Why Investors Shouldn't Worry About Explosive New Drug Pricing: Maxim's Jason Kolbert Print E-mail
By George S. Mack of The Life Sciences Report   
Thursday, 09 April 2015 19:21

It's the daring Phase 2-stage molecules of today that will bring patients a generation of biotech drugs that could cure certain deadly diseases tomorrow. The candidates that succeed will also energize the portfolios of investors who have exercised patience.

Jason Kolbert of New York City-based Maxim Group relishes finding early-stage, cutting-edge, small-cap names that he believes will change the paradigm of medical practice. In this interview with The Life Sciences Report, Kolbert shares a list of favorite biotechs developing products that will command premium pricing and sustained performance in the marketplace.


The Life Sciences Report: Jason, the first quarter of 2015 has been interesting in the biotech space. Stock performance has been strong. What's going on?

Jason Kolbert: The biotechnology index has been strong as we close out Q1/15, and everyone is talking about a bubble. It is reminiscent of Q1/14, when we saw a very potent biotech rally followed by a selloff, and then a recovery into a strong rally that began in mid-October. The selloff then was related to a new theme emerging around reimbursement. There was a lot of discussion about who was going to pay for new drugs like Gilead Sciences Inc.'s (GILD:NASDAQ) hepatitis C (HCV) products Sovaldi (sofosbuvir) and Harvoni (ledipasvir + sofosbuvir). Reimbursement became the buzzword in biotech.

But now, as we have moved through Q1/15, that seems like an old theme. That's how fast Wall Street is working. Right now you're seeing the Street discount the reality that new drugs representing substantial improvements over the existing standard-of-care therapies, and with proven efficacy, will be covered by payers. It's not a question of Gilead's Sovaldi or Harvoni being expensive. It's a question of the totality of the cost versus the benefit.

"Modest penetration into this market could make Athersys Inc.'s MultiStem more than a $1B product."

Let's take a look back. Vertex Pharmaceuticals Inc.'s (VRTX:NASDAQ) HCV drug Incivek (telaprevir) and Schering-Plough's (now a unit of Merck & Co. Inc. [MRK:NYSE]) HCV product Victrelis (boceprevir) are three-times-a-day antivirals that had to be dosed in combination with interferon and ribavirin, and the total cost of care was $80–85,000/year. The new regimen with Harvoni is QD (one-pill-a-day) therapy, without ribavirin and interferon, and for a much shorter duration. Harvoni has an equivalent price, a higher efficacy rate, fewer side effects, and a higher cure rate. Harvoni is actually a better value.

What investors are recognizing now, in 2015, is that while many of these new therapies may cause sticker shock, the reality is that when you look at the added benefit and the elimination of related costs, they are a better value. I believe this is one of the reasons why the biotech market has been so strong.

I'll give you another example. Keryx Biopharmaceuticals Inc. (KERX:NASDAQ) has a new drug, Auryxia (ferric citrate), for chronic kidney disease patients who are on dialysis. Ferric citrate is a phosphate binder used to remove the elevated phosphates that we consume with our food. One of the benefits of ferric (iron) citrate is that it reduces the need for intravenous (IV) iron and erythropoietin-stimulating agents (ESAs), which are red blood cell growth factors. Again, the bears may ask whether we really need a new, branded drug with intellectual property at a time when the standard of care is going generic. What they fail to see is that the total cost of treating these patients goes down, not only because less IV iron supplementation and fewer ESA agents are needed, but also because the patient experiences fewer comorbidities, and therefore fewer hospitalizations. When the value proposition is truly there, companies will receive capital and valuation.

TLSR: As an analyst, you have been on the vanguard of personalized diagnostics and therapeutics. Is it too early to get excited about going beyond a few mutation- and gene expression-specific diseases to more specific populations of patients with companion diagnostics and therapies?

JK: I don't think we can develop truly innovative therapies, particularly when we're talking about cancer, without the synchronized development of diagnostics. Oncologists have to understand what they're dealing with. Too often we think of breast cancer, or prostate cancer, as one cancer. The reality is that there are multiple types of breast cancer. There are progesterone- and estrogen-sensitive cancers. There are HER2/neu-driven cancers. There are breast cancers that seem to have no apparent driver, which we call triple-negative. There are mutation-driven cancers. The oncologist has to be able to look into the tumor (its genotype), as well as at the patient's family history and physical symptoms to extract information on what might be driving that cancer. Unfortunately, it's very rarely 100% of one thing. But in many cases there are predominant types of tumors, and that predominance dictates which therapy will be most effective.

TLSR: The U.S. Food and Drug Administration (FDA) released industry guidance in August 2014 on the topic of in vitro companion diagnostic devices. It appears that most diagnostic-related therapies will not have to be approved as combination products. Will combination-style development continue on?

JK: Yes I believe it will. We have been doing personalized medicine in cancer treatment for the last 20 years. The difference today is that it's getting better and better. In many cases, we're able to tell a patient his or her 10-year recurrence risk based on genetic profile, or oncotype, and that critically important information will determine the patient's therapy, follow-up, and adjunctive or preventive cancer immunizations that might be approved in the future. I am a big believer in diagnostics. I don't believe that you can have true drug development any longer without combining development of diagnostics. You've got to understand the tumor before you treat the patient.

"The longer Inovio Pharmaceuticals Inc. holds onto VGX-3100, the greater the value proposition."

There are many examples of drug combinations in development.Medivation Inc. (MDVN:NASDAQ) is driving its approved prostate cancer therapy Xtandi (enzalutamide) toward triple-negative breast cancer and, at the same time, investigating the use of checkpoint inhibitors as a potential combination product. Bavarian Nordic (BAVA:OMX) is introducing Prostvac (rilimogene galvacirepvec), a therapeutic cancer vaccine for prostate cancer that is more cost-effective than the older pioneering therapy, Provenge (sipuleucel-T), which was developed by Dendreon Corp. (DNDN:NASDAQ). But these treatments can't really be effective unless there's a diagnostic that can read the disease phenotype.

TLSR: You also follow at least two companies developing therapies with adjunctive devices. This seems to be an important segment of your coverage right now.

JK: It is. When we talk about a new era of cancer—immunotherapy, in particular—we're looking at drug-device combinations. For example, OncoSec Medical Inc. (ONCS:OTCBB) is using electroporation, an electrical impulse, to deliver plasmids that upregulate the expression of interleukin-12 (IL-12). It is also looking to combine IL-12 with a checkpoint inhibitor.

TLSR: It feels like we're going to see more diagnostic and therapeutic combinations that address new and different orphan disease indications. Do you see it that way?

JK: Yes, additional orphan indications are going to be developed. There are several drivers here. We can take one driver from Cytori Therapeutics Inc. (CYTX:NASDAQ), which is pursuing scleroderma, specific to the hands, with its autologous, adipose-derived stem and regenerative cell (ADRC) technology platform. Scleroderma is an orphan indication, but it also creates a rapid development pathway to the marketplace by which Cytori can establish proof of concept for its cell therapy. Other companies may take this approach, and find orphan disease opportunities attractive due to the premium pricing model.

Another reason orphan diseases are so attractive is that the developer is able to reach a much narrower market with a very small sales force. Also, if the developer has established proof of concept around the therapeutic, that technology and data can be used to expand a therapy to a nonorphan population. Cytori's ADRC technology is an example of that therapeutic development concept.

I think another example can be found in the chimeric antigen receptor (CAR) T-cell space, where the T cells are genetically engineered, and where we see companies like Kite Pharma (KITE:NASDAQ)bluebird bio Inc. (BLUE:NASDAQ) and Juno Therapeutics (JUNO:NASDAQ) working. You can also deliver genetic material with viruses—vectors. That opens up an entire spectrum of orphan diseases that we might not otherwise have been able to realistically address.

TLSR: Will these new orphan indications be supported by payers? Right now orphan therapies demand the attention of regulators with special protocol assessments and premium pricing when they are approved. Will this payer model work with additional indications?

JK: The feedback we hear directly from payers is that they will cover orphan populations because, by their nature, orphans represent an absolute minority of the total covered patients. The question is, if 50 or 100 orphan indications are being covered, won't that balloon the cost up? You could certainly argue that it will, but we're not there yet. Only a handful of orphan diseases are being addressed.

"We view Omidria sales as a means for Omeros Corp. to fund one of the most exciting biotechnology pipelines in the industry."

Five to 10 years into the future, however, the orphan population in the aggregate may not be orphan at all. Combined, all of these ultraorphan indications could add up to very substantial costs. How will society treat so many minority disease indications in the population? Those are political questions our leaders have yet to address. But where we are today and where we're likely to be in the next five years is incremental with regard to the orphan space.

TLSR: Jason, could some of the newer technologies lower the cost of therapies so that we could treat more patients, fewer times, with greater efficacy?

JK: I think that might be possible, particularly with cell-based therapies, even on the regenerative side. I get excited when I look at what Athersys Inc. (ATHX:NASDAQ) andMesoblast Ltd. (MSB:ASE; MBLTY:OTCPK) are doing. If Athersys is successful in ischemic stroke with its MultiStem (multipotent adult progenitor cells), I believe it has the potential to dramatically lower the cost burden of stroke on patients and on payers. As Mesoblast demonstrates success in congestive heart failure (CHF) with Revascor (mesenchymal precursor cells; MPCs), I believe it is going to dramatically lower the cost burden associated with CHF.

For the most part, existing therapies associated with stroke and heart failure only ameliorate the condition. They don't address the underlying problems, which is a disease of vascular insufficiency in heart failure and, in stroke, limiting the damage in the brain to the size of the initial acute infarct. If you could do these things, you could have dramatic benefits on patient recovery. In both CHF and stroke, you could allow patients to heal faster, ambulate quicker, and return more rapidly to productive roles in society. I'm excited by the value proposition of many of these new medicines.

TLSR: Athersys' and Mesoblast's cell technology platforms are similar. Could you point out the value propositions for both companies?

JK: Let's also include the Israeli company, Pluristem Therapeutics Inc. (PSTI:NASDAQ), in that mix. These three companies are all using allogeneic cell therapies, allogeneic meaning cells that come from someone else. What I like about these three companies is their products are just like pills in a bottle. From a patient point of view, that's a convenience issue. Other advantages include the fact that no tissue or cells are harvested from the patient—no bone marrow or adipose tissue. These three companies utilize an "off-the-shelf" model, a type of modular model that attracts big pharma.

"StemCells Inc. is doing pioneering work in the field of cervical spinal cord injury and dry age-related macular degeneration."

Something very interesting about Mesoblast: Early on, it was partnered with Cephalon with its MPCs, but then Cephalon was acquired by Teva Pharmaceutical Industries Ltd. (TEVA:NYSE) in 2011 for $6.8 billion ($6.8B). Teva then had to make a go or no-go decision on whether it would fund development of the MPCs. Over the last two years, Teva has been continuing to divest itself of research and development (R&D) projects, yet one of the most prominent products that survived divestiture has been Mesoblast's Revascor, which is the brand name the MPCs developed originally with Cephalon.

Why is that? I believe that Teva and its new CEO, Erez Vigodman, and Michael Hayden, the head of R&D, now see the value that Revascor can deliver in CHF. I'm in the camp that believes it's going to work, but Mesoblast still has to prove efficacy in its current Phase 3, pivotal, global, double-blind trial with more than 1,700 patients. If the cells work, we're talking about a multibillion-dollar, druglike, blockbuster treatment.

TLSR: Mesoblast and Athersys have similar technology platforms, but Mesoblast has a market cap nearing $1B, while Athersys' valuation is near $225 million ($225M). Why the valuation disparity between the two?

JK: Unlike Athersys, NeoStem Inc. (NBS:NASDAQ) and other cell therapy companies, Mesoblast has been funded by Teva. Mesoblast has this late-stage, well-powered, Phase 3 study in a large cardiovascular indication that's enrolling patients, and a big pharma company is paying the bill. That's why I believe Mesoblast has a valuation of about $1B.

TLSR: Go ahead with Athersys, please.

JK: On March 2 Athersys announced a partnership with Chugai Pharmaceutical Co. Ltd. (4519:TSE), one of the premier pharma companies in Japan. Japan is not the easiest country in the world for a foreign company to launch a product in. You almost, by necessity, have to have a partner. Interestingly enough, Mesoblast also has a partner on the ground in Japan, JCR Pharmaceuticals Co. Ltd. (4552:TKY), and it was very strategic in the way it acquired that partner. It partnered with JCR by acquiring Prochymal (remestemcel-L) from Osiris Therapeutics Inc. (OSIR:NASDAQ). I'm very excited by what we'll see there.

"BrainStorm Cell Therapeutics Inc.'s NurOwn has shown signs of efficacy in several trials."

I believe that Athersys got a very attractive deal with Chugai, for two reasons. It got an upfront payment that was nominal, but more importantly, it got the premier pharma company in Japan. Chugai has one of the top positions in the hospital market in Japan, and it's a company that understands biologics, having delivered two recombinant DNA products to the Japanese market—Neupogen (filgrastim; Amgen Inc. [AMGN:NASDAQ]) and Epogen (epoetin alfa; Amgen). Chugai is now going to develop Athersys' Phase 2 product MultiStem in ischemic stroke. Like Teva paying the freight for Mesoblast, Chugai will pay the freight—all of the developmental costs—for MultiStem to see that it's approved for stroke in Japan, which has the highest incidence and highest prevalence of stroke in the world.

TLSR: What could this MultiStem/ischemic stroke deal be worth to Athersys?

JK: There are $150–200M in development and revenue-associated milestone payments that Athersys can realize but, more importantly, there is a royalty stream associated with sales of MultiStem, as well as a manufacturing agreement at transfer pricing, which I look at as a second royalty stream. Based on our assumptions and my internal modeling, we're assuming those royalty rates will represent 30–40% of gross product sales. Athersys—nor anyone else—could not accomplish the development cheaper (or more effectively) in Japan by itself. This really is a great deal for both companies.

TLSR: I'm noting that final data collection for this 140-patient Phase 2 trial with MultiStem in ischemic stroke is supposed to occur in spring 2015. When do you expect Athersys to release top-line data?

JK: I like to have a bit of wiggle room, because the company will have to do a statistical analysis after data collection. But we believe that we'll see the data by mid-April. We are very excited. We believe that good data from this trial could be transformative for Athersys and for the landscape.

TLSR: Jason, this stock is up about 105% over the past 12 weeks. Do you see Athersys shares possibly selling off, even on good news?

JK: No, I don't. The percentages are very misleading. The stock was $4/share this time last year. I could argue that this stock is 25% below where it was a year ago. Here's the thing. The Mesoblast product is an allogeneic mesenchymal cell. The Athersys product is an allogeneic mesenchymal cell. The products are only slightly different, but the valuations are quite different. If we see that every patient in the treated arm of Athersys' Phase 2 had a better stroke recovery score versus the control arm, and the company has a p-value of 0.05 or less associated with that, then those data arguably could be good enough, with a modest bridging study, to secure the product's approval in Japan. This product could be selling in Japan in a year. I don't expect that, but it's possible.

"What investors are recognizing in 2015 is that while many new therapies may cause sticker shock, the reality is that when you look at added benefit and elimination of related costs, they are a better value."

A Phase 2 clinical trial, by design, is meant to provide information on determining the best dose, the best patients, and when patients should be treated. Phase 2 is supposed to be an informative study to help design a pivotal Phase 3 study. What I'm looking for from Athersys is Phase 2 data that will guide to a clear Phase 3 design, which, in turn, will translate into success. If we see that—and I believe we will—then I believe the stock is substantially undervalued today. Modest penetration into this market could make MultiStem more than a $1B product. Typically, I put 3–5x revenue as an expectation for market cap. If I put 1x revenue, and it's a $1B product, the company's market cap is one-quarter of that size. I believe Athersys is undervalued.

TLSR: Go ahead with Pluristem.

JK: I feel like I've already seen proof of concept in Mesoblast's product, Athersys' product and NeoStem's product, NBS10 (autologous, bone marrow-derived, CD34+ /CXCR4+ enriched cells). By default, I expect the Pluristem product, PLX-PAD (full-term placenta-derived adherent stromal cells), to work. PLX-PAD is a heterogeneous mixture of cells, which differs from Mesoblast's mesenchymal precursor cells and Athersys' MultiStem, which are both homogeneous groups of cells. The company's lead indications are peripheral artery disease and muscle injury, including that associated with surgery for total hip replacement.

TLSR: You've mentioned NeoStem a couple of times. Last November the company reported top-line results in its Phase 2b PreSERVE-AMI trial of NBS10 in ST segment elevation myocardial infarction (STEMI). It did not meet its primary endpoint of cardiac perfusion. Yet you see proof of concept. What do you mean?

JK: The STEMI trial showed a tremendous mortality benefit and an improvement in virtually every secondary measure. That improvement, by the way, was recently affirmed at the American College of Cardiology, when Dr. Arshed Quyyumi, the principal investigator, presented the 12-month follow-up data. What I see in the NeoStem PreSERVE-AMI trial is a very successful study. The bears will say one of its primary endpoints, perfusion, didn't show a sufficiently low p-value. But perfusion is not an approvable endpoint in a pivotal trial anyway. Mortality is, and NeoStem has shown a mortality benefit.

If a stock is cut in half on bad Phase 2 data, whether NeoStem or Athersys, I would absolutely be buying more, because I don't believe the Phase 2 endpoints are significant in either trial. The Phase 2 data that NeoStem reported were good data. What investors have to understand is that sometimes Phase 2 data won't give a low enough p-value, but does give information on what a company needs to be successful in Phase 3. If, on the other hand, the Athersys or NeoStem data show no trends, and no difference whatsoever between placebo and the active arm, that would be very disappointing and would suggest something is not right.

TLSR: Earlier you mentioned OncoSec. When I think of OncoSec, I also think of Inovio Pharmaceuticals Inc. (INO:NASDAQ), because both companies are developing plasmids delivered via injection and electroporation.

JK: This is where I think the future is. I'm very excited by what I see in cancer immunotherapy.

OncoSec and Inovio are actually linked—OncoSec was spun out of Inovio. The CEO of OncoSec, Punit Dhillon, who's a wonderful, hands-on CEO, used to work at Inovio, and he has a great relationship with Joseph Kim, the CEO of Inovio, which is another very exciting company.

Both companies are developing DNA plasmids, and they are both delivering them using electroporation, an electrical current applied to the skin with the injection. Both companies are trying to create an expression profile with their genetically engineered plasmids. It is almost like CAR T-cell therapy, and that is interesting because when we look the valuations of some of the CAR-T therapy companies, they are astronomical.

"I don't think we can develop truly innovative therapies without the synchronized development of diagnostics."

Interestingly, both companies are looking at the upregulation of immune activator IL-12, and I think OncoSec may be a bit more advanced clinically with its IL-12 program, versus Inovio's broader focus, which also includes an earlier-stage IL-12 program. Some of the data that OncoSec has shown in melanoma are very encouraging. The company is moving forward in head-and-neck cancers, and I'm most excited by its triple-negative breast cancer initiative.

I believe that when you can elicit the upregulated expression of interleukin-12, you open tumors to being more susceptible to destruction by the body's immune system. Is this only a local response? The answer is no. Even if a melanoma lesion is treated locally, OncoSec has demonstrated a secondary response in adjacent lesions in different parts of the body. That's a very exciting data point. The other exciting data point is what I believe will be tremendous synergy when you combine these therapies with checkpoint inhibitors.

TLSR: Inovio's Joseph Kim has said that in late 2015 or early 2016, the company will begin a Phase 3 trial with VGX-3100 in cervical intraepithelial neoplasia, a precancerous condition. Since the p-value was so low in the Phase 2 proof-of-concept trial, he said the Phase 3 could have as few as 200–300 patients in the study. Do you feel Inovio can develop VGX-3100 itself, or will it have to partner for Phase 3?

JK: A low p-value is a good thing. The lower the p-value, the more suggestive it is that the drug works effectively in the treated population and that there is a real separation between treated and control groups. If a Phase 2 trial shows a larger separation between the treated arm and the control arm, a smaller Phase 3 trial is needed to prove efficacy. If the company's calculations, based on Phase 2, suggest 200–300 patients for Phase 3, then it suggests a low p-value.

To the second part of your question, a lot of dynamics go into the decision to partner. The company has a very strong balance sheet. We also know that the longer Inovio holds on to the therapy, the greater the value proposition. Do I believe Inovio will ultimately launch and market the vaccine itself? No, I don't. I believe that it will ultimately partner this product, but I think the value proposition on good data will be significantly greater than it is today.

The last part is safety. VGX-3100 is a very safe product, so it's not a question of risk. It's a question of efficacy. If the company can get a statistically significant p-value out of a 300-person trial, then this could be a very big product.

TLSR: Is there another company you'd like to comment on?

JK: Omeros Corp. (OMER:NASDAQ) is an exciting company, and the CEO, Dr. Gregory Demopulos, is brilliant. The company is now in the early stages of launching Omidria (phenylephrine + ketorolac), for maintaining pupil dilation during surgery and reducing post-operative pain. While we are excited for the prospects for this drug, we view this as a means for the company to fund one of the most exciting biotechnology pipelines in the industry. The pipeline includes a PDE10 drug targeting schizophrenia and Huntington's disease, an antibody that targets the MASP-2 protein and may show efficacy in complement activation pathway disorders such as atypical hemolytic uremic syndrome (aHUS), thrombotic thrombocytopenic purpura (TTP) and neovascular age-related macular degeneration (AMD).

TLSR: Is there another company working in the regenerative medicine space that you'd like to discuss?

JK: StemCells Inc. (STEM:NASDAQ) is doing pioneering work in the field of cervical spinal cord injury and dry age-related macular degeneration (dry AMD). The Pathway Phase 2 study, titled "Study of Human Central Nervous System (CNS) Stem Cell Transplantation in Cervical Spinal Cord Injury," is the first clinical trial designed to evaluate both the safety and efficacy of transplanting human neural stem cells into patients with cervical spinal cord injury, including traumatic injuries to the cervical region of the spinal cord (tetraplegia or quadriplegia; partial or total loss of use of all limbs). Patients transplanted with human central nervous system stem cells (HuCNS-SCs) will be monitored for one year to assess chances of motor function according to International Standards for Neurological Classification of Spinal Cord Injury. The primary endpoints will assess changes in patient upper extremity strength as measured in the hands, arms and shoulders. The trial will enroll up to 52 patients.

"If the developer of an orphan drug has established proof of concept around the therapeutic, that technology and data can be used to expand a therapy to a nonorphan population."

The other very exciting program is in dry AMD. Positive Phase 1/2 data using the HuCNS-SC platform in dry AMD was presented at the 12th annual meeting of the International Society for Stem Cell Research in Vancouver, Canada. Interim trial results show a 65% reduction in the rate of geographic atrophy (GA) in the study eye when compared to the expected natural history of the disease, as well as a 70% reduction in the rate of GA when compared to the control eye. GA is the progressive loss of two important retinal tissue layers, the photoreceptors and the retinal pigmented epithelium. This degeneration is the cause of vision loss in dry AMD. Interim results also indicate improvements in visual function, as measured by the ability to distinguish shades of light versus dark, also referred to as "contrast sensitivity."

Contrast sensitivity was improved in four of the seven patients, and remained stable in the other three patients. The interim analysis is based on a minimum follow-up of at least six months, and demonstrates a favorable safety profile for administration of the HuCNS-SC cells into the subretinal space of the study eye. The Phase 2 study should begin in early 2015.

TLSR: A final company?

JK: Several companies—including BrainStorm Cell Therapeutics Inc. (BCLI:OTCQB), which we have buy rated, Neuralstem Inc. (CUR:NYSE.MKT), sell rated, andKadimastem (KDST:TLV), not rated—are developing cell therapies for amyotrophic lateral sclerosis (ALS). However, each therapy is very different, which brings a number of questions to the table: Which one is safest? What is the best option for the patient?

We recently tackled the subject in an industry report. We reviewed all three companies and their approaches. BrainStorm Cell Therapeutics' autologous NurOwn cells are immune-modulating mesenchymal stem cells (MSCs) derived from the patient's own bone marrow. The cells are induced to secrete neuron-supporting factors. The cells are injected into the spinal fluid—not the cord—where they then home in on the sites of damage and influence both neuron health and the immune response. NurOwn has shown signs of efficacy in several trials, including a recently completed Phase 2a trial, and is currently undergoing a 48-patient phase 2 trial in the U.S. The biggest challenges for this therapy: efficacy and cost.

"Our ability to harness the power of cell-based medicine is exciting, and many of these early-stage companies have the power to transform the treatment of disease as we know it today."

Neuralstem is using allogeneic, eight-week old fetal spinal cord stem cells, which are directly injected into the spinal cord during open spine surgery. Patients receive up to 40 injections into the cord—which, in our opinion, skews the risk/reward to mostly all risk. Why? Beyond physical danger, the cells' ability to migrate to cover neuronal damage is severely limited when injected into solid tissue. Further, the procedure also requires immunosuppression, which increases risk of both transplant rejection and infection, further increasing the risk factor. The biggest challenges for this therapy: safety, efficacy and ethical issues.

Neuralstem reported ALS phase 2 data in mid-March. The press release is worded in a complex way and on the surface appears positive—"7/15 patients may have responded." However, after carefully evaluating the complete press release, it leaves us concerned on several fronts. As I've said, multiple injections into the spine is risky, and based on our interpretation of the data, may be accelerating the disease. Why so negative? Both responders and nonresponders received the same cells, and all patients started with an amyotrophic Lateral Sclerosis Functional Rating Scale score of ~40 points. Those patients classified as "responders" had a reduced rate of decline—a score of 37 points after nine months. The "non-responders" declined very sharply, to a score of 14 points. The rapid decline in the nonresponders is troubling, and the injections themselves may be exacerbating the disease state. The rate of decline in nonresponders of 3 points per month suggests to us that the disease may have been accelerated by the procedure. Even without a run-in period to establish how fast patients were declining (as BrainStorm does), and just using a baseline, the rate of decline would typically be ~1 point per month, not 3.

"When the value proposition is truly there, companies will receive capital and valuation."

The trial begs the question of the ALS patients: Are you willing to flip a coin for accelerated disease/death or potential slowing of disease/extended life? On equal efficacy, if BrainStorm's single spinal fluid injection and Neuralstem's open surgery spinal cord injection (20 injections) are approved, we think the choice is easy. Thus, we continue to remain negative on Neuralstem and positive on BrainStorm.

A third player in ALS is emerging—Kadimastem from Israel. Kadimastem uses allogeneic adult or embryonic stem cells that are differentiated into neuron-supporting astrocytes. Astrocytes are believed to play an important role in preserving neuron health by absorbing excess glutamate and secreting neuron growth factors. Further, the astrocytes are injected into the spinal fluid where, in preclinical studies of ALS, they have been shown to home in on sites of disease, reduce glutamate and secrete neuron growth factors. The therapy's biggest challenges: efficacy and path to the clinic. While Kadimastem is still in early stages, it is going to be exciting to watch the technology advance.

So, if we circle back to where we started, are we in a biotech bubble? No—I think a better explanation is that we are seeing a renaissance in our understanding of cell biology. Coupled with advances in chemistry, computational chemistry, analytical methods and medicine, this understanding is producing more effective drugs with fewer side effects. Our ability to harness the power of cell-based medicine is exciting, and many of these early-stage companies have the power to transform the treatment of disease as we know it today.

TLSR: Jason, it's always a pleasure speaking with you.

 Source: George S. Mack of The Life Sciences Report  (4/8/15)

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