by Michael Jorrin, "Doc Gumshoe" | September 26, 2013 12:09 pm
[ed note: This is another installment from our favorite medical writer, Doc Gumshoe (no, he’s not a doctor, but we like the way he analyzes and explains medical issues for our readers). Since he’s talking about specific companies this time, we’ve restricted the piece to the Irregulars and have inserted some comments about the stocks of the companies he mentions — Travis’ notes are in the beige boxes. These are not stock picks from Michael or from us, just some interesting companies and trials to keep an eye on]
Since the last time I checked on this, about a year ago, the number of clinical studies in AD has increased from nearly 1,100 to nearly 1,300. Not all of these are drug trials. Some of them are assessing procedures, all the way from activities that may slow the progression of dementia in AD patients to whether the nurse practitioner telephones the patient every day. Quite a few have to do with means of detecting the disease at earlier stages – imaging techniques, or possible biomarkers. Some of the pharmaceutical agents being tested aim to stop or slow the underlying disease process, and these are usually based on a specific theory about what it is that causes the disease in the first place. And some of the drugs are essentially palliative – they don’t address the disease process, but they aim to help patients maintain their cognition, their memories, and their capacity to live relatively normally.
These trials are sponsored and conducted by a number of different kinds of entities. Most commonly, the trials are relatively small, Phase II trials, run and paid for by biotechs. But there are also trials sponsored by not-for-profits, by academic centers, by government, and, of course, by Big Pharma. There are currently 223 trials involving donepezil alone. Sometimes it is being used as a comparator, or as adjunctive treatment, and sometimes it is being investigated in particular classes of patients. I am not including clinical trials of established agents in this necessarily brief list. What I am doing is cherry-picking – searching for trials of agents that seek to attack AD through a different mechanism and that look promising.
Increasingly, new drug development is being led by the biotech sector. The big outfits have been concentrating on what they know how to do best – marketing their drugs. They look to the biotechs and the universities to do a lot of the basic research, and they are watching very, very carefully. When something looks good, Big Pharma pounces. They frequently pony up a bagful of cash to support larger trials in return for rights to market the agent if/when it proves successful. Sometimes the biotechs hold out, do the bigger trials themselves, and figure that they’ll be acquired by Big Pharma for a larger figure down the line. Needless to say, these are often high-stakes gambles, not for the faint of heart.
With that, let’s look at some individual trials. (I am listing them alphabetically by sponsor):
Broomfield, CO 80021
Accera currently has 5 clinical trials under way or recently completed. Four of these are in the same agent, AC-1202, whether under the pharmaceutical trademark Ketasyn™ or as the nutraceutical Axona™. A fifth trial is in a related agent, known so far only as AC-1204. Accera’s only focus to date seems to be in Alzheimer’s disease.
Note, as with nutraceuticals in general, Axona is viewed with suspicion by professional organizations; it is not recommended by the Alzheimer’s Association on the grounds that efficacy has not been sufficiently demonstrated in randomized controlled trials.
Accera is an interesting company, they would probably be gathering substantial chatter about IPOs or partnering by now … but Nestle swooped in and bought control of the company last year. I do like Nestle just fine as a global food blue chip, US investors can trade it through reasonable volume pink sheets tickers NSRGY and NSRGF, and it pays a dividend of about 3% that has risen pretty consistently in recent years. But don’t buy Nestle for Accera, Nestle is focused on nutraceuticals as one growth avenue but it’s still a small part of the business and Accera’s products will likely never really move the needle for Nestle’s revenue.
FYI, if you’re interested in Nestle and Roche, two of the biggest Swiss multinationals (Doc talks about Roche a bit below), you can buy both through the Swiss Helvetia Fund (SWZ) at a substantial discount to NAV (the other of their three big core holdings is Novartis, NVS) — that fund was an “Idea of the Month” of ours several years ago, it did fine but not wonderful and the discount showed no signs of narrowing as the Swiss were frantically trying to devalue the Franc and Swiss banks were under pressure, so we dropped it a while back, but if Europe picks up it could do very well.Are you getting our free Daily Update
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Alzheimer’s Disease Cooperative Study (ADCS)
(in cooperation with the National Institute on Aging)
San Diego, CA
The ADCS sponsors many studies in AD. The one in particular that piques my interest is:
Bellus Health, Inc
Bellus is currently conducting 6 clinical trials: 3 in 3APS, 2 in NC503, and 1 in Cerebril.
Bellus also has a drug (NRN8499) under development for the treatment of Alzheimer’s disease, based on tramiprosate.
According to the Alzheimer’s Research Forum, tramiprosate is designed to interfere with the actions of amyloid beta (Aβ) early in the formation process. It binds preferentially to soluble Aβ, maintaining the Aβ molecules in a non-fibrillar form, inhibiting formation and deposition of sheet formations of amyloid. Although the large US phase 3 study of tramiprosate did not meet its primary end points, the fundamental mechanism of tramiprosate has not been disputed, and Bellus continues to explore ways to bring this agent to the market.
The “nutraceutical” concept is not as silly as the name. The pharmaceutical industry publicly holds nutraceuticals in low regard, because these products do not have to meet the standards for efficacy and safety needed for regulatory approval. So marketing a product as a nutraceutical is thought to be a sneaky way of putting it on the market if it cannot meet regulatory standards. But many nutraceuticals have bona fide health benefits, and some later go on to achieve approval as “ethical” drugs, e.g., omega-3 fatty acid supplements, etc.
Bellus is a ridiculously tiny company, but there’s a nugget of interesting progress being made outside of Alzheimer’s — they are controlled by the CEO’s family and other strategic insider investors, but are publicly traded in Canada at BLU.TO and on the pink sheets at BLUSF. The interesting thing is that they’re tiny, but their lead drug (KIACTA) is in confirming Phase III trials for Amyloid A Amyloidosis, a rare kidney disease. This is going to be a looong trial, with results probably not until 2017, but the drug has been partnered to Auven Therapeutics, a private equity fund that does this kind of thing (funding drug development for a share) and that partner is paying for the Phase III trial and full development of KIACTA.
That means Bellus, with about $17 million in cash, has enough money (at least, according to them) to cover the next four years of their normal operations, until they find out whether KIACTA will be approved and worth anything. It will be an orphan drug, presumably, and they see the potential for $500 million in annual revenue — most likely, if it does get approved the drug will be sold to a much larger company and Bellus and their partner will split the proceeds, so that’s the big upside potential but it’s several years away. Their other lead drug is Shigamabs, for an even rarer kidney disease that affects children, and they’re hoping to partner that one in the next couple years as well — they just acquired that in the deal to take over Thalion Pharmaceuticals, which happened just last month and actually strengthened their cash position.
The Alzheimer’s stuff at Bellus is considered “non core with potential upside” — their Phase I trial in Alzheimer’s is already partnered, and the nutraceutical brings in something like a half million dollars in revenue a year, enough to help with the cash burn a bit but not meaningful otherwise. So … no real catalyst in the near future, they do have lots of potentially dilutive options and some debt (about $5 million, don’t know if the Thalion deal brought on any more debt), and it’s controlled by a family that also does some cross-dealing with related companies, which can be disadvantageous for passive investors, but it’s an interesting and well-funded teensy weensy company that is valued at not much more than net cash. It makes me curious, at least, though it’s clearly teensy and extremely speculative and the Alzheimer’s stuff is incidental to their current “rare disease” focus. You can see their presentation here if you’re curious.
Biogen Idec specializes in neurological disorders. They have a patented drug (Tysabri) which is used in multiple sclerosis. They are also the developer of rituximab (Rituxan) with is co-marketed with Genentech, primarily for non-Hodgkin’s lymphoma. Biogen Idec spent $1.22 billion on R & D in 2011 and does not seem to be taking its foot off the gas.
Biogen Idec (BIIB) is one of the real standard-bearers in biotech, and one of the largest companies largely due to their leadership of the MS space with Tysabri and Avonex — and their next drug in Multiple Sclerosis, Tecdifera, looks like it will be even better and is doing very well so far. Here’s what Morningstar’s analyst has to say about them (she gives them a $210 price target, well below the current $243):
“Biogen Idec’s profitability depends on three key blockbusters and a fourth potential blockbuster. If future GA101 data does not support superiority over Rituxan in key hematological oncology indications, revenue from the Roche collaboration (which feeds directly to the bottom line and boosts margins) could begin to decline as biosimilars enter the U.S. market as early as 2018. While Tecfidera’s U.S. launch is going strong, Avonex and Tysabri sales are being adversely affected, as patients are switching from one Biogen product to another.”
You’d definitely be paying up for BIIB’s growth at this point, I’d be inclined to wait and see if they get a dip on any kind of bad news, or if some analysts start to worry about patent expirations for them (2018) and the price overreacts to the downside — it’s a great company with excellent growth expected and a strong MS franchise and a pretty deep pipeline so it’s unlikely you can buy it cheap unless the market tanks or they have a drug safety panic for one of their four core blockbuster drugs, but it has certainly had 10% dips during the run up in recent years. The Alzheimer’s trial is very early and unlikely to move the needle unless results are shockingly exciting — always possible, but not a reason to buy the stock.
Raleigh, NC 27614
Curaxis is the name under which Voyager Pharmaceutical Corporation reorganized in 2011 after having declared bankruptcy. Voyager has, or had, 3 clinical trials in progress at that time, all in Alzheimer’s disease.
Voyager / Curaxis has announced a Phase IIb study in 200 – 250 women to determine the size and duration of Phase III studies in VP 4896. They anticipate that this will be a 12 to 24 month study.
I don’t know about the compounds at all, or what may have happened from their clinical trials, but on the financial side this is a cautionary tale — they are bankrupt, unlikely to emerge from bankruptcy from what I’ve seen, and if their compounds have any residual value for further research they’ll be owned by partners and anyone to whom Voyager owed money, very likely not Curaxis shareholders. Given the lack of cash, I presume that those registered clinical trials aren’t actually happening. There is still a stub trading for Curaxis, but I’m not even going to tell you what it is because it’s really just a penny stock with no assets or business — the kind of thing a pump-and-dump promoter might try to exploit, but not a real company or stock.
This is worth remembering when considering any Alzheimer’s-related investment — I’d wager that Alzheimer’s research has generated far more bankruptcies than it has millionaires. It’s hard, and there’s promise and hope, but clinical trials in Alzheimer’s are likely to be very long and very expensive, and so far almost all of them have been complete failures. Definitely don’t buy Curaxis if you happen to run across it, they may never exit bankruptcy and if they do it won’t be because stockholders own anything … but keep that in mind the next time you see a tiny company developing an Alzheimer’s drug, think about the long timeframe, the need for substantial funding, the long odds, and the strength of their partners. We look to Alzheimer’s drugs because it’s probably the largest and potentially most lucrative unmet need in healthcare, but that’s been true for 20+ years and there’s been a lot of cash burned in the search for solutions. There’s no reason not to speculate on small-cap Alzheimer’s hope with your poker money, but make sure the company at least has a financial chance of existing by the time their research gets results.
EnVivo Pharmaceuticals, Inc
Watertown, MA 02472
EnVivo is currently conducting 6 clinical trials, all in EVP-6124 – 2 in Alzheimer’s disease, 2 in schizophrenia, 1 in nicotine dependency, and 1 to assess the effects of EVP-6124 on the QT / QTc intervals in the cardiac cycle. (Note, a number of drugs affect this interval, which results in the delay of repolarization of heart tissues after contraction. In extreme cases a condition called torsade de pointes sets in, and there have been deaths. Some drugs, including antihistamines, have been withdrawn because of this effect.)
A Phase 2b trail with EVP-6124 in AD was reported at the December 2011 annual meeting of the American College of Neuropsychopharmacology. It was reported that the most effective dose of EVP-6124, the 0.3 mg dose, resulted in a highly significant (P = 0.009) improvement in global cognitive function compared with placebo. Based on these results, a Phase 3 trial with EVP-6124 is in the planning stages. Significant results have also been found with EVP-6124 in schizophrenia.
Other EnVivo drugs in development include:
EnVivo is an interesting company, too, but they’re still venture-funded — interestingly, they’re one of the many small biotechs funded by Fidelity Investments, which has its own venture capital arm that invests their corporate money in the sector. That group is called Fidelity Biosciences, and you and I can’t invest in it, but if you’re looking for a biotech mutual fund the Fidelity one is one of the better actively managed biotech funds, with low costs and good performance, and at least a few of the Fidelity Biosciences venture-backed biotechs that have ended up going public have ended up in the mutual fund’s portfolio as well — I don’t know if that’s by design or not, like most biotech funds it is very heavily weighted in the huge and profitable players like Amgen, Celgene, Biogen Idec and Gilead. The fund is Fidelity Select Biotechnology (FBIOX), and like most biotech investments it has been on a tear this year. Of course, so have the ETFs, which are lower cost — since the sector is so small and all the fund are overweight the huge players and count on the performance of their long tail of tiny positions to generate any differentiation, most of the big funds have been close to identical most of the time except for odd periods when they’ve overweighted or underweighted one of the biggest players and gotten the bet wrong or right. FBIOX has done a hair better than the ETFs this year, but on average over five years the biotech ETFs have done similarly to FBIOX, some slightly better and some slightly worse, and they have lower expense ratios. The main ETFs I look at in biotech are FBT, XBI and IBB.
Venture capital is probably a better funding source for most early-stage biotech firms, since they’re by definition volatile and slow to generate returns and you need expert specialized knowledge to choose the investments, but maybe EnVivo will graduate to the public markets one day and get to be one of those $200-500 million small caps that’s worthy of some investor study. We’ll see.
This is, again, a reminder of why it’s so hard to make money from tracking Alzheimer’s-related stocks — the treatments usually don’t show a dramatic benefit that immediately makes companies push for fast-track trials and gets patients and investors excited. So often the results of trials either show some danger that makes the FDA nervous (this is the brain we’re talking about, after all), or they show some very mild improvement in the least critical patients and it’s hard to get the blood boiling (or the money flowing) from tepid results. J&J and Elan are certainly good companies that do lots of research, but between them they had to write off $800 million for the investment they made in bapineuzumab.
And that also reminds us of the fear that accompanies the greed among big pharma companies — they keep banging their heads against the wall trying to push new compounds through in the search for an effective treatment, then keep going back to those same compounds because they think maybe it will work in different kinds of patients, or at different stages of their life or of the disease, and every couple years a big pharma company has a substantial writeoff for later-stage failure of an Alzheimer’s drug and everyone starts to worry that they’re wasting hundreds of millions of dollars and pulls back on aggressive development of potential drugs to wait (and hope) for more dramatic real breakthroughs to come from the lab. It’s hard for a company like JNJ or Elan to budget a billion dollars for investigating the next Alzheimer’s drug candidate when they’ve just written off a once-promising drug to the tune of $800 million. The progress of ELND005 is symptomatic of a lot of these kinds of trials — it failed the endpoints for a trial examining whether it would help with cognition and function, so it’s now being studied as a way to treat some of the other symptoms of Alzheimer’s (aggression and agitation). Elan is primarily a play on Tysabri now, they’re partnered with BIIB on that drug, and they do have demonstrated chops in neuroscience research but no other really substantial cash flows — so they effectively split off much of their preclinical research into a company called Prothena (PRTA) and are planning to sell Elan and their chunk of the cash-generating businesses like Tysabri to Perrigo. ELN shareholders are expected to get $16.50 from the deal, assuming it passes regulatory muster, so there might be an arbitrage opportunity there if you want to take the risk that the deal doesn’t go through (ELN is at $15.50 now) but otherwise there’s no reason to buy ELN … and Prothena’s clinical work is such early stage, just barely peeking into Phase 1 for their lead drug, that it’s very speculative. I’d prefer the big daddy BIIB to these.
Montvale, NJ 07645
Memory Pharmaceuticals has been acquired by Roche; it is not possible to verify how many clinical trials are being conducted directly by Memory. Currently, Roche or one of its many wholly-owned subsidiaries are carrying out 1784 clinical trials in virtually every treatment area. At least one phase 2 trial of MEM-3454 in schizophrenia is being conducted.
Roche (RHBBY for the ADRs) is an extraordinary company, with great presence in the fights against many diseases and real strength in cancer treatments thanks to their full takeover of Genentech a few years ago. It’s also a $225 billion company, so I think the only larger firm in health care is Johnson & Johnson (JNJ). They’re valued quite similarly to gigantic near-peers like Novartis and JNJ, with probably a better growth profile than either of those two, and at a substantial premium to the big pharma stocks that are yield-driven and starved for growth like Pfizer (PFE) and Merck (MRK). I have never owned Roche, but it’s hard to argue with them if you’re looking for a core megacap pharma stock that gives some growth and income (the dividend has generally been in the 3.5-4% region, though they pay annually and I don’t know what 2013’s payout was or will be).
(San Diego, California)
Both studies evaluate three different dosages of ST101. The first study enrolled patients with mild to moderate AD, and the second enrolled patients with moderate to severe AD.
As with the EnVivo drug above, ST101 hopes to improve cognitive function in AD patients, or, at best, slow the decline in cognitive function. It does not appear to have any effect on the underlying disease process.
Sonexa is another private company, funded with about $35 million of venture funding so far — and other than hearing on occasion about another $2 million equity raise they’ve really released no news about their plans or their drugs. Either they’re keeping it close to the vest because they think they can spur a private bidding war from big pharma after just a few million dollars more of R&D, which has happened to many similarly-funded firms (including several that were run by this same CEO, who is a private equity guy), or the results haven’t been anything to crow about. Dunno. We can’t buy it, which is probably good — there’s enough wild speculation in the world as it is, but hopefully their drug will do well.
Mountain View, CA 94050-2552
Vivus has 35 clinical trials currently under way or recently completed, in a fairly wide range of treatment areas, including obesity, erectile dysfunction, diabetes, and sleep apnea, in addition to Alzheimer’s disease.
The little that is known so far suggests that the drug targets acetycholine release through another mechanism. There are indications that in patients with AD, the normal balance between two enzymes involved in regulating acetylcholine are altered. While in unaffected persons, the balance is about 80% acetylcholinesterase (AChE) to about 20% butyrylcholinesterase (BuChE), in the brains of AD patients the balance is about 55% to 45%. Targeting BuCheE may increase the availability of acetylcholine, which is vital to cognitive function.
Other interesting Vivus trials include:
Vivus (VVUS) has been a bit of a train wreck over the last year, largely because their most important drug, Qsymia, has had disappointing sales in the US and has repeatedly failed to get European approval because of safety concerns — that’s an obesity drug, and another reminder that “common sense” doesn’t always work in biotech investing. If you had said a few years ago that two companies would get approval to market anti-obesity drugs, you’d assume that because of the massive obesity problem in the US these would naturally be billion-dollar drugs and they’d make investors super happy. Unfortunately, these diet drugs do not make you look like Brad Pitt or Cameron Diaz overnight (I’m still waiting for that one), they just improve the weight loss of people who are already on a diet and exercise regimen by some percentage … and it’s not a hugely dramatic percentage. Sure, it’s worth trying to help, but neither Belviq from Arena (ARNA) nor Qsymia from Vivus has turned out to be the billion-dollar panacea that investors were hoping for (with some logic), so as sales have disappointed both stocks have likewise disappointed. They might still turn around, particularly if they put a lot more money into marketing these drugs, but you couldn’t have blamed someone for guessing that the first couple approved diet drugs of this new century should be blockbusters … and they ain’t. At least, not yet. Belviq is starting to advertise heavily to consumers, including a full-page ad in Oprah’s O Magazine, so if that doesn’t work I don’t know what will.
Vivus is really trading on Qsymia and their follow-up study — if the follow-up study goes well and they can somehow boost sales to a meaningful level, investors seem to be hoping that they’ll be reconsidered for a third time by the European regulators. I wouldn’t hold my breath that this will happen, or that big sales jumps will follow if it does. On this one again, I hope the Alzheimer’s drug is quietly doing well, and they say the study is ongoing (VVUS is less investor-friendly in chatting up their pipeline than are most drug companies), but I’d be surprised if that has any real impact on the stock over the next year — it’s all about Qsymia sales and the hope for maybe someday approval in Europe, perhaps as early as 2015 if they’re lucky. They’ve also run through two CEOs just since this Summer, so this one is really for the thrill-seekers.
* * * * * * *
As you can see, there’s no lack of activity on the Alzheimer’s front – and in these trials that I’ve briefly discussed above, I’m only barely scratching the surface. I am not – for now, anyway – discussing the trials in such really crucial issues as biomarkers that would lead to earlier detection of AD, and, presumably, to more effective intervention. I am not discussing the treatment modalities that do not involve drugs, such as brain exercises in the form of games and drills. (A friend sent me a curious quiz the other day – a long string of “words” arranged vertically, except that the words were grotesquely misspelled – only the first and last letters were reliably correct; in the middle of the words the letters might be switched in order, or they might be replaced by numbers. I found that I could read the line-up of words out loud quite easily, at a relatively normal pace. According to the folks who cooked up this quiz, that suggests that AD has not come visiting my noggin.)
Looming over this entire situation is the specter of more and more people succumbing to AD, at a huge personal and social cost. Any entity that can mitigate the AD threat will be conferring an immense gift to the world – and will be entitled to appropriate rewards!
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