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Insight & Intelligence : Jan 17, 2011
Reporting from J.P. Morgan on Drug Development Companies
Even the unseasonal cold couldn’t dampen the spirit of the biotech community.!--h2>
J.P. Morgan’s 29th Annual Healthcare Conference was a hot ticket in a cold city. Over 8,500 attendees poured into the Westin St. Francis Hotel in San Francisco. Topcoats were the unlikely fashion trend with temperatures dipping into the 30s, which is below normal for the city.
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 not be the same anywhere other than at the St. Francis venue.
Presentations began at 7:30 am and many attendees were up early working the crowd, maybe because they had to work harder after the recession, or maybe they were motivated by 2010’s strong finish in biotech stocks. Some benchmarks were 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 up over 12%, the Russell 200 up 13.6% for the last 3 months, and both indices up about 3% YTD. Speculative small-cap stocks with good news performed even better.
J.P. Morgan CEO, Jamie Dimon, was upbeat during his luncheon session saying that, with the exception of housing, the economy is doing better, especially corporate balance sheets. Overall he gave credit to government officials for bailing the country out of a potential catastrophe. In the short term he said we will muddle through the deficit and budget issues, but in a three-year time frame Congress will need to take action.
This year there were fewer early-stage companies presenting, most likely a function of limited equity financing; financing is getting better, though. About $19.3 billion was raised by biotech in 2010 compared to $17.6 billion in 2009, according to BioWorld Insight. And large-cap and mid-cap companies are stronger with solid product pipelines and balance sheets.
Broad Trends and Business Concepts
Over three days of company presentations we heard some interesting trends and concepts:
1. Focus-focus-focus. This buzzword was bigger than ever. Companies large and small are conserving cash, cutting projects, and focusing on what they consider the best shot at goal. E.g. Biogen Idec is exiting oncology and cardiology to focus on multiple sclerosis (MS) and other CNS diseases. Exelixis has reduced its portfolio to one product, XL-184 is for prostate cancer.
2. Big pharma and biotech continued to emphasize opportunities in emerging markets (EM). E.g., GSK says its EM growth was 24% during 2010 vs. Europe at 3%.
3. With the exception of panel and luncheon sessions there was not a lot of talk about the impact of the Affordable Care Act.
4. The Federal money pump and low interest rates are supporting the bond market and enabling larger companies to roll-up acquisitions. M&A is thus expected to continue.
5. Cloud computing and internet connectivity are key to marketing.
6. The development pace for personalized medicine may be slowed by regulatory and reimbursement issues.
7. Phase III pipelines are growing, with antibody therapies making up the largest category.
8. Success continues with orphan drugs for companies like Biomarin and Alexion. Sanofi-aventis covets Genzyme’s orphan drugs portfolio and remains committed to winning over the firm.
9. Seasonal influenza activity levels are low this season except in certain southeastern states. Hence, sales of flu diagnostics and vaccines were lower in 2010 compared to 2009. The flu season goes through May, so this could change.
It is impossible to cover all the companies attending this conference, but here are notes on a few interesting drug development firms. A round-up of some tool developers and service providers will follow in a couple of days.
Amgen expects a negative impact on EPS this year, partially related to the Affordable Care Act as well as the regulatory and reimbursement landscape for erythropoietin stimulating agents. Denosumab, sold as Prolia and Xgeva, will be key to top-line growth.
Xgeva was approved in November 2010 for prevention of skeletal-related events in patients with bone metastases from solid tumors. It competes with Novartis’ Zometa, which reportedly has sales of about $1.4 billion per year. Prolia was launched in 2010 and had third quarter revenues of $10 million. It is also indicated for post-menopausal osteoporosis.
Amgen did not present financial results for 2010 or guidance for 2011 but noted that a strong balance sheet would give it flexibility to look for growth outside the company. The firm’s most recent deal was entered into on January 6 with Xencor. It focuses on the development of an Fc-engineered mAb targeting CD19 and CD32b currently in preclinical testing against autoimmune diseases.
The new CEO of Biogen Idec, George Scangos, presented a company in transformation. He reported cuts in major R&D programs for oncology and cardiology and said the company was refocusing on its MS franchise and neurogenerative diseases. The company’s workforce was reduced by 13%, which cut expenses by $300 million.
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 progressive multifocal leukoencephalopathy. Phase III data on MS candidates, BG-12 and PEG-Avonex, is expected in 2011.
Biogen Idec is considering entering the biosimilar space, according to the Scangos. In addition to Scangos other new executives at the company include: Doug Williams will head up R&D and Steve Holtzman will head up corporate development.
Dendreon reported that revenues from Provenge for the fourth quarter of 2010 were $25 million with total 2010 revenues of $48 million. Pricing is a potential issue for Europe. Sales for 2011 are forecast to be $350–400 million.
The focus for 2011 is on: building manufacturing and treatment facilities in the U.S.; European approval and build-out by 2013; and development of active cellular immunotherapies against Her2/neu and CA9 targets as well as a small molecule against TRPP8.
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 reportedly about 13 million prescriptions, with 31 million migraine sufferers worldwide and a $2.5 billion global market. An NDA for Zelrix was filed in October and accepted by the FDA on January 10; the PDUFA date is expected later this year for a product launch in the first half of 2012.
The Zelrix patch is IP protected through 2023, and additional CNS disease products, such as for Parkinson and bipolar disorder, are planned. Zelrix delivers an existing drug (Triptans) but would reportedly reduce unwanted side effects related to oral delivery, such as nausea, cardiovascular events, vomiting, and gastric stasis.
The company went public in August 2010 at a price of $10 per share, raising $43 million. Safeguard Scientifics, a public holding company that provides venture funding to entrepreneurial technology companies, still holds a significant number of shares and provided $18.3 million in capital to NuPathe.
Regeneron noted that it raised $154 million in October at a price of $28 per share. It has a broad late-stage antibody pipeline that includes treatments for cancer, eye diseases, and gout. Five human antibodies in clinical development are partnered with sanofi-aventis, which will provide $350 million in resources. Their lead candidate, Aflibercept in combination with common regimens for metastatic prostate, colorectal, and non-small-cell lung cancers, is in Phase III trials.
The VEGF Trap-Eye project with Bayer Healthcare is in Phase III for wet age-related macular degeneration, a $3 billion market. The program was extended to include central retinal vein occlusion a disease that can cause retinal injury and loss of vision. Aflibercept is an anti-angiogenic agent designed to bind all forms of vascular endothelial growth factor needed for tumor growth.
Unlike many large healthcare companies expanding into new consumer, eyecare, and generic markets, Roche is staying with its core focus and what it does best—diagnostics and therapeutics. The firm remarked that patent expirations and biosimilars are of limited concern, and with the acquisition of Genentech, its therapeutic portfolio is very broad.
The $2.5 billion debt from the Genentech purchase is being paid down—33% has been retired thus far. There are 14 late-stage drugs in the pipeline, including several antibodies for autoimmune diseases and cancer as well as small molecules for CNS disorders. Furthermore, personalized medicine, in particular companion diagnostic development alongside drug development, was identified as a big part of Roche’s agenda.
Other biotechnology companies to watch in 2011 are Celgene, Gilead, and United Therapeutics.
Rod Raynovich ([email protected]) is a principal at Raygent Associates. Web: www.raygent.com.
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