Is Kythera's Double Chin Drug A Winner?

One biotech company I am excited about is Kythera Biopharmaceuticals Inc. (NASDAQ:KYTH). Kythera is developing ATX-101, an investigational injectable drug for the reduction of unwanted submental fat, commonly known as "double chin."

Kythera's potential first-in-class injectable drug candidate is a proprietary formulation of synthetic deoxycholic acid, an endogenous compound that is present in the body to promote the natural breakdown of dietary fat. ATX-101 is designed to be a locally-injected drug that causes proximal, preferential destruction of adipocytes, or fat cells, with minimal effect on surrounding tissue..

"Double chins" are caused by a layer of subcutaneous fat around the neck that sags down and creates a wrinkle, that has the resemblance of a second chin. Double chins are most commonly found on the elderly and the obese.

There are no drugs currently available to treat the fatty deposits that causes some double chins. People may opt for a "neck-lift", which also treats loose skin or muscle that can contribute to double chins. Others have liposuction, but only about 25% of people with double chins suffer solely from excessive fat and are eligible for this procedure.

Some decide to have a mentoplasty or genioplasty (plastic surgery of the chin, chin reshaping, often augmentation). Sometimes referred to as "chinplants", these procedures increased over 70% between 2010 and 2011, proving to be more popular than breast augmentation, liposuction or even Botox. Over 20,000 people opted for the procedure in 2011. The average price of a chinplant ranges between $4500 and $7500.

ATX-101 has been studied in 12 clinical trials comprising a total of over 1,500 patients.

Last month, Kythera announced positive interim results from a Phase 3b, multi-center, open-label study to evaluate the safety and efficacy of ATX-101 at the American Academy of Dermatology annual meeting. Researchers found that 87% of patients achieved at least a one-grade improvement from baseline on the Clinician-Reported Submental Fat Rating Scale ((CR-SMFRS)), 83% of patients achieved at least a one-grade improvement on the Patient-Reported Submental Fat Rating Scale ((PR-SMFRS)), 96% of patients had unchanged or improved skin laxity based on the clinician rated Submental Skin Laxity Grading Scale (SMSLG)), 95% of patients were satisfied with treatment based on the Global Post Treatment Satisfaction Scale. Adverse events were of mild to moderate intensity, transient and primarily associated with the treatment area.

Kythera completed enrollment in its pivotal Phase 3 clinical program for ATX-101 in more than 1,000 subjects, randomized to ATX-101 or placebo, in 70 centers across the United States and Canada in August 2012. The Company expects to release topline results in mid-2013.

Bayer Partnership

On August 30, 2010, Kythera and Bayer HealthCare's (OTCPK:BAYRY) dermatology business, Intendis, announced that they entered into a licensing agreement granting Intendis rights to ATX-101 outside of the United States and Canada. Under the terms of the agreement, Kythera received an upfront payment of $43 million and may be eligible to receive up to $330 million for certain development, manufacturing and commercialization milestones. Kythera will also receive tiered double digit royalties based on net sales in Intendis' territories.

Last year, Bayer recently completed two pivotal Phase 3 trials of ATX-101 in Europe for the reduction of submental fat. During June 2012, Kythera released results from the study that found ATX-101 achieved a statistically significant reduction in submental fat (double chin) based on clinician, patient and objective ratings. A Patient-Reported Submental Fat Impact Scale was developed to measure the visual and psychological impacts of submental fat. Researchers found that most patients perceived themselves to be happier, less bothered, less self-conscious, less embarrassed, younger and less overweight after treatment with ATX-101.


On March 21, 2013, Kythera reported financial results for its quarter and year ended December 31, 2012.

The company's net loss was $18.0 million for the fourth quarter of 2012 and $36.8 million for the year ended December 31, 2012, compared to $5.6 million for the fourth quarter of 2011 and $11.2 million for the year ended December 31, 2011.

The company had cash and cash equivalents of $79.3 million as of December 31, 2012. This compares to $34.6 million at December 31, 2011. Based on current operating plans, Kythera believes its existing cash and cash equivalents will allow it to fund its operating plan through at least the next 12 months.

Conclusion: Buy

In October 2012, Kythera completed its initial public offering, IPO of 5,060,000 shares of its common stock at an initial public offering price of $16.00 per share, which included the exercise in full by the underwriters of their option to purchase up to 660,000 additional shares of common stock. The Company received net proceeds of approximately $72.5 million after deducting underwriting discounts, commissions and offering costs.

On November 5, 2012, Goldman Sachs noted:

We initiate coverage of Kythera Biopharmaceuticals at Neutral with a $23, 12-month price target, implying 4% upside.

Leerink Swann began coverage on Kythera Biopharmaceuticals an "Outperform" rating and a $28.00 price target. JP Morgan Chase started coverage on Kythera with an "Overweight" rating. Lazard initiated coverage of Kythera with a "Buy" recommendation.

In 2011, Americans spent over $10 billion on cosmetic procedures. Over $2 billion was spent worldwide on injectable cosmetic facial procedures such as Botox. That figure is expected to grow 12% a year through 2018.

Kythera expects ATX-101 to generate annual sales of $500 million in the United States alone. Outside the United States, ATX-101 is forecast to earn up to $325 million a year in annual sales.. I think these predictions may be conservative when one considers that Allergan's Botox annual sales exceed $1.5 billion, with about 50% of Botox used for aesthetic purposes.

The company has a top notch management team, many of whom played a leadership role in securing FDA approval of blockbuster aesthetic products while at Amgen (NASDAQ:AMGN) and Allergan (NYSE:AGN). In March 2013, announced the appointment of Frederick Beddingfield, III, MD, PhD, as Chief Medical Officer. He joined the company from Allergan, where he worked in an executive capacity across the entire aesthetics portfolio including Botox Cosmetic, Juvederm and Latisse. Beddingfield most recently held the role of Allergan's Vice President and Therapeutic Area Head, Dermatology and Aesthetics.

I recommend Kythera not only because I feel the company's management has the experience and expertise necessary for ATX-101 to receive FDA approval, but also because the drug has shown consistently strong clinical results. In addition, ATX-101 has significant sales potential because it addresses an unmet aesthetic need for a potentially large patient population.

Disclosure: I am long KYTH, AMGN. 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.