With 2011 fading in the distance, biotech investors look back on yet another volatile and unpredictable trading year and hope to see more green than red in their selections. As the year waned, many chose to offset their capital gains by selling their failures and also to enjoy the fruits of their wise decisions by taking profits and closing/reducing successful positions. With 2012 upon them, these investors will be looking to open new positions using the wisdom from last year’s successes and disasters to guide their decisions. The biotech sector is ripe with potential for gains of many hundreds of percentages for wise and/or lucky positions along with the possible corresponding losses and accompanying heartbreaks. Success can breed more success while failures can frustrate to the point of breaking traders’ spirits and portfolios.
More so than with any other sector, a biotech investor’s best friend, apart from luck, is research and due diligence. There are hosts of resources available to view and analyze trial data, company market capitalizations, earnings (and potential earnings), share structure, analyst opinions, competitor drug data, drug marketability and more. With some of the smaller microcap biotechs the decision often comes down to “is this even a legitimate company?” and with others the successful investor must decide “okay, I believe this drug or medical device will be approved but will it have sufficient marketability to provide real earnings for the company?” The research necessary, questions and concerns are often mind-boggling. Investors wade through the research and ultimately must decide if their cost/benefit analysis justifies a position and what type and duration of position must be chosen. Savvy investors looking for lower market capitalization biotechs with solid potential for the upcoming year may be interested in the following biotechs that can be construed as “top of the class” relative to their peer biotechs in their fields with huge potential and multiple catalysts coming in 2012.
Lpath, Inc. (LPTN) – Class Leader in Lipidomics-based Antibody Therapeutics in the Blockbuster-Potential Wet AMD Market
Lpath, Inc. and its Immune Y2 technology captured the biotech world’s attention in December 2010 after it announced a partnership with Pfizer (PFE) to develop and potentially market Lpath’s wet AMD drug, iSONEP. Per the agreement, Pfizer provided Lpath with $14 million upfront and Lpath would be eligible to receive development, regulatory and commercial milestone payments that could potentially add up to about $500 million not including the double-digit royalties from the sales of the drug if approved. Lpath announced the receipt of the $14 million in January 2011, setting the tone for the year for this small cap biotech and giving it broader exposure by putting it on many biotech investor watch lists. This agreement at least partially legitimizes Lpath’s Y2 technology and the iSONEP drug specifically as the Big Pharma leader recognizes the drug’s potential. The agreement also gives Pfizer the first right of refusal to Lpath’s cancer drug, ASONEP, which utilizes the same bioactive lipid signaling approach as iSONEP. Biotech traders view the agreement as being a huge positive as Pfizer wouldn’t be investing such a large amount of money or time in such an endeavor without having a great deal of confidence in the technology.
Information on their “top of the class” deserving Immune Y2 technology can be found on the company’s website. Basically, iSONEP itself is a monoclonal antibody targeting Sphingosine 1 Phosphate (S1P). S1P is a bioactive lipid that is a key component of the sphingolipid signaling cascade. In the wet AMD, S1P has been implicated as having many actions that promote inflammation and dysregulated angiogenesis. It additionally supports the survival of multiple cell types including fibroblasts, endothelial and inflammatory cells that participate in the dysfunctional processes of wet AMD and other eye diseases. If this pathway is tied up or neutralized, the angiogenesis, leakiness, scarring and inflammation due to AMD should be effectively eliminated because a larger portion of related factors involved will be targeted, not just those pertaining to the VEGF pathway that EYLEA, Avastin and Lucentis target due to the fact that S1P is linked to the production and activation of the growth factors VEGF, FGF, PDGF MCP-1 IL-6, IL-8 often implicated in the pathogenesis of wet AMD.
Phase 2 trials for iSONEP are already underway. They’re supported by strong phase I data in which the drug was well tolerated in all 15 patients with positive biological effects seen in most patients. The patient set chosen was a difficult one in which several of the patients had failed to respond positively to either Avastin or Lucentis. The drug appeared to stop the abnormal blood vessel growth, reduced the retinal thickness and also controlled the leakiness of the existing vessels, which are trademark effects of the ailment. However, as an added bonus the drug did something that neither Lucentis nor Avastin have shown clinical abilities to do. It mitigated the scarred tissue and inflammation, two key areas that could actually improve vision rather than only stopping its regression. If phase 2 data show comparable results to the phase I data particularly in the areas of vision improvement (2nd phase 2 trial) and in the case of RPE detachment phase 2 trial an improvement is seen in retinal pigment epithelium detachment secondary to wet AMD or polypoidal choroidal vasculopathy (PCV), the company will start generating phenomenal interest by potentially answering a large unmet need in a near-blockbuster market. Pfizer and many biotech investors are already watching the company closely and have already positioned themselves for success in the company. Interim and perhaps even final data obtained in 2012 will be huge catalysts for the company and could justify those decisions.
Curis, Inc. (CRIS) – Class Leader in Advanced Basal Cell Carcinoma Treatment
Curis, Inc. had an outstanding 2011 starting with pivotal (suitable for regulatory submission) Phase II data reported for vismodegib for the treatment of advanced basal cell carcinoma (BCC) by collaborator Genentech (OTCQX:RHHBY). The vismodegib trial met its primary endpoint by achieving a target overall response rate by shrinking advanced BCC tumors in a pre-defined percentage of people in the study. The safety profile was noted as being consistent with previous trials with few adverse reactions with long-term observations still underway. Curis’ pipeline is centered on attacking cancer via its signaling drug pathway technologies. Vismodegib’s action is based on regulating the Hedgehog signaling pathway. Aberrant Hedgehog signaling is implicated in more than 90 percent of BCC cases as well as many other cancers. An excellent overview of this specific signaling pathway and its implications in other cancers may be found here.
More detailed clinical data for vismodegib was first released in June and offers real hope to those suffering from the disease. Data indicated an overall response rate, as assessed by an independent review facility, showing vismodegib substantially shrank tumors or healed visible lesions with observed response rates for 43 percent of patients in the laBCC cohort (71 patients in which surgery would result in substantial physical deformity) and 30 percent of patients in the mBCC cohort (33 patients in which the BCC had metastasized). An additional notation in the data stated that there were no residual BCC cells in sampled biopsies of 54 percent of laBCC patients.
Genentech submitted the NDA in September and announced FDA acceptance of the NDA in November with a priority review of the application. A PDUFA date of March 8, 2012 was assigned to allow completion of the NDA review and potentially grant marketing approval of vismodegib. Curis received $8 million as a milestone payment from Genentech for the NDA acceptance and will receive additional milestone payments upon approval as well as royalty payments once the drug is marketed. In December, Genentech also announced they had submitted a Marketing Authorization Application to the European Medicines Agency for vismodegib. This application entitled Curis to an additional $6 million milestone payment. Additional milestone payments will be paid to Curis if the MAA is accepted and more royalties will be paid subsequently once the drug is marketed.
Celsion Corporation (CLSN) – Class Leader for Novel Primary Liver Cancer Treatment
Celsion Corporation’s ThermoDox treatment for primary liver cancer places it at the “top of its class” for its approach to attacking the disease. There are approximately 20,000 cases of primary liver cancer diagnosed annually in the U.S. and 40,000 cases in Europe with worldwide diagnoses increasing annually to about 700,000, a huge market potential and area of need. The ThermoDox technology attempts to address the issue of systemic poisoning of the patients receiving standard chemotherapy for the cancer, which harms the healthy system along with the cancer tumor and necessitates a reduced dosage to maintain a patient-tolerant level. ThermoDox is a heat-activated liposomal encapsulation of the chemotherapy agent, doxorubicin, which is already approved to treat a wide range of cancers. The ThermoDox solution is administered intravenously and allowed to accumulate in the tumor tissue as it has much higher microvascular permeability than normal tissue. Localized hyperthermia is then induced via a narrowly focused RF (radio frequency) beam that raise the temperature at the tumor site to 39.5-42 degrees Celsius, which releases the entrapped doxorubicin from the liposome. This causes a discreet, high concentration of the drug at the tumor site targeting it while minimizing the levels of the drug that the remainder of the body is exposed to. Efficacy at the tumor site is enhanced, and the lower concentration of the drug systemically means a more favorable safety profile.
Celsion witnessed an exciting 2011 reaching targeted enrollment of 600 patients in its HEAT phase III trial of ThermoDox for primary liver cancer in August. In November the Independent Data Monitoring Committee announced that after 219 progression-free-survival (PFS) events monitored, they unanimously recommended the trial continue to the completion of 380 PFS events. The press release indicated that this would likely occur in late 2012, a substantial catalyst for the company and a likely stock price mover. On December 19th the company announced that the European Medicines Agency will accept the Heat trial data as an acceptable basis for submission of a marketing authorization application (MAA) for marketing approval for Europe if the trial’s primary endpoint and a favorable risk-benefit ratio is maintained in the patient set. With likely near-simultaneous applications for approval/marketing in the U.S. and Europe, Celsion will be garnering much attention in 2012.
Galena Biopharma, Inc. (GALE) – Class Leader in Adjuvant Immunotherapy Breast Cancer Treatment
Galena Biopharma, formerly Rxi Pharmaceuticals until a name change and company restructuring in September, turned a lot of heads in the biotech investment community in 2011 with its phase II NeuVax adjuvant immunotherapy breast cancer drug trials. Over 200,000 women per year are diagnosed with breast cancer in the U.S. with about 40,000 dying annually, a tremendous number with much unmet need. Only about 25% of these, those with HER2 (human epidermal growth factor receptor 2) 3+ over-expression, are eligible for Genentech’s approved Herceptin (plus standard of care chemotherapy), which had revenues of more than $5 billion in 2010. Galena’s NeuVax targets the remaining 50% of HER2-positive patients (those that are HER2 1+ and HER2 2+), which is administered with the adjuvant standard of care. Like Herceptin, NeuVax is given to improve disease-free and overall survival in its targeted patient set after the initial standard of care treatment. An immunotherapy agent, it is given to stimulate the immunity system to attack any residual or new cancer cells remaining after the standard of care treatment procedures. Please see the company website for a detailed description of the drug’s mode of action.
Phase II data on the ongoing trial was presented on December 7th at the 34th Annual CTRC-AACR San Antonio Breast Cancer Symposium in San Antonio, Texas. The 60-month data indicated that the vaccine has an acceptable safety profile and is well tolerated. It demonstrated efficacy in preventing breast cancer recurrence in optimally dosed and subsequently boosted patients. The patient set was comprised of 108 patients in the vaccine group and 79 patients in the control group. Of the 53 patients who received at least one booster inoculation (given once every six months because of waning immunity once the initial treatment protocol had completed), a statistically significant disease-free survival rate of 95.9% was seen versus 79.7% in the control group. It should be noted when considering this data set that patients in the trial were node positive (adjacent lymph nodes contained cancer cells which is a sign of potential metastasis) or high-risk node negative breast cancer patients with any level of HER2 expression (IHC 1+, 2+, or 3+), and rendered disease-free after standard adjuvant therapies. Note that the IHC 3+ patients were included in this set, which is not an intended target population data set and will be an excluded population for the phase III trial. This part of the patient set likely decreased the efficacy of the vaccine group, and the disease-free survival rate of 95.9% would likely have been even more impressive without these patients’ inclusion. For more information on the combined node-positive and node-negative phase 2 trials that were run simultaneously, please see this data presented at ASCO 2011.
Having the smallest market cap of the “top of the class candidates”, Galena stock likely has the largest upside potential and/or volatility in 2012 with a current market capitalization of $19.6 million as of market close on January 4th. With impressive phase 2 data behind it, a SPA (Special Protocol Assessment) trial design has been granted to the NeuVax phase 3 trial by the FDA. This SPA designation gives the company better guidance and a more clearly defined set of goals in order to determine if the phase III data will be acceptable to support regulatory approval of NeuVax. The phase III trial, set to commence in 1H 2012, will be termed the PRESENT trial (Prevention of Recurrence in Early-Stage, Node-Positive Breast Cancer with Low to Intermediate HER2 Expression with NeuVax Treatment). The enrollment initiation for this trial and continuing data acquisition from the on-going phase 2 trial will both be key catalysts for the company in 2012.
Appropriate entry positions and timing for any of these “top of the class” candidates will be key. The above information on these “valedictorian-potential” biotechs is a good starting point and vastly narrows down potential candidates for 2012 investment. However, additional investor research and due diligence will be necessary in order to ultimately make investment decisions on which, if any, of these companies fit into the biotech investor’s portfolio for mid to long term investment. Overall market conditions, of course, will play a key part in whether the potential gains (or losses) are exaggerated or muted. However, novel drug development is difficult, time-consuming and expensive and the successful late-stage status of the key drugs for each of these candidates could make them highly attractive if not now, then closer to their catalyst dates for 2012. Under the radar for now, that could change rapidly as any of these companies release anticipated or unanticipated news whether in the form of trial data, partnerships, licensing, buyout or regulatory approval. Good luck to these “top of the class” candidates and their possible impending graduations to the next level and congratulations to any investor “friends or family” that could be enjoying the ride to the top with them!