Impact Of FDA Breakthrough Therapy Designation Speculative Biotechnology Stock Performance

Apr. 03, 2017 8:14 AM ETBLCM, BLUE, RHHBY, QURE, TNXP, TRVN3 Comments
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Summary

  • FDA Breakthrough Therapy Designation is an expedited development program ensuring patients access to better therapies as quickly as possible.
  • Speculative biotechnology stocks tend to increase in volatility and value following Breakthrough Therapy Designation.
  • Some stocks remain flat or even decrease after recent Breakthrough Status Designation, serving as a reminder that there is no sure thing in biotechnology investments.

Breakthrough Therapy Designation is described on the FDA website as "a process designed to expedite the development and review of drugs that are intended to treat a serious condition and preliminary evidence indicates that the drug may demonstrate substantial improvement over available therapy on a clinically significant endpoint(s)." It was signed into law in 2012, with the first full approval of a breakthrough designation candidate being only one year later. As of March 30, 2017, FDA has granted breakthrough therapy designation to 170 of the 505 total requests, and eventually approved 55 breakthrough therapy designated products.

The concept makes sense. If a new drug that aims to treat serious and life-threatening conditions shows unprecedented effect in early clinical trials, patients should not have to wait to receive treatment. A group called Friends of Cancer Research worked with partners in advocacy, regulation, drug development, and bipartisan congressional champions to take breakthrough therapy designation from concept to an expedited FDA development program. This ensures patient access to revolutionary drugs is as quick and effective as possible. A drug that receives breakthrough therapy designation is eligible for all FDA fast track features, intensive FDA guidance on an efficient development program (as early as phase 1), and organizational commitment involving FDA senior project managers.

FDA bases its decision to grant breakthrough therapy designation on scientific support for clinical endpoint(s). Studies that demonstrate a drug's effect on a surrogate or intermediate clinical endpoint must be "adequate and well controlled" as required by the FD&C Act. Using surrogate or intermediate endpoints can save valuable time in the drug approval process. Consider an example of cancer patients. Rather than wait for a study to complete a potentially lengthy overall survival measurement, FDA may approve a drug based on evidence of tumor shrinkage, associated with a shorter measure such as progression-free survival, because it is considered reasonably likely to predict clinical benefit (and hence prolonged survival of patients).

This well written article about the drug development process addresses the process and is worth a quick read. A cancer drug development company will still need to conduct studies to confirm that tumor shrinkage actually predicts that patients will live longer, which is sometimes a phase 3 or even a phase 4 clinical trial. One common question often asked by StrongBio stock club members (send email to join, its free) is, "will a company have to wait to market a drug until trials assessing secondary endpoint data or confirmational long-term effects of drugs on a patient population are completed"? So the answer can be yes or it can be no. The industry currently anticipates that primary consideration for marketing approval by FDA is primary endpoint result(s). So it depends what the primary endpoint of the trial is predetermined to be with FDA, in an advanced declaration called a special protocol assessment. Though caution is warranted when predicting clinical trial result interpretation by FDA, it is clear that shorter endpoint measures such as progression free survival were specifically developed by scientists and clinicians (over many years with massive resource allocation) as reliable metrics for early approval.

As a biotechnology stock investor, one valuable tool for learning about what therapeutic candidates FDA might favor, is the Friends of Cancer Research list of FDA Breakthrough Therapy Designations. If you have not included this or Knect365 lists as part of your due diligence, please consider doing it now. These lists consist of many indications in medicine, not just cancer. Many, but not all, of the stocks on this list have performed well, and having FDA in a supportive role behind a drug candidate has proven to have boosted confidence in these stocks when reviewed in articles analyzing how they are priced by the Street. Since excitement surrounds the designation, an increased stock price can be used to generate funds for the company to begin early manufacturing initiatives. In this way investors help serve those in need of life-saving therapies by funding faster production in hopes for a future payoff. Everyone can win in this positive scenario.

Genentech [Roche Holdings, (OTCQX:RHHBY)], with 15 breakthrough therapy designations, is a leader in the breakthrough designation category, with several rare and specialty indications. But with its multiple players and large market cap, it's more difficult to measure an effect of a breakthrough therapy on stock price. Factors that an investor should consider when looking at the designation is the potential market compared to company market cap. So Immunomedic's (IMMU) Sacituzumab Govitecan breakthrough therapy designation for triple negative breast cancer with a 6 billion dollar market and only 600 million dollar market cap might be seen as more attractive in contrast to RHHBY (market cap 216 billion) rituximab designation for pemphigus vulgaris, a rare autoimmune disease causing skin and mucosal membrane blisters, with estimated market in the low hundreds of millions. At the time (February 2016) IMMU reported its breakthrough therapy designation it was trading at about 2 dollars per share, and is now about 6.50 about a year later (after several futile attempts by short-sellers to discredit the company ultimately at breast cancer victim's expense), compared to RHHBY, which has moved from about 31 dollars per share since its Mar 21, 2017 announcement to 32 dollars this week. It is extremely unlikely rituximab will drive RHHBY to 105 dollars one year from now to match IMMU's market performance of Sacituzumab Govitecan. However, one should never underestimate the ability of big pharma to gain an expedited product approval and then have that product used for other indications "off label" when other treatments fail. For instance, rituximab has implications in treating Lupus, with an increasing 3.5 billion dollar industry by 2025. For the purpose of breakthrough therapy designation affecting stock price, StrongBio will focus on a few publicly traded (Novimmune, Rebiotix, and Rhythm are interesting but privately held companies) small market cap representatives in this article in order to make some conclusions, referring to larger market cap companies as a point of reference.

Like IMMU, Adaptimmune (ADAP) received breakthrough therapy status, but for affinity enhanced T-cell therapy targeting NY-ESO in synovial sarcoma in February 2016. With a market cap of under 400 million and a potential market in the low hundreds of millions per year in synovial (and other off label or future indication) sarcomas, this is certainly an attractive investment to StrongBio if weakness in market price should occur. Some investors regard ADAP as some of the best cancer work being done right now, and recommends it as a good investment in the 200 billion dollar immunotherapy cancer space. Having raised some funds recently and having strong partners, the stock has decreased in value from about 7 dollars per share to about 5.50, but has some recent positive momentum after raising funds in an offering at just over 4 per share. It was first covered by StrongBio at 4 dollars earlier this year. IMMU and ADAP have both shown to be somewhat volatile following breakthrough therapy designation, warranting scrutiny of timing before entering a long position based upon breakthrough designation.

Another stock, like ADAP, that has trended down since its breakthrough designation by FDA is Trevena (TRVN). TRVN has dropped over 50% since designation, February 22, 2016, shooting from 7 dollars per share to about 9 dollars per share, but is now trading at 3.65 per share one year later. TRVN's oliceridine, an acute pain control drug for treating moderate to severe post-bunionectomy or abdominoplasty, even met its phase 3 trial endpoints for pain control. But as this article summarizes well, may be seen as too expensive compared to morphine and other pain killers. This article by the Street makes a good case for TRVN in how oliceridine met pain control endpoints and potentially offers an advantage in a profile of side-effects including nausea, vomiting, and depressed breathing. However some of the side effects were not (yet) reported as statistically significant. With analyst price targets of 12 dollars and slew of legal class action threats that mimic the ones that IMMU had before its rapid price ascension, it is probably likely that once short sellers have covered TRVN will reach its targets. Certainly one to watch given this share weakness if one likes to use a contrarian approach. We know from StrongBio research done on the plastic surgery industry in previous articles that the industry is rapidly growing, and people don't seem to mind paying expensive prices. A more expensive but better pain killer may not be seen as a negative after all.

Kite Pharma (KITE), market cap 1.8 billion, received FDA breakthrough therapy designation in December, 2015 for its refractory aggressive non Hodgkin lymphoma candidate KTE-C19. The cancer market is in the 100 billion range, so this stock should be on just about every biotechnology enthusiast's radar. At that time KITE was trading at about 75 dollars per share after a ramp up from about 50 per share earlier that fall. The price of KITE settled back to about 40 to 50 per share from January 2016 to January 2017, only recently increasing to its current 78 dollar level. KTE-C19 is therapy in which a patient's T cells are genetically modified to express a chimeric antigen receptor targeting the CD19 maker, a protein expressed on the cell surface of B cell lymphomas and leukemia. Its breakthrough designation includes treatment of diffuse large B cell lymphoma, primary mediastinal B cell lymphoma, and transformed follicular lymphoma. Investors are optimistic due to early studies which have demonstrated 31% "curative" complete responses and remission in chemorefractory diffuse large B cell lymphoma patients after a single treatment. Analyst targets for KITE are at an average of 86 dollars per share. Timing is critical for a long position in this company, and as volatile as the share price has been over the last 2 years, anything is possible. Ironically, this stock has remained flat in spite of the volatility since breakthrough designation.

Juno pharmaceuticals (JUNO) [breakthrough designation December 2016 for JCAR017 for treatment of relapsed/refractory aggressive large B-cell maladies], Novartis, (NVS) [forPKC412 midostaurin for adults with FLT3+ AML and LEE011 combination with letrozole for treatment of HR+/HER2- advanced or metastatic breast cancer], and Bellicum pharmaceuticals (BLCM) [no breakthrough candidate] are also operating in this B cell cancer area, with emphasis being put on safety by limiting graft versus host risks of these robust anti-cancer therapies. Juno, with a 2.5 billion dollar market cap might be undervalued. Having recently discontinued development of its nicely active anti-cancer JCAR015 for ALL, due to safety issues, combined with its early FDA favor for JCAR017 plus immunosuppression regimen, and strong cash position of nearly 1 billion, one can make a good investment case on a further pullback. Immunosuppression drugs, cytokines, T-Cell, and stem cell therapies are all approaches designed to make these therapies less likely to attack healthy tissues. BLCM just raised money in an offering at 12 dollars per share, has a market cap of 330 million, and analysts average target at 27.50. StrongBio regards this option as potentially the best potential market to market cap ratio, should BLCM succeed in pulling down a share. Uniquely, BLCM technology involves modifying donor immune cells with a "kill switch" that is activated with administration of rimiducid. In an ongoing trial with 122 pediatric patients receiving partially matched donor stem cell transplants, five cases of uncontrolled graft versus host disease were resolved by the rimiducid-activated kill switch. Juno, Novartis, and Kite are good investment candidates with plenty of up-side, but the dominant market share will go to the company that best suits safety needs in graft versus host reaction. NVS is a giant with a monster market cap of 174 billion, making it more difficult to obtain a high return due to any sole candidate. So in this case perhaps riding the wing of an FDA breakthrough therapy status candidate could provide the best investment opportunity, via BLCM acquisition or stand-alone data. This creates a new category of investment candidates and fits the StrongBio contrarian outlook.

Exelixis Inc. (EXEL), with a 6 billion market cap, was granted breakthrough therapy designation by FDA for renal cell carcinoma with one prior therapy. As a more mature representative of the speculative designation class, its chart reflects a little more of a steady classic upward stair than a volatile up and down nausea inducer. Since the launch of its kidney drug, Cabometyx, has grown to about 27% of the 1 billion dollar market in renal cancer. At the time of designation, it traded at about 9 dollars per share, and now trades at about 21 dollars per share 18 months later. Having made efforts to decrease its debt, and expand its pipeline, and make international partners including Takeda Pharmaceuticals in Japan, the company is stabilizing and poised for stock growth, even with its fairly large market cap. The value of stability and income can never be underappreciated, nor can a nice stepwise ascension in stock price over 100% per year.

uniQure N.V. (QURE), a Dutch gene therapy company, received breakthrough therapy designation for AMT-060, its investigatory gene therapy in patients with severe hemophilia B. With a market cap of only 145 million dollars, its stock price is relatively flat since the announcement Jan 30, 2017. QURE has received regulatory approval in the European Union and carries a relatively low valuation compared to its peers, including Bluebird bio (BLUE), Avalanche (AAVL), and most recently Spark Therapeutics (ONCE). Briefly, gene therapy offers curative potential by inserting a gene encoding the expression of a therapeutic protein with a single administration. When a gene encoding a blood clotting protein is missing or mutated in hemophilia B patients, QURE technology introduces a copy of the proper gene to restore the presence of the clotting factor, preventing uncontrolled bleeding. Given its small market cap and high reward to risk ratio in this 10 billion full market for hemophilia, QURE could have some potential upward volatility in its future.

Tonix Pharmaceuticals (TNXP) is a unique company because it received breakthrough therapy designation in December 2016 for its post-traumatic stress disorder drug candidate, TNX-02 SL. TNX-102 SL is a protective eutectic oral formulation of cyclobenzaprine that allows for a rapid systemic exposure and increased bioavailability through transmucosal delivery to modulate sleeping cycles. Scientific mechanism of action is to block serotonin receptor 2A, associated with an increase in restorative slow wave sleep and a decrease in waking after sleep onset. With a market cap around only 18 million, there would seem to be a lot of upside to this reward to risk analysis. Tonix has advanced its candidate TNX-02 SL to phase 3. But TNXP is also plagued by typical early stage biotechnology company challenges, including having recently reverse split its stock to stay listed on the Nasdaq exchange, and recently raised 8 million in capital in an offering, providing the company with approximately 30 million in operating capital. Recently TNXP enrolled its first military related post-traumatic stress disorder patient in its study. Because this stock has not made much of a move yet, some potential for upward volatility remains for TNXP stock. Because there is a likelihood of another raise of cash, StrongBio would advise caution in investing heavily in spite of the wonderful cause.

The full scope of breakthrough designation grants is beyond the scope of a Seeking Alpha article, but demonstrated is the main point that FDA breakthrough therapy designation lists yield fascinating investment candidates. Remember there are no sure things in the stock market, and that investing in biotechnology includes a lot of variability in results, risks, and volatility. Investment strategies previously published by StrongBio best include timing entries of positions, making good critical selections of key growth, and optimizing foreseeable market favor. One way to maximize the chances of an optimal result for market favor is to diversify the portfolio with companies that have obtained FDA breakthrough therapy designation, especially when perceived as undervalued. Though there are no guarantees that the market is going to reward investors short term, in the long run it appears that most breakthrough designation candidates meet with success eventually. The charts also caution that volatility may be associated with these picks. StrongBio recommends putting candidates with FDA breakthrough therapy designation on the watch list and hedge in on pullbacks.

This article was written by

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Strong Bio is a growth-focused analyst seeking identification of unique investment opportunities in biotechnology that arise as high probability market niche innovation or expansion based on scientific peer-reviewed evidence supportive of novel mechanism(s) of action.  By diligently screening investment candidates in multiple biotechnology sectors, initial position recommendations and reinforcing position pricing profiles can be systematically evaluated citing fundamental trends for investors to exploit.  If you would like to request that Strong Bio publish an article on a company of interest, please request by private message.  Strong Bio reminds the reader that investment in biotechnology can be considered high risk, and diversification of assets is a necessity.  Strong Bio is a personal branding of F. Thomas Crump, Ph.D., in an attempt to communicate with a biotechnology stock club that got too large to communicate with by text.  Strong Bio mobile app under construction.
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Disclosure: I am/we are long IMMU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Secondary tickers include RHHBY, IMMU, ADAP, TRVN, KITE, BLCM, EXEL, JUNO, QURE, BLUE, AAVL, ONCE, TNXP but were not listed as options

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