New Developments In Lipids To Watch Closely

Includes: APEN, REGN, VRX
by: Cris Frangold

Lpath (LPTN) is engaged in the discovery and development of monoclonal antibodies that neutralize bioactive lipids. The study of lipids (called lipidomics) is a growing field of research that has already identified dozens of bioactive lipids that contribute to disease, with the promise of many more as research continues to gather pace. Functioning in the role of tiny messengers, bioactive lipids are important for their role in cellular function (cell division, cell death, cell migration) and their dysregulation can therefore contribute to disease. Bioactive lipids, for example, can cause pain and inflammation as well as protect cells from dying, which is not a desirable effect when you are dealing with cancerous cells. Once a disease-causing lipid is identified, however, the problem becomes the generation of a compound that neutralizes the identified bioactive lipid. With its ImmuneY2 platform technology and robust patent portfolio, Lpath is well positioned to meet the challenge and benefit from its technical expertise.

By using proprietary and patented technology, Lpath has been able to develop monoclonal antibody drug candidates against two bioactive lipids which are well-validated targets: S1P and LPA. Its lead product candidate, iSONEP (an anti-S1P antibody), is currently in a phase 2 clinical trial (nexus) to determine the effectiveness, given alone or in combination with Lucentis or Avastin, in patients with wet AMD, an ocular disease that often results in blindness. In the phase 1 trial in wet AMD patients, iSONEP met the principal objective of being well tolerated in all 15 patients. No serious adverse effects related to the drug were reported in any of the patients. iSONEP also succeeded in meeting a key secondary endpoint in that positive effects (including lesion regression, reduction of retinal thickness, and resolution of pigment epithelial detachment) were seen in a number of patients. In December 2010, the company announced a collaboration agreement with Pfizer (NYSE:PFE) for the further clinical development of iSONEP. If it succeeds, the company stands to earn payments of over $500 million plus double-digit royalties. There was a setback in January 2012 when the FDA suspended the clinical trial because of problems with one of Lpath's contractors, but the whole suspension was removed on August 27, 2012 and the trials have been resumed.

Lpath's second product candidate, Asonept, is a monoclonal antibody against sphingosine-1-phosphate (S1P) that has completed a phase 1 clinical trial in cancer patients where it was well tolerated. A phase 2 clinical study will commence this year and recent research suggests that this approach may also work with other diseases like multiple sclerosis and colitis. The third product candidate, Lpathomab is a monoclonal antibody against lysophosphatidic acid (LPA), a bioactive lipid that has been identified as being involved in diseases of the central nervous system. The results of preclinical trials have been promising.

The company announced a 1-for-7 reverse split of issued and outstanding common stock. This is to enable the company to meet Nasdaq listing requirements and the company believes that the listing and the split should make the stock more attractive for institutional investors. This will reduce the amount of stock from around 73 million shares before the split to around 10.5 million shares after the split. The company also announced that it has received confirmation that its application to list the company's common stock on the Nasdaq Capital Market has been approved by the Nasdaq Stock Market, a unit of the Nasdaq0 OMX Group. Lpath common stock was expected to begin trading on the Nasdaq Capital Market at the opening of trading on October 22nd, 2012 under the ticker symbol, LPTN.

In considering Lpath as an investment candidate, investors should closely monitor the U.S. Food and Drug Administration (FDA) regulatory risk and the possibility that the company may not be able to meet the milestones necessary to receive the payments from Pfizer. However, the Pfizer deal adds credibility to the technical skills of the company, and encouraging phase 2 trial data should see a nice bounce in the stock price. If you are comfortable with the risk, you should consider investing in Lpath with the expectation of favorable upcoming trial results.

Regeneron Pharmaceuticals (NASDAQ:REGN) is an integrated biopharmaceutical company that develops, manufactures, and commercializes medicines for the treatment of serious medical conditions. It markets two products in the U.S., Eylea (aflibercept) injection and Arcalyst (rilonacept) injection for subcutaneous use. The company has filed applications with the FDA for second indications for Eylea and Arcalyst and for the product candidate Zaltrap (ziv-aflibercept) concentrate for intravenous infusion. Phase 3 studies are in progress with Eylea in two additional indications and with product candidates Sarilumab and REGN727. Regeneron has active research and development programs in many areas, including ophthalmology, inflammation, cancer, and hypercholesterolemia.

Regeneron reported total revenues of $304 million in the second quarter and $536 million in the first half of 2012. Total revenues included Eylea net product sales of $194 million in the second quarter and $318 million in the first half of 2012. The company reported non-GAAP net income of $102 million, or $0.90 per diluted share, in the second quarter and $142 million, or $1.28 per diluted share, in the first half of 2012. Non-GAAP net income excludes non-cash share-based compensation expense and non-cash interest expense related to the company's convertible senior notes. Regeneron reported GAAP net income of $77 million, or $0.70 per diluted share, in the second quarter and $88 million, or $0.81 per diluted share, in the first half of 2012.

Eylea, for the treatment of patients with neovascular (wet) age-related Macular Degeneration (wet AMD) was given a Priority Review by the FDA, a status that is given to drugs which offer major advances in treatment, or provide a treatment where no adequate therapy exists, and approved in November 2011. AMD is a major cause of acquired blindness. Macular degeneration can be either dry (non-exudative) or wet (exudative). In wet AMD, new blood vessels grow beneath the retina and leak blood and fluid causing disruption and dysfunction of the retina and creating blind spots in central vision. Wet AMD is the leading cause of blindness for people over the age of 65 in the U.S. and Europe. In September 2012, the company announced that the FDA has given a second approval for Eylea (aflibercept) injection for the treatment of Macular Edema following Central Retinal Vein Occlusion (CRVO).

Eylea is capturing market share from the blockbuster drug Lucentis which generated sales in the region of $1.4 billion for Roche Holding AG (OTCQX:RHHBY). The drug which has hefty operating margins of around 90% had captured a market share of 14% and Regeneron was prompted to lift its sales guidelines to $700 million to $750 million. In the U.S., all revenues flow directly to the company and, overseas the company has partnered with pharmaceutical giant Bayer (OTCPK:BAYRY), who will market the drug and pay Regeneron a 50% royalty. The global market for wet AMD treatments is in the region of $4 billion annually.

Regeneron also has an extremely impressive drug pipeline, and Zaltrap, which is used in the treatment of previously treated colorectal cancer patients, has received priority review designation from the FDA. In the U.S., over 100,000 cases of colorectal cancer are diagnosed every year and there are over 50,000 deaths annually. If the drug is approved, the company will earn royalties of 50% on sales by its partner Sanofi (NYSE:SNY) for sales in Europe. The partnership with Sanofi extends to the company's REGN727 drug, which just entered phase 3 trials with 22,000 patients. This could be another large market opportunity because it is estimated that 63 million people suffer from elevated LDL despite the availability of current market treatments. Sanofi pays for 100% of pre phase 3 development costs and will pay $160 million annually through 2017 for antibody discovery.

Regeneron is a biotech company that is really going to go places with impressive partnerships, one potential blockbuster drug already in the market and a strong and promising drug development pipeline. The company is financially sound with around $570 million in cash and manageable levels of debt. I see plenty of upside because of the strong possibility of a flow of favorable developments through this year and the next year and I have no hesitation in recommending this stock to investors.

Valeant Pharmaceuticals (NYSE:VRX) is a multinational specialty pharmaceutical company that manufactures and markets a broad range of pharmaceutical products primarily in the areas of dermatology, neurology and branded generics. The company's results for the second quarter were satisfactory, and all the businesses delivered positive revenue growth with the exception of the U.S. Neurology and Other segment. Total revenue was $820.1 million in the second quarter of 2012, as compared to $609.4 million in the second quarter of the previous year which is an increase of 35%. Product sales were $748.7 million as compared to $530.0 million in the same quarter of 2011 which is an increase of 41%.

Valeant's business continued to show strong organic growth. The same store organic growth was approximately 6% and pro forma organic growth was around 10%. The U.S. Dermatology business continued its exceptional growth performance in the second quarter. Included in total revenue for the second quarter of 2012 was $45.0 million of alliance and royalty revenue in connection with the milestone payment for the U.S. launch of ezogabine (Potiga) from GlaxoSmithKline (NYSE:GSK). The second quarter of 2011 had included $40.0 million of alliance and royalty revenue and in connection with the milestone payment from GlaxoSmithKline for the European launch of retigabine (Trobalt). The company recorded a net loss of $21.6 million for the second quarter of 2012, or $0.07 per diluted share. On the basis of cash EPS, adjusted income was $314.5 million, or $1.01 per diluted share. Excluding the Potiga milestone payment, adjusted income was $269.5 million, or $0.87 per diluted share. GAAP cash flow from operations was $254.6 million in the second quarter of 2012, and adjusted cash flow from operations was $307.5 million in the second quarter of 2012. Both figures include the milestone payment of $45.0 million.

Valeant also announced the acquisition of Visudyne, which is used to treat abnormal growth of leaky blood vessels in the eye caused by wet age-related macular degeneration. The treatment was acquired from, from QLT (QLTI) and Valeant paid $62.5 million upfront for all U.S. rights and available inventories for Visudyne, which had U.S. revenue of approximately $21 million in 2011. Another $50 million is payable upfront for rights to non-US royalties on Visudyne sales, which were approximately $14 million in 2011. Valeant has also agreed to pay $5 million in contingent payments relating to the development of QLT's laser program in the U.S. and up to $15 million in contingent payments relating to the non-U.S. royalties.

Valeant has a business model that is based on mergers and acquisitions to grow revenues and the latest of these acquisitions is the deal to acquire Medicis Pharmaceutical (MRX) for $2.6 billion, or $44 a share. Instead of investing billions of dollars in research and development, some 50 mergers and acquisitions have been completed in the last four years and the acquisition of Medicis is expected to take total revenues to $4.5 billion and provide $225 million annually in cost savings by combining some of the operations. The business model that this company has adopted has the benefit of considerably reducing the high risk of the biotech business because it concentrates on acquiring companies with established products that have commercial potential. If you are interested in investing in the biotech sector, this is one company that you should definitely keep an eye on.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.