Keith Markey: Absolutely. That's where I feel like I'm really in the helm. I look at the scientific evidence to understand whether the technology underlying a drug is truly unique. Medical devices are a different story. But for a therapeutic molecule, understanding how it works in the cell and in the patient is absolutely necessary.
TLSR: The market opportunity has to be one of your first considerations as well. For instance, I know you've followed public companies and worked with a few private companies. How do you judge market opportunity and competitive landscape?
KM: If you have a number of companies working in a certain space, it's obviously an area that has benefited from a technological advance. This is not uncommon in the pharmaceutical industry. Sudden bursts of activity in a specific area can be traced back to a particular discovery or the evolution of a new technology. When you're looking at market opportunities, that's obviously an important factor, especially if there is a lot of competition.
Another thing to take into consideration is the number of potential patients and the potential cost of the therapy. The price of an oral therapy could be at one level, whereas a biological or a cell therapy could cost significantly more, depending upon the disease indication. The type of therapy not only defines the pricing structure, but also identifies the potential competitive advantage. If you have a very effective small molecule drug that is going to compete against a large molecule biological that could cost several-fold more, the small molecule is going to have a competitive advantage.
TLSR: You follow emerging healthcare companies with novel technologies, which is where major growth prospects reside. As an equity analyst for more than 25 years, you've seen the development of some very exciting technologies. How does your past experience inform the way you look at newer therapies, such as stem cell/regenerative medicine, oligonucleotide therapies and gene therapies?
KM: If anything, my experience has made me realize that as good as some of the technologies may look, we have to be circumspect. We have to consider all the different factors that may come into play related to the drug's efficacy and acceptance, even before we have all the information. Once a product is on the market, that sort of information is going to be revealed in the sales figures.
"The type of therapy not only defines the pricing structure, but also identifies the potential competitive advantage."
Genentech (now a unit of Roche Holding AG [RHHBY:OTCQX]) provides a good example of how market hype can really take over. Before the company's Activase (alteplase) was approved for stroke, analysts and investors watched the drug go through the regulatory and review process at the U.S. Food and Drug Administration (FDA). In light of the preapproval hype, market watchers almost had to say Activase was going to be a great drug. Analysts had to have a lot of strength to say otherwise. Activase did not meet expectations, and the value of Genentech's stock plunged significantly once it became apparent that there were limitations on how the drug could be used and, therefore, its market opportunity.
On the other hand, there have been a number of significant successes over the years. A couple of drugs came out shortly after Genentech's, both from Amgen Inc. (AMGN:NASDAQ). They had a very strong uptake, did extremely well, and allowed the company to grow into the $118 billion ($120B) company it is today.
Investors should be nimble. If you see that the market is going gung-ho over a drug, you'd better think seriously about whether the company might be overbought.
TLSR: What looks interesting to you today?
KM: There are some very interesting companies out there in regenerative medicine. For example, Fibrocell Science Inc. (FCSC:NASDAQ) has a therapy for treating damaged normal tissue that can also be used in combination with a gene modification to address a genetic abnormality. The genetic skin disorder being pursued is called recessive dystrophic epidermolysis bullosa (RDEB). Thankfully this is an orphan indication, as it is one that causes patients to suffer a great deal. The gene therapy was created in collaboration with Intrexon Corp. (XON:NYSE). It's an interesting new approach to a very difficult disease.
I like both Fibrocell and Intrexon, which has a business-to-business (B2B) model. The collaboration has created a cell therapy for both children and older people with RDEB, a blistering condition that starts at the time of birth and ultimately takes a person's life prematurely, usually when in his or her 20s. The gene therapy involves inserting the correct gene for collagen VII, which is the material that knits the epidermis (outer layer of the skin) to the dermis (the inner layer of the skin). The hope is that by inserting this gene into the fibroblasts that are part of the dermal layer, there will be an expression of sufficient collagen VII to hold the outer layer in place and prevent the blistering. Even for short periods of time, that would be very helpful to the patient.
TLSR: Since this is a gene therapy, does it alter the genome permanently?
KM: Yes and no. In the sense that the collagen VII will be expressed continuously, the therapy does alter the genome. It's not going to be turned on and off, and is needed to retain the proper connections between the two layers of skin. But as far as affecting the patient's entire genome, no. It affects only the cells that have been transfected, though the genetically modified fibroblasts will, to a certain extent, divide and populate a particular area.
TLSR: Is this therapeutic model also being used in Fibrocell's vocal cord therapy program, or in its Wounded Warrior Project and burn scar therapy?
KM: No, it's not. Those therapies, though using fibroblasts, don't involve genetic modification. In the vocal cord scarring trial, patients are treated with their own fibroblasts, which have been grown and cultured just to get a larger number. Then they will be administered to vocal folds that have been damaged through overuse. This is an autologous (derived from the patient) therapy.
One of the nice things about fibroblasts is that they are capable of filling a space that has been damaged. They are capable of releasing a group of cytokines that causes other types of cells to be drawn in and facilitate the healing process. The hope is that fibroblasts will cause the body to heal the vocal cords itself.
TLSR: Are the fibroblasts readministered locally, right into the vocal cords or into the scar tissue?
KM: Yes. They're administered like a drug, infiltrated locally via injection. Currently, there is a process that uses synthetic fillers to try to correct vocal cords that have been scarred, but these fillers have drawbacks and are not optimal. For one thing, they don't enable the cords to vibrate the same way they normally would.
TSLR: What about the Wounded Warrior Project?
KM: These too are autologous fibroblasts, which are taken from either the palm of the hand, where calluses form easily, or from the foot where, again, a normal type of thickening of the skin can form. These fibroblasts retain a memory, if you will, of where they came from, and they continue to perform as if they are in that original environment. The fibroblasts are transplanted so they can produce the extra materials that make up the same kind of cellular matrix in the area of a limb stump where it comes into contact with a prosthetic device. These areas are frequently subject to different types of damage, primarily from heat, sweating and, of course, friction between the limb stump and the prosthesis. The hope is that the fibroblasts will create a sort of heel pad, if you will, at the bottom of the stump, and thereby provide a more effective point of contact between the person's stump and the prosthesis.
TLSR: Your target price on Fibrocell Science is $9.25/share, which represents nearly a double from current levels. What moves this stock between now and a year from now?
KM: We'll have some indication as to the success of the RDEB program in that time frame. First, we will learn whether the company's genetically modified fibroblasts are able to knit the dermal and epidermal cell layers together, either through a press release on the preclinical research results or the start of a Phase 1 clinical study. A Phase 1 trial will not begin unless the preclinical tests go well.
"For a therapeutic molecule, understanding how it works in the cell and in the patient is absolutely necessary."
An initial Phase 1 trial in RDEB is only going to involve five older patients—probably patients in their late teens or early 20s who have volunteered to participate. The results should be fairly apparent within months. The question then becomes whether or not the effect is durable—how long it will last. The next phase would be a Phase 2 with younger children; my guess is that a Phase 2 would start about six months after the early Phase 1 patients are first treated.
TLSR: For the Phase 1 trial, would this be a single administration of genetically modified fibroblasts?
KM: Yes. It would be a single administration for the blisters apparent during the trial. But in practice, the RDEB patients—and even the dominant dystrophic epidermolysis bullosa patients—will probably require administration of the cells periodically over the course of their lives.
TLSR: Is there any fear that this collagen VII protein could produce a dangerous antibody response?
KM: No. There really isn't any threat, because the collagen VII gene that's being inserted is the normal human collagen gene, and will produce the normal, fully human collagen VII that is in all of our bodies. It doesn't have any kind of antigenic activity to cause an immune response. Also, the fibroblasts are autologous, and are not foreign to the patient's immune system. The only thing that's different is that they'll produce normal collagen instead of collagen fragments.
TLSR: You have followed companies over the years that collaborate with each other. Has one company led you to another?
KM: I wouldn't say one company has led me to another, but it has worked out that way in some instances. Certainly strategic planning has been a significant factor. Intrexon's B2B model seeks to commercialize the company's synthetic biology platform, so it's not too surprising that I follow a handful of companies that know each other—Intrexon, Fibrocell Science, Synthetic Biologics Inc. (SYN:NYSE.MKT) andZiopharm Oncology Inc. (ZIOP:NASDAQ).
In other cases, it's been just sort of coincidental. I follow MannKind Corp. (MNKD:NASDAQ), and Sanofi SA (SNY:NYSE) is partnered through its Genzyme unit to market MannKind's Afrezza (human insulin of recombinant DNA origin, inhalable, delivered via Technosphere particles). In addition I follow Unilife Corp. (UNIS:NASDAQ), which also did a deal with Sanofi for an injectable called Lovenox (enoxaparin sodium), an antithrombotic agent. Unilife's safety needles and syringes are particularly appealing for that drug. In addition, Unilife has an exclusive contract with Sanofi for wearable injectors.
TLSR: Let's stay with Intrexon and Ziopharm for a moment. On Feb. 23 you raised your target price to $65/share on Intrexon, which had a recent price of $48/share. Intrexon's shares have performed extremely well recently. In fact, the share price has doubled over the last six months. What is your value and growth proposition for the company?
KM: The real reason for the increase in Intrexon's valuation stems from its agreement with the University of Texas MD Anderson Cancer Center, where it and Ziopharm Oncology have entered into an agreement to utilize, on an exclusive basis, the Sleeping Beauty transposon system, which enables genetic modification in the field of oncology. Intrexon, with its B2B model, really doesn't want to produce the end-user product and see it through to full commercialization, so Ziopharm is acting as the avenue for clinical development of immunotherapies, which will probably be out-licensed to a big marketing company for commercialization. The MD Anderson affiliation brings the most well-defined, well-tested gene insertion technology, and gives the companies access to one of the thought leaders in immunotherapy. At the same time the collaboration gives them all an opportunity to work together on projects that have been under development by the individual partners.
TLSR: Ziopharm, Intrexon and MD Anderson can now genetically engineer a T cell to express a chimeric antigen receptor (CAR) against a cell membrane antigen like CD19. This is an area where antibodies have had success against non-Hodgkin's lymphoma, and also in autoimmune disease like rheumatoid arthritis. Could this platform technology be expanded into many different areas?
KM: Yes. The CD19 antigen being targeted by a number of immunotherapy companies is not only an excellent opportunity for patients, but also enables companies to use the technology to tweak systems, make sure the cells are working properly, and make sure the genes are expressing the CD19 CAR properly. The reason that a B-cell malignancy like non-Hodgkin's lymphoma is a particularly good indication is that CD19 is found almost exclusively on B cells. The side effect of B-cell blockade is that all of a patient's B cells are knocked out. In most cases we can't allow severe off-target toxicities like this to occur, but in this case it's not life threatening because a replacement therapy can be given. In the meantime, you can address the cancers—the leukemias and lymphomas—with this particular technology and see significant benefit.
TLSR: Keith, Intrexon has a $5B market cap after rising nearly threefold in six months. Ziopharm, with a $1.4B market cap, has quadrupled over the last six months. Given Intrexon's B2B business model, do you see Intrexon targeting Ziopharm for acquisition?
KM: No, I don't. Intrexon's B2B model eliminates the need to acquire Ziopharm because, theoretically, Ziopharm could have a strong enough financial position to market some of the products itself. There is also no need to take the clinical trial program from Ziopharm into Intrexon. Ziopharm functions better as a separate company because it can raise capital separately and independently for its particular projects. If Intrexon needs to raise capital for whatever projects it's interested in, it can also do that separately. Bringing all of those programs under one roof would require Intrexon to do all of the financing to support those trials, and development of other projects as well.
TLSR: You put out a recent note on MannKind, and Afrezza is now on the market. How is that going so far?
KM: The commercialization of Afrezza is doing quite well. The product has the marketing support of Sanofi, with about 1,500 sales representatives detailed to physicians around the United States right now. Because this rollout has just begun, demand based upon prescriptions filled is still too low to get any sense of how big it will be. It's also way too early to measure the effectiveness of the sales force in a very competitive market.
But the fact is that demand for the trial packages of Afrezza have gone way above expectations, so I think that's a pretty good sign. We're also seeing MannKind expanding its manufacturing capacity for the drug by more than threefold. That expansion will be competed in the June quarter, so the company is preparing for significant upturn in demand. Sanofi has been talking with insurers to obtain favorable reimbursement conditions for the drug.
TLSR: The company is now talking about future development plans with its Technosphere particles. Would you speak to that briefly?
KM: Sure. Mannkind recently announced that it was adding to its research and development pipeline of active pharmaceutical ingredients that could be administered through its Technosphere particle technology. These Technosphere particles are designed specifically to penetrate the alveoli of the lungs, thereby delivering medication to the bloodstream very quickly. This is the pharmacokinetics behind Afrezza. It is the only therapy that actually mimics the way the pancreas normally releases insulin.
"If you see that the market is going gung-ho over a drug, you'd better think seriously about whether or not the company might be overbought."
Mannkind is going to use the Technosphere technology in three areas. One is to administer a pain medication. My guess is that it will be for something like cancer-related breakthrough pain. Another program is going to be for cancer supportive care. While the company hasn't discussed any particular drugs, one idea is that it could be an antiemetic—a drug for treating the nausea associated with chemotherapy. A patient may not be able to take medication by mouth and hold it down, or perhaps the medication will not be absorbed properly in the gastrointestinal tract. In these cases, inhalation of the drug would be ideal. The third area will be to address pulmonary disease, but the company hasn't yet acknowledged what type of lung disease it will address.
TLSR: Afrezza was approved at the end of June 2014, and it was launched on Feb. 3. Although MannKind shares have risen about 18% off its low of the last six months, the stock price is down 6% from a year ago. Why has this stock been so slow?
KM: What we've had since July is a change-out of investors in the company. One group of investors clearly likes biotech and pharmaceutical companies during the development stage, and they love to watch the speculative fervor that can take a company's stock to new highs. That is exactly what we saw last spring and into the middle of summer, when everyone was anticipating the FDA advisory committee panel meeting in early April, and then the approval in the middle of the summer, and then, finally, the partnering agreement with Sanofi. After those events took place, there was nothing to speculate over. We've seen six months of relative quiet, very little news flow. As a result, investors in development-stage companies sold off their positions over time.
But the stock was up significantly since its low on Oct. 10. What we have been seeing since then is involvement by larger institutions that are more interested in the commercial side of the business, that want to invest in companies where earnings are somewhat predictable, and that want to track uptake via prescription data and sales. We're at that turning point now, toward real commercial status, but the effects of that changeover aren't yet apparent.
TLSR: You mentioned Synthetic Biologics earlier. It's another company with an Intrexon collaboration. Your target price is $6.50/share, which represents a near triple from current levels. What's going on at the company?
KM: Synthetic Biologics has a number of clinical trials ongoing. It just reported the results of a Phase 1 clinical study of its SYN-004 (oral beta-lactamase) for prevention of Clostridium difficile infections. It's an enzyme, and would be given with intravenously administered beta-lactam antibiotics. The idea is that it will degrade the antibiotic in the gut to preserve the natural microflora balance, thereby preventing C. difficileinfection, a common hospital-acquired infection. This trial is going to lead into a Phase 2 trial in H1/15.
Synthetic Biologics also has SYN-010, an oral drug for constipation-predominant irritable bowel syndrome (IBS). I think this therapy can move through the clinical development process fairly quickly. A relatively short Phase 1 study has either started or is about to start. That will be followed by a Phase 2 trial, which should take about a year to yield data—maybe by the middle or second half of 2016. Then the drug is going to be eligible for a 505(b)(2) filing, which is relatively quick and simple because the drug is actually already approved. It's just being approved for a new indication.
Then we have a study with Synthetic Biologics and Intrexon that could ultimately go into clinical trials toward the end of this year, for a medicine addressing pertussis. The candidate is SYN-005, which consists of two different monoclonal antibodies that target specific sites of the pertussis toxin, thereby knocking it out quickly and effectively. It's really the toxin, and not the B. pertussis bacteria, that is so deadly. The bacteria are fairly easily killed by antibiotics, but the toxin remains in the system. Unless you've killed those bacteria early enough, the patient's body still retains enough toxin to potentially be lethal. This is a rescue medicine. We're looking forward to seeing it move forward.
TLSR: What about the trial in relapsing-remitting multiple sclerosis (MS) with Trimesta (oral estriol)? Has the company stopped development of Trimesta?
KM: No, it has not. Synthetic Biologics has gotten some clinical data from a trial conducted by UCLA investigator Dr. Rhonda Voskuhl, who was interested in developing oral estriol as a drug to reduce the rate of relapse in MS patients. The new information consists of MRI data, but the analysis is still being done, and it is time-consuming. The idea is that once it has enough data in hand, the company will talk to potential partners about out-licensing this drug, either as a standalone product for early-stage MS patients or possibly in combination with some of the current drugs for MS patients.
TLSR: At the end of April 2014, Trimesta in combination with Teva Pharmaceutical Industries Ltd.'s (NYSE:TEVA) Copaxone (glatiramer acetate injection), which is standard of care, failed to meet its primary endpoint. After two years, there was no statistical significance in relapse rate of patients on combination therapy versus those on Copaxone alone. That was a Phase 2 trial, I believe.
KM: Yes. The therapy did fail the primary endpoint, but it wasn't because the drug didn't work as much as it was because investigators didn't have enough patients. Patients dropped out of the trial for reasons that weren't quite apparent. This was an investigator-sponsored trial. When a medical center and a clinician sponsor a trial with the support of the government or the MS foundation, they structure the trial in a way that they feel is suitable, but not necessarily ideal for commercialization purposes. When it came time to assess the primary endpoint, which was relapse rate, so few patients were still being monitored that it was almost impossible to obtain meaningful results, which was truly unfortunate.
The fact that the failure was proclaimed in the press without a full explanation was also unfortunate, because the drug does have fairly good activity. This drug was identified, if you will, by simply monitoring what was going on with pregnant women who have MS, and following and evaluating their MS symptoms. Dr. Voskuhl made a brilliant observation that estriol, which is released during pregnancy in growing concentrations from the first trimester to the third, may be the reason we don't see reduction of lesions and symptoms at all other times during an MS patient's life. The reduction only happens while the patient is pregnant.
TLSR: At 12 months, the Trimesta-treated patients had 47% fewer relapses, which was statistically significant. But at 24 months, the rate fell to 32%, which was not statistically significant because of the dropouts.
KM: Exactly. If you don't have the patients, you can't possibly meet your statistical significance.
But the other interesting thing that came out, even with the small number of patients, is that neurological performance actually improved over that time frame. One of the areas that could be very interesting to look at with this drug is in treating or maintaining cognitive function in MS patients. People who aren't familiar with the disease don't know that these patients suffer setbacks neurologically from the lesions that cause MS. The lesions affect not only movement, but cognitive capability as well.
TLSR: Keith, Synthetic Biologics has only a $180M market cap. If any one of these indications were to be developed successfully, or even were successful into Phase 3 studies, do you think this company would be very good for investors?
KM: Absolutely. This is, in a way, a low-risk investment. You have at least three shots on goal that could really take the stock considerably higher.
TLSR: Once again, it's been a pleasure speaking with you.