We have discussed RNAi and ALNY in the past (Eye on Alnylam: Silencing the Gene) and flagged ALNY as the most promising of the companies in the gene silencing field. Having taken a less than 5% stake for apparent regulatory reporting reasons, but at a significant premium, they gave ALNY investors a great present yesterday. ALNY stock rose by just under $8 or 52% on the day. ISIS Pharmaceuticals (ISIS), a related company by IP licensing and underlying approach, rose by over 18% on the day.

Although some distance remains to an economic product this is a great deal for ALNY and may prove a catalyst in the area of using drug silencing methods in drug development.

In addition, the list of competitors obtaining licenses from PMTI is growing. Recently, privately held Alma Lasers agreed to obtain a license from PMTI. Alma will pay a 9.5% royalty to Palomar for sales of its products going back to 2003 and an 8.5% royalty on sales from now through the end of 2007. That fee will drop to 7.5% for future sales, beginning next year. Companies already paying PMTI royalties include Cynosure (CYNO), Cutera (CUTR), and Iridex (IRIX) subsidiary Laserscope. The battle with the one company still holding out, Candela, promises to heat up as they do not admit to needing a license from PMTI; Candela filed its own patent infringement suit against Palomar, and both say they won't allow the other to license their technology if they prevail. This lawsuit may be one of the only dark clouds in PMTI’s future as there is some doubt it will prevail against Candela. Candela also has enough cash to prosecute this action vigorously.

Our model still looks at a stock price of over $50 by the end of the year which is a solid increase from its current level of approximately $42. We think that there may be some moderation in increase in revenues during the year. However, 2008 should begin to see revenues from the consumer product royalties which will assist in boosting revenues in late 2008 and beyond. The stock will be adversely affected by failure in the Candela suit and if the revenues begin to drop off more than we expect. PMTI is a great company with strong technology having proven itself capable of selling into an increasingly competitive yet growing market. In addition, the market for its product is poised for further growth in an increasing affluent US and global society.

PMTI 1-yr chart

Overview:

We have decided this month to include comments on approaches to developing agonists drugs to stimulate these receptors with therapeutic potential. We will also broaden our review to cover the use of oligonucleotides as drugs, a subject we have touched on in earlier articles when we discussed RNAi, antisense and other approaches from companies such as Alnylam Pharmaceuticals (ALNY) and ISIS Pharmaceuticals (ISIS). It is worthwhile noting that IDP has a long history in the development of therapeutic oligonucleotides, being an early pioneer in antisense. The company changed course and name after well publicized clinical failures.

Recently the company published data which showed Trexima provided superior sustained pain-free results compared to sumatriptan or naproxen alone. On June 9, 2006 the company announced that the FDA had issued an approvable letter for Trexima and the company saw more than half of its market cap erased. The FDA had determined that Trexima was effective as an acute treatment for migraine headaches, but requested additional safety information. There were fears that Trexima might require new studies.

In November 2006, the company submitted further data as required but the FDA indicated that the reply was incomplete. However, in March 2007 POZN announced its amended response to the approvable letter had been accepted for review by the FDA. According to company the FDA plans a six-month Class II review that could result in an August 1, 2007 decision date on the drug. Pozen said the product could be available to patients in the second half of 2007, contingent on FDA approval.

As a result of these factors, the stock has been essentially flat for a number of months. The stock plunged after the company failed to meet expectations when it released Q2 earnings in July 2006. The stock has subsequently returned to original levels of approximately $21. We believe that the concern over near-term Aloxi sales is now priced into stock.

FDA submission of Aloxi for post operative nausea and vomiting [PONV] is expected in 2007 after positive results were announced in 2006. Reflecting this new use, additional revenue growth is expected for Aloxi in 2008. In 2004 and 2005 MOGN acquired or licensed a number of products in addition to Dacogen mentioned above. The first commercial shipment of Dacogen was in May 2006, and 2007 could be the first full year of sales for this product, licensed from SuperGen. Saforis, a drug for oral mucositis, a common side effect of chemotherapy and radiation therapy, characterized by painful ulcerations, received an approvable letter in 2006. MOGN is investigating the way forward for this drug as the FDA requested a further Phase III trial.

The adaptive immune responses is a powerful system and one of the main mechanisms the body uses to fight disease, but it has the limitation in that it takes time to develop and respond to infections, typically four to seven days. In many infections, that would give an invading pathogen enough time to take over the entire body and inflict fatal damage, so to control infections is vital during the first few days. The body relies on the evolutionarily ancient and more universal innate immune system. The adaptive immune system recognizes foreign attackers through T and B cell receptors on the surface of white blood cells which allows them to respond to individual antigens.

In contrast, innate immunity works through a more general set of recognition molecules called pattern recognition receptors (PRRs). These are evolutionarily ancient proteins, which seem to have evolved originally to allow the body to distinguish “self” from “non-self” during development, but are also important in fighting diseases. There are various groups of pattern recognition receptors, some of which are secreted from cells, while others expressed on the cell surface or in intracellular compartments. Part of this system are TLRs which seem to be one of the most ancient and conserved parts of the immune system.

ALTU-238 is a subcutaneously administered, once-per-week formulation of human growth hormone, using ALTU’s protein crystallization and formulation technology, for patients with growth hormone deficiencies. An adult Phase III trial is expected in 2007 as well as a Phase II pediatric trial for this product, also in 2007. ALTU has receives a $15 Million equity Investment from Genentech with an additional $15 Million payment expected soon. This deal is added support for the technology basis of the Company and will provide strong support for future ALTU-236 development. During 2006 a manufacturing problem with its lead product, ALTU-135, an orally administered enzyme-replacement therapy for pancreatic insufficiency, caused the stock to fall as it delayed the commencement of the Phase III clinical trial. In addition ALTU announced a problem with delivery of equipment used for the production of the ALTU-236. The company announced on Monday that it will initiate the delayed ALTU-135 Phase III efficacy and safety trial in the second quarter of 2007. The manufacturing issues are now behind them and they have contracted with a new supplier, Lonza.

The stock has since recovered the lost value due to the manufacturing problem. Other milestones in 2007 include a Phase I trial for ALTU-237, an oral form of an oxalate-degrading enzyme for the treatment of primary hyperoxaluria and enteric hyperoxaluria, as well as to prevent the recurrence of kidney stones; complete the ALTU-236, proof of concept in pre-clinical models in the fourth quarter of 2007; and complete ALTU-242 proof of concept in pre-clinical models in the fourth quarter of 2007 the latter two preclinical programs are for two rare disorders.

In addition the sales of Vidaza have flattened out as shown in Q4 results published in February. We believe this trend will continue in to 2007. Sales of Vidaza continue to be affected by competition from Dacogen although this has had the effect of reducing the growth of Vidaza not eliminating the existing market. There may be increased revenues of Vidaza in 2009 assuming approval for treatment of high-risk MDS in Europe if positive data from the 360 patient survival data study currently underway is released by the end of 2007. Thalidomide, whose sales do not follow any real tend due to the nature of sales under a compassionate use program, were less than expected in Q4 2006. Thalidomide Pharmion sales will be boosted by approval in Europe of the filing for approval made in January 2007.

It is difficult to estimate the potential of the newly acquired drug Amrubicin. Sales were in the single digit million in Japan where it is approved for lung cancer. A pivotal trial for the drug for small cell lung cancer [SCLC] is expected by the end of 2007. Other catalysts in 2007 will be results from earlier trials of oral Azacitidine and MGCD0103; the latter drug is a novel HDAC inhibitor and a pivotal trial is expected in a hematologic malignancy in 2007 after positive Phase II is achieved and presented in 2007.

Activist investor Carl Icahn is reported to own 173,304 shares as of December 31, 2006 purchased in the 4Q 2006. This purchase may be a predictor of future purchases by the investor and more future shareholder activism. Last year, Icahn took over as chairman of the Biotech Company ImClone Systems (IMCL), begun in the mid 1980s, in which he holds a 13.7 percent stake, after aggressively seeking changes at the company.

The main value driver of this stock is the Phase II VEGF- Trap compound against multiple cancer types. Tumors must recruit a blood supply to provide the nutrients and oxygen required for tumor growth. VEGF or vascular endothelial growth factor is secreted by many tumors to stimulate the growth of new blood vessels in support of the tumor. VEGF binds to a protein called the “VEGF receptor,” which resides on the surface of blood vessel cells. When VEGF binds to its receptors, it stimulates their growth. A VEGF-Trap is a blocker of VEGF which prevents it from promoting blood vessels and thereby starves the tumor.

On Wednesday, February 21 GTXI announced that Phase III data from a bone mineral density interim analysis and from a lipid interim analysis will be presented in separate podium sessions on February 23rd at the American Society of Clinical Oncology Prostate Cancer Symposium. Both analyses were conducted in the first 197 men to complete one year of treatment in the Phase III clinical trial evaluating ACAPODENE 80 mg for the treatment of multiple serious side effects of androgen deprivation therapy [ADT] for advanced prostate cancer. GTXI has been notified that these presentations have been selected to be part of an ASCO press briefing the morning of February 23.

In 2006 the company had reported that the interim results were positive but this will be the first time the detailed results will be made public. On Wednesday the stock rose significantly after the 2006 financial results were published showing the loss narrowed on the basis of revenues from collaborations. In addition, management reported an impressive 2006: the company received positive interim data in both the Phase III ADT trial and another Phase III trial with ACAPODENE for the prevention of prostate cancer in high risk men with high grade prostatic intraepithelial neoplasia [PIN]; in the second half of 2006, GTXI licensed ACAPODENE European rights to Ipsen; in the same period GTXI reported successful results from the Phase II proof of concept clinical trial of ostarine for the treatment of muscle wasting and bone loss diseases; and at the end of 2006 the company was successful in raising $57 million from an equity offering, giving it sufficient cash to the first quarter of 2009.

The major achievement during the year was the positive result from a Fampridine-SR Phase III trial for patients with Multiple Sclerosis. Fampridine-SR is a slow acting version of the potassium channel blocker 4-aminopyridine which appears, in laboratory tests, to improve impulse conduction in nerve fibers in which the insulating layer of the spinal cord, called myelin, has been damaged. It is not a cure and is not being tested as such. 4-aminopyridene, in much higher doses, is also used as an effective bird poison!

The company also mentioned a number of other corporate events during the year, addition of two new members to the Board and an additional payment from Paul of $5 million to fund an increase in sales force for its Zanaflex product. Zanaflex is a short-acting marketed drug for the management of spasticity, or pain and weakness associated with MS and other diseases. Its total sales were $18.1 million in 2006. On Friday February 16, 2006 the stock rose an impressive 9% on no news and now is close to a 52 week high.

The solution to this problem came down to increasing the human composition of the antibody. Since these products are indistinguishable from natural human antibodies, not only do they limit the allergic reactions and product neutralization of previous non-human and mixed versions, but are also have extended circulation life and a thousand fold increase in target affinity. The FDA has approved 19 monoclonal antibodies to date and that is expected to rise significantly over the next few years. These have not been without incidence as we have seen problems with side effects with a number of products; namely Rituxan [DNA/BIIB] and Tysabri [BIIB] especially the latter. However, the future is golden (as has been said) for this therapeutic area and one of the companies worth watching in 2007 is Medarex (MEDX).

In 2005 monoclonal antibody drug sales were $14 billion and in 2006 are estimated to be approximately $18 billion, projected to grow to over $30 billion in 5 years. There are 350 antibody based clinical trials underway of which 16% are fully humanized antibodies. A large proportion of these are antibodies that have been derived from Medarex’s technology. Medarex has partnered its products with over 50 companies. It has a co-promotion deal for Ipilimumab with Bristol-Myers Squibb (BMY) for Malignant Melanoma which is presently in a number of Phase III trials. A Biological License Application [BLA] is expected in 2007 for a second line treatment as a monotherapy. Ipilimumab is also being tested for Renal, Breast, Pancreatic and Prostrate Cancer in Phase II trials and a Phase III trial for Prostrate Cancer is expected to begin in 2007. MEDX has entered into a number of licensing relationships with third parties through which it expects to receive future milestones and royalties based on progress through the development and regulatory process and beyond.

The company originally came to my attention on December 5, 2006 when it announced it had entered into an agreement to apply HTI proprietary Enhanze technology to Roche's biological therapeutic compounds.

The technologies that are the focus of the Roche and Baxter relationships are called Enhanze™ and HYLENAX respectively. Both technologies use proprietary formulations of human enzymes known as hyaluronidases. These enzymes break down hyaluronic acid a major component of skin and cartilage, allowing easier penetration and diffusion of drugs administered by injection. Enhanze is used for the transportation of large molecules such as monoclonal antibodies and is the subject of the Roche deal. Roche will use it on 13 products and the deal is worth over $600 million; $20 million up front and $111 million for three of the products assuming milestones are achieved, $11 million equity investment at 25% premium and $47 million for each of the other products chosen by Roche. Roche will use the technology with Rituxan, Avastin and Herceptin as well as others not disclosed.

The company is a medical equipment and appliance manufacturer engaging in the research, development, manufacture, marketing, sale, and distribution of light-based products for medical and cosmetic treatments. It is based in Massachusetts. Principal customers are dermatologists or other professionals in the skin care industry. It is the undoubted leader in this field and it has won a number of patent disputes with competitors in recent months. Royalties will be an additional source of revenue going forward from these competitors.

Although it has a high valuation at present and will probably be fully valued at $55 the recent drop in price is overdone and PMTI is now a buying opportunity. The revenues have been growing at a constant rate over the past two years and 2006 was no exception. We thought that 4Q would begin to show flattening revenues but it did not happen and revenues for 4Q and the whole of 2006 were higher than we expected. One of the investor issues is sorting out the financial statements and understanding the core business from these statements especially with the back royalty payments made in 2006 after patent victories. In addition, the use of non- cash NOL’s in this period to reduce tax liability has made predicting the bottom line difficult. This is made more difficult as the company does not give future guidance!

To date, the inability to analyze the components found in complex drugs has made it difficult to obtain approval of generic versions of such drugs. The most advanced product candidate, M-Enoxaparin is designed to be a technology-enabled generic version of Lovenox, a low molecular weight heparin, used to prevent and treat deep vein thrombosis and treat acute coronary syndrome. Lovenox is distributed worldwide by Sanofi-Aventis (SNY) which reported worldwide net sales of Lovenox of approximately $2.7 billion in 2005, with approximately $1.6 billion coming from the United States market.

On Friday February 9, a California court invalidated SNY’s patent on Lovenox, giving generic firms Amphastar Pharmaceuticals and Teva victory in the suit brought against them by SNY, both of whom are seeking FDA permission to sell generic versions of the drug. Shares of MNTA surged in premarket trading on initial news that Sanofi-Aventis had lost the case but later plunged and ended the day down over 20% at $16.10.

The company released its earnings yesterday and also announced the engagement of an investment bank to look at strategic alternatives including the acquisition of the company. We assume this is good news and not an attempt to salvage a losing proposition, as the company carried out a successful stock issue in January and now has ample funds for the development of Iloperidone. The worldwide rights to develop, manufacture and commercialize Iloperidone were licensed from Titan Pharmaceuticals (TTP) who had previously established a corporate partnership with Novartis Pharma, AG. Vanda had licensed these rights from Novartis. Vanda will pay royalties on future sales to Titan.

• ISIS could revert to the $6-$8 trading range and has given technical indications that it is headed that way. ALNY, on the other hand, has been more consistent.
• A failure with any of the antisense products in the clinic will have a major impact on ISIS, especially if more data granularity with ISIS 301012 proves disappointing in 2007.
• ALNY does not have the same issue with past failures and a “wounded” technology. It is cleaner and is more resistant to minor technological setbacks and its technology has more support from both the scientific and pharmaceutical communities.
• A failure in any one of ISIS’ products will have a major impact on ISIS but little on ALNY. A major failure in ALNY will impact ISIS significantly due to the patent relationship.

Background

Our view is that there is less than a 50% probability that there will be a clear benefit from the drug over placebo. Benefit is measured in the trial by reduction in the risk of cardiac events including death, heart attack, stroke, bypass surgery, angioplasty or hospitalization. The trial involved 6,000 patients who have had heart attack or unstable angina. It is difficult to easily predict Phase III results based on earlier trials as these trials did not have a reduction in events as their goal. On the positive side, however, we should remember that AGI-1067 is a derivative of probucol which had induced regression of carotid atherosclerosis in the Fukuoka Atherosclerosis Trial [FAST] as well as having a marked reduction in myocardial infarction [MI] in the same trial. However, prolongation of the QT interval (a red flag with the FDA) was a long-term safety concern with probucol (not the case with AGI-1067) which reduced its potential as a major therapeutic.

AtheroGenics has a number of times reiterated its guidance that the ARISE top line results will be available early in 2007. The Company has further refined its guidance in early January to indicate that the results will likely be available no sooner than late in the first quarter. The ARISE data base remains blinded and the Company continues to work towards its goal of presenting the results at the American College of Cardiology Scientific Sessions in March 2007. Since issuing this last guidance the stock has dropped continuously although we saw increasing volume on Monday with a more than 5% increase in price. This increase is part of a recent upward trend.

According to the press release issued yesterday:

“With IV administration, the dosing for Vidaza remains the same as the previously approved subcutaneous [SC] administration at 75 mg/m2 daily, for seven days, every four weeks. Since this approval is for an alternative administration of the existing formulation, Pharmion will begin promoting this IV route of administration immediately.”