2013 will be remembered as one of the strongest years for biotech IPOs, with over 30 successful offerings year to date. A lot has been written on the biotech IPO boom and what will be the long term consequences. My personal view is ambiguous. On the one hand, most if not all of the companies that went public are “IPO worthy”: They are innovative, address medical unmet needs and are run by capable management teams. On the other, I find it extremely hard to justify the valuations of many of the companies. What is even more frustrating is the fact that the ones with the most exciting technologies and belong to my coverage universe are also the most ridiculously priced. Agios (AGIO), Oncomed (OMED), Blue Bird (BLUE) and Epizyme (EPZM) are all good examples for great companies whose stocks are way too expensive.
2 exceptions are Ambit (AMBI) and Esperion (ESPR). Both companies have clinical proof of concept for their lead programs with important upcoming catalysts and importantly, each has a “sane” market cap of ~$250M.
Ambit’s lead program is quizartinib, a FLT3 inhibitor for acute myeloid leukemia (AML). In 2009, the drug was licensed to Astellas, which recently terminated the collaboration and returned rights for quizartinib to Ambit. This naturally leads to some skepticism but the clinical data (especially those recently generated) imply quizartinib is a true breakthrough drug and has a real shot at becoming the standard of care in FLT3-mutated AML (The drug also has some activity in non-mutated AML).
AML – Desperate need for new treatments – AML is one of the toughest cancer types to treat with very limited treatment options and no newly approved drugs. Bone marrow transplant is the only truly effective treatment available, creating a huge need for treatments that can either be used to facilitate transplantation or augment post-transplant remission.
Clinical activity – Quizartinib has an unusually large body of clinical data, with a phase II data set for over 300 patients across several dose levels (Will be ~400 at ASH this December). Although the trials were not randomized, short-term anti-tumor activity was striking. In an initial phase II that evaluated higher doses in 2nd/3rd line AML patients, 75% of patients showed some regression including 6% with CR/CRp (Percentage of cancer cells in bone marrow is <5%) and 44% with CRi (CR with incomplete neutrophil recovery).
Quizrtinib is clearly a very active drug but it also suffers from the following issues:
Issue #1: Short duration of response – Quizartinib’s magnitude of response rate resembles that of high profile hematology drugs such as Pharmacyclics’ (PCYC) ibrutinib or Gilead’s (GILD) idelalisib in CLL/NHL, but unfortunately durability of response was limited (less than 3 months). This is a hallmark feature of AML, where responses are relatively easy to achieve but are typically short-lived. It is important to note that even short term responses are clinically meaningful because they may allow patients to receive a transplant.
Issue #2: Is CRi a clinically relevant endpoint? Most of the CRs with quizartinib were achieved without full hematologic recovery (CRi). In contrast to CR/CRp, which is clearly associated with long term benefit, the correlation of CRi and long term outcome is not well established. From a regulatory standpoint, CR/CRp is an acceptable surrogate endpoint for accelerated approval whereas CRi is not (to date).
Issue #3: Cardiotoxicity – Quizartinib’s most significant side effect is QTc prolongation. Grade 3 QTc prolongation occurred in 17% of patients and appears dose dependent. Although there were no related deaths in the trial, QTc prolongation is a major overhang even in oncology.
Ongoing phase IIb – Under a new management team, Ambit is conducting another phase II using lower doses (30/60 mg). This 76-patient study is aimed at demonstrating similar activity in 3rd line AML while minimizing cardiotoxocity. If successful, Ambit plans to use results in order to file for accelerated approval in 3rd line AML.
Preliminary results from the phase IIb (34 patients) continue to show good efficacy with lower QTc incidence although there appears to be a slight decrease compared to the previous trial (see figure below). An important metric in these patients is the number of patients who are bridged to transplant. From that standpoint, the 60mg dose looks similar to the higher doses but the numbers are still small.
At its recent earnings release, Ambit disclosed that top-line results of the entire trial are “consistent” with prior phase II data, which included a 46% CRc (CR+CRi) rate with 35% of patients bridged to a transplant. Actual data are expected in December (ASH 2013) but this implies quizartinib is very active and safe at lower doses.
Reasonable chances for accelerated approval – Ambit intends to start a phase III trial early next year to pursue full approval of quizartinib utilizing overall survival as the primary endpoint. It will also try to obtain accelerated approval based on the phase II results, using CRi and potentially bridging to transplant as surrogate endpoints. The company will meet with the FDA in November in order to assess the agency’s receptiveness to this route.
Ambit already tried to get accelerated approval for quizartinib in 2011 but the feedback from the FDA was not supportive. This time, it will have a larger data set, longer follow up and an improved safety profile.
The main issue will be convincing the FDA that CRi is a clinically meaningful endpoint that is associated with long term outcomes. In order to do so, Ambit plans to submit historical data from large medical centers that demonstrate the correlation. It will also claim that putting patients in CRi (as opposed to CR/CRp) is enough to make them transplant-eligible, the ultimate goal for every AML patient who can tolerate it and has a donor.
Another issue will be having sufficient number of patients at the relevant dose. Ambit already indicated it views 60mg as the optimal dose but it will have only 38 patients who have been treated with 60mg. It might be able to use the 30mg cohort (additional 38 patients) assuming activity is good enough.
Marqibo as a precedent – Marqibo was approved for another type of leukemia (ALL) based on a 65-patient trial that generated a CR rate of 4.6% and a CRi rate of 10.8% with a limited duration of response. Although quizartinib was tested in another indication, its CR + CRi rate looks superior (38-39%), implying the drug passes the bar for efficacy. Similarly to quizartinib, most responders to Marqibo achieved CRi, which bodes well for acceptance of CRi as a surrogate endpoint.
Summary – Even when assigning low probability of accelerated approval, Ambit’s market cap ($242M) looks attractive. The main reason is the high likelihood of eventual approval in additional treatment lines. The combination of quizartinib’s strong efficacy and the lack of effective AML treatments makes it only a matter of time before the appropriate setting is found.
In case quizartinib does not receive accelerated approval, Ambit will have to show a survival benefit in randomized studies. The planned phase III trial in relapsed/refractory AML is one potential setting but eventually, quizartinib may be used in every FLT3-mutated AML patient either as first line induction treatment as a bridge to transplant (probably in combination with chemotherapy) or as maintenance after transplant.
Esperion is developing ETC-1002, a cholesterol lowering drug currently in phase IIb. The drug has an unusual dual mechanism of action: It inhibits one enzyme (ACL, an enzyme involved in cholesterol synthesis) and activates another enzyme (AMPK, has broad metabolic functions beyond cholesterol synthesis).
Clinical activity – ETC-1002 demonstrated clear activity in 3 placebo controlled trials, where the drug led to a 25%-39% (placebo adjusted) decrease in LDL-C. The most important trial (Study 006) was conducted in statin-intolerant patients, which represents the drug’s near-term market opportunity. Patients in the trial had to be intolerant to 2 statins (most common side effects are muscle pain or weakness). LDL-C decreased by 29% (placebo adjusted), which compares favorably to Zetia, the most common drug in this setting (leads to 15%-20% LDL-C reduction).
Safety profile: so far so good – Safety profile overall looks clean although there were 2 signals that warrant further follow-up: A decrease in hemoglobin and increase in uric acid. Although neither signal was severe, it remains to be seen how manageable they are over time and whether they increase with longer treatment of ETC-1002. In addition, there are no safety data involving prolonged treatment duration as all trials to date included treatment of up to 12 weeks.
Market positioning – Statins are and will likely remain the cornerstone of cholesterol lowering therapy. A drug like ETC-1002 can be integrated either as a standalone for statin-failures (patients who are intolerant or unable to reach desirable LDL levels with statins) or as add-on to statins. To date, ETC-1002’s efficacy has been shown only as monotherapy (Phase II combination data expected this week). Even if the drug has activity in combination with statins, targeting statin-failures is the shorter and safer route to market. The market opportunity for this setting is exemplified by Zetia’s $1B revenue in this segment, which represents 10%-20% of patients.
Competition – Competition will likely come from 2 directions: Zetia and PCSK9 antibodies. Zetia is the established player in statin-failures; it is an oral drug with a good safety profile and reasonable efficacy (15-20% LDL-C reduction). PCSK9 antibodies are investigational agents that demonstrated dramatic reductions of ~60% but they are given as an injection (IV or subcutaneous).
Esperion’s ETC-1002 falls somewhere in between with a 30% reduction in LDL-C. Its main advantage is being oral, which fits better with the current treatment paradigm. This may enable Esperion to slot ETC-1002 before PCSK9 antibodies as patients will arguably prefer to avoid once or twice monthly shots. It can also allow Esperion to develop formulations that combine ETC-1002 with statins or Zetia in a single pill.
Another potentially distinguishing factor is ETC-1002’s broad metabolic effect (associated with AMPK activation). Clinical trials show an effect on several metabolic factors (CRP, insulin, blood pressure). This effect is not seen with other drugs and could translate to better long term outcomes.
Upcoming catalysts – The most near term catalyst is results from a phase II trial evaluating ETC-1002 in combination with a statin (Lipitor). The company scheduled a conference call for next Tuesday to discuss the results. This trial will help define ETC-1002’s potential as add-on therapy and anything less than a 25% reduction should be viewed as disappointing. A large phase IIb in statin intolerant patients started recently with results expected in H2 2014.
Summary – Readers of this blog will probably notice I typically don’t cover cardiovascular companies, but in this case it was hard to ignore the scarcity value of a new oral drug with proven efficacy and 2 important catalysts in the coming 12 months. The drug’s long term safety profile is still unclear, but Esperion’s market cap is attractive from a risk/reward standpoint.
We are initiating positions in Ambit and Esperion. We are also selling 200 shares of Incyte (INCY) and 200 shares of Seattle Genetics (SGEN) in order to keep both positions below 10% of the portfolio’s total worth.