Biotech portfolio update – 2014 summary and 2015 preview

Below is my traditional end of the year summary and a recap of catalysts for 2015. As always, I did my best to cover the most important events, let me know if I missed anything… I would like to use this opportunity and wish the readers of this blog a happy and prosperous new year.


Incyte (+42.5% in 2014)

Jakafi continues to grow – Incyte (INCY) had a strong 2014 thanks to continued growth for Jakafi in myelofibrosis (MF), label expansion to another blood disorder (PV), and positive data readouts from several pipeline programs. The company’s most important growth driver remains Jakafi, which is continuing to grow sequentially and is expected to generate $120M in Q4 2014 (US sales+ royalties from Novartis).

Jakafi salesLast month’s approval for in PV should help Incyte to accelerate growth although there is still a debate regarding commercial opportunity. PV is much more prevalent but also less severe than MF, so the number of patients who need new drugs like Jakafi is difficult to assess. Incyte believes the US opportunity is 25,000 whereas some claim there is a very small therapeutic void in PV. With annual cost of almost ~$90k, even a 10% market share translates to $225M in annual sales in the US.

Incyte initiated a broad campaign for Jakafi in solid tumors based on a subset analysis from a randomized phase II in pancreatic cancer. I found the data somewhat underwhelming but there appears to be a great deal of excitement around this direction.

First P3 success for baricitinib in RA – Also in December, Incyte and Lilly (LLY) announced positive phase III results for baricitinib (Jak1/2 inhibitor) in rheumatoid arthritis (RA). This was the first phase III readout of 4 pivotal trials for baricitinib in RA (the other three are expected to read out in 2015). The drug is now significantly de-risked but its commercial potential is unclear given the disappointing experience with Pfizer’s (PFE) Jak  inhibtor , Xeljanz.

Incyte and Lilly will have to differentiate baricitinib in order to turn it into a blockbuster, as one would expect from an oral agent for RA. It is still unclear how different the clinical profiles of the two drugs are but given the different selectivity profile, baricitinib may have a distinguished safety profile.

Selective Jak1 inhibitor in P2 – Incyte has a selective Jak1 INCB047986 in development for RA. In theory, Jak1 inhibitors may have a better safety profile compared to baricitinib and Xeljanz. Galapagos is leading this segment with GLPG0634, which generated positive results in a small phase II trial.

IDO program takes center stage – Incyte’s IDO inhibitor (INCB24360) generated a lot of interest based on preliminary results in melanoma in combination with Yervoy. Despite the preliminary nature of the data, the market is very excited with INCB24360, with some analysts assigning $2-3B in sales for the compound. IDO was further validated as a target after Genentech in-licensed NewLink’s (NLNK) IDO program in a deal that included a $150M upfront payment. INCB24360 is being evaluated in combination with four (!) different PD-1/PD-L1 antibodies.

Major catalysts for 2015 – In 2015, investors will focus on Jakafi’s sales trajectory with a particular focus on market penetration in PV. The most important event for Jakafi will actually be phase III readout from a competing program in MF. CTI’s (CTIC) pacritinib (Jak2/Flt3 inhibitor) may be Jakafi’s first competitor to reach the market. The drug demonstrated activity in MF with lower incidence of thrombocytopenia compared to what is seen with Jakafi. CTI and its partner, Baxter, plan on using this as a distinguishing feauture and gain market share in patients with low-platelet counts. Safety profile beyond thrombocytopenia is going to be a critical hurdle for pacritinib due to Flt3 inhibition. In 2013, Sanofi terminated its Jak program despite positive phase III results due to rare neurologic toxicities.

The IDO combination studies with Yervoy or PD-1 antibodies could also have data in 2015 although with the exception of the Yervoy study, results will probably include suboptimal doses in a limited number of patients.

Two additional programs that could emerge in 2015 as important value drivers are INCB047986 (Jak1 inhibitor) and INC280 (MET inhibitor).

INCB047986 may advance to phase III pending positive phase data II in RA. The phase II is small (60 paients) but should be enough for generating an efficacy signal. It mirrors the proof of concept trial for Galapagos’ Jak1 selective compound that led to the lucrative option agreement with Abbvie (ABBV). Galapagos should have phase IIb data in H1 2015, which should indicative of INCB047986’s potential.

INC280 is in multiple phase II studies that could read out during 2015. It is being evaluated as monotherapy in “MET dependent” tumors and in combination with Iressa in MET+ lung cancer. After years of setbacks, MET inhibitors are regaining momentum thanks to optimal patient selection. To date, three different MET inhibitors from Pfizer, Amgen (AMGN) and Abbvie have demonstrated promising activity in biomarker-selected tumors. As a highly selective MET inhibitor that is being evaluated in various MET+ tumor types, INC280 may have multiple routes for accelerated approval announced in 2015.

Seattle Genetics (-20% in 2014)

The AETHERA debate – The major event in 2014 was the AETHERA data that evaluated Adcteris as maintenance treatment following stem cell transplant in HL. The maintenance setting represents a modest commercial opportunity (~100M) but the trial was important for supporting Adcteris’ growth in 2015-2016 before the next label expansion (Pivotal data in CD30+ CTCL expected in 2015).

The AETHERA study demonstrated an overwhelming benefit in PFS (43 vs. 24 months!), however, there was no survival benefit. The lack of survival benefit, which may be explained by cross-over (patients on the control arm had access to Adcteris) and limited follow up, was disconcerting to many investors. The main concern was around physicians’ willingness to treat every patient immediately after transplant, which is potentially curative in HL. Without a proven survival benefit, physicians may prefer not to expose every patient to Adcteris and treat only those who relapse.

Although it will take years to validate this, the PFS curves suggest that maintenance Adcteris has a reasonable chance to improve cure rates based on a 20% absolute difference at 2 years (65% vs. 45%). If this benefit is maintained over time (as the graph implies), it should translate to a dramatic survival benefit at the tail of the OS curve. Therefore, I believe the potential to increase cure rates should make maintenance Adcteris widely used as the risks (16  three week cycles with a relatively mild safety profile) are outweighed by the potential benefit.

AETHERACompetition from PD-1 antibodies– Adcetris’ undisputed leadership in HL was called intoquestion after two PD-1 antibodies (BMS’ Opdivo and Merck’s Keytruda) reported impressive activity (including in patients who progressed on Adcteris). The two antibodies had response rates of 87% and 66% respectively, similar to what Adcteris generated in its pivotal study (73%). Responses appeared durable, and based on experience in other diseases, some of these responses will hopefully lead to long term remissions.

It is easy to see why the market is concerned about PD-1 antibodies taking market share from Adcetris, that was  heralded as a revolution in the treatment of HL after decades of stagnation. Until now there was only one “wonder drug” in HL, now there is another highly effective class of drugs. The risk of displacing Adcetris clearly exists, but is still low in my opinion given the early nature of data (small single-arm trials tend to over-represent real efficacy), the established role of Adcetris for HL and the possibility to pursue combination regimens.

Going forward, combining Adcetris with a PD-1 antibody represents a promising approach given the high single-agent activities and the non-overlapping toxicities. Adcteris+PD-1 has the potential to become the most effective regimen in HL history and may even replace chemotherapy and stem-cell transplant in many cases. Cost may be an issue (depending on treatment line) but can be justified by increased cure rates.

2015 – Looking for the next value drivers –Adcetris remains Seattle genetics’ primary asset and is expected to generate ~$210M ($175 in sales + $35M in royalties on Ex-US sales) for the company in 2014. As this run rate represents most of Adcetris’ commercial potential based on the current label, focus is on expanding Adcetris’ use as well as developing additional products. Unless one or both occur, it will be hard for the market to justify the current $4B valuation.

Seattle Genetics has 4 internal ADC (antibody drug conjugate) programs in development (SGN-CD19, SGN-CD33A, SGN-LIV1 and SGN-CD70A) and a large partnered pipeline including multiple programs with Roche, Pfizer, Abbvie and Celldex’s (CLDX) glembatumumab vedotin (In a pivotal  trial).

To date, despite the multiple shots on goal the company could not identify its “next Adcteris”. This experience represents the general experience with ADCs, where early enthusiasm based on Adcetris and Kadcyla was followed by disappointing results for other ADCs. This is also mirrored by the experience Immunogen (IMGN) had with its internal and partnered pipeline.

As a result, ADCs are not as hot as they were few years ago, but Adcetris clearly prove that the right target and ADC technology can generate clinical breakthroughs. Therefore, based on the amount of projects in the clinic and technological advances, 2015 could see an improvement in the sentiment towards ADCs.

SGN-33A is Seattle Genetics’ most visible program based on initial data at ASH and the fact CD33 is considered a validated target (based on Mylotarg). Phase I data at ASH demonstrated clear efficacy at the dose escalation portion with a CR rate of 27% (6/22) for the top three doses. Anti-leukemia activity that did not qualify as a CR was seen in the majority of patients (see figure below).

SGN33A30-day mortality of 2% implies a very good safety profile although there were some safety signals. Durability of responses is another open question given the short follow-up. If responses are maintained for several months (median of ~5 months or above), SGN-33A could become Seattle Genetics’ next value driver.

The company’s partnered pipeline has more than 15 programs, the most advanced of which is Celldex’s glembatumumab vedotin (ongoing pivotal study had to be modified due to low enrollment rate). Roche may start pivotal studies with polatuzumab vedotin (anti-CD79b) in NHL, although recent combination data wit Rituxan demonstrated tolerability issues. Another Roche ADC, lifastuzumab vedotin (Anti-NaPi2b), may have randomized phase II data in ovarian cancer. Lifastuzumab demonstrated a 40-50% response rate in ovarian cancer with high NaPi2b expression, which bode well for chances of a positive outcome.

Data readout is expected from many additional wholly-owned and partnered programs currently phase I. These include Seattle Genetics’ LIV1 program and programs from Pfizer (Anti-5T4), Bayer (Anti-C4.4a) and Genmab (Anti-TF).

Genmab (+62% in 2014)

All about daratumumab – Genmab’s (GEN.CO) primary asset continues to be daratumumab (Anti-CD38), which is in a broad and aggressive development program led by J&J (JNJ). During 2014, daratumumab continued to generate positive results in multiple myeloma, especially in combination with approved regimens. In contrast, Genmab’s marketed CD2 antibody, Arzerra, had a disappointing year after phase III failure in DLBCL and what appears to be an inferior profile compared to Roche’s Gazyva in CLL.

Pivotal data in myeloma in Q2 2015 – The biggest event in 2015 will be phase II data in double refractory multiple myeloma patients, a setting for which daratumumab has breakthrough therapy designation. Based on precedents with Velcade and Kyprolis, a response rate of 25% with a 6-month duration of response should be sufficient for accelerated approval. The most recent update for daratumumab monotherapy at ASCO demonstrated a 35% response rate at the highest dose tested (16 mg/kg, 20 patients). Activity in the lower dose (8 mg/kg, 29 patients) was a disappointing 10%, much lower than I had expected based on the original phase I response rate (30-40%). Assuming activity at the 16 mg/kg cohort corroborated in the ongoing phase II, daratumumab could be filed already in 2015.

Early stage programs gaining visibility – Earlier stage programs may start to generate interest and position Genmab as an antibody powerhouse. The anti-TF ADC is the most advanced program (in collaboration with Seattle Genetics), which is expected to have first clinical data in 2015. Genmab recently unveiled a second ADC with Seattle Genetics (Anti-Axl) and has another program (Anti-CD25) with ADC Therapeutics in preclinical development.

Genmab’s bispecific antibody platform (DuoBody) is also expected to have considerable newsflow in 2015. Its primary partner is J&J, which has a broad collaboration covering 20 bispecific programs. The first program of this collaboration (Anti-MET/EGFR) is expected to enter the clinic in 2015.

Morphosys (+34% in 2014)

Still one of the broadest antibody pipeline in the industry – Morphosys (MOR.DE) continues to have one of the broadest antibody pipelines in the industry with three internal programs in clinical development. The market ascribes significant value to the company’s massive partnered pipeline (19 antibodies), three of which are in pivotal trials run by Novartis (NVS), J&J and Roche.

MORMorphosys’ shares came under pressure recently after the failure of Roche’s  gantenerumab in a pivotal trial in Alzheimer’s Disease. Although other trials with the antibody are ongoing, this failure creates a lot of uncertainty around the program and the amyloid-beta theory in general. It should also curb investors’ excitement around the recent announcement by Biogen (BIIB) regarding positive phase II data for BIIB-037 in Alzheimer’s Disease.

Paradoxically, Morphosys’ most important proprietary asset is MOR202 (Anti-CD38), (partnered with Celgene [CELG]), has been in the clinic for over three years without publishing any data. The excitement around MOR202 is based on promising efficacy with other CD38 antibodies from Genmab and Sanofi (SNY). MOR202 is 2 years behind Genmab and its partner J&J but the significant commercial opportunity coupled with a partnership with the world’s leader in multiple myeloma are enough to keep investors excited.

MOR208 (Anti-CD19), licensed from Xencor (XNCR) is in phase II for CD19+ blood cancers. Despite clear efficacy, I view this product is undifferentiated and in many cases inferior to other CD19-targeting therapies (including bispecific antibodies and CARs). In addition, the competitive landscape in most of the pursued indication has become very challenging.

Potential readouts in 2015 – In 2015, MOR202 will continue to garner a lot of interest , with expected data in multiple myeloma and potential initiation of pivotal studies. 2015 should see a significant amount of data readouts for Morphosys’ partnered programs, the most important of which will be from randomized trials. These include Bimagrumab (Novartis, Anti-ActRIIb) for muscle wasting, LFG316 (Novartis, Anti-C5) for dry AMD/ geographic atrophy and  tarextumab (Oncomed [OMED], Anti- Notch 2/3) for pancreatic cancer.

Clovis Oncology (-5.5% in 2014)

Safety concerns still overshadow rociletinib’s potential –    2014 was a rollercoaster year for Clovis (CLVS), as investors struggled to assess rociletinib’s (CO-1686) true value. The focus in 2014 was on comparing rociletinib to AstraZeneca’s (AZN) AZD9291 as both drugs have similar efficacy (cross-trial comparison) in patients with T790M+ lung cancer but differ in their safety profiles. As I previously discussed, I still believe the market is ignoring the significant near term potential Clovis represents.

Clovis came under pressure at ASCO due to concerns around hyperglycemia, which was not seen with AZD9291. Later in 2014, these concerns turned out to be overblown as  the hyperglycemia was easily manageable with a commonly used oral drug (metformin). Rociletinib’s advantage is the lack of skin toxicities which were observed in a significant portion of patients on AZD9291 although most cases were not severe.

Pipeline advancing with two promising programs – Clovis has two additional programs that garnered little interest during 2014, despite preliminary positive data.

Rucaparib (PARP inhibitor) had promising results in ovarian cancer patients whose tumors had a BRCAness signature based on a proprietary panel Clovis is co-developing with Foundation Medicine (FMI). This was the first time a PARP inhibitor demonstrates meaningful activity in a subgroup of ovarian cancer beyond BRCA+ patients. Results validate Clovis’ approach and could differentiate rucaparib from other PARP inhibitors, including Astra’s Lynparza that just got approved for BRCA+ ovarian cancer.

Lucitanib (VEGFR/FGFR inhibitor) did not have new data in 2014 but phase I results from a European study demonstrated remarkable efficacy in a subset of breast cancer patients. Ongoing studies in lung and breast cancer are currently enrolling patients with the purpose of validating or disproving the initial signal. The most intriguing aspect of the lucitanib story is the dramatically better efficacy in patients who appear to derive limited benefit from selective FGFR inhibitors (from J&J, Astra, Novartis). This can theoretically be explained by the drug’s broader selectivity profile, and if validated, could challenge the widespread perception that high selectivity is always better.

Regulatory submission expected in 2015 – The major event for 2015 will be filing for accelerated approval based the ongoing single-arm phase II. Everybody agrees that given the robust efficacy observed to date (~65% response rate), filing and approval are extremely likely. The debate is how well rociletinib will be able to compete with AZD9291, which is also expected to be filed in 2015. Bulls argue rociletinib’s safety profile will enable it to capture a meaningful market share whereas bears argue that patients will prefer AZD9291 given the comparable efficacy and lack of hyperglycemia.

Debate to stay alive until 2017 – The market share question will remain unanswered until 2017, after both drugs have sufficient time on the market. Until then, investors will carefully track how Clovis and AstraZeneca build the basis for label expansion through combination regimens (where Astra has a clear advantage) and opportunities beyond T790M+ NSCLC (1st line strategy, T790M- NSCLC). Clovis expects to have preliminary data from a head-to-head phase II trial vs. Tarceva in 1st line patients. If results are positive, the trial will be expanded to a pivotal study.  AstraZeneca already started phase III in the same setting.

SAGE Therapeutics (+21.6% in 2014)

In November 2014, SAGE (SAGE) reported phenomenal data for its lead program (SAGE-547) in Super-Refractory Status Epilepticus (SRSE). SRSE is a condition in which patients experience persistent uncontrolled seizures and are usually placed into a medically induced coma to halt seizures. Treatment with SAGE-547 led to a positive outcome in 8 of 11 (73%) patients who were successfully weaned off anesthesia. The trial did not have a control arm but success rate with available treatments is ~25%. A similar response rate (71%) was observed in seven patients who received the drug under emergency-use IND Applications.

Looking for regulatory clarity – In 2015, SAGE’s main mission will be to get regulatory clarity from the FDA regarding the path to registration and start pivotal studies. A breakthrough Therapy Designation is also likely based on the robust efficacy reported to date.

Marinus as a potential competitor – SAGE Investors should also track Marinus (MRNS), which is developing ganaxolone, an almost identical drug to SAGE-547 with the same mechanism of action (GABAA positive modulator). In contrast to SAGE-547, ganaxolone is given orally with epilepsy as the primary indication. Marinus disclosed it is working on an IV formulation following the SAGE-547 data but it is unclear whether it intends to pursue SRSE or other indications with this formulation. Marinus is evaluating ganaxolone in two orphan indications (PCDH19 female pediatric epilepsy and fragile X syndrome) and is traded at a significant discount relatively to SAGE (market cap of $161M and $998M, respectively).

Aerie Pharmaceuticals (+69% in 2014)

In 2014, Aerie (AERI) continued to advance its lead glaucoma drug, Rhopressa, as single agent or co-formulated with latanoprost (Roclatan). The major event in 2014 was positive data for Roclatan, demonstrating superior and consistent reduction in IOP (intraocular pressure) throughout the evaluation period.

2015 will be a make or break year for Aerie, with phase III readouts for both Rhopressa and Roclatan (mid-2015). Based on the robust phase II data generated to date, likelihood of positive outcomes is very high, and given the significant market opportunity ($1B+) may lead to an acquisition by year-end.

Foundation Medicine (-3% in 2014)

Foundation Medicine (FMI) continued to prove the utility and robustness of its platform in identifying actionable mutations, which was done either in collaboration with clinicians or biotech companies (Agios, Clovis) that used FoundationOne for patient selection in their clinical studies. From a commercial perspective, the company is expected to finish the year with $60M in revenues (implies a P/S of x11).

The bull/bear debate for Foundation Medicine does not focus on its approach (using multi-gene panels based on NGS) but more on the company’s ability to cope with future competition.

The bear thesis for FMI is based on the fact that anybody can do tumor profiling using NGS. This is exemplified by countless NGS initiatives at academic centers as well as recent announcements from diagnostics and pharma companies that intend to enter this field (see examples here and here). This may turn tumor profiling into a very competitive and price sensitive market, favoring either very large companies or non-profit organizations. Lack of reimbursement is another major concern, as it is unclear if and when broad reimbursement will be obtained.

The bull thesis for FMI relies on the company’s early mover advantage and market experience as the only company with meaningful commercial track record. Bulls (myself included) claim that due to the critical nature of tumor profiling (guiding treatment decisions), the bar for widespread adoption is very high. This includes technical parameters (accuracy, reproducibility, number of genes per test, user interface etc.) but also regulatory and clinical parameters (clinical outcomes, cost effectiveness) that require significant time and resources. There is also the issue of market awareness and branding, where FMI has a clear advantage. Therefore, while the NGS market will probably be commoditized, tumor profiling application could stay a highly regulated segment with high entry barriers.

Effort to grow sales and expand coverage  in 2015 – 2015 will be an important year for assessing Foundation Medicine’s position in the tumor profiling market. As personalized medicine is gaining popularity, demand for the company’s panels should increase (analysts expect a near doubling in revenues to ~110M in 2015) but investors should also track commercial performance for competitors such as Labcorp and Quest Diagnostics. On the reimbursement front, it will be interesting to see if Foundation can expand coverage beyond the recent win with Priority Health.

Progress with Agios’ (AGIO) IDH inhibitors and Clovis’ PARP inhibitor should be viewed as positive as Foundation Medicine will sell companion diagnostics for these drugs (if approved). As I previously discussed, these programs represent significant commercial opportunities.

Esperion Therapeutics (+191% in 2014)

Positive P2 outcome – The main 2014 event for Esperion (ESPR) was a positive outcome from a large phase II trial for its cholesterol drug, ETC-1002. The data set was a home run, demonstrating a 27-30% reduction in LDL-C vs. 21% for commonly used Zetia. Combining ETC-1002 with Zetia led to a 43-48% reduction, which bodes well for co-formulation of the two drugs. In contrast to Zetia, ETC-1002 had a meaningful effect also on CRP levels (marker associated with inflammation), which might enhance the benefit of classic LDL reduction. Lastly,  the safety profile was favorable but this will have to be corroborated in larger and longer trials.

ESPRLDL hypothesis corroborated by IMPROVE-IT – Another important event for Esperion (and other lipid lowering drugs) was positive results from IMPROVE-IT. The trial showed that Merck’s Vytorin (combination of Zetia and a statin) decreased the incidence of major cardiovascular events compared to statin monotherapy. The magnitude of effect was modest (6%) but it reaffirms the direct link between LDL reductions and long term outcomes as well as LDL as an approvable endpoint. This removed a major overhang for Esperion, which will probably not be required to have long term outcome data prior to approval (same goes for PCSK9 antibodies).

Pivotal roadmap to be defined in 2015 – Catalysts for 2015 include data readouts for two additional studies, evaluating ETC-1002 in patients with hypertension as well as in combination with statins. The company should also have long term toxicology data in animals that should enable it to start pivotal trials. As the only oral drug with a clear LDL-lowering effect and a new mode of action, ETC-1002 has become very attractive to any company with a CV franchise. Therefore, Esperion is an obvious acquisition target with a market cap of $637M and a potentially $2B drug.

Array Biopharma (-4% in 2014)

Getting rights for binimetinib was the major event in 2014 – For Array (ARRY), 2014 was characterized by uncertainty around the fate of binimetinib (MEK inhibitor), originally licensed by Novartis. Novartis had to return binimetinib back to Array following the acquisition of GSK’s oncology portfolio which includes another MEK inhibitor (Mekinist). The uncertainty around binimetinib was not only about whether Array will get the drug but also regarding commercial terms and access to Novartis’ investigational drugs that are tested in combination with binimetinib.

In December 2014 Array announced an agreement with Novartis that included extremely favorable terms for Array (discussed last month). The agreement resolves all the major issues by providing Array with $85M in cash, continued support for ongoing P3 trials as well as access to Novartis’ investigational programs for future studies.

2015 will be transformational – In 2015 Array is expected to officially get binimetinib rights back and take control of its global development program. This event will be transformational for Array, which will have global rights for a phase III compound with tens of active clinical trials (including three pivotal studies). Although Novartis agreed to pay Array $85M upfront and continue to fund the pivotal studies, Array will have to invest aggressively in additional clinical trials in order to stay competitive with other MEK programs. Therefore, a major fundraising and a new partnership are likely during 2015.

Data readouts expected for 2015 – In terms of data readout, binimetinib should have results from a pivotal study in NRAS+ melanoma as well as multiple early stage combination trials. Array’s second most advanced program is filanesib (KSP inhibitor) for multiple myeloma, with phase II data expected during 2015. The most important readout will be for selecting patients based on AAG levels. Without patient enrichment, filanesib’s value proposition is low given the modest single-agent activity and side effect profile.

Array’s partnered pipeline is also expected to generate clinical data, including pivotal data for AstraZeneca’s selumetinib (MEK inhibitor) in uveal melanoma. Array’s partnered pipeline remains undervalued with multiple programs that could reach clinical proof of concept. These include two programs with Genentech (Akt and Erk inhibitors ), Oncothyreon’s ONT-380 (HER2 inhibitor) and VentiRx’s VTX-2337 (TLR8 agonist).

Stemline Therapeutics (-16% in 2014)

The major event for Stemline (STML) in 2014 was initiating a pivotal phase II for SL-401 in BPDCN, a rare and fatal blood cancer. This was based on good efficacy observed in a small trial following a single treatment cycle. Because SL-401 contains a bacterial toxin that is highly immunogenic, the major concern with SL-401 is the generation of neutralizing antibodies in patients that will limit the number of cycles each patient can get. Stemline reported durable responses after 1-2 cycles, implying that short-term treatment is effective at least in some cases.

The ongoing phase II trial will have a run-in phase in which multiple cycles will be assessed (this portion is enrolling patients with BPDCN or AML). The optimal regimen will be used in an expansion cohort of 40 BPDCN patients that can potentially serve as the basis for accelerated approval. Data from the run-in and expansion stages are expected in H1 and H2 2015, respectively.

Even if SL-401 continues to demonstrate good activity, investors should also track Macrogenics’ (MGNX) MGD006, a bispecific antibody against CD123 in phase I for AML. The program should have initial data in 2015 and may compete directly with SL-401 (both target CD123). MGD006 should not have immunogenicity issues and is therefore more suitable for chronic use but its clinical profile is difficult to predict.

Conatus Pharmaceuticals (+12% in 2014)

Conatus (CNAT) is developing emricasan (pan-caspase inhibitor) for the treatment of chronic liver diseases. The rationale behind caspase inhibitors relies on their ability to decrease cell death and tissue damage (and consequently inflammation). Therefore, emricasan has potential utility in every disease characterized by progressive tissue destruction, regardless of the underlying cause.

High risk program in chronic liver diseases – Emricasan is being tested in five indications representing various degrees of liver damage, from NASH, which represents a milder degree of hepatic impairment , to ACLF (acute on chronic liver failure). To date the drug has been surprisingly safe (although long term safety is still an open question) and demonstrated a clear effect on cCK18, a marker of caspase activity and possibly damage severity. As there are no effective treatments for most of the conditions pursued by Conatus, it is unclear whether these biomarker changes will translate to clinical changes. The regulatory path for approval in these indications is also unclear.

CNATConatus is clearly the riskiest stock in my portfolio but its low market cap creates a good risk/reward ratio. Emricasan’s mode of action of inhibiting caspase makes sense and results to date are encouraging relatively to the stage of development.

In 2015, the company expects to have phase II data in four indications. The trials are designed to assess cCK18 changes as well as disease scores that may be indicative of response to treatment. Given the small number of patients in each trial, they will likely provide only a trend of efficacy.

ArQule (-20.5% in 2014)

ArQule (ARQL) concludes 2014 as a more diversified story but the stock is still heavily penalized due to skepticism around tivantinib’s MOA (phase III in liver cancer). In 2014 ArQule brought forward ARQ092 (Akt inhibitor) which gained more visibility as a treatment for cancer and rare diseases. ArQule reported phase I results demonstrating minimal efficacy (as would be expected with Akt inhibitors in unselected patients) and a safety profile characteristic of Akt inhibitors (hyperglycemia, rash).

New opportunity in Proteus syndrome and related diseases – On the rare disease front, ArQule and collaborators from NIH presented strong preclinical results in Proteus syndrome and related diseases. Proteus syndrome is an ultra-rare disease (<200 known patients) caused by a mutation in Akt that leads to uncontrolled tissue growth. The disease is treated with surgeries and other supportive care measures and there are currently no available disease modifying drugs.

The preclinical data set demonstrated rapid and strong shutdown of Akt signaling with ARQ092, which was significantly more effective than an mTOR inhibitor (Afinitor). The most impressive experiment was done with biopsies taken from a patient with Proteus Syndrome (see figure below). This experiments bodes well for ARQ092’s ability to be truly disease modifying for this debilitating condition.

ARQ092No internal catalysts until H2 2015 – ARQ092 is expected to enter phase I in Proteus Syndrome in H1 2015 in parallel to an ongoing oncology study which is enrolling patients with relevant mutations (PI3K, Akt). Results from both trials may be available only towards year-end 2015 and since phase III for tivantinib should have an interim analysis late in 2015, no major internal catalysts are expected in the near future.

Therefore, the most important drivers for ArQule are results from competing Akt programs from Roche and AstraZeneca, which are in multiple randomized phase II studies. Positive results in any of these trials should significantly increase the value proposition of Akt inhibitors, including ARQ092.

Portfolio updates

We are adding a new position in Marinus based on a positive data set for ganaxolone in epilepsy and the inevitable comparison to SAGE (discussed above).

Portfolio holdings – January 4th, 2015

biotech portfolio - 4-1-15biotech etfs - 4-1-15

39 thoughts on “Biotech portfolio update – 2014 summary and 2015 preview

  1. Ohad
    Very informative and helpful summary and discussion of the 2015 catalysis!
    About SGEN you wrote that combining Adcteris with PD-1 is promising approach. Do you know if they started working on that opportunity? I could not find any reference in their presentations.
    AFMD has a phase II with bi-specific CD30+NK cell. They should have data for the ASH 2015. Do you see them as a potential Adteris competition? AFM13 has much cleaner safety profile compared to SGEN ADC technology.

    FDA expressed some concerns about Neurocognitive AE associated with PCSK9 drugs. It could be due to the PCSK9 involvement in cortical neurons. Do you think that it will give an edge to ETC-1002? Currently PCKS9 are over-hyped, it may cool down if FDA request additional studies to prove that the AE are transient.

    I am pleased that you added MRNS to the portfolio. :))


  2. Andre – Thanks. I am pretty sure these trials will start shortly (don’t recall exactly how I know this…). In any case, such a study begs to be done.
    Re: AFMD – they had some signs of efficacy but their activity pales in comparison to Adcetris or PD-1, not sure that it’s much safer than Adcetris.
    Re PCSK9 – it is still unclear to me how significant the neuro-cognitive issues are (not aware of anything official except the warning letter to REGN/SNY in March). If this is significant than of course it may deter patients and physicians from broadly using PCSK9 antibodies. ETC-1002 appears to have a great safety profile but bear in mind it is still early in development and we don’t know how long term studies will look.
    MRNS is a peculiar case, hard to explain the huge difference in valuation with SAGE even though they don’t have data in SRSE.



  3. Hey Ohad
    what a great write up! thanks.

    Are you following some of your old investments? such as CLDX?
    Any thoughts on Scancell and moditope technology? look it up if you haven’t. It seems like they’re doing some breakthrough science in immuno oncology– it’s very early but everything I’ve read thus far seems very promising.
    Any diabetes drug developer worth keeping an eye on in 2015?
    Thanks for sharing you insight and all your clear and well presented work.



  4. First of all many thanks for your first class reports.

    Then I think your Portfolio Holdings are per January 2015 ?

    Do you have a new view on EXEL ?

    Thanks again !


  5. Dan – Yes I am trying to follow as many stocks as possible but unfortunately I can’t devote the right amount of time to cover everything I am interested in…
    Still following CLDX, I was positively surprised by their p2 data 2 months ago.
    Re: Scancell, will take a look. Looks like a cancer vaccine in which the antigen is delivered via an antibody. CLDX is using a similar approach with their NYESO program.

    rodolfo – Thanks for letting me know, I corrected the date.
    Re: EXEL I plan on re-assessing it next Q prior to the RCC data. I still like cabo for RET+ tumors and cobi has upside beyond melanoma but the debt overhang is troubling.



  6. Ohad, thank you so much for a very informative article, as always! As I have done with your past annual outlook articles, I know I will be re-reading this summary many times in the coming weeks and months.

    As a long-term Array holder, I am especially optimistic about its future this year, especially given that the stock is still at attractive levels unlike a lot of other biotechs. Do you recommend adding more ARRY at its current price level, or do you think it is better to wait for news on potential new financing?

    Thanks again for all of your help and valuable insights.

    Happy New Year!


  7. Hey Ohad,
    couldn’t agree more with Debras words. This is a great ressource and is really helpful!

    Glad to hear your comment on ZFGN. I would say that efficacy data is very robust. Did you look at the safety data and saw any concerning things there?
    I would think that – if safety is really no problem – there would be a great potential for label expension even for an injectible drug.

    Thanks and best wishes


  8. Ohad: On AFMD, I thought the data was in Adcetris failures. These were mainly salvage patients weren’t they? Also, I don’t think many of the patients received the full dose and AFMD may have further dose escalation/adjustments to do as it’s pretty early data. Finally, couldn’t the data improve as time goes on for these patients as it may take longer for NK activity to show?


  9. Debra – Thanks. I am also quite optimistic about ARRY this year, as I believe binimetinib has a lot of upside as a good quality MEK inhibitor with significant near term funding from NVS. My only gear is an imminent equity raise, which is not a long term fundamental issue but could weigh on shares in the coming months. $630M market cap is rather cheap for a wholly owned P3 asset + multiple partnered assets.

    ike – Don’t recall seeing anything disturbing with ZFGN’s drug to date but it’s important to note that so far results are from fairly small and short term studies. In these type of indications, any safety signal could devastate a program.

    mcbio – You make valid points but at the end of the day when a drug has stellar activity (e.g PD-1 mAbs) you tend to see this early on. Long term treatment with the optimal dose may improve the clinical profile but this is not a wonder drug like Adcetris or PD-1 mAbs imho.

    Richard – Sorry, not following them closely.



  10. Hey Robert and Ohad
    not sure about CNAT – I feel that sometimes the market (retail) is not very proficient at reading clinical trial results when they are mixed or more nebulous than a slam dunk of complete failure. Will have to see what Ohad thinks. More trials will read out for CNAT in 2015.
    What about adding AERI and CLVS, MRNS too as SAGE keeps gohing higher?
    ESPR has had a good run too… almost reached 50 today.
    BIOD has shown some life today with some positive results….
    KBIO imploded yesterday.


  11. Hi Ohad,

    A lot going on in your portfolio in recent days! Good call on STML’s need/desire to refinance (I recall this from one of your earlier posts/comments). What do you think of their deal to in-licence SL-801, a “novel, oral small molecule reversible inhibitor of Exportin-1 (XPO1)”? While diversification is often a good thing, my worry is that it distracts them from their core projects or, worse still, that it provides evidence that their own platform is not providing new leads. Any thoughts are much appreciated!



  12. Ohad
    Interesting deal b/n INCY and AGEN. They are going to co-develop several checkpoint modulator antibodies against GITR, OX40, LAG-3 and TIM-3.
    The financial conditions look good for AGEN,
    AGEN does not look expensive – even after the pre-market jump they will be below 350M. And the INCY collaboration brings some weight and confidence in the programs. In addition they have solid partners – GSK, PFE, Janssen and now INCY. Based on the deal INCY will have 12% stake in AGEN. Any chance you may consider them as a potential investment?


  13. Ohad
    Invitae IPO – what is your opinion? They may emerge as a serious FMI competitor. They already secured several provides, just announced Blue Shield of California and Medicare? They offer single diagnostic test for over 200 genes.
    Here is from a press release:
    Currently, Invitae offers clinicians an assay of 216 genes comprising 85 different genetic disorders and 17 targeted panels focused on hereditary cancers, including breast, ovarian, colon and pancreatic cancer, as well as cardiology, hematology, neurology and pediatric panels. Invitae provides turnaround time of less than three weeks for the substantial majority of its tests.
    Look impressive!!!


  14. Robert – From what I understand these are options granted by the company.

    Richard – I like their approach of pursuing rare genetic mutations in NSCLC. My only worry is that their compound may be too broad spectrum to be competitive with more selective compounds in development (for example LOXO/ARRY’s Trk inhibitor, NVS or Roche’s 2nd gen ALK inhibitors).

    Jeff – The jump in BIND is puzzling as I couldn’t find any reason that could justify this movement. The prostate cancer results are hard to interpret and the lung cancer data remain underwhelming imo.

    Robert – I don’t intend to sell CNAT but I won’t add more either as these type of positions should comprise a small portion of the overall portfolio. Re: STML and MRNS, I don’t plan to add more for the time being.

    Dan – The reaction to CNAT’s results is justified to some extent as it demonstrated challenges associated with ACLF (couldn’t get enough patients after screening 1000 candidates) plus there wasn’t an overwhelming efficacy data, which was not the goal of these trials and perhaps too much to ask but people often hope to see preliminary signs. For me, it doesn’t change the investment thesis, we’re talking about high risk high reward stock. I like the stocks you mentioned (AERI and CLVS, MRNS) but I don’t intend to add more in the near future.

    Deaglan – I like this deal very much because the mechanism is validated by KPTI and the drug is very close to IND. This could become a major value driver towards YE2015 if KPTI generates more positive data with their XPO1 inhibitor. The point about a reversible inhibitor having a better therapeutic window is intriguing but needs further validation.

    Robert (SGEN) – Looks the CEO sold 16k shares (the table says “automatic sell”, don’t know what that means). On the other hand, Baker Brothers appear to like SGEN, they bought 3.5M shares last month.

    Andre – Very nice deal for AGEN (and INCY as well). The market may view them as a takeout candidate in case INCY would like to have internal antibody discovery capabilities. I am a little hesitant to buy AGEN at these levels as all their checkpoing programs are still preclinical and the cancer vaccine programs do not justify a market cap of 350M…

    Re: Invitae, at first glance I don’t think they do tumor profiling but focus more on hereditary diseases. Therefore, I don’t see them as a serious competitor for FMI (which already has plenty of competitors in the form of huge Dx companies…)


    Dan –
    What about adding AERI and CLVS, MRNS too as SAGE keeps gohing higher?
    ESPR has had a good run too… almost reached 50 today.


  15. Ohad, regarding the XPO1 inhibitor that STML in-licensed, isn’t KPTI’s XPO1 inhibitor, which is much further ahead, also a reversible inhibitor? Question for me would be how the STML in-licensed XPO1 inhibitor would be differentiated, if at all. That doesn’t mean there can’t ultimately be room for a second XPO1 inhibitor on the market of course; I would just prefer if they had some differentiation angle.


  16. mcbio – That’s a good question. KPTI’s XPO1 inhibitor (selinexor) is derived from leptomycin B, which is a covalent irreversible XPO1 inhibitor. Selinexor is defined in scientific papers as irreversible or covalent “slowly reversible” inhibitor. The drug STML in-licensed is derived from a phenotypic screen and is characterized as a reversible inhibitor based on pull down experiments, see fig 6 in the below. Therefore, their drug could (in theory) be differentiated but the burden of proof is on them.



  17. JQ (KPTI) – If you look at preclincal work they published they clearly state that their inhibitors are irreversible, I encountered the term “slowly reversible” only in ASCO/ASH presentations.

    See a couple of examples below:

    Richard (CYTR) – Not following the closely, prefer more innovative approaches in general.

    Ohmson (FMI) – Thanks. It happened sooner than I had anticipated, Roche and Genentech did a brilliant deal!



  18. Congratulations Ohad. You were right on with your position again!

    Do you anticipate holding onto your shares through the merger and continued operations of FMI?


  19. FMI….damn sir nice call

    Please keep searching for what the catch is on mrns, but I did get in

    For some reason I always pick your duds…lol…cnat, imgn, exel….but this is the minority for your portfolio, the exception, not the rule…your DD is excellent

    I am following your advice…exel after debt restructuring and array after a possible secondary…holding for those if they at all happen

    I did pin down some stml after their offering

    So what do u think now with imgn at this price?
    Any thoughts on opko? Ziop? … u still watch cris?


  20. Elyas – Thanks, yes I do plan on holding FMI but I might sell a portion in order to limit exposure to 10% of the overall portfolio.

    Robert – Thanks. Re: MRNS, I don’t find the catch and since their drug is so smilar to SAGE547 I feel very comfortable with this position. ARRY is on top of my watchlist, waiting for more clarity there, STML is more diversified following the XPO1 deal but still very high risk.
    Re: IMGN, I prefer to wait for data next year with a focus on the EGFR program. Don’t have anything smart to say about ZIOP, OPKO, CRIS…



  21. Good to see the FMI bulls win out. Thank you for continuing to beat the drum going forward. Like you, I will sell some FMI over the next month, but will continue to hold many shares for the long term. Do you agree that this pricing means its time to purchase much more ILMN?


  22. Kirk – ILMN is a more diversified NGS play, so while it will definitely benefit from increased use of NGS-based tests I don’t know the market well enough to answer your question.



  23. Check out opko……insider CEO buying hand over fist

    Again Hammer time with Ohad!…though I think u said it’s obvious, but didn’t u just call the adcentris with pd-1 inhibitor combo trial?
    We’ll done….I am following the bakers here and adding more SGEN.


  24. Hi Ohad,

    What odds do you give of MEIP’s HDAC succeeding in the P2 MDS trial?

    Would a lack of statistical significance be bad given its a small trial?




  25. Hi Ohad

    Was wondering if you had a opinion on Enanta Pharmaceuticals.the stock has come down quite a bit after Abbvie launch of their hep -c drug regimen.With approximately 275 million in cash at end of 1st qtr 2015 and a royalty stream of approx 5-6% of total sales of the estimated 2-2.5 billion in sales for 2015,seems undervalued at a mkt cap of approx 600m


  26. Hi Ohad, it looks like $SAGE is moving in right direction

    “On April 2, 2015, we announced that at a recent End-of-Phase 2 meeting with the FDA, general agreement was reached on the design and key elements for our planned Phase 3 clinical program for SAGE-547 for the treatment of SRSE and we expect to initiate the Phase 3 trial in mid-2015. If successful, we believe the results from this Phase 3 clinical trial, together with other clinical data obtained from the SAGE-547 development program, could form the basis of a New Drug Application, or NDA, submission for SAGE-547.”


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