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12:00 AM
Jul 04, 2011
 |  BioCentury  |  Finance

3Q Financial Markets Preview: Flavored with Phase III

Buysiders picks of biotech stocks to watch in 2H11

The upcoming clinical and regulatory calendar isn't as densely packed as it was in the first half. But biotech investors are looking especially to Phase III data across all market cap segments through year end.

Among the big caps, several buysiders are keen on upcoming Phase III data from Biogen Idec Inc. and Gilead Sciences Inc., companies that already have had strong gains this year.

Biogen Idec got a 46% bounce last quarter from its Phase III DEFINE trial for BG-12 to treat multiple sclerosis (MS). Next half, the company expects to report data from the Phase III CONFIRM study of the compound. Buysiders are anxious that the trial live up to its name, as the results in the first trial were seen as exceptional.

"With BG-12, Biogen Idec got a new life," said Sven Borho of OrbiMed Advisors. "It's the new leadership within large cap biotech. It's going to be interesting if the data is going to be reconfirmed; it most likely will."

David Pinniger of International Biotechnology Trust disagreed. "Biogen Idec is probably a short; everyone is really overexcited on BG-12," he said. "There have been a rash of analyst upgrades recently - everyone's expecting a clear run to $3 to $4 billion in sales. What if there's something nasty in the woodshed?"

Pinniger noted he cannot take short positions at IBT.

BG-12 is a second-generation oral fumarate. Biogen Idec markets its Fumaderm first-generation compound for psoriasis. Since Fumaderm became available in Germany in 1994, Joshua Schimmer of Leerink Swann notes there have been four reported cases of progressive multifocal leukoencephalopathy (PML) and four of kidney cancer.

He said the safety concern was "very low" but added that it "merits consideration."

Phase III data are also coming for Gilead. Its Quad elvitegravir/cobicistat/emtricitabine/tenofovir HIV treatment will have data from two Phase III studies - one head-to-head against Atripla emtricitabine/tenofovir/efavirenz, the other against ritonavir-boosted atazanavir and Truvada emtricitabine/tenofovir. The company hopes to seek regulatory approval in 1Q12.

Bristol-Myers Squibb Co. markets Reyataz atazanavir, while Abbott Laboratories markets Norvir ritonavir.

Gilead also has an Aug. 10 PDUFA date for its Truvada/Edurant emtricitabine/tenofovir/rilpivirine combination to treat HIV, which BB Biotech's Stefan Muller of expects to be approved.

He sees more import in the upcoming Quad results:

"These are two very important data sets. Gilead is trading on a very low P/E. If both were successful, it could dramatically change Gilead's P/E and prolong their market leadership for years," Muller said.

Gilead's P/E fell from 12.5 at March 31, 2010 to 9.4 at June 30, 2010 last year, as the shares fell by a third to about $32 following the company's announcement on its 1Q earnings call that reduced its 2010 sales estimate as a result of healthcare reform. The stock has recovered to around $41, still well below its high of about $50 in early 2010.

"We thought the healthcare reform dent was for no good reason," said longtime Gilead investor Andrew Bogan of Bogan Associates. "We're pleased to see that hammered back out. The remaining challenge is when you're that large and successful, where does growth come from?"

Bogan added investors are using Gilead as a model to think about what's next in HCV.

"There's a lot of attention on the next generation in hepatitis C - it's beginning to look like what Gilead took HIV into. There are any number of companies that would like to be part of a future HCV cocktail that most expect will become the standard of care," he said.

Pharmasset Inc. and Idenix Pharmaceuticals Inc. are among the companies pursuing oral HCV cocktails. Both were richly rewarded by investors last quarter and cashed in with large follow-ons.

Among the other big caps, Muller is anticipating Phase III data for macitentan to treat pulmonary arterial hypertension (PAH) from Actelion Ltd. But those aren't due until 1H12, so he'll be watching for clues in the Phase II data for the candidate in idiopathic pulmonary fibrosis (IPF).

Muller's not anticipating positive efficacy data in IPF, but he wants to see safety data that might have implications in PAH. The company has said that, like other endothelin receptor antagonists, macitentan could have a propensity for elevating liver enzymes.

The fat middle

Buysiders have several picks in the $1-$4.9 billion market cap tier.

Borho is tracking Alexion Pharmaceuticals Inc. as it continues to build its Soliris eculizumab franchise. The drug, which has been approved in paroxysmal nocturnal hemoglobinuria (PNH) since 2007, is under review by FDA and EMA for atypical hemolytic uremic syndrome (aHUS). In June, Alexion received Priority Review from FDA for aHUS.

Soliris is in Phase II testing for nine other indications.

Borho is also watching Regeneron Pharmaceuticals Inc., which has several milestones next quarter: an Aug. 20 PDUFA date for Eylea aflibercept (VEGF Trap-Eye), which received a positive vote for wet age-related macular degeneration (AMD) at a June FDA advisory committee meeting; regulatory submissions for Eylea in central retinal vein occlusion (CRVO) and for Zaltrap VEGF Trap to treat colorectal cancer; and interim Phase III data for Zaltrap in prostate...

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