Biotech portfolio update – Array, Morphosys, Onyx and Synta

Array Biopharma – Following Puma’s footsteps

Last month Array Biopharma (ARRY) announced a licensing deal with Oncothyreon (ONTY) for ARRY-380, a selective HER2 kinase inhibitor for the treatment of HER2+ breast cancer. ARRY-380 is regarded as an insignificant program, evidenced by the modest deal size ($10M upfront) and the lack of market reaction, but this could change once investors make the connection between ARRY-380 and  Puma Biotechnology’s (PBYI) neratinib (EGFR/HER2 inhibitor). Although neratinib is more advanced, backed by more clinical data and probably has broader potential, ARRY-380’s selectivity profile could differentiate it in certain clinical settings. As the market is clearly excited with neratinib (Puma has a market cap of ~$1.6B), some of the excitement could eventually be tunneled toward Array as well.

Renewed interest in HER2 kinase inhibitors

HER2 kinase inhibitors are making a comeback largely thanks to Puma Biotechnology, who is developing neratinib, a dual EGFR/HER2 inhibitor for HER2+ breast cancer. Today, targeting HER2 with kinase inhibitors is playing a minor role in the HER2+ breast cancer arena that has been dominated by HER2 antibodies from Roche: Herceptin, Perjeta and Kadcyla. GSK’s (GSK) Tykerb is the only approved kinase inhibitor for HER2+ breast cancer but it is not commonly used due to an unfavorable clinical profile (mild efficacy and safety issues). It is typically reserved for patients who progress on HER2 antibodies (3rd/4th line patients).

Puma’s neratinib (licensed from Pfizer in 2011) is similar to Tykerb in its spectrum of activity (both drugs are dual EGFR/HER2 inhibitors) but as an irreversible inhibitor, it is considered more potent (also more toxic) with potentially broader clinical applications.

Puma is positioning neratinib as an improved next-gen HER2 kinase inhibitor with the intention of replacing Tykerb in 3rd/4th line HER2 breast cancer as well as getting the drug approved in settings where Tykerb is considered ineffective. These include HER2+ breast cancer with brain metastases and 2 niche indications where HER2 is not amplified but mutated (small subsets in breast and lung cancer). Puma is also evaluating neratinib in early-stage localized HER2+ breast cancer.

What ARRY-380 has to offer?

As a selective HER2 inhibitor, ARRY-380 has the potential to be a safer and more effective alternative to neratinib in certain clinical settings. Its main advantage is in the selective targeting of HER2 with limited activity on EGFR. This is an important differentiator in HER2+ breast cancer, where HER2 plays a significant role while adding EGFR inhibition has a questionable benefit.

Historically, when Tykerb and neratinib were developed, targeting both EGFR and HER2 made sense as a way to overcome cross resistance. Today we know that inhibiting both targets is problematic in HER2+ breast cancer because it adds toxicity and precludes complete HER2 inhibition. This explains Tykerb’s modest benefit (no survival benefit) and problematic safety profile (gastrointestinal [GI] toxicities) compared to the HER2 antibodies, all of which extend survival and are well tolerated.  Interestingly, there is no approved combination of selective EGFR and HER2 drugs as past results showed increased toxicity and no clear added value. A recent study which evaluated Perjeta (HER2 antibody) with Erbitux (EGFR antibody) concluded the combination was too toxic.

Although Puma’s neratinib looks more potent than Tykerb (cross-trial comparison) and has potential utility in new indications (tumors with non-amplified HER2 but with HER2 mutations) it is basically more of the same with respect to HER2+ breast cancer. Like Tykerb, it is associated with a high degree of GI toxicities that may limit market adoption (especially with the regimen pursued in the current phase III). ARRY-380, on the other hand, is very safe and can inhibit HER2 potently without causing side effects. This also makes it more suitable for combination regimens, which is the preferred route for HER2 kinase inhibitors.

Is ARRY-380 potent enough?

The biggest question regarding ARRY-380 is whether it is efficacious enough relatively to Tykerb and neratinib. Array reported phase I results which demonstrated activity in several advanced HER2+ breast cancer patients but it is still unclear whether the theoretical ability to hit HER2 harder coupled with improved safety profile will lead to clinical superiority.

ARRY-380 only has a limited data set from a phase I trial. The trial recruited 50 patients with HER2+ tumors, the majority of whom had breast cancer. As expected, the drug appears to have a differentiated safety profile with minimal skin and GI toxicities. Activity at the highest dose (20 evaluable patients with HER2+ breast cancer) included 2 confirmed PRs, 1 unconfirmed PR and multiple cases of tumor shrinkage.

How does a modest objective response rate of 10% stack up against competition? As monotherapy, Tykerb and neratinib led to response rates of 4-8% and 24%, respectively. At first glance, ARRY-380 seems to fall at the lower end of the spectrum but it is important to remember that its phase I included patients who were more advanced. In particular, all patients failed prior Herceptin and the vast majority also failed Tykerb. In contrast, Tykerb’s and neratinib’s results were generated in far less heavily pretreated patients, all of whom were Tykerb-naïve.

Oncothyreon and Array are expected to start several combination trials which could have top line data as early as Q4 2014. The most straightforward route to registration is replicating neratinib’s phase III design in 3rd/4th line patients in combination with Xeloda. Another potential route could be HER2+ breast cancer brain metastases.

Summary

In summary, ARRY-380 clearly has activity in last line patients and future combination trials are needed for showing its true clinical relevance. Puma’s neratinib, which just started phase III, has a 2-year lead but ARRY-380 unique selectivity profile might make it a best-in-class HER2 inhibitor (At least in HER2+ breast cancer). As ARRY380 starts to generate results, investors might start to assign more value to the drug, especially in light of the excitement around Puma.

From a valuation perspective, ARRY-380’s deal adds another phase II program to Array’s partnered pipeline, which is becoming increasingly hard to track. I counted 10 active partnered programs, including 2 programs in phase III. With additional 4 proprietary programs, Array is one of the most diversified biotech companies and probably one of the cheapest (~$580M market cap).

Morphosys signs lucrative deal with Celgene

Morphosys (MOR.DE) announced a huge licensing deal with Celgene (CELG) for MOR202, a CD38 antibody for the treatment of multiple myeloma and other blood cancers.  The attractive economics ($92 upfront payment and $60M equity investment) demonstrate the excitement around CD38 antibodies following promising results with Genmab’s (GEN.CO) CD38 antibody, daratumumab. Daratumumab, which recently recveived breakthrough designation from the FDA, is leading the race, followed by Morphosys’ MOR202 and Sanofi’s/Immunogen’s (IMGN) SAR650984.

At the moment, daratumumab is the only anti-CD38 antibody with published results. The other 2 antibodies are in phase I for 2-3 years but no data have been made available from these trials. As a result, it is unclear whether they also have promising activity. Genmab insists its antibody has superior properties and management has been using every opportunity to downplay competition. Genmab even produced its own versions of MOR202 and SAR650984 in order to show daratumumab’s superiority in certain preclinical assays.

The deal with Celgene, which has the largest myeloma franchise in the world, is a very positive indication since Morphosys had to share all the data with them. Nevertheless, until results are available this is only a hypothesis.

For Morphosys’ investors, the deal with Celgene is transformational as MOR202 is the company’s most important asset. If one assumes MOR202’s results are as good as those of daratumumab, Morphosys is still undervalued. If results are not as good, it will have an impact on the stock but the downside is still limited thanks to Morphosys’ large partnered pipeline and the strong cash flow from licensing deals.

Amgen’s bid for Onyx could start a bidding war

Last week, Amgen (AMGN) disclosed a $120 a share offer for Onyx, which was immediately rejected by Onyx’s board of directors. Onyx also announced it is seeking alternative offers with better terms, a standard step following an initial acquisition bid.

As I discussed earlier this year, Onyx is in a unique position with 3 commercial assets and a royalty stake in a promising late stage assets (Pfizer’s [PFE] palbociclib). It is clear that for a company like Amgen, Kyprolis represents the most attractive asset as the drug is expected to grow rapidly in the coming years and Onyx has global (Ex Japan) rights for the drug. Kyprolis’ current run rate is ~$250M and is expected to be a $1.5-$2B drug by 2018 providing positive readouts from 3 pivotal trials.

For Amgen, Kyprolis is a perfect fit given its attempts to branch out from supportive care hematological treatments to therapeutic hematology. In 2011, Amgen acquired Micromet for its lead agent blinatumomab for ALL which is expected to reach the market next year. To date, Amgen has been unsuccessful in introducing new cancer therapies and despite some positive phase III readouts for 2 programs (T-Vec and trebananib), the market is skeptic about their value.

Amgen’s initial bid is likely to encourage other bidders to try and acquire Onyx. This dynamic typically leads to a slightly higher price tag, which, is predicted to be in the $140-150 range ($12B valuation) based on a flurry of analyst reports. Even assuming Kyprolis is approved for earlier lines of multiple myeloma and factoring in a better than expected launch for Stivarga, a valuation of $12B (including ~$7 per share cash position) looks like a good offer.

Synta – Good news, bad news

Following the sharp decline in Synta’s (SNTA) shares, it was encouraging to see insider buying including almost 3 million shares that were bought by board member Bruce Kovner and 50 thousand shares bought by the CEO, Safi Bahcall. This does not guarantee anything but when insiders buy shares it usually means they think the price is attractive.

Last week, Jefferies’ Thomas Wei issued a note with several interesting observations following a meeting with Synta’s management. With respect to the phase II (GALAXI-1) results, he brought up geographic imbalances between the two arms as a possible explanation for the “diminishing” survival benefit.  The control arm had a higher proportion of patients from eastern geographies, who appeared to be less advanced than patients in western geographies (survival of 8-10 vs. 5 months for the 2 groups respectively). In the ongoing phase III, the two arms will be geographically balanced.

As I discussed on last month’s post, the most reliable finding is always a straightforward ITT (intent-to- treat) analysis, which is clean and unbiased. ITT analysis of GALAXI-1 showed a clear survival trend on the verge of statistical significance as well as a statistically significant PFS benefit. If replicated in the ongoing phase III, ganetespib’s survival benefit will resemble that of Avastin (see figure below). This assumes no impact from Synta’s decision to limit enrollment in the phase III to patients with less aggressive disease who appeared to derive a more substantial benefit in the phase II.

ganetespib vs. AvastinCross trial comparison between GALAXI-1 and Avastin’s label

2 additional points from the report are a complete response from the company’s ongoing triple-negative breast cancer trial (we already know there is another PR in that trial) and a forthcoming licensing deal in Asia.

On the bad news front – It appears that ganetespib is not potent enough as a single agent in ALK-mutated lung cancer. Although no results have been published from an ongoing monotherapy phase II, I conclude this based on: (i) the company’s decision to develop ganetespib only in combination regimens and (ii) the fact that read out from the CHIARA  trial (1st line ALK+) is no longer listed on the clinical milestones slide in Synta’s presentation. Importantly, ganetespib still has value as an add-on to ALK inhibitors, which is being evaluated in an investigator-sponsored trial.

Portfolio update

We are selling a third of our position in Celldex (CLDX). I am still bullish on the company’s phase III programs but this looks like a good opportunity to lock in some profit (660%) as well as minimize exposure to a single position that accounted for over 10% of the entire portfolio.

 Portfolio holdings – July 7th 2013

Biotech portfolio - July 7th 2013 - after changesbiotech etfs - July 7th 2013

 

 

167 thoughts on “Biotech portfolio update – Array, Morphosys, Onyx and Synta

  1. Yeah, danoprevir is not a reason to own ARRY. I don’t assign any value to that drug. It does not stack up well to the competition IMO and you can tell that by the fact that ARRY barely discusses the drug in CCs. I follow the HCV space closely as I’m long Medivir and Medivir’s simeprevir is a much better PI than danoprevir.

    Regarding ARQL, I’m not sure any negative read through to breast cancer based on MetMab results is a big deal. The HCC indication is far more important right now to ARQL and we also know based on ARQL management comments that we will see stat sig OS and PFS benefit in MET-high NSCLC patients for tivantinib arm in MARQUEE trial to be presented at ESMO.

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  2. Sorry, just to clarify my prior comments on ARQL, management comments before were that there was “substantial improvement” for OS and PFS for MET-high NSCLC patients on tivantinib in MARQUEE and not necessarily “stat sig.” Need to see the specifics at ESMO but I assume results may not be stat sig since that wasn’t the specific reference.

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  3. Ohad Hammer on July 27, 2013 at 1:23 am said:

    Hi Ohad!

    regarding OMED, any thoughts about the 2 others clinical-stage compounds? (OMR59R5 and 18R5)?

    thanks
    Christian

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  4. Christian – These are hot targets but I still haven’t seen any signs of clinical activity.
    18R5 recently had phase I data without anything material (good or bad).
    Regarding OMR59R5, the company identified a potential biomarker for patient selection:

    http://www.abstractsonline.com/Plan/ViewAbstract.aspx?sKey=ecd76847-ee55-4c66-85db-d990647cf3a4&cKey=8b42a5af-ebcc-4eae-8a18-ea8410c4781d&mKey=%7b9B2D28E7-24A0-466F-A3C9-07C21F6E9BC9%7d

    Ohad

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  5. I missed getting into SNTA. Was waiting for it to get into the $4s 😦 The study size seems pretty small. Tough to justify a 40% jump, but it could just be the shorts covering. The stock was heavily shorted.

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  6. $ARRY & $CELG Announce Strategic global R&D Collaboration: $11M upfront + up to $376M milestone (the partnership is preclinical).

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  7. Looking at ARRY, I don’t believe your analysis included either their inflammatory pipeline (deal with Celgene announced today b) or the Arry-502 for Asthma program. Wow, I consider these as great bonuses as a stockholder. Any comments regarding valuation?

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  8. Hey Ohad

    same as Manish, I missed the boat on Synta. Was thinking about it it last week after the pullback to $5 but hesitated.

    You have mentioned a number of recent IPOS and companies with an incredible valuation onsidering they are in very early clinical stages. I can;t remeber who on this board a few month ago mentioned STML, which had a very successful secondary and then the stock has been up substantially. What is your opinion on their SL-401 program, it looks like they are going to enter pivolal study before the end of the year. Their valuation appreciate considerably in the last six weeks.
    Thanks!

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  9. Dan – I was skeptical on STML because they use a highly immunogenic drug that might preclude prolonged dosing but it turns out the drug has good activity in an orphan indication (BPDCN) with just 1 cycle. Filing is probably 2 years away and results to date are from a handful of patients.
    Their cancer vaccine for brain cancer looks pretty good as well, they actualy see objective responses, which is quite rare with vaccines.

    Valuation is not cheap but it’s still reasonable.

    Ohad

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  10. Hey Ohad
    Two company I have looked at in the past.
    The first, ADXSD, I sold out last year and it has been a very bad investement:
    but perhaps now a few key events may turn its cahnces around, alothough management has been disappointing. ADXSD (which just had a 125 to 1 reverse stock split). The company is in the immunoterapy field and most of their clincal trials are sponsored by third parties.

    The second PRAN, I used to follow many years ago and I noticed that in the past weeks it has almost doubled market share. I wonder what you think of their science and expertise, and whether they have a chance of succeeding. They have expanded on the alzheimer’s program, and are also pursuing parkinsons and huntington. Their experimental drug is supposed to neutralize the tau and abeta proteins that are thought to be part of the reason the function of our brain slows down.

    Thanks again
    D

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  11. got lucky on SNTA last week, had some new money and ohad did not post anything new i was ready to sink my teeth into….so with the drop to 5 level, ohad buying and insider buying i figured its a good bet……..little that i know.

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  12. Hi Dan,
    I am not familiar with ADXSD but came across some analyst notes on PRAN (I think MLV covers them).
    PRAN could be an interesting gamble (with a low likelihood of success but huge upside) given their low market cap. They should have Huntington and Alzheimer data this October and next year, respectively, I just don’t know how robust the Alzheimer trial can be given the small sample size and the endpoints they use.

    Ohad

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  13. Dimitri – There wasn’t anything meaningful imo, there were some positive and negative updates on label expansion, compendia listing for CTCL and DLBCL trial.
    Overall, SGEN needs another catalyst to support the stock, this will probably come from its partnered pipeline.

    Dan – Didn’t see anything new in particular. One interesting observation is that the company expects a licensing deal soon. Let’s see if they nail it this time.

    Ohad

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  14. Ohad
    Impressive Jakafi growth. Your call for $1B Jakafi revenue (ref. “Incyte’s Jakafi is likely a $1B drug”) looks now achievable. I was a bit skeptical at the time of the article, but the earnings call was quite convincing.

    Any opinion about MACK? It is considerably down after the secondary.
    Thanks–andre

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  15. Andre- Indeed impressive growth, still not sure what contribution the survival trend had. The most important event is results with Sanofi’s jak inhibitor.

    MACK- i don’t like the stock, think it’s way overpriced and to date all programs generated underwhelming results. They will have a couple of read outs later this year with the HER3 antibody.

    Ohad

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  16. Hi Ohad
    Have you followed THLD at all? Any opinions on the therapeutic benefits of TH-302 and on the hypoxia “theory” and the “non-dividing quiescient cells.” It vaguely reminds me of HALO’s solid cancer drug, which affect the “cellular matrix” to enable more powerful delivery of anti-tumor agents. Both are concerned with the “environment.”
    Thanks
    Dan

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  17. Dan – I am following THLD but don’t have concrete recommendations. The scientific rationale is there but I was somewhat disappointed by TH-302’S monotherapy activity. On the other hand they had a positive signal in their panc cancer p2 and p3 will have to at least corroborate results in order to compete with Abraxane. The STS trial should be viewed as a long shot following the ZIOP experience.

    Roy – I thought it was neutral to negative due to the push out of data readout to ASCO 2014. I still like the Folate receptor program best.

    Dan S. – The term “uneventful” best describes EXEL’s earnings release. I thought the $4M in cabo sales were impressive, management did not say how much of that was off label.

    Ohad

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  18. Struggling to find the time to write something this month, so far too swamped with work.
    Wrt to portfolio changes i would like to add more genmab and am looking at a couple of names, primarily AMBI , ASTX and ESPR.

    Ohad

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  19. ARRY said again today during CC that, based on FDA guidance, there may be an accelerated approval path forward for ARRY-520 in combo w/PI based on ORR. Presumably they will have to run another trial after the current Phase 2b trials complete, though I do wonder if any chance for AA based on combo trial w/Kyprolis that’s due to read out at ASH in December (combo w/Velcade reads out later I think).

    AMGN return of 151 not a surprise since it showed for some time on clinicaltrials.gov that AMGN had terminated the trial. Always important to pay attention to that site. That said, it’s not like 151 was a key program for ARRY IMO.

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  20. Hi Ohad,

    Genmab price isn’t much down from the highs. Whats the mkt cap? Can’t find it exactly. Nice to see the law suite is settled but the fund dumping has hurt the price i think. Do you think it is just undervalued or are you expecting something int from the pipeline? What intrests you in ambi? I like aveo at these prices. Thanks very much.

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  21. Ohad
    take a good look at NPSP… the company is very well run and they have a product on the market and are about to file the second NDA. They are in the ultra-orphan space. It seems that their two drugs could generate $1B each, given that they have worldwide rights to both.
    I think it is a solid company.
    Dan

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  22. Hey Ohad
    regarding INFI…. what do you think of the reaction to the earnings? The stock is going down again today. So much volatility. I was thinking of adding some shares here but I am afraid it might drop down further.
    Thanks, as always, for you opinion!
    Dan

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  23. Mike – There is one good reason to own Genmab even at these levels – daratumumab. JNJ have been awfully quiet and I believe they are planning a very aggressive development plan that will become visible in the coming months. CELG joining the CD38 race further incentivizes JNJ to accelerate dara’s development.

    Dan – Will check NPSP out. Re: INFI, I still like the stock based on a worst case scenario of a niche hematology drug with $250M sales only. There is a chance (which is not slim) that IPI-145 will be the leading PI3K inhibitor in hematology. Inflammatory applications are also a bonus same as activity in ibrutinib failures.

    Ohad

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  24. Ohad, if you like INFI at ~$1B market cap, I’d be surprised if you didn’t like TGTX at only ~$200M market cap. We still need to see the data on TGTX’s PI3K and we’ll get some later this year but they are talking like it could be QD and may have other advantages vis-a-vis INFI PI3K (e.g. doesn’t hit gamma, which may be linked to safety issues). Also, TGTX plans to combine the PI3K with their anti-CD20. Note that INFI is unable to run such combo trials as they don’t have an anti-CD20. I like TGTX risk-reward much better and am long. That said, it’s clearly a very speculative stock and I only have it as a small holding.

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  25. Ohad
    What is attractive in the Ambit programs? How the most advanced for AML (AC220) compares with that of Astex SGI-110. In general Astex programs look more advanced, and most of them are partnered.
    Thanks –andre

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  26. Mcbio- INFI is ahead of TGTX plus it has theoretically a best in class drug because it inhibits pi3k-gamma (the flip side is potentially more side effects). Their CD20 program is a burden, not an asset, and therefore a totally waste of money. The CD20 landscape is dominated by Roche and GSK to a lesser extent. I don’t see how anyone, let alone a tiny company, can compete with current cd20 antibodies.

    andre- AMBI has over 200 flt3+ patients including ~70 pts at lower doses. The CR rate is extremely high but durability of response is less great. We’ll get a sense on SGI110 in AML at ASH. AMBI might be able to get approval based on the p2 data (marquibo’s approval in ALL could be a relevant benchmark)

    Ohad

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  27. Ohad, I respect ur opinion but disagree. TGTX is not trying to compete with the other big players in front-line setting for CD20. Rather they are pursuing 3rd line where there should be more opportunity for them. They already have CRs in patients who are refractory to Rituxan. Also, there is synergy between CD20 and PI3K, more effective than either agent alone. And TGTX will get to explore this combo whereas INFI will not (unless they do a deal with someone).

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  28. Why would any currently not approved drug in this space want to explore combination with an unproven drug when they can do combination with already approved rituximab, ofatumumb, and soon to be approved obinutuzumab?

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  29. Because it is much tougher to do combination of two unproven drugs especially one is biologic than to do combination with a known quantity.

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  30. Hey Ohad,

    do you have any thoughts about Stemline and Verastem?
    In my point of view, the Stemline-pipeline looks very interesting. The drug candidates show some action and they aren’t partnered. So much up-potential in stock quote. Another point ist, that the market cap ist small (about 412 million $). I only have some concerns about the small pipeline.

    Thanks for your opinion!

    Like

  31. Ohad
    Do you have an opinion about Immunomedics?
    Their recent results with anti-CD22 in FL look strong – response rate, complete response rate, remission rate after 3 years.
    Also they reported progress with their ADC program
    thanks –andre

    Like

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