
TLSR: Could you mention another name, please?
VB: One of the companies we really like is Galmed Pharmaceuticals (GLMD). We have a “buy” rating on the company, with target price of $19 on the stock. We like the company’s strategy, which is very simple: It targets an opportunity called nonalcoholic steatohepatitis (NASH), an inflammation of the liver caused by fat deposits in the liver. In obesity, the fat becomes a toxic insult to the liver.
NASH is an interesting opportunity because more than 30% of people in the U.S. — with similar statistics around the world — are obese. Between 10–30% of obese patients have NASH. And, there are no therapies for NASH at this point. The end result of this condition is fibrosis, which results in cirrhosis of the liver, which results in liver failure or liver transplant, which is very expensive — if you can even get a transplant. Patients with NASH also have a high potential to develop liver cancer.
Galmed’s drug for NASH is aramchol, a fatty-acid and bile-acid conjugate. The reason I referred to this as a simple strategy is because the data so far have shown that the drug is safe and effective. The data have also shown that aramchol can treat an earlier stage of the disease, in which there may be little or no fibrosis. If you can catch the early stage, and prevent outcomes of cirrhosis and/or liver failure, you can imagine the number of patients and the market opportunity. Anywhere from one out of three to one out of six obese patients are candidates for a chronic drug therapy taken daily. NASH can take as little as 10 years, and up to 30 years, to develop from early-stage to end-stage disease.
TLSR: We’re hearing about NASH a lot these days. It sounds like the new thing in drug development. What about the competitors to Galmed and aramchol?
VB: Intercept Pharmaceuticals (ICPT has a drug called obeticholic acid (OCA) that is very similar to aramchol. It has shown very strong results. In fact, Intercept stopped its Phase 2 FLINT study early because the primary endpoint had been met, but there are some potential safety issues that may not be teased out until a large study is undertaken. Intercept’s OCA has shown an increase in low-density lipoprotein (LDL) levels in the blood. That may require further evaluation as to the long-term effects. Some have said, “Okay, then the physician will just put the patient on statins.” But to add another therapy adds more cost.
“The orphan space can mean hundreds-of-millions-of-dollars to a billion-dollar opportunity.”
In the case of Galmed’s aramchol, the idea is to do several small studies, because the therapy also has effects on other diseases, like gallstones. Currently there’s only one cure for gallstones, and that is to take the gallbladder out. The current in-market therapies, ursodiol and chenodiol, can take months to work, whereas aramchol has shown in preclinical models that it can dissolve gallstones in a matter of days.
TLSR: Does OCA show activity in gallstones the way aramchol has in preclinical models?
VB: Yes, OCA has shown some preclinical activity in gallstones, but Intercept has not brought that indication forth as a formal program. With the structures of these two drugs, aramchol and OCA, being similar in the bile acid (cholic) part, OCA should work very well to dissolve gallstones. Perhaps Intercept has concluded that’s not a large market opportunity. But for a smaller company like Galmed, it would be. Interestingly, the gallstone studies would not require large enrollments, and they would not be long studies because gallstone dissolution occurs in days, so results are available very quickly. Intercept is perhaps missing an opportunity, or maybe it knows from its preclinical studies that OCA is less impressive in that indication.
TLSR: What’s the near-term catalyst for Galmed? Is it data from a Phase 2a proof-of-concept study?
VB: Yes, that’s right, but it would be in gallstones, not NASH. Again, that’s because Galmed can start the study very soon and get the results very soon. Patients can be enrolled very quickly, and it can get results right away.
TLSR: This is a binary event, one-trick-pony company, right?
VB: Aramchol is, in fact, the only drug in the pipeline, but it targets many different types of liver disease and gastroenterological conditions.
TLSR: Another name, please?
VB: Another interesting name in this same space, targeting NASH, is Galectin Therapeutics (GALT). Initially, we had a $19 per share price target on it, then raised it to $27 per share, but we recently decreased it to $15 per share because results delivered on July 29 from the second cohort of its Phase 1 study with its galectin-3 inhibitor GR-MD-02 were mixed.
To some, the results appeared negative because they were not as good as the results from the first cohort, but I think that’s a misperception as to what the results actually mean. The primary endpoint of the study was to show safety and tolerability, and to give the company information as to how to design the Phase 2 study. That endpoint was met. You usually start to show proof of concept in Phase 2, and we have seen this drug reverse liver fibrosis in preclinical studies.
TLSR: Galectin’s GR-MD-02 is also in a 22-patient, Phase 1b study for metastatic melanoma in combination with ipilimumab (Yervoy; Bristol-Myers Squibb [BMY]). It’s interesting that this drug could have such a diverse profile.
VB: Yes, and that’s supported by the fact that galectin-1 has been shown to be overexpressed in some cancers. Galectins are a group of proteins involved in regulation of immune system responses and cell death, so by inhibiting galectin, you may be able to inhibit the further advance of cancer.
TLSR: Are you familiar with a company called Genfit (GNFT)?
VB: Yes. Genfit is a very interesting company that also targets NASH. Its drug, GFT505, is a dual peroxisome proliferator-activated receptor (PPAR) pluripotent drug. There have been a lot of issues with PPAR-directed drugs because of the side effects. Genfit’s drug has not shown the side effects so far. I’m doing work on the company to see for myself why this is the case. As a former scientist and academic, I want to know why other PPAR-directed agents have failed.
TLSR: My understanding is that Genfit is ahead of Galectin, and that it is supposed to have Phase 2b data on GFT505 in NASH by the end of this year. That’s about the same time that we’re expecting data from Galmed, isn’t it?
VB: Yes. In fact, Q4/14 is going to be very interesting as data emerge from these companies. You will also have the final FLINT data on OCA from Intercept Pharmaceuticals. This FLINT study is under the control of the National Institute of Diabetes and Digestive and Kidney Diseases, a branch of the National Institutes of Health. Also, Galectin’s third cohort data are due to be released at that time.
Another company, Conatus Pharmaceuticals (CNAT), has a drug with a unique mechanism of action, a pan-caspase inhibitor, and will also have a data readout at the end of this year. So these are five companies — Galmed, Intercept, Galectin, Genfit and Conatus — that have gained a lot of interest, not just because NASH is a huge, multibillion dollar opportunity, but also because there are a lot of catalysts on the horizon. Of these five names, we only cover Galmed and Galectin so far, but we look carefully at the other names in this space. If you position yourself correctly and you’ve done your homework, then you can buy a stock at the correct valuation, before the data points come out, and realize a nice return on your investment.
TLSR: Could you mention another name?
VB: NeoStem (NBS) is approaching a binary event catalyst. It is in a Phase 2 study with NBS10 (also known as AMR-001; autologous bone marrow-derived CD34+/CXCR4+ enriched cells). CD34 is a cell surface antigen, or marker, that many investigators have studied in the past. The company is targeting myocardial ischemia or ST-segment elevation acute myocardial infarction (STEMI), an acute heart attack.
NeoStem’s cells, given by intracoronary infusion, target inflammation that causes damage after an ischemic event. When a patient has a heart attack, there is initial tissue damage, which is a bad thing by itself. Then, over time, the heart recognizes the damage and tries to harness the immune response to take care of it. The patient has subsequent, or cyclic, ischemic attacks and an immune overresponse, and over time the heart becomes remodeled. The damaged or dead tissue becomes larger.
NeoStem has refined an approach that others have taken by isolating CD34-positive (CD34+) cells that are also CXCR4-positive (CXCR4+). That’s important because CXCR4 is the receptor for stromal-derived factor 1 (SDF-1), which is overexpressed in ischemic tissue, especially in the zone where the tissue is dying. The elegance of the approach is the fact that these cells are only targeted to the place where SDF-1 is expressed. The overexpressed SDF-1 acts as a homing signal for its receptor, CXCR4. The NeoStem cells are thus directed toward the damaged area, and start aggregating and concentrating at the tissue that needs repair the most. The idea is that this prevents further heart attacks. It can also help maintain or improve perfusion status in the dying parts of the heart. Obviously, the overall goal is to reduce mortality, which many of the drugs out there are not able to do.
TLSR: Are we awaiting data from the Phase 2 PreSERVE-AMI trial in STEMI?
VB: Yes. I expect those results in the middle of Q4/14. That will be proof of concept for this approach.
TLSR: NeoStem has another technology platform and program, but you referred to this earlier as a binary event. Why?
VB: It’s binary in nature because, at least in our valuation, it is pretty much the primary driver of the value of the stock. The other programs represent a smaller value because they’re earlier stage.
TLSR: Is there one more name today?
VB: We cover Dynavax Technologies (DVAX). It is rated a “buy” with a $5 per share target price. The quick story is that Dynavax has a hepatitis B vaccine called Heplisav. The company has completed huge studies with thousands of patients, and showed that the vaccine is effective. But there were three incidents associated with the vaccine — rare events that were immune-related — so the FDA issued a complete response letter and asked for another study. The company was able to raise money, and agreed to design a confirmatory Phase 3 study with 5,500 Heplisav subjects, plus 2,750 subjects receiving Engerix-B (GlaxoSmithKline [GSK]). Dynavax is very quickly enrolling subjects. But the stock was pummeled because people concluded that these rare events were going to be an issue, and that the company would not be able to raise money for this new trial.
TLSR: It clearly raised the money, because this large trial is now in progress, right?
VB: Dynavax was able to raise the money very readily, and I believe that about 84% of Dynavax’s float is owned by institutions. That’s tremendous for a company with a market cap of less than $400M. There are huge believers in the stock out there, and they are willing to wait for the study to be completed. We think that this is an opportunity to invest at a very attractive valuation.
TLSR: Thank you.
Vernon Bernardino is senior analyst in MLV & Co.’s life sciences equity research department. His principal focus is on biotechnology, biopharmaceutical, specialty pharmaceutical and immunotherapy companies that focus on treatment of cancer, infectious diseases and cell-based therapies targeting inflammatory disorders and vascular diseases. Bernardino brings more than 10 years of experience covering life sciences companies at various financial institutions, including Rodman & Renshaw, UBS and Dawson James. Earlier in his career, Bernardino was a buyside analyst at Nicholas Applegate Capital Management, and founded the strategic advisory group Oceros Advisors LP. Bernardino holds a bachelor’s degree from Rutgers University and a master’s degree in business administration (finance) from the University of San Diego.
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