Inflammatory Bowel Disease, or IBD, represents a tremendous area of unmet medical need. With no cures available throughout the many different indications that are subsets of the disease, scientists are looking to develop innovative therapies that could capture substantial market share and provide patients some much-needed relief. Two of the big boys in the space are Bausch’s (NYSE: BHC)(TSX: BHC) Salix Pharmaceuticals and Alfasigma S.p.A., which have teamed up on one drug and are making separate moves with others to address the large IBD opportunity.
Most recently, it was disclosed Monday morning that Alfasigma partnered with Innovation Pharmaceuticals (OTCQB: IPIX), taking responsibility for completing development of Brilacidin as a new drug for the IBDs ulcerative proctitis (UP) and ulcerative proctosigmoiditis (UPS). A major pharma with a global presence, the new deal between Alfasigma and Innovation caught investors’ attention, sending IPIX stock up 44% in Monday trading.
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By the start of 2015, Salix was widely recognized as a leader in gastrointestinal medications, with 22 drugs and drug candidates in its portfolio. As such, Bausch, then operating under the name Valeant Pharmaceuticals, swooped in and paid $158 per share of SLXP in a deal with a total enterprise value of $14.5 billion as it looked to jump in the GI space.
With the acquisition, Bausch made Salix a wholly-owned subsidiary, bringing the marketed GI drugs Xifaxan, Uceris, Relistor and Apriso under its umbrella, along with a host of other pipeline drug candidates.
Bausch isn’t shy about spending money to keep Salix on top, growing its market footprint by paying about $195 million in cash and assuming certain liabilities of bankrupt Synergy Pharmaceuticals earlier this year to strengthen its GI portfolio. They buyout gave Salix Synergy's flagship product, TRULANCE® (plecanatide), a once-daily tablet approved for adults with chronic idiopathic constipation and irritable bowel syndrome with constipation (IBS-C) and an investigational compound called dolcanatide, which is in early development for multiple GI conditions.
Alfasigma Making Deals
Xifaxan (rifaximin), a drug for inflammatory bowel syndrome with diarrhea that Salix licenses from Alfasigma, is without a doubt one of the important drugs in Bausch’s product bag, with revenue increasing 22% in 2018 versus 2017. 2019 got off to a good start too for Salix, which boosted revenue to $445 million, up 5% from the year earlier on the back higher sales of Xifaxan and Relistor.
In October, Alfasigma and Salix expanded their relationship, agreeing to initiate a late-stage clinical program to study an investigational formulation of Xifaxan in patients with postoperative Crohn's disease.
In order to build its North American presence, Alfasigma struck a deal in 2017 with Nestlé Health Science (OTCPK: NSRGY) to buy its U.S. medical foods unit, Pamlab. Financial terms weren’t disclosed, but it was noted that Pamlab, which has since been renamed Alfasigma USA, had annual turnover of approximately $106 million annually. Coupled with its Sigma-Tau Healthscience USA subsidiary, Alfasigma has a U.S. sales force of more than 150 people generating expected revenue around $200 million.
Brilacidin for UP/UPS
Alfasigma apparently isn’t looking to release its clutches on the gastrointestinal space. In fact, the agreement with Innovation Pharma speaks to its commitment to it.
Innovation’s Brilacidin represents a new class of drug called “defensin mimetics,” meaning that they act similarly to the front line of the body’s innate immune system. These are synthetic small molecules with a wide spectrum of activity owing to their immunomodulatory, anti-inflammatory and antibiotic properties.
The company has taken a diverse approach to developing Brilacidin, collecting a slew of data via successful completions of a Phase 2b trial of an IV formation for Acute Bacterial Skin and Skin Structure Infections, a Phase 2 trial of an oral rinse formulation for preventing Oral Mucositis in Head and Neck Cancer (HNC) patients receiving chemoradiation and a small Phase 2 trial as a retention enema for treating UP/UPS.
IPIX management made it clear all along that it intended to forge partnerships for late-stage development of Brilacidin so it can keep the entire franchise moving forward. That’s exactly where Alfasigma and Innovation were a perfect fit for each other.
For starters, Alfasigma is looking for its next IBD blockbuster and Brilacidin is at a good starting point for a deeper analysis. The data from the Phase 2 proof-of-concept trial, presented at the Crohn’s & Colitis Foundations IBD Innovate 2018, showed clinical remission at Day 42 as measured by Modified Mayo scoring for the majority of patients treated with Brilacidin. Further, mucosal healing was evidenced by endoscopic review. The trial wasn’t large, but the protocol didn’t cut any corners to demonstrate the potential of the drug, which must have impressed Alfasigma leadership.
Second, today’s GI drugs come from less than a dozen different classes of medicine. Many of the most prominent ones are tumor necrosis factor alpha inhibitors, aminosalicyclates, immunomodulators and corticosteroids. Unfortunately, many of the approved drugs are linked to adverse events, including negative long-term immunologic impact.
In short, IBD is ripe for innovation. As stated, Brilacidin is a new class of drug with a novel mechanism of action that is theorized to act in part by inhibiting Phosphodiesterase 4 (PDE 4), which presents in immune cells, while possibly compensating for defensin deficiencies common to immune diseases.
Third, while details of the partnership were not disclosed, they look from the surface to benefit both parties. Alfasigma is getting a novel drug candidate for an indication (UP/UPS) that is of extreme interest. Bringing Brilacidin on board provides solid horizontal expansion in the IBD space for Alfasigma.
The UP/UPS market is much smaller segment of the GI market and likely will max out in the range of $100 million in annual sales. That’s great for a big company like Alfasigma generating over a $1 billion a year with a massive sales team and footprint in nearly 100 countries. Spending $50 million or so to complete development can produce a nice return on investment.
For Innovation, it’s a value-building win-win. The company stands to collect over $24 million in upfront and milestone payments plus a 6% royalty on net sales should the drug reach commercialization. So, if sales peak even at $75 million, over the course of a decade that’s $45 million to Innovation, non-dilutive money that it can use to target bigger markets, like UC, Crohn’s and OM.
To that point, analysts at ResearchandMarkets estimate the OM market at $2.0 billion currently. There are zero FDA-approved drugs for the disorder that frequently presents in HNC patients treated with a battery of chemo and radiation. With the end-of-phase-2 meeting with the FDA in the books, Brilacidin oral rise is a Phase 3-ready asset.
Remember, Brilacidin is a drug that the company picked up for a song (~$5 million in cash and stock).
Then there is the immeasurable. This includes no more capex or resources on UP/UPS while it is in the expert hands of Alfasigma. It also involves sharing knowledge gained by Alfasigma in developing Brilacidin for UP/UPS that is pertinent to other developments with the drug. Those things are priceless.
Innovation leadership has reiterated that it wants to develop an oral formulation of Brilacidin to treat other forms of IBD. That’s always been the end game. It’s not hyperbole to estimate the market for an oral drug, a non-biologic, for IBD to reach into the billions of dollars considering GBI Research forecast the GI therapeutics market will reach $48.4 billion by 2022.
In order to make the pill (or capsule or tablet), Innovation has partnered with BDD Pharma to utilize BDD’s award-winning OralogiK™ technology in developing Brilacidin in oral form for targeted delivery to the colon.
Effectively, the company took the low-hanging fruit with UP/UPS and just swapped it for potentially millions of dollars, while opening a pathway to have more resources to endeavor towards more lucrative markets with 10x or even 20x the upside.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.