12:00 AM
 | 
Jan 07, 2013
 |  BioCentury  |  Finance

Buyside View XXI: Sunny side up

2013 Buyside View: focus on blood cancers, ADCs, antibiotics, FDA approval list

A strong crop of early PDUFA dates and a sense that FDA is more navigable have given money managers in the U.S. and Europe a positive outlook for 2013, which they hope will be another year with a high number of approvals.

That will make the year more about launches than data, but even so, optimism remains. Indeed, the strength of the upcoming products means for the first time since 2010, investors no longer view biotech launches as automatic shorts.

BioCentury's 21st annual Buyside View review also finds biotech investors pointing to a few hot areas earlier in the development cycle, including cancer and antibiotics.

The new year may see buysiders shift their focus within cancer, however. Prostate cancer was big in 2012, but is now evolving from clinical milestones to a commercial story.

Following data from the American Society of Hematology (ASH) meeting in December, buysiders named hematological malignancies as a main focus for the new year. Close behind are antibody-drug conjugates (ADCs), led by T-DM1 trastuzumab emtansine from Roche's Genentech Inc. unit and ImmunoGen Inc.

Multiple investors told BioCentury that support from the GAIN Act and FDA means antibiotics are back on the radar as an attractive opportunity. And while interest in the hepatitis C race isn't going to die down anytime soon, money managers are split on whether the HCV bull run will continue into 2013.

Areas generating little enthusiasm include pain, because of the regulatory minefield around the classwide REMS for opioids, and obesity, because of reimbursement risk.

Other areas, such as regenerative medicine, cancer immunotherapy and cancer metabolism are interesting to buysiders, but still too early in development for public money.

Approvals and FDA

2012 was a record year for FDA approvals. Last year the agency approved at least 41 NMEs, up from 30 in 2011 and almost double the 21 approved in 2010.

Although the reasons for the increase in FDA approvals are not entirely clear, buysiders credited some of it to industry having a better understanding of how to navigate the regulatory pathway, and some to FDA's efforts to more efficiently move NMEs through the approval process.

"We have a completely better regulatory situation than five to seven years ago," Medical Strategy GmbH's Harald Schwarz told BioCentury.

Heading into 2013, he cited the reauthorization of PDUFA through the FDA Safety and Innovation Act (FDASIA) as potentially providing new mechanisms for speeding drugs to market. Under FDASIA, the agency is establishing a new breakthrough therapy pathway for exceptional drugs (see BioCentury This Week television, Dec. 2, 2012, & BioCentury, Dec. 3, 2012).

FDA is also looking at how accelerated approval can be used more broadly outside of cancer and infectious diseases.

Schwarz also noted the recent report from the President's Council of Advisors on Science and Technology (PCAST) that calls for a doubling of FDA approvals (see BioCentury, Oct. 8, 2012).

Omega Fund's Otello Stampacchia agreed: "We have already seen 41 approvals in 2012, and I believe we will be seeing potentially even more in 2013," he said.

So far there are at least 30 PDUFA dates in 2013, and nine companies have said they expect to submit NDAs or BLAs for a combined nine NMEs in 1Q13 (see Approval Watch, A14).

The past two years also have seen an increased number of positive opinions for new medicines from EMA's CHMP. The committee recommended approval of 36 new drugs in 2012 and 35 in 2011, well above the 19 positive opinions issued in 2010.

But as commercial prospects in Europe become less attractive, an improved U.S. regulatory pathway is all the more important.

"European approvals have a fragmented, piecemeal commercial effect because they are just the signal of the start for pricing and reimbursement negotiations in markets, rather than revenue generation," said Mann Bioinvest's Andy Smith.

International Biotechnology Trust's David Pinniger agreed, noting the European markets present "a tough pricing environment that is only getting tougher."

Tom Brakel of Federated Investors said the lack of transparency in the European approval process, coupled with opaque pricing negotiations and difficulty tracking country-by-country launches, means new products in Europe are a bit of a blind spot for investors.

But that doesn't mean European markets are to be ignored. "Once these markets get going, they can be great contributors" to revenue, Brakel said.

The most highly anticipated U.S. approval is BG-12 from Biogen Idec Inc. for multiple sclerosis (MS). Kai Bruening of Apo Asset Management, a unit of Deutsche Arzte und Apotheker Bank, said BG-12 will determine how the competition plays out in the MS space.

But Pinniger noted BG-12 is already priced into Biogen's stock as a $4 billion drug, so "you wonder where the upside is."

Two other key regulatory decisions anticipated this quarter include Celgene Corp.'s pomalidomide for relapsed or refractory multiple myeloma (MM) and T-DM1 for breast cancer.

Leading up to the new year, investors also were watching for approval of Eliquis apixaban from Bristol-Myers Squibb Co. and Pfizer Inc. to prevent stroke in atrial fibrillation (AF) patients. They got their wish, as FDA approved Eliquis in late December, almost three months ahead of its March 17 PDUFA date.

Launches

The large number of 2012 approvals and important early 2013 PDUFA dates means the coming year is more about launch stories than anything else, said Marshall Gordon of ClearBridge Advisors. Yet according to buysiders, "short the launch" is no longer the overarching mantra as it was in 2010 and 2011.

"I do see that changing," Andrew Singer of RBC Capital Markets told BioCentury. "Two years ago the general view was short the launch, as almost every stock had run up too much ahead of the launch and expectations were too high."

He credited the change in sentiment to strong launches over the past year, such as Regeneron Pharmaceuticals Inc.'s launch of Eylea aflibercept for wet AMD. He added that companies have gotten smarter about managing launch expectations.

Geraldine O'Keeffe of LSP-Life Sciences Partners agreed. As an example, she said ThromboGenics N.V. "has so far been good about managing expectations, such as saying they won't give weekly updates" on sales of Jetrea ocriplasmin. In October, FDA approved Jetrea to treat symptomatic vitreomacular adhesion (VMA). The biotech plans to launch Jetrea in the U.S. on Jan. 14.

Brakel said Ariad Pharmaceuticals Inc. also has done a good job of managing expectations for the highly anticipated launch of leukemia drug Iclusig ponatinib. Although Ariad's stock has lost significant value since FDA approved Iclusig in December with an unexpected boxed warning for arterial thrombosis and liver toxicity, many buyside investors argue the market has overreacted (see BioCentury, Dec. 24, 2012).

Indeed, the Iclusig launch was on most buysiders' watch lists.

According to BB Biotech's Daniel Koller, the shift in sentiment means buysiders "are now much more selective in terms of what they think is a good launch or will have room for upside." That means investors will judge each launch on its merits (see "New Products to Watch," A12).

Ivo Staijen of HBM Partners thus is looking for "credible launch stories" that can drive smaller biotechs into the mid- or large cap space. He defined credible launch stories as companies with drugs that address a high medical need and can achieve wide reimbursement at a high price point. He named Onyx Pharmaceuticals Inc., Ariad and Medivation Inc. as examples that have jumped into the mid-cap tier.

Most buysiders are watching Onyx's multiple myeloma drug Kyprolis carfilzomib, which launched in August. Since the launch, Onyx's market cap has increased about $150 million.

In September, Medivation and partner Astellas Pharma Inc. launched Xtandi enzalutamide to treat prostate cancer. The biotech's market cap is up about $220 million since the launch.

Staijen cited Amarin Corp. plc and Vivus Inc. as two recent examples where the launch has lost momentum with investors.

Vivus launched its once-daily obesity drug Qsymia in September, and since has lost over $900 million in market cap.

The Amarin case is more complex. As Pinniger noted, management had been promising an M&A takeout for the past year, and it hasn't happened.

Since the July 30 FDA approval of Vascepa icosapent ethyl for severe hypertriglyceridemia, Amarin is down almost 40%. Most of the drop came after Dec. 6, when the company announced it had secured $100 million in debt to hire up to a 300-person sales force to launch Vascepa in 1Q13.

But not all investors are bailing on Amarin. LSP-Life Sciences Partners' Joep Muijrers said he still believes there is a significant commercial opportunity for Vascepa, and an sNDA for mixed dyslipidemia that is expected to be submitted in 1Q13 would greatly expand the patient population for the drug.

Muijrers said an expanded label would likely require the company to bring a partner on board, although it also could trigger a sale.

Cancer, cancer, cancer

As in 2012, buysiders expect 2013 will be a big year for cancer, but the areas of interest within the space have changed.

Prostate cancer was hot in 2012, with Johnson & Johnson's Zytiga abiraterone, Medivation's Xtandi and Radium-223 (formerly Alpharadin) from Algeta ASA garnering most of the attention. With Zytiga and Xtandi approved and Radium-223 under review in the U.S. and Europe, the prostate cancer plays have become commercial stories.

Money managers told BioCentury that investors will be highly focused on hematological malignancies in 2013, given the large amount of impressive data presented at ASH.

Koller noted there is excitement around Pharmacyclics Inc.'s ibrutinib, which is in Phase III testing for chronic lymphocytic leukemia (CLL) and mantle cell lymphoma (MCL). The Bruton's tyrosine kinase (Btk) inhibitor, which is partnered with J&J, drove Pharmacyclics' 250% rise in 2012, giving it a market cap approaching $4 billion.

Some buysiders think ibrutinib is now fully priced into the stock, leaving little room for upside. Thus investors who missed out may be looking for other rising stocks in the space.

Pinniger suggested Infinity Pharmaceuticals Inc. "Infinity has got a lot of attention for its IPI-145," he said. "You can see people are beginning to think, 'I've missed the Pharmacyclics story, where is Pharmacyclics 2 and 3 going to come from?' And Infinity they see as the lead candidate."

At ASH, Infinity presented Phase I data for the oral inhibitor of phosphoinositide-3-kinase (PI3K) delta and gamma in hematological malignancies.

On the back of the data, Infinity raised $150 million in a follow-on that Janus' Ethan Lovell said removed a financial overhang for the company. This was evidenced by a 10% run-up in the stock on the day of the financing, giving Infinity a market cap of around $1 billion.

Investors also frequently mentioned Celgene's hematological cancer franchise, with a focus on pomalidomide, which has a Feb. 10 PDUFA date.

Spotlight on ADCs

Investors also expect ADCs or similar technologies to be in the spotlight in 2013. Leading the way is T-DM1. The humanized mAb against EGFR2 (HER2) linked to the DM1 cytotoxic agent is under review to treat HER2-positive, unresectable locally advanced or metastatic breast cancer, with a Feb. 26 PDUFA date.

While Smith said ImmunoGen's royalty on T-DM1 is so low that it may not be a large revenue stream, the expected approval would be a major validation for the ADC technology. "Perhaps 2013 will be the year of the antibody-drug conjugate," he said.

Pinniger agreed: "I think everyone is expecting T-DM1 to get approved, as the data are so strong. I think it is a marker that the ADC technology has come of age."

John Chambers of Roth Capital Partners noted ImmunoGen and fellow ADC company Seattle Genetics Inc. should draw significant interest from strategic players and investors alike.

Schwarz and Koller noted that interest around targeted conjugate technologies isn't limited to antibodies. Both named Endocyte Inc. - which uses the same principle as ADCs but conjugates the toxin to a small molecule - as a company to watch in 2013. Endocyte's vintafolide, a conjugate consisting of a vinca alkaloid microtubule destabilizer connected via a linker to a folate vitamin analog, is under review in Europe to treat folate receptor-positive, platinum-resistant ovarian cancer.

Vintafolide is being developed with a companion diagnostic and is partnered with Merck & Co. Inc.

Pinniger and Schwarz also mentioned Celldex Therapeutics Inc. On Dec. 10, Celldex jumped 26% to $6.93 after reporting an almost doubling of overall survival (OS) in a subgroup of patients with high glycoprotein NMB (GPNMB) expression in the Phase IIb EMERGE trial of glembatumumab vedotin (CDX-011) to treat advanced, refractory or resistant GPNMB-expressing breast cancer.

The human mAb against GPNMB linked to the tubulin inhibitor monoethyl auristatin E (MMAE) uses ADC technology from Seattle Genetics. In 2012, Celldex was up more than 130%, giving it a market cap of over $400 million.

The growing interest in ADCs has attracted others to the space, such as...

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