Introduction - Broadly speaking, fibrosis is the formation of excess connective tissue in an organ or tissue in response to injury or long-tem inflammation. With all the additional connective tissue, the organs inevitably fail. In short, fibrosis is wound repair gone awry (scarring). Fibrosis occurs in many organs, and goes by a variety of names depending on the location. In the lungs, it is called pulmonary fibrosis. In the liver, it is known as cirrhosis. In fact, in chronic kidney disease (CKD), where the kidneys eventually stop working, a major cause of the ultimate organ failure is fibrosis, and leads to transplantation. Focusing for now on end-stage renal disease (ESRD) and CKD, the market potential for drugs in this space is quite large. Currently, there are approximately 26 million adults with CKD and 800,000 individuals with Stage 4 CKD and the number of these patients is expected to double by 2020. Patients with Stage 4 CKD have a ~10% death rate and the first-year death rate for ESRD patients is ~25%. Currently, more than 6% of transplant patients suffer an acute graft rejection, which usually leads to organ failure. Clearly, there is still a substantial unmet need for new and effective therapies in this space.
The current CKD market is estimated to be just under $15 billion, growing at a 6% annual growth rate and potentially reaching $20 billion by 2016. Currently, there are no available therapies capable of increasing kidney function by repairing or reversing kidney damage. Moreover, there are no FDA approved therapies for ESRD patients. There is a huge potential for first-mover advantage. I believe that novel therapies in this area are financially likely to succeed and will contribute to the growth of the space as a whole over the next several years.
Despite our knowledge and the major unmet need in the area, only recently have companies pursuing fibrosis-related conditions have received investor's attention, including ITMN and VRTX, which sport $520 MM, and $11.50 BB market caps, respectively. However, there are some newer players in this promising space, including La Jolla Pharmaceuticals, and Galectin, which are worth a closer look.
La Jolla Pharmaceuticals (NASDAQ:LJPC) - Although the role of TGF-Beta has been well-established in scientific circles, researchers have been searching for new biomarkers and new methods of treatment for fibrosis and fibrotic conditions. This is how I discovered La Jolla Pharmaceuticals (LJFPC). Earlier this year, LJPC recently acquired rights to a novel compound targeting Galectin-3. Galectin-3 is an important biomarker in organ fibrosis, which can lead to organ failure and cancer (link). In a German study assessing galectin-3 plasma levels in over a thousand kidney disease patients, high galectin-3 levels led to an increased risk for adverse outcomes such as stroke, cardiovascular events and infections (link). This study used BG Medicine's (NASDAQ:BGMD) BGM Galectin-3 diagnostic test, which was recently approved by the FDA for patients with heart failure and measures galectin-3 levels in blood serum. In my opinion, this FDA approval helps validate galectin-3 as a clinical drug target for the future development of galectin-3 inhibitors.
In addition to its predictive capacity in stroke, cardiovascular events, and infections, galectin-3 inhibitors play a protective role in folic-acid induced kidney injury and reduces fibrosis and inflammation (link) (link). The data that I find most intriguing is recent galectin-3 mouse knockout (KO) data which demonstrates that, 1) galectin-3 KO mice are resistant to renal (kidney) fibrosis and, 2) that galectin-3 KO mice that have undergone kidney transplantation produce less scarring and have better tubular preservation than normal mice. This data tells me that an agent that could block galectin-3 could serve as a therapeutic option for patients with chronic kidney disease or fibrotic-related indications. La Jolla Pharmaceutical Company is poised to benefit from this recent outpouring of data with the company's novel galectin-3 inhibitor, GCS-100.
GCS-100 - A Potent Inhibitor of Galectin-3 - GCS-100 is a potent inhibitor of galectin-3 and a potential first-in-class drug candidate in both organ failure and cancer indications. However, since the near-term milestones will be in renal fibrosis/transplantation, this subsection will be focused largely on GCS-100 as it relates to CKD and associated indications. GCS-100 is highly purified modified citrus pectin derived from the skin and pulp of citrus fruit, which has very high activity. Moreover, LJPC has created a manufacturing process, which is protected by several patents, that greatly increases the drug's activity and potency. The Company believes that GCS-100 may prevent or reverse organ failure by reducing fibrosis via the neutralization of galectin-3. Up until this point, GCS-100 has been shown to be relatively safe and well tolerated (at doses up to 900 mg/m2 weekly via IV) in multiple clinical trials (GCS-100 has been administered to over 140 patients in nine Phase 1 and Phase 2 clinical trials) and is expected to begin studies in renal failure by the end of 2012. The first Phase 1/2 GCS-100 study, LJPC-CS-1001, will evaluate GCS-100 in cancer patients with renal insufficiency since the compound has demonstrated both single-agent activity and broad-based synergy in vitro with both chemotherapies and other targeted agents (link). With this trial, the Company plans to measure the reduction of decreased galectin-3 levels in peripheral blood with the goal of achieving proof-of-concept (POC). Other indications that La Jolla might pursue with GCS-100 are cancer immunotherapy and CKD and end-stage renal disease (ESRD).
Next, LJPC intends to evaluate the IV formulation of GCS-100 and its ability to prevent cisplatin-induced kidney toxicity in cancer patients and also its ability to improve the outcome of renal transplant patients. LJPC already has an active IND for GCS-100 to prevent cisplatin-induced kidney toxicity and plans to conduct further preclinical studies prior to initiating a trial in humans. Lastly, the company plans to file an IND for the prevention of renal transplant rejection by the end of 2012.
Risk Factors - For a small, speculative biotech that trades over the counter, there are many real risk factors that investors should consider. Currently, LJPC trades in penny stock territory with a current share price of $0.06. The company has a few million dollars in the bank to fund the upcoming trials, and will certainly need additional funding to continue development. Most likely, additional capital will come in the form of equity financing. And even though GCS-100 has been successfully tolerated in over 100 patients, risk of serious side effects remain as more patients are exposed to the drug for longer periods of time. Furthermore, as many investors in biotechs know, clinical trial success rates in phase 2 are low.
Galectin Therapeutics (NASDAQ:GALT) - As the name would suggest, Galectin Therapeutics is another company developing compounds to inhibit galectins. GM-CT-01 is the company's lead compound designed to enhance the ability of immune cells to kills cancer cells. Galectin initiated a Phase 1/2 POC trial in May 2012 that has a two-stage design and aims to treat patients with advanced metastatic melanoma. 280 mg/m2 of GM-CT-01 will be administered via a slow infusion along with a melanoma specific peptide vaccine. The primary endpoint in the study is partial or complete response as measured by imaging. With GM-CT-01, Galectin aims to block the "Galectin effect" and enhance vaccine treatment. Top-line results are expected in the first quarter of 2013. I do not expect this compound to directly compete with La Jolla in the near-term, since it is targeting a different indication.
Galectin's second compound and galectin inhibitor is GR-MD-02, to treat non-alcoholic steatohepatitis (NYSEARCA:NASH) and other causes of liver fibrosis. Galectin plans to start a Phase 1 trial in NASH in February 2013 with top-line results by the end of the year. GR-MD-02 could compete with La Jolla's GCS-100, however, I expect them to be at least a quarter behind in development as La Jolla plans to initiate a Phase 1 trial by the end of this year. 2013 will be an important year for La Jolla and Galectin as we see the Phase 1 results read out and start to gather some data differentiating the two compounds. With funding until late 2013 and possibly early 2014, GALT's market capitalization of $33 MM is inexpensive for what can be viewed as two potential binary events.
Intermune (NASDAQ:ITMN) - Intermune is another company that has been on investors' radar screens for the past several years. The company's lead drug candidate is pirfenidone, which is an orally active, small molecule that inhibits the synthesis of TGF-beta. Pirfenidone has been granted Orphan Drug and Fast Track designation by the FDA and Orphan Drug status in the EU. The company claims that pirfenidone has demonstrated activity in multiple fibrotic conditions including, lung, kidney, and liver. In October 2008, pirfenidone was approved for use in patients in Japan with idiopathic pulmonary fibrosis (IPF) and it is marketed as Pirespa by Shinogi & Co. On December 17, 2010, the Committee for Medicinal Products for Human Use (CHMP) of the EMA granted the MAA. So far, sales in the EU have been underwhelming with the company guiding for annual sales of $20-25MM as the company has gone country-by-country to gain adoption and insurance reimbursement.
Pirfenidone has been tested in multiple Phase III trials by Intermune and partner Shinogi. Two of the trials, called the CAPACITY trials, were concurrent 72-week trials that enrolled a total of 779 mild to moderate IPF patients. The primary endpoint in these studies was the absolute mean change from baseline to week 72 in percent predicted forced vital capacity (FVC). The endpoint was met in CAPACITY 2 (p=0.001), but not in CAPCITY 1 (p=0.501). On November 4, 2009, Intermune submitted a NDA for pirfenidone and on January 4, 2010, the FDA granted the drug priority review designation. On the PDUFA data of May 4, 2010, the FDA issued a CRL requesting addition studies. Interestingly, the FDA went against the advisory committee's (AdCom) 9-3 vote to approve the drug. In July 2011, the first patient was enrolled into a new Phase III study, called ASCEND, for pirfenidone in IPF patients. Results from this study are expected in the first half of 2014. Intermune is completely focused on developing the drug for IPF in the U.S. and expanding sales abroad. Given the uncertain benefit in this difficult indication, the road forward in the U.S. is perilous. Even with all this uncertainty though, ITMN sports a $500 MM plus market cap, which is indicative of the unmet need in this space.
Vertex Pharmaceuticals (NASDAQ:VRTX) - Vertex's dramatic increase in stock price in 2012 has been in large part due to the promising data and progress of their drug, Kalydeco, for cystic fibrosis (NYSE:CF). Kalydeco was approved by the FDA in January 2012 for use in people with CF ages 6 and older who have at least one copy of the G551D mutation in the CFTR gene. Although a narrow indication (an estimated 1,200 people in the United States and 1,100 people in Europe with CF have at least one copy of the G551D mutation), Vertex's robust data in demonstrating absolute improvements in clinical important end-points and commercial success ($46 MM in 2Q 2012 sales) is encouraging for the sector Moreover, Vertex's success in combining Kalydeco with VX-809 for the treatment of the far more common mutation F508del CFTR mutation is a story on investor's radar. Specifically, Kalydeco in combination with VX-809 improved lung function by an absolute of 5 percentage points or more, as measured by FEV1 (forced expiratory volume), in approximately 35 percent of patients (13/37, with two copies of the mutation) and an absolute of 10 percentage points or more in approximately 19 percent of patients (7/37, with two copies of the mutation) from baseline to Day 56. No patients treated with placebo alone (0/11) achieved a 5 percentage-point or more mean absolute improvement in lung function from baseline to Day 56. It is estimated that nearly 46% of people with CF have two copies of the F508del mutation with an additional 33% have one copy of the F508del mutation, making this a very large market. Clearly, the market has taken notice and conferred a $11.5 BB market capitalization.
Reata and Amira Pharmaceuticals Provide Good Proxies - As biotech investors know, continuing to be a publicly traded company is not the only path to success. In fact, M&A by big pharma accounts for some of the best returns in biotech. I believe that one could use Reata Pharmaceuticals, which is a small, privately-held company, to provide a reasonable comparable transaction for this space. Reata pharmaceuticals completed just two, small POC trials in diabetic patients with CKD prior to successfully signing several partnership agreements. Over the last two years, Abbott (NYSE:ABT) has given Reata a ridiculous $850 million in upfront license payments for the right to co-develop and commercialize compounds targeting the progression of CKD.
Another good comparable transaction is Amira Pharmaceuticals, bought by Bristol-Myers Squibb (NYSE:BMY) in July, 2011 for $325 MM in upfront payments and the potential for $150 MM in future milestone payments. With this transaction, Bristol-Myers Squibb secured Amira Pharmaceuticals' fibrosis program and its the lead asset AM152, an orally available lysophosphatidic acid 1 (LPA1) receptor antagonist which has completed Phase I clinical studies (safety) and is now poised for Phase IIa proof-of-confidence studies for the treatment of idiopathic pulmonary fibrosis and systemic sclerosis (SSc), or scleroderma.
Successful results in the clinic by a startup biotech could attract similar financial commitments. I believe that Genzyme, who was recently acquired by Sanofi (NYSE:SNY) and markets the phosphate binder Renagel/Renvela to CKD patients, could be a potential acquirer. One of Genzyme's seven core areas of focus for research is renal disease.
Conclusions and Future Directions - Put simply, I believe that fibrosis, specifically kidney fibrosis, is a very important therapeutic area with a lot of potential for investors. While larger players such as INTM and VRTX are already on investors' radar with large market capitalizations, smaller, promising companies such as LJPC or GALT offer the potential for outsized rewards through increases in share price and M&A events. While these types of binary events are quite common and risky in biotech, it appears LJPC has an above average chance of success.