News and Comments

REDEFINING "CREATING SHAREHOLDER VALUE"

Tue, 15 May 2012 16:25:00 GMT

The time has come for redefining the meaning of “creating shareholders value” in the biotech sector. Pinpointing the real value has become imperative. It is the road to a fair assessment of innovative biotech firms. It helps investors reap the fruits of the real value of excellent firms at the right time, rather than rush to sell extremely promising stocks while still undervalued. It makes investors think twice before throwing their shares of firms that are installing one by one the building blocks of their vision. Creating shareholders value is investing in the future. The cost of this investment shouldn’t be cause for downgrading the stocks because of overspending, which has become a normal pattern. We still see all development-stage biotech stock prices slashed following the announcement of their quarterly results. There is a big difference between spending on the future and spending because the money has been made available. Investors can know the difference. The first thing to look for is whether the firm has any program in development that is worth spending on, including buying firms having a technology that is badly required for the successful outcome of the firm’s program. This kind of investment should not be punished or treated as unnecessary spending.

A stock prices as shown daily on the ticker is not necessarily a reliable indicator of value creation, or value loss. In the biotech sector, especially the development-stage firms, the up and down stocks’ moves are currently mostly based on criteria that are used without verification to whether it is favorable or unfavorable to the firms and to their shareholders. For example the firms' extra-spending on the future is receiving negative rating by analysts, the same as if the money is wasted on total nonsense. In the meantime, we see biotech stock prices go up because the firms were capable of trimming spending, regardless of how they did it, which in many instances is through firing important personnel, or cutting the budgets of drug development – acts that are at odds with the interests of the firms and their shareholders.

Creating shareholders value in the biotech sector is having a vision and sticking to it until realizing it. Serious firms do whatever it takes to make their vision come true, including buying firms that would complement their technologies and hiring the best personnel who demonstrate understanding of the firm’s vision and readiness to play major roles towards bringing their visions to fruition.

That’s how we looked at Vertex (VRTX) at the time when most investors were influenced by negative articles filling the Internet about this firm. Among others, the authors of these articles were reiterating their notion that the firm’s hepatitis C will not see the market’s light because of its side effects. When Vertex’ HCV drug Incivek (Telaprevir) was approved, the same authors predicted it would not sell because of itching. When the sales numbers demonstrated the drug is on its way to break the historical records, they declared it would not continue to sell because an all oral HCV treatment combination in development by another firm (still in mid-phase trials) will take over the HCV market from Incivek. It did not matter that Vertex was also working on several all-oral combinations some, including Incivek are produced in house and others through alliance with a small firm that have the oral molecules in its pipeline.

What about the cystic fibrosis breakthrough drugs, we asked? The answer was that the market is so small that it will not make a difference. It did not matter that Vertex’ cystic fibrosis franchise will be owning the market by combining its drugs, the protein corrector and the protein transporter to deal with the two protein defects that cause 65%-70% of the CF market. Wall Street did not even try to see the firm’s vision. When the preliminary results of the combination were announced, investors couldn’t be misinformed any longer by those who continue to assess the biotech firms based on the old business model, which is now considered unfit to assess companies in many industrial businesses, let alone the biotech firms.

Our portfolios consist of firms we believe are working towards creating real values for their shareholders, the society, including helping employment and healing patients. Among other firms, small and large, the portfolios Include Vertex (VERX), Regeneron (REGN), Incyte (INCY), Ariad (ARIA), ImmunoGen (IMGN), Pharmacyclics (PCYC) and many other firms with diverse technologies and products in early and late-phase clinical trials. They have all been subjected to mistaken evaluation based on parameters that do not fit the biotech business model.

We long all firms mentioned in this article.

VERTEX: Well-EQUIPPED TO OWN THE FUTURE

Tue, 08 May 2012 13:42:00 GMT

On Monday May 7, 2012, Vertex announced an interim analysis of data from an ongoing Phase 2 study of VX-809 in combination with KALYDECO™ (ivacaftor). The analysis demonstrated significant improvements in lung function (FEV₁) among adults with cystic fibrosis (CF) who have two copies (homozygous) of the most common mutation in the cystic fibrosis transmembrane conductance regulator (CFTR) gene, F508del.

Distracted by articles filling the media aimed only at boxing VRTX in favor of those who invest against the stock, investors couldn’t continue to miss the huge news this time against a clear agreeable reality. The news is, indeed, exciting, a game changer in the treatment of diseases and, yes, Vertex will generate billions of dollars from the firm’s cystic fibrosis franchise. More important is that the self-serving distractors, we hope, might have run out of effective detergent to continue brainwashing investors, blinding them from seeing Vertex the serious innovator, the science institution, the breakthroughs’ creator and the new comer into the life sciences hall of fame.

Our enthusiasm to the news began long ago before the FDA approved its first cystic fibrosis drug Kalydeco. On Monday, June 13, 2011 more than five months prior to the approval of kalydeco (approved in January 2012) we wrote an article titled “VERTEX: First Drugs ever to target the root-cause of cystic fibrosis are promising” (click HERE to read the article). At the time several negative articles were filling the Internet, downplaying the value of the drug, stating that it is effective only in a small percentage of patients, thus it would generate very small revenues not worthy of investors’ enthusiasm.

In the article we wrote::

“On Thursday, Vertex announced data from part 1 of phase II interim study of a combination of its two drugs VX-770 and VX-809 on patients who have two copies of F508del mutation. The trials met the safety and tolerability endpoints and confirmed the success of VX-803 in moving the CFTR protein into the cells membranes. It also validates VX-770 action of boosting the function of the CFTR protein as measured by the statistically significant decrease of sweat chloride after VX-770 was added to VX-809. There were no serious or concerning side effects.” The article went further into stating, “It looks as if investors might have missed the meaning of these trials and the impact of the results on the future evolution in restoring the functions of proteins. VRTX experienced a selloff premeditated by negative investors and analysts who looked determined to hate the results before their announcement. Premeditation was obvious as VRTX had experienced mini-selloffs during the whole week that preceded the announcement of the results. The combination, no doubt, has realized the trials’ objectives, validating the drugs’ effects on restoring the proteins’ normal functions.”

Yes, this article, which was written almost one year ago said what was denied by a flood of negative articles until yesterday’s news announcement. Those who undermined Kalydeco’s because of its small market missed the fact that this is true only when the product is used as monotherapy in cystic fibrosis patients who carry the G551D mutation. It is not the case when the drug is also used with VX-809 to treat the most common form of the disease.

The news is thrilling because the positive results validated the first drug in history to induce its efficacy at the root-cause of a debilitating life-taking disease. Cystic fibrosis kills patients before they reach 40 years of age, some would die as young as 20 years old. The good results have also validated the firm’s technological capability repairing deregulated proteins, which would open the door to bringing therapeutics that correct deregulation at the root-origin of many chronic and deadly diseases. The data suggested that Vertex could have a multibillion-dollar franchise in treating cystic fibrosis, a life-threatening genetic disorder that affects about 70,000 people worldwide. In an article in New York Times, Dr. Joseph Pilewski, adult cystic fibrosis physician at the University of Pittsburgh Medical Center said, “If this were to bear out in a Phase III pivotal trial it will dramatically impact the treatment options we have for patients with cystic fibrosis,” Dr. Pilewski cautioned that the data was preliminary and had not yet been fully analyzed. (Phase III pivotal trials are the last step before seeking approval.)

The article went on to say:

“The combination data disclosed Monday involves patients with genetic mutations that make up about half the population with the disease. Further data expected from the study could yield results meant to help an additional 30 percent. The company is also testing Kalydeco as a monotherapy in patients as young as 2 1/2 years old and in patients with gene mutations not studied in its original pivotal trials. If results are encouraging, the use of Kalydeco could expand from 4 percent to 8 to 10 percent of patients worldwide, the company said.”

Vertex said the data exceeded the firm's own expectations.”

What else? Do we appreciate Vertex and bet on it?

We did and we continue to do. It would be ridiculous not to bet on a favorite horse. Vertex is on its way to take place in the front row with the elite biotechnology firms and drug developers in general. With its in house technological capability and the current availability of new gene sequencers and analyzers, the firm is expected to contribute a big deal in the discovery and development of far-reaching products that are showing promise to reach as far as correcting the aberrations caused by genetic mutations in many diseases, not only cystic fibrosis.

Of course we long this firm

ILMN AND HGSI: REASONS FOR ATYPICAL REJECTIONS OF TAKEOVERS

Sun, 22 Apr 2012 18:35:00 GMT

These days all the focus, the talk, the debates, and the confusion are, and will certainly continue for a while to be, about Illumina’s (ILMN) and Human Genome’s (HGSI) rejection of the acquisitions offers. The truth is that the offers were not as generous as they are said they are.

ILLUMINA

In Illumina’s case, the hostile offer came at a time when the stock had bottomed for reasons mostly unrelated to any bad news about the firm’s activities, plans, strategies, or failures of any kind. The stock’s tumbling was caused by external reasons related to the bad economy and tight budgets, which led investors’ to adopt a pessimistic attitude about the company’s sales, and double pessimism about its growth potential in the short-term. Dips based on such external circumstances are usually temporary and expected to evaporate as soon as the strenuous conditions are reversed.

Illumina has reasons to believe the offer does not represent its real value. It is the #1 gene sequencer and gene analysis firm, developing and selling state-of-the-art, extremely rapid and powerful equipment used by researchers in academic centers and by drug developers. One can fairly state that Illumina’s tools have contributed more than any other technology towards the revolution in biological information and development of targeted therapeutics.

Having said that, many fair analysts believe that brushing off this acquisition would be favorable news for Illumina and its loyal shareholders. Impartial analysts are also convinced that stock selling could take place in the event that the acquisition does not materialize, but the decline in the share’s prices, they expect, will be short-lived. The stock will rebound as the economic conditions improve for research and, the stock will probably return to its 52-week high and beyond. The reason for optimism is the uniqueness of Illumina’s tools, which are becoming more and more indispensable to scientific research and to the pharmaceutical industry. Like the speed of its analyzers and sequencers, the firm is rapid updating and upgrading its equipment, a good reason for its distinctiveness. Its technologies have become the heart of biotechnology research and industry. With regard to the diagnostics business, this new supplement to its main programs is expected to add more revenues.

We believe the sky’s the limit for this firm. If left alone, its market cap should equal the market caps of the top-tier biotech firms, the lowest of which is over $30 billion, i.e., more than five and a half times Roche’s estimation of the firm’s value.

While true for Illumina, the reasons that entice GSK to acquire Human Genome are mostly different. The only fact the two companies share is that both stocks fell way below their 52-week highs – $79.40 for ILMN and $30 for HGSI, when the acquisition offers were made. The genomic experience similarity between the two firms also exist, but as history in the case of Human Genome. Before it decided to become a drug developer, HGSI was a genomics firm, i.e., in the same business as Illumina. History or no history, the great experience is still there and might suggest that large drug developers have reached a stage where they felt the necessity of adding genomics capabilities in-house. That’s one of two reasons that made Roche determined to acquire Illumina. The second reason is, of course, the fact that Roche is a major player in the clinical laboratory diagnostics business. Having the world’s top provider of gene analysis and sequencing in-house would certainly, and tremendously, benefit this business.

HUMAN GENOME

So, What could be the reasons behind GlaxoSmithKline’s (GSK) decision to acquire Human Genome? There surely must be relevant reasons for this decision. Nobody knows Human Genome Sciences better than GSK, including Human Genome itself. GSK has had a close relationship with this firm for around 20 years, during which time it tested its molecules and developed a product pipeline with its molecules. Benlysta (belimumab), the first new approved drug for systemic lupus erythematosus (SLE), in more than 50 years is their first marketed product from that pipeline. Two other products being developed with or by GSK comprise darapladib for chronic coronary heart disease and albiglutide for type II diabetes mellitus. It is GSK that is currently conducting Phase 3 clinical trials on both drugs.

So, what might all of this be telling us? The first idea to cross our mind is that there must be upcoming good news from the two products being developed by GSK, or at least from one of them. Acquiring HGSI before the announcement of results from Phase 3 trials, at the time HGSI is bottoming, might be the last opportunity to acquire this biotech firm at a far less than reasonable price. Added to that is the fact that, while Benlysta has had a hard time penetrating the market, many experts believe that the sales are set to increase as specialists settle on the optimal use of the drug. Additionally, the firms are working on a subcutaneous version of Benlysta, which is easier and more practical than the I.V. route. Moreover, trials with Benlysta have been initiated for another condition, vasculitis. The drug is also expected to be beneficial in treating other diseases.

Impression: Human Genome’s initial rejection can be overturned by a new, more generous offer from GSK. As a matter of fact, HGSI is taking steps towards enticing another firm that would offer a better deal, which could motivate GSK to raise its offer. Yet, when it comes to numbers, the devil has always been in the details, including, in this case, how much generous would be the new offer, or offers, if any, and how much time it would take the firm to be in an acceptable financial condition. As for now, the only confirmed great news is that the stock price has doubled since we wrote, not long ago, an article stating the Human Genome has bottomed. This excellent news is a guaranteed bird in the hands of investors who happen to buy the stock at the time. We cannot blame those who prefer to follow the famous proverb, which states that “A bird in hand is worth two on the bush.”

DISCLOSURE: LONG BOTH ILMN and HGSI

AFFYMAX vs. AMGEN?

Tue, 03 Apr 2012 12:37:00 GMT

Affymax (AFFY) red blood growth factor drug Omontys (peginesatide) was granted FDA approval – good news for the firm. The approval is a remarkable achievement by Affymax. The firm has proven a capability developing biological products and there is no doubt that AFFY will sell the drug Omontys for patients with chronic kidney disease on dialysis, as it is dictated by the FDA.

The question is: Should we believe the articles, which suggest that the approval of Omontys would threaten Amgen’s (AMGN) growth?

Affymax will generate revenues from the sales of Omontys; this is a fact. Yet, there is no rationale behind suggesting that Amgen would be devastated by Omontys capturing part of its Epogen market. As a matter of fact, Affymax will be competing for half of the market only, because, as we have concluded from previous announcements, Amgen has already secured half of the market. This is a mere reality. As Affymax was speeding towards FDA approval for Omontys, and Medicare was considering making a change in its reimbursement for dialysis to a flat rate, Amgen signed long-term supply contracts with dialysis providers; a seven-year contract with DaVita to supply at least 90% of the dialysis company's anemia remedies, and long-term contract with Fresenius Medical Care. These two firms account for around half the dialysis market. Affymax can still generate large revenues from the rest of the dialysis market provided it executes a great marketing strategy.

Still, the issue is not competition over a 25-year-old product. It does not make sense to believe that the best biotechnology company marketer for around three decades would let its growth depend on one old drug. Amgen has one of the richest product pipelines and several new drugs on the market. Many of them have recently been approved and are already generating tremendous revenues. At the top of the list of new approved drugs is the firm’s osteoporosis drug denosumab being sold now under the trade name Prolia for osteoporosis and Xgeva^®for prevention against skeletal-related events (SREs) in patients with bone metastases from solid tumors (excluding multiple myeloma). Recently, The Lancet published an article about the drug’s role in delaying the onset of bone metastases in patients with castration-resistant prostate cancer (CRPC).

Some analysts forecasted $700 million in Affymax’ Omontys sales by 2017. This is good news for AFFY holders, but not bad news for Amgen, whose Epogen has been generating revenues for years that exceeded those of many breakthrough drugs without interruption by hiccups to be usually caused by critics, competitions, false claims or by third party payers.

As for Amgen itself, its stock has been manipulated – not to say boxed – for over four years. Each time AMGN received excellent news about new drug approvals, articles were written about the decrease in the sales of the 25-year-old drug. When denosumab was approved for osteporosis – known to have a huge market – it was rare to read positive articles from among the many written against the firm. When the same drug was approved for the prevention of cancer metastasis – a huger market – only peer review journals that investors do not read, as they cannot understand them, were obliged to write the drugs’ benefits for cancer patients.

Nevertheless, Amgen is still the largest of the biotech sector’s firms and is still running with strong, steady legs on the road towards outperforming the large pharmaceutical industry, as it did the biotech group. Amgen is great. Its pipeline drugs are being studied in more than 35 clinical trials on various cancers, inflammatory diseases, neurological diseases, cardiac diseases and metabolic diseases. Its monoclonal antibody PCSK9 inhibitor, which has normalized the cholesterol level that resisted all current drugs is in Phase II trials. Instead of being excited about the novel drug, the critics preferred to remind investors that Regeneron (RGEN) and ALNYLAM (ALNY) also have monoclonal antibodies that inhibit the same target. We don’t really know what that statement would mean in a market that brought $35 billions to the statins and other anti-cholesterol developers that the new drug is on its way to sooner, or later replace?

The cholesterol market has become the largest drug markets in history, and the recommendations by health authorities and other organizations in the U.S. may be contributing to further growth in the U.S. Preventive Services Task Force (USPSTF) has strongly recommended routine screening for men 35 years and older and women 45 years and older for lipid disorders and treatment of abnormal lipid levels in people who are at increased risk of coronary heart disease. They also recommended routine screening of men aged 20 to 35 years and women aged 20 to 45 years who have other risk factors for coronary heart disease. In other countries, the recommendations are less severe, probably because these countries’ budgets are much smaller than the U.S. healthcare budgets. We can say the same about the U.S. and foreign insurance companies.

With all what is perpetrated about the danger of cholesterol, with all the lowering made of the normal cholesterol levels with each developed new anti-cholesterol drug since the 1965, one can say that once the market is in very good hands. We read in Wikipedia that once people are on statins, further testing provides little benefit except to possibly determination of compliance with treatment. It is easy to translate this translated into, “When people are hooked to anti-cholesterol drugs, they are doomed to stay with them forever.”

Should we really concerned about Amgen’s growth?

We are long on Amgen.

Ariad's mTOR and the FDA Committee

Tue, 20 Mar 2012 17:06:00 GMT

Ariad’s (ARIA) drug Taltorvic (ridaforolimus) is a novel small-molecule inhibitor of the protein mTOR interferes with cell growth, division, metabolism and angiogenesis. The FDA independent committee will discuss, debate and decide whether this drug should, or should not be approved for metastatic soft tissue sarcoma or bone sarcoma whose disease has not progressed after at least 4 cycles of chemotherapy.

The FDA has posted on its website the following question for its committee: Given the small differences in median progression-free survival (PFS) and overall survival (OS) between arms, the adverse event profile of ridaforolimus, and its positioning as a maintenance therapy in patients with soft tissue and bone sarcoma, is the risk-benefit assessment favorable for the use of ridaforolimus in the treatment of patients with soft tissue and bone sarcoma who have received prior chemotherapy?

Before we speculate over the committee’s decision on Taltorvic, we must bear in mind that the drug is not the only mTOR inhibitor drug that exists. Three mTOR inhibitor drugs have already reached the market in the US. The first is sirolimus (Rapamune), developed by Wyeth for the prophylaxis of organ rejection for ≥13 years old patients receiving renal transplants. There has been some off-label use of this drug. The second mTOR inhibitor drug, everolimus (Afinitor) developed by Novartis for advanced renal cell carcinoma (RCC) in patients who have been treated unsuccessfully with other medications. Afinitor is also approved for subependymal giant cell astrocytoma (SEGA), a brain tumor seen with a genetic condition called tuberous sclerosis (TS). It is for patients who need treatment but are not candidates for curative surgery. A third mTOR inhibitor is temsirolimus (Torisel) developed by Pfizer and approved for advanced, relapsed renal cell carcinoma.

With regard to the upcoming FDA committee’s meeting, we believe that the approval or denial of approval of this drug will not depend in its entirety on the drug’s side effects alone. The side effects are almost exactly the same as those of the three-mTOR inhibitors that have already been granted approval for various cancers. From the clinical trial results’ point of view, the drug has technically met the PFS endpoint. Considering the fact that no drug exists for the category of patients targeted for treatment with Taltorvic, we are persuaded that the PFS trials’ results, regardless of how modest they might be, are sufficient for approval. Afinitor, the mTOR inhibitor developed by Novartis was granted approval in spite of the fact that while it shrank the tumor, it failed to demonstrate Improvement in disease-related symptoms and in survival. This fact would probably cross the committee members’ minds, insinuating that the presence of mTOR inhibitors, including Taltorvic’s on the market is badly needed and should be considered a plus, rather than a minus.

As a matter of fact, oncologists in top prestigious cancer centers, including Sloan Kettering Cancer Center have expressed terrible need for new drugs that can fill the treatment void in post chemo soft tissue and bone sarcoma. The question becomes: Are there any reasons to believe that Ariad’s/Merck’s drug Taltorvic might actually offer opportunity to fill the void oncologists believe must be urgently filled? The committee should also consider the future use of the drug in combination regimens that can expand its efficacy and increase its safety. If the drug were marketed, the decision upon this consideration will not be restricted to Merck and Ariad, but dictated by the experience oncologists would gain treating thousands of patients. Oncologists’ familiarity with new drugs tremendously raises the odds for a successful pinpointing the best combination regimens that makes the drug safer and more effective.

What about in case the committee votes against approval?

Responsible investors are familiar with Ariad’s product pipeline and their promises. They are aware of Ariad’s decision to file for ponatinib’s approval in the second half of this year and that the approval of the drug is expected early next year. The broad potential of penatinib is well demonstrated in results from clinical trials in patients with chronic myeloid leukemia (CML) or Philadelphia-positive acute lymphoblastic leukemia (Ph+ ALL), who are resistant or intolerant to dasatinib or nilotinib or who have the T315I mutation. Important to know that Ariad is alone on this drug and will not have to share the revenues.

Having said that, we believe that in case the committee votes against the approval of Taltorvic, we expect investors’ negative reaction to be minimal. Our strategy in this case is not to let the opportunity slip. We will accumulate ARIA at the lower price.

We Long ARIA.

AGENUS: Stimulon Stimulates The Immune System And Investors

Fri, 16 Mar 2012 12:37:00 GMT

Agenus (AGEN) has outperformed. Of course some profit-taking was expected, but the firm has definitely done a good job rebuilding a new pipeline backed by updated information and more mature understanding of the immune system and the requirements for a successful immunotherapy. Investors might have been missing the transformation but when they got the chance to look deeper into the firm’s programs, they liked what they saw. AGEN’s price has more than doubled since January 2012 on large trading volume, insinuating that the rally is for real and that investors are expecting good news to finally emerge from the firm’s labs and finances in the same time. A relevant comforting symptom is that Agenus’ partnership with GlaxoSmithKline (GSK) has proven solid like a rock, which might have helped convince the skeptics that Agenus’ QS-21 Stimulon is genuine adjuvant essential for to the efficacy of vaccines both preventive and therapeutic.

Agenus’ vaccines cover oncology and infectious diseases. The firm has advanced multiple product candidates through the clinic. It has been able to define the most suitable patient populations that would benefit from each of its various vaccines. Being around, struggling for years to get around the many factors that contributed to delaying its programs, the firm has learned a lot from its own setbacks, from the evolution in information about the immune system ways of fighting various diseases or foreign infective organisms. At the time when analysts believed the firm is going nowhere with its therapeutic vaccines, which led to the selloff of AGEN, Agenus was taking advantage of the breakthrough knowledge and of the experience it gained to improve on its existing programs and build new state-of-the-art promising new ones.

As AGEN’s recent rally took place, we began to hear speculation about GlaxoSmithKline (GSK) acquiring Agenus and that GSK is just waiting for the results of the ongoing trials before determining the small firm’s full fair value. We also heard opinions suggesting that GSK might prefer to acquire Agenus’ QS-21 Stimulon only, which it has incorporated in its preventive and therapeutic vaccines. This second speculation does not seem relevant. Agenus would not give away its unique adjuvant, which is an effective component of most of its own proprietary vaccines. Indeed, QS-21 Stimulon has become an essential component of 15 investigational preventive and therapeutic vaccine formulations, four of them have reached Phase 3 clinical trials. These are: RTS,S for malaria, MAGE-A3 for non-small cell lung cancer, MAGE-A3 for melanoma herpes Zoster shingles for Alzheimer’s disease.

More important than gossip about takeover is the mere current scientific and potential promising reality of Agenus vaccines in clinical trials. Positive results from the trials have begun to capture investors’ attention. It is difficult for one to overlook the data from Phase 2 trial of Prophage Series vaccine, G-200 for recurrent glioma. Results presented at the 2011 American Society of Clinical Oncology (ASCO) Annual Meeting showed that 93% of the patients were alive at 26 weeks after surgery with a median overall survival of 11 months (47.6 weeks). Measures of immune response post-vaccination with Prophage Series G-200 demonstrated a significant localized tumor-specific CD8+ T cell response as well as innate immune responses, recognized by the significant increase in circulating natural killer (NK) cells. Overall survival results from this trial supported advancement of Prophage Series G-200 into a randomized study using a combination regimen.

A Phase 2 trial testing Prophage Series vaccine G-100 in patients with newly diagnosed glioma is actively enrolling with approximately 24 patients treated. In this trial, G-100 is used on top of the standard of care, which includes Temodar (temozolomide) and radiation. It is believed that the efficacy of G-100 could potentially be enhanced through this combination regimen.

The Prophage Series vaccines are tested in more than 850 patients in multiple cancers in more than 15 Phase trials. Included are the R-Series for renal cell carcinoma (RCC), the M-Series for melanoma, G-Series for glioma, and NP-Series for pediatric neurological tumors. Data from multiple studies revealed that the Prophage Series vaccines are well tolerated with a very low toxicity profile. These vaccines elicit tumor-specific T cell responses and innate immune response irrespective of tumor type. The efficacy of these vaccines appears most significant in patients with early-stage disease/low tumor burden.

Oncologists’, patients’, and investors’ eye are also focused on Agenus’ HerpV immunotherapy - a polyvalent off-the-shelf therapeutic heat shock protein-based vaccine for genital herpes. This vaccine consists of recombinant human heat shock protein-70 complexed with multiple distinct antigens from the HSV-2 proteome. The broad spectrum herpes antigens allows for more accurate immune targeting and surveillance, hence reducing the likelihood of immune escape. The diversity of antigens is said to provide protection for a wider patient population.

HerpV has completed Phase 1 randomized, blinded study for safety and immunogenicity, with particular focus on the cellular immune response. Results from a study published in vaccine demonstrate that HerpV + QS21, boosted two immune system cells, CD4+ in 7/7 subjects (100%) and CD8+ in 6/8 subjects (75%). HerpV is the first polyvalent herpes vaccine candidate that elicits both CD4 and CD8 cellular immunity in human subjects.

The rationale behind developing a herpes vaccine that is focused on T cell generation is that CD8+ and CD4+ T cells localize to herpes skin lesions in humans and persist for many weeks after lesion healing; also, persistence of HSV-specific CD8+ T cells in neurons is associated with maintenance of viral latency. Further, it has been observed that robust CD4+ and CD8+ T cell activity against HSV-2 antigens can be detected in individuals who have clearly been exposed to HSV-2, yet remain HSV-2 seronegative and asymptomatic.

Licensees: GlaxoSmithKline, Janssen Alzheimer Immunotherapy (a wholly owned subsidiary of Johnson & Johnson) and Integrated Biotherapeutics are all QS-21 Stimulon^® users. Agenus has granted NewVac LLC (a subsidiary of ChemRar High Tech Center in Russia) an exclusive license to manufacture, market and sell Oncophage as well as pursue a development program of Oncophage in combination with NewVac’s co-adjuvant technology in the Russian Federation and CIS countries.

Conclusion: Agenus is going forward with its proprietary vaccines. It is waiting for the final results coming from GSK vaccines, expecting successful outcome and approvals of these vaccines. Recent results from the malaria vaccine are promising, which confirms the promises of Agenus Q-21 Stimulon as indispensable adjuvant for vaccines. The near approval of the products developed by the licensees have elevated investors’ trust in the firm and will soon bring a steady revenues to the development-stage firm. We believe that HerpV vaccine for genital herpes has a great chance of success. Its approval would change the outcome of this genital infection forever and with it the firm’s status.

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XOMA: In Pursuit Of Novel Diabetes Drugs And New Collaborators

Fri, 09 Mar 2012 21:54:00 GMT

In chronic debilitating diseases, improved therapeutics are those state-of-the-art drugs that control the devastating symptoms and limit, or prevent disease progression without causing other pathologies through the treatments’ adverse effects.

It looks as if Xoma might have a promising new drug for diabetes that promises to fulfill the above requirements for breakthrough drugs.

In the news, XOMA (XOMA) has used its technological monoclonal capability to correct hyperglycemia in a mouse model of diabetes with a first in kind long-acting XMetA fully-human allosteric monoclonal antibody to the insulin receptor. The study is published in the May issue of the American Diabetes Association's journal Diabetes. Results of a study conducted by XOMA and confirmed by investigators at the University of California, San Francisco demonstrate that XMetA has potential to control blood glucose levels in patients with diabetes.

The study by Bhaskar, et al. demonstrated that XMetA markedly reduced elevated fasting blood glucose levels and normalized glucose tolerance in mice experimentally rendered diabetic. After six weeks of treatment, there was a statistically significant reduction in hemoglobin A1c levels in animals treated with XMetA compared to controls (p < 0.05). In addition, elevated non-HDL cholesterol levels were improved relative to control mice (p < 0.05). Hypoglycemia and weight gain were not observed during this study, nor was proliferation of cell growth.

Ira D. Goldfine, M.D., Professor Emeritus, Department of Medicine and the Diabetes Center, University of California, San Francisco said, "In the treatment of diabetes, novel and improved therapeutic modalities for patients with impaired insulin secretory function are needed." Dr. Goldfine who is currently a XOMA Distinguished Scientific Fellow added, "XMetA has shown potential to deliver a long-acting, glucose-regulating effect without generating hypoglycemia. The characteristics of this molecule may result in an opportunity to leverage this potential therapeutic option earlier in the treatment of diabetes."

Using XOMA's ModulX™ technology lead to new insights into the regulation of signaling pathways. This gained knowledge enabled Xoma to discover three distinct classes of allosteric antibodies that act differentially on the insulin receptor. XMetA, an antibody from one such class, selectively activates pathways leading to glucose lowering while avoiding pathways leading to cellular proliferation. Patrick J. Scannon, M.D., Ph.D., Xoma’s Executive Vice President and Chief Scientific Officer believes that this profile is unique and offers a new approach to treatment of diabetes.

The rationale behind the experimentation with XMetA is that while conventional monoclonal antibodies bind at the ligand-receptor binding site to provide either complete activation or inhibition akin to an on/off switch, XMetA binds to other sites, termed allosteric sites, which function as a dimmer switch to modulate the ligand-receptor interaction. This approach offers expanded potential for the targeted treatment of diabetes.

Using its ModulX™ technology platform XOMA has developed proprietary methods for identifying allosteric modulating monoclonal antibodies. Its first allosteric antibody, gevokizumab, is an allosteric inhibitor of the ligand interleukin-1beta (IL-1β), currently in clinical development for non-infectious uveitis including Behçet’s uveitis, moderate to severe acne, cardiovascular disease and other conditions associated with inflammation. Gevokizumab has been evaluated in Phase 1 and 2 clinical trials involving approximately 500 patients. Development of gevokizumab is being conducted collaboration with the independent pharmaceutical company.Les Laboratoires Servier.

Xoma’s preclinical pipeline includes the XMetA and XMetS programs for the development of antibodies that modulate the insulin receptor for the treatment of diabetes and metabolic syndrome, and additional programs focused on the validated oncology targets TGFβ, FGFR4 and RON. XOMA 3AB, a three-antibody co-formulation drug product candidate designed to treat botulinum toxin (Type A) poisoning, among the most deadly bioterror threats. XOMA 3AB, currently in Phase 1 testing funded by the National Institute of Allergy and Infectious Diseases of the National Institutes of Health.

The firm has two product candidates partnered with Novartis: HCD122 - a monoclonal antibody to CD40 currently in Phase 1/2 clinical trials for the treatment of lymphoma, and LFA102, a monoclonal antibody to the prolactin receptor currently in a Phase 1 clinical trial for certain breast and prostate cancers.

XOMA is pursuing partnerships to maximize the value of XMetA for diabetes and to further develop other antibodies from its technology platforms.

Vertex/Gilead Confusion

Fri, 02 Mar 2012 04:30:00 GMT

Hepatitis C virus (HCV) treatments are moving stocks of HCV developers up and down in a chaotic way that makes no sense. While Vertex’ (VRTX) Incivek sales have been breaking the record of drug sales, investors who have been fed immature and unconfirmed knowledge that Pharmasset’s oral HCV therapeutics combination will render Incivek obsolete caused a selloff in VRTX. Investors logic that patients would definitely prefer all oral drugs over a combination that has injectable alfa interferon is undisputable, that’s we too are waiting for a successful all oral HCV treatment, which has yet to emerge.

With the media stressing that Pharmasset was the firm that will put the magic combination on the market, Pharmassets’ stock doubled from over $20 in January 2010, to around $45 at the end of December. In 2011, the stock rallied again from $45 in January to $135 in August, split 2 to 1 and started climbing back from around $66 to $72. The firm was then acquired by Gilead GILD), which paid an additional 67% premium over its obese market price, i.e., around over $130 per share.

This scenario does not make sense to us. Contrary to the market’s culture, investors, for a reason or another, sold a real present to buy a future designed on mere speculation. They sold VRTX, a company that had a marketed HCV drug, which is the first ever to represent a cure for the life-threatening HCV infection and whose sales have been actually generating record revenues to buy into Pharmasset’s oral combination while still in mid-trial and requires more lengthy experimentations before confirming the all-oral combination’s safety and long-term efficacy.

Just before concluding the acquisition deal, on December 16, 2011, Pharmasset surprisingly announced its decision to discontinue all treatment arms with a regimen containing its drug PSI-938 because of laboratory abnormalities associated with liver function in subjects receiving the drug at a dose of 300 mg/day. This news surprised investors, especially Gilead’s shareholders who began to question the value of the deal with Pharmasset. The news did not alter Gillead’s decision to acquire the company. After the acquisition, Gilead’s stock experienced a temporary retreat. Many investors believed that $11 billion was an unprecedented high amount of money to be paid for molecules that have yet to complete clinical trials, confirminhg their superiority as described by the media since 2009. Investors’ temporary negative reaction towards the deal was the only understandable action in this story.

It did not take time for GILD to fiercely rebound after the firm announced its financial results. The stock was up to $56, matching its new high for the past three years. Less than two months later, though, other trial results with Pharmasset’s combination on HCV genotype 1 patients with a prior “null” response to an interferon-containing regimen demonstrated that the majority of patients experienced viral relapse within four weeks of completing 12 weeks of treatment with what has become Gilead’s combination of GS-7977 plus ribavirin (RBV). GILD tumbled, trading now at around $45, after loosing around 15% of its value.

In the mean time, Vertex is generating millions of dollars selling its selective HCV protease inhibitor. Its stock, though, remained boxed - sold every time it makes an attempt to rally even though Vertex is also trying its own all-oral combination. The stock remained boxed even after data from two treatment arms of the Phase 2 ZENITH study evaluating an interferon-free (all-oral) treatment regimen of the non-nucleoside polymerase inhibitor VX-222 in combination with INCIVEK^® (telaprevir) tablets and ribavirin demonstrated promiding results in people with genotype 1a or 1b hepatitis C who were new to treatment. Knowing in fact that the data from this study will be used to design a Phase 3 program with the goal of submitting a New Drug Application (NDA) to the FDA for the first interferon-free regimen for genotype 1 (1a and 1b) patients by the end of 2014 or beginning of 2015 did not help the stock either.

Investors didn’t even bother considering the fact that Vertex and its collaborator Alios BioPharma are conducting Phase 1 studies of two structurally-distinct nucleotide polymerase inhibitors, ALS-2200 and ALS-2158. Vertex has begun the first 7-day viral kinetic studies of ALS-2200 and ALS-2158 in people with genotype 1 hepatitis C, whose safety and viral kinetic data expected in the second quarter of 2012. Positive results would enable the initiation of Phase 2 studies this year to evaluate multiple interferon-free combination regimens of ALS-2200, ALS-2158, INCIVEK, VX-222 and/or ribavirin.

What continued to make no sense at this stage is that investors pessimism with Gilead's all-oral combination that erased 15% of GILD price did not transform into optimism for VRTX, which was cremated by the enthusiasm for Gilead’s drug that investors are now experiencing doubt about. It looks as if investors are sensitized to not appreciate the firm that introduced the first HCV cure and the first approved cystic fibrosis drug that works at the root cause of the disease. It did not matter to the market Vertex' plans that are ready to bring breakthrough treatments to all cystic fibrosis patients.

Gilead is a great firm and at the end of the day it will probably succeed in bringing an HCV breakthrough treatment to the market. But this does not mean that Vertex will not succeed reaching the same goal. Vertex is also a great firm that has already changed the way chronic life-threatening diseases have been treated. Gilead has a lot of current and upcoming good news and so does Vertex. The HCV market is huge. It requires more than one, or two treatments to satisfy its needs.

We long both firms.

Pharmacyclics: When the Power of Biotechs' Pipelines Overshadows the Market’s influence on the Firms' Values.

Thu, 23 Feb 2012 18:37:00 GMT

Pharmacyclic’s (PCYC) story is one of a few where the power of pipeline drugs has overshadowed the stock market’s technical influence on the biotech companies’ values. In other words, in the case of Pharmacyclics, investors should be looking for something extraordinary in the firm’s pipeline, in its choices of its programs, in its plans and strategies in developing its pipeline products and its capability of executing its plans and reaching its goals. Pharmacyclics’ Bruton’s tyrosine Kinase (BTK) inhibitor PCI-32765 therapeutic is unique. In December 2011, Pharmacyclics was granted U.S. patent that testifies to the drug’s exceptionality. It is, indeed, the first irreversible inhibitor in the BTK zone.

BTK is an important cell-signaling enzyme found in blood cells including B-cells. B-cell activation is driven by the B-cell receptor (BCR). Pharmacyclics’ PCI-32765 target BTK is a crucial part of the BCR signaling pathway, believed to promote cell proliferation, adhesion, and survival many types of B-cell cancers. So, by blocking BTK, PCI-32765 halts proliferation, disrupts of tumor cell adhesion, and causes malignant B-cells apoptosis (cell death). Inhibition of BTK also blocked the recruitment and function of other immune cells including monocytes, macrophages and mast cells. Studies in mice have shown that orally-dosed PCI-32765 reduces the level of circulating auto-antibodies and can reverse the course of arthritis. PCI-32765 also inhibited production and the development of kidney disease in a mouse model of systemic lupus erythematosus (SLE)

Therefore, PCI-32765 inhibition of BTK is expected to treat various human diseases associated with the abnormal activation of B-cells, including B-cell cancers, autoimmune diseases and other inflammatory diseases. PCI-32765 is orally active, selective and irreversible small molecule. It is in fact in clinical trials for B-cell cancers (chronic lymphocytic leukemia (CLL), small lymphocytic lymphoma (SLL), mantle cell lymphoma, diffuse large B-cell lymphoma (DLBCL) and multiple myeloma.)

More important than hypothesizing based on literature, or relying on early preclinical observations we preferred to wait for a clinical confirmation of the safety and efficacy of PCI-32765. We obtained the good news at the 53rd American Society of Hematology (Ash) Annual Meeting in December 2011. At that meeting, the director of Mantle Cell Lymphoma (MCL) Program at MD Anderson Cancer Center, University of Texas presented data demonstrating that PCI-32765 had a high rate of overall response as a single therapy in patients with relapsed or refractory mantle cell lymphoma, including patients that had been previously treated with bortezomib (Velcade®). The overall response rate was 71% in Velcade-naive patients and 65% in Velcade-exposed patients. At the time of this analysis 89% of responding patients have ongoing responses and the median follow-up was at 3.7 months. The most common adverse events were Grade 1 (mild) or 2 (moderate) fatigue, diarrhea and nausea. Three patients discontinued the study due to adverse events regardless of causality. Overall, these data supported Phase III evaluation of PCI-32765 as a single agent in patients previously treated MCL.

Other presentations in the Ash meeting provided significant insight on the efficacy and safety of PCI-32765 in chronic lymphocytic leukemia and activated B-cell subtype diffuse large B-cell lymphoma. We found the results sufficient to confirm PCI-32765 therapeutic potential and validate Bruton’s tyrosine Kinase as a superior target for the treatment of the B-Cell cancers.

The performance of PCI-32765 in Phase II trials attracted many firms to partner with Pharmacyclics on the drug but the firm preferred Janssen Pharmaceutical of Johnson & Johnson as its partner. The terms of the partnership agreement, including the $150 upfront payment, the additional $825 million milestone payments, the percentage of the contribution to the cost of development (Pharmacyclics 40% and Janssen 60%) while equally splitting the profits (or losses) worldwide has offered evidence of the importance of what Pharmacyclics has in hand.

Again we say that Pharmacyclic uninterrupted stock rally is not based on market speculations, but on mere refreshing reality of the firm’s pipeline. Bruton’s tyrosine Kinase (BTK) inhibitor drug PCI-32765 is the first irreversible inhibitor to show in the BTK domaine and we have reasons to believe that its oral pan-histone deacetylases (HDAC) inhibitor drug PCI-24781 (abexinostat hydrochloride) could be important among a few molecules in the epigenomics zone, contributing to the ongoing process of transforming basic science into applied science. We will tackle this program in a future article about Pharmacyclics

Both drugs and their targets qualify Pharmacyclics as candidate for takeover by large pocketed pharmaceutical or biotech companies.

Simply said, Pharmacyclics has made huge steps forwards towards advancing the treatments of cancers and chronic debilitating diseases. Is this not why the biotechnology industry is all about?

We long PCYC.

Illumina, Roche and Fairness

Thu, 09 Feb 2012 14:02:00 GMT

Illumina (ILMN) is occupying the center stage these days. Roche’s persistent attempts to acquire ILMN, has opened investors’ eyes on the importance of this firm’s technology in moving away from the road of stagnation to that of innovation. Innovation is the insurance that guarantees the survival and growth of the drug companies in the future that has already begun. Illumina’s technologies and marketed state-of-the-art sequencers and gene analyzers have been a major contributor to the flourishing of information about the origins of diseases at the molecular level. This capability, which lured Roche, was overlooked by Wall Street investors who have recently caused a selloff in the stock for theorized reasons. The real value of Illumina resides in its indispensability as the cornerstone of future advancement in medical diagnosis and treatment. With all the new-targeted drugs on the market and in the firms’ pipelines, the current diagnostic and treatment statuses are still far from perfect.

The next step to perfection is for the drug firms to use the genetic information in developing drugs that enable physicians to practice personalized medicine, i.e., treating patients based on their genetic construct and addressing the subgroups of patients in one disease, for example, cystic fibrosis, with different approaches for each group (see Vertex (VRTX). By pinpointing the genetic aberration and the pathways of diseases, Illumina’s tools has and will continue to help the drug developers discover and design suitable targeted drugs that prevent the formation of the pathological proteins at the origin of the disease pathway. Now, the firm’s tools are getting into the clinic at a reasonable price to the diagnostic laboratories.

Of course Illumina had no choice except rejecting Roche’s offer based, on a generous premium, but unfortunately on a stock that had just lost 50% of its price as a result of exaggerated stock selloff based on negative speculation. The offer looked like a deceptive move by a shrewd player. Ignoring the real value of Illumina in Wall Street at a time or another does not mean that Illumina does not know its own value. The more Roche insists on acquiring Illumina, the more investors would recognize how valuable is this genomic firm. For Illumina to consider negotiations with Roche, the Swiss firm must build its offer on ILMN’s average value for the year that preceded the exaggerated selloff that slashed 50% of its price in days.

When they intend to acquire a firm, large drug developers make accurate evaluation of the small firms’ technologies, patents, products and every valuable asset in the targeted firm. When the large firms decide upon the acquisition, they would surely love to pay the lowest possible price. They make their offer based on the targeted firm’s market cap in case the firm is undervalued. This is what Illumina has argued about the offer and flatly rejected it. Illumina stood for its shareholders; others didn’t, which led to very valuable biotechnology firms to be sold for much less than their fair values. The phenomenon that led to a great number of unfairly valued biotechnology companies is caused by Wall Street’s overlooking the values of the firms’ technologies and pipeline products. They still cause selloffs in development-stage firms at each and every negative financial statement when all the valuable products of these firms are still in development, costing money, rather than generating revenues. Some of these companies have the innovative technologies that giant Pharmaceuticals realize would guarantee their sustained growth.

Roche knows that Illumina’s tools were used for research only and that Illumina is taking its tools to the clinic after being able to make them easier to use and affordable for the labs and the patients. Sequencing a whole person’s genome will be feasible around $1000, around the same price of a full routine blood test, an MRI, or a PET scan. Roche knows that a precise diagnosis will be possible to make for various mutations that cause the same disease. It knows that having Illumina and its equipment in house would enable the practice of personalized medicine. In an interview Roche CEO acknowledged that pharmaceutical companies who will not innovate would be facing difficulty surviving.

The ball is now in Roche’s hands. Will we see a new offer? We believe that yes, we will. Everything is possible with negotiations in good faith.

Every time the subjects of going to the root-cause of diseases and practicing personalized medicine is risen Compugen (CGEN) crosses our mind. Other companies also cross our mind, include Sequenom (SQNM) on the discovery tool side and Alnylam (ALNM) and Isis (ISIS) on the drug developing side.

Today’s news from Alnylam announced the firm’s scientists developed a novel approach for monitoring RNAi activity in blood samples (the cERD method). The new breakthrough method enables routine and frequent measurement of tissue-specific target gene silencing, without the need for invasive tissue biopsies. Rachel Meyers, Ph.D., Vice President, Research at Alnylam said, “We believe that this approach could be transformative for the development of RNAi therapeutics, in addition to having potential applications with other therapeutic modalities. In this regard, we are pleased to launch our efforts enabling industrial applications with a technology license to Isis.”

We agree. It will be big.

We long the firms cited in this text.

FDA Approves KALYDECO™ (ivacaftor) The First Medicine to Treat the Underlying Cause of Cystic Fibrosis

Tue, 31 Jan 2012 17:12:00 GMT

The U.S. Food and Drug Administration (FDA) has approved KALYDECOTM (ivacaftor), the first medicine to treat the underlying cause of cystic fibrosis (CF), a rare, genetic disease. KALYDECO is approved for people with CF ages 6 and older who have at least one copy of the G551D mutation in the cystic fibrosis transmembrane conductance regulator (CFTR) gene.

KALYDECO was granted approval in approximately three months, making it one of the fastest FDA approvals ever and marking the second approval of a new medicine from Vertex in less than a year.

Vertex has established a financial assistance and patient support program to help get KALYDECO to eligible patients for whom it is prescribed. KALYDECO was discovered as part of collaboration with Cystic Fibrosis Foundation Therapeutics, Inc., the nonprofit drug discovery and development affiliate of the Cystic Fibrosis Foundation.

Vertex is ready to support the introduction of KALYDECO and will begin shipping it to pharmacies in the United States this week.

Conference call for investors and media today: January 31, 2012, at 12:15 p.m. ET. The firm intends to offer more information on KALYDECO availability, price and the financial assistance and patient support program.

"More than 13 years ago we set out to change the lives of people with cystic fibrosis by developing new medicines that address the underlying cause of this rare and devastating disease," said Jeffrey Leiden, M.D., Ph.D., Vertex's incoming President and Chief Executive Officer. "KALYDECO represents a major advance in the treatment of cystic fibrosis for people with a specific type of this disease. But our work isn't done. With the ongoing support of doctors, patients and the Cystic Fibrosis Foundation, we're making progress toward our ultimate goal of developing additional medicines to help many more people with cystic fibrosis."

Prohost Comments: Since its establishment, Vertex has proven its mastery in targeted drug design and development. Accuracy is its advantage and determination to upgrade itself to fulfill a probable vow of developing drugs that act at the root-cause of the intractable debilitating diseases known until now they have yet to find treatments. We are confident that this firm will continue developing drugs that would benefit all patients with cystic fibrosis, which we know it is, indeed, developing them. We also believe that Vertex’ sales of HCV drug Incivek will not be left behind at anytime through the competition, as the firm is in the middle of a combination drugs that include Incivek and other drugs, all are oral with no alfa interferon. Such a firm will not go down in a world that appreciate far-reaching achievers. Vertex will continue to achieve and, we speculate that it will soon have a place among the Top-tier biotech companies and drug companies.

This is great news for science, for biotechnology and for the hope in treating many life-threatening and chronic debilitating diseases at the root-cause of their origin.

Xoma: New Plans That Can Bring Hope

Mon, 23 Jan 2012 13:31:00 GMT

Thursday’s news brought to mind our old friend, Xoma (XOMA), which, unlike Raymond, not everybody loves it. Actually, many still love Xoma, but with reservation and resentment. Many time we questioned whether Xoma is addictive. For a couple of months, when we had nothing to write, good or bad, about Xoma, readers accused us of infidelity. It is important to mention that two decades ago, many investors highly treasured Xoma, viewing it as the personification of hope for breakthrough drugs the budding biotechnology industry was promising to get across to medical practice. In London, investors asked us if we know Xoma and the same came about in Paris, Milan, Rome, and Zurich. As a matter of fact, this firm was esteemed everywhere for its technologies, scientists, and pipeline products.

After Xoma was hit with a huge setback – a disappointment in late-phase trials of its first drug, which aimed at treating sepsis, the management faltered. The failure was catastrophic because it was not expected. In clinical trials, the drug had saved lives, including those of children.

As great as is this firm’s capability for generating new molecule therapeutics, it failed to put any of its proprietary drugs on the market. The firm has done it for others, though. It generated money from fees for services and from technology licensing, but unfortunately the money never reached its programs. It evaporated. Xoma had no plans or strategies that outline its priorities. Another product, Raptiva for psoriasis, caused Xoma a heart attack. The drug, which was partnered with Genentech, passed all clinical trials and hit the market. An unexpected slow market penetration devastated Xoma’s finances, leaving it with no option except giving away the partnership on the drug and accept a small royalty. That’s not all. After cashing royalty payment for a few months, the drug was taken off the market as a result of many cases of PML associated with its use. This serious adverse effect is unacceptable for a drug that treats a skin disease that neither cripples nor threatens the lives of patients.

In the news, Xoma announced it signed another agreement with “Les Laboratoires Servier”, the firm’s partner on its lead drug gevokizumab. The agreement is about granting Xoma the U.S. representation right of the French firm’s perindopril franchise comprised of the angiotensin converting enzyme (ACE) inhibitor Aceon (perindopril erbumine) and three other fixed-dose combination candidates. ACE inhibitors are indicated for lowering blood pressure and reducing the risk of cardiovascular death in patients with stable coronary artery disease. XOMA intends to start the commercialization activities in the U.S. beginning January 2012.

Although the perindopril franchise generated around $1.2 billion in 2011 in Europe, many analysts do not believe the sales in the U.S. will reach that level and may even be much less. Generic versions of the drug and other ACE inhibitors are filling the place in the US, competing against the expensive brand names ACE inhibitors. Although the new agreement carries no minuses, it is not what those who still love Raymond – sorry, Xoma – want to see from the technological giant.

We still believe that the possible game changer in this firm’s life is its IL-1 β inhibitor (XOMA 052). It is true that this drug has failed to show efficacy in controlling diabetes. Nevertheless, it has demonstrated promising results in the treatment of inflammatory diseases and is in clinical trials for Behcet’s disease, a sight-threatening inflammatory disease.

About The Future

If destined to succeed after the catastrophic setbacks, inefficient past management and bad luck, Xoma’s bright future, if any, will come at the hands of scientists helped by an efficient management. The good news is that Xoma has seriously worked hard towards achieving this goal. Recently, the Board of Directors has appointed John Varian as Chief Executive Officer. Mr. Varian, who has been a member of the Board since December 2008, has been serving as the Interim Chief Executive since August 31, 2011. He has been capable of delineating the firm’s plans and strategy, beginning with identifying ways for increasing the value of gevokizumab. The efforts resulted in the development of a thoughtful plan grounded in the scientific evidence supporting the role IL-1 β plays across a broad range of inflammatory diseases.

The firm announced goals it decided upon for 2012. These goals are: The initiation of global gevokizumab Phase 3 program in the second quarter for non-infectious uveitis, including Behçet's uveitis. The completion of Phase 2 proof-of-concept trial of the same drug in moderate to severe acne as part of the plan to pinpoint additional indications that would expand the commercial opportunities for the drug. The completion of proof-of-concept Phase 2 program, which aims at evaluating gevokizumab’s therapeutic potential in various inflammatory diseases where IL-1β is involved.

It is obvious that Xoma’s priority at this time is reaching the furthest they get out of Gevokizumab therapeutic capability. Gevokizumab has already demonstrated potential in the management of non-anterior, non-infectious forms of uveitis. These types of uveitis affect vision, cause pain, light sensitivity and floaters. Severe forms of uveitis can cause recurrent acute exacerbations. If not immediately treated, the disease would progress to cause retinal detachment, vitreous hemorrhage, glaucoma and eventual blindness. Current Behçet’s uveitis treatments are limited to corticosteroids and immunosuppressive medicines such as cyclosporine and azathioprine - all with tremendous side effects.

Expected and possible CATALYSTS in 2012.

- Advancing Gevokizumab into Phase III trials in 2012 for Behçet's uveitis;

- Good news from other Gevokizumab Phase trials;

- Moving any of the preclinical programs into clinical trials.

- More licensing agreements, especially if accompanied by upfront payments;

- Adding more customers for services and licensing of technologies and;

- Exceeding the market’s expectation in Aceon sales.

Bringing in more money from its services and by licensing its technology would comfort investors.

Yet, we should not forget that, at this stage, Xoma is a patient recovering from a stroke in a rehab center. It will take time for the recovery to complete. The good news is that all requirements for the success of Gevokizumab are put in place. Plans are also designed for the advancement of the firm’s early investigational products. In six months, we will know more, which would enable us to judge the management, make sure that the plans were executed as promised, evaluate the firm, and then decide upon whether it is worth investing in. Xoma is trading at $1.66 with a market cap of around $58 million.

Currently, we are neutral at this stage.

Elan: Between Speculation and Reality, Where the Firm is headed now?

Thu, 19 Jan 2012 17:11:00 GMT

Elan (ELN) was granted FDA approval of Tysabri for Multiple Sclerosis in November 2004. It was great news for the firm and its shareholders, as it was no secret that the drug was a breakthrough expected to become bestseller in a huge market. The celebration of the great achievement was of short duration. Three patients developed PML (progressive multifocal leukoencephalopathy), two of them died. It was Biogen Idec, Elan’s partner on Tysabri, not the FDA, which decided to withdraw the drug from the market. The FDA was aware that the reward from such a great drug outweighs the risk, which is a rare complication that would occur with any drug that compromises the immune system and there are many on the market. Bottom line, Tysabri was reinstated on the market on condition that the patients take part in a risk-minimization program with mandatory patient registration and regular follow-up.

Since the drug returned, the media did not stop frightening patients from the drug and investors from betting on Elan. With each and every announced case of PML, negative speculators rushed to bring back the story of the drug withdrawal and the two people who died, insinuating that the FDA would sooner or later withdraw the drug from the market. These efforts paralyzed the stock, the drug sales and the company. Reality was different, though. Tysabri’s efficacy was undeniable fact. An increasing number of neurologists began to prescribe the drug, especially to patients whose M.S. symptoms would not respond to existing treatments. Although PML cases surfaced overtime, they were rare and physicians improved the PML statistics further by giving the drug only to patients who are not taking immune suppressing drugs, which are known to increase the risk of developing the adverse effect. Moreover, becoming more familiar with PML, specialists found their way into managing it. The majority of PML patients survived, making the infection life threatening but not a definite killer as the speculators insisted on calling it. Contrary to negative prophesies, Tysabri’s sales continued to grow, not diminish.

At that time, the good news wouldn’t change investors’ poor assessment to the firm. The increase in revenues from Tysabri’s sales was a drop of water in the sea of Elan’s real accumulating financial problems. These problems did not emanate from PML, but from the firm’s management. What surfaced in the financial results was a financial disaster – skyrocketed spending, causing a huge dept, which paralyzed the firm’s activities. The financial catastrophe had also prevented the brilliant scientists from going forward with their achievements. In July 2008, ELN plummeted from $33 to less than $10 following the announcement of the disastrous financial report.

During 2009, ELN price continued to slide, ranging between $5.50 and $7.80 with an average price of $6.50. In July 2010, ELN bottomed. The stock traded under $5 and continued the year oscillating between $4.70 and $5.70, while briefly reaching, or crossing $6 by a few pennies. Even the most loyal Elan shareholders joined the club of skeptics, believing that Elan is on its way into bankruptcy. Good news in the beginning of the year was the announcement that the FDA approved Acorda’s (ACOR) drug Ampyra (dalfampridine) Extended Release Tablets to improve walking in patients with MS, using one of Elan’s Oral Controlled Release Technologies, the MXDAS™ (MatriX Drug Absorption System) technology. Elan's Drug Technologies was chosen to manufacture the drug.

In 2011, the stock demonstrated strength, beginning in April and continued to move up, not bowing to any negative speculations since it announced its revenues have begun to climb beyond market’s expectations. The stock ended the year trading around $13.70, i.e., more than doubling in price from 2010 and almost tripling since it bottomed in 2009. Negative speculations about Tysabri and the reforming decisions made by the management began to lose effect, almost fade in most investors’ minds. Tysabri’s sales, which account for most of the firm’s revenues, have steadily grown and the decisions made by the new management towards reform were clearly paying off.

The year 2011, was the year Elan executed plans that would move its technologies and products forwards, while lowering its expenses. In February 2011, Elan signed an agreement with Boehringer Ingelheim upon, which Boehringer will perform the technical development, clinical manufacturing and all related regulatory filing support services for antibodies discovered by Elan. Elan will lead the discovery science, preclinical activities, clinical development and commercialization of such antibodies. In May, 2011, Elan Drug Technologies (EDT) merged with Alkermes to Create Alkermes plc. This firm will help many pharmaceutical and biotech companies develop better products. Prior to this agreement, Elan’s EDT unit had announced that Xeplion®, Janssen-Cilag International NV's long-acting injectable drug for schizophrenia was the first approved injectable product using its NanoCrystal® technology.

What about now?

In a day, or two, investors will probably hear favorable news about approval of adding Tysabri’s anti-JC antibody to the drug’s insert. The test is expected to help stratify the risk of progressive PML. It is fair to state that Tysabri’s prescriptions will mount, as many doctors will be more encouraged to give their patients the best existing drug for this disease. We should also expect sales of Tysabri to increase for Crohn’s disease, an indication that is FDA approved. We also believe that Tysabri would be considered for other immunological diseases where the drug is expected to be more efficacious than the conventional drugs.

We expect Janssen Alzheimer Immunotherapy, a Johnson & Johnson affiliate (Elan has 49% partnership) to announce clinical trial results of bapinuzumab, which was produced by Elan for Alzheimer disease.

As money talks, we expect an increase in the activity of Elan’s scientists. These activities will pour energy into the firm’s programs. Scientists will intensify their efforts in pursuing separate therapeutic approaches for Alzheimer’s disease, which aim at disrupting three distinct aspects of the beta amyloid cascade: Clearing existing beta amyloid from the brain. This work will be done from within Janssen Alzheimer Immunotherapy. Preventing aggregation of beta amyloid in the brain in collaboration with Transition Therapeutics and Preventing the production of beta amyloid in the brain using secretase inhibitors.

Finally, we expect Elan’s pipeline of immunological and neurological products to move forwards in faster pace in preclinical and clinical trials.

We believe Elan is now on the right track.

We long Elan

Circumstances That Encourage Picking Specific Biotech Stocks

Tue, 10 Jan 2012 14:27:00 GMT

Picking biotech stocks for short-term and long-term investment could be a good practice if investors know what to pick. In most cases, picking biotech stocks that have no near-term catalysts could be disappointing, leading investors to wait and wait, then get bored, and sell their shares at a great loss. To pick firms in early- or mid-phase development the firms should have very advanced technologies and product pipelines with strong evidence of promise that they are the envy of rich pharmaceutical firms. The large-pocketed drug developers usually desire what they need and buy what they desire. Most are currently in dire need of breakthrough products, as the patent lives of many of their bestsellers are expiring. Investors must be aware of the fact that stocks of development-stage firms’ are destined to fall after each and every quarterly financial results announcement, as they have no revenues or incomes. They also fall after shareholders get disappointed in the negative performances of their stocks, hence, trash them. Compensation can come early, however, in the event of takeovers, alliances that pay huge upfront payments, or the announcement of stunningly positive clinical trial results of products that deal with life-threatening diseases with large markets. Focused investors may be able to catch big fish in situations exemplified by the following three circumstances:

1. Investor-instigated undervalued firms: Investors might have caused the undervaluation by overlooking firms’ breakthrough technologies expected to positively influence the biotech industry. The best picks in this category are firms having drugs developed through the firms’ proprietary technologies that reached late-stage clinical trials having promising results in mid-phase trials.

PROLOR (PBTH) fits well in this group. The firm’s technology has demonstrated success in extending the half-life of protein therapeutics. This advancement is significant, as proteins in general have short half-lives. Extending the half-life of proteins increases their stability in the plasma, and improves their pharmacokinetic and pharmacodynamic profiles, which renders the therapeutics safe, effective and cost-effective, in addition to increasing patient compliance. Instead of requiring daily injections, patients would inject the drugs only once a week, or less frequently.

Prolor’s promising technology means a lot because many conventional technologies have failed to extend proteins’ half-lives without compromising their actions or safety. The number of first generation therapeutic proteins has grown rapidly over the last decade. Annual worldwide sales are estimated to be over $35 million. Their producers face many problems, including patent expirations of their blockbuster products and competition from small molecule alternatives and biosimilars. In short, next-generation therapeutic proteins are expected to have extended half-life versions. Prolor, we believe, is on the right track to grabbing its first big portion of the large protein therapeutics market as early as the first quarter of 2013.

Prolor extends the half -life of protein therapeutics by linking naturally occurring carboxyl terminal peptide (CTP) to the therapeutic candidate. The firm has exclusivity on the use of this approach from Washington University in St. Louis for all proteins, except four fertility-related proteins granted to Merck. One of Merck’s four drugs, a long-acting follicle stimulating hormone (FSH-CTP), has already been approved in Europe and marketed under the trade name Elonva. The drug is administered subcutaneously once a week compared to the daily injections of conventional hormone therapeutics.

With the absence of news during the time Prolor was testing its human growth hormone (hGH)-CTP, investors, like usual, lost enthusiasm for PBTH. In other words, what excites investors and analysts, i.e., revenues and incomes were obviously inexistent and positive news from their products wasn’t yet there. The truth is that what was there, but overlooked, was the approval of Merck's extended half-life follicle stimulating hormone produced through CTP technology, provided proof of concept for Prolor’s technology. Those who got bored and sold PBTH also overlooked the huge market Prolor can secure, working its CTP procedure to extend the half-life of blockbuster therapeutic proteins that are losing their patents and of the unlimited number of newly discovered proteins that promise playing major roles in the treatment of various diseases.

hGH-CTP is on its way to Phase III trials in adult patients with hGH deficiency. Prolor has confirmed the proof of concept now that the positive Phase II trial results were out, showing efficacy with once weekly injection. With regard to Prolor’s plans, in addition to proceeding to Phase III trials with hGH-CTP on adults, the firm has scheduled a Phase II trial with the same product in hGH-deficient children.

Financially, the firm has enough cash to last through 2012. Some believe that Prolor might sign licensing deals with deep-pocketed pharmaceutical companies or top-tier biotechs in order to fund the remainder of its development-phase drugs. About the missing catalysts that caused the stock to bottom in 2011, we expect 2012 to have much exciting news, which could boost the value of PBTH. The expected catalysts include results of hGH-CTP Phase III clinical trials on adults and Phase II on children among other results from other drugs in Prolor’s pipeline. The most important stimuli that would boost PBTH are the firm’s filing for hGH-CTP approval for adults in the second half of the year and attracting new partners, bringing in more cash to its coffers.

EXELIXIS (EXEL) has a great small molecule drug technology and a pipeline with many promising cancer therapeutics. Investors’ enthusiasm had peaked when results from preliminary tests demonstrated that the firm’s lead product cabozantinib erased prostate cancer bone metastasis, as confirmed by digital imaging. Investors were sensitized to react positively as, according to Exelixis, cabozantinib demonstrated objective responses in 12 out of 13 tumor types, and demonstrated activity against metastatic bone lesions in four tumor types, in addition to prostate cancer. The tumors include renal carcinoma, breast cancers, thyroid cancers and melanoma. After reaching around $13, the stock plummeted as Exelixis announced it could not come to an agreement with the FDA on a clinical trial design for its pivotal prostate cancer trial, but will still go ahead with their its own design.

Some analysts and investors magnified the negative consequences of the disagreement between the firm and the agency, causing the stock to come down from around $12.80 to a little over $4. Other experts, however, believe that the company is on the right track. Exelixis, they suggest, knows better than anyone else the promises of its prostate cancer drug and can select the clinical trial plans that could highlight all its advantages and best applications.

Cabozantinib is both MET and VEGF inhibitor. The emerging understanding of MET has helped provide insight into the mechanisms of bone lesion development. MET is expressed not only in tumor cells and endothelial cells, but also in bone-forming cells (osteoblasts) and bone bone-removing cells (osteoclasts). Activation of MET in tumor cells appears to be important in the establishment of metastatic bone lesions. Activation of the MET pathway in osteoblasts and osteoclasts may lead to pathological features of bone metastases, including abnormal bone growth or destruction lesions. Thus, targeting the MET pathway may be a viable strategy in preventing the establishment and progression of metastatic bone lesions.

2012 catalysts include:

Results of clinical trials with cabozantinib on various cancers;

Results from clinical trials on other drugs;

Filing for FDA approval of the drug for medullary cell carcinoma.

Exelixis product pipeline is rich with promising drugs that attracted alliances from both the pharmaceutical drug developers as well as the biotech firms.

2. Persistent stock rally: Sound scientific firms that all of a sudden many analysts decide to upgrade them, causing an unstoppable rally in their stocks. Stocks’ rallies that persist without the usual profit taking and analysts’ downgrades for overvaluation would usually hide a real possibility of upcoming take-over.

ARIAD (ARIA) now fits this category. Recently, its stock moved upward without interruption and with no significant profit taking or downgrading by analysts. Ariad has an excellent small molecule therapeutic discovery technology, alliances, and a sarcoma drug, ridaforolimus expected to be FDA approved in a few months. Usually, all these positives would not stop bearish analysts from finding reasons to halt firms’ rallies. In this case, bearish analysts remained silent. The only news that could silence bearish analysts is a possible take-over, probably by Ariad’s partner on the drug or others. Ridaforolimus is an mTOR inhibitor that demonstrated promising clinical trial results. The drug is expected to be soon granted approval by the European Medicinal Agency.

For us, take-over is not the only reason for investing in ARIA. The firm has great potential and will put many of its promising pipeline products on the market.

3. Stocks cremated for temporary issues unrelated to products: In this category, the firms have experienced stock selloffs after their recently approved drugs had a poor market penetration. The selloffs occurred in spite of the fact that the problems that caused the poor sales are well known to be temporary and solvable.

We already wrote about two biotech stocks that plummeted because the market penetration of their recently approved drugs did not meet Wall Street expectations. These are: Dendreon (DNDN), which has solved its two problems, reimbursement and manufacturing, and Human Genome (HGSI), which is doing its homework to familiarize the specialists with the optimal uses of the drug. The sales are now picking up.

Analysts used these two firms as examples to deter investors from getting enthusiastic and buy shares of companies that are granted drug approval. This example, we believe, was inappropriate and the choice of firms they tried to convince investors not to invest in was also out of place. Topping the list of firms that experienced selloffs as a result of the scary tactic are Incyte (INCY), which experienced a sell off that brought its stock down from over $20 to around $12. The stock is now rebounding, reaching around $16.40 on its way, we believe, to crossing its 52-week high, i.e., $21.15. Also impacted was Seattle Genetics (SGEN), which was pushed down to around $14 from over $22. The stock is trading now at $17.54. We believe the stock will soon cross the $22.40 mark, its 52-week high.

We long these firms

Like Dendreon (DNDN) Human Genome might have Bottomed

Mon, 09 Jan 2012 15:12:00 GMT

As expected, Human Genome Sciences (HGSI) will report on progress with the commercialization of Benlysta® (belimumab) during a presentation at the 30th Annual JPMorgan Healthcare Conference in San Francisco. The drug is approved for the treatment of adult patients with active autoantibody-positive systemic lupus erythematosus (SLE) who are receiving standard therapy.

Human Genome’s SLE drug Benlysta and Dendreon’s prostate cancer vaccine Provenge were used as examples for firms that are granted drug approval, but their sales were disappointing. As we predicted in a past article, Dendreon’s Provenge demonstrated that the reasons for not selling Provenge were reimbursement and manufacturing delays, which had nothing to do with the drug’s safety and efficacy. When the problems have been solved, Provenge’s sales began to rebound and so The firm’s stock.

Something of the same is going on now with Human Genome’s Benlysta, where the major problem - lack of physicians’ familiarity with the drug – is a temporary problem that has nothing to do with the safety and efficacy of Benlysta. When the specialists started to become familiar with the use of the drug, thousands of SLE patients began to be administered the drug according to H. Thomas Watkins, President and Chief Executive Officer of the firm who also said, “… Although we are still in the early adoption phase of our launch, our experience in the market to date reinforces our belief that Benlysta will ultimately play a major role in improving the standard of care for SLE patients.”

Mr. Watkins confirmed that the firm has seen good progress with the number of physicians initiating use. He said, “As they build their own clinical experience, more and more physicians are considering Benlysta® for appropriate SLE patients.” Mr. Watkins also expressed the firm’s belief that Benlysta® is on its way to becoming an important component of a new standard of care for SLE.

Benlysta has been approved by the European Commission on July 13, 2011, and is now available in Canada and an increasing number of European countries, including Germany, Spain, Austria, Denmark, Finland, Hungary, Norway and Sweden. HGS has built its own commercialization team to work alongside GSK in Europe, with headquarters in Switzerland and local organizations in Germany, France and Spain. Elsewhere, GSK leads local implementation, with HGS sharing costs and profits equally with GSK.

In December 2011, HGS and GSK announced that a Phase 3 trial of the subcutaneous formulation of Benlysta®, which would make it possible for patients to self-administer the drug once a week. In May 2011, GSK initiated dosing in the Benlysta® Phase 3 trial in East Asia, which will enroll approximately 630 patients in China, Japan and South Korea.

The firm’s Key goals for Benlysta in 2012:

Continue to increase sales in the U.S. and elsewhere.

Continue to work with GSK to launch Benlysta in countries around the world.

Enroll Phase 3 trial of subcutaneous formulation throughout 2012; complete enrollment in 2013.

Initiate Phase 3 trial in vasculitis.

Initiate Phase 3 trial in active lupus nephritis.

Enroll Phase 3 trial in East Asia.

To read the complete press release go to: HYPERLINK "http://www.hgsi.com/latest/human-genome-sciences-reports-progress-with-commercialization-of-benlysta-and-announces-2012-goals-at-jpmorgan-healthcare-confe.html" http://www.hgsi.com/latest/human-genome-sciences-reports-progress-with-commercialization-of-benlysta-and-announces-2012-goals-at-jpmorgan-healthcare-confe.html

Like with Dendreon’s stock, we believe Human Genome’s stock has also bottomed.

Eye On

Idenix (IDIX): We follow on the news, but we keep in mind that we need to wait for further results before we get excited about all firms that have HCV drugs in their pipeline. The fact that Inhibitex will be acquired by BMS, after Pharmasset’s has been taken over must not rush our decisions before verification of data when complete data are announced.

Curis (CRIS): Good News about FDA accepting the firm’s and Genentech’s NDA application for vismodegib for the treatment of adults with advanced basal cell carcinoma for whom surgery is considered inappropriate.

We intend to buy HGSI in the next couple of days.