Biotech portfolio update – Three readouts and an acquisition

There was a lot of activity in my coverage universe in the last two weeks, including positive data readouts for three companies and an acquisition announcement. However, of the four cases, only two resulted in share appreciation.

Ambit – To keep or not to keep (the CVR)

Two weeks ago, Ambit (AMBI) agreed to be acquired by Daiichi Sankyo in a deal that included a $15 upfront payment and $4.5 in Contingent Value Right (CVR) per share. The CVR represents a milestone-like mechanism in which Ambit’s shareholders may eventually get additional payments equal to 30% of the initial purchase price.

Based on the current share price ($15.38), the market assigns each CVR a price of $0.38, which may turn to $4.5 if all milestones are achieved (a ~11X return). According to Ambit’s SEC filing, half ($2.25) of the amount is payable at FDA approval for relapsed/refractory AML while the remaining half ($2.25) will be paid after approval in first line AML.

 In contrast to other cases where the CVR was registered and traded on a stock exchange, Ambit’s CVR is “not transferable, will not be certificated or evidenced by any instrument and will not be registered or listed for trading.” In other words, the only way to receive the CVR is owning the stock at the day of transaction. This led many to ask whether they should hold the stock and get the CVR or sell it prior to the deal and get a small premium in cash instantly.

I plan on keeping my shares in order to receive the CVRs, which represent favorable risk/reward ratio and timelines. The first milestone may arrive in 2016 based on results from Ambit’s ongoing phase III (QUANTUM-R). First line approval may come 1-2 years later, assuming Daiichi initiates a 1st-line study in 2015. The likelihood of success in at least one of these settings is ~ 50% in my opinion while the market appears to ascribe significantly less value to this option.

Seattle Genetics – Positive Top-Line AETHERA Data but (still?) no survival benefit

Seattle Genetics (SGEN) announced the highly anticipated results of the AETHERA study, which evaluated Adcetris as maintenance therapy after transplant in Hodgkin’s Lymphoma. Despite concerns about the trial’s powering (due to the lower than expected rate of progression events), Adcetris led to a meaningful increase in median PFS with a hazard ratio of 0.57. Further details were not disclosed and are expected to be presented at ASH in December.

Surprisingly, the stock is down 14% since the announcement primarily due to the lack of a statistically significant survival benefit at the time of analysis. Although this can be easily explained by the short follow up (fortunately, HL has a relatively good prognosis and is potentially curable) and the cross-over trial design, it is impossible to rule out the possibility that Adcetris maintenance does not result in prolonged survival relatively to the current treatment modality (after relapse). This led some to suggest that without a clear survival benefit, Adcteris will not be approved as maintenance therapy nor will it be adopted by hematologists who will prefer to expose patients to the drug only upon relapse.

I view the AETHERA data as highly positive and believe concerns over the interim OS data are overblown. At ASH, there is a good probability to see an OS trend in favor of maintenance Adcetris that will mature to a statistically significant benefit with time (next OS analysis is expected in 2016). Even in the absence of a clear statistically significant survival benefit, Maintenance with Adcetris may demonstrate a higher number of potential “cures” (patients who are in long term remission), which should encourage physicians and patients to use the drug as early as possible for longer treatment periods.

Also at ASH, Seattle Genetics is expected to present initial results for its anti-CD33 ADC (SGN-33A) in AML. As I previously discussed,  expectations around this program are high given the fact that CD33 is considered a validated target in AML (Mylotarg) and the new potent payload SGN-33A employs. This is further enhanced by recent remarks by the company’s CEO, Clay Siegall, who stated they are “very excited” and “looking forward” to presenting results at ASH.

Esperion – Homerun data but regulatory uncertainty remains

It appears that the market is finally discovering Esperion (ESPR) following a successful phase IIb of its lipid-lowering drug ETC-1002. The study was a clear success, demonstrating superiority over Zetia (the approved 2nd line drug after statins) in LDL-C and also in hsCRP. ETC-1002 led to a reduction of 27%-30% in LDL which was significantly better than 21% achieved with Zetia. The company also presented preliminary data that showed the two drugs can be given together and have an additive effect. The safety profile appears clear with a notable absence of muscle-related side effects that are associated with statins.

If confirmed by larger studies, ETC-1002’s lipid lowering effect should make it an important option in patients who are either intolerant or not controlled with statins. Being an oral agent with the potential to be combined with approved agents should allow ETC-1002 to be used before PCSK9 antibodies which are highly effective but require monthly or twice-a- month injections. The strong effect on hsCRP could be an important differentiator, as this inflammatory marker is not affected by PCSK9 antibodies.

The only overhang for Esperion is the approvability of LDL-C reduction, as some expect the FDA to require outcome studies to prove a true clinical benefit. This is relevant to all lipid lowering drugs in development (especially PCSK9 antibodies). Amgen (AMGN) already filed its PCSK9 antibody (evolocumab) for approval and Sanofi/Regeron (REGN) are expected to file alirocumab this year, so a definitive answer should be given in 2015. Even if outcome studies are required for approval, ETC-1002’S clinical profile bodes well for achieving this goal.

To my knowledge, ETC-1002 is the only agent in development with a clear effect on LDL (30%) and hsCRP (40%) in statin failures, clean safety profile and oral bioavailability. The scarcity value coupled with the multi-billion potential for lipid lowering drugs make it an obvious acquisition target.

Exelixis – Robust efficacy for cobi but differentiation remains unclear

 At ESMO, Roche and Exelixis (EXEL) presented positive results for cobimetinib in combination with Zelboraf in melanoma. Results were robust with a 3.6-month PFS benefit (9.9 vs. 6.2 months, HR=0.51) and a positive OS trend (HR=0.65) that will likely become statistically significant with additional follow up.

The data were clearly positive and should lead to approval of cobimetinib, but the drug does not appear differentiated from GSK’s (GSK) MEK inhibitor, which led to a similar PFS benefit (11.4 vs. 7.3 months, HR=0.56) when combined with GSK’s BRAF inhibitor (Tafinlar). GSK’s combination also led to a statistically significant improvement in OS (HR=0.69). The only clear difference was in the side effect profiles, as Roche’s combination led to more photosensitivity whereas GSK’s combination led to a higher rate of fever.

Without a clear winner, it remains to be seen which combination will be more commercially successful. On the one hand, Roche is the global leader in oncology and BRAF+ melanoma in particular. On the other, GSK’s combination is already approved in the US. Assuming a 50-50 split and a global opportunity of $600M for MEK inhibitors in BRAF+ melanoma, Exelixis should generate ~$100M in annual revenue. (30-50% profit split in the US plus 10-15% royalties ex-US).

Exelixis shares continued to slide despite the positive results and the imminent revenue stream expected to begin next year. This can be explained in part by the lack of clear differentiation from GSK’s Mekinist, but the most serious overhang for Exelixis is its significant debt ($380M). Until this is resolved, it will be challenging for investors to attribute real value to its pipeline.

Portfolio update

We are selling our position in Exelixis given the lack of clear differentiation for cobimetinib in melanoma.  We intend to consider getting in again once the debt issue is resolved (expected to occur in the coming months). We are selling our position in Celldex (CLDX) as well as Synta (SNTA), and a portion of our Incyte (INCY) position. With 40% of the portfolio in cash, we intend to selectively add positions in the coming months while maintaining a significant cash position in light of the rich valuations out there.

Portfolio holdings – Oct 5th 2014

Portfolio - 5-10-2014 - after changesbiotech etfs - 5-10-2014

89 thoughts on “Biotech portfolio update – Three readouts and an acquisition

  1. andre – Yes AGIO should have data at ASH and expectations are high.

    Ruhulla – It might take a while due to time constraints… CNS is not exactly my expertise but SAGE’s data are so compelling so I feel comfortable owning them.



  2. Hello Ohad
    I know you’re short on time.. , if you could just mention briefly why you chose
    stml aeri and sage and their near term catalysts ..
    anyway I’ll wait for the full article..


  3. A question on AMI’s CVRs after reading your article and the other comments. It looks as if simply being the holder of the stock on the day of the transaction creates a “free” option. Therefore, one would think, everyone on the planet should buy AMBI that day at or around the tender price (yes, that’s an assumption) in order to obtain the “free’ option. Am I missing something? And, like others, I am not used to CVRs and closely tracking merger dates. So, another question: is there is a non-obvious and “better” source to watch for advance notice of closing date (meaning some source other than watching press releases and SEC filings ?). Many thanks for any insights.


  4. Hello Ohad,
    do you follow LGND? It has a broad portfolio of royalty assets. Main assets on market are Promacta (platlet boosting) and Kyprolis.
    They also will get (small) royalties from SAGE-547, and the BACE programm from Merck MK-8931 which could be interesting. They outlicensed their Irak4-inhibitor to TGTX recently – do you like that target? Altogether LGND has more then 100 fully funded programs. Thanks Ike


  5. Alex –

    STML has impressive activity in a rare cancer type called BPDCN. Despite the limitations they have in terms of treatment duration (immunogenicity), they could get approved based on an ongoing p2. MGNX has a program against the same target (CD123).

    AERI – Proven efficacy in glaucoma, first new mechanism in decades, will probabl be used with generic latanaprost. Chances of P3 success are high (60%+), obvious takeover target by Allergan, B&L and Alcon.

    SAGE – Impressive efficacy in a high unmet need (SRSE) with potential in other indications. Differentiated MOA vs. other GABA agonists and a follow on oral drug.

    Kirk – The option is not free, its price is 0.50 because you’ll get only $15 per share. Not aware of sources that notify these things in advance, the deadline I got from my broker is Nov 9th.

    ike – Sorry, not following the m closely, will take a look. The IRAK program TGTX took looks very early, hard to say if it is differentiated from the oral immunokinase drugs in development (Btk, PI3K gamma/delta, Jak).



  6. Ohad
    You expressed many times a positive opinion about targeted therapies. Any opinion about TSRO? They have a couple of Ph 3 trails, plus an early ALK+ trail.
    I was looking into RXDX 101 and 102 programs. What do you think about their TrkA/B/C targets and how it compares to LOXO 101.


  7. Can’t find anything on ARQL ASHG presentation, even at company site. Did u hear anything? Expecting a bigger impact from EORTC in November? Thanks for great site & info.


  8. andre – Re TSRO, my impression is that their ALK program is both too early and not sufficiently effective compared to the leaders in this field (NVS, Roche, ARIA).
    Re: RXDX – the main issue I have with their RXDX 101 is that they inhibit multiple targets and may not have the required therapeutic window to potently inhibit the respective drivers (ALK, ROS, TRK etc.). LOXO’s molecule is TRK selective and does not cross the BBB so it could have a superior clinical profile. RXDX-102 looks better on paper because it’s more selective but it is not in the clinic. My favorite asset there is the selective RET inhibitor they recently in-licensed but this program is still far from clinical testing.

    Mike – I was also surprised they didn’t issue a PR. I requested the company to send the poster but still didn’t get anything. Will await their quarterly call next month to hear whether they plan on pursuing this route.



  9. Dear Ohad, I looked at AERI R&D day presentation briefly. Rhopressa does not really look superior to Latanoprost I would say? doesn’t it have to be superior to be approvable? even if approved, it must be priced considerably higher, so commercial success is far from given i assume.

    what do you like about Rhopressa, and in which situations will it be used?

    thank you!


  10. Regarding AERI:

    As a glaucoma patient who has been using these meds for over 10 years I can tell you there is a significant demand for glaucoma meds. with new MOA’s for several reasons: (1) effectiveness (e.g. IOP lowering effects) of existing medications fade, typically after a few years, and some patients tend to need/use these types of medications for decades (in 10+ years I have taken 5 different medications); (2) side effects of existing meds. can be intolerable, so alternatives in this regard are very attractive; (3) many patients (including myself) need more than one drug to get down to target IOP levels; (4) glaucoma market is huge and expected to expand significantly over the next 10 – 15 years.

    IMO AERI very undervalued.


  11. Henry – What I like about Rhopressa is the fact it is a clear effect on pressure in the eye (IOP) and the effect is exerted by a new mechanism of action. Therefore, it does not have to be superior to latanaprost to find its place in the market. It can be used in latanaprost “failures” (patients for whom latanaprost no longer works) or in combination with latanaprost where AERI has a solid p2b data set showing their fixed dose combination (Roclatan) is superior to either drugs alone.

    Steve – thanks for the info and sharing your experience, needless to say I agree with all your assessments.



  12. hi Ohad,

    have you ever looked at AGEN (which acquired 4-Antibody from Germany last year)

    certainly early, on the other hand if you look at Novartis – CoStim….

    thanks as always!



  13. Hey Ohad and everybody

    the biotech sector is up big in the last few weeks- the valuations have ballooned–
    it’s hard to find any bargains now.

    Perhaps AERI is still undervalued, based on the comments in thsi blog. Also, MRTX valuation’s, relative to competitors, is now more reasonable. LOXO? ARRY?

    Do you have anything else on your radar, where valuation is still reasonable (or low?), and there are some near or mid-term events that might drive valuation?

    And what do you think of XOMA? an antibody company with some Ph2-3 studies. XOMA hasn’t been discussed much on this blog.

    Thanks, as always, for your perspective!



  14. Hey Dan,

    I think there are plenty of bargains in small-cap biotech right now: ARQL, AGEN, CPXX, ABLYF, IPHYF, MEIP, ARRY, just to name a few that I follow. I wouildhave AMBI on the list, but they were bought out. (Made a lot of money thanks to Ohad.)

    BTW, Ohad, what do you think of ABLYF?


  15. Christian – AGEN’s immuno-oncology pipeline is too early and lacks differentiation imo. Therefore, until proven otherwise, I would wait to see how the story unfolds. With respect to the NVS/Costim as a benchmark, remember both companies were for sale during the same period and Costim got a much better deal, which is probably for a reason.

    Dan – Agree, hard to find attractive valuations in biotech these days. I like AERI at its current valuation very much. My top pick for 2015 would be FMI, which I expect to be taken out next year. Re: LOXO, I think they are too expensive, prefer ARRY over them but am still concerned by their cash position and lack of clarity over MEK162.

    Richard – ARQL is another good example, I bought more last week in anticipation for more clarity on the Akt program.



  16. Hey Ohad
    Thanks for the reply.
    Have you looked at RGLS? the stock shot up on good results two days ago (very small trial).
    what do you think of mircoRNA as a technology? I am intrigued because of the problems some RNA companies seem to have in delivery of RNA – maybe RGLS technology is more seamless?


  17. Hello Ohad
    about Ambit
    if I get it right, if Ill accept the cash and securities offer from ambit Ill be payed 15 $ per share and recive the cvr ?
    ( new sec-id (isin) : tbd – is it the cvr?)


  18. Alex – Tivantinib’s topline data are expected 2H:16, there could be an interim analysis prior to that. Re: AMBI, you are correct you’ll get $15 + one CVR per share.

    Dan – I thought RGLS’ data set was a great surprise. It remains to be seen whether the specific compound has a place in the crowded HCV market but that’s an impressive proof of concept for their platform and approach of targeting miRNA . Note their delivery is ALNY’S GalNac technology which is already validated for liver delivery.

    Richard – It’s hard for me to get excited with Ablynx’s pipeline, mostly me too undifferentiated programs, with the ITP program being the only exception.



  19. Ohad,

    Any thoughts on GERN? Novel and patent-protected mechanism of action as well as unheard-of results on myeloproliferative neoplasms. The FDA hold for ET seems to be for BS reasons, but that nonsense will be over soon and I think they’re moving on to Phase II trials for myelofibrosis soon, probably early next year. Anticipating that data will be presented at ASH that confirms enduring responses, especially for MF. In addition, there is strong preclinical evidence that imetelstat works well with other drugs, including nexavar, and there are indications that anti-telomerase activity could apply to a wide variety of diseases, from Epstein-Barr to numerous non-heme cancers to psoriasis.



  20. with only jakavi approved isn’t incy have a very high market cap ? even if baricitinib get approved , how they got this monstrous valuation?


  21. Pete – GERN is definitely a story I intend to track given the provocative findings in myelofibrosis but I prefer to do so from the outside for now. The safety issues are not necessarily that trivial although I agree that they are not necessarily a show stopper.

    Alex – I tend to agree about INCY, phenomenal drug, phenomenal company but valuation is rich.

    Dan – I would argue that ALXN is very expensive. One big difference is their ability to block competitors (for now as they are litigating with NVS).



  22. Hi Michael,
    Ohad Hammer on September 25, 2014 at 5:29 pm said:
    Affimed bispecific technology is intriguing and have advantages over other formats (tetra vs bivalent). So far the cd30 results are disappointing, show that nk and macrophages may not be potent enough…
    Ohad Hammer on October 6, 2014 at 5:09 am said:
    They had some anti-tumor effect but imo it wasn’t overwhelming compared to other programs in development (bsAbs or ADCs, in particular).


  23. Ohad
    Good news BMY and ONO. It looks that nivolumab is very active in NSCLC.
    In September you said that nivolumab and Kyprolis are fully priced in Ono valuation.
    Do this new data change your opinion?In addition they have 6 ongoing Phase III trails.
    It looks to me that Ono is the only one “small” – only 11B – which has very advanced trails in the immune checkpoint inhibitor.


  24. Any change of opinion on ARRY ? After yesterdays call, it looks like ARRY still not sure of what NVS will do. October 7th you said you will add more of ARRY, did you add any after. – Thanks


  25. andre – Don’t forget Ono has limited exposure to the nivo story with some serious patent expiration expected for some of their marketed drugs. I still don’t view them as a cheap way to get exposure to nivo as I believe success is priced in.

    Michael – Argen-X has a really cool antibody discovery platform but I couldn’t find any exciting programs in their pipeline. The targets they chose (CD70, IL-6, MET) are not very attractive imo.

    Ruhulla – I still think there is a 90% likelihood that ARRY receives binimetinib back and this is a clear positive. I am concerned about lack of visibility and cash balance for the coming months. Long term, I really like ARRY and think it’s a good buy, will try to add more in the coming months.

    Dan S. – Nice PR but don’t forget that Google VC are one of the founders of FMI. The announcement about Priority Health is much more important imo.



  26. hi Ohad, seems that Genmab made a big effort to compare Dara with other CD38 mabs

    see https:

    “…Surrogate antibodies of MOR, SAR and Ab79 were generated on the basis of protein sequences, as published in their corresponding patents families, and were attached to the backbone of DARA….”

    is this a usual procedure, sounds very time-consuming…

    how reliable can the findings be?

    what about this:
    “The most striking difference was observed for the ability to induce CDC, the MoA which is currently believed the most important mechanism of MM cell killing in the clinic.”


  27. Hi Ohad,

    Apologies if you’ve already discussed this. Did you get a chance to the look at the 092 abstracts at EORTC? It looks like MTD have been achieved for all the dosing schemes or is close to being achieved. Data is from April so only 1PR. The GSK AKT is being presented orally for ovarian cancer.

    Any insights from the abstracts would be appreciated.



  28. Ohad, have you ever looked at Threshold (THLD)? The stock hit a 52-week low this morning. Low EV for a company in a Phase III in oncology. Partnered with Merck Kg.


  29. Hey Ohad
    there have been some updates (CCs and ASH)

    Have you had a look at ASH abstracts? Anyhing that caught your eye (positive or negative?)

    Good call on CLDX, they are enrolling the glemba study very slowly. Have you checked out today’s relase on CD27 mab? Seem the only highlight is expansion cohort in hematological.

    What is your take on CLVS? seems they are fireing on all cylinders, two of their drugs going head-to-head with AZN, but possibly with a better profile.
    Nice cudos by Mahaffy to FMI, during the call.

    Thanks a lot!


  30. Christian – They have been showing these data for quite some time with an emphasis on dara’s CDC activity. Still unclear to what extent CDC plays a role in CD38-targeting antibodies.

    Rick – Overall, ARQL will present quite a lot of data at the meeting but based on the abstracts I couldn’t find anything dramatic (positive or negative). The PR in the lymphoma patient had already been disclosed, the additional cases of tumor shrinkage are encouraging but preliminary. Tons of preclinical data with both 092 and 987 (FGFR) including inteersting combination work. In terms of biomarkers for patient selection, didn’t see anything groundbreaking.

    Richard – I am following THLD but don’t have a concrete opinion, sorry…

    Dan – I am reviewing the ASH abstracts and will try to publish something before the meeting. So far, the most impressive data is for nivolumab in Hodgkin’s Lymphoma, remarkable efficacy. Great news for patients! Still unclear how SGEN’s Adcteris will be impacted, could present some risk at least in late stage disease.

    Re: CLDX – So far the CD27 data were underwhelming imo.

    Re: CLVS – Indeed, things are looking good going into EORTC. Key question is whether PFS of ~12 months will be met. Sounded quite upbeat about rucaparib as well and the patient selection strategy (powered by FMI).

    Richard – The immuno-oncology programs are interesting but early, couldn’t find additional exciting stuff in their pipeline.



  31. Ohad,

    What are your thoughts on the new management at Synta and robust m&a background paired with the fact that Bruce Kovner continues to invest and has a large position? What do you think is the potential of their HDC platform?

    Thank you!


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