Q1 2016 scorecard – Arrested Development

As if sentiment around Smid-cap biotechs wasn’t bad enough, Q1 provided a painful reminder of the high failure rate in biotech. The slew of disappointing results at ASH in December 2015 (which I discussed here) was followed by numerous clinical failures and regulatory setbacks. Most notable blowups came from Celldex (CLDX), Incyte (INCY), Alkermes (ALKS), Oncomed (OMED), Chimerix (CMRX), Atara (ATRA), PTC (PTCT) and Portola (PTLA).

The common theme for most failures was the inability to corroborate an early efficacy signal (pre-clinical or clinical) in a large randomized clinical study. Although there are indications where a clear proof of concept can be achieved in small single-arm trials (especially in mutation-driven tumors), generating positive data in randomized trials is still the primary bottleneck for most companies.  Interestingly, the list above includes good companies backed by high quality science and credible management but unfortunately this wasn’t enough.

New catalysts urgently needed

The sobering experience to date makes me even less optimistic about the remainder of 2016. The primary problem I see is the lack meaningful value creating events similar to those which took place in 2013-2015. Back then, PD-1 antibodies, HCV drugs, CARs, certain subsets of gene therapy were able to capture the imagination of investors, creating more than $100B in forecasted annual sales. Although these big ideas certainly delivered in the form of clinical data, they are not enough to support the sector going forward. In some cases, their commercial potential is priced in. In others, clinical benefit was not as phenomenal as expected.

With PD-1 antibodies, there are now multiple positive P3 readouts in melanoma, renal, lung and head and neck cancer (data expected next month at AACR) but the clinical effect is not as dramatic as investors had hoped and patients are rarely cured  (with the exception of melanoma). The recently published P3 results for Keytruda  in non-small cell lung cancer (NSCLC) demonstrated that while the drug leads to a more than doubling of overall survival (17.3 vs. 8.2 months) in high PD-L1 expressors, this subset represents only ~30% of patients. The remaining 70% derive limited to no benefit.

The quest to find additional immuno-oncology (IO) agents with a similar activity profile to that of PD-1 antibodies has also been fruitless to date.  All the new immuno-oncology agents (LAG-3, IDO, KIR, CD27, B7H3, CSF1R, 41BB) have limited to no single agent activity. This led companies to pursue them combination studies that could generate data this year but in most cases there is no control arm. One can only hope that the next wave of immuno-oncology drugs will be more successful as monotherapy. Personally I have high hopes for OX40 agonists (Roche, AstraZeneca, Pfizer) and TIGIT antibodies (Roche).

Biosimilars at the gate

2016 will also be remembered as the year in which the first biosimilar version of a true blockbuster hit the US market. Celltrion and its partner Pfizer (PFE) are expected to receive FDA approval for Inflectra, a Remicade biosimilar, following an overwhelmingly positive recommendation from an FDA advisory panel. The panel recommendation set an important precedent by recommending the biosimilar for all indications for which Remicade is approved, obviating the need for running a pivotal study per indication.

Inflectra is the first of many biosimilars that are expected to launch by 2020, covering products that generate $60B in annual sales. Biosimilars may have a huge impact on the industry, especially on companies with high exposure to biologics (Merck, Abbvie, Amgen, Biogen and Roche). The table below from Nature Reviews Drug Discovery illustrates the massive amount of resources the biosimilar segment is attracting. Beyond the high number of programs, it is important to note that the players involved are much more than the classic generic players, including some with massive global marketing infrastructure.

mAb biosimilars

Source: Nat Rev Drug Discov. 2016 Jan;15(1):13-4.

In an environment where pricing is becoming a crucial factor, having multiple players fighting for market share in a slowly growing segment must eventually lead to steep discounts. This is in contrast to the norm to date of consistent annual price hikes for  branded biologics. Switching patients currently treated with a branded biologic is not going to be trivial, but studies like the ones Celltrion published are likely to improve reimbursers’ negotiation leverage.

IPOs unlikely to be the answer

Recent biotech IPOs include some attractive technologies but they are unlikely to generate meaningful results in 2016. The largest transaction was for Editas (EDIT), one of the leaders in gene editing.  Gene editing is probably the most exciting scientific innovation in recent years but it will take 2-3 years to generate clinical proof of concept. In addition, it is hard to justify a market cap of $1.1B for a company that didn’t even start toxicology studies for its lead program, let alone clinical trials that are expected to begin towards late 2017. Other IPOs like AveXis (AVXS), Syndax (SNDX) and Proteostasis (PTI) are also not likely to generate ground breaking data.

On the next post I will discuss potential catalysts that could impact the overall sentiment during the second half of 2016.


Portfolio holdings – March 27th, 2016

Biotech portfolio - Mar 28, 2016biotech etfs - Mar 27 2016

32 thoughts on “Q1 2016 scorecard – Arrested Development

  1. ohad

    have your feelings changed regarding your investment thesis for ESPR?also,do you have a opinion on FLAMEL TECHNOLOGIES?I noticed a director purchased 1 million dollars worth of stock at these levels.


  2. Hi Ohad,
    ESPR – When do you expect the result of MRK REVEAL? Do you think partnering or BO can happen to ESPR before this result is out? Good result from REVEAL can almost wipe out the value of ESPR, being late and less potent in LDL lowering.
    Too many hurdles to overcome.
    Do you believe there is reasonable chance to have satisfactory outcome from HDS add on?
    I am getting more uncomfortable to roll the dice.


  3. Dan (SAGE) – Indeed the pattern is similar to what SAGE has done with SAGE-547. Although there is obviously risk with the P3 in SRSE, I still believe the anecdotal effects they saw in SRSE and PPD are so overwhelming that this is not a fluke.

    dave (ESPR) – No I still feel the same about ESPR and about their potential to have the next LDL lowering blockbuster. A lot depends on the CV outcomes data for PCSK9 inhibitors later this year. Not familiar with Flamel.

    Gene (ESPR) – REVEAL is expected to read out in 2017. Agree that positive results will position anacetrapib as a strong competitor (although I don’t expect it to succeed). My assumption is that if a deal hasn’t materialized so far it won’t happen in 2016. Yes I believe there is a reasonable likelihood of seeing an effect on top high dose statins although there is ample opportunity in statin-intolerant patients.



  4. Ohad,

    You did a write up years ago on Gvax. As you know Gvax failed in combo with chemo in prostate cancer. Adro bought the rights, and is doing a combo trial with Nivolumab. Gvax did show an interesting signal when it was combined with Ipilimumab way back in 2007. Adro has show a positive signal in the combination of its Listeria vaccine with Gvax in Pancreatic cancer. The are running a 100 patient triple combination, first data late 2016. Any thoughts?

    Thank you


  5. Hi Ohad,
    Just wanted to say thanks for putting out good articles. I wanted to let you know that Exelixis’ CS-3150 (Licensed to Daiichi Sankyo) recently was moved from Phase 2 to Phase 3 for Hypertension in Japan:


    When the compound moved into Phase 2 Exelixis received a $5.5mil milestone payment so hopefully we see a PR shortly with a milestone payment of $5-$10mil.

    With the Ipsen deal now in place for RCC in Europe, and Exelixis stating publicly they are actively seeking a Japanese Partner, what are your thoughts on who the partner may be, timing of an announcement, and potential deal terms? I can’t help but think Daiichi may be a good fit since they have an existing relationship with EXEL, even though they are also co-sponsoring the Tivantib RCC trial with ARQL.



  6. Hey Ohad,
    What do think of VBLT,” Results from a recent Phase 2 trial showed patients treated with VB-111, in combination with bevacizumab upon disease progression, demonstrated a survival rate of 57% at month 12, more than double the overall 28% survival rate at month 12 seen in the four bevacizumab-only trials (range: 16% – 38%).”


  7. Jordan (ADRO) – As much as I would like to believe the trial will be positive there are simply too many reasons to think it won’t. The combination of cancer vaccines (which always failed), pancreatic cancer (which is a very tough indication) and the limited clinical data to date make me quite pessimistic. Hope I am wrong because this could be a new dawn for cancer vaccines in general.

    Dave (GNCA) – No particular thoughts there. Don’t plan to add more for now.

    Peter (ARRY) – Agree, valuation is low but they still don’t have a real value driver investors can rely on. The NRAS melanoma opportunity is limited and BRAF melanoma data later this year is probably good but then you have fierce competition. Good news for AZ for selumetinib in KRAS+ NSCLC could be a huge catalyst. Their capital structure isn’t helping either…

    Justin (EXEL) – Thanks, that’s good news obviously. Milestone payment might even be higher than $10M. I hope EXEL find a partner in Japan sooner ratther than later because the patent life clock is ticking and they obviously cannot market anything there on their own.

    Kelvin (VBLT) – Small uncontrolled data set that looks better than historical control… Not very optimistic there.



  8. Hi Ohad,

    Thanks again for the nice blog posting though I hope for a more optimistic outcome :-).

    Along the line of your blog are you familiar with NKTR-214? They should have some phase 1/2 patient data later this year while certainly early preclinical models show good single agent activity and in combination with either Checkpoint or PD-1 agents. The target seems validated and they claim the molecule is designed to limit off-target receptor binding, if they can really reduce the toxicity would seem to have potential for much broader use.

    They have a couple other immunotherapy products (IL-5 and IDO) that are behind it in development. The have some royalty producing assets and a pain pipeline so the immunotherapy products can’t be ascribed too much value at this point though I imagine a year from now 214 could easily be their most important asset if things go well.

    I would be interested to hear your opinion on the program/target


  9. TRVN – TRV027 hey OHAD are your hopes low for TRV027 in AHF? Could be a great value add if data is somewhat positive. A drop on the news of trial failure could also be a great buying opp in TRVN, no? I feel that they are still grossly undervalued, was curious if you had any plans to add to your pos’n. Also, do you plan on getting into BLCM at any point this year?


  10. do you have any opinion on RDUS?
    they just summited the NDA to FDA for Abaloparatide-SC
    Just in time, as they announced they will submit the NDA in late Q1
    Valuation looks cheap to me at these levels, baring in mind they have also other promising drugs in the pipeline and the fact that it is a takeout target


  11. Maurice (NKTR) – The concept of a more selective IL-2 is very intriguing scientifically (also pursued by Roche in their immunocytokines) but it’s still unclear how this will pan out in patients. I personally prefer other approaches (Targeting immune checkpoints and co-stimulatory receptors with antibodies).

    AL (TRVN ) – Agree, if the trial fails I plan on using the fall to accumulate more. BLCM is high on my watchlist, plan to get in later in 2016.

    lgonber (ALDR) – Yep, good news indeed although the placebo adjusted effect is somewhat disappointing.
    RDUS – Don’t know them well but it’s on my “to do” list…

    Dan (LIFE) – Data are very preliminary but they appear to trend in the right direction, I like the dose dependent and time dependent effect.



  12. Re GNCA, there is an argument raging on twitter about whether slides 9 and 10 render today’s press release misleading in that there was no superiority vs. placebo for the first 28 days. Since the placebo was not continued thereafter, no efficacy conclusions can be drawn from the data.

    Care to chime in?


  13. Hey Ohad
    Thanks for keeping up this insightful blog. I was wondering what your thoughts were in regards to BLIND and their upcoming catalysts? Additionally I was wondering what your thoughts were in regards to CEMP?


  14. Hay Ohad. You say you are planing to get in BLCM later this year. Do you have an approximate price target for BLCM to get in? thanks


  15. Hey Ohad
    ARRY new, MILE study failed futility test… disappointing. As you said before, the pipeline, while broad, is not that exciting. What is the value driver and what are you expectation going forward?

    Thanks for your reply re: LIFE – are you contemplating whether to invest, though so early stage? When would you consider doing so?

    Also, what do you make of GNCA results? A company like Blueprint is getting much attention and signing deals (Roche, most recently) and I suppose the immuno-oncology sectorthere should have some interest in the ATLAS platform?



  16. Ohad
    any opinion about GBIM programs?
    GILD in HBV has better chances in naive pts, compared to failed one. Ph 2 data in Q2. Plus CELG MTC Ph 2 data in Q4. and CELG in chordoma Ph2 data in Q1 2017.


  17. PaulB (GNCA) – Still didn’t have a chance to review the data, plan to do so later today.

    Jason – Thanks, unfortunately I am not very familiar with those names.

    lgonber (BLCM) – Given their cash position, anything below $10 is a good entry point imo.

    Dan –
    ARRY – Indeed disappointing although they went straight to P3 without seeing a clear efficacy signal in a non-selected population. Based on stock reaction, expectations were that high anyway. What frustrates me the most with ARRY is how well LOXO is doing with a set of ARRY drugs. They still have kras+ NSCLC readout for selumetinib this year.
    LIFE – I plan on increasing exposure to biotech (LIFE included) towards the end of 2016. Not related specifically to LIFE but to overall sector sentiment.
    GNCA – Still no concrete opinion on GNCA, but I agree their engine could become very valuable for anybody who is interested in neo-epitopes (which is becoming a hot topic in IO).

    Steve – The smallest players in the PCSK9 field are probably ALNY/MDCO with their siRNA program which is high risk but could disrupt the entire field. Beyond that the field is dominated by giants (PFE just announced P3 data).

    andre – Not a big fan of GBIM’s approach. In HBV, I like ABUS based on diversified portfolio, cash position and management team. Not sure I got the CELG question.

    Bouschka (FOLD) – Obviously Positive news, kind of disappointed with market reaction. Plan on waiting for regulatory clarity in the US.

    ike (GNCA) – Still haven’t had a chance to take a closer look there.

    Kenny (CHMA) – I think the drug works and market potential is significant as the first oral option in acromegaly.

    Steve (EXEL) – I don’t think that’s likely, they had the opportunity to buy EXEL but chose to do a geographic deal.



  18. Ohad
    GBIM – I was asking about your opinion about the two Ph 2 trails with CELG – in MTC with readout in Q4 (GI-6207) and in chordoma with readout in Q1 17 (GI-6301).


  19. Do you follow KERX?

    I believe they just announced positive top line results a couple days ago regarding their phase 3 study of Auryxia (treats iron deficiency anemia in adults with non-dialysis dependent CKD). The stock went up quite a bit early on and has slowly lost most of the gains since the announcement. I know some are skeptical that the cost/benefit as to OTC iron supplements will make it a hard sell. But my sense is that knowledgeable nephrologists are excited about the drug and it could change the standard of care for CKD patients with this issue.

    Seth Klarman apparently owns a bunch of KERX as well. Just curious if you have any thoughts or follow it at all.


  20. H Ohad,

    Do you think CHMA will actually get approval? I agree its a good drug and the market is big.

    What are your thoughts regarding what will be discussed at the CLVS adcom?

    Is DVAX heplisav going to be a big drug?




  21. thanks for your comment on BLCM. I am currently holding JUNO (since IPO) and some ZIOP (not for long therm) but might consider to diversify or switch some to BLCM.
    Regarding your comment on ABUS, I completely agree. Also bear in mind they closed their last secondary at $20 and now is trading much much lower, so there is an opportunity to buy the dip considering their portfolio.


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