April 1, 2008 (Vol. 28, No. 7)
Geriatric Bubble Will Lead to 13 Million
You have heard plenty about the surge of aging baby boomers and the impending disastrous financial impact caused by an explosive growth in government entitlements. Medicare and Medicaid costs were $627 billion last year, and the Congressional Budget Office says that costs will double in 10 years. Now, add the epidemic proportions of individuals with dementia or some form of Alzheimer’s disease (AD). There are currently about five million people in the U.S. living with AD. Worldwide, there are more than 100 million people suffering from diseases of the brain characterized by loss of neurons.
The Lewin Group’s 2004 report estimates that Medicare spending for AD will be $189 billion by 2015. Currently, about $5 billion annually is being spent worldwide on drugs to treat AD. These therapies, however, do not cure AD, they simply alleviate the symptoms. The current economic burden for AD patient care in the U.S. is about $100 billion.
There is a lot of new information on risk factors and how interventions in life style, such as diet, exercise, and intellectual stimulation, can slow down the disease process, however, scientists do not fully understand the cause of AD. Recently there has been a step-up in R&D, and there is a growing clinical pipeline of new drugs. Diagnostic tests, particularly biomarkers, are at an early stage but are urgently needed to show the effectiveness of drugs in development.
Investment Opportunities
The market potential for Alzheimer’s disease and related cognitive disorder therapies is huge due to the numbers of patients affected and the cost of care. The R&D investment and knowledge base is growing each year with positive data for several new therapies expected in 2009. Products currently on the market are sold by larger companies such as Pfizer and Novartis as well as generic firms, so their stock prices are not very sensitive to sales growth.
Many top-tier drug companies also have products in clinical development for AD. Investing in small- to mid-cap biotech companies offer the best growth potential in spite of the clinical trial risk involved. As always, an investment portfolio comprising a range of companies is the best approach with an overweighting on specific firms as they put out positive clinical data in the later stage. Another indicator of lower risk would be the establishment of an ETF (exchange-traded funds) for companies in this sector, such as the HHN Neuroscience ETF created by Xshares.
Emerging companies that have encouraging Phase II data are mentioned in this article. The first next-generation product expected to come to market hopefully by the 2010–11 time frame will have multibillion dollar revenue potential.
Current and Predicted Market
Glutamate is a key neurotransmitter affecting memory and learning and is a target for drug discovery. It is implicated not only in AD but also in other neurodegenerative diseases such as schizophrenia and depression. Memantine is currently approved for AD and appears to block the glutamate pathway (NMDA receptor modulator) but also boosts the acetycholine (AChEI’s) pathway.
Recent studies based on cognitive tests and feedback from caregivers have shown the drug to be beneficial. Memantine, marketed under the brand names Namenda by Forest Laboratories, Axura by Merz, and Ebixa by Lundbeck is thought to have advantages over more established AD drugs such as Eisai and Pfizer’s Aricept and Novartis’ Exelon, which boost AChEI-related signaling. More clinical studies are required, though.
The current U.S. market for all these products is about $2.5 billion and growing at over 10% per year. The global market should reach $5 billion within a few years. Pharmaceutical audit data from Wolters Kluwer shows 2007 sales of $1.4 billion for Aricept, $705 million for Namenda, and $191 million for Exelon.
According to a 2007 Decision Resources report, this AChEI market is expected to eventually slow or decline as generics take over and new-generation products hit the market. This may take a few years, however. Frost and Sullivan forecasts the U.S. market to grow to about $4 billion by 2010 then briefly decline followed by renewed growth as disease-modifying drugs are introduced in 2011.
A MedaCorp and Leerink Swann & Co. White Paper states, “Treatment that could delay the onset of Alzheimer’s disease could reduce the number of patients by 50%, thus saving $50 billion in annual healthcare costs.”
Elan has a broad pipeline of products in clinical development in Phases I through III. Bill Tanner, Ph.D., of Leerink Swann has an Outperform rating on the firm. CSFB has also added Elan to its outperform list. Decision Resources projects that its lead candidate, bapineuzumab, will launch by 2011 with blockbuster potential of $5 billion by maturity if there are no safety issues.
Elan’s immunotherapies consist of an immunoconjugate in Phase II and two humanized mAbs. While one mAb is in preclinical development, bapineuzumab is in a pivotal Phase III trial. The study is using a new cognitive-function endpoint called NTB (neuropsychological test battery) instead of the ADAS-cog gold standard. Bapineuzumab is engineered to clear the neurotoxic beta-amyloid peptide, which accumulates in the brains of AD patients.
Elan is also developing beta and gamma secretase inhibitors with a Phase II product in a partnership with Eli Lilly. These enzyme inhibitors clip the amyloid precursor protein thus preventing the formation of amyloid plaques.
Another company faring well with some analysts is Epix Pharmaceuticals. Alan Carr of Needham and Co. has a Buy on Epix considering that the company has four mid-stage clinical programs and new drivers are expected over the next six months. RBC Capital also recently initiated an Outperform on the stock.
Epix Phase II portfolio consists of one AD candidate, while the other two target pulmonary hypertension and depression. The firm also has a Phase I AD candidate.
The mid-stage small molecule, 5HT-4, is a selective agonist of a specific GPCR. It is being evaluated in a Phase IIa trial as a single agent and in combination with Aricept. A Phase IIb trial is expected to begin by mid-year with partner GlaxoSmithKline. The mechanism of action is the stimulation of the alpha-secretase pathway and Ach production in the brain, which should improve cognition.
Myriad Genetics’ Phase III compound, on the other hand, is a selective amyloid (amyloid beta 42) lowering agent that acts through a gamma-secretase pathway. A recent report by Decision Resources regarding Flurizan’s effect in delaying progression from mild cognitive impairment to AD, touted the drug’s potential to become the gold standard of treatment.
The launch of Flurizan is expected in 2010 with a 23% market share by 2016. Ian Sanderson of Cowen and Co. forecasts sales of $600 million by 2012 and he expects it to be the first next-generation drug to be approved by the FDA. Annabel Samimy of UBS has a Buy on the stock after considering the firm’s pipeline as well as its diagnostic business. Geoffrey Meacham, Ph.D., of JPMorgan has an Overweight rating on the stock.
Targacept is focused on a class of molecular targets called neuronal nicotinic receptors (NNR) that are involved in neurotransmitter activity potentially strengthening the nerve signal. Six analysts currently have a Buy rating on the company: CIBC, Deutsche Securities, Leerink Swann, Lazard, Nataxis, and Pacific Growth.
Targacept’s lead compound, which is partnered with AstraZeneca, is in a Phase IIb study. AZD-3480 is a small molecule drug being investigated as a treatment for cognitive impairment in both AD and schizophrenia. Results are expected by the end of 2008.
AZD-3480 has already been tested in 12 trials involving 540 subjects, it was well tolerated and had positive effects in cognition. The company has extensive IP for NNR and is also partnered with GlaxoSmithKline for other NNR drug targets. Additional IND’s are expected in Q2.
Other companies with Phase II drugs are Prana Biotechnology and Medivation. Recently, Prana reported a successful Phase IIa trial for PBT2 that showed reduced Abeta 42, a biomarker associated with AD. PBT2 is an MPAC (metal protein-attenuating compound) 8-hydroxyquinoline that reduces the impact of naturally occurring metals such as copper, thus attenuating the damaging effects of amyloid beta.
Medivation plans to initiate a pivotal confirmatory Phase III trial with Dimebon in Q2. The successful Phase II study was done in Russia, but the late-stage evaluation will be in the U.S. Dimebon appears to block a new target that involves mitochondrial pores, which are believed to play a role in cell death. Dimebon was previously approved and is used in Russia as an antihistamine.
Alzheimer’s disease is a huge market, with drugs in development that can be very cost effective. Phase II results from the aforementioned companies are encouraging, and winners should emerge as early as the first quarter of 2009. Review company websites, analysts’ reports, and technicals before investing.
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Rod Raynovich is a principal at Raygent Associates. Web: www.raygent.com. Phone: (310) 379-5533. E-mail: [email protected].
