Sample Alert 1

Biotech Insight Alert

10/21/2016

Small-cap biotechs continue to tread water down near their lows with some upside in a few companies.  If Clinton wins the presidency, as seems likely, there will be major implications for big pharma and some smaller companies—that is also assuming as least the Senate turns as well. I expect generics to come under more scrutiny with pricing pressure directed from the top—where there are multiple competitive products we will see some major price pressure. For example, despite perhaps some advantages from Gilead’s HCV franchise there will be pressure to lower prices since multiple other companies now have products. For the Mylan’s of the world the gig is up—there will be pressure in the FDA to approve competing products, etc. However, I still see innovative biotech as an area that can command a high price. The political system will be loath to kill the golden goose—especially with the cancer “moonshot” announcement. Companies with truly innovative products that fill unmet medical needs should be relatively safe and those are the ones that I concentrate my efforts on. However, investors have tarred all drug stocks with the same brush and some recent high profile innovative drug trial failures has not helped. With the current market dynamics, I am holding my positions—we just have to wait this downturn out.

A number of small-caps have pulled back recently mostly because time-lines are too far out for investors. Examples include Bluebird (BLUE), and Kite (KITE). Other companies have not got enough recognition for their potential. ChemoCentryx (CCXI) and Concert Pharmaceuticals (CNCE) are examples in that category. Other companies are potential buyouts like Tesaro (TSRO) and Array (ARRY).  I own all of the above and plan to hold.

Portola (PLTA)

PLTA seems very undervalued at the current price—but stone-cold silence from management is not helping. We need to know all the issues in the CRC (complete response letter) from the FDA in response to PLTA’s application for a BLA for AndexXa. The last update was 8/30—the letter was written 8/17. Management was going to meet with the FDA regarding what needed to be done to resolve the issues. So far nothing public from management and that is the problem with the stock at the moment.

 I bought in my personal account around the high $21 range thinking it was undervalued then—it is now down more and near the low for the year. If approved, and at some point it will be, every hospital pharmacy will have to stock this new anticoagulant reversal agent—although use will be scant but even if only a few times/year that will be significant revenue as more and more patients are being put on factor Xa inhibitors (I just sent a woman out of the ER with a minor PE on Xarelto.  In the past we would have hospitalized all these patients).

PLTA has had no new announcements regarding the FDA.  The company has a factor Xa inhibitor reversal agent that everyone is waiting for in order to reverse emergency bleeding in patients on Xarelto and Eliquis, two of the new and most commonly used anticoagulants. The incidence of clinically significant bleeding is very small but eventually it will also be used in patients requiring emergency surgery who are on these anticoagulants (that would take a separate trial)—I expect this will be a larger group.  In any event there won’t be time to measure anti Xa activity to see which patients should get reversal agent so everyone on a Xa inhibitor (on the label) who comes in with a clinically significant bleed will get the inhibitor (Andexanet alfa). The last conference call indicated the FDA was not asking for new clinical trials except for perhaps more data on reversal of Lovenox and edoxaban, another new Xa inhibitor. Including Lovenox in the label would be important (either initially or at a later date) since many hospital in-patients are on this drug at least for prophylaxis and many at therapeutic doses. The issue as framed by the company that the FDA wants answered are around manufacturing especially the analytics of drug batches. I do not understand why the long silence from PLTA management—the last conference call was on 8/30. At that time, they said the worst case scenario was about a 12-month delay.

Portola also has its own Xa inhibitor which finished a large trial in post-hospitalized patients and just missed on the primary end-point (p=.054) but when the whole group of patients on drug were examined the decrease in DVT/PE was very significant. If I were the FDA I would accept and approve for this indication. The real issue for me would be whether insurance would be willing to pay for this indication. However, no word on submission of an NDA yet—management has stated they will file in the prior conference call.

PLTA is a buyout candidate at the current price. I remain long.

Cascadian (CASC)

I talked with management earlier this month. The stock tanked after a nice run-up on the announcement of a reverse stock split. I believe the company had to do this for a number of reasons. One they were running up against the number of authorized shares, secondly it is hard to get most funds to invest in a stock that is under $5/share and there are other reasons. Almost all companies take a hit when they reverse split and CASC is no exception.  I believe once the announcement is done—and I expect a reverse split to leave them with about 35 million outstanding shares (they currently have 193 million fully diluted including preferred stock—so you can do the math but about a 5/1 or 6/1 reverse split). I would be a buyer after the reverse split –traditionally a stock trades down for a while after such a split—but follow-on data at San Antonio could send the stock back up—so there may be a small window. I just had one stock that had done a reverse split just get bought out with major upside—Tobira, so it is very possible a reverse split is not the kiss of death.  Management also has stated they are seriously looking at partnering in China (high number of GE Her2+ cancers) but want to keep the rest of the world to create value. This could bring in some non-dilutive revenue.  I also expect at least one more round of funding before the Phase II/pivotal trial is completed.

 The ESMO data on metastatic Her2+ breast to the skin was very positive and unlikely to be caused by the other agents included in the regimen—since responses and shrinkage occurred with different regimens all including ONT-380. However, this was on a cohort of only 8 patients—the importance is that skin mets may be a surrogate of other “sanctuary” sites like brain. The stock didn’t get any bump on the news –overshadowed by reverse split which is coming

We will see more follow-up on the triplet study at San Antonio Breast conference in early December. The abstracts will be out November 14 but remember data in the abstract is old (July 2016 was the cutoff except for late breakers). In the same time-frame management has said they will update investors on the status of turning the Phase II trial into a pivotal trial. Also at ESMO I think there is finally a chance to see the data out of the original investigator sponsored trial (IST) from the Dana Farber. They enrolled 50 patients with brain mets who were given Herceptin and ONT-380 (a different powder formulation)—I expect that we at least see some interim data but may not have PFS data. I will look for this abstract. The fact that the Farber is involved in the current company run trial is a positive and that the head of the breast cancer division is also head of the steering committee for the current trial also bodes well (why get involved in something that you know doesn’t work).

Management has indicated that enrollment in the Phase II is exactly what they expected (seems like a positive statement) and getting sites up and running is ahead of expectations—all good news. They also highlighted a possible orphan indication in Her2+ amplified colon cancer that will be explored in an IST (investigator sponsored trial) out of Duke

I also asked management to clarify milestone confusion regarding what would be owed to Array. Array got an initial $20 million on licensing the drug to Oncothyreon. They had a $270 million sale based safe guard in case Oncothyreon turned around and sold the asset, which expires in 2017 and that was in-lieu of royalties. Otherwise Array is due very low double digit royalties—my guess is around 10%.

As far as competition Puma (PBYI) has an NDA accepted by the FDA for neratinib in the adjuvant setting on top of other treatments including Herceptin—it would be taken after traditional adjuvant for 2 years (I need to check that fact). No PDUFA date was announced but probably around next July. In any event patients get diarrhea no matter what the company says about Imodium prophylaxis. Also my guess is that the APHINITY trial adding pertuzumab to SOC (standard of care), which matures late this year, may blow neratinib away. ONT-380 is now being positioned right behind Kadcyla in Her2+ disease and it may be the best effective therapy for brain mets outside of radiation (and as a patient I would choose 380 before whole brain radiation—maybe I would go for stereotactic XRT for a single lesion depending on where it was).

So my bottom line is I like CASC, I own a lot in my personal account and it has been hard to live with the current stock price considering where I thought it should be. I like the new management and they are making all the right moves although it has been painful for investors who got in at a higher price. I am holding this stock for the long-run.

Exelixis (EXEL)

A reader asked me to comment on EXEL. They just presented results of a first-line trial Cabo vs Sutent—a SOC in that setting in advanced renal cell cancer. However, immunotherapy may be encroaching on that space. Cabo already is best-in-class in the second-line chemotherapy setting.  The CABOSUN trial was a spectacular success. I expect that it will become the standard for 1st line chemotherapy. A sNDA is in the works for that indication. The stock is trading at a market value $2.7 billion. I think it continues to trade up. One important catalyst will be top-line results in the CELESTIAL trial in HCC (hepatocellular cancer) in 2017 (should be early part of year by my estimation). These are all patients who failed sorafenib and the trial is Cabo vs placebo. It should be a winner for EXEL—it’s a large trial n= 760. Also Cabo is in a number of combination trials with immunotherapies and in other cancers. I was first amazed by the original data on bone lesions in prostate cancer but that indication never panned out and the stock tanked. Now they are back, Cabo is a great drug—a bit hard to take like many of the multi-kinase inhibitors but tumor control seems to be better than with most other multi-kinase inhibitors. I have a small position in my personal account and will hold.

As a matter of disclosure I want all readers to know that I own many of the stocks I write about in my personal account and always maintain a long position. I am not a stock broker or a registered investment adviser.

Biotech Insight is a web-based newsletter published and archived at www.biotechinsight.com. Alerts and newsletters are sent electronically to subscribers. The information in this column under no circumstances serves as a recommendation to buy or sell stocks.

Ron Garren MD
garren@redshift.com

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