By Jason Napodano, CFA
In December 2012, Amarantus Diagnostics, a division of Amarantus BioScience Holdings, Inc. (OTCQB:AMBS) entered into an exclusive worldwide license for the rights to the Lymphocyte Proliferation (LymPro) Alzheimer's Disease Blood Test from Memory Dx, LLC. We believe this was a transformational transaction for Amarantus, as LymPro is a potential game-changer in the diagnosis of Alzheimer's disease and has significant commercial potential.
Amarantus paid Memory Dx 2.0 million shares of common stock, and will pay a royalty equal to 9% of the net proceeds of all sales resulting from the license. Amarantus will fund the validation study for LymPro, and as has agreed to pay $50,000 to prepare the laboratory for the necessary CLIA work, which we expect to begin in the third quarter of 2013. Memory Dx LLC is entitled to a $1.0 million milestone payment (in cash or stock) upon the successful completion of the phase II validation study, facilitating commercial sale of the product as an "aid to the diagnosis of Alzheimer's disease."
The first question investors may ask is, "If LymPro has such significant commercial potential, then why was Amarantus able to pick it up so cheap?" The answer stems back to the parent company of Memory Dx, Provista Life Sciences. Provista, a company with limited resources, decided to focus on its late-stage breast cancer diagnostic. NIH funding dried up for Alzheimer's tests and companion diagnostics were too early-stage. Instead, the goal with LymPro was to find a commercial partner willing to fund the validation study. Provista could not push both its breast cancer and Alzheimer's diagnostics forward. Amarantus was able to secure LymPro for just over $1 million all-in plus 9% royalty back to Provista, later renamed Memory Dx, LLC.
Brief Alzheimer's Background
Alzheimer's is a type of dementia that causes problems with memory, thinking and behavior. Symptoms usually develop slowly and get worse over time, becoming severe enough to interfere with daily tasks. In the U.S., there are an estimated 5.2 million individuals living with Alzheimer's disease. The majority are above the age of 65. In 2013, the Centers for Disease Control and Prevention (CDC) estimates roughly 455,000 new cases of Alzheimer's will be diagnosed. There are another estimated 900,000 patients at "high risk" for developing the disease, or that have yet to be diagnosed with Alzheimer's.
You see, diagnosis of Alzheimer's remains a challenge. Although Alzheimer's is the most common form of dementia, not all dementia means a patient has Alzheimer's disease. In fact, data from the Alzheimer's Association notes that only around 50% to 80% of all dementia cases are Alzheimer's. As such, given that 20% to 50% of patients with dementia may have another disease separate from Alzheimer's, and thus warrant a different course of treatment, a rapid and accurate diagnostic that confirms Alzheimer's represents a significant market opportunity.
Alzheimer's is a significant unmet medical need in the U.S. One in eight over the age of 65 has Alzheimer's. One in three over the age of 65 will die with Alzheimer's or another form of dementia. Each year, an estimated 250,000 die as a direct result of the disease. In 2013, Alzheimer's will cost the nation $203 billion. According to Alz.org, this number is expected to rise to $1.2 trillion by 2050. Treatment options are limited, and focus mainly on improving symptoms. Rapid diagnostics to confirm Alzheimer's are non-existent. The graph below is simply astonishing, and depicts the enormous unmet medical need for both Alzheimer's therapeutics and diagnostics.
Need For Diagnostics
We think there exists a significant market need for an Alzheimer's diagnostic product - one that aids in the early diagnosis of the disease, not only so patients can begin with symptom moderation therapy such as Pfizer's (PFE) Aricept or Forest Lab's (FRX) Namenda, but also aids in the enrollment of patients with confirmed mild disease for clinical trial programs. Catching patients while still early in the disease progression clearly provides commercial utility; but, aiding in the enrollment for clinical trials could ultimately help develop the next potential Alzheimer's disease blockbuster drug, as potentially many Alzheimer's trials fail because they are enrolling the other 20% to 50% of patients with dementia noted above and not true Alzheimer's patients.
LymPro is designed with the purpose of diagnosing Alzheimer's in its mild-to-moderate stage, a population of patients currently being tested in numerous clinical studies with amyloid-beta targeting strategies. The goal is to assist physicians in accurately diagnosing the disease and distinguish Alzheimer's from other common forms and diseases with dementia.
We point investors to the high profile failures of Pfizer / J&J's bapineuzumab in 2012 or Eli Lilly's (LLY) solanezumab in 2012 or semagacestat in 2010. Elan's failures with bapineuzumab have been well chronicled following the phase II data in 2008. However, Pfizer and new partner, J&J, pushed forward in phase III, thinking they had identified a sub-group of patients without a gene called ApoE4 though post hoc data mining. Some 4,100 patients, 4 years and $500 million later, the phase III trial still failed. Despite not learning much from their failure with semagacestat in 2010, Eli Lilly's solanezumab failed a phase III study in Alzheimer's disease in 2012.
The current standard of care for Alzheimer's diagnosis includes both physical and neurological exams, along with brain imaging through positron emission tomography (PET). PET is a nuclear medical imaging technique that produces a three-dimensional picture of the brain. PET systems are large and expensive, and thus not readily available throughout the entire country. Other diagnostic procedures, including protein assay of cerebrospinal fluid (CSF) are painful and highly invasive. And, similar to PET, magneto encephalography (MEG) and magnetic resonance imaging (MRI) are expensive, offer low accuracy of diagnosis, and provide only a snap-shot in time of the patient's brain, thus requiring several more expensive and inefficient procedures in the future.
In April 2012, Eli Lilly won approval from the U.S. FDA for an Alzheimer's diagnostic that involves a radioactive agent Amyvid (florbetapir), which sticks to amyloid in the brain. Evidence exists of high correlation between increasing amyloid levels in the brain and the development of Alzheimer's disease. Yet, the presence of amyloid plaque alone does not confirm Alzheimer's, and new research shows that building amyloid levels are present in other forms of dementia. As such, the label for Lilly's Amyvid clearly states, "A positive Amyvid scan does not establish a diagnosis of Alzheimer's Disease, or other cognitive disorder." As we note above, this is the exact issue that both treating physicians and pharmaceutical companies are trying to overcome.
Amyvid costs roughly $1,600 per dose. Patients then undergo brain imaging through positron emission tomography (PET) scan, which is an additional cost of another roughly $2,000 per incidence. Besides being rather expensive, Amyvid is ineffective if the patient is not experiencing memory impairment due to the buildup of amyloid in the brain. This suggests that early diagnosis in high-risk patients is unlikely. Instead, we see Amyvid as a useful tool in tracking amyloid levels in the brain of suspected Alzheimer's patients over time. We see utility in this application, but at roughly $3,600 per test, this seems a highly inefficient mechanism.
Nevertheless, Lilly believes that Amyvid is an estimated $750 million peak market opportunity. We believe this may be aggressive. We note that Eli Lilly acquired the Amyvid test by acquiring Avid Radiopharmaceuticals in 2010 for $300 million upfront and $500 million in backend consideration. The total deal price of $800 million is 25X the current market value for all of Amarantus BioScience Holdings, Inc., which includes the Amarantus Therapeutics division currently developing a mesencephalic astrocyte-derived neurotrophic factor (OTCPK:MANF) for the treatment of Parkinson's disease and other ischemic disorders.
In April 2013, Lilly reinforced its commitment to Alzheimer's diagnostics by acquiring a novel Tau tangle diagnostic program from Siemens Medical Solutions USA. The program includes two investigational PET tracers intended to image Tau (or neurofibrillary) tangles in the brain. Like the company's amyloid targeting program with Amyvid, Lilly believes that the amount and location of Tau tangles in an Alzheimer's disease patient's brain correlates with the severity of the disease. However, similar to amyloid, there is no definitive proof that Tau tangles mean a patient has Alzheimer's, and by using PET, Lilly is further entrenching itself on an expensive and inefficient platform.
How LymPro Works
LymPro is a blood assay. It is cheaper, more efficient, and less invasive than CSF, PET, MEG, and MRI diagnostics. The product was developed by Dr. Thomas Arendt and Dr. Jens Stieler of the University of Leipzig, Germany. The product was licensed to GW Medical in 2004, which later became Provista Life Sciences, and then Memory Dx, LLC. The authors conclude in a 2001 publication in NeuroReport,
Cell-cycle dysregulation might be critically involved in the process of neurodegeneration in Alzheimer's disease (AD). We now provide evidence for a dysfunction of the cell division cycle as a more general cellular phenomenon of the disease. Peripheral blood lymphocytes, stimulated with mitogenic compounds, were less able to express CD69, an early proliferation marker, in AD patients than in age-matched controls. Expression levels of CD69 of both T-cells and B-cells correlated inversely with the Mini-mental Scale. The results suggest that a systemic failure of cellular proliferation control might be of critical importance for the pathomechanism of AD.
Essentially, LymPro works by identifying immune-based biomarkers in the blood of suspected Alzheimer's patients, specifically biomarker CD-69. The diagnostic works by utilizing a statistical model that evaluates the quantitative information of the protein biomarkers and assigns a probability score called a "stimulation index" (SI). The SI score indicates whether or not a patient is disease free, has Alzheimer's disease, or is at high risk to develop the disease.
Amarantus believes that LymPro may have certain advantages over Amyvid, including the likely cost-effectiveness of LymPro as a simple blood test in comparison to more expensive neuro imaging techniques. The advent of a simple blood test that can distinguish Alzheimer's from other forms of dementia would be an enormous opportunity for Amarantus Diagnostics. LymPro is based on proteomic technology where the concentration of a selected biomarker, CD-69, is monitored. Below is an interesting quote from Dr. Russell Katz, MD, Director of the Division of Neurology Products in the FDA's Center for Drug Evaluation and Research (CDER):
"The scientific community and the FDA believe that it is critical to identify and study patients with very early Alzheimer's disease before there is too much irreversible injury to the brain. It is in this population that most researchers believe that new drugs have the best chance of providing meaningful benefit to patients."
We believe this reinforces the need and desire for early-stage detection, and the potential multi-hundred million dollar opportunity that LymPro represents. We note that LymPro has completed two phase I clinical studies in over 160 patients, showing 98% sensitivity and 96% specificity for Alzheimer's disease diagnosis. These statistics compared favorably to the sensitivity (82-92%) and specificity (95%) of Amyvid, as outlined in the package insert.
This patient-specific identification has the potential to become an invaluable tool for Alzheimer's disease clinical trials, where there has been a well-documented history of patient recruitment errors related to inaccurate diagnosis of Alzheimer's, or as a companion diagnostic to a therapeutic candidates currently under development. For example, Eli Lilly has reported that a retrospective analysis of the phase III solanezumab study showed patients with mild disease gained improvement. Wouldn't it be nice if Lilly can re-conduct a phase III study in only confirmed mild Alzheimer's patients?
What's Next For Amarantus Diagnostics
After establishing the analytical performance of the assay in an outsourced GLP laboratory (Sun Health Research Institute), Amarantus plans to conduct a small clinical performance study at an independent laboratory in the second quarter of 2013 to verify the previously published findings. During the third quarter of 2013, the company expects to initiate a pivotal diagnostic accuracy study (phase II) at Sun Health Research Institute to generate sufficient data to validate the clinical performance (sensitivity / specificity) that would support a Clinical Laboratory Improvement Amendment (CLIA) launch.
CLIA was passed by congress in 1988 to establish a quality standards for all laboratory testing to ensure the accuracy, reliability and timeliness of patient test results regardless of where the test was performed. CLIA is user fee funded and operates under the Centers for Medicare & Medicaid Services (CMS) financial management operation. However, the categorization of commercially marketed in vitro diagnostic tests under CLIA is the responsibility of the FDA.
Amarantus Diagnostics is seeking to develop LymPro under the CLIA pathway. The product would be intended for the in vitro qualitative determination of a stimulation index in human blood derived lymphocytes in patients with evidence of cognitive impairment to aid in the diagnosis of dementia of the Alzheimer's type. We suspect the test will not be used as a standalone diagnostic, but as an adjunct to clinical assessments and other diagnostic evaluations, potentially including MRI or Amyvid-PET, and that a positive test offers clinical utility as an aid to help identify those patients with cognitive impairment who have dementia associated with Alzheimer's disease. In the simplest analogy, LymPro is a highly specific and sensitive smoke detector, and where there is smoke, there is usually a fire.
Data from the phase II CLIA study noted above with Sun Health Research Institute is expected during the first half of 2014. This data will include analytical performance characteristics and reproducibility of the assay. Assuming positive data, we believe Amarantus could be in position to file for CLIA clearance and hear back by the end of 2014.
What's LymPro Worth
We believe a rapid and affordable diagnostic for the identification of patients with early-onset Alzheimer's disease is a significant market opportunity. Just 10% market share among the new cases (~455,000) and "high risk" population (~900,000) puts the revenue opportunity for LymPro above $100 million (assumes approximately 135,000 patients x $750 per test).
We see a three-pronged approach to generate revenues with LymPro. The first would be to gain approval under the CLIA clearance, which would allow clinical diagnostic labs to utilize LymPro to aid in the diagnosis of Alzheimer's disease as an adjunct diagnostic either in a research or private payor situation. Ultimately, the company's goal is to obtain approval under the FDA's de-novo pre-market notification 510(k) or Premarket Approval (PMA) process. This type of clearance would facilitate LymPro being used as a companion diagnostic product in combination with one or more therapeutic agents.
Under this secondary scenario, uptake is facilitated through greater coverage with Medicare or private institutions and by treating physicians writing prescriptions for the companion therapeutic. We could see utility with LymPro in the diagnosis of patients that fit the subset of the Alzheimer's disease population companies like Pfizer and J&J are going after with bapineuzumab or Eli Lilly with solanezumab. Other companies like Merck, Lundbeck, and Roche are also testing new Alzheimer's therapeutic agents that might show improved outcome if companioned with a diagnostic such as LymPro. The Holy Grail for these companies is to identify a patient population that responds to their drug, i.e. mild Alzheimer's disease with moderate beta-amyloid or tau tangles, and couple the therapeutic approach to a diagnostic kit proven to identify this population. Instead, most continue to gamble big dollars on studies boomed to fail. Under this scenario, we see the peak revenue potential for LymPro in the $250+ million range.
The final market strategy for LymPro would be to achieve market penetration as a stand-alone diagnostic for early-detection or in "high risk" patients. This would essentially be taking the CLIA clearance and expanding to full FDA approval for commercial sales, with uptake facilitated by (yet to be generated) clinical data and full insurance reimbursement with CMS. With 98% sensitivity and 96% specificity as demonstrated in the previous clinical studies, LymPro has $500+ million potential in our opinion.
Besides LymPro, Amarantus Diagnostics houses the company's second product in the NuroPro Parkinson's disease blood test. We estimated NuroPro is about one year behind LymPro. Although the Parkinson's disease market is about one-fifth the size of the Alzheimer's market, the upside to NuroPro is that there is even less competition at this stage, and the company plans to expand NuroPro to target other disease such as breast cancer and Amyotrophic lateral sclerosis (ALS).
Below we've modeled at the projected cash flows for only LymPro, which assumes approval in 2015 under CLIA use, and expanded approval under a U.S. FDA 510(k) application in 2018.
I believe that LymPro is worth roughly $40 million in value. I peg the market opportunity for NuroPro at roughly one-fourth the size of LymPro given the size of the Parkinson's disease market is about one-fifth that of the Alzheimer's disease market, but with less competition. Therefore, the entire Amarantus Diagnostic division is worth an estimated $50 million today.
In a previous article on Amarantus BioScience Holdings, Inc., I concluded that MANF was worth an estimated $42 million in value over at the Amarantus Therapeutics division given all the available scientific data. As such, I see the entire company worth an estimated $92 million. Given an estimated ~390 million share count, that equates to a target price of $0.24 per share. I expect the value of Amarantus to rise as investors become more familiar with LymPro and the company begins to generate the necessary data for a CLIA filing.