Prolor Biotech: A Solution to Big Pharma’s Problems

by: Joseph Krueger

In my last article I wrote about how 2010 is shaping to be an amazing year for biotech, probably to a degree not seen since the biotech boom of 1999.

I described the pressures that are mounting on big pharma that will drive an acquisition and partnership spree which would benefit biotech:

-Blockbuster drugs are going generic

-A more nationalized healthcare system may not pay for expensive biologics

-Big pharma needs to come up with new drugs and applications that will fit under the intentions of the pending health-care bill.

The most obvious solution for this problem is for big pharma to acquire new drugs that match the indication and purpose of their current revenue generating drugs that are threatened with patent expiration. These types of drugs are often called “biosimilars”, and these drugs have reduced development risk, as their biology and mechanisms are known, and a company can maintain its market share of an expiring drug by “replacing” the current marketed drug with the “new version”.

One significant advantage to the biosimilar development approach is the expedited clinical development process leading to approval. Biosimilar replacements for currently marketed biologics can now gain approval with an Abbreviated New Drug Application (“ANDA”) under the new Biosimilars Amendment (Hatch-Enzi-Hagan Amendment) in the “Affordable Health Choices Act” passed in July 2009. In order to gain approval, the company must show that the biosimilar has the “same active moiety,” and a demonstration of pharmaceutical equivalence and bioequivalence to the reference listed drug. The biosimilar must be highly similar to reference notwithstanding minor differences in clinically inactive ingredients; no clinically meaningful differences in safety, purity, potency compared to the reference. Thus there is a faster pathway to market, with significantly reduced regulatory burden. In addition, these biosimilars fall under new patent protection, effectively extending the exclusivity of the old drug it is replacing.

I suggested that the investor best take advantage of this situation by looking for companies which are ripe for a buyout or lucrative partnership. More specifically, look for small biotech companies that have technology or biosimilar drugs which will help big pharmaceutical companies overcome the current stresses.

PROLOR Biotech

PROLOR Biotech, Inc. (NYSEMKT:PBTH), formally known as MODIGENE, is exactly such a company. PROLOR is a biopharmaceutical company developing such biosimilars, which will enable big pharma to re-market new, more effective versions of their existing drugs and extend the life of their patents by modifying their therapeutic proteins. PROLOR is applying its patented “CTP technology” to develop longer-acting, proprietary versions of already approved therapeutic proteins that currently generate billions of dollars in annual global sales.

PROLOR Biotech`s technology is the use of a naturally occurring amino acid sequence called CTP to slow the removal of therapeutic proteins from the body without increasing toxicity or altering the overall biological activity. By adding this CTP sequence to different therapeutic proteins, the life span of the CTP-modified therapeutic proteins are dramatically increased. The CTP technology is applicable to virtually all proteins and PROLOR is currently developing long-acting versions of human growth hormone, which is in clinical development, and interferon beta, factor VII, factor IX and erythropoietin, GLP-1, and other therapeutic peptides.

As natural substances, the body has normal routes of degradation and elimination for biologicals. As such, they have to be administered repeatedly through injection to maintain adequate levels in the body. One simple way to fix this problem (in concept) is to modify the protein to last longer in the body; providing longer and better efficacy, and less frequent dosing. This is usually attempted by increasing the size and structure of the therapeutic protein so that degrading enzymes cannot access the protein. This is accomplished by attaching large polymeric chains to the protein (PEGylation), carbohydrate structures to the therapeutic protein (glycosylation), or by attaching other large, non-active proteins that have longer life spans compared to the target therapeutic protein.

However these modifications introduce their own problems. The modified protein may be less potent or may no longer be functional. This process may require making mutations in the protein, which can often generate unexpected adverse reactions, resulting in potentially toxic effects. The body may also recognize the altered protein as a foreign substance that it should fight off, and develop an immune response against the molecule, causing side effects and rendering it useless.

Successful biologicals

Thus, the creation of a successful, non-toxic and non-immunogenic long-lasting therapeutic protein is a very "tricky" process. As proof of the size of these hurdles to overcome, these approaches have only been successful with three therapeutic proteins on the market. Schering-Plough (now Bayer (OTC:BYERF)) and Roche (OTCQX:RHHBY) independently developed a PEGylated form of interferon alpha (INF-alpha) used to treat hepatitis C, called PEGIntron and Pegasys respectively. Amgen developed Aranesp, a glycosolated eurythopoetin; and Neulasta, a glycosolated G-CSF. Collectively, these three products have revenues of more than $8 billion a year, demonstrating the need and value of developing improved therapeutic proteins.

PROLOR’s CTP can readily be attached to a wide array of existing therapeutic proteins, stabilizing the therapeutic protein in the bloodstream and greatly extending its life span without additional toxicity or loss of desired biological activity as found using other methodologies. CTP-modified proteins can be manufactured using established recombinant DNA techniques widely used in the manufacture of biologicals. Proteins utilizing CTP have been shown to have up to 10 times longer biological half life time as compared to the commercial non fused protein, resulting in 55 times longer exposure!

PROLOR licenses the intellectual property necessary to perform this work. Its license is exclusive, with the right to sub-license, for all therapeutic proteins and peptides. Its license specifically excludes four endocrine proteins - LH, FSH, TSH and hCG, which were previously licensed exclusively to Schering-Plough. However, even with these few exclusions, successful application for this technology is potentially an $80 BILLION market! The successful application of CTP to any of the following already marketed drugs would potentially yield the same revenues as their currently marketed biologicals. A number of inflammatory diseases, such as rheumatoid arthritis, are treated with biological drugs which are administered by injection. Among the currently approved treatments, Enbrel (etanercept), Rituxan/Mab Thera (rituximab) and Remicade (infliximab) have been on the market for more than a decade and will lose patent protection in the next few years. The high revenue from these drugs is likely to make companies developing biosimilars strong candidates for partnerships or buyouts. For large pharmaceutical companies with the capability to produce biologicals, and the money to invest in their development, there is enormous potential in this high-value market.

Potential markets:

$16 Billion: Anti- TNF Antibodies (Enbrel, Remicade, Humira, Cimzia)

$16 Billion: Anti- Cancer Antibodies (Rituxan/ MabThera, Herceptin, Avastin,

Erbitux, Vectibix)

$12 Billion: Insulin and Insulin Analogs (Humalog, Humulin, Lantus, Levemir,

Novorapid, Actrapid, Novolin)

$11 Billion: Erythropoietins (Aranesp, Procrit Eprex, Epogen, Neo-

Recormon, ESPO, Dynepo, Binocrit )

$8 Billion: Interferons (Avonex, Rebif, Betaferon / Betaseron, Pegasys, Peg- Intron, Intron A)

$6 Billion: G- CSF (Neulasta, Neupogen, Neutrogin) $6 Billion

$6 Billion: Coagulation Factors (Novoseven, Kogenate, Helixate, Refacto,

Advate, Recombinate, Benefix)

$3 Billion: Enzyme Replacement (Cerezyme, Fabrazyme, Aldurazyme,

Myozyme, Replagal, Naglazyme, Elaprase)

$3 Billion: Human Growth Hormone Genotropin, Norditropin, Humatrope,

Nutropin, Saizen, Serostim, Omnitrope)

$2 Billion: Ophthalmic Antibodies (Lucentis)

$1 Billion: Antiviral antibodies (Synagis)

Total: $80 Billion (figures based on 2008 sales)

PROLOR’s CTP modified proteins fit under the new ANDA umbrella, allowing a quick time-to-market and instant revenue generation. The value of the CTP technology and speed of regulatory approval has already been proven by Merck & Co: Merck & Co (NYSE:MRK) has used the CTP technology to extend the life of Follicle-Stimulating Hormone (FSH) for fertility treatments. Merk's FSH-CTP requires only one injection, compared to the seven injections required for the regular FSH treatment. After a successful phase III human clinical trial, in November 2009 the European Medicines Agency gave Merck & Co. a positive opinion for marketing approval in Europe for FSH-CTP, now branded as ELONVA®. Merck & Co.'s success indicates that the addition of CTP to existing therapeutic proteins is commercially viable.

As testament to the speed at which the CTP modified proteins can move through clinical trials, in September 2009 PROLOR announced that they would be initiating their phase I trial of CTP modified hGH (human growth hormone). In January 2010, they announced that they will present the complete data on February 8-9, 2010. That is only 4 months for a completed trial! To date Prolor has been issued by the U.S. Patent Office two new proprietary patents covering our long-acting hGH and EPO drug candidates. PROLOR has a deep pipeline of CTP modified biologicals, which are strategically chosen to meet the current unmet needs for them:

MOD-4023: hGH-CTP – $3 billion current market, no available long-lasting therapeutics

MOD-9023: IFN-ß-CTP – $5 billion current market, no available long-lasting therapeutics

MOD-5023: Factor VIIa-CTP – $1 billion current market, no available long-lasting therapeutics

MOD-7023: EPO-CTP - $11 billion current market, available long-lasting therapeutics

MOD-1001: GLP-1-CTP – $1 billion estimated potential market, no available long-lasting therapeutics

MOD-1002: OBES-CTP – $5 billion estimated potential market, no available long-lasting therapeutics

In 2010, the efforts of PROLOR are paying off and it is attracting a lot of well deserved attention for its progress:

On January 25th, 2010, PROLOR Biotech reported positive results from a comparative study of its longer-acting version of the multiple sclerosis drug Interferon Beta (IFN-beta-CTO) in primates . The study results showed that PROLOR's CTP-modified IFN-beta showed 13 times prolonged durability (half-life), and 55 times prolonged overall exposure and enhanced biological potency. The expanded biological potency seen in this new study is consistent with the results of a previous study in mice conducted by PROLOR, which compared the anti-tumor activity of IFN-beta-CTP to commercially available IFN-beta in a model of human cancer. In that study, IFN- beta-CTP showed 100% inhibition of human melanoma tumors implanted in nude mice after eight days and 87.5% inhibition after 10 days, versus 50% inhibition with commercially available IFN-beta after eight days and just 12.5% inhibition after 10 days. Development of this drug may allow PROLOR to tap the $5 Billion market for IFN-beta in MS and its enhanced efficacy may allow it to enter the cancer therapy market as well.

On January 19, 2010, PROLOR announced that final data from a randomized, dose-escalating Phase I clinical study of its longer-acting version of human growth hormone (hGH-CTP) will be featured in an oral presentation by PROLOR management at the 12th Annual BIO CEO & Investor Conference to be held at the Waldorf-Astoria Hotel in New York City on February 8-9, 2010. The presentation which will also include an update on progress in other PROLOR programs. I expect this presentation to open up investors eyes to PROLOR, and see the close-range $25 BILLION market its pipeline biosimilars can tap. With approval of its furthest along biosimilar, CTP IFN-beta, it could easily conquer most of that $5 BILLION market share through partnership with any one of the major companies who has this type of product on market. This alone would make the value of PROLOR at least $1 billion, or 10 times its current market cap. This is without considering any of its other pipeline products.

However, I feel that PROLOR will not get the opportunity to ever develop such a partnership, because it is an obvious target for a buyout. Given that its pipeline can potentially replace much of the $18 BILLION biologics market, and solve the problem of these drugs coming off patent, the value of its pipeline (if successful) is at least $5 billion. With a clean balance sheet, and a fast moving pipeline, PROLOR is exactly the kind of company that will be snatched up at a very high premium to its current market value very soon.

Disclosure: I have a long position in PBTH