How Newly Enacted Legislation Could Rally Small-Cap Biotechs Further

by: StockMatusow

The iShares Nasdaq Biotechnology Index Fund is up over 28% year to date, and the sector seems poised for further gains with the recent passage of 2 bills which could significantly speed up certain drug approvals -- helping many patients get the drugs they so desperately need -- faster.

A new bill introduced by U.S. Sen. Kay Hagan (D) called the "Transforming the Regulatory Environment to Accelerate Access to Treatments (TREAT) Act," was signed into law July 9 as part of the Food and Drug Administration Safety and Innovation Act. It takes steps to expedite the review process for drugs, treatments, or devices to make more of them available.

According to Biotechnology Industry Organization President Jim Greenwood, an additional bill should act as a supplement to the TREAT act:

Like the Transforming TREAT Act, S. 2113, which was introduced by Senator Kay Hagan (D-NC), the "Faster Access to Specialized Treatments (FAST) Act" will update the Accelerated Approval process at the FDA so that it works in a transparent, predictable way for all therapies intended to treat debilitating conditions for which there is an unmet medical need.

These changes should better enable biotechnology companies to bring new, safe, and effective treatments to patients in need at the earliest possible point in time.

But will the legislation actually have a real world impact on the approval process? I believe it will. The FDA is more than just a scientific organization. It operates on a balance beam of safety, efficacy, and yes, politics. A clear signal has been sent to the FDA on this front. A Biotech company will have a less encumbered path to approval if they have a drug that:

  • Is intended to treat a serious or life-threatening condition.
  • Addresses an unmet medical need.
  • Provides a meaningful benefit to patients over current treatment options.

It seems clear that the combination of FAST and TREAT will have an impact on companies that are in clinical trials for Parkinson's, Diabetes, Alzheimer's, Cancer, Hepatitis C (HCV), and many other dangerous diseases and conditions -- even companies with treatments for deadly and dangerous drug addictions such as Cocaine and Heroin. Let's take a look at some smaller cap companies that might benefit from FAST and TREAT.

Galena Biopharma Inc. (GALE) pps: $1.61. Market cap: 104.50M.

Galena develops cancer therapeutics using peptide-based immunotherapy products, including its lead product candidate NeuVax (nelipepimut-S or E75), which is in Phase 3 PRESENT trial for the treatment of various cancers.

NeuVax consists of the E75 peptide derived from HER2 combined with the immune adjuvant granulocyte macrophage colony stimulating factor (GM-CSF). Treatment with NeuVax stimulates cytotoxic (CD8+) T cells in a highly specific manner to target cells expressing any level of HER2. NeuVax is given as an intradermal injection once per month for six months, followed by a booster injection once every six months. Based on a successful Phase II trial, which achieved its primary endpoint of disease free survival (DFS), the FDA granted NeuVax a Special Protocol Assessment (SPA) for a Phase III clinical trial in adjuvant therapy of women with low-to-intermediate (also known as HER2-Negative, not eligible for Herceptin) status.

Getting a drug out to market to treat breast cancer would certainly benefit many women currently. The FAST and TREAT legislation hopefully will expiate this process for Galena.

Catalyst Pharmaceutical Partners (CPRX) pps: $1.72. Market cap: $46.18M.

Catalyst is currently developing CPP-115, a novel GABA aminotransferase inhibitor and vigabatrin analogue that is more potent than vigabatrin and has reduced side effects from those associated with vigabatrin in preclinical studies. Catalyst is planning to develop CPP-115 for several indications including drug addiction, epilepsy and other selected CNS diseases. Catalyst recently initiated a Phase I(a) safety study in 48 healthy subjects. CPP-115 has also been granted orphan-drug designation by the FDA for the treatment of infantile spasms.

Catalyst also is expecting Phase II trial results to be released in September for CPP-109, which is designed to treat cocaine addiction.

The FDA has designated cocaine addiction a serious life-threatening condition for which there is no cur­rent drug treatment, so both these drugs should benefit from the TREAT act.

Achillion Pharmaceuticals (ACHN) pps: $6.61. Market cap: $479.45M.

Achillion discovers, develops, and commercializes anti-infective drug therapies in the United States and internationally. It focuses on the development of antivirals for the treatment of chronic hepatitis C infection (HCV) and the development of antibacterials for the treatment of resistant bacterial infections.

The company was granted fast track designation by the FDA in January for its experimental HCV drug ACH-1625, which was in a mid-stage trial. ACH-1625 is a NS3 protease inhibitor that is currently in Phase II clinical trials.

In May of this year Achillion was also granted Orphan status designation for another HCV drug, ACH-3102. The drug is an inhibitor of NS5A with pan-genotypic activity and picomolar potency, and a second generation compound -- ACH-3102 is currently in phase I clinical.

Since Achillion is primarily focused on the HCV segment, the passage of the TREAT act should greatly benefit the company to potentially allow it to get these drugs developed faster, and out to market. HCV is a very dangerous condition, affecting an estimated 130-170 million people worldwide infected with hepatitis C.

HCV treatments could be worth around $15 billion by 2019, so the speculation is high for companies such as Achillion.-- The FAST and TREAT act should also help Achillion to eventually get thse drugs to market -- faster.

Celldex Therapeutics (CLDX) pps: $4.78. Market cap : $283.42M.

Celldex focuses on the development and commercialization of novel therapeutics for human health care primarily in the United States. Its lead drug candidate, Rindopepimut (CDX-110), is an immunotherapeutic vaccine in a Phase III clinical trial to target the tumor-specific molecule, epidermal growth factor receptor variant III. It also is in a Phase II clinical trial for the indication of recurrent glioblastoma.

Glioblastomas are tumors that arise from astrocytes-the star-shaped cells that make up the glue-like or supportive tissue of the brain. These tumors are usually highly malignant (cancerous) because the cells reproduce quickly and they are supported by a large network of blood vessels. Glioblastomas are generally found in the cerebral hemispheres of the brain, but can be found anywhere in the brain or spinal cord.

Glioblastomas usually contain a mix of cell types. It is not unusual for these tumors to contain cystic mineral, calcium deposits, blood vessels, or a mixed grade of cells.

Rindopepimut is an immunotherapy that targets the tumor specific oncogene called EGFRvIII, a functional and permanently activated mutation of the epidermal growth factor receptor (EGFR), a protein that has been well validated as a target for cancer therapy. Unlike EGFR, EGFRvIII has not been detected at a significant level in normal tissues, but has been identified in multiple cancer types. It is believed that targeting of this tumor-specific molecule is not likely to impact healthy tissues.

In October, rindopepimut was granted orphan drug designation from the European Medicines Agency. The FDA already gave Celldex orphan drug designation and fast track designation for the vaccine candidate.

Malignant brain tumors are extremely deadly -- any new treatment that can treat this condition effectively would certainly be needed fast -- The FAST and TREAT act should certainly help Celldex get this treatment out faster than older guidelines would allow.

Idenix Pharmaceuticals (IDIX) pps: $6.09. Market cap: $795.18M.

Idenix engages in the discovery and development of drugs for the treatment of human viral diseases in the United States and Europe. Its primary research and development focus is on the treatment of patients with hepatitis C virus (HCV).

In July of this year, the FDA granted fast track designation for the company's HCV drug candidate IDX-719.

IDX-719, currently in phase I clinical, is an NS5A inhibitor that demonstrated pan-genotypic activity in a recent proof-of-concept clinical trial in genotypes 1-4, treatment-naive HCV patients.

From the Idenix website we read the following:

In January 2012, Idenix initiated a phase I clinical study of IDX719. The first part of the study evaluated the safety, pharmacokinetics and food effect of IDX719 in 40 healthy volunteers at single doses ranging from 5 to 100 mg. Eight healthy volunteers received 100 mg of IDX719 daily for seven days. All doses were well tolerated and pharmacokinetic data supports once-daily dosing in future studies.

In the second part of the phase I study, single doses of IDX719 demonstrated potent pan-genotypic antiviral activity in 18 genotype 1, 2 or 3 HCV-infected patients with greater than 3 log10 viral load reductions achieved in the 100 mg dose group. The Company also conducted a three-day proof-of-concept study, which showed that IDX719 was well tolerated in 64 treatment-naïve genotype 1, 2, 3 or 4 HCV-infected patients and achieved potent pan-genotypic activity across the genotypes. Idenix plans to initiate a phase 2 combination study of IDX719 and IDX184 by the end of 2012.

On August 16th of this year, the company had a perceived set back with another HCV drug candidate IDX-184, causing the stock to drop 30%.

The trial of IDX-184 was placed on hold because of heart failure concerns raised in a competitor's study of a similar medicine. While the 2 drugs are similar, they are not identical as Geoffrey Porges, an analyst with Sanford C. Bernstein & Co remarked:

This event is likely to raise concerns about the risks of nuke programs across the spectrum, but we believe it is important to understand the difference among the assets.

Idenix should not be over looked by investors because of this apparent setback for the company which might actually not be any real setback at all. The FAST and TREAT act should also greatly benefit Idenix for obvious reasons.

Nektar Therapeutics (NKTR) pps: $8.42. Market cap: $967.53M.

Nextar engages in developing a pipeline of drug candidates that utilize its PEGylation and polymer conjugate technology platforms. Its product pipeline consists of drug candidates across various therapeutic areas.

On June 7th of this year, the FDA designated NKTR-181 Fast Track status for the treatment of moderate to severe chronic pain. NKTR-181 is a novel mu-opioid agonist molecule, which is designed to have a slow rate of entry into the brain to reduce the attractiveness of the molecule as a target of abuse and to reduce its CNS-mediated side effects. NKTR-181 was created using Nektar's proprietary polymer conjugate technology and its potential differentiating properties are inherent to the design of the new molecule. NKTR-181 is an NCE and as a new molecular structure does not rely on a formulation approach to prevent its conversion into an abusable form of an opioid.

NKTR-181, currently in phase II clinical, is designed to provide potent pain relief while reducing the serious side effects of respiratory depression, sedation and abuse potential associated with conventional opioids.

Severe pain associated with life threatening diseases can be extremely debilitating. Opiods, which are classically prescribed for this type of pain can be addictive -- leading to the additional complication of possible drug addiction. NKTR-181 should qualify under the TREAT act as many people suffering from this type of severe pain certainly need relief -- the kind of relief that will not lead to addiction.

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.

Additional disclosure: Family member is long CPRX. Disclaimer: This article is intended for informational and entertainment use only, and should not be construed as professional investment advice. They are my opinions only. Trading stocks is risky -- always be sure to know and understand your risk tolerance. You can incur substantial financial losses in any trade or investment. Always do your own due diligence before buying and selling any stock, and/or consult with a licensed financial adviser.