Arqule’s strategy continues to generate value

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Arqule (ARQL) had a quiet 2011 with only two meaningful events, both occurring in January: Initiation of phase III in lung cancer and a public offering. With respect to clinical data, the last meaningful data set was announced in March 2010 in the form of positive phase II results in lung cancer for Arqule’s lead agent, tivantinib (ARQ197). Almost two years later, Arqule returns to investors with more good news, this time in liver cancer. Actual data will be announced only at ASCO in June, however, the limited information provided by the company already positions tivantinib as one of the most promising agents in development for liver cancer.

Robust signal

The phase II study included 107 patients who failed 1st line treatment (Nexavar in the vast majority of cases) and were randomized to receive Arqule’s tivantinib (2 different doses) or placebo. Tivantinib led to a 56% increase in time to progression (TTP), with compelling hazard ratio and p value (HR=0.64, p-value = 0.04). The company did not disclose actual numbers but the difference appears to be very strong from a statistical standpoint, which is particularly impressive given the small size of the trial and the inclusion of all patients in this analysis (no subgroup analysis).

Liver cancer is a notoriously difficult indication, with only one proven drug- Onyx’s (ONXX) Nexavar. The fact patients on the control arm received placebo and not any form of active therapy demonstrates the lack of good options for 2nd line patients. On top of the aggressive chemo-resistant nature of the disease, safety is a cardinal issue in liver cancer patients, who have very low tolerability of side effects. This is where tivantinib’s benign safety profile could be critical, although even with tivantinib investigators encountered side effects that forced them to change the protocol and reduce the dose as the trial progressed.

Open questions- Survival and biomarkers

Positive randomized data sets in liver cancer are very hard to find, however, there are still a lot of open questions regarding tivantinib’s future in this indication. The absolute benefit in TTP is still unknown, let alone its effect on overall survival. Based on other phase II trials, TTP for 2nd line liver cancer is typically 2-3 months. Therefore, if the control arm had a median TTP of ~2.5 months, tivantinib added only ~1.4 months.  Even if Arqule manages to replicate this achievement in phase III, it is unclear whether this benefit is enough for approval. A more important question is this difference will lead to a clinically meaningful survival benefit.

But the most intriguing piece of data would be biomarker analysis, especially such that is related to the pathway inhibited by tivantinib (cMET). The two usual suspects are expression levels of cMET or its ligand, HGF. If Arqule can show retrospectively an association between expression of any of these proteins and clinical benefit, it will probably focus on this subgroup going forward. This will decrease the theoretical market potential but it will also substantially improve probability of success and market acceptance.

Right drug, right strategy

A good clinical program is comprised of 2 important ingredients: A good drug and a good development strategy. The tivantinib program has both, and Arqule and its partner, Daiichi-Sankyo, are now reaping the fruit of a well planned, well executed clinical program that sets an example of how targeted agents should be developed in oncology.

Arqule’s strategy is based on using robust randomized phase II trials powered for demonstrating a clinical benefit (progression free survival or TTP) as go/no-go decision points.  Randomized phase II trials are long, expensive and difficult to run, but their results have tremendous value, especially if the drug has to be given in combination or when overall survival is the endpoint needed for approval.

This was complemented by careful selection of three relevant clinical settings that make sense biologically, hence, where cMET signaling plays an important role either alone or in combination with other pathways. Arqule chose three settings: (i) 2nd line NSCLC with Tarceva (ii) 2nd line liver cancer alone and (iii) 2nd line colon cancer with chemotherapy and Erbitux. Each of these settings represents an unmet need as well as a lucrative commercial opportunity.

So far Arqule got it right in two out of two data readouts – the third trial is expected to generate results towards mid-2013. Assuming the liver cancer data will include at least 1 good biomarker for patient selection and a survival trend, a phase III will start towards the end of 2012. Having two phase III programs based and designed using positive readouts from large randomized phase II studies is a remarkable achievement, let alone for a small biotech company.

                                             Portfolio holdings as of January 22nd 2012



47 thoughts on “Arqule’s strategy continues to generate value

  1. Why is the market cap on ARQL low?Am I missing something?They have a japanese partnership, a great molecule that will succeed by all accounts and still 330 million?
    On a separate note, SNTA ISshowing bullish technicals….I hope ur meeting did not have any unpleasant surprises…


  2. I agree on ARQL’s market cap, unreasonably low in light of the recent liver cancer data. Each of these indications represent ~1B in sales opportunity and Arqule retains a substantial portion of that.

    The call with SNTA did not reveal anything new, good or bad. They still expect to announce 1 or more deals in Q1, not necessarily with ganetespib.



  3. PFS and response rate differences were statistically significant, so there is something there. survival was numerically superior andnot stat sig which is ok given the small size of the trial.

    I don’t expect much of the melanoma trial.



  4. Hi Ohad, thanks to your coverage I bought some MITI a while ago. I have long felt it was the most promising and exciting stock in my portfolio, so I can’t help but feel very sad today that the company won’t be able to reach its long-term potential. (But it sure beats losing money.)

    Thanks for the many recent insights on all the companies in your portfolio. It looks like this is a cash deal, so of course I have to ask you … for current MITI investors do you personally think that buying a position in AMGN with MITI proceeds makes sense, or (as I am leaning toward) would it be better to go with other prospects (e.g., ARQL, CLDX, SNTA, EXEL, PCYC)?

    As always, thanks for the great information and insights you share. I greatly appreciate your blog!

    Thanks –Debra


  5. Thanks, Debra.

    I share your mixed feelings about the deal but as you said, it sure beats losing money.

    I don’t have a simple answer to your question.

    So far the only real source of value for MITI was Bmab even though down the line other BiTE antibodies could be proven effective. Therefore, the near term impact of Bmab (~0.5B max) might be diluted by the rest of Amgen’s activities.

    We still haven’t decided what to do with all the cash to be received from this acquisition (MITI is our largest holding by far). Will try to post a portfolio update in the coming weeks. One stock we are seriously looking at is ONXX.



  6. Thank you, Ohad. Despite the mixed feelings I am definitely grateful for the profit and have you to thank! Please keep sharing your great articles. I will look forward to seeing your future portfolio updates.

    Thanks again,


  7. OMG.
    ‘We still haven’t decided what to do with all the cash to be received from this acquisition (MITI is our largest holding by far)’..

    I always tht these portfolio updates were just hypothetical.
    You are the best analyst in the business.Congrats!


  8. Hi Ohad,
    i’m grateful for your blog.
    Looking forward to your next portfolio update.
    BTW- Do you follow SPPI – Spectrum Pharmaceuticals?
    Thanks Chris


  9. Provocateur- I was referring to the cash in the portfolio we publish. It IS virtual but it is obviously in line with my personal real life portfolio.

    Chris – I don’t follow them closely but I know RBC’s Jason Kantor has an outperform rating for them.



  10. Hi Ohad!

    you took a position in NGSX in 2010 and dropped it in time as far as I remember. now that NGSX trades at cash-level, do you see any remaining value in this company? or are their products – Qutenza / NGX1998 – just a complete failure?

    thank you


  11. Hi Ohad,

    Looking at your interests, astex is an interesting small cap bio in the oncology arena.
    Do you follow them? If not might be a good option to look at them for the portfolio.



  12. Yes i m, they have some of the building blocks i like: approved product (patent life issues) oncology focused, small molecule fragment based discovery platform, activity in epigenetics and industry collaborations. But i couldn’t get my arms around the appropriate valuation of all of that.



  13. I have noticed genetech’s int in epigenetics with constealltion pharma but Astex have terminated their program and transferred it to GSK for royalties. Hope they use it for drug discovery. No BTK target in the pipeline though:-)

    Any thoughts on clovis oncology?


  14. I like CLVS, although their lead program in AML is too risky as i am still not convinced their approach works. The scientific rationale is there and hent1 plays an important role in sensitivity to Gemzar, they just haven’t demonstrated any clinical proof of concept with their lipid conjugate, the data so for is very limited and vague.

    The PARP program they took from pfizer i like very much! Same for the Avila EGFR inhibitor.



  15. Do you have a reference for the placebo arm in 2nd line HCC? On the call they said youd expect to see progression around the 1st or 2nd scan. Said scans varied from 6-8 weeks. I saw that Brivanib only had TTP of 2.0 months in their Phase 2, so I have a hard time believing the placebo arm would be around 2.5 months.

    What do you think about their Phase 2 CRC trial? Thanks for the insight.


  16. Thanks for the link. Did you see my 2nd query about your opinion Phase 2 CRC trial? Seems like there is a good amount of interest in cMet expression for CRC and their Phase 1 data was intriguing, nice to see an objective response rate of 44% in a Phase 1.

    Click to access CRC%20ASCO%202011.pdf

    Personally, I am excited to see some data from their pan-RAF inhibitor, although they mentioned they may need another Phase 1 to adjust dosing or something along those lines. Solid, honest biotech. Weird! Ha.


  17. The rationale for cMET inhibition in this setting is there, but it is hard to predict ( see inginity’s announcement from yesterday).

    Don’t know the RAF program that well, sounds like it has pk issues.



  18. You mentioned that you are considering adding onyx to the portfolio. However, do you believe nexavar will face tough competition from Pfizer’s Inlyta recent FDA approval for advanced kidney cancer? Moreover, regorafenib for advanced colon cancer while statistically significant seemed disappointing since it did not appear to prolong survival by much? Can you give us a hint why you feel its undervalued/attractive?

    Thanks Ohad


  19. hi,

    such investigations are the norm rather than the exception. the law firms want to make some money……

    no need to worry.



  20. Wanted to say thanks again for all your work and insight. Due to your excellent analysis and fair assessments, I have made out quite well, similar to your portfolio. I have recently took all my profits from MITI and purchased YMI.

    I feel YMI is severly undervalued, but I am leery in their ability to partner CYT387, when a company could buy YMI for not much more than a fair partnering deal. Hoping to hear news soon on that front, wanted to see if you would be adding to your position with your recent profits.

    Keep up the excellent work!


  21. YMI is a tough nut to crack but eventually I don’t see how CYT387 becomes totally worthless. Worst case scenario it’s gonna be a me too drug after Jakafi.
    I think holding some YMI at these levels is a good idea, whether to add or not depends on each investor’s risk profile and exposure.



  22. Hello again
    about MITI
    I’m a newbie in the field, what happens now? Whether to sell the stock or wait for the merger?
    Or it doesnt matter because the stock will remain around 11..?



  23. There are too many issues right now from the bad OS trend and the Doxil shortage. I don’t expect them to get EU approval but who knows…
    The only positive thing is their decision to focus EC20++ patients only.



  24. First wanted to thank you for all the good info, I have been investing in biotechnology for over 10y and you are the best i come across so far. I have large holdings in imgn (many year from most at 2-6/pps). I sold some with you at 16 but reloaded when it went to 8. I think 2012-13 will be big for them though Roche did not provided time table for the TTP data, but I still believe approval this year is possible with a NDA to be filed some time later.
    Also we might see other drugs advancing to Phase II, with some promising Phase I data coming as well as more new drugs advancing into the clinic. Would you consider getting in again with your Miti money? Thanks


  25. Thanks for the kind words.

    I agree that teh 2nd part of this year and even more so next year could be transformational for IMGN. Positive p3 EMILIA data are already baked in but results from several programs are expected starting from late 2012. These include their IMGN901 p2 results, IMGN529 in NHL, Sanofi’s ADC for ovarian cancer and 2 Amgen programs. I am most excited about their folate receptor ADC but we’ll have data only in 2H13.



  26. OGXI- It’s nice to see they did a randomized trial with a non-chemo drug. I am still concerned about the soft endpoints they used. I am still a little bit skeptic with respect to their p3 program with Teva.

    Astex- I was initially very skeptic on this filing (AML) because they failed the primary endpoint but using a more mature data set doesn’t look that hopeless to me. IP is critical here, they will be losing market exclusivity for MDS shortly.

    provocateur – I like folate receptor very much as a target. IMGN’s ADC is much more potent and has far better PK properties than ECYT’s SMDC. In addition, it employs a new linker designed to counteract MDR effect.



  27. thld deal gives validity though I am not sure merck saw the data before hand, but i feel the trial will work and thld seems cheap here. any thoughts?


  28. Good day very cool blog!! Guy .. Excellent .. Amazing .. I will bookmark your site and take the feeds additionally?I am satisfied to search out so many helpful information here in the put up, we’d like develop extra strategies on this regard, thanks for sharing. . . . . .


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