The Life Sciences Report: Your knowledge is unequivocally broad. Just 4 or 5 years ago, we were a vast pharma researcher during a vital investment bank, where we followed a largest drug makers in a world. From your viewpoint today, as an researcher following small-cap biotech and medtech, can we pronounce about a clinical resources that expostulate value in smaller companies?
Ed Arce: From a marketplace perspective, a pivotal value drivers mostly sojourn a same. First, and by distant many important, are a clinical data. The stronger a efficacy, a better. But assembly clinical endpoints needs to interpret into a clinically suggestive benefit. An undisguised healing heal is optimal, though is also utterly rare. Also, a altogether reserve and tolerability form of any new healing contingency be co-ordinate with a astringency of a disease, and allied to a risk profiles of any existent pharmacotherapies. Risk/benefit is apparently a trade-off. The U.S. Food and Drug Administration (FDA), in attempting to change a risk/benefit equation, has leaned a bit in one instruction or a other over a years.
The second point, from a marketplace perspective, is a distance of a studious race and a grade to that that race has been, or is, diagnosis nave.
The third indicate is value driven by a prolonged product life, in a form of a long-dated obvious suite, as good as any regulatory exclusivity offering to a drug.
Last would be pricing. This has, for a prolonged time, been strongly correlated to a strength of a data, and righteously so. But increasingly, companies are focusing one or some-more of their expansion programs on singular diseases that validate for a FDA's waif indication, with a claimant drug being entitled to selling exclusivity. In these cases, a pricing is many aloft than in broader indications.
TLSR: You have alluded to a unequivocally engaging indicate per waif indicationsincentives from a FDA for building these products and a pricing models accessible to companies for focusing on singular diseases. It seems to infer that these programs have been effective, does it not?
EA: Yes. The FDA's waif drug programs have been among a many successful over a final integrate decades. Originally a attention was a bit delayed to collect adult on a blurb opportunity, though now, and over a final few years, there has been a resurgence and an awakening to a blurb opportunities concerning all of a program's aspects, that embody marketplace exclusivity, taxation advantages and a other items. The incentives make expansion of waif drugs a many some-more essential proposition.
TLSR: You follow a few medical record companies in further to biotechnology companies. Do we find differences in a approach a Centers for Medicare Medicaid Services (CMS) treats device companies contra drug companies? What variances have we beheld with courtesy to permitting payment for inclination contra drugs?
EA: I've come to trust that there are, in many cases, some-more hurdles per payment for inclination than for drugs. Specifically, we cruise inclination are many some-more expected to knowledge incremental, waste payment approvals by private payers opposite a country, even after CMS allowance. Typically, private-pay payment is many some-more fast and uniform with drugs.
TLSR: Generally speaking, where do opportunities distortion for investors?
EA: My concentration is on companies and their fundamentals. In that regard, opportunities for upside distortion privately with those companies that have impactful and near-term catalytic events brazen of them.
TLSR: With that bottom-up theory, let's pronounce about some of your favorite ideas. Pick one that we like.
EA: The initial one I'll discuss is NPS Pharmaceuticals Inc. (NPSP:NASDAQ). NPS is a biotech association focused on building waif therapeutics for singular gastrointestinal and endocrine disorders. We trust a lead expansion product, Gattex (teduglutide), for brief bowel syndrome, is a key, near-term value driver.
"Increasingly, companies are focusing one or some-more of their expansion programs on singular diseases that validate for a FDA's waif indication, with a claimant drug being entitled to selling exclusivity."
Gattex was recently evaluated by a FDA's Gastrointestinal Drugs Advisory Committee and a row voted unanimously in preference of FDA approval. We trust Gattex significantly restores abdominal fullness to patients and offers many of them one or some-more days off a costly standard-of-care therapy, that is parenteral nourishment (PN). Not usually is ongoing PN diagnosis a outrageous weight for these patients, it dramatically decreases their peculiarity of life, and it comes with some critical complications, including catheter-related infections and even liver disease. we cruise a odds is utterly high that Gattex gains FDA capitulation on or before a Prescription Drug User Fee Act (PDUFA) movement date of Dec. 30.
NPS also has a second, late-stage devalue in Natpara (recombinant tellurian parathyroid hormone [rhPTH 1-84]), for hypoparathyroidism. If approved, Natpara would be offering as a hormone deputy therapy for patients who have no other choice than to take outrageous daily doses of verbal calcium and vitamin D. NPS expects to record a biologics permit focus (BLA) for Natpara in mid-2013.
TLSR: Is brief bowel syndrome a surgical phenomenon, or is this product for inborn conditions?
EA: It is indeed both, though a lion's share of a studious race has had surgery, that is a diagnosis infrequently endorsed for Crohn's disease. In other cases medicine competence have been for diagnosis associated to cancers.
TLSR: How does Gattex indeed work? Is this an active ride form of resource in a bowel, means to boost permeability opposite dungeon membranes?
EA: Teduglutide is a recombinant glucagon-like peptide-2 (GLP-2) analog. It acts as a expansion hormone specific to a intestines. It has been shown in tests to boost a replacement of a epithelial cells creation adult a abdominal lining. That increases a turn of fullness for a remaining territory of a bowel.
TLSR: What is a marketplace event for Gattex and Natpara? How vast is it?
EA: In a U.S., there are estimates of between 10,00015,000 patients who have brief bowel syndrome and are contingent on parenteral nutrition. That would be a pivotal aim studious race for Gattex. With Natpara, for hypoparathyroidism, estimates operation from 65,00080,000 patients in a U.S.
TLSR: What do those numbers interpret to in dollars?
EA: We trust both of these could beget several hundred million dollars in rise sales for NPS.
TLSR: NPS has an $800 million ($800M) marketplace cap. The marketplace event is significant.
EA: Yes, it would be significant. Both products have plain obvious insurance out to a center of a 2020s. we wish to indicate out that Gattex is famous as Revestive in a European Union (EU), and it perceived European marketplace capitulation in Sep 2012. The capitulation was perceived with NPS' partner, Nycomed, that was acquired by Takeda Pharmaceutical Co. Ltd. (TKPYY:OTCPK). Revestive is now in a routine of rising country-by-country by a region. NPS earns mid-teen royalties from sales of a drug in a EU. For both Natpara and Gattex, once they are approved, sales in North America would accumulate wholly to NPS.
TLSR: Both of these indications are comparatively rare. The endocrinologist would be handling a hypoparathyroidism, and a gastroenterologist or internist would be handling a brief bowel syndrome. You don't need a outrageous sales force for possibly of these products, do you?
EA: That's right. In fact, NPS has been diligently scheming for a launch of Gattex for some-more than a year now. The association is scheming a infrastructure and starting with pivotal managers on a blurb side. The association is now in a routine of following adult with medical scholarship liaisons. It is also operative with studious advocacy groups and others to get a best bargain of where a aim studious race is, who treats those patients and how to conduct that treatment.
TLSR: Gattex's PDUFA date is Dec. 30. Do we generally pattern a batch to sell off on a good news when a drug is approved?
EA: That has been function with some-more magnitude lately. It all depends on how many a batch has run adult in a months before a advisory cabinet date, and afterwards how many it might have run adult between a time of a advisory cabinet and a PDUFA date. It also depends on a financier base. In a box of NPS, we cruise a association has a unequivocally solid, long-term institutional shareholder bottom that mostly reduces that risk. The institutional shareholders are about 90%.
TLSR: That's flattering high. How do we bid adult a cost of shares when 90% are already owned by institutional investors? Those shares could indeed be a source of supply. But that might be a controversial question. Do we pattern sales of Gattex, starting in Jan 2013 or thereafter, to start pushing this batch again?
EA: It wouldn't warn me if, after a run-up following a advisory cabinet and a approval, a batch traded laterally for a initial dual months of 2013, as we get an thought of what a early launch sales arena looks like. But we would also discuss that in a same timeframethe initial few months of subsequent yearNPS will be jacket adult a BLA for Natpara. These dual critical compounds are back-to-back, and offer as incremental catalysts for a batch now and good into 2013.
TLSR: What is your subsequent idea?
EA: we like BioCryst Pharmaceuticals Inc. (BCRX:NASDAQ), a curative association building novel tiny molecules that retard pivotal enzymes endangered in inflammatory and spreading diseases. It utilizes a state-of-the-art crystallography lab to do structured, guided drug design. It has dual late-stage compounds, and a pivotal value motorist is a devalue for gout, ulodesine. The categorical matter is that this drug is proviso 3-ready, following certain formula reported progressing this year. The matter that investors are accessible is proclamation of a expansion and commercialization partnership with a partner to commence a proviso 3 program, and eventually to commercialize a product.
TLSR: You have pronounced that we cruise gout to be an untapped market. Allopurinol has been on a marketplace for a longest time, and other generics, such as probenecid, are available. There are also newer products, such as Takeda's Uloric (febuxostat) and Savient Pharmaceuticals Inc.'s (SVNT:NASDAQ) Krystexxa (pegloticase). Also, AstraZeneca Plc (AZN:NYSE) has a product, lesinurad, that has been in proviso 3 studies now for a year. Why is ulodesine so important? Why do we cruise of gout as an untapped market, with all a other products out there?
EA: On face value, we determine with you. It would seem that there are several products addressing this condition. But let's go over them one by one. First of all, you're right: The customary of care, used to provide good over 90% of patients, is a widely genericized drug allopurinol, that has been around for 40+ years. Despite a opening of Krystexxa and Uloric, that has not altered many over a final few years. Uloric is a somewhat some-more influential chronicle of allopurinol. It works by a same resource of action, and given that it produces incremental improvement, it hasn't garnered many marketplace share relations to a many cheaper general alternative. At a other finish of a spectrum is Krystexxa. This is a manly drug, is an injectable and is dictated for a many serious gout patients, those who have serious tophaceous gout that is not responding to allopurinol. Even by a possess label, Krystexxa is targeting a subset of patients who humour from a misfortune symptoms.
"Opportunities for upside distortion privately with those companies that have impactful and near-term catalytic events brazen of them."
Essentially, a infancy of patients who have goutin fact, about 60% of themare on diagnosis though are underserved and are not reaching a healing goal, that is to revoke serum uric poison levels to subsequent 6 milligrams per deciliter (mg/dL). Until patients strech that level, they will expected continue to knowledge occasionally episodes of unpleasant gout flares. The usually approach to residence a underlying condition is to revoke a uric poison turn good subsequent a 6 mg/dL. The dual lead, late-stage compounds in development, as we mentioned, are ulodesine and AstraZeneca's lesinurad.
TLSR: we know that a proviso 2 information for mixed therapy of ulodesine and allopurinol showed a doubled response rate contra a control arm of allopurinol alone. Are we endangered about a toxicity of these dual products used together? Is that going to be a vital risk cause to share cost as this mixed enters proviso 3?
EA: There have been, in a past, some concerns about a reserve form of ulodesine given a resource of action. There are specific actions with ulodesine in mixed with allopurinol that act synergistically in a urate metabolic pathway. The doubt about a reserve has been, in my view, answered entirely by tests finished on infection rates in both B cells and T cells. My perspective is that a drug is protected and good tolerated.
TLSR: BioCryst is a small-cap association with a $204M marketplace valuation. The association has about $54M in income and income equivalents on a change sheet, and that should reason it for another 18 months or so. Is a association going to be squeezed into giving divided too many points when it licenses ulodesine?
EA: No, we don't cruise so. In fact, we cruise a association is in a rather clever position to negotiate some auspicious terms with a destiny partner given of a marketplace energetic we've usually discussed. Ulodesine is a final remaining, unpartnered, late-stage gout compound.
We also pattern that in a interim, a company's second-lead late-stage compound, peramivir, a neuraminidase inhibitor for influenza, could hang adult a proviso 3 hearing and uncover some certain information by late subsequent year. The hearing is evaluating intravenous peramivir in patients with strident influenza in a sanatorium setting. If it is authorized on a basement of certain proviso 3 data, it is rarely expected that a U.S. government, in a form of a Biomedical Advanced Research and Development Authority (BARDA), will extend a agreement for $100M or more, usually formed on BARDA's past purchases of these forms of drugs, both influenza vaccines and antivirals.
TLSR: Even with skinny margins, that volume of income is going to be critical for a company. Is a Street giving peramivir any value currently, or is it a call option?
EA: It unequivocally is a call option. At this point, we embody it in my indication and gratefulness given we trust a information pronounce rarely to a prospects for approval. Of course, it is reasonably risk-adjusted. But carrying pronounced that, we don't cruise peramivir has been given many credit by a Street. It will be a poignant matter when a information come out positively.
TLSR: Another idea?
EA: Ligand Pharmaceuticals (LGND:NASDAQ) is a biotechnology association that has been around given a mid-1990s, though it has been by several iterations. Today it has a large, different tube of mostly partnered resources that are in several stages, from preclinical by proviso 3. Several of those resources are now generating royalties.
In addition, it acquired CyDex Pharmaceuticals Inc. in Jan 2011. Through that merger a association now has a Captisol (a polyanionic beta-cyclodextrin derivative) plan height technology, that is in 6 marketed drugs as good as a handful of compounds that are in a clinic.
Going forward, Ligand has dual pivotal value drivers. The initial is Kyprolis (carfilzomib). This is Onyx Pharmaceuticals Inc.'s (ONXX:NASDAQ) drug for relapsed and adverse mixed myeloma, that was usually authorized by a FDA a few months ago. Indications are that a launch with Onyx is going well. Ligand, given of a plan record with Captisol, gets 1.53% of annual sales. Normally this commission would be deliberate smalland maybe even insignificantbut for a association a distance of Ligand, with a $336M marketplace cap, and for a marketplace event that we see in Kyprolis, privately for patients who have come to a finish of a line and have no healing alternatives left, we see this as one of a pivotal value drivers, generally starting subsequent year.
TLSR: Kyprolis is labeled as a third-line therapy for mixed myeloma. The studious has to destroy dual before therapies, including Velcade (bortezomib; Takeda). Is a association doing studies to allege this product to earlier-stage illness or earlier-stage treatment?
EA: There are late-stage studies evaluating usually that question. we cruise that as a months hurl over and prescribing physicians benefit some-more knowledge with a drug, some off-label prescribing could start on a margins, given there is a perspective that Kyprolis could be both influential and safe.
TLSR: Is there another association we wanted to pronounce about?
EA: Affymax Inc. (AFFY:NASDAQ) is a unequivocally engaging story. The association is famous for a drug Omontys (peginesatide), a diagnosis for anemia in patients with ongoing kidney illness who are on dialysis. Omontys is a synthetic, pegylated, peptidic devalue that binds to and stimulates a erythropoietin receptor. It is an erythropoiesis-stimulating representative (ESA), like Amgen Inc.'s (AMGN:NASDAQ) Epogen (epoetin alfa). The pivotal disproportion is that Omontys is administered once a month for dialysis patients, as against to 3 times a week, typically, with Epogen. Earlier this year Affymax and a partner, Takeda, were postulated capitulation before a PDUFA date, and a product has been doing unequivocally good in a initial few months of a launch.
TLSR: we find this association so interesting. The batch opening is off a chart, adult 385% over a past 12 months and adult 100% in a past 3 months. It flagged after a drug was approved, and afterwards it seemed to take off on new contracts with dialysis providers. Those were a good vast catalysts for a company.
EA: In fact, within fewer than 3 months after approval, a association sealed an initial supply agreement with a world's largest dialysis provider, Fresenius Medical Care (FMS:NYSE), that became an early adopter of Omontys. The initial contract, sealed in July, was for a small some-more than 100 dialysis centers in a U.S., representing about 10,000 patients. In August, Affymax sealed with U.S. Renal Care.
The bigger design is that Epogen has been a usually ESA accessible to dialysis patients for some-more than 20 years. This was a long-standing corner with corner pricing. Affymax has been unequivocally successful in a initial few months of a Omontys launch, and it is removing some pivotal suppliers to adopt a product. In fact, we cruise it's likely, maybe even as early as a finish of this year, that Fresenius and Affymax will announce a longer-term and many broader, extensive agreement to supply Omontys via all of a dialysis centers, or many some-more of a dialysis centers than it now does.
TLSR: Ed, appreciate we so many for your time.
EA: Thank we unequivocally much. we enjoyed it.
Ed Arce assimilated MLV Co. in Apr 2011 as an equity researcher in a Life Sciences Equity Research group, covering biotechnology, biopharmaceutical and specialty curative companies. Prior to fasten MLV, he worked as a comparison investigate associate during Wedbush Securities and UBS Securities, covering a biotechnology and U.S. large-cap curative industries, respectively. Arce started his equity investigate career in 2005 as a investigate associate during First Albany Capital (now Gleacher Company Inc.), covering specialty and general curative companies. Arce binds a master's grade in financial from Boston College. In addition, he binds a bachelor's grade in polite engineering from Florida International University (FIU), and is a connoisseur of a executive master's grade module in business administration during a Chapman Graduate School of Business during FIU. Arce is a board-licensed veteran operative (PE), and a turn III CFA candidate.
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1) George S. Mack of The Life Sciences Report conducted this interview. He privately and/or his family possess shares of a following companies mentioned in this interview: None.
2) The following companies mentioned in a talk are sponsors of The Life Sciences Report: None. Streetwise Reports does not accept batch in sell for services. Interviews are edited for clarity.
3) Ed Arce: we privately and/or my family possess shares of a following companies mentioned in this interview: None. we privately and/or my family am paid by a following companies mentioned in this interview: None. we was not paid by Streetwise Reports for participating in this interview.
4) Disclosures for MLV Co. can be found here.