Biotech Stocks to watch in 2012

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Exelixis – More than a prostate cancer drug

Exelixis (EXEL) is starting to recuperate after last year’s clash with the FDA regarding a registration trial for its lead agent, cabozantinib (cabo), in prostate cancer. The company, which still sticks to its original plan of conducting a phase III trial using pain as a primary endpoint, is expected to announce it has enrolled the first patient in the study in the coming weeks. The trial will enroll 250 patients with bone metastases who are suffering from cancer associated pain and will evaluate cabo’s effect on bone scans and pain.

Exelixis will start a more traditional phase III study in prostate cancer in the coming months. The trial will recruit ~1000 patients who failed two or more approved agents and will look at overall survival as a primary endpoint.

As I previously discussed, cabo’s prostate cancer program is controversial due to the dramatic resolution of bone scans in patients with bone metastases. This effect is something investors and analysts are still trying to digest, with some questioning the relevance of the observed scan resolution. Even if the drug can shrink bone metastases, which is something no other drug has been shown to do, the impact on survival is unclear due to the lack of a precedent. The only supporting evidence is Algeta’s Alphadrin, a radioactive drug that targets bone mets and leads to increased survival. Moreover, prostate cancer has become an extremely crowded field with 5 new drugs that are either approved or on the verge of approval.

At ASCO 2012 (June), Exelixis is expected to present phase II results in 150 chemo-pretreated prostate cancer patients. Although the trial is a single arm study, it will provide important information on the bone met effect and its durability in a large, more homogeneous group. Nevertheless, it seems that Exelixis must show a robust effect on overall survival in order to prove cabo is effective in prostate cancer.       

What the market seems to overlook is cabo’s potential beyond its bone met activity and even beyond prostate cancer. There is a growing body of evidence that shows that cabo is a promising drug even when excluding the bone met effect.

Exelixis will present phase III results in medullary thyroid cancer (MTC) at ASCO, which are expected to be remarkable based top line results announced last year. As the trial was conducted under SPA (special protocol assessment), chances of approval are very high. The market opportunity in MTC is very small (~$200M WW) but the program is important as a validation of cabo’s activity regardless of the bone effect. Cabo’s results compare very favorably to AstraZeneca’s vandetinib, which recently got FDA approval for MTC. Financially, although Exelixis will have to find a partner that can distribute the drug globally, approval in MTC will put a minimal price tag of several hundreds of millions on Exelixis. The most intriguing (and potentially problematic) effect of such approval would be off label use, especially in patients with bone mets. One drawback could be a confounding effect in randomized trials, as patients on the placebo arm could subsequently get cabo after the study.      

Cabo might be effective in many other types of cancer, including lung, ovarian renal and liver cancer. So far there are only early signs of activity, but these signs make it hard to ignore the drug’s broad potential. Last year, investigators reported a tiny data set of cabo in only 6 patients, 2 of which achieved partial responses (interestingly, both had lung cancer). Last month, phase II results in liver cancer included tumor shrinkage in 78% of patients and a PFS of 4.2 months. Last week, the company reported excellent activity in renal cancer patients in the form of a 28% response rate and a median PFS of 14.7 in heavily pretreated patients (64% of patients received cabo as a third line or beyond).

Taken together, these small uncontrolled data sets clearly show cabo is a promising drug beyond its bone-met effect.    

Celldex – Important data in breast cancer

Celldex (CLDX) is up 80% year-to-date, thanks to positive sentiment towards its two lead programs. Celldex is one of a few biotech companies with two advanced oncology programs, which are of high demand in today’s market.

The company’s most advanced program is rindopepimut, a cancer vaccine for the treatment of glioblastoma multiforme (GBM), a deadly form of brain cancer. Last year, the company started a highly anticipated phase III trial for this program after overcoming several technical issues. The vaccine generated positive consistent data in 3 phase II trials, however, these were small single-arm studies. The most compelling evidence to date was generated in an analysis done by investigators who noted that patients who had been treated with rindo lost expression of rindo’s target, EGFRVIII. As I previously wrote, this is an indirect but very significant evidence the vaccine is biologically active.

Celldex’s second most advanced program, CDX-011, is an antibody-drug conjugate (ADC) that has already demonstrated activity in melanoma and breast cancer. It is currently in a randomized phase II trial in breast cancer with data expected at ASCO in June. The trial randomizes patients who express CDX-011’s target (GPNMB) on their tumors to receiving CDX-011 or any other drug chosen by the physician.

CDX-011 is garnering a lot of attention among investors since it has many attributes the industry likes:

  • It is an antibody-drug conjugate (a hot field) that utilizes Seattle Genetics’ (SGEN) proven technology.
  • It has a potential biomarker for patient selection.
  • It demonstrated activity in non-selected patients.
  • It targets triple-negative breast cancer, where there are no good treatment alternatives.
  • The licensing terms with Seattle Genetics are attractive compared to the more recent deals the company has signed.

The only thing missing is positive results in the phase II trial. 

Seattle Genetics – Focus on new indications and partnered pipeline

In 2012 the market will focus on Seattle Genetics’ Adcetris, which was approved in August of last year. Current estimates for 2012 Adcetris sales range around $150M in the US, based on strong demand and the drug’s robust efficacy.  While most of this figure is comprised of sales in the two indications that appear on the drug’s label (Hodgkin lymphoma and ALCL), Adcetris could eventually be used for additional indications.

Last month, investigators reported positive results in 2 additional types of blood cancers, where Adcetris demonstrated impressive efficacy. Adcetris had a response rate of 65% in 17 patients with cutaneous T cell lymphoma (CTCL), an indication for which Celgene’s Istodax was approved based on a 34% response rate. Investigators also reported 2 case studies of heavily pretreated PTCL patients who achieved durable responses with Adcetris. Although the numbers are small, these trials imply Adcetris could enter new markets representing a global market opportunity of ~$250M, assuming approval only in late stage patients. There are additional indications that might be relevant to Adcetris based on expression of the CD30 protein, Adcetris’ target.

On top of Adcetris, Seattle Genetics has a growing partnered pipeline comprising 12 active programs: 7 programs developed by Genentech, 3 programs developed with Astellas (Agensys), Celldex’s CDX-110 and Progenics’ (PGNX) anti-PSMA ADC. At the moment, the only program with compelling data to which investors can assign value is CDX-011 which is expected to generate results from a randomized study at this year’s ASCO. As data begins to emerge from these programs, initial signs in one or two programs could have a major impact on the stock.

Array Biopharma – Many irons in the fire

Array Biopharma (ARRY) remains an undervalued stock, with more clinical programs than any of its peers and a market cap of just ~$176M. As I discussed last year, Array’s depressed price is a result of the fact that none of its drugs has a clear route to market, combined with a long term debt overhang (due 2015).

Its pipeline includes 4 wholly owned programs and 10 partnered programs, many of which are expected to generate meaningful data in 2012.

The most important data set will be from a randomized phase II trial of selumetinib (a MEK inhibitor developed by AstraZeneca) in lung cancer. The trial evaluated selumetinib when added to Taxotere in 90 patients with KRAS mutation. Although the trial was technically a failure, the results might still be good enough to merit advancing the drug to phase III.

Selumetinib led to a statistically significant increase in progression-free survival (PFS) as well as response rate. It also led to a numerical difference in overall survival but this difference was not statistically significant, which is not surprising given the relatively small size of the trial (this is why the trial was defined as a failure). Actual numbers will be disclosed at ASCO, and if positive, could make selumetinib the first of Array’s programs with a clinical proof of concept as well as a clear route to market.

Selumetinib is being evaluated in two additional randomized studies in B-RAF mutated melanoma and ocular melanoma, respectively. The first study evaluates selumetinib when added to chemotherapy and is expected to report data in the coming months. Even if the trial is positive, it will be hard to beat Zelboraf, which is the current standard of care for BRAF mutated melanoma. The ocular melanoma study, which is sponsored by the NCI, evaluates selumetinib vs. chemotherapy in 200 patients. Timelines for this study are unclear, but it could generate topline data this year as well.

Array has licensed another MEK inhibitor (MEK162) to Novartis 2 years ago. This program is much earlier than selumetinib, currently in multiple combination phase I studies. The only phase II trial is in melanoma patients with BRAF or NRAS mutations, where the drug as given as monotherapy. Results from this trial are expected at ASCO and could be important as they will probably include BRAF mutated patients who progressed on Zelboraf or NRAS mutated patients who are not eligible for Zelboraf. Both of these populations represent a fast route to market. Earlier this month, Array announced the drug achieved clinical proof of concept according to Novartis.       

Another program expected to generate important data is ARRY-520, a KSP inhibitor. The drug, which is fully owned by Array, already demonstrated signs of efficacy in heavily pre-treated multiple myeloma patients. The activity is superior to other targeted agents that are now in phase III trials but still appears too low to justify pursuing ARRY-520 as monotherapy. Array is conducting two combination trials with dexamethasone and Velcade, respectively. Both studies are single arm trials, but they could be relevant in putting ARRY-520 in perspective compared to other investigational agents.

Another program that could reach a clinical milestone is ARRY-797, Array’s p38 inhibitor for pain. As pain is more complex from a development perspective given the large number of generic pain-killers, Array has been trying to identify an indication for this molecule for several years. ARRY-797 already demonstrated analgesic activity in a dental study reported in 2008 as well as in a trial in rheumatoid arthritis, but neither indication represented an attractive development opportunity. The company recently initiated a randomized trial in osteoarthritis of knee where ARRY-797 is compared head to head with an opioid or placebo. The study’s goal is proving ARRY-797 is at least as effective as the opioid analgesic, with the intent of replacing opioids that are associated with side effects and addiction issues. Results are expected later in 2012.          

Synta Pharmaceuticals – Selling Asian rights for lead product  

Synta (SNTA) is looking at a busy 2012 from a clinical as well as business development standpoint.

Synta’s lead agent, ganetespib, is an Hsp90 inhibitor for the treatment of cancer. Last year, the drug demonstrated encouraging signs of activity across a wide variety of indications. Interestingly, in some cases it was possible to associate the drug’s efficacy with specific biomarkers that can be used for patient selection. The best example was the drug’s activity in lung cancer patients with ALK mutation, which occurs in ~4% of NSCLC cases. When given to 8 patients with ALK mutated tumors, ganetespib led to tumor shrinkage in 6 patients, 4 of which achieved an objective response.

Synta is expected to announce a phase III trial in ALK mutated NSCLC. Despite the recent approval of Pfizer’s (PFE) Xalkori for these patients, the company intends to recruit Xalkori-naïve patients which might prove challenging in the US. The decision not to go after patients who progressed on Xalkori might also imply that ganetespib is not potent enough in this population although no data has been published.      

Synta is exploring ganetespib for the entire NSCLC population with a 240-patient randomized phase II evaluating ganetespib in combination with Taxotere in NSCLC patients, regardless of their mutation status. At ASCO, the company will report top line results from the trial, which could serve as the basis of a phase III trial, depending on the data and the drug’s activity in different subsets.

The company is expected to announce a licensing deal for ganetespib, in the coming months. The deal, which the company has been talking about for almost a year, is expected to include rights to ganetespib in Asia and provide Synta with much needed cash to support US and EU development. As I discussed last year, Synta should be able to get a lucrative deal given the similar high premium deals in the field. The market expects Synta to announce the deal in the coming months, so if no deal is announced, the market will interpret it as a lack of interest in the ganetespib.

                                               Portfolio holdings as of Feb 5th, 2012      

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44 thoughts on “Biotech Stocks to watch in 2012

  1. Nice write-up. Can you clarify regarding the SNTA ALK trials – what is your source of information for the trial being only in criz-naive patients? The last time I heard them discuss this in detail was the Lazard conference in November, they talked about considering combo with criz, before criz, or in criz failures. Thanks for any additional info about this

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  2. Hi Oahd
    thanks for nice sum
    Q out of lt field
    I traded and own many shares of pphm ongoing over 10y. I remember you covered them long ago. they have 2 early mid stage (cotara, bevi) that i think have potential and a AVID manufacturing…. The rest is all bad as far as I can tell, cash on hand, management that cant find a partner despite year of “negotiations” and empty promises. Dilutions and disregard to shareholders etc (I can go on but I will spare you that). Do you still keep a tap on them, any thoughts you can share on the matter? Sincerely r

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  3. Not too familiar with their program. The p3 data were obviously positive, although the trial was pretty small. There are also all the logistic issues associated with a personalized vaccine and their model looks even more complex than that of Dendreon’s.

    Ohad

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  4. I suggest you take a look at it and you will realize how much simpler it is in comparison to Dendreon. The turn around is quicker and the manufacturing facility has been built per FDA specifications. The study size was small but the data is overwhelming favorable with long term data on the horizon. The market is waiting for pre BLA meetings results, which once they are given the go ahead both stocks should have exponetial growth in their PPS.

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  5. That’s right. I really like the company and it’s technology but current valuation is too rich for me. They have a lot of things going on both internally and with partners but real catalysts except T-DM1 p3 data (where success is priced in) aren’t likely to occur until late 2012.

    Ohad

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  6. Hi – very good writeup on some excellent companies and products. What is your overall opinion on ARIAD pharmaceuticals (ARIA)? Seems like a well run company with several drugs in the pipeline now which some look to get FDA approval soon.

    thank you

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  7. Similar to Immunogen- great drug, great company but valuation is already pretty high and reflects approvals for both ponatinib and rida.
    The ALK/EGFR program is very cool but still early.

    Ohad

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  8. Hi Ohad,

    I too follow all the ADC stocks closely. Working on a series of ADC events i’m a bit too close to risk investing but interested to see trends and valuations.

    it’s worth looking out for SGEN’s 13th partnered asset – Bayer’s CAIX-ADC (BAY 79-4620) – Ventana are developing a CDX for it and they announced some good Phase 1 results at ASCO 2011.

    James

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  9. Mike – I like Genspera’s approach, it’s quite unique among the long list of next gen chemo agents. Still haven’t seen any clinical data.

    James – From I know Bayer discontinued that program.

    Ohad

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  10. Thank you. enjoy the write ups and your transparency.
    Two questions:
    1. IMGN – you mention that valuation is too rich at this point — when would you look to reenter since you like the company
    2. I’ve owned PYMX for awhile and it’s hada nice run up of late– any opinion?3

    thank you.

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  11. Hi John,

    1 – 10$ assuming no new catalysts. Any program with good efficacy in phase I or good randomized data for IMGN901 should push price substantially higher imo.

    2- Sorry don’t follow them.

    Ohad

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  12. So many of your biotech picks have rallied its getting harder to decide which of your picks are still a very good value. Which of them do you believe is still a good value even if it has gone up in price?
    Thanks,
    Sam

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  13. Hello Ohad. Great as always. CLDX isn’t the only company working on a vaccine for GB. What do you think of Immunocellular (IMUC)? Their approach targets GB cancer stem cells with dendritic cells modified to respond to multiple targets on the GB stem cells. Preliminary OS data appears to exceed SOC by quite a bit.

    BTW – Thanks for your solid info and support over the years with MITI. I bought a lot and although they might have sold out too cheaply, it was still a heck of a ride. I owe you a beer!

    Best, Jac.

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  14. (from a Ihub board poster. Does this spell trouble for CLDX’s Rindo?)

    Also, this recent journal article:

    http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3257186/#SD1

    “Major results were as follows: 1) the presence of EGFRvIII in GBM tumors correlates with longer OS. The association of EGFRvIII/Ki67 of 20% or less, of EGFRvIII/normal PTEN, and of EGFRvIII/methylated MGMT identified subgroups of GBM patients with better prognosis; 2) EGFRvIII expression is reduced in GBM recurring after adjuvant radiotherapy and TMZ; and 3) EGFRvIII-positive GBM neurosphere cells are less resistant to TMZ than their EGFRvIII-negative counterparts. Our findings on the prognostic significance of EGFRvIII in GBM diverge from previous studies, where this variant was found either to be unrelated to the patients’ outcome [6,11,12,16–20] or to be associated with shorter survival (Table W5) [10,14].”

    So if I am reading this correctly they are saying that EGFRvIII positive status leads to longer survival which is completely the opposite of what CLDX/Dr. Sampson have claimed that being EGFRvIII positive is a highly poor prognostic factor for survival. I do not know enough about the science to judge who is right or if this was just an oddball journal article.

    RB

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  15. Hi Ohad
    Just wondering if you had any thoughts on the current valuations for CLDX, CRIS, and SGEN. SGEN has not participated much in the biotech rally of 2012. thanks for your great insights.
    Steve

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  16. JAC- Thanks. IMUC has a compelling story and a well designed ongoing p2. The main shortfall is that their data is based on a single arm, single center 16 patient trial.

    Steve- I feel comfortable with CLDX and SGEN even at current levels for reasons I explained above. Obviously, if something goes wronng they a lot of room to faal. CRIS – they might have a new grotwh story with their Hsp90 inhibitor with Debiopharm. Data later this year…

    Ohad

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  17. The inability of synta of talking about a partnership but not being able to get one for more than a year either means the lack of interest of big pharma or/and poor management (misleading, incompetent). I sold out for a loss.

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  18. Roy- that’s a good question. I m a little bit unfortable with the buzz around HCV… We still keep our small position in GILD for now.

    Gabriel- THLD is the name at the top of my watchlist right now. Intend to add it in the next portfolio update.

    Re Synta- I agree, very disappointing. Still considering what to do here since i still believe in the drug.

    Ohad

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  19. Hi Ohad
    about synta, u wrote – The company is expected to announce a licensing deal for ganetespib, in the coming months -so why the rush? You mean they have the phase II results and still cant make a deal? or the results will be known only in june?

    Alex

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  20. Alex – They pushed out a licensing deal until interim data from the GALAXY trial is released. Hard to predict how this will affect a future deal, depends on the data.

    Jwells – I think [rpbability of success is very low.

    Ohad

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  21. ARQL….did you have a chance to look at the earnings and shareholders update this morning? Looked like everything is on track and no surprises, but stock is reacting pos. wondering if I missed something??? I will take it though.

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  22. Thanks for the clarification re SNTA trial design, which has since been reaffirmed by the company. I love the drug, but not very happy with management and strategy lately. Still trying to research/decide how I feel about the upcoming docetaxel combo readout.

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  23. The docetaxel trial could have several outcomes which are hard to predict right now. It’s clearly a bet with respect to the general population. Could be good data base for biomarkers though.

    Ohad

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  24. Hi Ohad. What are your thoughts on NeuVax from Galena. Strong Phase 2 results, phase III enrolling under SPA. Thanks in advance.

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  25. Hello Ohad. I very much appreciate your informative and insightful posts. Do you have any thoughts on Kerx’s upcoming Perifosine phase III results?

    Like

  26. It is appropriate time to make some plans for the future
    and it is time to be happy. I have read this post and if I could
    I desire to suggest you few interesting things or advice.
    Perhaps you can write next articles referring to this article.
    I want to read even more things about it!

    Like

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