Dyax And ViroPharma: An Overview Of HAE Space

Sep.18.12 | About: Dyax Corp. (DYAX)

By Leyi Wang, Ning Yang, Ph.D., and Andrew McDonald, Ph.D.

Dyax Corp. (NASDAQ:DYAX) is a biopharmaceutical company that uses its proprietary phage display technology to discover novel therapeutic agents for diseases. There are two pillars of Dyax's business: its phage display technology Licensing and Funded Research Program (LFRP) and Kalbitor® (ecallantide), a drug that received FDA approval in December 2009 for the treatment of hereditary angioedema ((NYSE:HAE) in patients 16 years of age or older. Shares of Dyax are currently trading at $2.45, giving the company a market cap (MC) = $240MM (assumes a fully diluted share count of 98.7MM). At the end of 2Q12, Dyax had cash and equivalents of $38.6MM and $76.3MM of long term debt, giving the company an enterprise value (EV) of $280MM.

Dyax shares the HAE marketplace in the U.S. and/or European countries with 4 recently approved products (Table 1, Part I and II). Three are approved for acute HAE treatment - Kalbitor (only U.S.), Berinert (U.S. and EU), Firazyr (U.S. and EU), and Ruconest (only EU) and 1 is approved for HAE prophylaxis -- Cinryze (U.S. and EU). Cinryze is also approved for acute treatment in EU but not in the U.S.

ViroPharma (VPHM) sells Cinryze, the dominant HAE product as measured by sales, with ~60% market share. They benefit from both a first-mover advantage and the fact they are the only product approved for prophylaxis, which means substantially more Cinryze is sold versus an acute therapy (~$350k annually versus ~$70k annually).

Shares of VPHM trade at $27.33, giving ViroPharma a MC of ~$1.9B (assume a fully diluted share count of 69.4MM). At the end of 2Q12, VPHM had cash or equivalents of $472MM, $158MM long term debt, and an EV of $1.6B. In addition to Cinryze, ViroPharma sells Vancocin capsules, which are vancomycin hydrochloride formulation for the treatment of C. difficile- associated diarrhea (CDAD) and enterocolitis caused by Staphylococcus aureus. Vancocin faced generic competition in April 2012 and sales have dropped precipitously. The company also launched an epilepsy drug for people 3 months to 18 years of age called Buccolam® in Europe in 2012 and it will soon start to market Plenadren® for treatment of adrenal insufficiency in Europe at the end of 2012 or early 2013. EU sales of Buccolam, Plenadren, and Cinryze are expected to be the growth drivers of VPHM in the foreseeable future.

Dyax's Kalbitor franchise should continue to be a source of revenue and help the company reach its goal of achieving cash flow break-even in 2013. The main drivers of Dyax stock are expected to be related to disclosure of Phase III results for its partnered LFRP programs in 2013 (see Tables 2-4) and the advancement of DX-2930, a subcutaneously delivered antibody for HAE prophylaxis, into clinical development (IND expected in mid-2013). For ViroPharma, now that Vancocin is generic and Cinryze sales growth appears steady, the European market may be an important driver for the company. Management has high expectations for future sales of Cinryze, Buccolam and Plenadren in Europe.

HAE franchise from ViroPharma and Dyax

HAE is a rare, sometimes fatal, disease characterized by episodic, subcutaneous or submucosal swelling. If the swelling takes place near larynx, it can lead to serious respiratory obstruction (1). HAE occurs in about 1 in ~50,000 people. That translates into ~6000 patients in the United States. HAE is caused by a deficiency in a plasma inhibitor of protein C1 of the immune system due to genetic mutations.

Historically, androgens and protease inhibitors are used for prophylactic therapy for HAE. But they were problematic due to moderate degrees of efficacy and high levels of adverse effects such as amenorrhea, hemorrhagic cystitis, arterial hypertension, and hepatic necrosis (2). Now there are several novel treatment options on the market for prophylactic (preventive) and/or acute therapy of HAE attacks (Table 1.): Berinert®, a formulation of plasma-derived C1 inhibitor made by CSL Behring, is approved in the US and EU for the treatment of acute abdominal, facial and laryngeal HAE attacks. ViroPharma's Cinryze® is also C1 inhibitor derived from the plasma, but it has gone through an additional step of nano-filtration to eliminate potential virus contamination. In the U.S., it is approved for routine prophylaxis against attacks in adolescent and adult with HAE (but not for treating acute HAE attacks). Cinryze is approved for both routine prevention AND acute treatment of angioedema attacks in Europe. Firazyr®, an antagonist of bradykinin receptors by Shire (NASDAQ:SHPG), is approved for acute HAE treatment in adults 18 years or older in the US and EU. Dyax' Kalbitor® (ecallantide) is a small protein that inhibits plasma kallikrein, a natural target of the C1 inhibitor. It is approved for treating acute attacks of HAE in the US. Ruconest® (Rhucin® in non-European countries) is a C1 inhibitor produced the milk of transgenic rabbits by Pharming Group NV. It is approved in Europe for treatment of acute angioedema attacks in adults; Rhucin is not yet approved in the U.S. Berinert, Cinryze and Rhucin are administered through IV infusion while Kalbitor and Firazyr are administered through subcutaneous injection. Notably, Cinryze is the only drug approved for prophylactic therapy among these novel drugs.

Table 1. Novel HAE Drugs Currently on the Market, Part I

Agent (Brand)

Company

Approved

Indication

Administration method

Formulation

C1 Inhibitor, purified

(Berinert®)

CSL Behring

  1. Approved in EU and in US for treating acute abdominal, facial or laryngeal HAE attacks
  1. Intravenous injection; Approved for self-administration
  1. Each vial contains 500 units of purified, pasteurized and lyophilized concentrate of human C1 inhibitor (50-80mg protein) and: sodium chloride (70-100 mg), (glycine 85-115 mg) and sodium citrate (25-35 mg).
  2. Each package contains 10mL vial of sterile water for IV injection
  3. The product contains no preservative.(4)

C1Inhibitor, purified and nanofiltered (Cinryze®)

ViroPharma

  1. Approved in US for routine prevention against HAE (Orphan drug designation)
  2. Approved in EU for routine prevention and acute treatment of HAE
  1. Intravenous injection every 3-4 days
  1. 500 Units (U) per glass vial, Lyophilized white powder with sodium chloride (4 mg/mL), sucrose (20.54 mg/mL), trisodium citrate (2.58 mg/mL), L-Valine (1.99 mg/mL), L-Alanine (1.16 mg/mL), and L-Threonine (4.53 mg/mL)
  2. 5mL sterile water for each dose of IV injection(5)

Ecallantide, kallikrein inhibitor (Kalbitor®)

Dyax

  1. Approved in US for treating acute attacks of HAE (Orphan designation)
  1. Subcutaneous Injection in a supervised setting
  1. sterile, preservative-free isotonic solution with 10 mg/mL Kalbitor provided in a 2 mL glass vial. Each vial is filled with 1 mL.
  2. There is no dilution or excipient addition in drug product manufacture and no dilution prior to administration.
  3. 30mg (3 doses) per treatment (6)

Icatibant, antagonist of bradykinin receptors

(Firazyr®)

Shire

  1. Approved in EU and US for acute HAE attacks in adults 18 years or older
  1. Self-administered subcutaneous injection
  1. Each pre-filled syringe of 3 mL (3 doses) contains incatibant acetate equivalent to 30 mg icatibant.
  2. Excipients: Sodium chloride, Acetic acid, glacial (for pH adjustment), Sodium hydroxide (for pH adjustment), and water for injections (7)

Conestat alfa, recombinant C1 inhibitor produced in the milk of transgenic rabbits.

(Ruconest® in Europe, Rhucin® in non-European countries)

Pharming Group NV

  1. Approved in EU for treating acute attacks of HAE.
  2. Not approved in US
  1. Intravenous injection
  1. One vial contains 2100 units of Rhucin (corresponding to 2100 units per 14 ml after reconstitution)
  2. 1 Unit of Rhucin activity is defined as the equivalent of C1 inhibiting activity present in 1 ml of pooled normal plasma.
  3. Excipients: sucrose, sodium citrate, citric acid (8)
Click to enlarge

Table 1. Novel HAE Drugs Currently on the Market, Part II

Agent (Brand)

Key ongoing Clinical Trials

Recent WW Sales*

Efficacy comparison (3)

Time to improvement

Response at 4 h

C1 Inhibitor, purified

(Berinert®)

  1. Phase 3, subcutaneous versus intravenous administration

CSL Behring did not disclose figures for Berinert

0.5 h

86%

C1Inhibitor, purified and nanofiltered (Cinryze®)

  1. Phase 2 Treatment of HAE attacks in children under the age of 12
  2. Phase 2 study in kidney transplant patients with acute Antibody-Mediated Rejection
  3. Phase 4 to evaluate Escalating Doses of CINRYZE

2012 Q2 $77MM

2012 Q1 $68MM

2011 Q4 $66.7MM

2011 Q3 $65MM

2 h

60%

Ecallantide, kallikrein inhibitor (Kalbitor®)

  1. Phase 4, Long-term observational safety study for acute HAE attacks

2012 Q2 $9.2MM

2012 Q1 $8.0MM

2011 Q4 $7.0MM

EDEMA3 trial:

67 min

EDEMA4 trial:

N/A

54.5%

68.8%

Icatibant, antagonist of bradykinin receptors

(Firazyr®)

  1. Phase 3 study of Icantibant as treatment of pediatric acute HAE attacks
  2. Phase 3 study of Icantibant for acute HAE attacks

2012 Q1 $20MM

2011 FY $33MM

2010 FY $11MM

FAST-1/FAST-2 trial:

2.5h/2.0 h

FAST-3 trial:

1.5 h

66.7%

80.6%

Conestat alfa, recombinant C1 inhibitor produced in the milk of transgenic rabbits.

(Ruconest® in Europe, Rhucin® in non-European countries)

  1. Phase 2 safety study of Ruconest in 2-13 year old HAE patients

2012 Q1 $0.5MM

N/A

N/A

Click to enlarge

Cinryze was approved by the FDA in 2008 and by the European Commission in 2011. On July 27, 2012, ViroPharma announced favorable outcomes of an open-label, single-arm multicenter study to evaluate the efficacy and safety profile of long-term use of Cinryze in prevention of HAE attacks. According to the data published in The American Journal of Medicine (9), 146 patients (36.5±16.5 years; range, 3-82 years) with histories of at least 1 angioedema attacks per month received 1000 units of Cinryze every 3 to 7 days for up to 2.6 years. A 93.7% reduction in attacks was reported with a median frequency of HAE attacks of 0.19 per month for patients taking Cinryze as compared to a baseline median frequency of 3 (P<0.001). The data also showed favorable safety profile, with 86% of adverse events reported as mild to moderate. The most common AEs reported for Cinryze were headache, nausea, rash and vomiting(10). No evidence of transmission of hepatitis B, C or HIV virus was found during the study. These data may encourage more patients and physicians to adopt Cinryze as a prophylactic agent for HAE.

In an effort to expand its HAE franchise, ViroPharma undertook Phase 2 trials of subcutaneous Cinryze, which is currently intravenous, in combination with recombinant human hyaluronidase enzyme (rHuPH20) technology licensed from Halozyme Therapeutics (NASDAQ:HALO). On August 1, however, ViroPharma announced that the FDA was evaluating potential safety concerns with rHuPH20. The FDA is evaluating the potential risk of long-term effects of anti-rHuPH20 non-neutralizing antibodies that were detected in a separate development program not involving Cinryze. In the interim, the FDA has placed the studies of the combination of Cinryze and rHuPH20 on temporary clinical hold. It does not mean ViroPharma will abandon the rHuPH20 technology, according to its CEO, Vincent Milano, during the Q2 results conference call. ViroPharma is waiting for more information from the FDA and Halozyme to access the situation.

Lastly, ViroPharma also intends to explore additional therapeutic uses for Cinryze to include other C1 protein related diseases, such as Antibody-Mediated Rejection (AMR) and Delayed Graft Function (DFG).

Dyax' Kalbitor® was discovered through Dyax' own phage display library. The FDA approved Kalbitor for treating acute attacks of HAE in 2009 and Dyax began selling Kalbitor in February 2010 in the United States. In June 2010, Dyax entered into a strategic collaboration agreement with Sigma-Tau to develop and commercialize Kalbitor throughout Europe, North Africa, Russia, Australia, and New Zealand. The Middle East is partnered with Taiba. In 2010, Dyax also entered into an agreement with CMIC Co., Ltd to commercialize Kalbitor for the treatment of HAE in Japan.

Importantly, Dyax is developing DX-2930, a fully human monoclonal antibody that is an inhibitor of kallikrein that was discovered using their phage display platform and is currently in pre-clinical development. DX-2930 is expected to be bioavailable via subcutaneous injection and have a long half-life that should allow for infrequent dosing. These characteristics make DX-2930 a good potential prophylactic agent for HAE, like ViroPharma's Cinryze. Dyax intends to file an IND for DX-2930 by mid-2013,

Competition Landscape

Figure 1. Sales record of Cinryze®, Kalbitor® and Firazyr®

Click to enlarge

*Calculated from quarterly financial reports. Graph is created by LifeSci Advisors.

The HAE marketplace has become somewhat crowded. There are only ~6000 patients in the U.S. and now four different new products available to serve this population. Market research indicates that doctors are currently treating around a third of the estimated 6,000 known U.S. HAE patients. Sales are depicted in Figure 1. Most recently, the FDA approved Shire's Firazyr® (antagonist of bradykinin receptors) in August 2011 for acute HAE treatment. This introduction added further competition to the marketplace.

All of the new HAE therapies come with a hefty price tag: Cinryze requires IV infusion every 3-4 days, with each dose costing ~$5,000; each treatment of Kalbitor costs $8000-9000; each treatment of Firazyr can cost up to $20,400 with ~$6800/dose and up to three doses per treatment; and each treatment of Berinert costs ~$6800 per treatment (11).

So far, Cinryze has been the dominant HAE drug in the market in terms of sales number (Figure 1). As the only prophylaxis drug without the adverse effects associated with traditional preventative therapies (androgens and protease inhibitors), Cinryze has the advantage that patients would prefer a preventative medicine so they can reduce the number of HAE attacks. Since Cinryze require regular infusion, it has dramatically greater revenue per patient than acute treatment options. According to information disclosed at ViroPharma's 2012 Q2 conference call, on average, each patient uses 1.8 doses of Cinryze per week (an annual price tag of $300,000-400,000 per patient). On the other hand, acute treatments might be used by a patient once a month, depending on the frequency of the attack. That is ~$100,000 per patient for Firazyr or Kalbitor..

Cinryze sales reached $68MM and $77MM in Q1 and Q2 of 2012, respectively. The $145MM of the first half 2012 sales is a 21% increase from sales in the first half of 2011, which were $119.5MM. The increase in Cinryze market penetration has been pretty steady. It reached 820 patients in the U.S. at the end of Q2 2012, an increase of 60 patients over Q1. Given that there are about 6000 total HAE patients in the US (a significant proportion are still on traditional therapies), we expect this steady increase of Cinryze sale to continue, especially given the positive results of the recently announced long-term study. On August 7, ViroPharma announced the FDA approved the industrial-scale manufacturing of Cinryze. Notably, insurance companies (and national healthcare systems in Europe) have not objected to Cinryze's hefty price tag so far because of the rare occurrence of the disease.

Three drugs - Kalbitor, Firazyr and Berinert - are competing for the acute HAE market. Since there is no head to head comparison study of these drugs, it is not easy to objectively determine their relative efficacy and safety. They generally seem to have similar level of efficacy (majority of the patients respond to the treatment to acute attacks between 0.5-4 hours, Table 1). Firazyr comes with a pre-filled syringe (subcutaneous injection), could be stored at room temperature and be self-administered. This convenience is a significant advantage over Berinert (which requires IV infusion) and Kalbitor (which is administered through supervised subcutaneous injection). Kalbitor, on the other hand, comes with a home infusion service, which means a healthcare professional will aid in infusing Kalbitor. This may give the patient additional comfort and give their physician additional information about the patient's status. Since its approval by the FDA in August 2011, Firazyr seems to be gaining sales momentum (Figure 1).

In Q2 2012, Kalbitor reached $9.2 MM net sales for Dyax, an increase of 14% from Q1 ($8MM). Dyax management expects 2012 total revenue of $50-54MM, with Kalbitor net sales of $36-40MM and the balance of the revenue coming from its LFRP licensing program. There are three new drugs to treat acute HAE (Kalbitor, Firazyr and Berinert). We assume that Kalbitor will eventually capture 1/3 of the 6,000 patient US market, or 2000 patients, Dyax stated that in 2Q12, 518 of them were treated with Kalbitor, of the ~800 who are set up to take Kalbitor. This is a 12% increase over the 1Q12 reported number of 464 patients. Kalbitor should continue increasing its market penetration. That assumption, however, may not hold if the popularity of Firazyr continues. Kalbitor sales are likely to provide a steady revenue source enabling Dyax to reach cash flow break-even in 2013. Upside to Dyax may depend on the success of its LFRP portfolio and its potential entry into the HAE prophylaxis market with DX-2930.

Licensing and Funded Research Program (LFRP) from Dyax

Dyax licenses its phage display libraries and phage display technology to other companies for fees, milestone payments, and royalty payments. The LFRP program has generated more than $165MM for Dyax, including ~$15MM in 2011 (12). It has 75 licenses in place with pharmaceutical partners. Additional upside for Dyax may occur as candidates under LFRP portfolio yield positive clinical trial results or receive market approval. Currently, 18 such products are in clinical development and Dyax receives royalties on them. Importantly, three oncology drug candidates are among the 18 and are in multiple Phase 3 trials. These programs are summarized below.

Ramucirumab (RAM) is a recombinant human monoclonal antibody developed by ImClone/Eli Lilly (NYSE:LLY) that binds to vascular endothelial growth factor receptor (VEGFR)-2 and blocks angiogenesis, thus inhibits tumor progression and metastases after the removal of the primary tumor (13). Phase 2 trials involving RAM have shown promising preliminary efficacy results and multiple Phase 3 trials are ongoing (Table 2). Three Phase 3 trials are expected to have preliminary results by 2013 or early 2014. Two of them are for gastric cancer ($800MM global market WW in 2010 and expect to reach $1.5bn in 2020 (14)) and one is for liver cancer (global market expected to exceed $2bn according to a report published by Global Industry Analysts, Inc. )

Table 2. Summary of Phase II and III clinical trials of ramucirumab (RAM)

Phase

Indication

(Reference)

Number of patients (pts)

Preliminary results on efficacy

Preliminary results on safety

2 (15)

Open label;

RAM combined with mFOLFOX-6 as first-line therapy for metastatic colorectal cancer(8)

48

  1. Median progression-free survival (NYSE:PFS) was 11.5month (9-13 m 95% CI).
  2. The disease control rate was 94% (83-99% 95% CI; 5 pts had complete response, 27 had partial response and 13 had stable disease).
  3. One-year overall survival (OS) was 85% (72-93% 95% CI).
  1. The frequently observed AEs included hypertension 46%; diarrhea 31%; and nausea and infusion-related reactions, each 19%.
  2. 2 pts died on study due to acute myocardial infarction or cardiopulmonary arrest.

2 (16)

Randomized;

RAM in combination with mitoxantrone and prednisone with metastatic castrate-resistant prostate cancer (9)

132

  1. Prostate-specific antigen response was 22.0% (11.5-36% 95% CI)
  2. Median PFS and OS were 6.7 m (4.5-8.3 m 95% CI) and 13.0 m (9.5-16.0 m 95% CI)
  1. The most frequent AEs for RAM: leukopenia 8%, neutropenia 8% and hypertension 8%.

2 (17)

Open label;

RAM in combination with paclitaxel and carboplatin as first-line therapy in patients (pts) with stage IIIb/IV non-small cell lung cancer (10)

31

  1. 15 pts are evaluable for best response. 10 of 15 pts had an objective response (1 complete response, 9 partial responses: 67%).
  2. 5 of 15 pts had SD, 4 with tumor shrinkage.
  3. Median PFS is 5.7 m (95% CI: 5.62-5.75)
  1. 1 pt discontinued due to an adverse event (NYSEMKT:AE) (pneumothorax)
  2. 2 pts reported serious AEs possibly related to ramucirumab: G4 febrile neutropenia and G2 pneumothorax.

Phase

Indication

(Reference)

Status/Estimated enrollment

Estimated Primary Completion Date

Estimated Study Completion Date

3

Gastric cancer (clinicaltrials.gov identifier: NCT01170663)

Recruiting

663

October 2013

December 2013

3

Metastatic gastric or gastroesophageal junction adenocarcinoma

NCT00917384

Active, not recruiting

355

July 2012

January 2013

3

Hepatocellular carcinoma

NCT01140347

Recruiting

544

August 2013

August 2013

3

Recurrent colorectal cancer

NCT01183780

Recruiting

1050

October 2013

April 2016

3

Metastatic breast cancer

NCT00703326

Active, not recruiting

1144

December 2012

December 2015

Click to enlarge

*Phase 3 Trials information are obtained from clinicaltrials.gov

Necitumumab (NEC) is a fully human monoclonal antibody targeting epidermal growth factor receptor developed by ImClone/Eli Lilly. As a fully human antibody, NEC is expected to have a lower risk of hypersensitivity reaction than chimeric monoclonal antibody such as Cetuximab® (mouse/human). Key Phase 2 and 3 trials involving NEC are summarized in Table 3. Two of the Phase 3 trials are for lung cancer, which is responsible for most of the cancer related deaths in the world.

Table 3. Summary of Phase II and III clinical trials of necitumumab (NEC)

Phase

Indication

(Reference)

Number of patients (pts)

Preliminary results on efficacy

Preliminary results on safety

2 (18)

NEC as the first-line treatment of advanced or metastatic colorectal carcinoma (11)

44

  1. The median PFS has not been reached with a median follow-up time of 11.1 months.
  2. Out of 40 patients for whom response data are available, 27 (68%) have experienced an objective response. All of the remaining 13 patients experienced disease stabilization; thus the disease control rate is 100%.
  1. AEs were reported for 33 of 44 patients (75%).
  2. 23 patients (52%) experienced rash
  3. Other AEs were paronychia (22.7%), asthenia (15.9%), conjunctivitis (13.6%), dry skin (13.6%), and skin fissures (13.6%)
  4. One patient experienced a Grade 2 hypersensitivity reaction

Phase

Indication

(Reference)

Status/Estimated enrollment

Estimated Primary Completion Date

Estimated Study Completion Date

3

Stage IV squamous non-small cell lung cancer

NCT00981058

Active, not recruiting

1097

September 2013

March 2014

3

Stage IV non-squamous non-small cell lung cancer

NCT00982111

Active, not recruiting

634

December 2012

June 2013

Click to enlarge

*Phase 3 Trials information are obtained from clinicaltrials.gov

Ganitumab is a fully human monoclonal antibody against type-1 insulin-like growth factor receptor (IGF1R) developed by Amgen (NASDAQ:AMGN). On August 8, Amgen announced a decision to stop the ganitumab Phase 3 trial for treating metastatic pancreatic adenocarcinoma. The decision was based on the review of a pre-planned interim analysis that the addition of ganitumab to gemcitabine is unlikely to demonstrate a statistically significant improvement in the primary endpoint of overall survival compared to gemcitabine alone. There were no safety concerns raised in the study.

AMG 386 is a recombinant peptide-Fc fusion protein developed by Amgen that neutralizes the receptor-ligand interaction between Tie2 and angiopoietin-1/2, which is a target for inhibiting angiogenesis in renal cell carcinoma (12). Some key Phase 2 and 3 trials of AMG 386 are summarized in Table 4. The two Phase 3 trials are for ovarian cancer. According to the report "Ovarian Cancer Therapeutics - Global Drug Forecasts and Treatment Analysis 2020 Summary GlobalData", the 2011 ovarian cancer market is worth $737MM in key countries. With patent expiries of major branded products such as gemcitabine (Gemzar) and paclitaxel (Taxol), introductions of new therapies like AMG 386 are expected to drive market growth from 2012-2020.

Table 4. Summary of Phase II and III clinical trials of AMG 386

Phase

Indication

(Reference)

Number of patients (pts)

Key results on efficacy

key results on safety

2 (19)

AMG 386 in combination with sorafenib (S) to treat metastatic clear kidney cell carcinoma (12)

  1. Arm A AMG386 (10 mg/kg)+S: n=50
  2. Arm B AMG (3 mg/kg)+S: n=51
  3. Arm C Placebo+S: n=51
  1. 11m after primary analysis, 38% of pts in Arm A, 45% in Arm B and 55% in arm C had died.
  2. ORR (95% CI) in arms A, B and C was 38% (25-53%), 37%(24-52%) and 25%(14-40%).
  1. AEs that were more common in the combined AMG386 arms than in the placebo arm were mucosal inflammation (23% v. 8%), nausea (32% v 20%), insomnia (18% v 2%), upper abdominal pain (15% v 4%) and orophayngeal pain (11% v 0%).

2 (20)

AMG 386 combination with weekly paclitaxel

Advanced ovarian cancer

160

Among patients with area under the concentration-versus-time curve (AUC) ≥ 9.6 mg h/mL, PFS was 8.1 months versus 5.7 months for AUC< 9.6 mg h/mL and 4.6 months for placebo.

No relationship between AUCss and grade ≥ 3 AEs (e.g., peripheral neuropathy, arthralgia) was observed; these toxicities are commonly associated with paclitaxel administration

Phase

Indication

(Reference)

Status/Estimated enrollment

Estimated Primary Completion Date

Estimated Study Completion Date

3

Ovarian Cancer, Primary Peritoneal Cancer and Fallopian Tube Cancer

NCT01204749

recruiting

900

July 2013

April 2017

3

Ovarian Cancer

NCT01493505

recruiting

2000

May 2016

July 2020

Click to enlarge

*Phase 3 Trials information are obtained from clinicaltrials.gov

ViroPharma's vancomycin franchise

ViroPharma's Antibiotic Vancocin (vancomycin hydrochloride) was developed by Eli Lilly and was approved by the FDA in 1958 as first-line treatment for resistant Staphylococcus aureus. Eli Lilly licensed the drug to ViroPharma in the U.S. in 2004. In 2006, FDA's Office of Generic Drugs (OGD) announced it would lower its bioequivalence testing standards of new drug application for generic Vancocin, effectively paving its way for other generic Vancocin products to enter the market. On March 17, 2006 ViroPharma filed a citizen petition related to this decision from OGD. The FDA denied the petition on April 9, 2012. On April 10, 2012, Akorn Inc. (NASDAQ:AKRX) and Watson Pharmaceuticals Inc. (WPI) launched their generic versions of the antibiotic Vancocin. As a result, ViroPharma's stock stumbled more than 20%. ViroPharma then filed a suit, on April 13, 2012, against the FDA and the Department of Health and Human Services and seeking a temporary restraining order and/or a preliminary injunction. On April 23, 2012, the District Court denied its motion for restraining order/preliminary injunction.

Vancocin represented half of ViroPharma's revenues before it went generic. In Q1 2012, Vancocin net sales were $66MM of total ViroPharma's quarterly sales of $136MM (Cinryze accounted for the $68MM). With the entrance of generics, Vancocin sales are expected to take a significant hit. This is coming at a time when Cinryze sales are entering the mature phase and the company is not expecting other material sources of revenue for the next two years. We do not expect ViroPharma to replace the loss of Vancocin revenue due in the foreseeable future. ViroPharma's 2Q12 financial report reflected this situation: even though Cinryze sales had a strong quarter, increasing 23% to $77MM as compared to $62.5MM in 2Q11, Vancocin sales plummeted to $16MM as compared to $65.2MM in 2Q11.

Furthermore, ViroPharma said it has received a notification that the Federal Trade Commission is conducting an investigation into whether the company has engaged in unfair methods of competition with respect to its antibiotic product Vancocin. A class action lawsuit against ViroPharma was filed on May 17, alleging the company violated federal securities laws and misled investors by omitting material facts concerning the market exclusivity before FDA's announcement in April.

Intellectual Property

Dyax holds several patents for Kalbitor, the latest is set to expire after 2024. Dyax's patent for basic phage display technology (United States Patent No. 5,403,484) expired in April 2012. Patent rights claiming its currently licensed antibody phage display libraries and method to generate such libraries are expected to expire after 2021. Dyax's phage display patent in Europe was revoked in 2002, so it cannot prevent others from using aspects of its phage display technology in Europe (12).

ViroPharma does not have any patent protection for Vancocin. It does not have patent protection for the composition of Cinryze and is solely relying on the exclusivity provided by Orphan Drug Act which gives the company seven year marketing exclusivity in the United States for the licensed indication (21).

Investment Prospects

If the steady increase in Kalbitor sales can be maintained, Dyax is expected to reach cash flow break-even during 2013. With estimated annual cash burn rate at $38MM ($11MM from Q1 and $8MM from Q2 of 2012, $35MM for 2011 FY) and ~$38.6MM cash at hand at the end of Q2, The company may need to raise more cash. In January 2012, Dyax secured a $20MM loan with an affiliate of Cowen Healthcare Royalty Partners and refinanced its outstanding debt of approximately $56.7MM. Together, the $76MM loan will be secured only by the LFRP program and will bear an interest rate of 12%. It will mature in August 2018 and can be repaid without penalty beginning in August 2015, according to the company's statement on the loan program.

We see future upside to Dyax should their partners report positive clinical trials outcomes of its LFRP portfolio products. The market for human monoclonal antibody as angiogenesis inhibitor drugs for cancer treatment is particularly enticing, given the huge and rapid success of Avastin from Genentech/Roche. In early to mid 2013, initial results from some Phase 3 trials of both ramucirumab and necitumumab (both are human monoclonal antibodies) are expected to come out. Even though Ganitumab from Amgen suffered a setback, AMG 386 still has multiple Phase 3 trials going for ovarian cancer. Dyax is expecting royalty payments of commercialization beginning 2014. Positive outcomes from of any of these trials could materially lift Dyax's stock price. With patent protection through 2024 and royalty agreements extending 10 years beyond product's first commercial sale, the LFRP franchise will be the most important long-term growth driver for Dyax. The fact that Dyax was able to refinance its existing loans at a lower rate solely secured by the LFRP franchise demonstrates the success thus far of this program and its future potential. Furthermore, we anticipate value creation as Dyax advances DX-2930 into clinical studies (IND expected mid-2013). We expect Dyax' stock price to reach $3.50 -5.00 range within 12-24 months.

We feel that the impact of generic Vancocin entering the market has already been felt by the sharp drop in stock price (dropped from $31 on April 3 to $20.9 on April 16). Now investors are turning their focuses on the future of the company, which looks solid with $470MM cash at hand, a positive cash flow and a steady stream of income from Cinryze. In fact, the ViroPharma's stock price has climbed steadily from ~$20 in the beginning of Aug to ~$26 on Aug 17, a 30% increase, largely due to the upbeat Q2 financial results and strong Cinryze sale. ViroPharma's $158MM long term debt obligation are from senior convertible notes the company issued on March 26, 2007. The notes bear an interest rate of 2% per year, payable semi-annually. Those senior convertible notes are convertible to ViroPharma's common stock at a price of $18.87 per share. On September 9, 2011, ViroPharma also entered into a $200MM, three-year senior revolving credit facility with several commercial banks, which is available for working capital and general corporate purposes. So far, ViroPharma has not drawn any amounts under the agreement.

Assume negligible contributions from sales of Vancocin and other products, we forecast $350-375MM net sales in 2013 from Cinryze. This is up from 320-335MM projected for 2012 FY by ViroPharma's management. Cost of goods sold in 2013 is projected to be $90MM ($61MM and $81MM for 2010 and 2011, respectively). Projected R&D cost for 2013 is $80MM ($39.6MM and $66.4MM for 2010 and 2011, respectively) and SGA is $170MM ($95.7MM and $127.8MM for 2010 and 2011), respectively. This translates to ~35MM operating profit (9% operating margin). The net profit after $14MM tax at ~40% tax rate is $21MM (5.6% profit margin). EPS is projected to be $0.30 ($21MM/69MM shares). The diluted EPS in 2011 and 2010 was $1.68 and $1.47, respectively, but this was before Vancocin went generic.

We feel that as Cinryze sales should continue to increase at a steady pace and future product sales in Europe might replace some of the loss of Vancocin. The stock price may be range bound in the near future. In the long run, however, ViroPharma needs other products to improve its profit margin. There are big expectations from the ViroPharma's management on its products in the European market that may help fulfill this role. Cinryze in EU was launched earlier this year and expectations are that it could peak at ~$100MM in EU. The company currently has 25 reps in US now and expects to have 20-25 in EU. Buccolam for pediatric epilepsy was acquired by ViroPharma in May 2010 and it was launched in EU in early 2012. This product is expected to peak at ~$50MM peak in EU. Plenadren for adrenal insufficiency is now approved in EU and ViroPharma has 10 years of orphan drug exclusivity. The management thinks this will be a big driver, equating to a $150-$350MM opportunity in EU. Sum total of these three products can add up to $300-$500MM annually in EU. We expect these European products to be the focus of investors over the next 12+ months. There is also uncertainty with how the FTC investigation and the class action lawsuit can be resolved.

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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.