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Seattle Genetics – Another step towards approval

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.

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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.

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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.

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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.

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History has shown again and again that times like these represent a huge long term buying opportunity. This may be particularly true for the biotech segment that, despite weathering the storm better than other segments, has had its share of price declines. During the past several weeks, great biotech stocks, from small early stage companies to fully commercialized companies have been thrown out of portfolios like bad auction rate securities, but the truth is that the value proposition of most of these biotechs did not change at all, and is not likely to change as a result of market conditions. This is why current prices create the best opportunity to get into the biotech segment since 2002.

In the past, the pharmaceutical segment served as a safe haven at times like these, based on the notion that drug sales, especially those for the treatment of serious illnesses, remain unaffected by recession. Unfortunately, most pharmaceutical companies are in the midst of an innovation crisis, where their traditional blockbusters are gradually being cannibalized by generic competition, so the next couple of years will be very challenging for them, recession or no recession. Consequently, investors may want to look for growth in the relatively new entrants to the field – biotech companies. 

Biotech companies can be divided into two groups, each has its own merits and pitfalls.

The first group includes fully commercialized companies with a healthy balance sheet and cash generating products. These include all the big biotech companies such as Genentech (DNA), Amgen (AMGN) and Gilead (GILD). Because these companies can be found in every typical portfolio, they all got hit pretty badly from the recent sell-off due to indiscriminate panic selling. Nevertheless, the impact of an anticipated recession will have on these companies, who are selling drugs that address diseases such as cancer and AIDS, will be marginal.

The second group consists of smaller, development stage companies, with no commercially available drugs and several cash consuming development programs. The good news is that fundamentally, these companies have nothing to do with the global economy because they are not selling anything. The bad news is that they have to constantly find resources to finance the costly development of their drug candidates. Thus, the most important implication a market crisis has on this kind of companies is that it makes cash-raising almost impossible.

This is why investors should invest only in development-stage biotechs which have found a way around this problem. Some companies can generate cash from licensing their technology or intellectual property, some, like Array (ARRY) and Poniard (PARD) arranged a line of credit, some, like Seattle Genetics (SGEN), were smart enough to do a secondary offering under good market conditions, some, like Exelixis (EXEL) and Immunogen (IMGN), licensed some of their products and have someone else paying for the development. 

Bearing in mind that in the foreseeable future, licensing of technology and products will be the preferred way of getting cash, it would particularly be wise to pay attention to companies with unpartnered assets that are generating robust data in clinical trials as well as to platform companies that can license their technology on a non-exclusive basis. Evidently, when small companies have one way of raising cash blocked, it might reduce their leverage position in the alternative route of partnering. However, thanks to the pressure traditional pharmaceutical companies are currently under, they are starved for new promising candidates, which means that a good drug candidate still has tremendous value in the eyes of big pharmas. A good example for such a promising candidate is Rigel (RIGL) Pharmaceutical’s R788 that showed impressive results in treating rheumatoid arthritis, a disease with a market size exceeding $ 10 billion. Another good example for that may be Arqule’s (ARQL) ARQ-197, which already demonstrated its potential in a wide array of cancers and has a blockbuster potential.      

In order to put this approach to the test, I asked Pontifax’s Ran Nussbaum his help in building a virtual portfolio of promising biotech stocks. This portfolio is not intended for short term trading, but for long term investment of at least several years. Although we do not expect active trading in this portfolio, from time to time there may be changes as additional stocks will be added and existing holdings may be sold. Any future changes can be made only when markets are closed. On a more cautionary note, regardless of the attractiveness of all of these companies, all the inherent risks associated with biotech remain, including long time to market and statistically low success rates.

                                        Biotech Portfolio as of October 9th 2008

There is always a debate regarding market efficiency and to what extent stock prices represent the available information about a company. Micromet’s (MITI) surge last week shows that in some cases, the market is far from being efficient. The spike of more than 35% in the last two trading sessions is attributed to the publication of a short article in Science Magazine, one of the world’s most prestigious scientific journals. The article contained clinical data from an ongoing phase I trial of Micromet’s lead candidate, MT103 (partnered with Medimmune). The data was spectacular, showing a strong, dose dependent response in concert with a good safety profile, exactly the kind of data that can put a small biotech in the spotlight. Ironically, the article contained data which has already been presented more than two months ago at the ICML in Switzerland.

Regardless of whether market reaction was justified, publishing clinical data at such an early stage in Science should be viewed as an indication for the scientific community’s embrace of Micromet and its BiTE platform. The BiTE platform relies on monoclonal antibodies for stimulating the patient’s immune system to attack cancer cells that have managed to evade or suppress the body’s immune response. Although most attention is given to the first product from the platform, MT103, it can generate an unlimited number of agents against a variety of cancers, making it a potential revolution in the way cancer is treated.

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In an industry where most companies over-promise and under-deliver, a company that exceeds even the most optimistic expectations is a unique phenomenon. This morning, while most eyes were still turned towards Chicago following ASCO, Micromet (MITI) managed to present another impressive set of clinical data in the picturesque town of Lugano, Switzerland. The data is from an ongoing phase I trial for the evaluation of the company’s lead product, MT103, in Non-Hodgkin’s Lymphoma (NHL), a trial which had already produced impressive results.

Although the actual scientific poster is not yet publically available, according to the company’s recent press release, MT103 led to an impressive clinical response among 7 heavily pre-treated NHL patients. When given MT103 at the highest dose so far in the trial, all 7 patients achieved a significant reduction in tumor burden in the form of either a complete or partial response. Importantly, those responses are durable and are currently ongoing in all seven patients, with the longest remission ongoing for more than one year.

Evidently, the data is still very preliminary, as it is being derived from a small non-controlled phase I trial. Nevertheless, having 100% clinical activity with such durability in such a late-stage patient population bodes extremely well for the prospects of MT-103. More importantly, this is yet another validation of Micromet’s revolutionary BiTE platform, which can be utilized to develop an unlimited number of drug candidates for various cancer types.

Author is long MITI

BiTE Antibodies 

A BiTE (Bispecific T Cell Engager) antibody is a bi-specific antibody (bsAb) which directs T-cells to attack  cancer cells, by simultaneously binding the two cells. Upon binding, a physical link is created between  the two cells, which in turn triggers the T cell to attack the target cell. Every BiTE antibody has two binding arms, the first binds the CD3 receptor present on T-cells and the second binds a specific element on a cancer cell. The T-cell binding arm provides  the activity while the cancer binding arm provides the specificity. By changing the cancer binding arm, the BiTE antibody can be adapted not only from one type of cancer to another, but also from one target to another in the same type of cancer. Therefore, BiTE represents a universal and modular platform for producing bsAbs for an unlimited number of targets.

 As previously stated, bi-specific antibodies are aimed at recruiting immune cells against cancer. Therefore, one of the first decisions to be made concerns the type of immune cells to be recruited. The first attempts to develop bi-specific antibodies, mainly included recruiting T-cells, which are considered the most potent cells of the immune system. T cells play a critical role in the body’s efforts to eliminate malfunctioning cells such as cancer or virally infected cells, making them even more obvious candidates. (more…)