Therapeutic Proteins Offer New Investment Opportunities

Includes: MDVN, PBTH, REGN
by: Cris Frangold

A few days ago, Prolor Biotech (NYSEMKT:PBTH) was downgraded by research analysts at Summer Street from a "buy" rating to a "sell" rating. Summer Street now has a $3.00 target price on the stock, down from their previous target price of $6.00. The stock is trading at around $4.42 with a 52-week low of $3.11 and a 52-week high of $6.69 and the company's market cap is around $290 million. Earlier, analysts at Oppenheimer had initiated coverage on shares of Prolor Biotech in a research note to investors at the end of August where they set an "outperform" rating and a $7.00 price target. A few days prior to this, analysts at Jefferies Group had initiated coverage on shares of Prolor Biotech in a research note to investors, when they had set a "buy" rating and a $8.00 price target on the stock.

Prolor Biotech is developing proprietary versions of already-approved therapeutic proteins, and its Carboxyl Terminal Peptide technology can be attached to an array of existing therapeutic proteins, stabilizing the therapy in the bloodstream and extending its lifespan without adding to the toxicity or losing desired biological activity. Products under development include Human Growth Hormone ("hGH") for the long-term treatment of children and adults with growth failure due to inadequate secretion of endogenous growth hormone which is regarded as a $3 billion market opportunity. This could potentially be injected once a week or twice per month. The GLP-1 / Glucagon dual receptor agonist for Diabetes Type II regarded as a $2 billion market opportunity could be injected once a week and may have a significantly better weight-loss profile than existing GLP-1 therapies.

The creation of a successful, non-toxic and non-immunogenic long-lasting therapeutic protein is a very "tricky" process. Of concern is the fact that the body may regard the altered protein as a foreign substance and develop an immune response against the molecule, rendering it useless. CTP is a small peptide naturally found in the body as a portion of the protein hCG and has strong potential to be non-toxic and non-immunogenic to humans when attached to other proteins and prolonging the life-span of many other hormones, enzymes and peptides. Merck (NYSE:MRK) and Prolor have the exclusive license from Washington University to utilize the CTP. The phase 3 clinical trials conducted by Merck with FSH-CTP have shown no adverse effects of toxicity or immunogenicity and require only one injection, compared to the seven injections required for the regular FSH. Merck has received marketing approval from the European Commission.

Prolor has also announced positive results from a preclinical toxicology study to assess the safety and tolerability of its proprietary long-acting reversible-pegylation technology ("RPeg"). The study results demonstrate that RPeg was safe and well-tolerated at high doses following repeated administration in rats. The RPeg platform has been utilized to develop Prolor's preclinical drug candidate MOD-6030, a GLP-1/Glucagon dual receptor agonist peptide in development for the dual indications of obesity and type 2 diabetes. It can also potentially be applied to a range of peptide and small molecule drugs to increase their duration of action, and is expected to be especially appropriate for use with drugs that must cross the blood-brain barrier. More recently, the company has announced that the U.S. Patent and Trademark Office issued a notice of allowance for a patent application covering the company's long-acting reversible-pegylation technology (RPeg). Upon issuance, the new patent will provide added intellectual property protection, including additional compositions and configurations of long-acting drug product, in addition to the already-issued U.S. patent covering the RPeg platform.

I find it difficult to understand the downgrade when there are so many products in the development pipeline and the number of catalysts that could have a positive impact on the stock price. The company expects to start a phase 3 study of hGH-CTP by the end of 2012 for adult growth hormone deficiency (GHD) and is evaluating hGH-CTP in an ongoing phase 2 study for GHD in children. If successful, hGH-CTP could enter the $2.5 to $3 billion hGH replacement market and replace once-daily painful hGH injection with once-weekly injections of hGH-CTP. Market experts expect hGH-CTP to capture a 40 percent share of the existing hGH market which is expected to grow at a 2% CAGR from the $2.75B current market size. GH-CTP has received orphan designation in adult and pediatric GH deficiency, and only a single phase 3 study is required to gain approval for each indication. Results are expected by year-end 2013 in both the phase 2 pediatric study and phase 3 study in adults.

Meanwhile, Prolor is developing factor VIIa-CTP, a long-acting version of Factor VIIa used for the treatment of hemophilia and preclinical results suggest that the treatment can potentially reduce the severity and duration of bleeding events as well as dosing frequency. This candidate is expected to advance into phase 2 testing in the first half of 2013.In addition to its Factor VIIa program, the company is using its CTP technology to develop a longer acting Factor IX called Factor IX-CTP. It is also developing a long-acting version of oxyntomodulin using reversible PEGylation technology for which a Phase 1 trial could commence in the first half of 2013. This company has an impressive number of treatments under development and is reducing the risk by developing proprietary versions of already approved proteins. With the usual caveats about the high risk of biotech investing, this is definitely a company worth considering if you can stand the risk.

Regeneron (NASDAQ:REGN), the company that produces the macular degeneration treatment Eylea among other things, saw an increase in price on some positive news. The company and its partner Sanofi (NYSE:SNY) received the support of EU regulators for Zaltrap, a drug meant to be used alongside chemotherapy for patients with colorectal cancer. Regeneron also announced a $70 million expansion of its East Greenbush, New York, facilities that would include 65,000 square feet of new space and the addition of 300 new jobs.

Regeneron is a fully integrated biopharmaceutical company that discovers and develops medicines for the treatment of serious medical conditions. Regeneron markets three products in the United States, Eylea (aflibercept) Injection, Zaltrap (ziv-aflibercept) Injection for Intravenous Infusion, and ARCALYST (rilonacept) Injection For Subcutaneous Use; Zaltrap is co-commercialized with Sanofi. Phase 3 studies are in progress with Eylea in two additional indications and with product candidates sarilumab and REGN727. Regeneron has active research and development programs in many areas of diseases, including ophthalmology, inflammation, cancer, and hypercholesterolemia.

For the third quarter of 2012, Regeneron reported total revenues of $428 million and $964 million for the first nine months of 2012. Total revenues included Eylea net product sales of $244 million in the third quarter and $562 million in the first nine months of 2012. Total revenues also included a $50 million milestone payment from Sanofi and a $15 million milestone payment from Bayer HealthCare in connection with regulatory approvals of Zaltrap and Eylea, respectively. The company reported non-GAAP net income of $217 million ($1.89 per diluted share) in the third quarter and $359 million ($3.19 per diluted share) in the first nine months of 2012. The company reported GAAP net income of $191 million ($1.72 per diluted share) in the third quarter and $280 million ($2.55 per diluted share) in the first nine months of 2012.

The CEO said that the Eylea launch continues to make good progress and is driving strong sales and earnings growth. The company now forecasts 2012 U.S. Eylea net product sales of $790 to $815 million. With the recent approval of Eylea in the United States for the treatment of macular edema following central retinal vein occlusion (CRVO), and the launch beginning by the end of this year in Japan, Australia, and Europe, the company expects Eylea to continue to drive growth through 2013 and beyond. In addition, the company and Sanofi have announced the roll-out of our broad phase 3 ODYSSEY program for REGN727, our cholesterol-lowering PCSK9 antibody, and the phase 3 program for sarilumab, our IL-6 receptor antibody, in rheumatoid arthritis.

Regeneron has ten fully human monoclonal antibodies based on its VelocImmune technology in clinical development, including six in collaboration with Sanofi. After consultation with U.S. and E.U. regulatory authorities, ODYSSEY, a large, global Phase 3 program with REGN727, an investigational drug targeting PCSK9 to reduce low-density lipoprotein (LDL) cholesterol, was started in June 2012. The program will include over ten clinical trials and will test the safety and efficacy of REGN727 in multiple treatment strategies and patient types. An additional phase 3 trial, SARIL-RA-TARGET, was initiated in the global SARIL-RA phase 3 program of sarilumab for the treatment of moderate-to-severe rheumatoid arthritis. The first phase 3 trial in this program, SARIL-RA-MOBILITY, reached full enrollment during the quarter. REGN1400, an antibody against ErbB3 that is being developed outside of the Sanofi collaboration, entered clinical development for oncology.

I can see a number of positive factors which would make a strong case for investing in the company. Credit Suisse just initiated coverage on the shares as an "outperform" with a $187 a share price target. Consensus earnings estimates from analysts for both 2012 and 2013 have risen upwards over the last few weeks. The company will achieve a large jump in revenues during this fiscal and many analysts believe another jump over 30% in sales can be achieved in 2013. I believe that the partnership with Sanofi is going to pay off big in the long-term. The stock may look pricey, but this is an exciting growth story and I have no hesitation in recommending a buy.

Investors in Medivation (NASDAQ:MDVN) cheered earlier this year because of an early FDA approval for its flagship drug Xtandi (enzalutamide) for the treatment of prostate cancer post-chemotherapy. The original PDUFA action date for Xtandi's NDA was November 22nd, 2012 under the priority review designation that Medivation received for the NDA. The FDA was able to review Xtandi's phase 3 data quickly and Xtandi was approved on 31 August 2012. It does appear that the company was taken by surprise because of the early approval. The marketing development of Xtandi commenced on September 13th for chosen specialty pharmacies and distributors and partner Astellas announced $14.1 million in net product sales in the first 12 business days. The company is also waiting for a MAA (the European version of the NDA) decision by the European Medicines Agency, which would allow the drug to be sold to prostate cancer patients in Europe who have already received docetaxel.

Medivation recently announced results and provided a corporate update. Net sales of Xtandi (enzalutamide) capsules for the third quarter, as reported by Astellas Pharma, were $14.1 million, which represents the first 12 business days of sales following the availability of Xtandi for shipment from September 13th, 2012. Medivation's collaboration revenue for the third quarter of 2012 was $64.8 million, which consisted of two components: collaboration revenue attributable to U.S. Xtandi sales of $7.1 million and collaboration revenue attributable to up-front and development milestone payments from corporate partner Astellas and former partner Pfizer (NYSE:PFE) amounting to $57.7 million. The company reported a net loss for the quarter of $4.5 million ( $0.06 per diluted share) compared with a net loss of $10.0 million ($0.14 per diluted share) for the same period in 2011, adjusted on a post-split basis. Cash, cash equivalents and short-term investments at September 30th, 2012 were $340.4 million, compared with $145.1 million at December 31st, 2011.

The CEO of the company said that the rapid approval and subsequent U.S. launch of Xtandi in the third quarter marked a transformative time for Medivation as it made its transition into a commercial company. Together with its partner Astellas, the company looks forward to reporting progress on the future growth and use of Xtandi to treat patients with metastatic castration-resistant prostate cancer who have received docetaxel while continuing to explore the potential utility of enzalutamide in earlier prostate cancer indications and in breast cancer.

In the Enzalutamide Clinical Development Program, phase 3 AFFIRM trial results were published on August 15th, 2012 in The New England Journal of Medicine. Data was presented at the 2012 European Society of Medical Oncology Annual Meeting from the phase 3 AFFIRM trial on the effect of enzalutamide on pain-related secondary endpoints and a post-hoc analysis of the survival impact of baseline corticosteroid use in men with metastatic castration-resistant prostate cancer who have received docetaxel. The company completed targeted enrollment of approximately 1,700 patients in the phase 3 PREVAIL trial of enzalutamide in men with castration-resistant prostate cancer who have not yet received chemotherapy and continued patient enrollment in two trials comparing enzalutamide's effects on progression-free-survival when compared head-to-head versus bicalutamide, the most commonly used anti-androgen, in men who have progressed following medical castration with LHRH analog therapy or surgical castration. TERRAIN is enrolling approximately 370 men with metastatic disease primarily in Europe; STRIVE is enrolling approximately 400 men with either metastatic or non-metastatic disease primarily in the U.S.

Medivation started the year at a share price of $23.06, but by the time it had received its approvals, the stock had reached a 52-week high of $52.43. It currently trades at around $49.61 and it is clear that the high price means that the market has already priced in significant expectations from the company. The next price catalyst may well be the approval from Europe. Investors should wait for additional data on sales prospects before buying at current price levels. However, investors should watch this stock carefully and consider buying on any pullback from the current price level.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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