Pfenex: The First U.S. Forteo Biosim And A Host Of Other Biosims In Pipeline

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About: Pfenex Inc. (PFNX)
by: Avisol Capital Partners
Summary

PFNX develops biosimilars to major drugs approaching patent expiry.

Its lead drug is a Forteo biosimilar targeting a $1.7bn market in osteoporosis.

Other pipeline drugs, a record of strong partnerships, etc. make this a derisked investment before PDUFA.

Using the 351(k) and the 505(b)(2) pathways, Pfenex (NYSEMKT:PFNX) develops biosimilars of major drugs that are going off-patent. It is currently developing biosims for four major drugs, Forteo, Lucentis, Neulasta, and Oncaspar, which together have worldwide sales reaching almost $10bn. Last year, its lead candidate PF708-301, a combination of an rDNA peptide and a delivery device, was shown to have comparable overall profiles with Forteo (teriparatide) after 24 weeks of treatment in osteoporosis patients.

The company has filed for regulatory approval in osteoporosis for a Forteo biosim, approval should be before year-end. Forteo has major patent expiry issues this year; however, PFNX will also face regulatory hurdles. PFNX also has a US govt-funded anthrax vaccine program. It has a solid collaboration with Jazz Pharma (NASDAQ:JAZZ) for Oncaspar and other drugs which yielded $18mn in payments last year. Other collaboration partners include Merck (NYSE:MRK), Alvogen, NT Pharma and so on. Deerfield is a major investor. Dow Chemicals is another. Overall, this is an interesting company with a fresh approach towards medicine, and we took a look at it using the IOMachine.

Catalyst

PF708, PFNX's lead drug and Forteo biosim, is targeting osteoporosis as a biosimilar of Forteo from Eli Lilly (NYSE:LLY), and has completed a Phase 3 trial. PDUFA date due Oct 7, 2019. An advisory committee meeting is not in the works as of now.

The company has also completed a Phase 3 trial for CRM197 as a pneumococcal conjugate vaccine and has entered registration phase.

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Previous trial data

PF708 has run through a successful phase 3 trial called the 301 study, which compared PF708 and Forteo after 24 weeks of daily injection in osteoporosis patients. The study enrolled 181 patients, 82 completed the PF708 treatment, while 81 completed the Forteo treatment. Primary endpoint was anti-drug antibody (ADA) incidence after 24 weeks of drug treatment. Secondary endpoints included mean percentage changes in lumbar-spine bone mineral density (BMD) and median percentage changes in bone turnover markers (BTMs) after 24 weeks of drug treatment.

The study showed the following:

There were two PF708-treated patients and two Forteo-treated patients that developed ADA during the study. These low rates of immunogenicity are consistent with historical Forteo results (~3%) in postmenopausal osteoporosis patients. At Week 24, there were two ADA-positive findings for PF708 compared with none for Forteo, but the difference was not statistically significant. The ADA findings in the two PF708 patients were low in titer and resolved during follow-up. One of the two patients had in vitro neutralizing activity transiently detected at Week 4. However, pharmacological activity, as assessed by increases in BMD and BTM, was observed during the study for this patient. There were no apparent safety issues or abnormal serum calcium levels related to ADA or neutralizing antibody findings. These findings are consistent with observations in follow-on biologics and biosimilars approved in the United States, with almost all of the products demonstrating an ADA treatment difference of less than 5% in comparative patient studies. PF708 and Forteo demonstrated comparable effects on lumbar-spine BMD, P1NP (N-terminal propeptide of type 1 procollagen), which is a marker of bone formation and CTX (cross-linked C-terminal telopeptide of type 1 collagen), which is a marker of bone resorption. There were no statistically significant differences in any of these parameters between PF708 and Forteo. There were no significant imbalances in AE incidences or severity profiles between PF708 and Forteo.

As we can see, PF708 does make the grade in terms of both safety and efficacy as compared to Forteo. The two ADA findings are also trivial occurrences, and do not appear to have any significance.

Execution

The company is well-funded, with a market cap of $182.61M, a cash balance of $63.65M as of the December quarter, and burn is -39.43M.

Here’s a chart showing recent insider buy/sells:

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And here’s a quick snapshot of fund ownership:

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Pfenex seems to be very good with its collaboration efforts. It has a development, marketing and litigation assistance collaboration in the US with privately-held Alvogen, where it gets potential milestone payments of upto $25mn as well as upto 50% royalty rates if the drug gets an AP rating. All ratings beginning with an A in the FDA Orange Book means the drug is therapeutically equivalent to its reference drug, in this case Forteo. The P stands for injectable aqueous solution. So, AP means PF708 is an injectable aqueous solution that is bioequivalent and therapeutically equivalent to Forteo. Given what we know of the trial data, an AP rating seems like a given.

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In the ROW geography excluding certain other partnerships, Alvogen will give a lower milestone but a higher royalty, at 60%.

The company has an agreement with NT Pharma for China and other Asian countries where it will get a double-digit royalty.

For its oncology drugs, it has a collaboration with Jazz Pharma. Its CRM197 vaccine collaborates with Merck...and so on. Overall, this little company is quite an adept at forming partnerships.

Competition

In the US, PF708 will compete with Forteo itself, which, if the drug gets an AP rating, will not be a major competing force. LLY had a legal battle with Teva (NYSE:TEVA) a few years ago when the generic giant was preparing to launch its own generic version of Forteo. It appears that LLY has given up on that fight. Indicative of that, PFNX recently announced that the 45-day waiting period under the Hatch-Waxman Act, where "Lilly had 45 days from the receipt of the Notice Letter to file a patent infringement lawsuit against Pfenex that would cause a 30-month litigation stay of approval for PF708" is now over.

In its corporate presentation, PFNX mentions some of the regulatory issues facing Forteo. From all this material, it appears that we can safely assume that PFNX has won the litigation hurdle before it properly started.

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Another major competitor is Radius Health's (RDUS) Tymlos launched in 2017, which is not a biosimilar competition of Forteo; rather, the company claims that it is an improved version of Forteo. The drug had net sales of almost $100mn in the first full year after launch. Tymlos appears to be priced at a decent discount to Forteo; however, a Forteo biosimilar will probably be priced much cheaper, and will have its own niche given that whatever the benefit of Tymlos, Forteo, with $1.7bn in 2017 sales, is not a throwback either.

In Europe, Gedeon Richter’s Terrosa and Stada’s Movymia are teriparatide (Forteo) biosimilars already approved for marketing. So PF708 will face stiff competition there. However, PF708 will be the first teriparatide biosim in the US. It should hold this lead for a few years to come given that biosimilar market entry is much more difficult than small molecule generic competition.

Risks

Failure to get approval is of course a standard major risk here. However, given the strong data, and the relatively relaxed 505(b)(2) regulatory pathway, we doubt the risk is too high. The other risk used to be cash, and we doubted if the company would have adequate cash to carry on R&D and then attend to marketing costs. But the Alvogen partnership has effectively taken out that risk from the table.

There are also competition risks. In Europe, this is strong. In the US, we have Tymlos, but it appears that the markets are different here. One is a claimed improvement over Forteo itself, and priced at a discount; the other is not an improvement of what is already quite a good drug, but should be priced very competitively. Just a 5% market share achievable in say two years will bring PFNX revenues to nearly $100mn. For a sub $200mn company, that's a lot of room for upside.

Opinion

PFNX has been one of the stocks we recommended to our subscribers last year, when it was trading at half its current prices. The stock is still subdued because we think the market is jittery about the AP rating, LLY’s decision to sue or not to sue, and the competition. However, all of these, as we discussed here, seem to be mitigated risks. Even the cash situation has improved, with more milestone payments to come. The risk was one of execution, and this small company seems to have been pretty nifty with it. This seems to be a great buy now at these prices, with a window for profit near the PDUFA date, and probably a longer-term hold for a trimmer batch of shares for sales figures to come in, and the rest of its pipeline to come to market.

Disclosure: I am/we are long PFNX. 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.