The recent pullback in biotech shares has not changed the time-tested theory of investing in small-cap drug development companies. Good or bad data will continue to move shares. In this interview with The Life Sciences Report,
The Life Sciences Report: Joe, since late
One thing that will continue to bolster biotech is that big pharma continues to struggle with its pipeline. Companies are constantly looking for merger and acquisition (M&A) activity, and they need to be able to generate ideas and new drugs. Their internal research and development (R&D) platforms are not doing that anymore. Big pharma is constantly looking at both smaller biotechs and larger companies to fill in the gaps generated by the lack of R&D productivity. That's why we saw
TLSR: Small caps are in a more difficult environment now than they have been over the past few years. When we enter a more hesitant market, investors seem to take it out on smaller biotech companies. How do you think investors should approach small biotech stocks today?
JP: I think we are at a point now where the pendulum is swinging to this sector being oversold. It's similar to when the economy is frothy; there tends to be strong hiring to overhiring, and when things turn around, the pendulum swings the other direction and there tends to be overfiring of personnel. It's hard to find a happy medium.
Investors need to realize that the volatility factor in biotech is much more pronounced. For instance, if a Phase 3 trial works and the data are good, the stock could be up several-fold. If a trial fails, the stock is down 70% on the first tick. Investors get into biotech for the greater upside potential. They are looking for multibaggers, but they need to understand the downside potential for failed clinical trials. That's how they should approach smaller biotech companies.
TLSR: Prior to this biotech bull market, which began almost five years ago, investors were generally unable to make money on early-stage biotech stocks. Even good Phase 1 and Phase 2 data would not move stocks. What about now? Will statistically significant data continue to catalyze small biotechs and move their shares upward?
JP: The simple answer is yes. As you said, prior to the five-year run-up, it was hard to make money on earlier-stage Phase 1 or Phase 2 news. The problem is that investors need to be able to time these catalysts very carefully. A company with positive earlier-stage data could enter a quiet period or a dead zone for news flow, a period when the stock essentially moves up and down with the volatility in the biotech market. As an analyst making an investment case for a company, I focus on catalysts and milestones, which is what investors need to do to make money on these stocks.
TLSR: Stem cell/regenerative medicine companies seem to have lagged every other kind of biotech stock. Their collective performance represents a very long and frustrating battle for people who believe in the concept of cell therapies. We have proof of concept to show that some of these technologies are going to work in patients. Do you foresee cell therapy cycling into investor consciousness?
JP: Regenerative medicine and stem cells are among my favorite topics in the companies I look at. I've covered multiple companies in the space. I believe this sector will cycle into the investor consciousness. But, one of the things that has held this sector back is the lack of significant clinical data. The perception right now is that the stem-cell space--very broadly speaking--is still viewed as a "science experiment" and is lacking the real substantive clinical data sets. Just as in other sectors, investor acceptance is going to come down to good Phase 2 data, and not many of these companies have reached that stage yet.
One company that has been able to get that far is
Today, a lot of stem cell companies in the clinic are still in the anecdotal stage, because the patient numbers are very small. Companies are doing spinal cord injury studies, but we're not going to see what a lot of investors would have liked to have seen years ago, which is that these patients would start walking again. This is a very long process.
Another reason the stem cell space has lagged is that companies have experienced a much longer and more arduous regulatory process with the
I do see a positive trend. I don't want to call it a sea change, but cash is starting to move back into the stem-cell space from the investor front. We are also starting to see significant grant money from places such as the
TLSR: Could you tell us about some companies in the stem-cell space?
JP: I follow
The second prong, which will be absolutely critical for the company, is a later-stage program in heart failure, or chronic myocardial ischemia, which is currently in a Phase 2 study called ATHENA. In an earlier-stage Phase 1 study called PRECISE, with just 27 patients, Cytori showed that it can increase the mVO2, or peak or maximum oxygen consumption during a treadmill test. It also showed there were clinical benefits for these heart failure patients, versus those who received standard of care. The PRECISE study bucked the trend of the expected clinical course of these patients.
Even though it was a small study, it was double-blind--in this case blind to subject or patient, the caregiver, investigator and the outcomes assessor. Because we saw the opposite of what would be expected with standard of care, I think it is pretty promising. Data from the ATHENA study, which is larger than the PRECISE trial, are expected around mid-2015. This is what I consider the lead catalyst for Cytori. If positive, these results put the company firmly on the map with validated clinical data. The most important aspect of what will change the investment case dramatically for Cytori is the readout from ATHENA.
The third prong is that Cytori has an ongoing relationship with the U.S. government, the
The company believes it has hit the points on the checklist of all the things it was supposed to do to move to the next option of the study, which could be worth up to
TLSR: Cytori has harmonized ATHENA I and ATHENA II, and enrollment should be complete by Q1/15. Will full enrollment in ATHENA be the catalyst that will move these shares?
JP: Ultimately, it's the data from ATHENA that will lead to the most prominent share-price movement, either to the up- or downside, depending on how the data pan out. The visibility enabled by completing enrollment could be helpful for this stock. The company has pushed out timelines, so there have been some visibility issues. Full enrollment won't be as prominent as the ultimate clinical data, but once investors see that the study is fully enrolled, they will be able to place more definitive timing on the data catalysts.
TLSR: How many patients must there be in a pivotal Phase 3 trial with ADRCs in myocardial ischemia? How long do you think the Phase 3 will take?
JP: You would easily see 200-300 patients in a Phase 3 heart failure study, because these are pretty advanced-stage disease patients. Allotting time for both enrollment and data readout, we're probably looking at a two- to three-year timeframe.
TLSR: What primary endpoints would we be looking at in a Phase 3 pivotal trial for heart failure?
JP: We need to look at major adverse cardiac events (MACE), and at things like rehospitalization rates. Do you have the ability to improve the class of the patient's heart failure? The Class III or Class IV heart failure patient is worse off; can you transition someone from Class IV to Class III? The endpoints have to be definitive, like overall survival in oncology.
TLSR: If Cytori's ADRCs can prolong lives for a year or more, or if they just improve quality of life in patients, that would be a success. However, these cells are autologous--coming from the same patient to whom they will be administered, and therefore have the same genotype as the patient. That identical genotype could ultimately give rise to the disease phenotype that enabled the development of heart failure. You are a molecular biologist: I wonder if you think about that? Going further, do you wonder whether, in the future, we might want to use allogeneic (from same species) therapies, with cells that have a clean ancestral history of myocardial disease?
JP: That's possible. The potential for allogeneic cells needs to be monitored. With allogeneic cells you have to worry about immune rejection. You could go down the embryonic cell path, because these cells are obviously immune privileged. But to your overall point about the underlying genetics, it would depend on whether the heart disease was caused by the genetics of the cells you were born with. If you have heart failure, it's more likely the result of the course of the patient's life--long-term smoking, long-term fatty diets, long-term unhealthy habits, etc. Your genetics could make you more prone to, let's say, high cholesterol. If it's an underlying genetic disorder, then maybe there could be a potential issue in using an autologous therapy.
TLSR: Would you talk about early-stage companies that you have under coverage?
JP: One is
As a side note, CEO Dr.
We have in hand important anecdotal clinical data. The company ran a Phase 2a study of Archexin with 31 patients in pancreatic cancer. It showed an improvement in survival of 9.1 months, versus 5.7 months with gemcitabine alone, and the safety profile was positive. Given how difficult the pancreatic tumor indication is, we have some proof of concept in hand. What other tumor indications can we look at that have potential unmet medical needs? Renal cell cancer would be one answer, which Rexahn has settled on as the company's lead indication. RCC is an unmet medical need, and it is promising that the company is running a randomized study.
TLSR: What will be the catalyst in this trial for RCC? When do we expect to see that?
JP: Right now, we're looking to get data from the safety component of the study in Q4/14, which will make sure the combination of two drugs--in this case, Archexin and Affinitor (everolimus)--shows itself to be safe. In this day and age, all oncology indications will use combinations in the real world. When you use a new drug with an existing drug, the company and
TLSR: One of the primary endpoints in this Phase 2a trial for RCC is progression-free survival. With only 39 patients in the study, would it be negative for the stock if we don't see an improvement in progression-free survival?
JP: The simple answer is yes. The gold standard is survival in oncology studies, whether it's progression-free or overall survival. Depending on the indication, investors will look right at the primary endpoint. Did it increase survival? Yes or no.
TLSR: Because this is an antisense drug, it does not inhibit the Akt1 protein, but rather it inhibits its synthesis at the gene level. Antisense developer
JP: The preclinical models demonstrate clinical activity in pancreatic cancer. Mouse models showed significant reductions in tumor size and regressions.
TLSR: What else is interesting in the pipeline?
JP: Rexahn's RX-3117, a nucleoside analog that inhibits DNA and RNA synthesis, has potential to be a sleeper product candidate, we think. The company is not putting a lot of cash resources behind this drug at the moment, but it has generated enough data to potentially attract a partnership, which I believe the company wants to deliver on this year. I would almost call RX-3117 a next-generation gemcitabine. The drug has been shown to inhibit tumors that are gemcitabine-resistant. In addition, the drug is orally bioavailable, which gemcitabine is not. Orally bioavailability is a positive, because it implies a patient can be treated on a long-term basis with the cancer being treated as a chronic disease.
JP: Any time a drug is returned by a partner, it's absolutely viewed as negative. The thinking is that perhaps Teva saw something it didn't like. But according to management, there weren't any issues with the drug. I think Teva's decision was based on strategic reasons. It is becoming more of a neurology and respiratory company, and RX-3117 was the fourth oncology collaboration it dropped in recent history. That's why investors need to know the backstory, to overcome those negative perceptions.
TLSR: Is there another company you might mention?
JP: I'd like to discuss
Just as background, checkpoint inhibitors help modulate the immune system. An anti-CTLA-4 or an anti-PD-1 drug helps take the brakes off the immune system and modulate what are called T regulatory cells, which can stimulate, and sometimes quiet down or stop, the immune response. The ultimate goal with all of these checkpoint inhibitors and various immunotherapy approaches is to lift and boost T-cell responses. That's where
TLSR: Joe, here we are with another early-stage story. Are there anecdotal data that have gotten your attention?
JP: I'll give you some real numbers. There have been independent Phase 1/2 studies at four sites, including the
TLSR: The fact that these data are so consistent among investigator- and company-sponsored studies goes against conventional wisdom, doesn't it?
JP: When oncology studies read out and when they are analyzed based on investigator assessments versus independent or central investigators, you'll normally see big deltas in the data. We would normally see a decent amount of variability among the various sites. That's why I see this consistency as being compelling. Yervoy was approved on a 10-11% objective response rate, and a 2% complete response rate. The rate of response, consistency and durability is key. There have been well over 136 patients at this point who have been treated with the therapy at these four different centers.
Another thing I might mention is that some investors view TIL technology as competitive with the checkpoint inhibitors, but I actually think the opposite. I think the technologies can be synergistic. There are combination studies being run currently, both at MD Anderson and the
JP: With either
TLSR: You've referenced checkpoint inhibitors and how important they seem to the investment community, and I'm noting that one such company,
JP: We have Celldex on the Focus List because we believe it is true leader in the cancer immunotherapy arena. The company's two lead products are glembatumumab vedotin (CDX-011), which is in a pivotal Phase 2b for breast cancer, and rindopepimut, which is a cancer vaccine in Phase 3 and Phase 2 (potentially pivotal) for front-line and recurrent glioblastoma, respectively.
Especially coming out of this just-wrapped-up ASCO, I am excited about Celldex's version of a checkpoint inhibitor called varlilumab. I was excited about the product for a very long time, but really could not put investor focus on it because it was preclinical. In the latter part of 2013, we received the first look at first-in-human data in both solid and hematological tumors, and we were quite impressed. At ASCO 2014 we received an update on these patients, and based on the high level of prior treatment of the patients, the monotherapy data are impressive. A little perspective: While Yervoy and the anti-PD1s "take the brakes off" the immune system, varlilumab "presses the accelerator" on the immune system. The company has already started to sign collaborative agreements, including with Roche and
TLSR: I know you're also following
TLSR: Thank you for your time.
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