FDA Advisory Panels: No Means No, Yes Means Maybe

As the only company to receive a positive United States Food and Drug Administration [FDA] Advisory Committee [AdCom] recommendation for a product candidate to treat obesity in 2010, Orexigen Therapeutics, Inc. (OREX) appeared well positioned to receive marketing approval for Contrave® [naltrexone HCl/bupropion HCI].  However, on January 31, 2011, Orexigen and its partner Takeda Pharmaceutical Company Limited received a Complete Response Letter [CRL] from the FDA requesting new clinical data despite the 13-7 AdCom vote that Contrave’s benefits outweighed the risks back in December 2010.  Shares of Orexigen, which traded above $11 following the positive AdCom vote, plummeted to a 52-week low of $2.47 and puzzled investors were left wondering how frequently the FDA goes against the recommendation of its AdCom members.

While the FDA usually follows advice stemming from its AdCom meetings, it isn’t required to do so.  In fact, there have been several high-profile situations where the FDA has gone against such recommendations.

For example, many investors recall the volatility of Dendreon Corporation’s (DNDN) stock around the time of an AdCom meeting for the company’s Provenge® [sipuleucel-T] product candidate back in March 2007.  Share of Dendreon, which were trading below $5 per share before the AdCom meeting, reached $25 following a positive 13-4 vote in favor of the product’s efficacy.  Several months later, however, shares of Dendreon once again traded at $5 after the company received a CRL from the FDA.

More recently, InterMune, Inc. (ITMN) suffered a similar fate with its EsBriet™ [pirfenidone] product candidate for the treatment of mild to moderate idiopathic pulmonary fibrosis [IPF], a progressive and fatal lung disease.  Despite a 9-3 AdCom vote in favor of approving the drug, InterMune received a CRL from the FDA in May 2010, causing the value of its stock to decline from nearly $50 per share to less than $10.  Ironically, shares of InterMune rebounded significantly in December 2010 following a positive recommendation from the scientific body of the European Medicines Agency [EMA], which is responsible for reviewing all Marketing Authorization Applications [MMAs].

With this in mind, we tabulated the results from select FDA AdCom meetings conducted during 2010-2011 and compared the outcomes with the FDA’s ultimate decision to gauge how often the agency goes against its AdCom recommendations.  For the period, we found outcomes from 27 AdCom meetings for new drug applications [NDAs].  Of the 27 AdCom meetings, the FDA has not yet ruled on seven NDAs.  See Table 1 for details.

No Means No

Of the 20 AdCom meetings with corresponding decisions from the FDA, the agency agreed with all 9 of the negative AdCom recommendations and sent each of the sponsors a CRL.  In other words, a “no” vote from an AdCom meeting was unlikely to be overturned by the FDA during the period.  This doesn’t bode well for Eli Lilly & Co.’s (LLY) liprotamase product candidate for pancreatic insufficiency, which received a negative AdCom recommendation in January 2011 and is awaiting final FDA action.

In one situation where the AdCom vote was negative, the sponsor took action before the FDA rendered its final decision.  On December 17, 2010, King Pharmaceuticals, Inc. (KG) and Acura Pharmaceuticals, Inc. (ACUR) submitted an NDA for Acurox® (oxycodone HCl) without niacin following a 19-1 AdCom vote in April 2010 against approval of Acurox® with niacin.

Yes Means Maybe

During the period, the FDA went against the positive recommendation of its AdCom members 5 out of 10 times [50%] and issued a CRL to the sponsor.  This includes one unanimous vote [13-0] in favor of the efficacy for ezogabine, which is being developed by GlaxoSmithKline plc (GSK) and Valeant Pharmaceuticals International, Inc. (VRX) for the adjunctive treatment of adults with partial-onset seizures.  GlaxoSmithKline and Valeant indicated that the FDA cited non-clinical reasons for the CRL, but investors aren’t privy to the content of such documents.

The FDA is transparent with regard to drug approvals and withdrawals, but the contents of CRL’s are considered confidential because they represent part of an ongoing dialog between the agency and drug sponsor.  While many companies disclose whether or not a CRL contains a request for new clinical studies, translating into an investment of more capital and time, ambiguous phrases describing the contents of a CRL often leave investors in the dark with regard to handicapping the sponsor’s ability to address the issues in a timely and efficient manner – if at all.  Such secrecy has come under fire by members of the media, as evidenced by an October 2010 Forbes article titled “Why FDA Communications Must Be Public.”

For now, investors are warned that in the face of a positive AdCom recommendation, there is only a 50/50 chance that the FDA will promptly approve a product based on recent data.

Going Forward

The FDA has yet to rule on 7 product candidates with recent AdCom meetings, as indicated by “TBD” under FDA Action in Table 1.  While many of these AdCom meetings have positive outcomes, industry observers can flip a coin to determine whether or not the FDA will ultimately follow the AdCom’s advice in these situations based on recent data.  Even unanimous, favorable recommendations from AdCom members do not necessarily guarantee success with the FDA, although both Bayer AG (BAYRY.PK) and Oceana Therapeutics, Inc. (private) received such support for approval of their respective product candidates.

Investor’s expectations are very high for Human Genome Sciences, Inc. (HGSI), which was among the largest percentage gainers in the NASDAQ Composite with a staggering quadruple-digit return of +1,342% in 2009 following positive Phase 3 study results with its Benlysta® [belimumab] product candidate for the treatment of systemic lupus erythematosus [SLE].  The FDA is expected to render its decision by the Prescription Drug User Fee Act [PDUFA] date of March 10, 2011, and the company’s stock remains relatively unchanged around $25 per share following a positive 13-2 AdCom vote in November 2010.

Of the pending group, MELA Sciences, Inc. (MELA) appears to have the lowest probability of success with the FDA in view of the very narrow 8-7 AdCom vote in favor of the product candidate’s safety, efficacy and risk/benefit ratio, which led to new 52-week lows for the company’s stock.  The company is developing MelaFind®, a non-invasive and objective multi-spectral computer vision system designed to aid physicians in the detection of early melanoma, or skin cancer.

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Table 1: AdCom Meetings and FDA Outcomes During 2010-2011

Company Product, Indication AdCom Panel Date AdCom Panel Voting Results FDA Action
Bayer AG (BAYRY.PK) gadobutrol, MRI of Central Nervous System 1/21/11 16-0 in favor of approval TBD
Eli Lilly & Co. (LLY) liprotamase, pancreatic insufficiency 1/12/11 7-4 that benefits do not outweigh risks TBD
Orexigen Therapeutics, Inc. (OREX) naltrexone HCl/bupropion HCI 12/7/10 13-7 that benefits outweigh risks CRL (2/1/11)
Oceana Therapeutics, Inc. (private) Solesta™, fecal incontinence 12/2/10 5-0 in favor of approval TBD
AstraZeneca plc (AZN) vandetanib, thyroid cancer 12/2/10 10-0 in favor of a post-approval study requirement to evaluate other doses TBD, PDUFA on 4/7/11
MELA Sciences, Inc. (MELA) MelaFind®, melanoma detection 11/18/10 8-7 in favor of safety, efficacy and risk/benefit ratio TBD
Human Genome Sciences, Inc. (HGSI) belimumab, systemic lupus erythematosus 11/16/10 13-2 in favor of approval TBD, PDUFA on 3/10/11
Horizon Pharma, Inc. (private) HZT-501, pain palliation 11/5/10 8-4 in favor that primary endpoint is adequate TBD, PDUFA was 1/21/11, but no update from company
Boehringer Ingelheim (private) dabigatran etexilate, oral anticoagulant 10/6/10 9-0 in favor of approval Approved (10/19/10)
Arena Pharmaceuticals, Inc.(ARNA) lorcaserin 9/16/10 9-5 that benefits do not outweigh risks CRL (10/23/10)
Alkermes, Inc. (ALKS) naltrexone for extended-release injectable , suspension, opioid dependence 9/16/10 12-1 in favor of approval Approved (10/12/10)
Jazz Pharmaceuticals, Inc. (JAZZ) JZP-6, fibromyalgia 8/30/10 20-2 against recommending approval CRL (10/11/10)
Valeant Pharmaceuticals International (VRX) ezogabine, partial-onset seizures 8/25/10 13-0 in favor of the drug’s efficacy CRL (12/1/10)
AstraZeneca plc (AZN) ticagrelor, platelet inhibitor 7/29/10 7-1 in favor of approval CRL (12/16/10)
Vivus, Inc. (VVUS) phentermine/ topiramate 7/15/10 10-6 against recommending approval CRL (10/28/10)
Boehringer Ingelheim (private) flibanserin, hypoactive sexual desire disorder 6/18/10 10-1 that there was insufficient evidence of overall efficacy CRL (August 2010) and company discontinued development (10/8/10)
HRA Pharma (private) ulipristal acetate, emergency contraception 6/17/10 11-0 in favor of safety and efficacy Approved (8/13/10)
Novartis AG (NVS) fingolimod, multiple sclerosis 6/10/10 21-3 in favor of approval Approved (9/22/10)
Theratechnologies, Inc. (TH.TO) tesamorelin acetate, reduce belly fat in HIV patients 6/1/10 16-0 in favor of approval Approved (11/11/10)
AstraZeneca plc (AZN) motavizumab, respiratory syncytial virus (RSV) 6/2010 14-3 against approval CRL (8/30/10)
NicOx (private) naproxcinod, osteoarthritis 5/12/10 16-1 against approval CRL (7/23/10)
Acura Pharmaceuticals, Inc. (ACUR) oxycodone HCl and niacin, pain palliation 4/22/10 19-1 against approval Will submit new NDA without niacin
Forest Labs, Inc. (FRX) roflumilast, treatment of chronic obstructive pulmonary disorder 4/8/10 10-5 against approval CRL (5/19/10)
InterMune, Inc. (ITMN) pirfenidone, idiopathic pulmonary fibrosis 3/26/10 9-3 in favor of approval CRL (5/7/10)
ChemGenex Pharmaceuticals (CXS.AX) omacetaxine mepesuccinate, chronic myeloid leukemia w/ Bcr-Abl T3151 mutation 3/22/10 7-1 that a well-characterized, in vitro diagnostic test is needed to identify patients with the mutation CRL (4/19/10)
Cell Therapeutics, Inc. (CTIC) pixantrone dimaleate, non-Hodgkin’s lymphoma 3/22/10 9-0 against approval CRL (4/19/10)
Bristol-Myers Squibb Co (BMY) belatacept, kidney transplantation 3/1/2010 13-5 in favor of approval CRL (5/1/10)

Biotech’s Top and Bottom Ten from 2010

At the start of the year, we provided a favorable outlook for the biotechnology industry in 2010 that was based on the same six drivers we proposed for 2009, which included the following:

  • Sector’s defensive characteristics and impact on future economic growth
  • Highest number of annual new product approvals since 2004
  • Record number of products in clinical trials and annual industry research and development [R&D] investment
  • Improving access to capital
  • Brisk pace of industry consolidation and licensing transactions
  • Many small- and mid-capitalization companies remain undervalued

With 2010 officially on the books, it appears an appropriate time to review the sector’s performance along with some of the themes highlighted in our previous articles.


Big Versus Small

The twenty-member NYSE Arca Biotechnology Index (BTK) was up 38% in 2010, while the broader NASDAQ Biotech Index (NBI) advanced 15%.  Performance of the NASDAQ Biotech Index was in line with the Dow Jones Industrial Average (INDU), S&P 500 (SPX), and NASDAQ Composite (COMP), which were up 11%, 13%, and 17%, respectively.

Why the huge discrepancy in returns between the two major biotechnology indices?  Unlike the equal-weighted NYSE Arca Biotechnology Index, the NASDAQ Biotech Index is calculated under a modified capitalization-weighted methodology, taking into account the total market value of the companies it tracks and not just their share prices.  Accordingly, companies with the largest market capitalizations, or the greatest values, will have the highest weighting in the index.

During 2010, most of the large capitalization biotechnology companies [greater than $10 billion] underperformed the median return of 11% for the 130 companies in the NASDAQ Biotech Index.  For example, Celgene Corporation (CELG) was up 6%, Cephalon, Inc. (CEPH) was down 1%, Amgen, Inc. (AMGN) was down 3%, Teva Pharmaceutical Industries (TEVA) was down 7%, and Gilead Sciences, Inc. (GILD) declined by 16%.  Bucking the trend of underperformance among large capitalization biotechnology names were Shire plc (SHPGY), along with Genzyme Corporation (GENZ) and Biogen Idec, Inc. (BIIB), both of which were targeted by shareholder activist Carl Icahn [see our August 2009 article “Three Recent Biotechnology Activist Wins by Carl Icahn”].

Accordingly, the relative underperformance of large capitalization biotechnology companies in 2010 masked the fact that many smaller, innovative companies performed well, as evidenced by the fact that 30 of the 130 companies comprising the NASDAQ Biotech Index produced greater than 50% returns during the period.  This performance is consistent with our thesis that small and mid-capitalization companies with positive clinical or regulatory catalysts would continue to outperform their larger industry peers in 2010.  See Table 1 for a list of the top ten gainers from the NASDAQ Biotech Index in 2010.

Noticeably absent from the list of 2010 winners, however, were the staggering quadruple-digit returns witnessed in 2009 [Vanda Pharmaceuticals, Inc. (VNDA) +2,150% and Human Genome Sciences, Inc. (HGSI) +1,342%].

Table 1. Top ten gainers from NASDAQ Biotech Index (NBI) in 2010

Company Name Symbol 12/31/09 Close 12/31/10 Close % Change
Akorn, Inc AKRX $1.79 $6.07 239%
Questcor Pharmaceuticals, Inc. QCOR $4.75 $14.73 210%
Neurocrine Biosciences, Inc. NBIX $2.72 $7.64 181%
InterMune, Inc. ITMN $13.04 $36.40 179%
Jazz Pharmaceuticals, Inc. JAZZ $7.88 $19.68 150%
Caliper Life Sciences, Inc CALP $2.54 $6.34 150%
SIGA Technologies, Inc. SIGA $5.80 $14.00 141%
Idenix Pharmaceuticals, Inc. IDIX $2.15 $5.04 134%
NPS Pharmaceuticals, Inc. NPSP $3.40 $7.90 132%
ARIAD Pharmaceuticals, Inc. ARIA $2.28 $5.10 124%

Last Year’s Laggards Become 2010 Winners

After declining 22% in 2009, shares of Akorn, Inc. (AKRX), a niche generic pharmaceutical company, staged an impressive comeback by becoming the largest percentage gainer within the NASDAQ Biotech Index during 2010.  In November 2010, the company announced that core business revenue is projected in the range of $79.0 million to $80.0 million in 2010, a 76%-79% increase over 2009, and up from the company’s prior guidance range of $71.0-$75.0 million.

In another dramatic reversal of fortune, three of the top ten gainers from the NASDAQ Biotech Index in 2010 made the list of top ten decliners in the prior year.  Questcor Pharmaceuticals, Inc. (QCOR), Idenix Pharmaceuticals, Inc. (IDIX), and NPS Pharmaceuticals, Inc. (NPSP) rebounded sharply in 2010, each posting triple-digit returns due in part to the following:

  • Questcor’s performance was largely due to strong revenue growth from its H.P. Acthar® Gel (repository corticotropin injection), which is indicated for the treatment of acute exacerbations of multiple sclerosis in adults, as monotherapy for the treatment of infantile spasms in infants and children under 2 years of age, and for the treatment of several other diseases and disorders.
  • Despite news in September 2010 that the U.S. Food and Drug Administration [FDA] placed two of the company’s HCV drug candidates on clinical hold, Idenix Pharmaceuticals benefited from its drug candidate for the treatment of HIV/AIDS advancing into a Phase 2b trial by its corporate partner, ViiV Healthcare.
  • Interest in NPS Pharmaceuticals can be attributed to the fact that in early 2011 the company expects to report top-line results from a Phase 3 study of teduglutide, a proprietary analog of GLP-2, in patients with short bowel syndrome who are chronically dependent on parenteral nutrition.

Losers Brought to You by the Letter “A”

Affymax, Inc. (AFFY), AMAG Pharma (AMAG), Arena Pharma (ARNA), Alexza Pharma (ALXA), and Alnylam Pharma (ALNY) were among the top ten decliners from the NASDAQ Biotech Index in 2010 [see Table 2].

Affymax, Inc. (AFFY), which hopes that its investigational anemia drug peginesatide could ultimately compete with Amgen Inc.’s Aranesp® [darbepoetin alfa], posted the largest percentage decline within the NASDAQ Biotech Index for 2010.  Top-line results from the Phase 3 clinical program released in June 2010 showed that the frequency of death, stroke, myocardial infarction, congestive heart failure, unstable angina, and arrhythmia was higher in non-dialysis patients taking peginesatide than those taking Aranesp, which sent shares of Affymax plummeting.   In November 2010, Affymax and partner Takeda confirmed their goal of submitting a new drug application [NDA] for peginesatide for the treatment of anemia in chronic renal failure patients on dialysis in the second quarter of 2011.

AMAG Pharmaceuticals, Inc. (AMAG) launched Feraheme® (ferumoxytol) to treat iron deficiency anemia in July 2009, but anemic sales earned the company a spot in the top ten decliners of 2010.  Net product revenues from Feraheme were $15.1 million in the third quarter of 2010, well below the $500 million to $1 billion in annual sales originally projected by Wall Street analysts.  See our February 2010 article “Iron Safety Hits AMAG Pharmaceuticals.”

Table 2. Top ten decliners from NASDAQ Biotech Index (NBI) in 2010

Company Name Symbol 12/31/09 Close 12/31/10 Close % Change
Affymax, Inc. AFFY $24.74 $6.65 -73%
China Sky One Medical, Inc. CSKI $22.75 $6.97 -69%
Medivation, Inc. MDVN $37.65 $15.17 -60%
Biodel, Inc. BIOD $4.34 $1.83 -58%
XenoPort, Inc. XNPT $18.55 $8.52 -54%
AMAG Pharmaceuticals, Inc. AMAG $38.03 $18.10 -52%
Arena Pharmaceuticals, Inc. ARNA $3.55 $1.72 -52%
Alexza Pharmaceuticals, Inc. ALXA $2.40 $1.25 -48%
Alnylam Pharmaceuticals, Inc. ALNY $17.62 $9.86 -44%
Curis, Inc. CRIS $3.25 $1.98 -39%

Our Top Ten Articles

In the spirit of analyzing statistics from 2010, we reviewed our website traffic to identify the top ten articles from the past year.  The list below is ranked in descending order, starting with the most popular article:

1)              Cancer vaccine therapies: failures and future opportunities (Apr ‘10)

2)              Investment opportunities with five frontline therapies for AML (Sep ‘10)

3)              Cancer immunotherapy to take center stage at ASCO (Jun ‘10)

4)              Monoclonal antibody companies command premiums (Jul ‘10)

5)              Stem cell competition heating up (Aug ‘10)

6)              Buyout buzz at ASH hematology confab preview (Dec ‘09)

7)              Cyclin dependent cancer confab preview (Apr ‘10)

8)              Drug development spotlight: the mTOR’s new clothes (Nov ‘10)

9)              Past pitfalls and potential promise for pancreatic cancer (Oct ‘10)

10)            Five key factors weighing on Dendreon (Jul ‘10)

Interesting to note that despite popularity among readers, companies focusing on cancer immunotherapy, hematological malignancies, monoclonal antibodies, or stem cells did not make the list of top ten gainers from the NASDAQ Biotech Index in 2010.


2011 Outlook

Most of the drivers supporting our favorable outlook for the biotechnology industry remain intact for 2011, such as the record number of products in clinical trials and annual industry R&D investment, improving access to capital, brisk pace of industry consolidation and licensing transactions, and attractive valuations among many small- and mid-capitalization companies, which should continue to outperform their larger industry peers in 2011.

The key exception relates to the number of FDA drug approvals, which declined in 2010 and is more than 50% below the high of 56 new approvals in 1996 despite the fact that legislation passed in 2008 gave the FDA more money and resources.  There is no discounting the negative impact of clinical and regulatory setbacks on the psyche of biotechnology investors, as evidenced by the greater than 10% decline in the NASDAQ Biotech Index in late February 2009 following a spate of high profile disappointments.

Investment Opportunities with Five Frontline Therapies for AML

Acute myelogenous leukemia [AML] is a fast-growing cancer of the blood and bone marrow.  Unformed cells called myeloblasts, or “blasts,” reside in the bone marrow and normally become a particular kind of cell – a white blood cell, red blood cell, or platelet.  In AML, abnormal blasts produce white blood cells that do not function properly.  They do not fight infections and, as they build up, they inhibit the production of normal white blood cells, red blood cells, and platelets that the body needs.

Standard frontline therapy for AML patients under the age of 60 consists of cytarabine  [AraC] combined with an anthracycline [such as daunorubicin or idarubicin] in what is commonly referred to as the 7+3 regimen.  While 45% of elderly patients with AML [70+ years old] achieved a complete response [CR] using this regimen, there was no improvement in overall survival and more than a third of patients died within the first eight weeks of treatment according to a recent study published in the journal Blood[i].  This is consistent with the CR rates of 40%–60% with conventional chemotherapy and disease-free survival of less than 20% at three years referenced in the literature[ii].

Since more than half of AML cases occur in patients over 60 years old, there is a need to develop better frontline therapies in this setting.  With five agents being investigated as frontline therapy for elderly AML patients in late-stage trials, the purpose of this article is to compare and contrast these programs – several of which have near-term catalysts for investors.

Hypomethylating Agents

SuperGen, Inc. (SUPG), Eisai Co. Ltd. (ESALF), and Johnson & Johnson (JNJ)

On June 30, 2010, preliminary results from a Phase III trial of Dacogen® [decitabine] as a frontline treatment for elderly patients [65+ years old] with AML were released.  While Dacogen did not meet the primary endpoint of overall survival, a trend was reported to be evident.  However, the failure to demonstrate an improvement in overall survival was surprising given the favorable Phase II results and the fact that the comparator arm received low dose AraC instead of the aforementioned 7+3 regimen.  Low dose AraC predominantly works in patients with favorable cytogenetics, so it should have been relatively easy for Dacogen to demonstrate a survival benefit.

Shares of SuperGen, which climbed as high as $2.89 on expectations for positive trial results, reached a new 52-week low of $1.71 in July.  Supergen receives a 20-30% royalty on worldwide sales of Dacogen from its development and commercialization partners – Eisai in North America and Johnson & Johnson outside of North America.

While investors appear to be discounting approval of Dacogen as a frontline therapy for elderly AML, there may be reasons for optimism.  For example, both Eisai and Johnson & Johnson are continuing to analyze the data and planning to move forward with North America and European regulatory filings in 2011 based on the primary analysis and secondary endpoints.  In addition, the Phase III study was conducted under a special protocol assessment [SPA] with the U.S. Food and Drug Administration [FDA].

Celgene Corporation (CELG)

In view of Dacogen’s negative Phase III trial results, investors may be skeptical about Vidaza® [azacitidine], another hypomethylating agent currently approved for the treatment of myelodysplastic syndromes [MDS], a pre-cancerous condition that can often progress to AML.  According to ClinicalTrials.gov [Identifier NCT01074047], Celgene is currently enrolling patients in a Phase III, multicenter, randomized, open-label, study of Vidaza versus conventional care regimens for the frontline treatment of elderly patients [65+ years old] with AML.

In December 2008, the European Commission granted marketing authorization for Vidaza as a treatment for patients with higher-risk MDS, chronic myelomonocytic leukemia [CMML], and MDS that transforms into AML with a blast percentage of 20-30% in the peripheral blood or bone marrow.  While Vidaza demonstrated a clinically relevant increase in median survival of 9.4 months [24.4 vs. 15 months] in these settings[iii], it is unclear how the drug will work in AML de novo patients with a higher blast percentage [greater than 50%] that represent half of the elderly patient population.  In view of the fact that Dacogen is more myelosuppressive than Vidaza [see Table 1], and for this reason may be preferred over Vidaza for off-label use in AML, the recent failure of Dacogen only adds to this uncertainty.

Table 1. Percentage of Patients with Myelosuppression from Prescribing Information

Adverse Event Dacogen Vidaza
Anemia 82.0% 69.5%
Neutropenia 90.0% 32.2%
Thrombocytopenia 89.0% 65.5%

Monoclonal Antibodies

Seattle Genetics, Inc. (SGEN)

Seattle Genetics is developing SGN-33 [lintuzumab], an unconjugated IgG1 antibody for the treatment of AML.  Lintuzumab has been shown to induce cell death by both complement and/or antibody-directed cellular cytotoxicity, or as a direct effect of the engagement of the CD33 receptor, which is expressed in most leukemic blast cells but also in normal hematopoietic cells.

In a Phase II study in relapsed/refractory AML patients, single agent lintuzumab demonstrated efficacy in patients with advanced AML; however, the positive effects were confined to patients with low disease burden [blast percentage 5% to 30%].  This suggested that additional development of this agent would be best achieved by combining lintuzumab with chemotherapy.  However, while the addition of lintuzumab to salvage induction chemotherapy was safe, it did not result in a statistically significant improvement in response rate or survival in patients with refractory/relapsed AML in a subsequent Phase III trial[iv].

Seattle Genetics is now conducting a 210 patient Phase IIb study in frontline treatment of elderly patients [60+ years old] with AML with results expected in the August to October 2010 timeframe.  See ClinicalTrials.gov [Identifier NCT00528333] for more information.

While lintuzumab relies on a different mechanism of action, investor’s are understandably skeptical about the success of another anti-CD33 monoclonal antibody in AML.  In June 2010, Pfizer, Inc. (PFE) agreed to withdraw Mylotarg® [gemtuzumab ozogamicin] from the U.S. market, effective October 15.  Mylotarg is an IgG4 monoclonal antibody to CD33 linked to a cytotoxic agent from the class of calicheamicins.  Developed by Wyeth, the drug was fast-tracked to treat patients ages 60 and older with recurrent AML who were not candidates for other chemotherapy.  The FDA approved Mylotarg in May 2000 based upon a surrogate endpoint due to the fact it treated relapsed disease with no other viable therapy.

Four years later, a confirmatory trial was begun to confirm the results of the 142 patients who participated in the three previous clinical trials.  The 2004 trial showed that adding Mylotarg to existing chemotherapy for the treatment of AML provided no benefit and even showed a higher death rate.

Nucleoside Analogs

Genzyme Corporation (GENZ)

In September 2009, the FDA’s Oncologic Drugs Advisory Committee [ODAC] voted 9 to 3 that a randomized, controlled trial is needed to support the proposed label expansion for Clolar® (clofarabine) as a frontline treatment for elderly [60+ years old] patients with AML.  Consistent with the decisions for both Johnson & Johnson’s Zarnestra® [tipifarnib] and Vion Pharmaceuticals’ Onrigin® [laromustine], the committee determined that single-arm clinical study results were not sufficient for approval.

Despite the setback, Genzyme stated in a press release that the company remains committed to the clinical development of clofarabine in this patient population and that the drug is being investigated in clinical trials by most of the leading AML experts and major cooperative leukemia investigation groups in the United States and Europe.

Beyond the frontline setting, Genzyme is also conducting a randomized Phase III trial comparing clofarabine in combination with AraC to AraC alone in relapsed and refractory adult AML patients 55 years old or older [ClinicalTrials.gov Identifier NCT00317642]. Results are expected in 2011.

Note: At the time of writing, Sanofi-Aventis (SNY) has offered to acquire Genzyme for $69 per share.

Cyclacel Pharmaceuticals, Inc. (CYCC)

Cyclacel is developing sapacitabine for the treatment of AML, MDS and non-small cell lung cancer [NSCLC].  Sapacitabine is unique among the frontline, elderly AML landscape as it represents the only oral agent in late-stage clinical development and the only product candidate to demonstrate a survival benefit in a randomized study.

In December 2009, Cyclacel reported interim results from an ongoing Phase II study involving 60 patients aged 70 or older with either untreated AML [80%] or AML in first relapse [20%] randomized across three dosing schedules of sapacitabine [ClinicalTrials.gov Identifier NCT00590187].  The three-day dosing schedule in Arm C was selected for further clinical development in elderly patients with de novo AML based on a 1-year survival rate of 30% and an overall response rate of 35%.

In the first quarter of 2010, Cyclacel submitted a SPA request for a randomized, registration-directed, Phase III study of sapacitabine in elderly patients with AML and, pending the response, expects to initiate a pivotal Phase III study in 2010.


While many companies are developing therapies for AML [see Table 2], there is a need to focus on better frontline therapies for elderly patients given the lack of efficacy and significant toxicity associated with the current 7+3 treatment regimen.  Investors will be watching the following catalysts to help handicap which of the five product candidates [decitabine, azacitidine, clofarabine, sapacitabine, or lintuzumab] will win the race and become the first agent approved by the FDA in this setting:

  • Phase IIb results for lintuzumab expected in the August to October 2010 timeframe
  • FDA response to SPA request for Phase III study of sapacitabine; initiation of pivotal Phase III study in 2010
  • Supplemental new drug application [sNDA] for decitabine by March 31, 2011 and subsequent response from FDA
  • Results from frontline clofarabine clinical trials by AML experts and major cooperative leukemia investigation groups in the United States and Europe; relapsed/refractory AML Phase III results in 2011
  • Phase III results for azacitidine expected around 2013

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Table 2. Late-stage Therapeutic Landscape for AML

Sponsor(s) Route Class SPA Setting Comments
Dacogen® (decitabine) Supergen, Eisai, Johnson & Johnson i.v./s.c. Hypomethylating agents Yes Frontline and relapsed/refractory Failed overall survival endpoint versus low-dose ara-C in frontline elderly AML (≥65), expect to file with FDA on secondary endpoints in March 2011.  Phase 3 trial underway in relapsed/refractory setting.
Vidaza® (azacitidine) Celgene Corp s.c. Hypomethylating agents No Frontline Phase 3 study underway (NCT01074047)
Clolar® (clofarabine) Genzyme Corp i.v. Nucleoside analogs No Frontline Rejected by FDA in elderly AML (≥60) due to single-arm
Mylotarg® (gemtuzumab ozogamicin) Pfizer/Wyeth i.v. Monoclonal antibodies n/a Relapse/refractory Accelerated approval, but withdrawn from market
Lintuzumab Seattle Genetics i.v. Monoclonal antibodies No Frontline Phase 2b data from 210 pts expected late August to October 2010 timeframe
Sapacitabine Cyclacel Pharma oral Nucleoside analog Pending Frontline Phase 2 demonstrated 30% survival in elderly AML (≥70); SPA pending
Vosaroxin (a.k.a. voreloxin) Sunesis Pharma (SNSS) i.v. Topoisomerase II inhibitors No Relapse/refractory Pivotal Phase 3 being planned
Zarnestra™ (tipifarnib) Johnson & Johnson oral Farnesyltransferase inhibitors No Frontline Rejected by FDA in elderly AML (≥60) due to single-arm, subsequent randomized study failed ‘09
Onrigin™ (laromustine) Vion Pharma i.v. Alkylating agents No Frontline Rejected by FDA in elderly AML (≥60) due to single-arm
Lestaurtinib Cephalon (CEPH) oral Tyrosine kinase inhibitors No Relapse/refractory Failed Phase 2 reported ASH ‘09
AC220 Ambit Biosciences/Astellas Pharma oral Tyrosine kinase inhibitors No Relapse/refractory Entered pivotal Phase 2, single-arm trial in December 2009


[i] Kantarjian H, Ravandi F, O’Brien S, Cortes J, Faderl S, Garcia-Manero G, Jabbour E, Wierda W, Kadia T, Pierce S, Shan J, Keating M, Freireich EJ.  Intensive chemotherapy does not benefit most older patients (age 70 years or older) with acute myeloid leukemia. Blood. 2010 Jul 28. [Epub ahead of print]


[ii] Amadori S, Suciu S, Willemze R, Mandelli F, Selleslag D, Stauder R, Ho A, Denzlinger C, Leone G, Fabris P, Muus P, Vignetti M, Hagemeijer A, Beeldens F, Anak O, De Witte T; EORTC leukemia group; GIMEMA leukemia group.  Sequential administration of gemtuzumab ozogamicin and conventional chemotherapy as first line therapy in elderly patients with acute myeloid leukemia: a phase II study (AML-15) of the EORTC and GIMEMA leukemia groups.  Haematologica. 2004 Aug;89(8):950-6.

[iii] Edlin R, Connock M, Tubeuf S, Round J, Fry-Smith A, Hyde C, Greenheld W.  Azacitidine for the treatment of myelodysplastic syndrome, chronic myelomonocytic leukaemia and acute myeloid leukaemia. Health Technol Assess. 2010 May;14 Suppl 1:69-74.

[iv] Eric J. Feldman, Joseph Brandwein, Richard Stone, Matt Kalaycio, Joseph Moore, Julie O’Connor, Nancy Wedel, Gail J. Roboz, Carole Miller, Raj Chopra, Joseph C. Jurcic, Randy Brown, W. Christopher Ehmann, Philip Schulman, Stanley R. Frankel, Daniel De Angelo, David Scheinberg.  Phase III Randomized Multicenter Study of a Humanized Anti-CD33 Monoclonal Antibody, Lintuzumab, in Combination With Chemotherapy, Versus Chemotherapy Alone in Patients With Refractory or First-Relapsed Acute Myeloid Leukemia. Journal of Clinical Oncology, Vol 23, No 18 (June 20), 2005: pp. 4110-4116.

Monoclonal Antibody Companies Command Premiums

Monoclonal antibodies, which have been approved for immunological, anti-infective, ophthalmic, cancer and other categories, represent one of the most successful therapeutic drug classes.  Ten monoclonal antibodies have been approved for cancer therapy alone, including three blockbuster products sold by the Roche Group (RHHBY) – Avastin® [bevacizumab], Rituxan® [rituximab], and Herceptin® [trastuzumab] that collectively represented nearly US$17 billion in revenue for 2009 [Ref 1].  Hundreds of promising new product candidates are in clinical trials and by 2016 Evaluate Pharma projects that monoclonal antibody products will represent 11 of the top 50 [22%] selling products in the world, including 6 of the top 10 selling products [Ref 2].

With few exceptions, companies with monoclonal antibody platforms have significantly outperformed the NASDAQ Biotechnology Index® (NBI) since the end of 2008 [see Table 1].  Accordingly, the purpose of this article is to offer several key factors that help explain the above average returns for monoclonal antibody companies during this +18-month period – a trend that we believe is likely to continue.

Table 1: Select public companies with monoclonal antibody platforms

Company Symbol 2008 Close 7/9/10 Close % Change
Human Genome Sciences, Inc. HGSI $2.12 $25.23 +1090%
Immunogen, Inc. IMGN $4.29 $8.99 +110%
Immunomedics, Inc. IMMU $1.70 $3.19 +88%
Micromet, Inc. MITI $4.36 $6.65 +53%
Alexion Pharmaceuticals, Inc. ALXN $36.19 $52.16 +44%
Seattle Genetics, Inc. SGEN $8.94 $12.52 +40%
Regeneron Pharmaceuticals, Inc. REGN $18.36 $23.22 +26%
NASDAQ Biotechnology Index NBI 729.54 819.64 +12%
Morphosys AG MORG.DE 18.75EUR 15.40EUR -18%
XOMA Ltd. XOMA $0.62 $0.37 -40%
Genmab A/S GEN.CO 203.00DKK 63.70DKK -69%


Higher rate of success

In order to determine the appropriate current value for a biotechnology company, an investor would normally consider projected future cash flows resulting from product sales, probability of success, and a discount rate to reflect the risks that the company faces.

With regard to probability of success, one of the greatest considerations for a biotechnology company is the fact that new drug candidates must receive approval from the Food and Drug Administration [FDA] before they can be marketed in the United States.  Receiving FDA approval is dependent, in part, on the drug candidate successfully passing a series of clinical trials that are generally conducted in three sequential phases.

Successfully transitioning from the early stages that establish safety [Phase I] to later phases where efficacy is demonstrated [Phase III] will improve the approval success rate [e.g., the odds that the drug will ultimately reach the market].  Interestingly, researchers from the Tufts Center for the Study of Drug Development at Tufts University recently analyzed the average approval success rates for investigational drugs first tested in humans from 1993 to 2004 [Ref 3] and found substantial differences between large molecules [32% success rate] and small molecules [13% success rate].  Monoclonal antibodies represented the largest group [47%] of the large molecules evaluated in the study.

In view of the fact that nearly one-third of large molecule product candidates entering the clinic ultimately receive FDA approval and that they are nearly 2.5-times more likely to ultimately receive approval than small molecule compounds, companies that are developing monoclonal antibodies should be awarded higher valuations due to the higher probability of success.

Reduced concerns from biosimilars

The Patient Protection and Affordable Care Act [PPACA], which was signed into law on March 23, 2010, included a provision amending the Public Health Service Act [PHSA] to permit approval of biosimilar biological products through an abbreviated biological license application [ABLA] submitted to the FDA.  Under the law, originators have a 12-year exclusivity period before a biosimilar is approved.

While many questions remain about the specifics of the ABLA process until the FDA releases its guidance, the PPACA does state that to support approval of a biosimilar, the sponsor must show that the product is “biosimilar to the reference product” based upon data derived from analytical, animal, and clinical studies.  As a result, it is unlikely that monoclonal antibody products will represent the first class of biosimilars on the market due to the fact that they have very specific binding properties and are typically larger and more complicated than other biologic drugs.

Regardless, according to a recent article by Ludwig Burger for Reuters, analysts expect price discounts of only 20 to 30 percent in markets affected by biosimilar competition, which compares with an average markdown of 90 percent for generic versions of small molecule drugs. This is likely due to the fact that development, production and marketing of a biosimilar costs more than making a generic copy of conventional chemical drugs.

Lastly, for those individuals that believe manufacturing biologic drugs is easy, a review of Genzyme Corporation’s (GENZ) recent challenges offers a different perspective.  See “Genzyme’s Manufacturing Disruption Highlights Investment Opportunities in Lysosomal Storage Disorders.”

Manufacturing processes have improved

In contrast to small molecule therapeutics that can be synthesized for $1 per gram and simple proteins like insulin that can be efficiently produced in bacterial hosts, monoclonal antibodies are normally produced in mammalian cells at a cost of $300-$5,000 per gram [Ref 4].

Fortunately, in parallel with the clinical and commercial success of monoclonal antibodies there have been major advances in cell line development, bioreactor construction and operation, purification strategies and analytics. For example, cell culture productivity has improved more than 100-fold in the last 15-years.  With these advances, global protein output using mammalian cell culture increased from under 500 kilograms in 2000 to 3,600 kilograms in 2005 and manufacturing costs have been reduced.

In addition to the aforementioned advances, new sources of inexpensive antibody production are being explored.  For example, antibodies have been expressed successfully in genetically modified plants and have been shown to retain their native functional forms.

Evolution from acute to chronic treatment

In the early 1980’s, most monoclonal antibodies were derived from mouse genes with major limitations such as inducing human anti-mouse antibody [HAMA] responses in patients, lack of effector functions and short plasma half-life [Ref 5].  Later that decade, genetic engineering techniques made chimeric and humanized versions available for study.  Until this point in time, most therapeutic monoclonal antibodies had been studied as acute treatments for cancer or immunological diseases [Ref 6].

By the late 1990’s, methods to produce human monoclonal antibodies were developed, including phage display and transgenic mice.  With the availability of human antibodies with reduced immunogenicity and increased efficacy, the biotechnology industry began studying monoclonal antibodies for the chronic treatment of non-life threatening diseases, which opened new market opportunities.

In this regard, KaloBios Pharmaceuticals, Inc. (private) is applying its proprietary Humaneering™ technology platform to produce antibodies that are close to human germ-line in sequence while retaining the specificity and improving the affinity of the reference antibody.  KaloBios is developing an anti-GM-CSF human monoclonal [KB003] for the treatment of patients with autoimmune and chronic inflammatory conditions, such as rheumatoid arthritis and asthma.  Sales of two marketed monoclonal antibodies indicated for the treatment of rheumatoid arthritis, Humira® [adalimumab] and Remicade® [infliximab], are projected to reach $15.8 billion in combined sales by 2016 according to Evaluate Pharma [Ref 2].

In January 2010, KaloBios partnered with Sanofi Pasteur, the vaccines division of sanofi-aventis Group (SNY), to develop the company’s Humaneered™ antibody fragment KB001 for the prevention and treatment of Pseudomonas aeruginosa (Pa) infections. KaloBios received an upfront payment of $35 million and is eligible for development, regulatory and commercial milestones totaling $255 million in addition to royalties on eventual product sales.

In addition, MacroGenics, Inc. (private) entered into a global strategic alliance with Eli Lilly & Co. (LLY) in October 2007 valued at approximately $500 million for teplizumab, a humanized anti-CD3 monoclonal antibody currently being studied in a global pivotal Phase II/III clinical trial for individuals with recent-onset type 1 diabetes.

Licensing, merger, and acquisition dynamics

The higher average approval success rates with large molecules compared with small molecules appears to be partially reflected in the economics of some recent licensing and M&A transactions.

For example, in June 2010 OncoMed Pharmaceuticals, Inc. (private) partnered with Bayer Schering Pharma AG (BAYRY.PK) to discover, develop and commercialize novel anti-cancer stem cell therapies including multiple antibody, protein therapeutics and small molecules targeting the Wnt signaling pathway.  For each drug candidate successfully developed through Phase III clinical trials and regulatory approval, OncoMed’s payments from Bayer could total up to $387.5 million for each biotherapeutic drug compared with $112 million for small molecule drugs.  Accordingly, potential payments for large molecules are 3.5 times greater than for the small molecules.

As another example, Eli Lilly & Co. (LLY) acquired ImClone Systems, Inc. for $6.5 billion [5x sales of $1.3 billion], while Astellas Pharma, Inc. paid $4 billion for OSI Pharmaceuticals, Inc. [3.3x sales of $1.2 billion].  Both ImClone and OSI received royalties on product sales from corporate partners.

ImClone’s marketed product Erbitux® [cetuximab] is a monoclonal antibody that inhibits the epidermal growth factor receptor [EGFR] and is indicated for the treatment of certain types of colorectal cancer and as a single agent or in combination with radiation therapy for head and neck cancer.  OSI’s comparable product Tarceva® [erlotinib] is a small molecule antagonist of EGFR and is indicated for the treatment of non-small cell lung cancer and pancreatic cancer.  While this is not an apples-to-apples comparison, it does help support the fact that premiums are being paid for monoclonal antibodies versus small molecules.

Investors are also likely placing M&A premiums on monoclonal antibody companies due to robust activity during the past five years [see Table 2].  In fact, there has been at least one deal announced each year during this period.

Table 2: Select M&A among monoclonal antibody companies

Acquirer Target Year Value ($ mil)
Cephalon, Inc. Ception Therapeutics, Inc. 2010 $350
Abbott Facet Biotech 2010 $722
Bristol-Myers Squibb Medarex, Inc. 2009 $2,400
Eli Lilly & Co. ImClone Systems 2008 $6,500
AstraZeneca MedImmune, Inc. 2007 $15,600
Astellas Pharma Inc. Agensys, Inc. 2007 $387
Eisai Co., Ltd. Morphotek, Inc. 2007 $325
Genentech, Inc. Tanox, Inc. 2006 $919
AstraZeneca Cambridge Antibody Tech 2006 $1,300
Novartis International AG NeuTec Pharma plc 2006 $569
Pfizer, Inc. Rinat Neuroscience Corp 2006 $500
GlaxoSmithKline plc Domantis Ltd 2006 $454
Amgen, Inc. Abgenix, Inc. 2005 $2,200

Access to capital


Despite a challenging financing climate, many public monoclonal antibody developers referenced in Table 1 have been able to raise capital through public offerings.  For example, ImmunoGen, Inc. (IMGN) raised $77.6 million at $8.00 per share in May 2010, Micromet, Inc. (MITI) raised $80.5 million at $7.00 per share in March 2010, and Seattle Genetics, Inc. (SGEN) raised $136 million at $10.75 per share in August 2009.  This demonstrates strong investor appetite for monoclonal antibody companies, which could bode well for future initial public offerings [IPOs] given the paucity of public options in the sector due to M&A activity over the past few years.



Biotechnology companies developing monoclonal antibodies have been outperforming the broader sector for the past 18-months, a trend that is likely to continue based on higher average approval success rates, reduced concerns from biosimilars, improvements in manufacturing and resulting impact on margins, broadening utility beyond treating cancer and inflammation, robust partnering and M&A activity, and access to capital.


  1. Roche Annual Report 2009 (www.roche.com/gb09e.pdf)
  2. Evaluate Pharma World Preview 2016 Report
  3. DiMasi, JA. Et al. Clin Pharmacol Ther. 2010 Mar;87(3):272-7. Epub 2010 Feb 3.
  4. Chen, C. Trends in Bio/Pharmaceutical Industry. 2009 5(3).
  5. Chan, A. Et al. Nat Rev Immun. 2010 May;10.
  6. Reichert JM. Curr Pharm Biotechnol. 2008 Dec;9(6):423-30.

Five Key Factors Weighing on Dendreon

Shares of Dendreon Corporation (DNDN) have declined significantly from an all-time high of $57.67 in late April 2010 when the company received U.S. Food and Drug Administration [FDA] approval for Provenge® [sipuleucel-T], the first active immunotherapy approved for the treatment of cancer in the U.S.  Today, shares of Dendreon traded as low as $28.01, down more than 50% from their high, prompting us to briefly review some of the key factors weighing on the company at this time.

Product pricing and reimbursement

The cost of Provenge has been set at $93,000 for a course of treatment, which consists of three infusions at approximately two-week intervals.  In view of the fact that Provenge has been demonstrated to extend survival by 4.1 months, this translates into an average cost of $23,000 per month of added survival.

In comparison, Taxotere® [docetaxel] by Sanofi-aventis (SNY) is indicated for the treatment of patients with androgen independent [hormone refractory] metastatic prostate cancer and administered every 3 weeks for 10 cycles.  Assuming an average monthly cost of $4,000 for Taxotere [source: Cancer Res 2009;69(24 Suppl):Abstract nr 1076], this is an approximate total cost of $40,000 per patient. In the pivotal TAX 327 study, median survival for prostate cancer patients receiving Taxotere was 18.9 months versus 16.5 months in the control arm, which results in an average cost of $16,666 per month of added survival.  Unlike Provenge, however, treating common adverse reactions with Taxotere, such as infections, neutropenia, anemia, nausea, diarrhea, and others, increases the total cost of therapy – so the pricing of Provenge doesn’t appear completely out of line. [note: updated survival analysis of the TAX 327 study demonstrates a 2.9 month survival advantage, which lowers the average cost to $13,793 per month of added survival with Taxotere.  Source: Journal of Clinical Oncology, Vol 26, No 2 (January 10), 2008: pp. 242-245.]

Nonetheless, the Centers for Medicare and Medicaid Services [CMS] has initiated a National Coverage Analysis [NCA] of Provenge. In CMS’s announcement of the NCA, CMS is requesting public comments on the effects of Provenge on health outcomes in patients with prostate cancer. While the news doesn’t reflect a change in Medicare coverage policy or impact existing coverage decisions and a decision isn’t expected for a year, it does highlight sensitivity on the part of payors over the pricing of certain cancer treatments.

Supply constraints

Dendreon is making Provenge available through approximately 50 centers, all of which were approved Provenge clinical trial sites, and expects to increase capacity over the next year.  The increased capacity will be a result of the anticipated licensure of its expanded New Jersey, Georgia and California facilities in mid-2011.

In the short term, however, Dendreon officials have indicated that the company will only be able to supply 2,000 treatments to patients.  At a cost of $93,000 per treatment, this limits potential sales to approximately $186 million.

According to a June 28 article by Bloomberg reporter Tom Randall, Dendreon’s Chief Operating Officer Hans Bishop indicated that facilities will be able to churn out medicine each year valued at between $1.25 billion and $2.5 billion by the end of 2011.

Competitive landscape

In early April 2010, we published a 150-page industry report titled “Cancer Vaccine Therapies: Failures and Future Opportunities,” which included an overview of the cancer immunotherapy market, interviews with several key opinion leaders, profiles of nearly 40 companies, and a discussion of the scientific, clinical, and commercial considerations for the major industry participants.

In the report, we highlighted the fact that numerous active immunotherapies are in late-stage clinical development for prostate cancer.  In fact, nine product candidates are in clinical trials for the treatment of prostate cancer, representing the largest therapeutic area within the active immunotherapy market.  Beyond competition from other active immunotherapies, however, Provenge could also face competition from small molecule products.

For example, Johnson & Johnson (JNJ) acquired Cougar Biotechnology, Inc. for approximately $1.0 billion in cash in 2009.  Cougar Biotechnology’s oncology portfolio included abiraterone acetate [CB7630], an orally active acetate salt of the steroidal compound abiraterone.  Abiraterone acetate, which can suppress testosterone production by both the testes and the adrenals to castrate-range levels, is currently in two Phase III clinical trials for the treatment of prostate cancer according to ClinicalTrials.gov [Trial identifier numbers NCT00638690 and NCT00887198].  Both studies list a primary completion date of mid-2011.

Insider sales

Trading conducted by corporate officers, key employees, directors, or significant shareholders must be reported to the Securities and Exchange Commission [SEC], usually within a few business days of the trade.  Some investors follow the activity of insiders, believing that they might have better insights into the health of a corporation and that their trades convey important information – although this isn’t always the case.

In this regard, according to a Form 4 filed with the SEC, Dendreon’s Chief Executive Officer [CEO] beneficially owned 555,211 shares of the company’s common stock as of April 29, 2010 – the day Provenge was approved by the FDA.  The CEO sold more than half of those shares at prices ranging from $51 to $54.70, reducing his beneficial holdings to 224,359 the next day.  Other insiders also sold during the period.

Priced for perfection

Recall that Eli Lilly & Co. (LLY) purchased ImClone Systems for $6.5 billion back in 2008.  ImClone’s only product – Erbitux® [cetuximab] – had generated annual sales of approximately $1.3 billion in 2007.  Therefore, ImClone was valued at a 5x multiple to prior year sales.

At its 52-week high, Dendreon had a market capitalization of approximately $7.8 billion.  At a 5x multiple, this would imply an annual revenue run rate of $1.56 billion, which is consistent with the company’s planned manufacturing capacity by the end of 2011 and many analyst projections over the coming years.

But Dendreon isn’t generating $1.56 billion in annual sales yet and concerns over pricing, reimbursement, and competition, combined with insider selling, help explain the decrease in market valuation since the approval of Provenge.

For Biotechnology in 2010, it’s Déjà vu All over Again

It’s déjà vu all over again” – Yogi Berra

With Opening Day less than a month away, it seems only fitting to reference one of the most quoted personalities of our time to describe our analysis of the biotechnology sector in 2010.  In this article, we review our favorable outlook for the industry, draw comparisons with the prior year, and introduce the results of our recent “Life Sciences Industry Outlook” survey that targeted industry executives, investors, analysts, and members of the media.

Bullish Outlook

Our favorable outlook for the biotechnology industry in 2010, which builds upon many of the same catalysts we proposed for 2009, is based on the following key drivers:

  • Sector’s defensive characteristics and impact on future economic growth
  • Highest number of annual new product approvals since 2004
  • Record number of products in clinical trials and annual industry R&D investment
  • Improving access to capital
  • Brisk pace of industry consolidation and licensing transactions
  • Many small and mid-capitalization companies remain undervalued

In fact, several of these themes were reinforced by the results of our industry survey.

Defensive Sector and Economic Driver

During periods of economic uncertainty, the biotechnology sector is often portrayed as defensive given that disease is relentless in both good economic times and bad.  Despite recent medical advances, there remains a need for quality, innovative products to diagnose and treat a broad variety of diseases such as cancer, central nervous system disorders, cardiovascular diseases, diabetes and infectious diseases.

Beyond its defensive characteristics, the sector plays a critical role in the United States [US] economy.  Innovative new medicines developed by life science companies provide better patient outcomes, improved quality of care, increased life expectancy, and lead to economic gains.

While the strengths and weaknesses of the US healthcare system remain the subject of great debate, we believe new medicines should be viewed as investments in the future, not only in patient health – but also in economic recovery and growth.  For example, as indicated in our October 2009 article “Innovative New Medicines are Key to Economic Growth,” a permanent one percent reduction in mortality from cancer alone has a present value to current and future generations of Americans of nearly $500 billion and a cure would be worth about $50 trillion.

New Drug Approvals

In a repeat of last year, the total number of approvals for new molecular entities and biologic license applications by the US Food and Drug Administration’s [FDA] Center for Drug Evaluation and Research [CDER] in 2009 was the highest since 2004.  Of course, cynics will rightfully call attention to the modest year-over-year increase [25 in 2009 versus 24 in 2008] and that recent performance is still more than 50% below the high of 56 new approvals in 1996.

However, we believe that viewing the number of FDA approvals in the context of new risk evaluation and mitigation strategies [REMS] that were introduced in 2008 and internal resource constraints that have plagued the agency provides optimism going forward.  While legislation passed in 2008 gave the FDA more money and resources, hiring and training hundreds of new employees takes time.  With that process well underway, combined with increased familiarity of the REMS program, we believe the drug approval process should improve going forward.

In terms of therapeutic areas, oncology represented one out of five [20%] approvals by CDER in 2009 according to a recent publication [Nature Reviews Drug Discovery 9, 89-92, February 2010].  Not surprisingly, oncology was our highest ranked survey response with regard to attracting investment and/or business development activity in 2010.  See Table 1 below.

Table 1. In terms of raising capital and/or business development activity, which key therapeutic area do you expect to attract the most interest/visibility during 2010?

Answer Response Ratio*
Oncology (solid tumors) 37.7%
Metabolic disorders (eg, diabetes, obesity) 17.7%
Central nervous system disorders (eg, Parkinson’s disease) 17.7%
Oncology (hematological malignancies) 11.1%
Infectious disease 8.8%
Other 6.6%

* Numbers may not add up to 100% due to rounding

Record Pipeline and Investment

According to the latest report by the Pharmaceutical Research and Manufacturers of America [PhRMA], there are a record number of biotechnology drugs currently in development.  In the US alone, there are 633 biotechnology medicines being developed, including 254 medicines for cancer, 162 for infectious diseases, 59 for autoimmune diseases, 34 for HIV/AIDS and related conditions, 25 for cardiovascular disease, and 19 for diabetes and related conditions.

Annual research and development expenditures by PhRMA member companies also reached a record $50.3 billion in 2008, more than tripling the $15.2 billion level of investment in 1995.

Access to Capital

In 2010, companies at all stages of development will try to attract investors and the competition will be fierce.  However, in terms of access to capital for life sciences companies, our survey indicated that more than 46% of respondents expect favorable conditions in 2010, with modest improvement over 2009.  Another 46% of respondents indicated that they expect access to capital to be about the same as 2009.  Only 4% of respondents expected access to capital to improve markedly with initial public offerings [IPO] possible.

In 2009, venture capital investment in biotechnology declined by 19%, both in dollars and deals, from the prior year according to the MoneyTree™ Report by PriceWaterhouseCoopers and the National Venture Capital Association, based on data from Thomson Reuters.  However, biotechnology was the single largest investment sector for 2009 with $3.5 billion going into 406 deals.

In terms of initial public offerings [IPOs], only three biotechnology companies successfully tested the public markets in 2009.  In 2010, two IPO’s have already been completed, albeit both below the expected offering price, and several others are in queue, including Prometheus Laboratories, Aveo Pharmaceuticals, Trius Therapeutics, Aldagen, Alimera Science, and Tengion.  See Table 2 for recent biotechnology IPO performance.

Table 2. Recent Biotechnology IPO Performance

Company IPO Date IPO Price Raised ($m) Latest Price % Change
Cumberland Pharmaceuticals (CPIX) 8/10/09 $17 $85 $11.60 -31.76%
Talecris Biotherapeutics (TLCR) 10/1/09 $19 $950 $21.94 +15.47%
Omeros Corporation (OMER) 10/8/09 $10 $70 $6.36 -36.40%
Ironwood Pharmaceuticals (IRWD) 2/3/10 $11.25 $203 $13.14 +16.80%
Anthera Pharmaceuticals (ANTH) 3/1/10 $7 $54 $7.00 unchanged


In terms of public financings, several companies have already completed offerings in 2010, including Amicus Therapeutics, Inc. (FOLD), BioSante Pharmaceuticals, Inc. (BPAX), Cell Therapeutics, Inc. (CTIC), Chelsea Therapeutics International, Inc. (CHTP), Cleveland Biolabs, Inc. (CBLI), Cyclacel Pharmaceuticals, Inc. (CYCC), Derma Sciences, Inc. (DSCI), EntreMed, Inc. (ENMD), InterMune, Inc. (ITMN), Palatin Technologies, Inc. (PTN),and XOMA Ltd. (XOMA).

Improving access to capital could lead to an acceleration of merger and acquisition activity and licensing deals, as large pharmaceutical companies begin to lose their leverage and company valuations start increasing.


More than 82% of survey responders expected merger and acquisition activity to accelerate in 2010 compared with 2009.  In view of two recent deals, the paucity of merger and acquisition activity and decline in both the quantity and value of licensing & partnering transactions announced during the JP Morgan Healthcare Conference in 2010 appears to have been the pause that refreshes [see “Biotech Deal Activity Declines…The Pause that Refreshes?”].

For example, on February 23, 2010, Cephalon, Inc. (CEPH) exercised its option to acquire Ception Therapeutics, Inc. for $250 million in view of positive Phase 2 data from a clinical study in adults with eosinophilic asthma.  In January 2009, Cephalon paid Ception $100 million upfront for the option.

On March 1, 2010, Astellas Pharma, Inc. offered to acquire all outstanding shares of common stock of OSI Pharmaceuticals, Inc. (OSIP) for $52.00 per share in cash, or an aggregate of approximately $3.5 billion on a fully diluted basis.  The offer represented more than a 40% premium on the closing price of OSI Pharmaceuticals’ common stock of $37.02 per share on February 26, 2010, and shares have subsequently traded above $57 on expectations for a higher bid.

In view of the fact that US pharmaceutical companies stand to lose billions of revenue due to patent expirations from 2010 to 2012, we expect merger and acquisition activity to remain brisk.

Small Versus Large

As highlighted in our “Biotech’s 2009 Stealth Small Cap Rally” article, small capitalization biotechnology companies were among the best performers of 2009.  The relative underperformance of many large capitalization biotechnology companies in 2009 masked the fact that many smaller, innovative companies performed well, with 20 of the 125 companies comprising the NASDAQ Biotech Index producing triple-digit returns during the period.  Vanda Pharmaceuticals (VNDA), Human Genome Sciences (HGIS), and Targacept, Inc. (TRGT) led the way, with stock prices up 2,150%, 1,342%, and 487%, respectively.

Similar to 2009, we expect that small and mid-capitalization companies with positive clinical or regulatory catalysts will continue to outperform their larger industry peers in 2010.

Beware the Ides of March

In our February 2009 article “Chink in the Biotechnology Armor,” we cited the spate of high profile clinical setbacks and regulatory delays during the month as the reason for the sector’s precipitous decline.  The NASDAQ Biotech Index, which traded as high as 772 during the first week of February, traded as low as 605 by the first week of March – losing more than 21% of its value during the 30-day period.

In February and March 2010, there have also been a significant number of clinical and regulatory setbacks.  Consider the following:

  • AMAG Pharmaceuticals, Inc. (AMAG) – Purported safety concerns regarding Feraheme® [ferumoxytol], the company’s marketed product for the treatment of iron deficiency anemia in adult patients with chronic kidney disease, kicked off a 27% decline in shares of AMAG Pharmaceuticals, Inc.  The stock, which traded as high as $45.61 on February 3, 2010, subsequently traded as low as $33.29 despite assurances from the company that the rate of serious hypersensitivity reactions related to Feraheme are consistent with the product’s label.
  • Cell Therapeutics, Inc. (CTIC) – On February 8, 2010, the FDA released its briefing documents for the company’s lymphoma drug, pixantrone, in advance of an Oncologic Drugs Advisory Committee [ODAC] meeting originally scheduled for February 10, 2010.  Shares of Cell Therapeutics, Inc., which closed at $1.06 the prior week, traded as low as $0.53 that day.  Among other issues, the FDA raised concerns about pixantrone’s efficacy in view of the fact that the randomized study was stopped at less than 50% of its planned patient target because of poor accrual.  The ODAC meeting was subsequently rescheduled for March 22, 2010.
  • Isis Pharmaceuticals, Inc. (ISIS) – On February 10, 2010, the company and its partner, Genzyme Corporation (GENZ), announced results from a Phase 3 study of mipomersen in patients with heterozygous familial hypercholesterolemia [heFH].  While the trial met its primary endpoint with a highly statistically significant 28 percent reduction in LDL-cholesterol after 26 weeks of treatment, the results raised safety concerns and apparently fell short of Wall Street’s expectations.  Shares of Isis Pharmaceuticals, which closed above $11 the day before the results were released, traded as low as $8.85 the next day.
  • XenoPort, Inc. (XNPT) – On February 17, 2010, XenoPort, Inc. and its partner GlaxoSmithKline plc (GSK) received a Complete Response letter from the FDA, delaying approval for Horizant™ [gabapentin enacarbil] Extended-Release Tablets, an investigational non-dopaminergic treatment for moderate-to-severe primary Restless Legs Syndrome.   Shares of XenoPort, Inc., which closed at $19.60 the day before the news, hit an all-time low of $6.39 the next day.
  • Novelos Therapeutics, Inc. (NVLT.OB) – On February 24, 2010, the company announced that the primary endpoint of improvement in overall survival was not met in a pivotal Phase 3 trial for advanced non-small cell lung cancer [NSCLC] with its lead product, NOV-002, in combination with first-line chemotherapy.  Shares of Novelos Therapeutics, Inc., which closed at $1.65 the day before the results were released, traded as low as $0.28 the next day.
  • Adventrix Pharmaceuticals, Inc. (ANX) – On March 1, 2010, the company announced that it received a refuse to file letter from the FDA regarding its New Drug Application for ANX-530 [vinorelbine injectable emulsion].  In the letter, the FDA indicated that the data included in the initial submission from the intended commercial manufacturing site was insufficient to support a commercially-viable expiration dating period.  Shares of Adventrix Pharmaceuticals, Inc. which closed at $0.29 the prior week, traded as low as $0.16 that day.
  • Medivation, Inc. (MDVN) – On March 3, 2010, the company and its partner, Pfizer, Inc. (PFE), announced that the investigational drug dimebon [latrepirdine] unexpectedly failed in a Phase 3 trial in patients with Alzheimer’s disease.  Shares of Medivation, Inc., which closed above $40 the day before the results were released, traded as low as $12.55 the next day.

Helping to offset the negative impact of these setbacks, the NASDAQ Biotech Index is market value-weighted, taking into account the total market capitalization of the companies it tracks and not just their share prices.  Accordingly, companies with the largest market capitalizations, or the greatest values, will have the highest impact on the index.  Further, several companies experiencing clinical or regulatory setbacks were not included in the NASDAQ Biotech Index.

In addition, recent merger and acquisition activity may also help mask the effects of the aforementioned clinical and regulatory setbacks.  For example, the NASDAQ Biotech Index closed up 2.7% the day that Astellas Pharma, Inc. offered to acquire OSI Pharmaceuticals, Inc.

Upcoming Catalysts

When it comes to raising visibility and capital, 40% of survey respondents cited general risk aversion in the financial markets as the single greatest challenge facing most life sciences companies in 2010.   Another 28.8% of respondents cited the average market capitalization of life sciences companies being too small and/or lack of liquidity as the single greatest challenge.

In view of the aforementioned clinical and regulatory setbacks, investors will be closely monitoring the following events, as there is no discounting the negative impact of continued clinical and regulatory setbacks on biotechnology investor’s appetite for risk:

  • MannKind Corporation (MKND) – In January 2010, the company announced that the FDA would be unable to complete its review of Afrezza™ before the mid-January Prescription Drug User Fee Act [PDUFA] date in order to complete an inspection of a manufacturing-related facility belonging to one of the company’s suppliers.  Alfrezza is a novel, ultra rapid acting mealtime insulin therapy under review for use in adult patients with type 1 and type 2 diabetes mellitus for the treatment of hyperglycemia.  The company has not been given a new PDUFA date by the FDA.
  • InterMune, Inc. (ITMN) – A Pulmonary-Allergy Drugs Advisory Committee [PADAC] meeting is scheduled for March 9, 2010, to review the NDA for pirfenidone, the company’s investigational drug candidate for the treatment of patients with idiopathic pulmonary fibrosis [IPF] to reduce decline in lung function.
  • Amylin Pharmaceuticals, Inc. (AMLN), Eli Lilly and Company (LLY), and Alkermes, Inc. (ALKS) – Following a weather delay, the FDA has set a new PDUFA action date of March 12, 2010, for its review of the NDA for exenatide once weekly.  Exenatide is being developed in collaboration with Eli Lilly and based on technology from Alkermes, Inc.
  •  Cell Therapeutics, Inc. – The rescheduled ODAC meeting for pixantrone takes place on March 22, 2010.
  • Delcath Systems, Inc. (DCTH) – On February 4, 2010, the company announced that sufficient events have been reached to allow data analysis to begin on its Phase 3 trial for a novel drug delivery platform to deliver ultra-high doses of anti-cancer drugs to the liver while preventing these high doses of drug from entering the patient’s bloodstream.  The 92 patient, randomized, multi-center, Phase 3 trial used the drug melphalan to treat patients with metastatic melanoma in the liver.  Assuming a successful trial endpoint, the company expects to file a new drug application [NDA] with the FDA in April 2010.
  • Dendreon Corporation (DNDN) – A Biologics License Application for Provenge® [sipuleucel-T] for the treatment of men with metastatic, androgen-independent prostate cancer, has been assigned a PDUFA date of May 1, 2010.


While the capital markets remain turbulent, many of the biotechnology industry’s fundamentals, such as the number of products in clinical trials, new product approvals, profitable biotech companies and industry mergers & acquisitions remain favorable.   Combine these positive attributes with yet to be seen benefits from decoding the human genome, an improvement or stabilization in the capital markets, greater resources for the FDA and a novel blending of technology, chemistry and biology and many of the necessary ingredients for The Biotechnology Revolution remain intact.  Or, as Yogi Berra simply said, “You can observe a lot by watching.”

Biotech Deal Activity Declines…The Pause that Refreshes?

* MD Becker Partners reporting live from the JP Morgan Healthcare Conference

This week, nearly 6,500 registrants gathered in San Francisco, California for the JP Morgan Healthcare Conference to hear 25-minute presentations from 338 life science companies.  For industry executives and investors, the annual event serves as a good barometer for the rest of the year.

We roamed the familiar halls of the Westin St. Francis Hotel to assess the mood among participants and also monitored online media commentaries throughout the event.  In general, there was a flurry of activity, the plane flights and networking receptions were crowded as usual, and several industry observers “Tweeted” a sense of optimism for 2010.  However, we sought to construct a less subjective assessment by analyzing year-over-year statistics from the conference.

Accordingly, we extensively reviewed company press releases issued during the JP Morgan Healthcare Conference in both 2009 and 2010, with a particular focus on identifying the number of merger & acquisitions, licensing & partnering transactions, and financing deals announced each year during the four day event.

Merger and Acquisitions

In contrast to the absence of any significant M&A deals announced during the JP Morgan Healthcare Conference in 2010, several large M&A transactions with an aggregate value of $702 million were disclosed during the first two days of the event in 2009 [January 12-15, 2009].  The largest deal went to Cephalon, Inc. (CEPH), which announced an agreement providing the company with an option to purchase all outstanding capital stock of Ception Therapeutics, Inc., a privately held biopharmaceutical company.  Under the terms of the option agreement, Cephalon paid Ception $100 million upfront for the option.  If Cephalon exercises its option, the company will purchase all of the outstanding capital stock of Ception for $250 million along with additional payments related to clinical and regulatory milestones.  Other transactions announced that year included:

  • Medtronic, Inc.’s (MDT) acquisition of privately held Ablation Frontiers, Inc. for an initial payment of $225 million plus potential additional payments contingent upon achievement of certain clinical milestones
  • The Medicines Company’s (MDCO) merger agreement with Targanta Therapeutics Corporation for $42 million in cash and additional regulatory and commercial milestone payments
  • NuVasive, Inc.’s (NUVA) option to acquire Progentix Orthobiology BV, a Netherlands based company focused on developing novel orthobiologics, consisting of an upfront investment of $15 million along with the obligation to purchase the remaining equity of Progentix for $45 million upon accomplishment of certain development milestones [with additional potential payments of up to $25 million upon the achievement of additional milestones and based upon NuVasive’s sales success]

Licensing and Partnering

Kicking off the JP Morgan Healthcare Conference in 2010, privately held KaloBios Pharmaceuticals, Inc. announced a $290 million agreement with Sanofi Pasteur, the vaccines division of the sanofi-aventis Group (SNY), for the development and commercialization of KB001, an investigational new biologic for the treatment or prevention of Pseudomonas aeruginosa [Pa] infections.  KaloBios, which is developing first-in-class human antibody therapeutics that offer advantages over other methods of human antibody creation in terms of immunogenicity, potency, and manufacturing yields, will receive an upfront payment of $35 million, plus development, regulatory and commercial milestones for a potential further $255 million, as well as royalties on eventual product sales.

While other licensing and partnering transactions were announced during the JP Morgan Healthcare Conference in 2010, they were substantially smaller or specific financial terms were not disclosed.  These include:

  • Proteus Biomedical Inc. announced an exclusive worldwide license and collaboration agreement with Novartis AG (NVS) to develop and commercialize pharmaceutical products that incorporate Proteus’ novel sensor-based technologies in the field of organ transplantation along with certain option rights in cardiovascular and oncology product applications.  Under the terms of the agreement, Novartis will make upfront cash and equity investments in Proteus totaling $24 million and Proteus will also receive royalties on worldwide net sales of any Novartis products incorporating its sensor-based technology.
  • Trillium Therapeutics, Inc., a biopharmaceutical company developing innovative immune-based biologics, announced that it has entered into a definitive license agreement with Biogen Idec, Inc. (BIIB), granting the latter exclusive worldwide rights to one of Trillium’s development programs.  Under the terms of the agreement, Trillium will receive an upfront payment and is eligible to receive milestone payments based on achievements of specified clinical, regulatory and commercial accomplishments.  Trillium will also receive royalties on global product sales.  Biogen Idec will be solely responsible for clinical development, regulatory approvals, manufacturing and commercialization.
  • MedGenesis Therapeutix Inc., a biopharmaceutical company developing and commercializing innovative treatments for patients with serious central nervous system [CNS] diseases, announced an agreement with Amgen, Inc. (AMGN) that provides MedGenesis with an exclusive, worldwide license for glial cell line-derived neurotrophic factor [GDNF] protein in CNS and non-CNS indications.  As part of the license agreement, Amgen now holds a small equity stake in MedGenesis.  In parallel, Biovail Corporation (BVF) and MedGenesis concluded an agreement to collaborate on the development of GDNF in Parkinson’s disease and potentially other CNS indications.  GDNF is a naturally-occurring growth factor capable of protecting and promoting the survival of dopamine producing nerve cells.
  • AstraZeneca Plc (AZN) and CrystalGenomics announced a research collaboration to discover and develop a novel anti-infective for use as a potential antibacterial agent.  Under the terms of this agreement, Korea-based CrystalGenomics will receive research funding from AstraZeneca for two years.  CrystalGenomics will also be eligible to receive future milestones and royalty payments associated with development and commercialisation of a drug candidate.
  • AnaptysBio, Inc., a privately-held therapeutic antibody platform and product company, announced it has signed an agreement with Roche (RHHBY) for the development of novel antibody therapeutics.  Under the terms of the agreement, AnaptysBio will be responsible for generating novel antibodies using its proprietary somatic hypermutation platform and Roche will receive a worldwide license to develop and commercialize antibodies optimized by AnaptysBio.  In addition to a signing fee paid by Roche, AnaptysBio will be eligible to receive milestone payments and royalties upon product sales.

The six transactions announced during the JP Morgan Healthcare Conference in 2010 with reported financial terms totaling $314 million pale in comparison to the ten deals reported at the meeting during 2009 worth more than $2.4 billion in aggregate value.  These included a $1.1 billion deal between ZymoGenetics, Inc. (ZGEN) and Bristol-Myers Squibb Company (BMY), a $500 million deal between Peptimmune, Inc. and Novartis AG, a $396 million deal between Micromet, Inc. (MITI) and Bayer AG (BAYZF.PK), and a $200 million deal between FORMA Therapeutics the Novartis Option Fund to develop inhibitors for an undisclosed protein-protein interaction target in the field of oncology, among others.


The quantity and aggregate dollar value of public and private financing transactions announced during the JP Morgan Healthcare Conference were essentially flat in 2010 compared with the prior year as reflected in the table below.

2009 2010
Company Name Ticker $ Million Raised Company Name Ticker $ Million Raised
Acclarent, Inc Private 26.00 Cyclacel Pharma CYCC 7.20
Mithridion, Inc Private 2.90 Advanced Cardiac Therap Private 5.00
Singulex, Inc. Private 19.00 VentiRx Pharma Private 25.00
Soligenix, Inc SNGX.OB 2.28 EntreMed, Inc ENMD 2.50
Akorn, Inc AKRX 25.00 BioLeap, Inc Private 5.00
Alseres Pharmaceuticals ALSE.PK 1.00 Cell Therapeutics, Inc CTIC 30.00
Chiral Quest Private 13.00 BIND Biosciences, Inc Private 11.00
Rosetta Genomics Ltd ROSG 5.10
TOTAL $89.18 TOTAL $90.80



At the start of 2009, we provided a positive outlook for biotechnology, citing the sector’s defensive characteristics, favorable technical aspects, and improving fundamentals, such as the number of new product approvals, products in clinical trials and the brisk pace of industry consolidation and licensing transactions.  The latter was quickly reinforced by M&A transactions with an aggregate value of $702 million and licensing & partnering deals worth more than $2.4 billion in aggregate value announced January 12-15, 2009, during the JP Morgan Healthcare Conference.

While we believe that a positive outlook for 2010 is once again warranted, and the first two weeks of the year don’t necessary indicate a trend, hopefully the paucity of M&A activity coupled with the decline in both the quantity and value of licensing & partnering transactions announced during the JP Morgan Healthcare Conference in 2010 is simply the pause that refreshes and the action improves throughout the year.

Spectrum Pharmaceuticals to Benefit from FDA Action on Zevalin?

According to the American Cancer Society [ACS], non-Hodgkin lymphoma [also known as non-Hodgkin’s lymphoma, NHL, or sometimes just lymphoma] is a cancer that starts in cells of the lymph system, which is part of the body’s immune system.  NHL is the fifth most common cancer in both men and women in the United States [not counting skin cancers].  In 2009, the ACS estimates that there will be nearly 66,000 new cases of NHL in the United States and that about 20,000 people will die from the disease.  In general, the overall 5-year relative survival rate for people with NHL is 65%, and 10-year relative survival is 54%.

By 2003, the U.S. Food and Drug Administration [FDA] had approved two radioactive labeled monoclonal antibodies for the treatment of patients with “relapsed” or “refractory”, low-grade or follicular B-cell NHL.  Refractory NHL is disease that never responded or has stopped responding to standard therapies.  Relapsed NHL is disease that has returned after successful initial treatment.

Both products utilize monoclonal antibodies that target an antigen expressed by certain normal and malignant B-cell lymphocytes [CD20] combined with the killing power of radiation to eradicate tumor cells.  Zevalin® [ibritumomab tiuxetan] by Spectrum Pharmaceuticals, Inc. (SPPI) in the United States and Bayer Schering Pharma ex-United States employs yttrium-90 as its therapeutic payload, while Bexxar® [tositumomab] by GlaxoSmithKline (GSK) uses iodine-131.

In April 2008, the European Commission extended the marketing authorization for Zevalin in Europe to include first line consolidation therapy for patients with NHL.  The decision by the European Commission to expand Zevalin’s indication was based on data from the pivotal Phase 3 First-Line Indolent Trial [FIT] demonstrating that the addition of Zevalin significantly prolonged the median progression-free survival time from 13.5 months [control arm] to 37 months [p<0.0001].  The data were presented for the first time at the 49th Annual Meeting of the American Society of Hematology [ASH] in December 2007.

In November 2008, the FDA accepted and granted priority review status for Spectrum Pharmaceuticals’ supplemental Biologics License Application [sBLA] for expanded use of Zevalin as a first line consolidation therapy for patients with NHL.  A Prescription Drug User Fee Act [PDUFA] target date of July 2, 2009 has been established by the FDA for a decision regarding the Zevalin sBLA, although PDUFA dates appear to be a moving target with the agency nowadays.

Assuming the sBLA is approved, which appears likely based on the European Commission decision, Spectrum Pharmaceuticals stated that Zevalin’s addressable patient population would increase by approximately 18,000.  At an approximate cost of $25,000 per treatment, the additional market for Zevalin would be worth $450 million.  Not bad.

Unfortunately, despite the fact that both Zevalin and Bexxar have been demonstrated as safe and effective treatments for patients with relapsed or refractory NHL for years, it has been reported that fewer than 10% of patients who are candidates for the products ever receive them.  Recall the aforementioned statistic regarding NHL relative survival rates, indicating that a significant number of patients experience relapsed or refractory NHL.  According to Spectrum Pharmaceuticals, Zevalin’s annual sales in the United States were a mere $11.4 million in 2008.

Therefore, while an expanded indication for Zevalin is nice, the fact that the product has yet to penetrate the market indication afforded approximately five years ago implies that there are other obstacles to the product’s success.  For example, while medical oncologists are the key prescribing audience for Zevalin and Bexxar, most aren’t licensed to administer radiopharmaceuticals – resulting in patient referrals to radiation oncologists and/or nuclear medicine physicians in the hospital setting.  This may provide an economic incentive to medical oncologists to exhaust all non-radioactive options, such as chemotherapy, before referring NHL patients to receive products that will not improve their bottom line.  Sad but true, this and other factors were discussed in my opinion editorial for Oncology Business Review [OBR] back in September 2007 titled “Radiopharmaceuticals Need a Jump-STaRT.”

Spectrum Pharmaceuticals’ stock has been strong as of late – but perhaps more a result of Russell Investments adding Spectrum Pharmaceuticals to the Russell Global®, the Russell 3000® and the Russell 2000® Indexes.  For investors, significantly improved sales of Zevalin in future quarters will be much more important to Spectrum Pharmaceuticals than near-term approval of the sBLA.

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Disclaimer: This article contains the author’s own opinions, and none of the information contained therein constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. To the extent any of the information contained in the article may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.

Chink in the Biotechnology Armor

Last week, the NASDAQ Biotech Index (NBI) declined more than 10 percent compared to an approximate 4.5 percent decline for the S&P 500. Since the NBI has been outperforming the broader market since mid-2008, this week’s relative underperformance came as quite a shock to many investors.

Trying to explain the decline, most industry pundits pointed to budget plans outlined by the Obama administration during the week, which focused on healthcare reform. In fact, there were many comparisons to the sector’s decline during the Clinton administration’s health care reform initiative.

I’m not buying it.

President Barack Obama made healthcare reform a major campaign topic, so this is certainly not “new” information. In addition, it appears that money for cancer research would actually increase under the proposed budget; including a 15 percent increase in National Cancer Institute (NCI) spending that is in line with his pledge to double research funding over five years.

Instead, I propose a different catalyst for the biotechnology bloodbath last week: the recent spate of high profile clinical setbacks and regulatory delays. Consider the following, several of which occurred during the past week:

  • February 12 – La Jolla Pharmaceutical (LJPC) announced that the Independent Data Monitoring Board for its Riquent® Phase 3 study completed the first interim efficacy analysis and determined that continuing the study is futile.
  • February 18 – Hemispherx Biopharma (HEB) announced that the originally scheduled Prescription Drug User Fee Act (PDUFA) date on its Ampligen® New Drug Application (NDA) would be extended by three months.
  • February 23 – MAP Pharmaceuticals, Inc. (MAPP) announced that its Phase 3 clinical trial of Unit Dose Budesonide (UDB) for the potential treatment of children with asthma did not meet its co-primary endpoints in either of the doses evaluated.
  • February 23 – Spectrum Pharmaceuticals, Inc. (SPPI) announced that the PDUFA date on its Zevalin® sBLA would be extended by three months to July 2, 2009.
  • February 26 – Synta Pharmaceuticals Corp (SNTA) announced that based on an analysis by an independent Data Monitoring Committee (DMC), it has suspended a Phase 3 clinical study comparing elesclomol in combination with paclitaxel to paclitaxel alone in chemo-naïve patients with stage IV metastatic melanoma. The decision to suspend the trial was based on the results of an analysis by the independent DMC which identified safety concerns.
  • February 27 – Amicus Therapeutics (FOLD) announced that it suspended enrollment for the Phase 2 clinical trial of its investigational drug AT2220 for the treatment of Pompe Disease and that it has received verbal notice from the U.S. Food and Drug Administration (FDA) that the trial is on clinical hold.

At the start of the year I provided a positive outlook for the biotechnology industry in 2009, citing the sector’s defensive characteristics, favorable technical aspects, and improving fundamentals, such as the number of new product approvals, products in clinical trials and the brisk pace of industry consolidation and licensing transactions.

Many of these fundamental and technical characteristics remain intact, as does my bullish thesis for biotechnology in 2009. However, there is no discounting the negative impact of continued clinical and regulatory setbacks on the psyche of biotechnology investors, which is definitely a chink in the biotechnology armor.

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Disclaimer: This article contains the author’s own opinions, and none of the information contained therein constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. To the extent any of the information contained in the article may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.

Bullish Thesis for Biotechnology Remains Intact

At the start of the year I provided a positive outlook for the biotechnology industry in 2009, citing the sector’s defensive characteristics, favorable technical aspects, and improving fundamentals, such as the number of new product approvals, products in clinical trials and the brisk pace of industry consolidation and licensing transactions.

With January officially on the books, it appears an appropriate time to revisit this bullish biotechnology thesis. After all, there’s a saying on Wall Street: As January goes, so goes the rest of the year.

However, while a gain in the S&P 500 during the month of January has led to a positive overall year for stocks 85 percent of the time, the so-called January barometer may be no better than the proverbial toss of a coin when the month’s return is negative. The most recent example being 2003, with a positive return greater than 25 percent for the full year despite a negative 3.5 percent return during January. That may be good news in view of the fact that both the S&P 500 and Dow Jones Industrials lost nearly 9 percent for the month in 2009.

In contrast to one of the worst yearly starts for the broader market, the NASDAQ Biotech Index (NBI) was virtually unchanged during January 2009. In fact, the NBI has been outperforming the S&P 500 since mid-2008. This strong relative performance may signal that defensive industries like biotechnology remain in vogue with investors.

In addition to this defensive attribute, my previous column pointed out that new drug approvals by the FDA during 2008 were the highest in three years. With more money and greater resources, new drug approvals by the FDA could accelerate during 2009. This is important, as there are currently more than 400 biotech drug products and vaccines currently in clinical trials targeting more than 200 diseases according to Ernst & Young and BIO (Biotechnology Industry Organization).

2009 is off to a decent start with the mid-January FDA approval of Savella™, a selective serotonin and norepinephrine dual reuptake inhibitor for the management of fibromyalgia by Forest Laboratories, Inc. (FRX) and Cypress Bioscience, Inc. (CYPB). Additionally, Galderma Laboratories, L.P. received FDA approval for Vectical™, a unique vitamin D3 product for the treatment of mild-to-moderate plaque psoriasis in adults.

From a technical perspective, last month’s column introduced an indicator called the Bullish Percent, based on the percentage of stocks in an industry group or index that are currently trading above their 200-day moving average, and discussed how the indicator had turned positive for the NASDAQ Biotech Index going into the New Year.

But the field of technical analysis encompasses a variety of indicators to gauge the direction of the market and the Bullish Percent is just one arrow in the quiver. Technicians also keep a close eye on the number of stocks making new 52-week highs and lows.

In view of the poor performance logged by the broader indices in January, it’s not surprising that a paucity of stocks made new 52-week highs during this period. Interestingly, of the mere half-dozen NASDAQ stocks reaching new 52-week highs on a daily basis during the month of January, many were biotechnology companies.

For example, companies working in the field of stem cell research, such as Geron Corporation (GERN) and StemCells, Inc. (STEM), frequently appeared on the new 52-week high list during the month. Anadys Pharmaceuticals Inc. (ANDS), Repros Therapeutics Inc. (RPRX), and Maxygen, Inc. (MAXY) also frequently appeared on the new high list throughout January. Myriad Genetics Inc. (MYGN), which commercializes molecular diagnostic tests that can determine if a person is predisposed to certain cancers, exceeded prior 52-week high territory throughout the month of January and continues to do so after reporting strong second-quarter earnings this week.

Another biotechnology company that reached a 52-week high during January is CV Therapeutics, Inc. (CVTX), which received an unsolicited proposal from Astellas Pharma Inc. to acquire the company. Indeed, merger and acquisition activity along with licensing transactions remain brisk and is central to the bullish outlook for biotechnology.

In addition to CVTX, M&A activity since my last column includes (acquirer/target): The Medicines Company (MDCO)/Targanta Therapeutics Corporation (TARG), Pfizer Inc. (PFE)/ Wyeth (WYE), and an option for Cephalon, Inc. (CEPH) to acquire Ception Therapeutics, Inc. Recent major licensing transactions include (licensor/licensee): BioMarin Pharmaceutical Inc. (BMRN)/La Jolla Pharmaceutical Company (LJPC), Myriad Genetics Inc. (MYGN)/Panacos Pharmaceuticals, Inc. (PANC), and Bayer Schering Pharma AG/Micromet, Inc. (MITI).

I also previously noted that upcoming conferences offer an excellent opportunity for biotechnology leaders to generate momentum for the industry in the year ahead. Next week, a total of 150 companies will present at the BIO CEO & Investor Conference held February 9-10, 2009 in New York. Now in its eleventh year, the BIO CEO & Investor Conference is the largest independent investor conference for the life sciences industry focused on publicly-traded biotechnology companies.

To provide a fair balance of information, it is prudent to reiterate that the capital markets remain turbulent and there may be casualties along the way among undercapitalized biotechnology companies. According to industry statistics compiled by BIO in January 2009, 120 companies are trading with less than 6 months of cash on hand and 180 companies have less than 1 year of cash.

However, hope remains that the Net Operating Loss (NOL) refund provision that BIO has been advocating will be included in President Barack Obama’s economic stimulus options to promote innovation and job creation. Unlike bailouts, the NOL refund provision could allow biotechnology and other research-intensive industries to accelerate the utilization of their existing tax assets. As an example, a company with $100 million in accumulated NOL’s could potentially claim a refund of $20 million on their 2008 tax return.

The proposal is modeled after a New Jersey State law that went into effect in 1999 allowing emerging technology and biotechnology companies to sell net operating losses and unused research and development credits to get the cash they need to flourish. Profitable companies paying New Jersey corporate tax buy these credits and use them to reduce their state tax obligation. The main difference is that the government would provide the cash directly if the federal tax law change is approved as proposed under BIO’s NOL refund provision.

Using history as a guide for the potential benefits of the NOL refund provision, Celgene Corporation (CELG) was one of the first companies that benefited from New Jersey’s tax-credit transfer program and has since become the largest biotechnology company in New Jersey and one of the world’s largest as measured by market capitalization.

The bullish thesis for biotechnology in 2009 remains intact, as evidenced by the sector’s defensive characteristics and favorable technical and fundamental attributes. The favorable outlook is further bolstered by the sector’s relative outperformance during January 2009.

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Disclaimer: This article contains the author’s own opinions, and none of the information contained therein constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. To the extent any of the information contained in the article may be deemed to be investment advice, such information is impersonal and not tailored to the investment ne
eds of any specific person.