Whether biotech stocks keep up the scorching pace of 2013 remains to be seen, but we can count on one thing going forward, says
The Life Sciences Report: With stock prices up, I know companies want to raise money through secondary offerings. Do you feel this trend is strong right now, or is it showing fatigue?
We have seen a fair number of companies raise capital thus far in Q1/14. In fact, this past January was the second strongest January on record since 1994 in terms of total money raised. The desire to secure financing is well know among biotech investors, and there does seem to be a strong dynamic to ride any potential wave of enthusiasm that gets generated at the beginning of the year because of conferences, such as the
TLSR: Are you saying that companies are extending their cash runways even though they may not need the money today?
MG: I think that if you're a biotech executive, cash and cash runway are always a concern given the long road from discovery to commercialization. My point was that financings are not happening solely to extend cash runways, although that is an important consideration. They're also occurring around data releases, which have an impact on valuations.
TLSR: We've seen a lot of initial public offerings (IPOs) in the last year. Does the IPO market still look strong to you? If it does, does it look frothy?
MG: As an analyst, I watch financings as a surrogate for demand in the sector. Despite more than
TLSR: Mara, what about the maturity of the IPO companies?
MG: If we are speaking to stage of development, I think it is mixed. Of the class of 2013, close to 50% of the IPOs were in phase 2, another 35% or so were in phase 3, and the remainder were earlier stage. I believe that breakdown is consistent with IPOs that have been priced thus far in 2014. But I think you've touched on an important point about the ability of companies to continue to advance drug candidates in capital raising-constrained environments. Of the 40 or so IPOs in 2013, a considerable number came to market having already advanced lead candidates into mid-phase testing.
TLSR: Are companies themselves mature enough when they go public, or are you seeing lower-quality companies that perhaps don't have clear pathways to pharma partnerships or product commercialization?
MG: I wouldn't confuse quality with development stage, because some very high quality companies are going public at earlier stages of development. Clearly the market has an appetite for stocks where investors believe that a high value return can be accelerated, such as for companies developing drugs for orphan disease.
TLSR: You mentioned the excitement and enthusiasm coming out of the
MG: From company presentations in general, and from the dialogue that I broadly observed, it seems as if companies are engaging the
TLSR: Mara, do you have a current theme for growth-oriented investors?
MG: I continue to think that this is very much a catalyst/milestone-driven market for biotech stocks. We definitely saw that last year, and I think we'll see a continuation of that. In the lead-up to 2013, when capital markets were constrained and the biotech sector was struggling with a host of different issues, clinical trials still advanced, with some companies making progress, albeit quietly. But even as clinical programs were advancing--let's say, in 2009-2011--there was not necessarily commensurate interest in the stocks as investment vehicles. Now, a fair number of companies with midstage and later-stage pipeline products are hitting milestones that are, in essence, driving value creation. I don't think that trend has played out yet.
TLSR: Could we talk about some companies, please? Which name would you like to start with?
What's generating a fair amount of interest today is a second platform technology, which has been under the radar screen for quite some time, inhibition of indoleamine 2,3-dioxygenase (IDO) as a way to block tumor immune escape. The IDO pathway is a checkpoint pathway, and there is much interest in checkpoint inhibitors in oncology right now. Cancers suppress the immune system so that tumor cells are not recognized by a person's innate immunity. The idea behind the IDO and other checkpoint inhibitors is that cancer cells may use the IDO pathway to facilitate survival, growth, invasion and tumor recurrence.
NewLink has two IDO pathway inhibitors--two distinctly different molecules. One is indoximod, which is in phase 2 for metastatic prostate cancer and metastatic breast cancer. Another,
TLSR: Would you tell me what other checkpoints, aside from IDO, are interesting in oncology today?
MG: Checkpoint inhibition, broadly speaking, refers to immune checkpoints that facilitate tumor immune escape. The two most well known to the investment community are CTLA-4, or cytotoxic T-lymphocyte antigen-4, and programmed death protein 1 (PD-1).
TLSR: NewLink's IDO inhibitors are still in early and midstage development--
MG: We've seen some phase 1 data on the indoximod compound. The data essentially suggest that there is a response, that the drug's profile looks reasonable in the field of oncology and that this candidate should be explored further.
TLSR: NewLink shares are up 27% in the past four weeks. Even though the IDO inhibitors are not the lead programs, do you think this platform may be what's moving this stock so dramatically?
MG: I definitely think IDO is a piece of that. Two things have occurred. One, the visibility of the IDO platform is improving. The company recently held a key opinion leader meeting, to which it invited the investment community. The meeting was very well attended and generated a lot of interest. The second component has been the HyperAcute platform and the pancreatic cancer trial (IMPRESS), now in phase 3. We have been waiting for an interim look into the IMPRESS trial, which is event-based. As the trigger number of events has not been reached yet, the interim has not occurred. There had been expectation that the interim would occur in mid or late 2013, and it still hasn't happened.
When a time trial takes longer than expected, investors will typically believe that either the active arm is working very well, and that's why the trigger point has not been reached, or that perhaps the company has miscalculated, and both arms are doing better than expected. We won't know until the final data are released, but I think the fact that it has taken a while to get to an interim point in this trial is creating a calming effect, at least so far.
TLSR: This IMPRESS trial is being conducted under a special protocol agreement (SPA). Does that carry any special meaning for you as an analyst?
MG: An SPA allows a company to work out trial details with the
Then again, the risk in doing a trial under an SPA is that if the standard of care changes while you're in your trial, and you're committed to completing it one way, some nuance of data could make the trial less relevant. In general, however, I think the benefits certainly outweigh the detriments.
TLSR: What other companies are competing in the IDO inhibitor pathway space?
MG: The only company that I know has a molecule in a similar stage of development is
TLSR: Another company, please?
MG: I continue to like
Celldex has a phase 3 program for rindopepimut (a peptide-based vaccine) for a particular form of glioblastoma multiforme, or brain cancer. Another phase 3 program, METRIC, is evaluating CDX-011, also known as glembatumumab vedotin, in triple-negative breast cancer. The drug is a monoclonal antibody-drug conjugate targeting glycoprotein (transmembrane) nmb (GPNMB) over-expression in breast cancer. Screening for this trial is currently underway. The company should see data for CDX-1135, for a rare orphan drug indication called dense deposit disease, in 2014. And there will be more data on the CDX-1127 program, which is a monoclonal antibody targeting CD27, which is involved in the activation of lymphocytes.
I think there is still opportunity in the stock, based on visibility of the pipeline. I think that to some degree, as with last year, data points are skewed toward H2/14 rather than H1/14. Nonetheless, Celldex is a name that we continue to like, particularly because the stock really sold off in Q4/13, most likely profit taking after such a strong year. I think investors can pick up some lost ground in the coming year.
TLSR: You're also following one company in the cancer stem cell space. Tell me about that, please.
MG: I like
We think that
TLSR: That bridging study in
MG: It is a small study--a dose escalation study--looking at safety, pharmacokinetics and pharmacodynamics in a Japanese population. For drugs to be approved in
TLSR: The upcoming catalysts with
MG: Number one is the bridging study, and, second, more data on defactinib. The company also has two other candidates, VS-5584 and VS-4718, both of which are in phase I. We expect data presentations throughout the year. But the greatest focus will be on defactinib, the outcome of the bridging study in
TLSR: Another name?
MG: We haven't talked that much about the large-cap names, but I continue to like
TLSR: Another name?
MG: I have one more name I'll talk about today.
What we really like about Sunesis is the trial design of the VALOR study. We think the trial is very derisked because of the use of an adaptive design that allowed additional patients to be added into the study to ensure appropriate statistical powering over a range of possible outcomes. AML, however, is a very risky category to develop a drug in, since the success rate of trials in this indication is about as close to zero as one can get. The company has set a very high bar in terms of seeking success in this indication.
At the same time, we like the unique attributes of the vosaroxin molecule and how it fits into the current treatment frame. We think Sunesis shares represent a value creation opportunity, though we understand the risk/reward axis.
TLSR: Thank you so much. Always a pleasure.
MG: Thank you.
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