disruptive biotechnologies stir up profits

Don't remember seeing this posted but a good read. Quite a wrap on Isis and its pipeline...

Disruptive Biotechnologies Stir Up Profits: Ray Blanco
TICKERS: ARIA, ALPMF, AVEO, IMGN, ISIS, RHHBY, SGEN, VRTX
Source: George S. Mack of The Life Sciences Report  (8/2/12)
As coeditor of Technology Profits Confidential and contributor to Breakthrough Technology Alert and Penny Sleuth at Agora Financial, Ray Blanco searches far and wide for breakthrough ideas and disruptive technologies that will change the lives of very sick patients. In this exclusive interview with The Life Sciences Report, Blanco discusses how investors can reap big gains with biotech companies that possess disease-busting platforms but are not yet fully valued by the markets.

COMPANIES MENTIONED: ARIAD PHARMACEUTICALS INC. - ASTELLAS PHARMA INC. - AVEO PHARMACEUTICALS INC. - IMMUNOGEN INC. - ISIS PHARMACEUTICALS INC. - ROCHE HOLDING AG - SEATTLE GENETICS - VERTEX PHARMACEUTICALS INC.
The Life Sciences Report: You have written about your faith in veteran and proven management. Would you talk about that briefly?

Ray Blanco: One of the first things I look for in management is a good stable of scientists—the more, the better. I review credentials, previous academic work and published research. If management has a good scientific background, I take that as a big positive. In addition, I look for a group of people that knows how to design and manage clinical trials and how to work with the U.S. Food and Drug Administration (FDA), which is always tough. It's also good to have somebody in management who has a track record as a dealmaker, especially with early-stage companies. A good dealmaker can form partnerships with big pharmas, which is a way to get funds that don't dilute shareholders.

TLSR: My next question is actually about dilution. Investors in small-cap, pre-commercial-stage companies are always facing dilution, and we've come to expect it. Is that the price of doing business? How do you address this issue as an investor?

RB: Dilution is certainly a huge risk. The earlier you invest in a development-stage company, the greater the risk. With later-phase companies, which I deal with most often, an investor can look at the balance sheet and think about the burn rate going forward. In many cases companies have already been diluted—that is how they raised capital. But they should have enough cash on their balance sheets to finish up pivotal trials and, hopefully, get through the FDA before running out of cash. That's one way to do it.

"One of the first things I look for in management is a good stable of scientists—the more, the better."
Another way is to look at partnerships. Biotech companies will receive milestone payments from larger partners, which also will defray part of the developmental cost for drug candidates. That helps bring down the burn rate and reduces the amount of dilution that a company's stock will experience over time.

TLSR: You are fond of breakthrough and disruptive ideas in technology. How do you know when you've landed on one of these types of platforms?

RB: The important thing about a disruptive or breakthrough technology is that it can either do something that's never been done before—or do something that has been done before but do it better or cheaper. If it can cure a disease that has been incurable, or improve the survival rates for patients using a new drug, that qualifies as a disruptive biotechnology.

Just having a cool science project isn't enough. For instance, I'll mention Dendreon Corp. The company possesses a real breakthrough in terms of biotechnology in its prostate cancer autologous cell platform. You could think of it as a scientific triumph, but in the real world it doesn't move the needle much in terms of patient survival times, and it is incredibly expensive. Two-thirds of the cost of the therapy is eaten up just in the cost of goods sold. That's an example of a scientific breakthrough that I wouldn't consider a disruptive technology.

TLSR: Ray, what are your preferred biotechnology platforms today?

RB: I like technology platforms that are maturing and getting close to generating revenues, or have begun generating revenues in the past year or two, including RNA interference, antisense (genetic "on–off" switch), antibody-drug conjugate (ADC) and stem cell. I like companies with unique discovery, design and validation platforms because they can use those platforms to build a fat pipeline of many different drug candidates, not only in the present but also into the future.

TLSR: Could we talk about some ideas that you are recommending to investors? If you could, please briefly address the platform if it applies.

RB: I'll start with Seattle Genetics (SGEN:NASDAQ) and ImmunoGen Inc. (IMGN:NASDAQ). Both have their own versions of an antibody-drug conjugate technology platform. Antibodies have burst onto the pharmaceutical scene over the last 15 years or so because new breakthroughs in recombinant DNA and biologic manufacturing have allowed pharmaceutical firms to build engineered antibodies. Naturally occurring antibodies have the ability to target an antigen with great precision. The important thing about the ADC platform is that developers can take an antibody with a chemo payload and target it to a specific molecular entity on a cancer cell, using it to destroy that cancer cell. Your run-of-the-mill chemotherapies not only hurt cancer cells but also damage healthy cells. This corrects the problem by targeting the disease more precisely.

TLSR: Is this a double-barreled approach, in which you are getting both signal pathway disruption with the antibody as well as the toxic effect of the conjugated chemotherapeutic agent?

RB: Yes. Genentech (a unit of Roche Holding AG [RHHBY:OTCQX]) has a very successful antibody therapy called Herceptin (trastuzumab) on the market that targets breast cancers expressing the HER2 (human epidermal growth factor receptor 2, also known as "neu") receptor. Genentech has teamed up with ImmunoGen, and the antibody has been improved by linking ImmunoGen's cancer cell-killing toxin to it. Not only do developers get disruption, but they also have the opportunity to deliver a knockout blow to breast cancer cells. The combined product is T-DM1 (trastuzumab emtansine).

"The important thing about a disruptive or breakthrough technology is that it can either do something that's never been done before—or do something that has been done before but do it better or cheaper."
Seattle Genetics has used a similar technology with Adcetris (brentuximab vedotin) to go after Hodgkin's lymphoma (HL), from which I suffered about 20 years ago. It is currently approved for late-stage HL and anaplastic large-cell lymphoma (ALCL) patients who have failed one chemo regimen. In Hodgkin's patients it is approved for those who have failed an autologous stem cell transplant or for those who have failed two previous chemo regimens and are not stem cell candidates. This is the first new therapy for Hodgkin's in many years. The compound goes after the Reed-Sternberg cell, which expresses the CD30 antigen, but it has the opportunity to expand into other CD30-positive cancers. The treatment also may expand into earlier disease stages, and the company also has a pipeline of in-house and partnered ADC compounds that it is using to go after other cancers.

TLSR: Do you feel that Seattle Genetics will be able to develop Adcetris for CD30-positive cancers in much the same way that Genentech/Roche was able to develop Rituxan (rituximab) for several indications in CD20-positive cancers?

RB: Yes. Several cancers are CD30 positive, but Seattle Genetics picked the low-hanging fruit—lymphomas, which were the most obvious targets—first.

TLSR: Is Seattle Genetics funded well enough to develop its other candidates?

RB: Yes. If it's not totally self-funding already, it will be with just a few indications added to Adcetris. I think it will be fully self-funded very soon.

TLSR: You mentioned ImmunoGen, which is partnered with Roche/Genentech in development of its conjugated antibody, T-DM1. This product will probably cannibalize Herceptin, which has been a huge product for Genentech and now Roche/Genentech. ImmunoGen shares were down about 8% on July 12, after it announced a new stock offering. Is this an example of the dilution issue we discussed earlier?

RB: ImmunoGen just announced phase 1 trials for a new compound. If you are going to dilute, I think the company picked a great time to do it. ImmunoGen's share price will rebound, especially as we get close to T-DM1. That's my expectation anyway.

TLSR: What other companies could you mention, Ray?

RB: Vertex Pharmaceuticals Inc. (VRTX:NASDAQ) has Incivek (telaprevir), which is basically the first new hepatitis C (HCV) therapy approved in over a decade. Incivek has demonstrated superior efficacy. But the company is not resting on its laurels. It is also developing nucleoside analogs for use as all-oral regimens so that patients can dump interferon and ribavirin injectables, which have nasty side effects. We have already seen improvement in the HCV regimen with Incivek because it can cut the average treatment time from about a year to about six months. In addition, a superior percentage of patients have had a sustained viral response.

But it's not just about HCV. Vertex is also developing a cystic fibrosis (CF) franchise. It has already received approval for and marketed Kalydeco (ivacaftor) for a very small percentage of the population of CF sufferers. Kalydeco basically targets a particular mutation for the misfolded protein that causes CF, called G551D.

TLSR: On May 6 Vertex delivered interim data on an ongoing phase 2 trial of Kalydeco in combination with another CF pipeline candidate, VX-809, and it showed significant positive improvement in lung function in a specific group of patients.

RB: Right.

TLSR: The stock price was up dramatically that day, and it has held most of these gains. Do you think there is still value in the company?

RB: There's still a lot of value in the company—a lot of upside. If you look at how sales could grow from expanding the franchise, I think Vertex is severely undervalued. Plus there are the other compounds in development for HCV.

"I like biotech companies with unique discovery, design and validation platforms because they can use those platforms to build a fat pipeline of many different drug candidates."
VX-509 is another very exciting Vertex product; it is in phase 2 for rheumatoid arthritis (RA). It is a JAK3 (Janus kinase 3) inhibitor, and unlike the JAK-inhibiting RA compounds on the market right now, it can be taken orally because it is a small molecule. For patients, this would be a big deal. Instead of having to have an injection or infusion, patients can take the pill at home. VX-509 has the potential to be a very successful drug.

TLSR: Is there another company you would like to mention?

RB: We can talk about Aveo Pharmaceuticals Inc. (AVEO:NASDAQ). It has a unique drug-screening technology called the Human Response Platform. Basically, the state of the science today, and for quite a few years now, has involved grafting tumor cell lines in mice for in vivo modeling or in vivo testing.

TLSR: Xenografts (using cells from another species)?

RB: Yes, xenografts. But Aveo has developed a different platform—genetic mouse lines in which a few molecular switches can be flipped and the mice naturally develop the cancer of interest on their own. The tumors are not grafted in; they grow in a more natural way. The advantage is that there's genetic variability to the cancer, just like in the real world. The tumors behave more like real-world tumors. Xenograft models do not display that variability. The platform has been licensed out to large pharmaceutical companies because it is so superior to what everybody else has.

TLSR: The company has a partnership with Astellas Pharma Inc. (ALPMF:OTCPK) for its drug tivozanib, which is for renal cell carcinoma (RCC), correct?

RB: Yes. Tivozanib is Aveo's lead compound. I expect it will submit a new drug application (NDA) to the FDA for marketing approval before the end of the year. Tivozanib in RCC has the highest progression-free survival rates of any comparable drug, but the big deal is its tolerability. Patients often can't take a lot of the RCC drugs out there right now. The side effects, which can be difficult to tolerate, often lead to reduced dosing or discontinuation of the therapy. A drug you don't take is a drug that doesn't help you. Tivozanib targets the mutated vascular endothelial growth factor (VEGF) receptor far more selectively than the wild-type VEGF receptor, which means that side effects are far fewer, yet efficacy is greater.

TLSR: In the TIVO-1 (tivozanib versus sorafenib [Nexavar] in first-line advanced RCC) trial, tivozanib demonstrated superiority to Nexavar, a Bayer Healthcare Pharmaceuticals (BAY:FSE) product. It will also compete with Sutent (sunitinib), a Pfizer Inc. (PFE:NYSE) product, which is the market leader. Tolerability is so important with these patients, as you say.

RB: From a tolerability standpoint, I think tivozanib will be very successful because physicians will appreciate being able to give patients a cancer drug that will actually maintain quality of life while they take it. Patients will also stay on the drug, as opposed to earlier-generation VEGF receptor inhibitors that don't necessarily work in the real world.

TLSR: Is there another company you wanted to mention?

RB: I would like to talk about a couple of additional platform companies. The first is Ariad Pharmaceuticals, Inc. (ARIA:NASDAQ), which has in-house, proprietary drug-screening drug-design platforms. One of the platforms, for example, is called Argent, which helps the company design small molecules that control intracellular processes. Like Aveo's Human Response Platform, Ariad has licensed its technology to other firms.

"The important thing about the antibody-drug conjugate technology platform is that developers can take an antibody with a chemo payload and target it to a specific molecular entity on a cancer cell, using it to destroy that cancer cell."
Ariad also has ponatinib in phase 3 for chronic myeloid leukemia (CML) and acute myeloid leukemia (AML), and it was able to use its discovery platform to develop and design a compound that works on almost all of the most common mutations for CML and AML. These mutations confer resistance to the existing compounds, but ponatinib has demonstrated the ability to actually work on those mutations.

TLSR: Would you like to mention one more company?

RB: Isis Pharmaceuticals Inc. (ISIS:NASDAQ) has an antisense platform that hits the messenger RNA that delivers blueprints for proteins from DNA to the ribosomes. If you interfere with the messenger, you can modify a lot of different kinds of diseases. Isis is waiting for a first-ever approval for a systemic antisense compound, mipomersen (Kynamro) for patients with familial hypercholesterolemia. It works by interfering with the protein manufacture caused by a genetic defect in the patient. The company is working on approval for homozygous patients (who have two copies of the disease-causing gene); it will seek approval for heterozygous patients (who have one defective copy of the gene) later on. These are patients who, even with the arsenal of statins on the market today, can't bring their cholesterol levels down enough to get out of the danger zone. By going after the genetic roots of the disease, it will help these patients (homozygous patients die very young, in their 30s).

TLSR: Isis has a huge pipeline, and many partnerships, yet the company gets no credit for that pipeline. Once mipomersen has been approved in Europe and the U.S., will this prove the platform? Will the company begin to get some credit for its other pipeline products?

RB: I certainly hope so. As you say, the company does not get respect right now, which is probably a good thing if you want to buy. I think the mipomersen approval is going to open a lot of eyes to the potential of the platform, and it will drive investors to bid up the price. It has 24 or 25 additional drugs in the pipeline, either wholly owned or partnered. It is partnered with everybody you can imagine—Teva Pharmaceutical Industries Ltd. (TEVA:NASDAQ), Novartis AG (NVS:NYSE), GlaxoSmithKline Plc (GSK:NYSE), Biogen Idec Inc. (BIIB:NASDAQ).

TLSR: I have really enjoyed meeting you, Ray. Thank you.

RB: Thank you. I enjoyed it too.

While other eighth-graders were out playing soccer, Ray Blanco was in his basement learning how to build what's called a "Wilson Cloud Chamber"—a super-cooled device for detecting particles of ionizing radiation. These days he is an expert in advanced robotics, avionics, genomics and biotechnology. Blanco was raised in Miami, Florida, after his family fled Cuba in the 1960s. He is coeditor of Technology Profits Confidential and contributes to Breakthrough Technology Alert and Penny Sleuth.

Want to read more exclusive Life Sciences Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Exclusive Interviews page.

DISCLOSURE:
1) George S. Mack of The Life Sciences Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: Isis Pharmaceuticals Inc.
2) The following companies mentioned in the interview are sponsors of The Life Sciences Report: None. Streetwise Reports does not accept stock in exchange for services. Interviews are edited for clarity.
3) Ray Blanco: I personally and/or my family own shares of the following companies mentioned in this interview: None. I personally and/or my family am paid by the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview.