Seeking Alpha
Long/short equity, deep value, momentum, event-driven
Profile| Send Message| ()  

Conventional techniques for transforming protein therapeutics into long-acting medicines have proven extremely difficult. Modification of the original molecules can induce additional adverse effects, such as immune responses against the drugs themselves, rendering them inactive or instigating potentially life-threatening reactions.

Prolor Biotech's (PBTH) technology with Carboxyl Terminal Peptide (CTP) represents a possible breakthrough into the long sought-after method of extending the half-life of current biotherapeutics. This technology so far has successfully bypassed previous immunoreactive effects by adding a small protein to the drug, while leaving the core structure of the active molecule intact. As Phase III clinical trials approach, results for Prolor's two most promising drugs, an analog to human growth hormone (hGH) and a Factor VII anticoagulant, have encouraged investors and have even hinted at the possibility of a takeover by big pharma.

The story of the discovery of CTP began when Dr. Irving Boime of Washington University in St. Louis was investigating the hormone human chorionic gonadotropin (hCG). hCG is produced innately by the placenta during pregnancy and has a life span of up to two days, while its analogue, luteinizing hormone (LH), produced by the pituitary, is eliminated in only twenty minutes. Dr. Boime observed that a CTP is present on hCG but absent on LH, and he suspected that CTP was necessary for the prolonged duration of hCG. After further tests, Dr. Boime discovered that adding CTP to different therapeutic proteins caused dramatic increases in their life spans. Dr. Boime's postdoctoral student, Dr. Fuad Fares, worked with him on these findings. Dr. Fares licensed the CTP technology from Washington University to a company he founded in Israel in 2001, initially calling it Modigene Inc. The name was changed to Prolor Biotech in 2009.

Prolor Biotech has secured an exclusive license to apply CTP technology to all human therapeutic proteins and peptides, except for four endocrine proteins - LH, follicle stimulating hormone (FSH), thyroid stimulating hormone, and hCG - which are currently licensed to Merck & Co. (MRK) Prolor has also secured the rights to sublicense the technology.

Prolor's CTP advantages over the previous methods include attachment to a wide array of existing therapeutic proteins, stabilizing them and greatly extending their life span in the bloodstream without additional adverse effects and with no loss of functional activity. Moreover, CTP-modified therapeutic proteins have been easy to manufacture through conventional recombinant DNA techniques in mammalian protein expression systems. Importantly, CTP has shown to be potentially non-immunogenic to humans when attached to other proteins.

What makes the CTP technology even more encouraging is that a phase III clinical trial for FSH-CTP conducted by Merck met primary endpoints with no adverse effects for toxicity or immunogenicity. Merck's FSH-CTP requires only one weekly injection, compared to seven weekly injections required for regular FSH. In 2010, the European Commission gave Merck & Co. marketing approval for FSH-CTP, which is currently branded as ELONVA. It looks like a green light for Prolor Biotech to follow suit with hGH-CTP, as the company prepares to enter phase III trials this year.

The hGH-CTP therapeutic represents Prolor's most advanced drug on its pipeline. Prolor will be initiating a phase III study in adults with hGH deficiency before year-end. A phase II trial in children with the same hGH deficiency is ongoing. Results from a phase II study in adults, completed in 2011, showed that it met safety and tolerability endpoints at all doses tested. Prolor executives are considering a partnering strategy - according to comments made by President Shai Novik in a recent interview - for distribution of a drug that is contending for a liquidity through 2014, and expected to reach $4.7 billion by 2018. Partner options include several major pharmaceutical companies that have already launched an hGH therapeutic such as Roche (OTCQX:RHHBY), Novo Nordisk (NVO), Pfizer (PFE) and Novartis (NVS). Pfizer's Genotropin, Eli Lilly's (LLY) Humatrope and Novo Nordisk's Norditropin currently assume 2/3 of the market share and have grossed a combined $315 billion in sales to-date.

However, patients currently on all forms of recombinant hGH receive a twice-daily injection regimen six days a week, which is particularly burdensome to pediatric patients. Even though hGH-CTP represents a major substitution to what is already on the market, these companies may think it worthwhile to get their hands on a longer-lasting drug that could transform a once-daily injection into a once-weekly alternative.

Prolor's Factor VIIα anticoagulant is the second most promising drug in the company's pipeline, and is currently positioned to treat bleeding episodes in hemophilia patients. A preclinical study done in animal models of hemophilia showed that Prolor's Factor VIIα-CTP caused a superior survival rate and higher rates of recovery after bleeding compared to commercially available Factor VIIa. The drug is expected to contend for a $1.3 billion market that includes patients with Factor VII deficiency (also known as Alexander's disease) as well as people who have hemophilia A and hemophilia B.

According to the World Health Organization, nearly 400,000 people globally have hemophilia. A long history of biotherapeutic proteins has been used to treat this disorder. A recombinant form of human Factor VIIα has FDA approval for uncontrolled bleeding in hemophilia patients and is marketed as 'NovoSeven' by Novo Nordisk, the world's largest insulin producer. Global sales of NovoSeven were $1.4 billion in 2010. A "biogeneric" form of NovoSeven has been developed and branded by AryoGen Bipharma as AryoSeven and has entered the market in 2012.

NovoSeven has had a long history of controversy. It began to be used in 2003 by the military as a potential therapy to treat soldiers with combat wounds. Novo Nordisk began promoting its drug to military doctors, and entered into research agreements with military hospitals. The problem was, at that time, NovoSeven was only approved by the FDA to treat severe forms of hemophilia. By 2006, the U.S. army required NovoSeven treatment for every patient with signs of serious bleeding. However, the drug proved to be ineffective against traumatic bleeding, and also caused adverse effects; this culminated in a 2008 lawsuit against Novo Nordisk. The Danish drug-maker settled with the U.S. military for $25 million in 2011.

Both NovoSeven and AryoSeven will stand to lose out on the development of a longer-lasting substitute that could turn what is currently a daily regiment into a once-weekly injection. Sensing this, Novo Nordisk and several other big pharmaceutical companies began to develop a faster-acting form of recombinant Factor VIIα. Novo Nordisk's vatreptacog α showed early signs of promise but was discontinued after results from phase III trials last month reported significant adverse effects, including development of anti-drug antibodies. The difference between Novo Nordisk's compound and Prolor's Factor VIIα-CTP is the substitution of three amino acids, which was done to enhance platelet enzyme activity. Prolor's drug does not have this substitution, while similar drugs in the pipeline at competitors Pfizer and Baxter (BAX) do. Therefore, Prolor's Factor VIIα-CTP may steer clear of the adverse effects and is strategically positioned to monopolize the market if its phase II and phase III clinical trials are successful.

Prolor's secondary offering in May of this year valued the company at over $300M and raised nearly $35M in net proceeds. Combined with its $9.1M cash in hand on its March 2012 balance sheet gives Prolor liquidity through 2014. Furthermore, in August Oppenheimer & Co. said that Prolor, which the bank rated a 'buy', would "outperform" the market.

Prolor also has the added benefit of a seasoned chairman at the helm, Dr. Phillip Frost, a proven healthcare entrepreneur who also serves as chairman at Teva Pharmaceutical (TEVA). Dr. Frost currently owns just over 20% stake in the company. Recently published reports have stated that Teva might be interested in acquiring Prolor for its technology and assuming a greater role in the development of biogeneric drugs. And while its two lead candidates remain stable, Prolor Biotech may be able to increase its value to close to $900M, according to a Morgan Joseph analyst. This would mean that Teva is not the only Israeli drug manufacturer that can do well in these challenging times.

Source: Prolor Biotech To Benefit From 'Bio-Better' Drug As Novo Nordisk Pulls Out