Immunogen and Exelixis Defy the Myth of Recession


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In a time when so many biotech companies do not know how they will survive the nuclear winter of 2009, two companies we hold in the biotech portfolio, stand out in the crowd. Immunogen (IMGN) and Exelixis (EXEL) are poised for an exciting year, with plenty of events in the coming twelve months. The two companies have a lot in common: Both are developing innovative  drugs for cancer that rely on remarkable basic science, both can generate an unlimited number of novel agents, that in turn can be licensed to large partners, and perhaps more importantly these days, both can remain independent of the capital markets for at least two years. Above all, the two companies exemplify how good products and good technologies can still generate tremendous value for investors, even during these economic turbulent times. 

 

Immunogen’s T-DM1 continues to show promise

 

Last week’s Friday, Immunogen’s investors held their breath as Genentech (DNA) published results from a phase II study, which is evaluating T-DM1 (Genentech’s Herceptin armed with Immunogen’s technology) in breast cancer patients. Making this data even more intriguing was Genentech’s decision earlier this year to expand T-DM1’s clinical program and advance it to a phase III registration trial, based on early read-out from the phase II trial. This decision led investors to believe that Genentech would not have embarked on such an aggressive clinical program unless results were positive, as I discussed here. Based on Friday’s price action, it seems that results were not much of a surprise to anyone, nevertheless, it is now very clear why Genentech is so excited with T-DM1.

 

T-DM1 is an antibody-drug conjugate (ADC) aimed at treating a subset of breast cancer patients whose tumors express a protein called Her-2. Genentech pioneered the field of Her-2 therapy with Herceptin, an antibody targeted against HER-2. As Herceptin became one of the best selling oncology drugs to date, with annual sales approaching $5 billion, it was clear that Genentech as well as other players will try to address this lucrative market by novel drugs.

Today there is an additional approved drug, GlaxoSmithKline’s (GSK) Tykerb and several agents in the clinic that target Her-2 breast cancer, including Genentech’s T-DM1 and pertuzumab, which is currently in another phase III trial. Other agents include Bristol-Myers Squibb’s (BMY) tanespimycin, Wyeth’s (WYE) HKI-272 and Novartis’ (NVS) RAD001. Not all of these new agents target Her-2 directly, so some are tested in combination with Herceptin, but the ones that do target Her-2 represent potential competition for Herceptin’s dominant position. The realization that the market is becoming more complex with more drugs in the clinician’s armamentarium probably motivated Genentech to pursue opportunities such as pertuzumab and T-DM1, as Genentech is hoping that by having more drugs for HER-2 breast cancer patients, it will be able to tighten its grip on the market and maintain a meaningful market share.

 

Back to the data Genentech presented last week, it included results for over a hundred patients whose disease had progressed on Herceptin treatment.  The data is still very preliminary, as it includes final response rate only for 76 patients and in contrast to what I expected, there is still no progression free survival data for these patients. Nevertheless, results were very encouraging, with 29 (38.2%) patients achieving a confirmed objective response (a sustained reduction of at least 30% in their tumors). This compares favorably with results from other drugs in similar patient populations, as shown in the table below.  

 

figure-1-her2-agents.PNG

             INV (investigator assessment), IRA (independent radiology assessment),

                 ORR (objective response rate), PFS (progression free survival).

 


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It is important to note that T-DM1 has never been directly compared to any of these regimens and that the different trials differ by many factors, so it is impossible to reach any definitive conclusions. The data from the T-DM1 trial is still not final, with a great deal of data missing, especially the final response rate for all the patients in the trial, the amount of patients with stable disease and the progression-free survival. Another important factor which will probably have a negative effect is the fact that the response rate provided for T-DM1 was based on investigator assessment, which is typically higher than independent assessment. Thus, it would be reasonable to expect final response rate in the range of 20%-30%, in the ballpark of other investigational treatments. The presentation also did not distinguish between a complete responders and partial responders, as opposed to prior presentations. Nevertheless, even when all this is taken into account, it is clear that T-DM1 is a very promising agent for this challenging patient population.

 

The results become even more impressive when the patient population of the study is examined. To my knowledge, the T-DM1 study is the only trial that included a majority of patients who progressed on the recently approved combination of Tykerb+Xeloda, the last line of defense for Her-2 metastatic breast cancer patients. These patients, who accounted for over 50% of the study population, perhaps represent the most advanced and challenging patient population with HER-2 breast cancer. Strikingly, these patients derived great benefit from T-DM1 with a confirmed response rate of 22%, a figure that should be higher in the final analysis next year because at the time of data cut off, some of them were not receiving T-DM1 long enough in order to be considered as responders.

 

This probably puts T-DM1 closer to FDA approval than ever, as the ultimate line of defense for patients who do not have other approved alternatives. In their recent quarterly conference call, Genentech’s management said that they are pursuing two registrational routes. The first route is a planned comparative phase III trial against Tykerb+Xeloda in patients who progress on Herceptin (second line), whereas the second route is for patients whose cancer progressed on treatment with Herceptin plus chemotherapy and then on Tykerb+Xeloda (third line). Because there are currently no approved therapies for the third line setting, Genentech believes that it will be relatively easy to get T-DM1 to market, based on a single arm study in 100 third line patients, which started in August of 2008. Due to the highly unmet medical need third line patients represent, it is believed that T-DM1 could be approved for this setting based only on objective response rate (tumor shrinkage). As opposed to other endpoints such as PFS and overall survival, the read-out for an objective response rate can be done very early in the trial, as soon as three months following the first treatment cycle of every patient. Assuming an enrollment rate similar to the present phase II study,   Genentech might file for approval already in late 2010, if results merit it.

 

Another reason to be optimistic about T-DM1 is the fact that as a single agent, it manages to achieve similar or better results than a combination of two targeted agents (Herceptin+ pertuzumab, Lapatinib+Herceptin, Tanespimycin+Herceptin) or even a chemo agent and a targeted agent (Tykerb+Xeloda). It is therefore plausible that combining T-DM1 with other agents will lead to even better results, although such combinations may increase the amount of side effects or eventually show no meaningful additive effect. The first combination trial of T-DM1 is expected to begin in the first half of 2009, according to Genentech.

There are cost implications as well. Assuming that the monthly cost of every targeted agent is similar (for the sake of demonstration, $3000), the difference between a single and a double-drug regimen becomes very meaningful. In an environment where the cost of treating cancer is steadily mounting, having a cheaper treatment option with comparable efficacy may be a very strong advantage.

 

Notwithstanding the attractiveness of T-DM1, it has its share of drawbacks. T-DM1 is an injectable drug while potential competitors, Tykerb and Xeloda are pills, a huge difference in terms of patient convenience. In addition, as opposed to small molecules such as Tykerb and HKI-272, antibodies such as T-DM1 do not reach the brain and are therefore considered ineffective in treating brain metastases. Bearing in mind that one in four metastatic breast cancer patients will develop brain metastases in the course of her disease, this property may play a role in choosing the right treatment. From a development standpoint, this bodes well for a combination of T-DM1 with either Tykerb or HKI-272, as long as these combinations are not too toxic. GSK is already evaluating the Tykerb+Herceptin combination in various large clinical trials.

 

In summary, Immunogen concludes 2008 as the best year in the company’s history, a year in which its technology has been validated beyond any doubt and gained a huge amount of traction within the pharmaceutical industry. The company starts 2009 with a candidate in two registrational trials and a fully committed partner that happens to be the world’s largest biotech company. It also enters the year with 8 projects in the clinic, an unprecedented number by any standard. It should be noted that T-DM1 is the only agent to produce impressive clinical data so far, in part because the early stage agents in the company’s pipeline did not have the chance of producing data and in part because the more advanced agents do not seem efficacious enough. Still, even if all the candidates in Immunogen’s pipeline except T-DM1 fail, T-DM1 could generate enough milestone payments and royalties to turn Immunogen into a profitable company.

 

Immunogen’s next mission is to ride the tail winds of T-DM1 and expand its pipeline by licensing its technology to as many partners as possible in order to have as many shots on goal as possible. Statistically, the vast majority of these agents will fail to reach the market, but chances of having another T-DM1 increase with every agent that enters the clinic. In an industry starved for innovation and facing serious patent expirations, with the T-DM1 data under its belt, Immunogen will be able to attract more potential partners and to charge more for its technology. The recent agreement with Bayer, which includes substantially more lucrative terms than the old agreements with Genentech and Sanofi-Aventis, is a demonstration of the improved negotiation leverage the company has. This is exactly the type of environment I envisioned in a previous article, “Immunogen And Seattle-Genetics–On The Verge Of An Inflection Point“.

 

Exelixis proves skeptics wrong

 

Another company that gives its shareholders reasons to smile is Exelixis, following the mammoth deal with BMS. Exelixis licensed its most advanced compound, XL184, and its early stage RAF inhibitor, XL281 in a deal that includes an upfront cash payment of $195 million as well as an additional licensing payment of $45 million to be paid in 2009.

In an article from October, I estimated that XL184 and XL281, which had been developed under the GSK collaboration, would eventually be licensed, but I must admit that the timing and size of the deal caught me by surprise. This deal is obviously another validation of Exelixis’ technology and pipeline quality, but more than anything it is a monumental achievement for the company’s management who managed to land one of the most lucrative biotech deals in history during such a challenging period.

During the company’s third quarter conference call, when asked whether there was a change in interest from potential partners, Exelixis’ CEO, George Scangos, stunned listeners by saying that he sees an increase rather than a decrease in interest. The market and some of the analysts reacted with skepticism, suggesting that now that small biotech companies are cut off from the equity market, they would be forced to sign less attractive deals. Deals such as the Exelixis deal and the one signed by Arqule (ARQL) and Daiichi-Sankyo prove that the not only is the price of promising compounds going down, the trend is in the opposite direction. At the RBC Healthcare conference earlier this month, Genentech’s vice president of business development, Joseph McCracken, addressed this discrepancy. According to McCracken, who oversees collaborations with both Immunogen and Exelixis, the price of partnership deals has not gone down primarily because the demand from the big pharmaceuticals that must fill their pipelines has increased. This statement should reassure investors of companies like Exelixis that there is still a good market for quality compounds, recession or no recession.

 

With $260 million secured from BMS over the past three weeks, and the anticipated offload of costs related to the development of XL184 and XL281, Exelixis is now a much safer stock, and to some extent, today, after climbing 100% in less than a month, Exelixis looks cheaper than ever. Investors should expect additional licensing deals already in the first half of 2009, especially for XL765 and XL147, which target one of the most frequently dysregulated pathways in cancer. These compounds have potential utility in combination with many regimens for countless indications, so they require a broad and expensive clinical program that must be led by a large partner. The licensing of these compounds could add over a $100 million in upfront payments to Exelixis in the coming months and further offload its development costs. 

 

The interest in kinase inhibitors for cancer is very high and pharma companies like BMS are very aggressive in expanding their oncology pipelines with almost a hundred kinase inhibitors in the clinic. Based on a recent review published in Nature Reviews Drug Discovery, they are doing that for a very good reason.

The authors, Ian Walker and Herbie Newell evaluated success rates of almost a thousand anti-cancer agents that entered clinical trials between January 1995 and September 2007. One of the most interesting outcomes of the analysis is that 47% of kinase inhibitors which entered phase I made it to the finish line vs. only 18% for all the oncology drugs. The authors suggest that this difference is a result of the targeted nature of kinase inhibitors and the use of biomarkers for identifying the right patients who are more likely to derive benefit from these agents.

figure-2-kinase-inhibitors-attrition-rates.PNG

                                         

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                    Nat Rev Drug Discov. 2008 Nov 14. [Epub ahead of print]


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Although the analysis refers only to historical data and there is no assurance that these statistics can be maintained going forward, it certainly implies that kinase inhibitors as a group can be considered as a relatively safe bet. Applying these ratios to a company like Exelixis puts things in a very interesting perspective. In 2009, Exelixis will be involved in at least 11 clinical programs of kinase inhibitors for cancer, so based on historic success rates, 5 of these compounds are expected to hit the market.

Obviously, these statistics may not be replicated and even if they do, there is no way of predicting the commercial success of an approved drug. In fact, the field of kinase inhibitors is so crowded that there will surely be some competition between drugs that hit the same target or approved for the same indication, which is why companies like Exelixis must find ways to differentiate their products. Some of the ways to differentiate a compound include having the first compound in the market for a specific target (first in class), proving superiority over competing drugs (best in class) and developing drugs with a unique spectrum of activity. Exelixis has been doing a great job in creating an impressive pipeline of kinase inhibitors, including several highly differentiated compounds. With the financial issue finally resolved, the market can focus again on the company’s broad pipeline as it generates material clinical data throughout 2009.

 


Portfolio updates and performance

 

We decided to sell half of our position in Arqule, realizing a 95% gain in just over two months. Proceeds from this sale will be used in the near future for increasing holdings in Seattle Genetics and Rigel, which seem attractive at the current price levels.

The portfolio’s performance was quite robust, with a return of 12.4% since inception (10 weeks). Despite the short period of follow-up, a comparison to major indices as well as healthcare and biotech indices and ETFs looks very encouraging.

 

 

figure-3-performance-compared-to-indices.PNG

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                              The Biotech Portfolio Holdings as of Dec. 19th 2008

 

modle-portfolio-19-12-08-after-changes.PNG


2 thoughts on “Immunogen and Exelixis Defy the Myth of Recession

  1. Hi Ohad

    Great article, as usual.
    I am just a little bit surprised that you didn’t say a word about MITI. I was under the impression they presented excellent data at ASH.

    Thanks,
    Craig

    Like

  2. Thanks, Craig.

    Micromet presented exciting data at ASH, no doubt. The only reason I didn’t mention them is lack of time.

    The ALL study clears the way for a pivotal study in adult ALL, it’s a niche market but be could be a great entry ticket to market.
    On the NHL front, the data continues to be robust, but there were no meaningful news. The company says it is still working on improving the safety profile and administration ( from i.v to subcutaneous).
    The only bad thing I can say is that it is taking them way too long. They need a large partner, but Medimmune hasn’t been active until now. Hopefully we will hear from Medimmune soon regarding a US trial of MT103.

    Ohad

    Like

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