Seeking Alpha
Research analyst, medium-term horizon, biotech, small-cap
Profile| Send Message|
( followers)  

On June 26, 2012, the U.S. Senate overwhelmingly (92-4) passed the FDA Safety and Innovation Act (FDASIA), which reauthorizes the Prescription Drug User Fee Act (PDUFA) for the fifth time. This follows the House of Representatives unanimously passing the bill last week. All that's left is for President Obama to sign the bill into law, which will become effective October 1, 2012.

The bill was designed to accelerate reviews of novel drugs for infectious diseases, to mandate electronic NDA submissions, and to improve communications between manufacturers and the FDA to prevent drug shortages. Within PDUFA-V are some important provisions. Specifically, PDUFA-V includes two new fees, a generic drug user fee and a biosimilar user fee that seek to speed generic and biosimilar drug application approvals. PDUFA-V also contains measures to permanently authorized the Pharmaceuticals for Children Act and the Pediatric research Equity Act, two measures to standardize and monitor drug use in children.

PDUFA-V extends the priority and standard review times (by 2 months) following an NDA filing, to 8 and 12 months, respectively. Investors may look at this as a negative to PDUFA-V; however, given the significant number of 3-month delays seen over the first half of the year, I believe most drug companies will be in favor of a guaranteed 12 month review instead of a 10 + 3 month review. PDUFA-V calls for more correspondence between the FDA and the filing company. The goal here is to prevent delays and late-stage filing requests that typically cause the 3 month extension. We may, however, under PDUFA-V, see some complete response letters (rejections) coming around 6 to 7 months into the review cycle. Biotech traders should love that added wrinkle.

The GAIN Act

Within PDUFA-V (Title VIII / Sections 801 through 806) is a section entitled "Generating Antibiotic Incentives Now". The GAIN Act was designed to provide pharmaceutical and biotechnology companies with incentives to develop new innovative antibiotics for the treatment of life-threatening infectious diseases causes by drug resistant pathogens. These pathogens are defined in the act, but primary consists of resistant gram positive pathogens, including methicillin-resistant Staphylococcus aureus (MRSA), vancomycin-resistant Staphylococcus and enterococcus, multi-drug resistant gram negative bacteria, including Acinetobacter, Klebsiella, Pseudomonas, and E. coli species, multi-drug resistant tuberculosis, and Clostridium difficile.

These antibiotics are called Qualified Infectious Disease Products ("QIDPs") under the GAIN Act. The term 'qualified infectious disease product' means an antibacterial or antifungal drug for human use intended to treat serious or life-threatening infections, including those caused by the qualified list of pathogens defined above. Among the provisions listed in the GAIN Act, sponsors developing QIDPs may benefit from the following incentives:

1. Exclusivity. Sponsors filing a NDA that qualifies as a QIDPs would be issued 5 years of market exclusivity in addition to the standard 5 years of exclusivity for a new chemical entity under Hatch Waxman. Therefore, QIDPs would qualify for 10 years of market exclusivity concurrent with or without patent protection.

2. Priority Review. NDAs for QIDPs would qualify for Priority Review by the FDA, reducing the standard 12 month review period to 8 months.

3. Fast Track Status. Sponsors of QIDPs would be provided with early and frequent communications with the FDA, in addition to the typical review and communication opportunities, potentially speeding the path from Phase I to NDA filing.

The Act also calls for the FDA to stick to specific timetables on developing and issuing draft and final guidance for antibiotic trials. It provides pharmaceutical and biotech companies with the opportunity to request written recommendations from the Secretary of the Department of Health and Human Services (HHS) on the guidance for antibiotic trials if such guidance is lacking. It also requires the FDA to issue guidance on pathogen focused antibacterial drug development, clarifying the necessary clinical trials and endpoints for approval.

Who Will Benefit

We see a number of small pharmaceutical and biotechnology companies that should benefit from the GAIN Act. These include:

Trius Therapeutics (TSRX): Trius is currently in a confirmatory Phase III clinical trial with tedizolid phosphate, a second generation oxazolidinone being developed for the treatment of serious gram positive infections, including those caused by MRSA. Tedizolid looks like a superior version to Pfizer's blockbuster drug, Zyvox (linezolid). Pfizer sold $1.3 billion of Zyvox worldwide in 2011. Here is a report I wrote on Trius earlier in the year (-click-).

Optimer Pharmaceuticals (NASDAQ:OPTR): Optimer received approval for Dificid (fidaxomicin) in May 2011. Dificid is indicated for the treatment of Clostridium difficile infection, a nasty drug-resistant pathogen that specifically noted in GAIN Act. Here is a solid bull argument for Optimer written by LifeSci Advisors (-click-).

Cubist Pharmaceuticals (NASDAQ:CBST): Besides being Optimer's partner on the U.S. launch of Dificid, Cubist markets Cubicin (daptomycin), a first-in-class lipopeptide for serious gram positive infections, including MRSA that sold over $735 million in 2011. However, it's in the pipeline where Cubist may see a benefit from the GAIN act. Cubist is currently in Phase III clinical trials with CXA-201, a ceftolozane / tazobactam for infections caused by MDR gram negative pathogens such as Pseudomonas aeruginosa. Cubist recently held an "R&D Day" where they mapped out their five year goals. The investor presentation can be found here (-click-).

Cempra, Inc. (NASDAQ:CEMP): Cempra came public in February 2012. The company is developing Taksta (fusidic acid) for the treatment of serious gram positive infections, including MRSA. Taksta is nearing Phase III for skin infections and Phase II for prosthetic joint injections. Taksta has been used outside the U.S. for decades in topical skin and eye formulations. Cempra is also developing solithromycin, a next-generation oral and intravenous fluoroketolide, nearing phase 2 clinical studies for the treatment of community-acquired bacterial pneumonia (CABP). Cempra believes that solithromycin can be an improved version of macrolides Zithromax (azithromycin) and Biaxin (clarithromycin). Here is a fellow contributor's analysis of the IPO back in February (-click-).

Polymedix, Inc. (OTC:PYMX): Polymedix is pioneering the development of a new class of antibiotics called "defensin-mimetics". The lead candidates is brilacidin (formerly PMX-30063), a unique antibiotic agent designed to mimic one of the body's first lines of defense against bacteria (host defense proteins), thus limiting the potential for drug resistance. Although still early-stage, brilacidin has shown rapid bactericidal activity against gram positive and gram negative pathogens, including MRSA, Enteroccus, E. coli, Klebsiella pneumonia. Here is the company's investor presentation (-click-).

Huge Market Opportunity

This is clearly a large market. U.S. sales for Zyvox, Cubicin, Tygacil, and generic vancomycin eclipsed $1.5 billion in 2011. In their investor material, Polymedix cites a recent analysis of antibiotic resistant infection data conducted at Chicago Cook County Hospital estimating that the societal annual cost to the U.S. health care system for antibiotic resistance is in excess of $35 billion.


(Click to enlarge)

Vancomycin prescriptions grew by 6% CAGR between 2005 and 2010. Yet, despite the presence of generic vancomycin, branded sales of Zyvox, Cubicin, and Tygacil grew by 20% CAGR. The market is shifting to more effective drugs, and price is becoming less of a factor.

In fact, we have seen market research conducted by management at Trius that suggests broad formulary acceptance with tier-2 listing for new antibiotics based on non-inferior efficacy and superior safety / tolerability profiles to existing drugs. This includes a range of indications, including skin, pneumonia, and bacteremia.

Above I've discussed only five stocks that could benefit from the GAIN Act. I'm sure there are several more. I think significant opportunity exists for antibiotic drug developers, and the passing of PDUFA-V and the GAIN Act could be the catalyst these names needs to outperform. If I've missed your favorite name in this space, please point me to it in the comments below.

Source: GAIN Act Should Benefit Antibiotic Makers