Biotech investors are an ardent bunch, scouring companies, data, analyst reports and more looking for the definitive reasons to be long on a young biotech with high hopes for profits that can be unmatched in most other industries. These investors aren’t naïve; they know the inherent risks of investing in biotechs where one piece of news can collapse valuations 50 percent or more in a matter or minutes. However, the risk of an investment evaporating is often outweighed by the small chance of a financial windfall, and that’s enough to continue driving investment.
Patience is a matter of perspective in the biotech space as the idea of it taking a decade or more to bring a product to market is certainly accurate and widely publicized. That doesn’t mean it takes a company that long to rise exponentially in value or that a company can’t shave time and money off the process by capitalizing on others’ work. It definitely takes a discerning eye, though. Take Puma Biotechnology (NYSE: PBYI) for example. Biotech guru and CEO Alan Auerbach, who has a penchant for spotting unloved drug candidates, founded the company and penned a deal with Pfizer (NYSE: PFE) to license a mid/late-stage cancer drug now known as PB272 (neratinib) in 2011. In 2012, Puma pulled in about $138 million (8.6 million shares at $16 each) in a public offering and began trading on the NYSE.
Auerbach didn’t seem to have difficulty in finding investors, given that his previous startup, Cougar Biotechnology (founded in 2003), made a name for itself by licensing an early-stage prostate cancer drug candidate from BTG Plc in 2004 and advancing it to late-stage trials. In 2009, Johnson & Johnson (NYSE: JNJ) acquired Cougar for $1 billion. The drug, now branded Zytiga by J&J, had $1.7 billion in sales in 2013.
Fast forward to 2011 and in what many thought was a long-shot drug candidate, Auerbach saw in a different light, scrapping part of Pfizer’s clinical plans and modifying the development strategy for neratinib to focus on metastatic disease. In July, Puma announced positive top-line results from a Phase 3 trial of neratinib as an extended adjuvant treatment for women with early-stage HER2-positive breast cancer. HER2 is a protein that stimulates the growth of breast cancer cells, with an estimated 20 percent of breast cancer patients diagnosed as HER2 -positive.
In the trial, which enrolled 2,821 patients in 41 countries, patients who had undergone surgery to remove tumors and received subsequent treatment with trastuzumab (the widely-used HER2+ breast cancer drug marketed by Roche under the brand name Herceptin) were then given either neratinib or a placebo for an additional year. The results showed a 33% improvement in disease free survival in patients treated with neratinib versus placebo, sending shares of PBYI soaring from around $60 each the day before the news to as high as $279 in August.
Exemplifying Auerbach’s mantra to develop one drug at a time, Puma has PB272 in eight other clinical trials, primarily for breast cancer, but also including a Phase 2 study for HER2 mutated non-small cell lung cancer and a Phase 2 for HER2 mutated solid tumors.
Shares have slipped back to the area of $216, equating to a market capitalization of $6.53 billion, and a stunning return of roughly 1,300% from the public offering price three years earlier.
Rare disease specialist BioMarin Pharmaceutical (NASDAQ: BMRN) demonstrated on November 24 that it is not averse to risk on drug candidates that big pharma isn’t endorsing anymore; gambling that it can bring a new treatment for Duchenne Muscular Dystrophy (DMD) to market. DMD is an incurable and deadly genetic condition, usually diagnosed in young boys, that begins destroying muscle in the legs at an early age and eventually leads to death in the 20’s. It’s estimated that about 15,000 people each year suffer from DMD in the U.S.
BioMarin agreed to pay up to $840 million to acquire Prosensa Holding NV (NASDAQ: RNA), a Dutch pharmaceutical company developing novel treatments for diseases based upon its RNA modulation platform, with the lead drug being drisapersen for DMD. Including drisapersen, Prosensa currently has three clinical trials in its pipeline and no marketed products. The aggregate acquisition price is comprised of a purchase price of $17.75 per share in cash (about $680 million), which represented a 55% premium to the closing price of RNA the day before the deal was announced; a commitment to another $80 million if drisapersen for DMD receives FDA approval by May 2016; and another $80 million if European regulators approved the drug by February 2017.
With the acquisition, BioMarin will be in the thick of the race to be the first to commercialize a product for DMD. The other two leading competitors are Sarepta Therapeutics’ (NASDAQ: SRPT) eteplirsen, and PTC Therapeutics’ (NASDAQ: PTCT) Translarna, which PTC said garnered conditional approval in the European Union in August.
GlaxoSmithKline (NYSE: GSK) had been co-developing drisapersen with Prosensa, but backed out of the partnership in January 2013, shortly after data from a Phase 3 trial missed the primary endpoint by failing to show a statistically significant improvement in the 6 minute walking distance test versus placebo. Prosensa did not throw in the towel on drisapersen for DMD, taking back full rights to the drug and continuing with development under orphan drug status in the U.S., European Union and Japan, as well as Fast Track and Breakthrough Therapy designations in the U.S. The company noted that clinical data showed stronger efficacy in certain subsets of DMD patients, namely those treated at earlier stages of progression. As such, the drug is now “under a rolling review as part of a New Drug Application” and the stage is set for BioMarin to pursue a meeting with an FDA Advisory panel and seek an accelerated approval for drisapersen ahead of its competitors.
According to a Wall Street Journal article, BioMarin said that an approved drisapersen could treat up to 10,000 patients globally, and market analysts expect the drug would be sold for between $250,000 and $300,000 annually per patient.
Shares of BioMarin printed a new all-time high at $88.37 on the acquisition news as RNA shares flew 62.6% to $18.60.
Cellceutix Corp. (OTC: CTIX) in September 2013 swooped up PolyMedix in a bankruptcy sale for a meager $5 million, adding PolyMedix’s portfolio of nine novel defensin-mimetics to its portfolio, bringing the company’s drug inventory to 18 small molecules. Defensin-mimetics are a new class of antibiotics modeled after host defense proteins, which are the “front-line” of defense in the human immune system. Cellceutix’s existing pipeline already contained anti-cancer p53 drug Kevetrin (nearing completion of a Phase 1 trial for refractory solid tumors at Harvard’s Dana-Farber Cancer Institute and Beth Israel Deaconess Medical Center) and anti-psoriasis drug Prurisol (successfully completed a Phase 1 trial and expected to commence a Phase 2/3 trial under an FDA 505(b)(2) designation in early 2015).
PolyMedix had commanded a market capitalization near $230 million not long before data from a Phase 2 trial of the company’s antibiotic Brilacidin for Acute Bacterial Skin and Skin Structure Infections (ABSSSI) caused often by Staphylococcus aureus met its primary endpoints, but raised concerns about safety due to some reported cases of hypertension. Separately, a trial for anti-Heparin drug Dalparantag also showed efficacy, but was accompanied by a handful of hypotensive adverse events. Cumulatively, the side effects and some financial woes wiped the luster of the stock and sent the valuation into a spiral.
Somewhat similar to Auerbach’ methods with PB272, Cellceutix took the clinical data and changed the development strategy; modifying the dosing regimen and targeting short-course therapies, which it believed would eliminate the occurrence of serious adverse events. Under the different protocol, a 215-patient Phase 2b trial for the treatment of ABSSSI was conducted comparing Brilacidin to Cubicin (daptomycin), the blockbuster antibiotic marketed by Cubist Pharmaceuticals (NASDAQ: CBST). The trial had four dosing arms: two single-dose Brilacidin treatments, one three-day Brilacidin treatment, and the FDA-approved 7-day dosing regimen of Cubicin.
Top-line data released on October 31 showing all of the Brilacidin dosing regimens hit the primary endpoint of lesion reduction within 72 hours from first treatment, with all dosing schemes (even both single-dose) delivering comparable results to Cubicin. The trial also showed lower doses of Brilacidin were the ticket to controlling side effects, with no severe adverse events in the study attributed to Brilacidin by the principal investigator. The comparable results with a single dose of a novel drug, as compared to seven days of intravenous injections, carries several implications, including improving patient compliance (100% compliance with only one treatment), potential cost savings (less time in clinic/hospital) and, perhaps most importantly, vast reduction in likelihood of resistance developing.
Cellceutix is meeting with the FDA in December to discuss protocol for a pivotal Phase 3 trial in December. The trial will likely be in the crosshairs of investors given Actavis (NYSE: ACT) agreeing in October to pay $675 million to acquire Durata Therapeutics, taking ownership of ABSSSI drug Dalvance, which was approved by the FDA in May.
Cellceutix is expanding the indications for its defensin-mimetics, starting with Brilacidin-OM for oral mucositis, the often-debilitating inflammation of oral mucosa resulting from chemotherapeutic agents or ionizing radiation. A multi-center Phase 2 trial is expected to start enrolling patients at the University of Texas MD Anderson Cancer Center around the second week of December. As far as dalparantag, the company says it sees a completely different use in the COPD space, which is worth monitoring because of their knack to spot uses others don’t see. Founder and CSO (Dr. Krishna Menon was awarded Eli Lilly’s (NYSE: LLY) President’s Award for his work on the blockbuster cancer drugs Gemzar and Alimta before he struck out with Cellceutix to work on Kevetrin.) Other trials in the Brilacidin and defensin-mimetic franchises have been described for diabetic foot ulcers, Gram-negative infections, ocular and otic conditions and candidiasis. Again, sounds a bit like Puma with the vertical expansion.
Cellceutix dropped on a new one on investors November 24, mentioning as part of a broader press release that it is transferring material to a division of one of the largest U.S. pharmaceutical companies for investigation of Brilacidin in prevention of infection in implanted devices. As is often customary, a name wasn’t disclosed, but the desire of a major pharma to research Brilacidin in a new way seems to speak volumes for a drug that nearly everyone charged as broken less than two years ago.
Shares of Cellceutix hit an all-time high of $3.67 on Monday before closing the day at $3.18 ($363 million market cap). The stock has gone from essentially non-existent trading around 20 cents per share at the start of 2011 to a 3-month daily average in excess of 500,000 shares currently, according to data on Yahoo Finance.
Puma, BioMarin and Cellceutix are all examples of companies at fundamentally different stages that are taking calculated risks in arguably the riskiest industry on Wall Street by advancing mid/late-stage drugs that were funded on someone else’s dime. Each company, whether the $13-billion BioMarin or the diminutive Cellceutix have captured the attention of Wall Street, judging by increased valuations and still have catalysts on the near-term horizon, albeit FDA approvals for Puma and BioMarin or the blessing from the FDA to commence a Phase 3 study by Cellceutix.
