ARNA Ad Comm success

ARNA has just won a vote in favour of approving lorcaserin, its anti-obesity pill, from an advisory committee meeting. Very supportive voting with 18 of the 23 member committee voting that the company had demonstrated that the drug’s benefits outweighed its potential risks when used long term in overweight and obese people.

We can expect a significant spike in ARNA based on this news. VVUS’ price essentially doubled in the immediate aftermath of its positive Ad Comm meeting in February. I would not expect ARNA to behave quite so aggressively as it has alreay seen considerable upside running into the meeting.

As mentioned in a previous post, I tend to look for an entry about 15 days ahead of an Ad Comm meeting. 15 days ago ARNA closed at $2.27. Yesterday it closed at $3.66 – a 61% increase in 3 weeks. 

I may take a position in this between now and the PDUFA date (June 27th) but if it gaps up significantly tomorrow then I will certainly wait for a pull-back to do so.

Couple of things

I am out of PGNX. Sold what was left of my original position yesterday at the open – negative news and poor general market sentiment convinced me to exit. I will probably get into this again ahead of the now delayed PDUFA.I am now all cash and sitting on my hands until I find something compelling.

I have an article at SeekingAlpha outlining some data on the performance of the recent selling approvals (AFFY, VVUS and PLX). This is a follow-on to an earlier review of this strategy starting in January 2011.

 

 

PLX approval

Protalix’s drug, Eyelea, was approved after hours this afternoon for Gaucher’s Disease. I wrote a bullish note about it here. Of course I off-loaded my position in early April at $6.38 and missed the move later in the month into the $7s. It closed today at $6.19 after dipping as low as $5.80. In AH trading it is back in the high $7s. I will be looking to take a short position on this tomorrow. 

Arena, Ariad And Talon: Further Learnings On Trading Ad Comm. Meetings

I recently wrote a piece over at SeekingAlpha looking at whether or not an upcoming FDA Advisory Committee represented a good trading opportunity. In the article, I outlined some analysis that I undertook looking at the results of trading ahead of an Ad Comm. Meeting based on defined entry and exit rules. My goal was simply to establish whether there was potential for trading around these events – I was not advocating the (very simple) strategy that I laid out.

The analysis suggested that there was an edge with this strategy with 70% winning trades over the time frame assessed (2 years). The positions were held for an average of 8 days and showed an expected return of 3.8%.

Given that this was a retrospective analysis I wanted to write a brief update looking at how Ariad Pharmaceuticals (ARIA) and Talon Therapeutics (TLON) might have been traded ahead of their Ad Comm. Meetings this week.

I did trade ARIA in my personal account but was late establishing the position and therefore had a sub-optimal entry price.

Results

The strategy that I investigated in my last article called for entering the trade at the close 15 days prior to the committee meeting. The trade was held until one of the following criteria were met at the close:

  • Target gain of 35% reached,
  • Initial target loss of 5% reached,
  • Trailing stop (max gain – 2% once position is +5%) reached,
  • Position still open with three days to go until meeting.

I would like to reiterate that all these targets (and the entry and exit points) are based on closing prices. Intra-day swings may require tolerating potential losses (and ignoring potential gains) greater than the strategy lays out.

Based on these criteria, the strategy would have traded ARIA and TLON as follows:

 

 

 

 

 

So the strategy would again produce again with these two stocks – though rather a small one.

If one were to use the strategy as a starting point, rather than a set of hard rules, might a different result have been possible? Reviewing the charts for these two stocks over the time period in question is helpful in addressing this question.

Looking at ARIA, the timing of the entry at 15 days provide a pretty good starting point. The initial stop loss was also placed at a logical level – in fact, based on the chart, one might have even decided to tighten the initial stop slightly based in recent support around $14.00. Exiting before the briefing documents was certainly the right move. ARIA is a much larger company than most of the biotechs that were reviewed for the initial analysis so it is not surprising that its price moved slightly less than many of the original set.

My position in ARIA had a 4% gain in two weeks.

The TLON chart is also useful. The takeaway here, for me, is that the initial -5% stop loss (hit at $0.90) was just too tight. The stock had good support at $0.86 and had hit this level several times in the preceding weeks. If the initial stop had been placed below this support (at, say, $0.84) then the rapid exit would have been avoided and the trader would have been in a position to capture the very significant gains in the stock over the following week.

Conclusions

The recent movement in the prices of ARIA and TLON provide more evidence that the Ad Comm. Meeting can provide a tradable event. They are attractive catalysts in that the timing is transparent (apart from some uncertainty about the precise timing of the briefing document release) and they have a meaningful correlation with the eventual outcome of the FDA decision process.

Arena Pharmaceuticals (ARNA) has announced that the Endocrinologic and Metabolic Drugs Advisory Committee will meet to discuss its drug lorcaserin on May 10, 2012. I will be watching this stock with a view to establishing a position in mid-April.

Looking at PLX

Overview

Protalix Biotherapeutics (PLX) is a company focused on the development and commercialization of recombinant therapeutic proteins based on its proprietary plant cell-based protein expression system. Its lead candidate is taliglucerase alfa which is being developed for Gaucher’s disease and has a PDUFA date set for May 1st, 2012.

Last week Protalix Biotherapeutics (PLX) announced a secondary offering aimed at raising $24M.  This involved plans to sell 4.5M shares at $5.25. The price represented a 15% discount to the close prior to the announcement. The market reacted as might be expected with PLX opening down 12% the morning after the announcement.

Market

PLX is developing taliglucerase for the treatment of Gaucher’s disease (GD). GD is the most common Lysosomal Storage Disorder. It is a genetic disorder which results in fat being deposited in various organs including the spleen and liver.  In the US it has an incidence of ~1 in 12,000 live births.

The most common signs and symptoms of GD are enlargement of the liver and spleen, anemia, nosebleeds, reduced platelets (resulting in easy bruising and long clotting times), severe joint pain (usually hips or knees), and osteoporosis. Weakening of the bones can lead to spontaneous fractures.

Current treatment for GD is enzyme replacement therapy. Cerezyme is a recombinant enzyme manufactured by Genzyme (GENZ). It is extremely expensive with treatment costing > $200K per year. Treatment must be continued for the life of the patient.

The total market for GD treatments is currentl estimated at $1.3B per year and is growing. There are approx. 10,000 patients worldwide but only about half of them receive treatment.

VPRIV  is an enzyme replacement that is manufactured by Shire (SHP). It was approved by the FDA in February, 2010. PLX’s drug is also a recombinant enzyme. However, it is plant derived and if approved it would be the first plant-made pharmaceutical.

Pivotal phase 3 trial

PLX completed its pivotal trial of taliglucerase alfa in September 2009. The trial had a primary endpoint, mean reduction in spleen volume after 9 months, that was specified in an SPA agreed upon prior to the trial’s start.

Results were as follows:

  • The trial met its primary endpoint at both doses tested
  • Secondary endpoints were also met; including decreased liver volume, increased hemoglobin concentration, increased platelet count.
  • No serious adverse events were reported; all adverse events were mild or moderate in nature.

The company recently announced long-term safety and efficacy data form a 15- month follow on study that followed 26 patients originally enrolled in the pivotal trial. These data were consistent with the results of the 9-month trial.

In addition the company has completed a switch-over study to assess safety and efficacy of taliglucerase alfa in patients with GD disease that are currently undergoing enzyme replacement therapy with Cerezyme. Patients with stable disease were switched from intravenous Cerezyme treatment every other week to intravenous infusions of taliglucerase alfa at an equivalent dose, every other week for a 9-month period. After 9 months:

  • Patients remained stable with regard to spleen volume, liver volume, platelet count and hemoglobin concentration
  • Taliglucerase alfa was well tolerated, and no drug related serious adverse events were reported

Partnerships

PLX has an agreement with Pfizer (PFE) for the development & commercialization of taliglucerase alfa. Under the terms of the agreement PFE has exclusive worldwide licensing rights with the exception of Israel.  PFE and PLX will share revenues and development costs on a 60:40 basis.

PFE mad upfront payments of $60M and will make additional milestone payments upon the drug receiving US approval ($25M) and European approval ($25M).

Conclusion

Clearly, the primary concern here is that the company has chosen to raise money so close to the PDUFA date. This may be taken as a negative signal that management does not believe that they are well positioned for approval.  It may also be seen as a prudent move to generate some capital now capitalizing on the recent string biotech market and the positive long-term data that the company announced earlier this month at the Annual Meeting of the Lysosomal Disease Network.

To me this seems like an attractive place to start a position in PLX. The uncertainly about capital raising, always an issue with biotech stocks, has been taken off the table. The risk:reward is attractive in that the $5.25 level may represent a good floor for the stock price. The company has good clinical data for an indication that is underserved. While the number of patients is extremely small, currently available treatments are expensive enough that the market opportunity is attractive.

PGNX – more constipation

Here are some notes on PGNX. Like IRWD, the company has a drug focused on constipation. However, while IRWD is targeted at IBS related constipation, PGNX aims to treat opiate induced constipation. Their drug is currently being marketed for this purpose to patients who have cancer-related pain. They are now seeking to extend that label to include patients on opiates for non-malignant reasons.

Overview:
PGNX is an early stage biopharmaceutical company focused on developing drugs for the treatment of cancers and associated conditions.  It has several drugs in development and one drug that is on the market.

The FDA approved Relistor in April 2008 for the treatment of opioid induced constipation in patients receiving palliative care who are resistant to standard laxatives.

Product:
Relistor is a peripherally acting small-molecule opioid antagonist that counteracts the constipating effects of opioids in the GIT without compromising the central analgesic effects.  Pain is mediated by centrally located receptors while constipation is due to peripheral receptors.

According to company press releases, sales in the malignant pain environment have not been very impressive.  Total revenues in 2010 were $16M. Salix took over marketing in April 2011. Global sales in Q2 2011 were ~$5.2M. In Q3 2011 sales had increased to $9.1M.  Note that PGSX royalties were considerably less than these total sales numbers.

The company filed an sNDA for use of subcutaneous Relistor in patients with non-cancer pain last year. It has a PDUFA date of April 27th for this indication.

In May 2012 the company reported phase 3 results of a year long safety study in chronic non-malignant pain patients. The study looked at patients who had a history of chronic pain (e.g., back pain, fibromyalgia) and who had experienced opioid induced constipation for at least one month prior to enrollment.

624 patients were treated for one year or longer. Objective and subjective measurements showed statistically significant improvements in symptoms of constipation. The injections did not interfere with pain relief or cause withdrawal symptoms.

The company has also reported results of a phase 3 trial assessing safety and efficacy of oral Relistor for the same patient group. The drug showed a statistically significant improvement in outcomes over placebo.  Efficacy of the oral dose was comparable to the subcut approach. The company plans an NDA submission in mid 2012.

Market:
Chronic non-cancer pain is a common problem in developed nations. The prevalence is difficult to establish however in a primary care setting an average 22% of patients have been shown to report chronic pain.

Studies have shown that use of opiates for chronic non-cancer pain in the primary care setting has increased significantly over time.  From 1980 to 2000, opiates prescriptions in these patients doubled (from 8% to 16%).  Assuming the same increase in use, opiates would now be prescribed for ~22% of visits.

A meta analysis of 11 studies of the use of opioids in non cancer patients showed that constipation was the most commonly reported side effect (41% of cases).

Traditional laxatives are the first line approach to treatment. It is difficult to say in what percentage of patients they do not work, but an 85% efficacy rate seems reasonable.

If Relistor is approved for the non-cancer setting it should manage to make some inroads into this patient population. If they manage to score an oral formulation that shold additionally drive penetration. A 33% penetration might be achievable.

I have estimated an average cost per patient year of $2,500 for Relistor. At $10 per day this is significantly greater than laxative alternatives.

Given the data above, here’s a back of the envelope approach to estimating Relistor’s (and PGNX’s) peak US revenues from this drug:

So the drug could potentially (and eventually) achieve reasonably impressive revenues.  Of course, this is predicated on getting approval in this patient group for the sub cut and oral formulations and upon SALX’s ability to market the drug effectively.

Financials:
At the end of Q3 2010 the company had ~$78M in cash on its balance sheet with no debt. It is burning through about $4M per quarter so should have sufficient cash to continue operations for some time.
Partnerships:
The drug was originally licensed for marketing to Wyeth. Wyeth paid $10M in 2009 to return all rights to Progenics.  This was probably a reflection of s strategic rebalancing ahead of the PFE merger as well as disappointment in the poor sales of Relistor.

It is now licensed to Salix (except in Japan where Ono Pharmaceutical has the license). According to the latest 10-Q, the Salix license agreement entitles PGNX to future payments upon realizing revenues and hitting certain milestones with the drug. These include:

  • Up to $40M upon FDA approval of the drug in non-cancer pain (the April 2012  PDUFA)
  • Up to $50M upon approval of an oral formulation (NDA to be submitted mid-2012
  • Up to $200M upon hitting commercial milestones in the US
  • Royalties between 15 and 19% of net sales

Salix Pharmaceuticals is a specialty pharmaceutical company that is focused on commercializing drugs for gastrointestinal disorders. Its revenues for 2010 were $337M and for Q3 2011 were $146M. Its largest product, Xifaxan, realized sales of $$264M over the first 9 months of 2011.  Given its focus on GI disorders and its existing sales force it seems like a good strategic fit for Relistor.

Conclusion:
PGNX has a n sNDA PDUFA date coming in April. The drug, Relistor, has been on the market for the same indication in a different patient population since 2008. Given that the safety profile of the drug should be well understood. The new patient group suffers from non-terminal illness and so will have a different risk tolerance.

Saliz/Progenics seem to have a solid development strategy for the drug which should help drive its momentum in the market. Salix also has expertise building sales of GI drugs.  The market itself is large and underserved by novel therapies.

Currently PGNX is trading at ~$10 which gives it a market cap of ~$350M. It is currently close to the 52-week high of $10.50.  It has been rising steadily since Thanksgiving when it traded at ~$5. Over the last couple of weeks it has pulled back to the trend line established since late November.

Average volume for the last 3 months is ~200K.  Share float is ~30M. 81% of the float is held by institutions/mutual funds.

Ironwood

Well, I have been waiting for a pullback to start a position in IRWD. The company had a brutal day today. It was down as much as 15% before closing down 6%. Certainly wrecked a pretty chart. No news that I can see on the reason for this move.

 

 

 

 

 

 

 

 

I still like the company so I will be watching to see if it looks like it can get going again. Moves like this do make one wary though!

Out of ASTX

Documents for the Ad Comm meeting were released this morning. Not very hopeful from ASTX’s point of view. They concluded that the pivotal trial failed to show a statistically significant improvement in overall survival in the Dacogen arm.

“Given that overall survival is the gold standard, we ask the Oncologic Drugs Advisory Committee to discuss the risks and benefits of Dacogen for the treatment of newly diagnosed AML in patients 65 and older”

There was an ad-hoc analysis that did show some statistical benefit but the document is dismissive of it. I off-loaded my remaining ASTX at the open at $2.50. So with yesterday’s sale my average realised price for ASTX is $2.67, a 67% return on my purchase price of $1.64.

IRWD chart

IRWD has been on a tear in the last 2 weeks. It is up 25% since January 9th with only two down days during that period. It broke through the 200 day MA today and is now approaching resistance at the $13.90 level. I am looking for a pullback to enter but recognise that I am late to this. Ideally I would have taken a position at about $12.50.

 

Ironwood Pharmaceutcals – thinking about this one

I may be too late here but I will be watching for a pull back to start a position. Here are some notes outlining my thinking.

Overview:

Ironwood Pharmaceuticals is an early stage drug development company. It is developing Linaclotide, an oral drug for the treatment of irritable bowel syndrome.  The company has submitted an NDA and has a PDUFA date on June 8th, 2012. It has marketing partnerships in place to commercialise the drug worldwide.

The company was founded in 1998. Formerly known as Microbia, it changed its name to Ironwood Pharmaceuticals in 2008. In 2010 it raised $190M through an IPO that priced the stock at $11.25. Recently it has traded at the $13 level.

Product:

The company is developing Linaclotide for use in patients with irritable bowel syndrome with constipation (IBS-c) or chronic constipation (CC).  They have completed 4 double-blind phase 3 efficacy trials (two in IBS-C patients and two in CC patients). In addition two 18-month, open label, long-term safety studies are ongoing.  All four efficacy trials showed statistical improvement in symptoms over placebo. Side effects appear to be minimal with the most frequent being diarrhoea.

Here’s the IBS-C abstract

Here are the results of the CC trials

Here’s an NYT article after the release of the first phase III trial data.

An NDA was filed in the US in August 2011 and an MAA was filed with the EMA in September.  The PDUFA date is in June 2012.

Market:

The NIH estimates that ~20% of Americans experience symptoms of IBS. Of these, about one third are associated with constipation (IBS-C), one third with diarrhoea, and the remainder with both.  In addition to constipation or pain, patients often report accompanying pain.

Chronic constipation affects ~ 15% of the US population. It has a significant impact on healthcare costs as it is estimated to drive ~2.5M physician visits per year.

IRWD estimates the total market for IBS-C and CC at ~40M patients in the US.  This seems like a reasonable estimate.

There is currently only one drug marketed specifically for IBS-C – Amitiza.  Another drug, Zelnorm, was previously licensed for IBS-C, but was withdrawn from the market in 2007 due to a potential association with MIs and strokes. Prior to withdrawal it had achieved sales as high as $560M.

Amitiza’s sales have been disappointing. In 2009 it had WW sales of ~$215M. Sales had been expected to hit $800M and Amitiza has denounced its marketing collaborator, Takeda, for failing to effectively Markey Amitiza by pursuing a strategy focused on specialists (gastroenterologists) rather that a broad, primary care and DTC approach.

There is a significant and underserved market. Patients will continue to be initially treated with laxatives and analgesia, but a significant number will fail this regimen and will have few options to progress to. IRWD claims market research that shows 70% of patients relapsing with standard treatment.

A quick back of the envelope (with some obvious assumptions) shows that there could be sizable revenue potential here:

Financials:

In Q3 2011 IRWD had revenues of ~$12M and a net loss of $21M.  The company has $47M in cash on its balance sheet as well as 204M in short term investments.

Valuation:

If Linaclotide were to achieve revenues of $500M then IRWD could expect to receive $250M of that. A quick screen of biotech companies with revenues in that range shows some valuations that would give considerable upside based on current stock price (IRWD market cap. = $1.38B):

Partnerships:

Forest: IRWD has a partnership with Forest Labs to jointly develop and commercialise Linaclotide in North America.  The two companies share the development costs as well as future profits/losses in the US equally.  IRWD will receive royalties from sales in Mexico & Canada.  Forest made upfront payments and is committed to ongoing milestone payments.  Payments could eventually total $330M.

Almirall: IRWD has an agreement with Almirall to develop and commercialise Linaclotide in Europe.  The license agreement (including contingent milestone payments, as well as a contingent equity investment) could total up to $55M.  In addition IRWD will receive escalating royalties from sales in EU.

Astellas Pharma: IRWD has an agreement with Astellas to develop and commercialise Linaclotide in Asia. Payments associated with the agreement could eventually total up to $45M.

Conclusion:

IRWD has a compound before the FDA for a large, under-served primary care market. It appears to have solid partnerships with companies that should be able to successfully commercialise a drug such as Linaclotide.  Forest has a large salesforce and has several drugs in the primary care setting. It does not have any GO drugs so a question remains as to whether it will be able to engage in this area.  However, the lesson from Astexia seems to be that a primary care/DTC approach may be more promising than a specialist focused campaign.

The company is approaching a PDUFA date mid-year. The price can be expected to rise approaching this as more interest is focused on IRWD. If the FDA grants approval, and Linaclotide can be successfully commercialised, IRWD should continue to rise from its current levels.