Buysiders are being drawn to
mid- and small cap biotechs with solid balance sheets and/or near-term
inflection points going into 2Q13, a period that may be relatively quiet for
some of the sector's largest names.
The challenging environment for
illiquid micro-caps seems likely to persist, though investors chasing returns
will inevitably take some fliers on smaller names.
Companies developing targeted cancer agents or Orphan programs
may be poised to benefit as investors search for this year's versions of big
Inc. or Sarepta
ClearBridge Investments' Marshall Gordon said 2Q13 is shaping
up to be a subdued quarter for big names like Amgen
Sciences Inc. and Regeneron
"Amgen doesn't really have
much going on this quarter, Gilead won't be launching sofosbuvir in HCV for a
while, and Regeneron is past its launch period for Eylea," he said.
Sofosbuvir (GS-7977) is a
nucleotide analog HCV NS5B polymerase inhibitor in Phase III to treat HCV
Eylea aflibercept, which is partnered with Bayer AG,
is approved in the U.S. to treat wet age-related macular degeneration (AMD) and
macular edema following central retinal vein occlusion (CRVO) and in the EU to
treat wet AMD.
The two big cap exceptions are Biogen
Idec Inc. and Celgene
Industry watchers are keen to
see how strong a start Biogen gets with its launch of multiple sclerosis drug
Tecfidera dimethyl fumarate (BG-12), which FDA approved last week.
Gordon said his only concern
will be Biogen's ability to manage the Street's expectations.
"I think it is going to be
a good launch but my only worry is that in the very near term the Street may be
getting ahead of what is possible. I strongly believe in the long-term value of
the drug though and think Biogen is working as hard as it can to set realistic
expectations," said Gordon.
Earlier in March, EMA's CHMP
issued a positive opinion on an MAA for the oral drug, which activates the
NF-E2-related factor 2 (Nrf2) pathway to treat adult patients with
venBio's Behzad Aghazadeh is
watching for a readout from Celgene's Phase III MM-020 study, which is
designed to expand use of Revlimid lenalidomide into the front-line multiple
myeloma (MM) setting. Data are expected in late 2Q13 or 3Q13.
"Celgene's recent updates
have been positive as far as Revlimid not increasing the incidence of secondary
cancers, so the consensus seems to be that '020 will be a success,"
The thalidomide analog is
approved in the U.S. and EU for relapsed or refractory MM, and in the U.S. for
myelodysplastic syndromes (MDS).
The list of notable 2Q13
milestones includes a large number of regulatory submissions, meaning the real
catalysts for these events won't come for several quarters (see "2Q13
Perhaps the most notable
submission will come from Gilead, which will seek approval of sofosbuvir for
use in combination with ribavirin to treat HCV genotype 2/3 - potentially
making it the first all-oral, interferon-free HCV therapy.
Given the massive run-up last
year in the large cap group, it may come as no surprise that some
buysiders think certain names might be poised for deflation (see BioCentury,
Multiple investors told
BioCentury the commercial opportunity for HCV products is being overhyped, and
that Gilead's valuation could decline if sofosbuvir's eventual sales don't meet
Every time the "next big
thing in HCV" is about to come out there is talk about a huge pool of
patients waiting on the sidelines, according to Gordon. "It has been going
on ever since pegylated interferon was first made available, so we've been
waiting for all these patients to appear for 15-20 years - but they never do."
RA Capital's Peter Kolchinsky
thinks Gilead also may face more competition on pricing and that simply having
the best data may not be enough to dominate the market.
Kolchinsky said the Street is
valuing Gilead based on expectations it can maintain dominant market share
while charging $50,000-$80,000 per course.
"Achillion, for example,
is singularly focused on HCV. Their drugs look solid and, once they get to
market, they will find a clearing price. With a valuation around $800 million,
they can discount by 20%, 50%, or 80%, whatever it takes to wrench share from
Gilead, and still offer tremendous upside for shareholders," he noted.
"I think Gilead's
investors will wake up to the competitive pressures in HCV pretty quickly,"
Kolchinsky concluded, noting that a decrease in market cap in the second
biggest biotech would weigh on biotech indices.
Gilead also may be competing for scrips with the likes of AbbVie
Squibb Co. and others.
Inc.'s biggest value drivers are two
HCV products being tested as a fixed-dose combination in a Phase II trial set
to begin this quarter. Investors were sufficiently intrigued by the programs in
February to provide the company with $141.9 million in a follow-on.
The company closed last week
with a market cap of $697 million, which Kolchinsky said is based primarily on
its two lead HCV products.
Gilead closed out the week
valued at $74.5 billion.
Pharmaceuticals Inc. has sailed to a 470% increase in market cap since
early 2009 on the success of its blockbuster hemolytic anemia drug Soliris
The company closed 1Q with a
market cap of $17.9 billion.
Soliris, a humanized mAb
targeting complement 5 (C5), is approved to treat paroxysmal nocturnal
hemoglobinuria (PNH) and atypical hemolytic uremic syndrome (aHUS).
One portfolio manager who asked
not to be named said the commercial transition to aHUS from PNH has been going
smoothly, though some pushback on pricing from payers is inevitable.
Alexion took a 5% haircut on
Jan. 23 after the U.K. Ministers of Health deferred a decision on covering
Soliris on the NHS for aHUS until NICE begins assessing high-cost drugs for
rare conditions during the next fiscal year, which begins in April.
On the day, the company lost
$4.44 to close at $92.96, leaving it with a valuation of $18.1 billion.
"You are bound to get
smacked around a bit by technology assessment organizations if you are charging
$450,000 a year, but almost every time ultimately they end up paying," the
portfolio manager added.
Several other companies picked
by buysiders for 2Q13 also play in the Orphan space.
Among them are BioMarin
Pharmaceutical Inc., Aegerion
Pharmaceuticals Inc. and NPS
Gordon likes BioMarin's portfolio
of Orphan products and history of clinical and commercial execution, and thinks
the stock has more upside despite its being up nearly 500% since early 2009.
The shares closed last week up $1.91 to $62.26, yielding a market cap of $7.8
This quarter, the company plans
to submit a BLA and MAA for Vimizim elosulfase alfa (formerly GALNS), a
recombinant human N-acetylgalactosamine-6-sulfatase, to treat
mucopolysaccharidosis IVA (MPS-IVA, Morquio's syndrome).
"Even at BioMarin's
current valuation I still see a lot of pipeline value is not in the stock,"
The company plans to begin a
Phase III trial of PEG-PAL to treat phenylketonuria (PKU) this quarter, and a
Phase II/III trial of next-generation enzyme replacement therapy BMN-701 to
treat late-onset Pompe's disease in December.
Mann Bioinvest's Andy Smith
likes Aegerion and NPS because they are approaching their product launches
conservatively and are working hard to manage expectations.
Aegerion is a popular pick
among buysiders who like its de-risked story and feel the company has done a
good job of setting expectations for Juxtapid lomitapide to treat homozygous
familial hypercholesterolemia (hoFH).
"Aegerion was cautious on
sales guidance for this year and I applaud that," said Smith. "People
used to say 'sell before first quarter of earnings' but this company is doing
the right thing and has already captured 80-some patients in a rare Orphan
Juxtapid is priced at
$200,000-$300,000 per year in the U.S. Aegerion expects to have 250-300
patients on therapy by year end, and said a total of 3,000 potential patients
have been identified in the U.S. and Europe (see BioCentury, Feb. 4).
The small molecule microsomal
triglyceride transfer protein (MTP) inhibitor is under review for hoFH in
Europe, with a decision expected mid-year.
Smith also believes NPS will
have a good launch with Gattex teduglutide, an analog of glucagon-like
peptide-2 (GLP-2) delivered daily via subcutaneous injection. It was approved
by FDA in December to treat short bowel syndrome (SBS).
NPS launched the drug in
February with an annual price of $295,000, which it said was based on the lack
of approved drugs for SBS, the small population, the drug's efficacy and its
potential to reduce the direct and indirect costs associated with the disease (see
BioCentury, Jan. 14).
NPS soon will start pricing and reimbursement negotiations in
Europe for Gattex, which was approved there in August. Last month, the company
regained ex-North American rights to the drug from Takeda
Pharmaceutical Co. Ltd.
After its huge move, Orphan
play Sarepta now is eliciting bearish comments from some buysiders. The company
closed last week valued at $1.2 billion.
Sarepta's market cap has
ballooned over 900% since last summer based on data from an open-label
extension of a 12-patient Phase IIb trial of eteplirsen to treat Duchenne
muscular dystrophy (DMD). The compound is a phosphorodiamidate morpholino
oligomer (PMO) targeting exon 51.
The extension data showed
weekly eteplirsen significantly slowed the decline in 6MWT in four juvenile
patients vs. four patients receiving placebo (8.7-meter reduction vs. 78-meter
In March, Sarepta said it would
meet with FDA to discuss seeking accelerated approval - or possibly
breakthrough drug designation - for eteplirsen.
However, buysiders are
skeptical the agency will be willing to grant any approval based on such a small
sample size, with one even questioning whether the effect was real.
"The patients' baseline
characteristics make you wonder if this initial ambulatory improvement was a
real signal, and I just don't think FDA is going to allow them to file on the
data they have, as dire a need as there is in DMD," said Gordon.
Eteplirsen met the
study's primary endpoint of increasing dystrophin-positive muscle fibers, but
did not significantly improve clinical outcomes.
Smith and David Pinniger of
International Biotechnology Trust also believe Sarepta is overvalued.
In addition to the Orphan
space, Kolchinsky said targeted cancer therapies will continue to be a favorite
Because of biomarkers and
personalized diagnostics, "oncology is turning into the kind of space
where it's affordable to reach proof of concept in a Phase Ib-type setting by
proving that your targeted mechanism is having the desired effect," he
Kolchinsky added: "Improving
survival is still what really matters, but there are certain cancers where you
can make the case that having a profound effect on the tumor can translate to
real improvement," thus allowing investors and partners to ascribe real
value to programs earlier.
"The remarkable moves by
Pharmacyclics and more recently Infinity highlight the amount of interest in
targeted oncology drugs," he added.
Pharmacyclics is up 432% since the beginning of 2012, valuing
the company at $5.8 billion, while Infinity
Pharmaceuticals Inc. has gained 448% over the same span, giving it a
market cap of $2.2 billion.
Pharmacyclics' ibrutinib is a Bruton's tyrosine kinase (Btk)
inhibitor partnered with Johnson
& Johnson (NYSE:JNJ). It is in Phase III testing for chronic
lymphocytic leukemia (CLL) and mantle cell lymphoma.
Infinity's IPI-145 is an oral
inhibitor of phosphoinositide-3-kinase (PI3K) delta and gamma that is in Phase
I testing for hematological malignancies, and in Phase II for asthma.
The company also is developing
retaspimycin (IPI-504), a small molecule heat shock protein 90 (Hsp90)
chaperone inhibitor that is in Phase II testing for non-small cell lung cancer
"If you can frame your
story around a particular cancer and get it declared 'the new CML' and your drug
'the new Gleevec,' then Pharmacyclics and Infinity become your comparators.
That's what companies are trying to do," said Kolchinsky.
Among the $500-$999 million group, buysiders like names such
Pharmaceuticals Inc. and Keryx
Biopharmaceuticals Inc., which have attracted interest based on strong
data in large commercial settings.
Acadia hit its 52-week high on
March 21 after reporting additional data from a Phase III trial of once-daily
oral pimavanserin to treat Parkinson's disease psychosis (PDP). The day's gain
left the company at $8.81 with a market cap of $693.9 million.
Pimavanserin is a small
molecule serotonin (5-HT2A) receptor inverse agonist that Kolchinsky said
should be useful for treating psychosis in several more settings, including AD
"This is a clean molecule
with strong efficacy in one Phase III trial being developed by a company that
is well-capitalized to complete a second Phase III trial by the end of 2014,"
he noted. "The drug could generate billions in sales and has a long patent
life, yet Acadia is only valued at $700 million."
Acadia raised $86.4 million in
a private placement in December that will fund a second Phase III trial of
pimavanserin in PDP. That study will start this half, with a Phase II trial in
AD psychosis slated to begin in 2H13.
Keryx's market cap has soared
since January when it reported that Zerenex ferric citrate met the primary
endpoint in a Phase III trial to treat hyperphosphatemia in patients with
end-stage renal disease (ESRD).
"This is a fascinating
drug that kills two birds with one stone in the CKD world by lowering phosphate
but also, since the drug is iron-based, addressing anemia. It can save dialysis
clinics money by reducing their use of IV iron and EPO products," said
He noted Keryx also will have a major advantage on pricing
because its cost of goods for Zerenex is much lower than what it costs Sanofi
to make Renagel sevelamer, a nonabsorbed phosphate binder.
Soon after jumping 77% on Jan.
28 - the day the data were reported - the company raised $80.4 million in a
Keryx then gained $0.76 (12%) to $7.19 on March 1 after media
reports surfaced suggesting that GlaxoSmithKline
plc was considering a bid to acquire the biotech.
Keryx was off $0.02 to $7.05
last week, valuing the company at $573.5 million.
Aghazadeh likes Celldex
Therapeutics Inc., which he said is an undervalued cancer platform
company with a pipeline "that gets more interesting the deeper you go."
The company shored up its
balance sheet with a $103.5 million follow-on in February, providing it with
runway through 2015.
Celldex's lead program,
rindopepimut (CDX-110), is in a Phase III trial to treat to treat newly
diagnosed, EGFRvIII-positive glioblastoma multiforme (GBM) following surgical
resection and chemoradiation. Data are expected in 2015.
Rindopepimut is a vaccine
targeting EGFR variant III (EGFRvIII). It is also in Phase II testing for
Next up is CDX-011, a human mAb
against glycoprotein NMB (GPNMB) linked to the tubulin inhibitor monomethyl
auristatin E (MMAE). It is in Phase IIb testing for advanced GPNMB-expressing
breast cancer. A pivotal trial is slated to begin next half.
Celldex has three more programs
in Phase I testing for cancer, including a vaccine, a mAb and a protein
therapeutic. It closed last week with a market cap of $933.3 million.
One 2Q13 milestone that buysiders are not enthusiastic about
is a Phase III readout from Rigel
Pharmaceuticals Inc. and partner AstraZeneca
plc for fostamatinib in rheumatoid arthritis (RA). The study is testing
the oral spleen tyrosine kinase (SYK) inhibitor in combination with DMARDs.
One buysider who didn't want to
be named said expectations for fostamatinib dropped after some disappointing
results in a Phase IIb trial were reported over the winter.
In December, AZ said
fostamatinib was inferior to AbbVie's Humira adalimumab on the
co-primary non-inferiority endpoint of change in Disease Activity Score using
28 joint counts (DAS28) scores from baseline to week 24 in the Phase IIb
OSKIRA-4 trial. The study enrolled RA patients who had never received a DMARD
or were intolerant or refractory to DMARDs.
Pinniger said two cancer plays he likes in the sub-$500
million group are GTx
Inc. and TG
For GTx, Pinniger is bullish
about a pair of Phase III trials of enobosarm to prevent and treat muscle
wasting in patients with NSCLC that will read out next quarter.
Enobosarm is a non-steroidal
selective androgen receptor modulator.
As for TG Therapeutics,
Pinniger noted the company "is only 12 months behind Infinity with an
identical PI3K asset plus a next-generation anti-CD20 mAb and yet a market cap
that is one-twentieth the size."
At last week's close, TG
Therapeutics was valued at $106.8 million vs. $2.2 billion for Infinity.
Let's get takeout
Several names bubbled up about
potential takeout targets.
"There has not been a lot
of M&A over the last few quarters but it might just take one big one to get
things going again, especially as the cash continues to pile up on the pharma
side," said Aghazadeh.
One buysider, who did not want to be named, volunteered Amarin
Corp. plc as a company that should sell itself.
Amarin had explored being
acquired after its Vascepa icosapent ethyl was approved last July but
ultimately decided to launch the hypertriglyceridemia drug itself in January.
It also looked into partnering the product.
A different buysider said Optimer
Pharmaceuticals Inc., which lost its CEO in April and began exploring
strategic alternatives, is another likely acquisition target.
Optimer co-promotes Dificid fidaxomicin with Cubist
Pharmaceuticals Inc. in the U.S. to treat Clostridium
difficile-associated diarrhea (CDAD).
Smith suggested the sector might benefit if Elan
Corp. plc gives in to overtures from Royalty
Pharma, which is seeking to buy the Irish biotech for about $6.5
billion (see BioCentury, March 4).
"I think the deal would be
good for the sector because it would give investors a warm feeling about
biotech returning value to them rather than sitting on the money for the next
30 years," Smith said.
Inc. (NYSE:ABBV), Chicago, Ill.
Pharmaceuticals Inc. (NASDAQ:ACAD), San Diego, Calif.
Pharmaceuticals Inc. (NASDAQ:ACHN), New Haven, Conn.
Pharmaceuticals Inc. (NASDAQ:AEGR), Cambridge, Mass.
Pharmaceuticals Inc. (NASDAQ:ALXN), Cheshire, Conn.
Corp. plc (NASDAQ:AMRN), Dublin, Ireland
Inc. (NASDAQ:AMGN), Thousand Oaks, Calif.
plc (LSE:AZN; NYSE:AZN), London, U.K.
(Xetra:BAYN), Leverkusen, Germany
Idec Inc. (NASDAQ:BIIB), Cambridge, Mass.
Pharmaceutical Inc. (NASDAQ:BMRN), Novato, Calif.
Squibb Co. (NYSE:BMY), New York, N.Y.
Corp. (NASDAQ:CELG), Summit, N.J.
Therapeutics Inc. (NASDAQ:CLDX), Needham, Mass.
Pharmaceuticals Inc. (NASDAQ:CBST), Lexington, Mass.
Corp. plc (NYSE:ELN), Dublin, Ireland
Sciences Inc. (NASDAQ:GILD), Foster City, Calif.
plc (LSE:GSK; NYSE:GSK), London, U.K.
(NASDAQ:GTXI), Memphis, Tenn.
Pharmaceuticals Inc. (NASDAQ:INFI), Cambridge, Mass.
& Johnson (NYSE:JNJ), New Brunswick, N.J.
Biopharmaceuticals Inc. (NASDAQ:KERX), New York, N.Y.
Pharmaceuticals Inc. (NASDAQ:NPSP), Bedminster, N.J.
Pharmaceuticals Inc. (NASDAQ:OPTR), San Diego, Calif.
Inc. (NASDAQ:PCYC), Sunnyvale, Calif.
Pharmaceuticals Inc. (NASDAQ:REGN), Tarrytown, N.J.
Pharmaceuticals Inc. (NASDAQ:RIGL), South San Francisco, Calif.
Pharma, New York, N.Y.
(Euronext:SAN; NYSE:SNY), Paris, France
Therapeutics Inc. (NASDAQ:SRPT), Cambridge, Mass.
Pharmaceutical Co. Ltd. (Tokyo:4502), Osaka, Japan
Therapeutics Inc. (OTCBB:TGTX), New York, N.Y.