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  • Turnaround Stories Lead Reni Benjamin's Biotech Front-Runners

    The biotech bull market is not over. That's the judgment of Reni Benjamin of H.C. Wainwright & Co., who predicts high quality data from a broad range of small- and mid-cap biotechs will move shares higher during the summer and especially in the fall. In this interview with The Life Sciences Report, Benjamin showcases names with powerful platforms and market winds to their backs, which he believes could vigorously multiply investor capital over the next 12-18 months.

    The Life Sciences Report: Do you have thoughts on what might move the biotech market over the remainder of the summer and through the early fall?

    Reni Benjamin: The biotech market was on a tear through the beginning of 2014, but due to a variety of factors it began a healthy correction at the end of February/beginning of March. One issue was drug-pricing concerns regarding Gilead Sciences Inc.'s (NASDAQ:GILD) Sovaldi [sofosbuvir], which was approved last December for the treatment of chronic hepatitis C virus [HCV] infection. Since just before the American Society of Clinical Oncology [ASCO] conference, which took place at the end of May/early June, investors started getting their heads around those pricing concerns, and the biotech market began to heat up again. Then, at ASCO, investors got a significant data dump that highlighted how strong the drug development market is for both pharmaceuticals and biotech.

    There appears to be a resumption of interest in biotech, and investors should concentrate on several factors before we move into fall. Summer is a good time to do homework because there is not much news flow during this period, and news flow drives biotech. Starting in September, when a lot of medical conferences gear up, many of the companies we cover will present new data. In fact, investors will get access to the latest data at both investment bank conferences and medical conferences.

    TLSR: Ren, we recently saw Pfizer Inc. (NYSE:PFE) attempt to acquire AstraZeneca Plc (NYSE:AZN), and we are hearing about smaller deals in the works too. It's pretty obvious that pharmas need to combine and acquire. Is this kind of activity a factor in market strength? Will it continue?

    RB: The merger and acquisition [M&A] activity we've seen continues to heat up, and will be another driver of biotechnology going forward. Investors need to understand that many pharmas have jettisoned or significantly curtailed their research and development [R&D] divisions. With existing branded products going generic over the next five years or so, pharmas need to license or acquire outright the products that biotech companies are developing.

    A perfect example of this is the deal announced on June 9, with Merck & Co. Inc. (NYSE:MRK) acquiring Idenix Pharmaceuticals Inc. (NASDAQ:IDIX) for its HCV pipeline. Merck is paying $3.8 billion [$3.8B], a 200% premium to Idenix's value before the deal announcement, to get Idenix's Phase 2 NS5A inhibitor samatasvir, as well as two uridine nucleotide analogs, IDX21437 [also in Phase 2] and IDX21459 [in Phase 1]. This deal will help Merck compete with Gilead potentially.

    We believe two other things will set the stage for movement in biotech this summer and into the fall: sales numbers for Gilead and Sovaldi, and ramp-up for Pharmacyclics Inc. (NASDAQ:PCYC), which recently won approval of its hematology/oncology product Imbruvica [ibrutinib]. The uptake of these products will be of great interest to biotechnology investors as we move into fall.

    Finally, the pace of regulatory approvals and breakthrough therapy designations should continue to drive interest in the sector, both fundamentally and technically.

    TLSR: You mentioned breakthrough therapy designations, which are granted by the U.S. Food and Drug Administration [FDA] to allow for expedited product development. It's only been eight months since the first breakthrough designated drug was approved, Roche Holding AG (OTCQX:RHHBY)/Genentech's Gazyva [obinutuzumab] for chronic lymphocytic leukemia. The second breakthrough product was Imbruvica, approved in mid-November 2013. Do you anticipate breakthrough designation will continue as an add-on driver to the pace of drug approvals? Or have we just seen pent-up demand burst out with these new products?

    RB: At least at this particular juncture, breakthrough designation seems to be an add-on driver to drug approvals. We've gone through this kind of thing in the past. I've lived through the advent of Novartis AG's (NYSE:NVS) acute heart-failure drug serelaxin, rejected by the FDA. If that tide turns and we begin seeing breakthrough-designated products rejected, we could see the designation fall by the wayside or have less impact.

    TLSR: Could you go ahead and talk about a stock?

    RB: In the RNAi space, the 800-pound gorilla is Alnylam Pharmaceuticals Inc. (NASDAQ:ALNY), but several other companies are following suit, including Arrowhead Research Corp. (NASDAQ:ARWR) and Tekmira Pharmaceuticals Inc. (NASDAQ:TKMR).

    Scarring is a multibillion-dollar market, primarily in the hypertrophic scarring and keloid areas. Just to remind investors, Pfizer acquired a private company called Excaliard Pharmaceuticals Inc. for what we estimate to be $350-500 million [$350-500M] in cash, primarily for its platform targeting the CTGF gene.

    I would expect data to be released closer to the September timeframe. Also, investors should understand that these are preliminary data, from just a handful of patients. But these data should give us a good sense as to the level of efficacy.

    TLSR: You said hypertrophic scarring could be a multibillion-dollar market. Is this a largely cosmetic indication, where patients will be responsible for procedures out of pocket?

    RB: Yes. The bottom line is that you're not going to die of a hypertrophic scar. This will be driven by out-of-pocket monies. That being said, approximately 170 thousand [170K] patients, based on our research, receive scar revision surgery annually. Based on fees for these types of therapies, we think the market is worth north of $1.5 billion [$1.5B] annually, targeting just those patients. What we use as a metric is Allergan Inc.'s (NYSE:AGN) Botox [onabotulinumtoxinA]. Botox has been generating north of $1B, of which at least half is in the cosmetic wrinkles market, and that would be people paying out of pocket as well. RXI-109 would clearly fall into that kind of market opportunity.

    TLSR: Could you move on to another company please?

    RB: We also have Celsion Corp. (NASDAQ:CLSN) under coverage. Celsion is a small biotechnology company trading a bit above its cash position. At the time we initiated coverage, it was trading at a $0 enterprise value. Celsion is higher now due to a recent acquisition.

    By way of background, Celsion conducted the HEAT study, a pivotal Phase 3 study of its heat-activated agent ThermoDox [liposome-encapsulated doxorubicin] in hepatocellular carcinoma [HCC]. This was a worldwide study, with more than 700 patients, but at the end of January 2013 the company reported negative Phase 3 trial results. The trial failed.

    However, the company did find a subset of patients that appeared to benefit from ThermoDox over standard of care. The company is conducting a second Phase 3 trial called OPTIMA, which Celsion feels is strategically derisked because it has isolated the patients who could potentially benefit from the therapy. This will likely be a large trial and will last quite a long time-five years to enroll and see final data.

    Investors should realize that while we view the data from this subset of patients with cautious optimism, it is a retrospective analysis, and the results must be reaffirmed in a new Phase 3 trial. Retrospective, or selected subset data, cannot be used for marketing approval. While interim data could be announced along the way, the timeline for this trial is likely too long for most biotech investors.

    TLSR: You mentioned an acquisition; tell me about that.

    RB: Sure. The reason we consider Celsion interesting is because we've known for quite some time that, with cash on hand, the company was looking at various M&A opportunities. The company announced the acquisition of a privately held oncology company called EGEN Inc. on June 20. EGEN has a very interesting delivery platform that can get various types of nucleic acids, including RNAi or plasmid-based therapeutics, into cells. EGEN has developed data for its lead candidate, EGEN-001 [IL-12 plasmid-formulated with PEG-PEI-cholesterol lipopolymer], which encodes for interleukin-12 [IL-12]. The compound is being tested in cancer-in particular, ovarian cancer-where it has shown promising, yet early, results.

    Using the EGEN platform on top of Celsion's existing heat-activated liposomal encapsulation platform provides Celsion with multiple shots on goal, with the ability to advance several therapeutics at once in a variety of indications with large unmet needs. We are hopeful, given the current valuation of the company, that data from this new acquisition could drive shares higher within the next 12 months or so.

    TLSR: IL-12 is an immune activator. Does the plasmid that encodes for IL-12 also encode for any specific antigens?

    RB: No, it does not. EGEN-001 is given as an intratumoral injection. IL-12, a cytokine, draws in and activates the immune system to a robust level by bringing in both T cells and NK cells. The destruction of the tumor cells is due to the immune response, which presumably provides the antigens, if you will, in the local area.

    Several companies are looking at this same cytokine and figuring out different ways to inject it into tumors. Ziopharm Oncology Inc. (NASDAQ:ZIOP), which we do not cover, is using a viral delivery, or vector methodology, to transport IL-12 into tumors.

    All the players in this space are trying to enhance not just the delivery, but also the efficacy of this therapy, and seeking to provide a good safety profile for patients.

    TLSR: Celsion had a market cap of somewhere around $600M before its HEAT trial failed. Now its valuation is about $55M. We rarely see great turnaround stories, but could this be one?

    RB: Yes, it could be a great turnaround story. The company has multiple shots on goal.

    TLSR: Could you mention another name?

    RB: Speaking of turnarounds, another interesting name is CTI BioPharma (NASDAQ:CTIC), formerly Cell Therapeutics Inc. This has been a turnaround story in the making for quite some time. The company has had multiple successes in the biotechnology space, as well as some failures, and we believe it has finally reached an inflection point, at the cusp of generating significant shareholder value.

    CTI BioPharma is developing a novel Janus-associated kinase 2 [JAK2]/FLT-3 tyrosine kinase inhibitor called pacritinib, which is currently in two Phase 3 trials for myelofibrosis. The 800-pound gorilla in the myelofibrosis space is Incyte Corp. (NASDAQ:INCY), which is already marketing its lead drug, Jakafi [ruxolitinib], a JAK1 and JAK2 inhibitor, in the U.S. Jakafi is marketed in Europe by Incyte's partner, Novartis. We believe Jakafi's full-year sales to be in the range of $315-350M.

    CTI BioPharma's pacritinib seems to have a differentiated profile. Pacritinib appears to provide the same sort of efficacy as Jakafi in terms of improving constitutional symptoms. But pacritinib appears to have a different side effect/tolerability profile, in that it does not cause thrombocytopenia, a decrease in platelets. For patients who have myelofibrosis and a low platelet count, this could become the drug of choice. Clinicians can keep the dose of this drug at a therapeutic level versus Jakafi, which must be lowered in dose to maintain proper platelet levels. From a marketing perspective, we think pacritinib has the ability to carve out its own niche.

    In November 2013 CTI secured a partner in Baxter International Inc. (NYSE:BAX), which paid about $60M upfront for the worldwide rights of pacritinib. The hurdle that remains is efficacy data from the two trials. If they're positive, we believe CTI can generate significant sales and compete in this market. If the trials fail, the company will have to fall back on its pipeline products, which are in an earlier stage of development, as well as its non-Hodgkin lymphoma product Pixuvri [pixantrone], which is generating revenue right now in Europe.

    Given the molecular mechanism with pacritinib, the data we've seen so far in Phase 2 studies and the study design on the ongoing Phase 3 trials, we believe the trials have a greater-than-average chance of succeeding. The first study should report by the end of this year or early next year.

    TLSR: Could pacritinib be developed in leukemias as well as myelofibrosis?

    RB: Yes. Because of its mechanism of action and its ability to inhibit FLT3, pacritinib is being evaluated in indications such as FLT3-mutant acute myeloid leukemia [AML]. While still early, there is a chance, based on scientific rationale, that this product could be used in indications outside of myelofibrosis.

    The other thing that investors should keep in mind is the competitive landscape. Another drug in development, which is moving through Phase 3 at the same pace as pacritinib, is Gilead's momelotinib, a small molecule JAK inhibitor that Gilead acquired for $500M from YM Biosciences Inc. last year. That product appears to have the same sort of efficacy in terms of constitutional symptom benefit. It also appears to provide an anemia benefit. Most of these products cause anemia. In Gilead's case, momelotinib seems to maintain hemoglobin levels so patients don't need transfusions while undergoing therapy.

    Sanofi SA (NYSE:SNY) actually got out of the space. The company killed its entire program for a drug called fedratinib. Although Sanofi had completed Phase 3 trials, an unacceptable neurotoxicity was discovered, and the entire program was dropped. Geron Corp. (NASDAQ:GERN) had its product imetelstat put on clinical hold in Q1/14 due to safety issues. It did announce in mid-June that the partial clinical hold had been lifted, at least at the investigator-sponsored study site, but the company's program is still on clinical hold.

    TLSR: Ren, it sounds like investors have to thread the needle with the myelofibrosis indication and JAK targets, doesn't it?

    RB: Correct. They really do.

    TLSR: Could you mention another name?

    RB: Sure. Ariad Pharmaceuticals Inc. (NASDAQ:ARIA) is a turnaround story as well. Last year the company ran into a significant snag. Ariad had the distinct pleasure of not only successfully getting Iclusig [ponatinib] approved in mid-December 2012, a full three months ahead of its Prescription Drug User Fee Act [PDUFA] date, but it also achieved regulatory approval both in the U.S. and in Europe for the drug. Iclusig was approved for third-line use in chronic myelogenous leukemia [CML]. Ariad was running a head-to-head Phase 3 study against Gleevec [imatinib] in an effort to move its product toward front-line use in CML, but due to an increasing side-effect profile, including serious arterial thrombotic events and cardiovascular toxicities, the FDA suspended the marketing of ponatinib in the U.S. That led to a significant decrease in shareholder value for the company.

    Subsequently, the company worked with the FDA and was able to revise its label to a more restrictive patient population, getting the drug back on the market. Most investors look at the more restricted label and think a company with a market valuation of more than $1B and a restricted label is more than fairly valued. Given the lower peak revenue potential in the $100-150 million range [$100-150M], investors perceive Ariad as an overvalued stock trading at 10 times its peak revenue potential for Iclusig. But, in our opinion, this is where the opportunity lies.

    What we believe investors are missing is that Ariad has an extremely active drug with ponatinib. We know that off-label sales are occurring in the second-line CML market right now, and as more physicians get comfortable with the side-effect profile, we believe the significant activity seen with ponatinib will help increase market share in other indications-even within CML. We believe Ariad is going to grow market share beyond the third-line and fourth-line CML market. In addition, the drug is being evaluated in several other solid tumor indications.

    Ariad also has a pipeline of products, including a new anaplastic lymphoma kinase [ALK] inhibitor called AP26113, which reported outstanding data in advanced malignancies at ASCO. When you think ALK inhibitors, you probably think of the two major ones, Xalkori [crizotinib; Pfizer] or Novartis' Zykadia [ceritinib]. A slew of other ALK inhibitors are in development, but AP26113 seems to have generated some differentiated data, which was presented at ASCO. The data differentiates AP26113 not just in its activity, which we believe is slightly better than Novartis' Zykadia, but we also believe the side effect profile is better. Ariad's pipeline sets the company up as one of the more interesting acquisition targets in the biotechnology space.

    TLSR: Ren, although Gleevec is going to lose its patent protection/exclusivity soon in the U.S., it has been the standard of care in CML for a good while. Did you hear data at ASCO indicating Iclusig could be more efficacious in CML than Gleevec?

    RB: We did, actually. Ariad presented data from its Phase 3 EPIC trial, where it was evaluating ponatinib head-to-head against Gleevec. Ariad's drug showed a significantly better response rate versus Gleevec. But what Gleevec has, besides being efficacious, is a very good side-effect profile.

    The question is, in the face of Gleevec going generic and having a better side-effect profile, will anyone move ponatinib to the front-line setting. That's a tough hurdle to cross, and we are not factoring that into our models at all. The EPIC trial was halted due to the marketing halt of Iclusig in CML last October. If Ariad wants to go for front-line status, it would have to run a head-to-head Phase 3 trial all over again. The data show that ponatinib is much more active than Gleevec, but it's also more toxic. Patients responding to Gleevec will continue on Gleevec. Those who don't respond have a good shot at getting exposed to ponatinib in the second-line setting, where we already see ponatinib prescriptions. A second-line label in CML would represent a triumph for Iclusig.

    TLSR: Did you have one more company you wanted to mention?

    RB: La Jolla Pharmaceutical Co. (OTC:LJPC) is developing a small molecule inhibitor against galectin-3 called GCS-100. Galectins have been implicated in a variety of disease indications, and it appears that overproduction of galectin-3 leads to fibrosis in the kidney and liver. La Jolla is one of several companies addressing indications like chronic kidney disease.

    What's interesting about La Jolla is that it has reported randomized control data showing a statistically significant benefit in estimated glomerular filtration rate [eGFR], which is a marker of kidney function. What the company was able to show was that GCS-100-in the lower doses, not the higher doses-seems to impact the eGFR in chronic kidney patients, and may delay the onset of dialysis. La Jolla's study involved more than 100 patients and was randomized and controlled, which should give investors more faith in the data. We're going to see the final data in all the subgroups in mid-November at the American Society of Nephrology meeting in Philadelphia. The data could be a significant driver for shares going forward.

    TLSR: La Jolla is a micro cap, and on that basis alone it could give investors a healthy return. You're following another company, Keryx Biopharmaceuticals Inc. (NASDAQ:KERX), which also has a molecule, Zerenex [ferric citrate] for chronic kidney disease, that could launch this year. But the market valuation differential between these two companies is significant, with Keryx at about $1.4B, whereas La Jolla has a market cap of $65M. What justifies the vast differential in valuation between these two companies?

    RB: The main difference is that Keryx has completed Phase 3 studies. Its drug is already approved in Japan and is selling as of this year; the company has a Japanese marketing partner. Keryx is currently awaiting regulatory approval in the U.S., and plans to start selling the drug by the end of the year. La Jolla has several years' worth of development left before seeking regulatory approval. The differential in market cap is primarily due to the difference in the development stages of these companies.

    TLSR: Could Keryx's valuation portend something for La Jolla's valuation in the future?

    RB: For now, at least, there's a better comparable. Galectin Therapeutics Inc. (NASDAQ:GALT), which I do not cover, is a more reasonable comp for La Jolla, in that it is also in Phase 1 with its drug GR-MD-02, for a slightly different indication called nonalcoholic steatohepatitis [NASH; fatty liver disease]. Galectin's market cap is around $270M, versus La Jolla's $65M.

    Investors need to be aware that last year La Jolla did a significant financing. There are a significant number of convertible shares outstanding on a fully diluted basis, and readers should know that is the case for La Jolla. If these convertibles are executed, that would lead to a higher common share count. Our valuations for these two companies take these fully diluted shares into account. While it is true that La Jolla's market cap is currently $65M, investors should realize that biotech-savvy funds hold a significant portion of the equity. If they do, La Jolla's market cap is significantly higher, probably closer to $150 M.

    TLSR: Thank you, Ren.

    RB: Thank you very much for taking the time.

    This interview was conducted by George S. Mack of The Life Sciences Report and can be read in its entirety here.

    Dr. Reni Benjamin is a managing director and director of research at H.C. Wainwright & Co. His expertise and coverage is on companies in the oncology and stem cell sectors. Benjamin has been ranked among the top analysts for recommendation performance and earnings accuracy by StarMine, has been cited in a variety of sources including The Wall Street Journal, Bloomberg Businessweek, Financial Times and Smart Money, and has made appearances on Bloomberg television/radio and CNBC. He authored a chapter in "The Delivery of Regenerative Medicines and Their Impact on Healthcare," has presented at various regional and international conferences, and has been published in peer-reviewed journals. He currently serves on the UAB School of Health Professions' Deans Advisory Board. Prior to joining H.C. Wainwright, Benjamin was a managing director and senior biotechnology analyst at both Burrill Securities and Rodman & Renshaw. He was also an associate analyst at Needham and Company. Benjamin earned his doctorate from the University of Alabama at Birmingham in biochemistry and molecular genetics by discovering and characterizing a novel gene implicated in germ cell development. He earned a bachelor's degree in biology from Allegheny College.

    Want to read more Life Sciences Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

    DISCLOSURE:
    1) George S. Mack conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.
    2) The following companies mentioned in the interview are sponsors of Streetwise Reports: None. Streetwise Reports does not accept stock in exchange for its services.
    3) Reni Benjamin: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: Celsion Corp. and OncoSec Medical Inc. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
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  • Fire Up The Immuno-Oncology Powerhouses: John McCamant

    Forecasting when we'll have a cure for cancer remains beyond the predictive powers of researchers and investors. But forecasting the focus of the latest American Society of Clinical Oncology meeting was in the cards: Immuno-oncology took center stage. In this interview with The Life Sciences Report, Medical Technology Stock Newslettereditor John McCamant describes the excitement surrounding this rapidly evolving sector, and names big pharma and small biotech players conjuring potential game-changers.

    John McCamant: As many expected, immuno-oncology was all the rage at the recently concluded ASCO meeting. It was widely acknowledged that before ASCO, Bristol-Myers Squibb Co. (NYSE:BMY) was the leader in the space, followed by Merck & Co. Inc. (NYSE:MRK) and Roche Holding AG (OTCQX:RHHBY). At the conference, however, AstraZeneca Plc (OTCQB:AZNCF) [AZN:NYSE] showcased its emerging immuno-oncology pipeline. The competitive landscape changes rapidly as this exciting sector evolves.

    Bristol's lead drug exhibited further toxicity in both non-small cell lung cancer [NSCLC] and renal cell carcinoma trials, with some very real adverse events in lung cancer. Yervoy [ipilimumab] has been the primary culprit, but Bristol also reported some notable adverse events with its PD-1 blocker, nivolumab.

    Just before ASCO, on May 6, Merck was granted priority review for its top PD-1 prospect, MK-3475, with a U.S. Food and Drug Administration [FDA] approval deadline of Oct. 28. Merck is expected to get first-mover position in the new wave of immuno-oncology therapies, which is expected to be a game changer in the oncology market. The initial indication is melanoma.

    Despite the speed bumps, Bristol is still a leader. But it is becoming clear that Bristol may not have the best-in-class immuno-oncology drug candidates, leaving the company vulnerable to the next wave of competitive compounds.

    The emergence of AstraZeneca's strong immuno-oncology pipeline is, in our view, the primary driver for the recent Pfizer Inc. (NYSE:PFE) bid. Pfizer has little presence in the immuno-oncology sector, and AstraZeneca's emerging pipeline would have transformed Pfizer into an immuno-oncology player overnight.

    While many investors were expecting a post-ASCO selloff, the exact opposite has occurred, as investors have begun to get in a back-to-bios mode. ASCO was a big pharma and biotech conference after all.Incyte Corp. (NASDAQ:INCY) and Pharmacyclics Inc. (NASDAQ:PCYC) stars shone brightly, while Bristol's immuno-oncology disappointed.

    The immuno-oncology sector is primed to become a super blockbuster market. Most current Wall Street estimates for the immuno-oncology treatment space, of ~$10-15 billion [~$10-15B], are based on only a few cancer types [melanoma, NSCLC and renal], and that is changing. The signal at ASCO is that immuno-oncology, with all the new tools emerging, will impact the vast majority, if not virtually all, cancer types in some shape or form. A great example is the bladder cancer data reported by Roche, which showed a 50% response rate [including one complete response] with RG7446 in PD-L1+ patients with pretreated metastatic bladder cancer, a setting that typically has very limited treatment options. Adding immunotherapy in combination with radiation and chemotherapy is another reason the immuno-oncology market opportunity is poised to grow significantly over the next few years.

    TLSR: Incyte Corp. presented results from RECAP, a Phase 2 trial of Jakafi [ruxolitinib] in metastatic pancreatic cancer, as well as preliminary results from an ongoing Phase 1/2 trial of its immuno-oncology compound for metastatic melanoma and results from RESPONSE, a pivotal Phase 2 trial of ruxolitinib in uncontrolled polycythemia vera [PV]. Did the data validate the faith you have in the company's potential to become "an oncology powerhouse?"

    JM: Immuno-oncology is clearly of high interest to investors, and the standing-room-only crowd that greeted the presenter for Incyte's INCB24360 ['360] indoleamine 2, 3-dioxygenase [IDO] poster is further illustration. In fact, the presenter was barely able to put the poster up for display due to crowding in the presentation area.

    For immunotherapy-naïve patients in the 25mg twice-daily and 50mg twice-daily cohorts, the objective response rate was 42% and the disease control rate was an impressive 75%. In immunotherapy-experienced patients, there were two patients with stable disease. Data from a 300mg twice-daily cohort had some intriguing follow-up data, despite the study being stopped due to toxicity. Although treatment of the subgroup was discontinued before responses could be fully evaluated, six of the seven patients were alive after one year, including three who have not received subsequent checkpoint inhibitor immunotherapy. In our view, this shows that Incyte's '360 may have a sustained treatment effect even after therapy has stopped. We remain impressed with the data for '360, albeit that the results are from a small data sample. For those who doubted IDO after the ASCO abstracts were made available, major votes of validation have occurred this year, as Incyte has formed three IDO combination joint ventures with the leaders: Merck, AstraZeneca, and Bristol-Myers Squibb.

    Incyte had a very productive ASCO, as the company also presented positive data for Jakafi in both PV and pancreatic cancer. The primary endpoint for the PV trial was a spleen volume reduction of 35%+ and hematocrit control at week 32. While only 21% of Jakafi-treated patients met the primary endpoint [versus 1% in control], 77% met at least one part of the primary endpoint. Also important was symptomatic control, with 64% of patients reporting a greater than 50% improvement in symptoms such as itching, muscle aches and night sweats. We expect Incyte to file a new drug application with the FDA for PV approval shortly.

    The RECAP data in pancreatic cancer and the biomarker, C-reactive protein [CRP], were finally revealed at ASCO. The data was very strong from a small sample size and adds to our confidence that Jakafi will be effective in treating solid tumors.

    TLSR: Pharmacyclics' supplemental new drug application [sNDA] for Imbruvica [ibrutinib] was recently granted priority review by the FDA for treatment of chronic lymphocytic leukemia [CLL]. Is that the catalyst you were looking for, or is there more news to come?

    JM: At ASCO, partners Johnson & Johnson and Pharmacyclics sponsored several symposia on CLL, and the Phase 3 RESONATE trial data was presented-and simultaneously published in the New England Journal of Medicine with major fanfare. The common term used among researchers at the conference and analysts after the presentations was "SOC," meaning Imbruvica is on its way to becoming the new "standard of care" for the treatment of CLL, the most common form of B-cell blood cancer.

    In our view, ASCO data, including duration of response results now exceeding an astonishing 3 years, further solidifies the drug in the eyes of hematologists/oncologists. As Dr. Susan O'Brien from MD Anderson Cancer Center put it, "Imbruvica is the easiest drug I've ever prescribed." Prescription data recently spiked, and that was before the conference.

    A post-ASCO pop is likely over the next few weeks. In addition, the FDA just accepted the company's sNDA application for a full CLL/small lymphocytic lymphoma [SLL] label, giving Imbruvica a priority review and setting a PDUFA date for Oct. 7. While some believe AbbVie Inc.'s (NYSE:ABBV) ABT-199 has a chance to dethrone Imbruvica someday, most ASCO watchers note that its tumor lysis syndrome profile has hardly been fixed, and that its use in the community will be very difficult, especially compared with Imbruvica.

    The train doesn't stop there, as Pharmacyclics' autoimmune compound, which has even greater commercial opportunity and financial leverage, will emerge later this year. In our view, investors will begin to appreciate the next leg up in the Pharmacyclics value proposition being created in autoimmune.

    TLSR: Can you update us on the rest of your picks for the 2014 Life Sciences Report Biotech Watchlist?

    JM: Earlier in June, Novavax Inc. (NASDAQ:NVAX) announced a $100 million secondary offering of common stock. The underwriters are JPMorgan and Citibank, two global investment banks that currently do not cover the stock from a research standpoint. After speaking with management, the proceeds will be used to fund a standalone trial in the elderly that will accelerate the path to approval for the company's disruptive/novel combination influenza/respiratory syncytial virus [RSV] vaccine. As a result, Novavax now has a potential "seasonal" vaccine strategy for the elderly.

    Prior to this, there was no standalone path to approval for the elderly. The new path provides the earliest license/commercialization potential for the "respiratory vaccine"-this combination flu/RSV vaccine that, in our view, will be highly differentiated and lead the company into the combined >$5 billion market for flu and RSV vaccines.

    As a reminder, the Novavax F Protein RSV vaccine completed its fourth clinical trial since last year, and the company is about to meet with the FDA to begin the first RSV trial in pregnant women.

    In an update call with senior management, Anthera Pharmaceuticals Inc. (NASDAQ:ANTH) is expected to have a busy H2/14 with blisibimod [b-mod]. Over the next month or so, the company is expected to take an interim look at the CHABLIS-SC1 trial in patients with lupus. The clinical/surrogate endpoint is a trend in the level of proteinuria and, while the interim look will not be confirmatory of the final results, it is an important catalyst and will give both the company and investors a first look at b-mod's post-PEARL-SC clinical trials.

    The interim look may influence a potential partner's decision to form a collaboration, and the company is hopeful one may finally be struck by the end of the year. Such a partner will help fund and coordinate the second lupus trial, which is ready to go and is expected to begin by H2/14. In addition, a look at Anthera's IgA nephropathy trial is due by end of Q3/14 or in early Q4/14. There is a lot of sound science behind BAFF [B cell activating factor] inhibitors including b-mod, and we are cautiously optimistic of the outcome.

    TLSR: John, thanks for your time.

    This interview was conducted by The Life Sciences Report and can be read in its entirety here.

    John McCamant is the editor of the Medical Technology Stock Letter, a leading investment newsletter. McCamant has spent more than 25 years on the frontlines of biotechnology investing. He has established an extensive network that includes contacts throughout the investment banking and venture capital communities. His expertise in biotechnology investments is a subject of media interest. He is frequently consulted and quoted by The Washington Post, Reuters, Bloomberg, CBS and MarketWatch.

    Want to read more Life Sciences Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

    DISCLOSURE:
    1) The editors of Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, conducted this interview, and provide services to Streetwise Reports as employees. They own, or their families own, shares of the following companies mentioned in this interview: None.
    2) The following companies mentioned in the interview are sponsors of Streetwise Reports: None. Streetwise Reports does not accept stock in exchange for its services.
    3) John McCamant: I own, or my family owns, shares of the following companies mentioned in this interview: Incyte Corp. and Novavax Inc. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
    4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
    5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.
    6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

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    Jun 19 3:34 PM | Link | Comment!
  • The Naysayers Are Wrong: Rohit Vanjani On How You Can Make Money With Generics And Diagnostics

    The concept that generic and specialty pharmaceutical drugs cannot command pricing power and growth is a misunderstanding, according to Director and Senior Analyst Rohit Vanjani of Oppenheimer and Co. Diagnostics also offer upside to investors: In fact, some recent returns disprove misconceptions in a spectacular fashion. The secret to making excellent margins in generics is to find markets where a vacuum has been created and product safety can be assured. The trick with diagnostics is to offer new tests that save steps, increase accuracy and reduce the burden on payers. In this interview with The Life Sciences Report, Vanjani discusses three names that fit the bill for investors seeking powerful growth in not-so-obvious sectors.

    The Life Sciences Report: Among other things, Rohit, you have a background as a wet lab bench researcher, performing investigations of specific enzyme epitopes and mitochondrial DNA. How does your experience in the lab inform your perspective of the drug development and lab industries?

    Rohit Vanjani: My experience in the lab has come in handy a number of times, most recently when I initiated on a company called OvaScience (NASDAQ:OVAS). This company's technology uses mitochondria from egg precursor cells to improve fertility. Having an understanding of the importance of mitochondria, and of other uses mitochondria may have beside oxidative phosphorylation, came in handy when I was looking at OvaScience's Augment [autologous germ-line mitochondrial energy transfer]. The idea is to improve egg quality by injecting mitochondria from the patient's own egg precursor cells into her mature egg during in vitro fertilization. One of the labs I worked in was involved with mitochondrial gene rearrangement, and that background certainly helps in following this stock.

    TLSR: Some investors have shunned generic drug companies because, compared to biotechs, they perceive low margins and low return on investment. They perceive there's no pricing power. Investors seem to think that way about specialty pharmas as well. First, are investor perceptions wrong? Second, can volumes and lower research-and-development expenses overcome the lack of pricing power?

    RV: I think the perceptions can certainly be wrong. It's not only on volumes and cost savings that generics can do well. Generic drug companies can be successful with the most basic item, which is taking price. There are opportunities in certain pockets of the market where generics have pricing power.

    What investors should be looking for is a market where there are a limited number of players, so that if a price increase occurs, the other generics will follow suit. Investors should also look for situations where a certain product is difficult to manufacture, which will limit the number of generic entrants. A third favorable situation is one in which the active pharmaceutical ingredients [API], or raw materials, for the drug are scarce. To your question, I think institutional investors understand that there is pricing power for generics in certain pockets. All you have to do is look at the returns on some of these names.

    TLSR: What about foreign competitors-particularly the generic drug makers in India?

    RV: It used to be the case, a few years back, that a generic company took price, and then the Indian generics would come in, whack the company with price competition and take a bunch of share. There are two things going on now that have changed the landscape. One is that the Indian generics have been hit with a slew of manufacturing issues. In the past few months a number of Indian drug ingredient manufacturers have failed plant inspections by the U.S. Food and Drug Administration [FDA]. This issue definitely created opportunities for other generics manufacturers. The second thing is that even if the Indian generics didn't have these issues, the Indian industry philosophy has changed somewhat. Indian generic firms have begun to act more rationally, rather than price compete.

    With all generics, the fear is that while they have pricing power in certain pockets, when does this end? When will companies stop being able to take price? When will other competitors come in and steal share? There is a limited window for these opportunities. A company had better have a long-term strategy to grow and get branded-type margins with branded-type products. I can give you examples of two companies that I follow that have addressed these issues.

    In the case of Lannett Company, Inc. (NYSE:LCI), its major franchise is a thyroid drug called levothyroxine. There are five players in the market. Since last August, there have been two significant price increases that, combined, have resulted in a greater than 100% increase on the price.

    With ANI Pharmaceuticals (NASDAQ:ANIP), its major drug is esterified estrogen/methyltestosterone [EE/MT], a menopause therapy. The main competitor, Amneal Pharmaceuticals LLC [private], fell out of the market last August, so ANI's share went from 20% to 90%. Not only has ANI grabbed a bunch of share, it has, concurrently, taken major price increases since the competitor left the market. The price has gone up more than 15 times. In both of those cases, the companies have seen a windfall in earnings.

    TLSR: But one company can't maintain 90% market share. This is a limited window, isn't it?

    RV: It is absolutely a limited window. What's making this still more complicated is that EE/MT is a Drug Efficacy Study Implementation [DESI] product, which means it is not formally approved by the FDA. Another issue is that the market for the drug is declining. Realistically, the only company that could come back into this market is Amneal, which I believe is working hard to find another API source so it can take back its share. If another company wanted to come in, it would probably have to get studies approved, which would be a two-year process. EE/MT, being a DESI product, limits who can compete.

    TLSR: This will put pressure on ANI, will it not?

    RV: Yes. ANI has realized part of the windfall, but I am modeling a base-case scenario of Amneal coming back by Q3/14. Any delays for Amneal are upside for ANI, according to my estimates.

    TLSR: Rohit, investors love this stock. ANI has more than quadrupled over the past 52 weeks, and even in the last month, during a market pullback, it is up 34%. Investors are still gobbling it up.

    RV: The whole sector took a hit at the end of March with the hepatitis C drug Sovaldi (sofosbuvir) pricing issue. Three congressional members sent a letter to Gilead Sciences Inc. (NASDAQ:GILD) about the pricing for Sovaldi, which is $84 thousand ($84K) per 12-week treatment. That set the whole sector in a tailspin, but it was also an excuse, I think, for investors to rebalance out of healthcare, which had such a great run last year. $84K is not the same as $200-300/bottle of generics, but it was a good excuse, and ANI got hit along with a lot of other stocks, becoming grossly undervalued. Then the company announced a major price increase on its EE/MT product, and shares went back up to where they were trading before the Sovaldi issue.

    TLSR: Investors bidding up ANI could have thought of it as an offsetting play, something of an arbitrage or a hedge. What's your target price on ANI?

    RV: I had initiated coverage with a $29 target price, but when new information became available on new price increases, I adjusted the model upward and moved the target to $40.

    TLSR: What is your growth theory for Lannett?

    RV: Lannett has a facility in Cody, Wyoming, where it manufactures controlled substances. This company is one of only seven in the U.S. allowed to import concentrated poppy straw, with which you can make Scheduled pain products. Over the next five years it wants to derive 50% of its revenues from controlled substances manufactured at its Cody facility. These are branded-type products, and it's a limited market set by the U.S. Drug Enforcement Administration. The company has visibility and pricing power that's helping the shares today, but I believe more in Lannett's long-term story, which is to leverage its Cody facility to get branded-type margins. That is the long-term thesis.

    TLSR: You had written a note about Par Pharmaceutical Companies Inc. [private], another generics and specialty pharma manufacturer, saying it had begun to take market share of digoxin, and that it had gone from 1% market share of digoxin to 5% market share in just one month, between January and February of this year. The question is, how much more can Par get, and how significant could that be for Lannett?

    RV: There is always a threat that a generic can come in and take share. Digoxin is an easier product to make, but Lannett's main franchise is levothyroxine, which is harder to make. In its guidance to the Street, Lannett says Par can take as much as a 20% share of digoxin. Par is already up to an 11% share, according to the most recent weekly prescription data, but there is always acceleration in the first quarter that the drug is out/launched. That acceleration is starting to curtail now; the pieces of share Par is taking are getting smaller and smaller.

    If Par can get up to a 20% share of digoxin, which I would say seems reasonable, that share grab is well understood by the market. At this point, it's about who else might come in. Some of the Indian generics, which were supposed to come into this market, are having issues at their facilities, as I've noted. Lannett may be able to keep its share of digoxin for a while.

    TLSR: What is your target price on Lannett?

    RV: It is $49.

    TLSR: You said this was a complicated story. How do you break down this company's valuation?

    RV: I value the company on four products, two of them diagnostics and two of them pharmaceutical products. One of the diagnostics is the 4Kscore Test, which will grow outside the 1 million [1M] biopsy market and move to the 30M total and free PSA market. In other words, it could begin replacing the PSA test. Then there will be adoption of the other diagnostic, the Claros 1 point-of-care test, where significant value will be derived from vitamin D testing.

    Then, on the pharma side, Rayaldee will penetrate and take share in the prescription vitamin D market; we will see that on the market in the 2015-2016 timeframe. Also, the company's hGH-CTP [human growth hormone] once-weekly dosing, versus current therapy's daily injections, will resonate with physicians and patients, and that product will take share in the human growth hormone market.

    TLSR: Thank you, Rohit.

    RV: Thanks for your time.

    This interview was conducted by George S. Mack of The Life Sciences Report and can be read in its entirety here. [5/22/14]

    http://www.thelifesciencesreport.com/pub/na/the-naysayers-are-wrong-rohit-vanjani-on-how-you-can-make-money-with-generics-and-diagnostics

    Rohit Vanjani is a director and senior analyst at Oppenheimer & Co. Inc., covering generics and specialty pharmaceuticals. Vanjani has been with the firm since 2011, initially working on the Healthcare Services Team (healthcare IT, PBMs, and labs). Prior to Oppenheimer, Vanjani worked at Jefferies, UBS and Leerink Swann & Co., helping cover biotechnology, managed care and hospitals, and specialty pharmaceuticals. He has also worked as an assistant economist at the Federal Reserve Bank of New York, and as an economics associate at Stanford University, helping to conduct healthcare economic research. Prior to those roles, Vanjani worked as a laboratory associate researching enzyme active site residues and animal mitochondrial DNA. Vanjani holds bachelor's degrees in biochemistry and economics from the University of Michigan, and a master's degree from New York University's Stern School of Business.

    Want to read more Life Sciences Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Interviews page.

    DISCLOSURE:
    1) George S. Mack conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.
    2) Streetwise Reports does not accept stock in exchange for its services.
    3) Rohit Vanjani: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
    4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
    5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.

    6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

    May 22 5:36 PM | Link | Comment!
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