J.P.Morgan 29th Annual Healthcare Conference
San Francisco, CA January 9-13 2011
Biotechnology: Bright Prospects For 2011
Rod Raynovich
The J.P.Morgan Healthcare Conference was a hot ticket in a cold city with over 8500 attendees at the St.Francis Westin Hotel. Topcoats were the unlikely fashion trend due to below normal temps (30’s). Some people complained about the crowds especially in one hotel corridor, but crowds create buzz and contacts. By late Tuesday the situation was manageable and the crowds thinned out. The Conference would never be the same without the St. Francis venue. Presentations began at 7:30a and many attendees were up early working diligently maybe because they had to work harder after the recession or maybe they were motivated by the strong finish in biotech stocks with some benchmarks up over 20% in 2010 beating the S&P by 7%. Despite contrary opinions the “January effect” was on schedule this year with the NASDAQ market up over 12% and the Russell 200 up 13.6% for the last 3 months and both indices are up about 3% YTD. Speculative small cap stocks with good news performed even better.
J.P. Morgan CEO Jamie Dimon was upbeat in his luncheon session saying with the exception of housing the economy is doing better especially corporate balance sheets. Overall he gives credit to government officials for bailing the country out of a potential catastrophe. In the short term we will muddle through the deficit and budget issues but in a three year time frame Congress needs to take action. The consumer needs to become more engaged in medicine to control healthcare costs. Pension reform is key to city and state budgets.
This year there were fewer early stage companies presenting most likely a function of limited equity financing. But financing is getting better. According to BioWorld Insight $19.318B was raised by Biotech in 2010 compared to $17.6B in 2009. And large cap and mid-cap companies are stronger with solid product pipelines and balance sheets.
Broad Trends and Business Concepts
As we sat through three days of Company presentations we heard some interesting trends and concepts that will be covered briefly:
- Although the buzzword “platform technology” has been around for years many companies are executing new strategies with an iPhone-like concept. e.g. Volcano (VOLC) has a suite of cardiovascular devices within an integrated sytem. Also some companies feature their “antibody discovery platform”.
- Larger companies have formed partnerships to pool their products and commercial teams around a disease area. GSK and Pfizer (PFE) have formed a JV called ViiV Healthcare to invest in R&D and commercialize ten HIV products.
- Big pharma and biotech increasingly emphasize opportunities in emerging markets (EM). e.g. GSK says EM growth at 24% vs Europe at 3%.
- Phase III pipelines are growing with antibody therapies the largest category including marketed products.
- Personalized Medicine (pharmacogenomics) continues to gain traction although the development pace may be slowed by regulatory and reimbursement issues.
- With the exception of panel and luncheon sessions there was not a lot of talk about the impact of the Affordable Care Act although Amgen (AMGN) had a negative impact of $200M for sales of anemia drugs (ESA’s-Epogen) for kidney patients.
- Internet concepts of cloud computing and connectivity are key to the marketing of products from Alere (ALR) and Athena Health (ATHN).
- The money pump at the FED and low interest rates are supporting the bond market and enabling larger companies to roll-up acquisitions and M&A should continue.
- Success continues with orphan drug (rare disorder) companies like Biomarin (BMRN) and Alexion (ALXN). Sanofi-aventis sees the potential of this rare disease capability and products from Genzyme (GENZ).
- Seasonal Influenza activity levels are low this season except in certain SE States so sales of Flu diagnostics and vaccines are lower. But the Flu season goes through May and this could change.
- Focus-focus-focus. This buzzword is bigger than ever. Companies large and small are conserving cash, cutting projects and focusing on potential winners. e. g. Biogen (BIIB) is exiting Oncology and Cardiology to focus on MS and Neuro. Exelixis (EXEL) has reduced their portfolio to one product XL-184 for prostate cancer.
Company Updates
It is impossible to cover all the interesting companies attending this conference but here are some interesting notes on companies in diverse markets. We will provide additional Company profiles and news at a later date.
Amgen (AMGN)
As noted earlier Amgen expects an EPS negative impact for 2011 as well related to Health Care Reform and the regulatory and reimbursement landscape for 2011 will “continue to evolve”for the erythropoietin stimulating agents (ESA’s). The key to top line growth will be Denosumab (Prolia and XGEVA). XGEVA was approved in November 2010 for prevention of SRE’s (skeletal related events) in patients with bone metastases from solid tumors with positive data for prostate cancer. Competitor is Zometa from Novartis with sales of $1.4b/yr. Prolia was launched in 2010 had Q3 Revenues of $10M and is indicated for post-menopausal osteoporosis. On Jan. 6 AMGN and Xencor a privately held Company in Monrovia, CA announced a collaboration to develop an Fc engineered monoclonal antibody targeting CD19 and CD32b currently in late stage pre-clinical development for treatment of autoimmune diseases. The option agreement and early milestones total $75M in funding with an additional $25 M in milestone payments down the road. A strong balance sheet may give the flexibility for Amgen to look for growth outside the Company but the 2011 financial outlook looks good with International growth and the new product rollout. Guidance for 2011 and FY 2010 results will be provided on Jan. 24.
Biogen (BIIB)
The new CEO of Biogen George Scangos presented a Company in transformation with cuts in major R&D programs for oncology and cardiology in order to focus on its core MS franchise and neurogenerative diseases. Workforce reduction was 13% with $300M in expense cuts. Updates have been filed with the FDA on its Tysabri label with information on the JCV antibody status, which is important to assess the risk benefit profile related to PML. New executives joined the Company, Doug Williams to head up R&D and Steve Holtzman to head up corporate development. Additional products are in development within the MS pipeline such as BG-12 with data expected in 2011 and PEG-Avonex. Another Phase III program, long-acting, recombinant Factor VIII for hemophilia is a $6B market. The Company would consider entering the biogeneric or “biosimilar” space according to the CEO.
Dendreon (DNDN)
PROVENGE is the only new FDA approved immunotherapeutic platform technology. Revenues for Q4 2010 were $25M with total 2010 Revenues of $48M. PROVENGE 2011sales for immunotherapy of asymptomatic metastatic castrate resistant prostate cancer are forecasted in the range of $350-400M. The focus for 2011 is execution: the build-out of manufacturing and treatment facilities in the U.S., European approval and build-out by 2013, and development of new cancer therapies in the pipeline such as such as TRPP8, HER2/neu and CA 9. Reimbursement in the U.S. is $93,000 but pricing is a potential issue for Europe. On January 13 the Company announced an offering of a $500M Convertible Note Deal due 2016. Up to $250M worth of Common Stock may be issued with the Notes offering.
NuPathe (PATH)
Updated 1/18/12
NuPathe is a specialty pharmaceutical company focused on migraine with a unique patch delivery product called Zelrix designed to address shortcomings of current therapies. The market potential of migraine in the U.S. is 13M Rx’s with 31 million migraine sufferers and a $2.5B WW market. NuPathe intends to refile its NDA by the first half of 2012. Based on a six month FDA review, the PDUFA should occur by year end 2012. Based on this timeline (and anticipated approval), NuPathe expects a commercial launch in early 2013. The Zelrix patch has IP protection through 2023 and additional CNS products such as Parkinson’s and bipolar disorder are planned. NuPathe has a second technology platform licensed from UPEN called LAD (long acting delivery), a biodegradable implant in development for CNS. Zelrix delivers an existing drug(sumatriptan) but would reduce unwanted side effects related to oral delivery such as nausea, mimicking of cardiovascular events, vomiting and gastric stasis. Phase III data confirms the value of pain relief and reduced side effects. The Company went public in August 2010 at a price of $10 raising $43M. Safeguard Scientifics (SFE), a public holding Company that provides venture funding to entrepreneurial technology companies, still holds a significant number of shares and provided $18.3M in capital to NuPathe.
Reata Pharmaceuticals
Reata is a private Company that completed a Series G round of $78M equity financing to get its chronic kidney disease drug bardoxalone (1x day, oral) through the FDA with IND filings in 2011. The technology is based on the antioxidant modulator called Nrf2 complex that bind to protein receptors, turning off genes that promote inflammation. The Nrf pathway is implicated in a wide variety of diseases within “homeostasis” including neurogenerative, autoimmune and renal/cardiovascular areas. Bardoxalone methyl (RTA402) is the lead product currently in a pivotal Phase IIb trial in chronic kidney disease (CKD) patients with type 2 diabetes mellitus. About 40% of all diabetics develop CKD with a huge cost to Medicare in the $40B range. Preliminary data has demonstrated safety, the Nrf2 mechanism and improved clinical and metabolic functions. Reata already has two partners Abbott and Kyowa Hakko Kirin.
http://www.reatapharma.com/index.asp
Regeneron (REGN)
Regeneron has a broad late stage antibody pipeline for the treatment of serious medical conditions such as cancer, gout and eye diseases. The Company leverages their R&D resources by having major partners for each product candidate. Five human antibodies are in clinical development with sanofi-aventis providing $350M in resources. The VEGF Trap-Eye project with Bayer Healthcare is in Phase III for wet Age-related Macular Degeneration (AMD) a $3B market. The VEGF eye program has been extended to include Central Retinal Vein Occlusion (CRVO) a disease that can cause retinal injury and loss of vision. Aflibercept (VEGF Trap) is an anti-angiogenic agent (fusion protein) designed to bind all forms of Vascular Endothelial growth factor needed for growth of tumors. The oncology program is in Phase III and combines aflibercept with common oncology regimens for metastatic prostate, colorectal and NSCLS cancers in collaboration with the sanofi-aventis group. The Company raised $154M in October at a price of $28/sh.
Roche (ROG.VX)
Unlike many large healthcare companies expanding into new consumer, eye care and generic markets, Roche is staying with their core focus and what they do best –diagnostics and therapeutics. Patent expirations and biosimilars are of limited concern and with the acquisition of Genentech the therapeutic portfolio is very broad. There are 14 late stage pharmaceutical s in the pipeline including several antibody molecules for autoimmune disease and cancer, and small molecules for CNS disorders. The $2.5B debt from the Genentech acquisition is being paid down-33% thus far from cash flow. Personalized healthcare is a priority on their agenda for example companion diagnostics concurrently with drug development. Roche is a leader in molecular and tissue diagnostics.
Other biotechnology companies to watch in 2011 are Celgene (CELG), Gilead (GILD) and United Therapeutics (UTHR).
An edited version of this article was posted on Genetic Engineering News Monday Jan. 17.
Reporting from J.P. Morgan on Drug Development Companies.