This year’s ASCO was packed with promising early stage trials, but very few positive late stage trials with an impact on medical practice. The two most important practice changing trials were phase III studies for Eli Lilly’s (LLY) Alimta and Roche’s (RHHBY.PK) Herceptin. These drugs are likely to enjoy a boost in revenues starting from next year, as both demonstrated impressive survival prolongation in lung and gastric cancer patients, respectively. The studies also underscore the paradigm shift in the industry towards personalized medicine, where a drug is given only to patients who have a high likelihood of deriving benefit. This article will focus on Alimta, which was, in my opinion the winner of ASCO 2009.Read the rest of this entry »
Seattle Genetics (SGEN) will present results from a phase I trial of SGN-35 in two rare blood cancers. This agent is important not only because it represents Seattle Genetics’ first opportunity for commercial revenue, but also because it serves as a proof of concept for the company’s antibody- drug conjugate (ADC) technology. The drug already generated impressive data when given every three weeks, and this year it will probably show even stronger activity in a weekly regimen. The company wanted to use a more frequent dosing in order to increase the overall amount of SGN-35 it can give and see whether it leads to higher efficacy without increasing side effects.
The ASCO annual meeting, one of the most important events in the pharmaceutical industry will take place in Orlando next weekend. With over 4,000 abstracts to be presented this year, separating the wheat from the chaff is difficult, but below is an incomplete list of intriguing trials that deserve investors’ attention.
Two weeks ago, Micromet (MITI) hosted its annual R&D day, where it discussed plans for 2009 and beyond. The meeting provided plenty of information regarding the company’s technology and drug candidates, but more importantly, it served as an appetizer for next month’s EHA meeting. As a reminder, Micromet is expected to present data from 2 trials evaluating its lead agent, blinatumomab (MT103), in two forms of blood cancer: Non-Hodgkin Lymphoma (NHL) and Acute Lymphoblastic Leukemia (ALL).
During the R&D day, the company (intentionally and unintentionally) shared some previously undisclosed results from the trials. The new information, which includes impressive efficacy signals from both studies, further solidifies blinatumomab’s position as one of the most promising investigational agents in oncology. Based on its spectacular performance, blinatumomab has a high chance of getting approved as soon as 2012.
The past 12 months have been anything but boring for Micromet’s shareholders (MITI). Last summer, Micromet’s stock climbed to $7 following excellent clinical data (discussed here) and a landmark publication in Science Magazine (discussed here), but since then the company has lost half of its value. Volatile trading is quite standard for small, cash burning biotechnology companies, however, Micromet’s case was particularly frustrating.
Micromet invented a new class of antibodies it calls BiTE (Bispecific T-Cell Engager) antibodies. Unlike conventional antibodies, BiTE antibodies bind two targets, the first target is presented on a cancer cell and the second is presented on an immune cell. The simultaneous binding of both cells by the BiTE antibody can redirect the immune cell to attack the cancer cell, thus exploiting the body’s natural immune mechanisms to fight cancer. Conceptually, a BiTE antibody is similar to cancer vaccines, which also aim at producing an immune response against tumors. Despite a history of failures in the field of immunostimulating antibodies, it looks like Micromet has found the right formula.
Morphosys (MOR.DE) is one of the most unusual biotech companies, as it breaks three basic rules that apply to drug development companies:
Rule No. 1: Development-stage companies burn cash and therefore must constantly raise capital and dilute existing shareholders.
Rule No. 2: Development-stage companies are risky and volatile because they rely on a limited number of binary events.
Rule No. 3: Investing in cutting edge, growing segments of the pharmaceutical industry is associated with a high level of risk.
Morphosys is the only company I am familiar with that systematically breaks each and every one of these rules. It does not have any drugs on the market and is not expected to have any in the foreseeable future, yet it is profitable. It is involved in drug discovery which is associated with a high attrition rate, yet statistically, there is a very high chance that it will have commercial revenues at some point in the future. It is involved in one the fastest growing segments in the industry, but can be regarded as a conservative holding since it will never be dependent on a limited number of binary events. And finally, it has no need to raise cash in the coming decade in order to support its activities, as its costs are covered by other companies.
Earlier today, Roche announced positive results from a phase III study evaluating its breast cancer blockbuster, Herceptin, in gastric cancer. According to Roche, the addition of Herceptin to standard chemotherapy “significantly prolonged” overall survival of gastric cancer patients. From a medical perspective, this trial is a great achievement considering the severe shortage of effective treatments for gastric cancer. This is also the first success Herceptin has outside of breast cancer, where it quickly became a cornerstone treatment.
Of all the healthcare companies that took a beating in 2009, Celgene (CELG) seems to be the most undervalued one. Looking at the company’s financial performance and upside potential, it is very hard to understand how a growing biotech company with virtually no potential threat to its leading products is traded at such a low price, a real steal. I typically write about development stage companies, where financial metrics are irrelevant and the focal point is on scientific and medical data. In Celgene’s case, all that is needed is to examine the financial performance and the markets in which the company operates.
The past six months have not been kind to microcap biotech stocks, as it is hard to find a lot of love in today’s market for tiny, high risk, cash burning biotech companies. Honestly, who can blame investors for throwing stocks that offer a distant dream with minimal success rates and heavy spending? Surprisingly (or not), the negative sentiment also presents unprecedented opportunities in the microcap arena, as some microcaps are making tremendous progress, which is not yet reflected in their stock prices.
There are quite a few companies with market cap under $100M active in the fields of oncology and inflammatory diseases, the two fastest growing segments in the pharmaceutical industry. Hypothetically, these companies represent huge upside potential in the form of imaginary returns over a period of several years. The issue with these companies is that they usually have only one or two drugs in very early stages, the vast majority of which are doomed to eventually fail. While identifying the right drugs based on concrete clinical data is complicated but possible, evaluating drugs based on earlier results is even more challenging. The idea is therefore to identify companies who have already reached proof of concept in humans, thus facilitating better visibility to investors. Since investors today focus primarily on risk mitigation, they typically ignore potential reward and shrug off any positive developments. This, in turn, may result in an “arbitrage-like” situation, where companies with a potential success rate of 25% are traded as if they had a potential success rate of 10%, simply because the progress they have made is not factored into stock price.
In the previous article, I discussed the pharmaceutical industry’s race after approved drugs and late stage agents with proof of concept in humans. I mentioned Rigel’s (RIGL) lead drug, R788, as a likely target for collaboration due to its impressive activity, the huge addressable market and the fact it is an oral drug. For the past year, Rigel’s management has been consistently and rigorously claiming it will have a partnership in place during the first quarter of 2009. Although the company has had more than one opportunity to change this forecast, it stuck by its original statement. For example, when new safety data got published last year and worried investors sent the stock down 50% in two trading sessions, many believed that the imminent deal was not going to materialize. To their surprise, Rigel reassured investors the time frame for a partnership remains intact, explaining that none of the recently published data was actually new to potential partners. Then, Rigel appeared in countless investor conferences, the last of which was only last month, promising investors a licensing deal is forthcoming.
Last week, the company announced it no longer expects to have a deal by the end of March. Instead, it intends to wait until it has results from two ongoing trials, due this summer. Deciding to wait until more data is available makes a lot of sense, providing the data is good. Typically, the further a drug gets in clinical development, the higher its value in the eyes of potential partners. The problem is not the decision itself, but its timing, as this kind of decision could have been made long ago. So what led Rigel’s management to suddenly change its mind after a year of expectations build up?
