Small-cap, oncology-focused biotechs with novel technologies have always been bestsellers for investors. Subplots have emerged along the way, but Aegis Capital Corp.'s Managing Director and Head of Healthcare Equity Research Raghuram "Ram" Selvaraju maintains that these companies continue to drive the biotech story forward. In this interview with The Life Sciences Report, Selvaraju reflects on the state of the industry and shares reams of information on specific ideas for investors.
The Life Sciences Report: Ram, you've had a good 12-month run with your coverage. We are more than six months into 2013, and I wonder if you have seen transitions in momentum to new industries or companies. Has there been any shift in emphasis by investors?
Ram Selvaraju: We had a few rocky weeks moving from early to late June. There was a fear that the Federal Reserve would turn off the tap of unlimited liquidity for the U.S. economy and that the economy would go into a tailspin without continued support. I think those fears have abated somewhat, especially after recent reassurances by the head of the Federal Reserve, Ben Bernanke, that quantitative easing would continue until there is substantially greater strength in the U.S. macroeconomic recovery.
But I would remind investors that overall macroeconomic concerns have not, by and large, been significant impediments to the run-up in the biotech sector. The NASDAQ Biotechnology Index (NBI) and the Amex Biotechnology Index (BTK) are up more than 70% in the last 24 months. That just creams the heck out of the Dow Jones Industrial Average and the Standard & Poor's index, both of which are only up about 20% over the same timeframe.
Biotech's massive outperformance has principally been driven by a substantial appreciation in the stock prices of old-guard biotechs like Amgen Inc. (AMGN), Biogen Idec Inc. (BIIB), Celgene Corp. (CELG), Gilead Sciences Inc. (GILD) and Regeneron Pharmaceuticals Inc. (REGN). But, in my view, a large number of smaller-cap companies have also benefitted. Only a few years ago these companies were trading at market capitalizations of only a few hundred-million dollars, and now they have market caps well in excess of $1 billion. Examples include Regeneron Pharmaceuticals Inc., Medivation Inc. (MDVN) and Pharmacyclics Inc. (PCYC).
Click on the images below to see analyst ratings over time. Average analyst ratings sourced from Zacks Investment Research.
TLSR: You have established that biotech has powerfully outperformed the overall market. What about emerging trends?
RS: Overall biotech outperformance is a significant trend in itself, and I do not anticipate that abating. As we have discussed in the past, this is driven by the more risk-tolerant stance at the U.S. Food and Drug Administration (FDA) and the fact that a record number of drugs were approved last year—39, in fact—more than those approved in 2010 and 2011 put together.
Also, it should be noted that many of these approvals were for new molecular entities, drugs that constituted entirely novel advances. We had not seen an approval pace like this since the late 1990s. If the pace continues, and more than 30 new drugs are approved this year, I think investors are going to view the FDA as much less an enemy to the drug industry, and are going to believe that the industry is worth investing in.
In addition, some subsectors of biotech that were really hot in 2010 and 2011 have lost a bit of their luster in 2013. That includes some hepatitis C (HCV) names, like Achillion Pharmaceuticals Inc. (ACHN), which I still am bullish on. I don't anticipate that this is going to be a significant issue, but the fever over HCV has subsided.
What we are seeing instead is a massive appetite for small-cap, oncology-focused companies. Some have the equivalent of phase 1/2 data, and yet they're trading at billion dollar-plus market caps. Infinity Pharmaceuticals Inc. (INFI) had a massive run, from below $10 all the way up to $50, and now it's somewhere around $17/share. Merrimack Pharmaceuticals Inc. (MACK) still sports a roughly $480 million ($480M) market cap, despite not having any pivotal trial data. Clovis Oncology (CLVS) added nearly $1B to its market cap after disclosing phase 1/2 data at the American Society of Clinical Oncology (ASCO) annual meeting in June. The list goes on and on.
TLSR: Ram, what is your favorite stock right now?
RS: Our favorite stock here at Aegis—and the best performing biotech idea of 2013 to date—is Stemline Therapeutics Inc. (STML). I initiated coverage on this company back in March at $11.55. It is currently trading around $26. We brought this company public at the end of January at an initial public offering (IPO) price of $10/share. It has been a phenomenal performer. We believe significant additional upside is yet to come.
Stemline is in the vanguard of small-cap, oncology-focused companies because of its focus on cancer stem cells (CSCs). The company has the ability to specifically abrogate cancer stem cells involved in reconstituting tumors after the tumor bulk has been removed via surgery or chemotherapy. These cancer stem cells are the reason patients get recurrences of cancer. Stemline is developing a suite of therapies that would specifically target cancer stem cells. Its drugs hit the tumor bulk as well, which is how they are differentiated from other cancer drugs.
TLSR: What does the pipeline look like at Stemline?
RS: The firm's most advanced candidate, SL-401 (human interleukin-3 coupled to a truncated diphtheria toxin), has a rapid path to market because it's being developed in an ultra-rare hematological malignancy. So far there has been a 100% response rate. Every patient treated with this drug has had a response, and 60% have had complete responses, meaning the drug effectively got rid of their disease. That is unseen in the oncology domain; now the drug is potentially on a path toward accelerated approval.
TLSR: You said the disease is rare. What is it, and how rare is it?
RS: It is called blastic plasmacytoid dendritic cell neoplasm (BPDCN), and it affects about 2,000 patients every year in the U.S. and Europe. Because of the rarity, the drug could potentially be deployed at a very high purchase price per patient. It can also be deployed in other blood cancers, including acute myeloid leukemia (AML) in the post-third-line setting, as well as in hairy cell leukemia.
TLSR: I am familiar with cancer stem cells, which by definition are more durable, more aggressive and more resistant to therapies. Does SL-401 have a multitargeting capability?
RS: Effectively, SL-401 works via the same mechanism as a drug called Ontak (denileukin diftitox; Eisai Inc. [ESALY]). Ontak selectively delivered a portion of the diphtheria toxin protein into the interior of cancer cells by targeting cancer cells that expressed the interleukin-2 receptor (IL-2R) on their surfaces.
The same exact mechanism is being utilized by Stemline's SL-401, except that Stemline's drug targets the interleukin-3 receptor (IL-3R). What's nice about the way SL-401 kills tumor cells is that it is very difficult for the cells to evolve resistance to it. It's very cytotoxic. If delivered selectively into cancer cells and cancer stem cells, it will result in cell death, no matter how protective the cells are and how many resistance pathways they might have. The cell is doomed.
TLSR: Is this an antibody conjugate?
RS: It's a conjugate, but not an antibody conjugate. It is a fusion protein. A portion of the diphtheria toxin is fused to the receptor-binding domain of the IL-3, which is a messenger or signaling molecule. SL-401 utilizes interleukin-3's ability to fuse to the interleukin-3 receptor (IL-3R) and thereby is internalized by cancer cells and cancer stem cells. It works because the targeted tumor cells in BPDCN patients express very high levels of IL-3R on their surfaces.
TLSR: In the conjugated state, is SL-401 safe for the patient? In other words, is the toxin not released until it attaches to the tumor cell?
RS: Diphtheria toxin has no activity extracellularly. The therapy has a low side-effect profile, in high contrast to what is typically seen with oncology drugs. IL-3R is expressed on normal cells, too, but not anywhere near the level of cancer cells and CSCs.
SL-401 is entering phase 3. The company has had discussions with the FDA on the design of a single-arm, open-label trial. The FDA is more than happy to entertain this relatively small clinical trial, enrolling about 40 patients, because of the stellar response rates seen so far. I believe the drug will not have to go through to the end of a phase 3 trial before petitioning the FDA for approval. If the company gets 20 patients into this trial, and all 20 respond, Stemline will file for accelerated approval. Stemline could potentially have the drug on the market by late 2015, if not earlier.
TLSR: If you will go ahead and select another company, I'd love to hear about it.
RS: We continue to like Synergy Pharmaceuticals Inc. (SGYP). The company recently raised more than $100M, so it is not going to need to raise additional capital for a very long time. In May, it unveiled additional safety and efficacy data from a previously reported phase 2/3 study of its lead drug candidate, plecanatide. These data clearly demonstrated that there is a very robust dose response from an efficacy standpoint in patients with chronic idiopathic constipation. The side-effect profile was extremely good—much better, in our view, than Linzess (linaclotide; Forest Laboratories Inc. [FRX] and Ironwood Pharmaceuticals Inc. [IRWD]), the only direct competitor.
Synergy is starting two phase 3 trials with plecanatide in chronic constipation at the beginning of Q4/13. We anticipate topline results from those studies in the summer of 2014, after which the company can file for approval in the U.S. for that indication. The company could potentially have an approval before the end of 2015, assuming a standard review. The drug could be on the market for chronic constipation in late 2015 or early 2016.
Synergy also has a phase 2b study running in irritable bowel syndrome (IBS) of the constipation-predominant subtype, which should report results early in 2014. If that study is positive, the company will have to do two more phase 3 trials in IBS. I anticipate it would start those studies in H2/14, complete them by the end of 2015, file for IBS approval in early 2016, and have an approval in early 2017.
TLSR: Why is plecanatide superior to linaclotide?
RS: In our view, linaclotide has an inferior safety profile. In essence, linaclotide works too well. It relieves constipation but causes diarrhea in 20–30% of patients. Five to 10% of those patients have to stop taking the drug because the diarrhea is so bad. We do not believe this will be an issue with plecanatide and, indeed, that's not what Synergy saw in the phase 2/3 study. The discontinuation rate seen with plecanatide was about half of what was observed with linaclotide, without any discernible difference in magnitude of efficacy.
TLSR: Ram, go ahead to your next idea.
RS: We recently initiated coverage on a very small company called Catalyst Pharmaceutical Partners Inc. (CPRX). It is developing a drug called Firdapse (amifampridine) to treat a very rare disorder called Lambert–Eaton myasthenic syndrome (LEMS), an ultra-rare disease that afflicts maybe 4,000 people worldwide. There is a registry of patients so it is relatively easy to find them, which is good from a drug development perspective. If the drug is effective, the company should be able to readily target patients who suffer from the disorder.
Catalyst trades at roughly $1/share, with a market cap of less than $40M. This drug, if approved, could generate $80–100M in sales every year. Firdapse is already approved in Europe for the treatment of LEMS, and is in a phase 3 trial now in the U.S. The company needs to complete that trial to file a new drug application (NDA).
We believe Catalyst is another example of a risk-mitigated situation, trading at an extremely low valuation. We note that the company obtained the rights to Firdapse from BioMarin Pharmaceuticals Inc. (BMRN), a well-known player in the ultra-rare, orphan disease space. BioMarin retains a 16% ownership stake in Catalyst, which indicates that BioMarin has high confidence in Catalyst's ability to drive Firdapse through to approval in the U.S.
Catalyst has a backup molecule as well, called CPP-115. This drug is basically a pipeline in a single pill because it can be used to treat convulsive disorders like infantile spasm, a rare disease afflicting very young babies, as well as complex partial seizures, refractory seizures in epilepsy and conditions of that nature. It should have a very advantageous safety profile compared to vigabatrin (Sabril; H. Lundbeck A/S [HLUYY]), which has never seen broad usage because of its side-effect profile. CPP-115 could potentially achieve broad use.
This agent has gone through early-stage testing already and is advancing into phase 2 testing. We believe that Catalyst is getting no credit for this drug at this point from investors, yet it's got a validated mechanism of action based on vigabatrin, an approved drug that has been around for many years, and has applicability in a wide range of convulsive disorders.
TLSR: Catalyst is up 118% over the past six months, 90% over the past 12 weeks and in a four-week period of real weakness in the sector, it is up 18%. The stock is now under $1/share, and you have a target price of $2.50, which represents a very nice implied return. What time period are we looking at?
RS: We expect Catalyst to wrap up its phase 3 study with Firdapse in early 2014—roughly a 12- to 15-month timeframe. It is one of the more risk-mitigated stories we are following right now.
TLSR: What is your next idea?
RS: We continue to like Neuralstem Inc. (CUR), the only company we cover in the stem cell space that is focused on the neurodegenerative disease domain. We like it because of the company's high-quality science.
Neuralstem is developing two different programs simultaneously. One is a neural stem cell-based solution called NSI-566 (human fetal neural tissue-derived stem cells), for the treatment of various neurodegenerative diseases, particularly amyotrophic lateral sclerosis (ALS; Lou Gehrig's disease). ALS is relatively rare but is incurable; patients usually die within 3–5 years of diagnosis. The company is also going after spinal cord injury (SCI), which is a significant unmet need. Millions of people are living in the U.S. with SCI, or are chronically paralyzed. There are no available, effective therapies currently. Neuralstem has other possible indications with this technology as well.
Neuralstem also has a small molecule, NSI-189, which is aimed at the treatment of major depression. This small molecule is very interesting because it could have the ability to enhance cognitive performance in non-depressed or healthy people. Animal studies have shown that this drug selectively enhances neurogenesis in the hippocampus, which is the part of the brain used for learning and memory.
For all these reasons we believe Neuralstem is very interesting, with a rich calendar of catalysts over the remainder of 2013 and into H1/14. It is moving into phase 2b for ALS with the neural stem cell solution. We anticipate that study will begin in the U.S. in H2/13. It is also starting a phase 2a clinical study in the same indication in Mexico. We anticipate that the company will start a phase 1/2 study in SCI in the U.S. imminently.
A landmark paper published in the journal Cell last year demonstrated that Neuralstem's human stem cells, when injected into rats with spinal cords severed by mechanical crush, could actually regenerate nerve tracts across the entire rostrocaudal length of the spinal cord, from head to tail. This is landmark stuff, the kind of thing that we've never seen before from a stem cell-focused company.
TLSR: This Cell paper references an acute-injury model of SCI, where the rodents regained motor function. But the company is about to begin treating patients with chronic spinal cord injury. Does Neuralstem ever speak of going to acute spinal injury?
RS: When the company starts dosing SCI patients in the U.S., it will dose chronic spinal cord injury sufferers, people diagnosed a couple of months to a year before they get the cells. I think it's very possible that Neuralstem could deploy its neural stem cell solution in the acute setting as well. It is more difficult to do that because the patient must get immediate supportive therapy right after the injury occurs.
TLSR: Neuralstem is up 70% over the past 12 months, and its market cap is about $114M. I wonder if you think investors are ascribing any value whatsoever to the company's small molecule, NSI-189?
RS: I think that, at the current valuation level, investors could justify an investment in Neuralstem for either program on its own, with the second program qualifying as a free call option. But this company has a roughly $80M+ enterprise value, and we don't believe this is adequate for both of these highly compelling programs.
TLSR: Your target price on Neuralstem is $4. What's the timeframe on that?
RS: We are aiming for 15–18 months from now. It currently trades at about $1.70. Aegis Capital has raised money for this firm in the past. Historically Neuralstem had a primarily retail-focused investor base, but we were successful in getting the company its first institutional investors.
We believe Neuralstem is one of the best stories in the stem cell arena. It's appealing because it has been able to generate attractive, promising, scientific and preclinical data even while focusing on very difficult-to-treat neurodegenerative conditions. In the clinical setting, the company has had encouraging responses from a couple of patients, indicating its neural stem cells can, in fact, stimulate recovery in ALS. That's practically unheard of; you don't see spontaneous recovery from ALS. The company has a long track record of moving things forward on the clinical development front—and moving them forward successfully. It has never issued a negative clinical development announcement. It is very undervalued, and we think there is significant upside potential.
TLSR: Your next idea?
RS: I'm looking at Ampio Pharmaceuticals Inc. (AMPE). We recently raised our price target to $12, a 12-month target. The company is currently trading at about $6. When we initiated coverage, the stock was trading at less than $4, so we've seen a pretty decent increase.
We think there is a lot of misinformation out in the blogosphere about this company. A lot of people like to trash Ampio, and, in our view, this company doesn't deserve any of the criticism. Various commentators have stated that the company's clinical-stage candidates do not target validated markets, which is untrue. Knee osteoarthritis, premature ejaculation and diabetic macular edema are all opportunities worth hundreds of millions of dollars individually. There has been criticism of the company's clinical proof-of-concept data, which we believe denotes a poor understanding of the principles underlying statistical analysis and the mechanisms of action for Ampio's lead agents.
Ampio is a classic example of how a company can develop drugs in a cost-effective and capital-efficient way. All three of Ampio's clinical-stage drug candidates are already approved in the U.S. for use in other indications, and Ampio is developing these agents for new uses.
Ampio has a drug called Zertane (tramadol), which is being developed for the treatment of premature ejaculation. Tramadol is widely utilized as a nonsteroidal painkiller. Its second drug candidate, Optina, is a low-dose formulation of danazol, which was originally commercialized in the 1970s as a treatment for endometriosis. The new formulation is a proposed treatment for diabetic macular edema. Its third drug candidate is Ampion, which is a cyclic peptide derivative of human serum albumin. Albumin has been used for a variety of ailments for a very long time. Ampion is being developed, at least initially, for the treatment of pain associated with osteoarthritis in the knee.
TLSR: Ram, this company's market value is about $226M. How much value is there in these repurposed drugs?
RS: From our perspective, the market could be worth hundreds of millions of dollars per year. Currently, the financial community is giving Ampio no credit whatsoever for its oxidation reduction potential diagnostic platform (for use in the diagnosis of serious inflammation and oxidative damage in patients who have suffered heart attacks and strokes, as well as other indications). Ampio has three separate shots on goal, plus the diagnostics, and it doesn't spend much money. Its clinical development pathway is very cost-effective for all three drugs because none of the programs require massive evaluation time periods. We're talking about clinical trials that typically last less than a year. Safety profiles are not going to be a problem because all of these compounds have been around for years and are well known. Plus, Ampio is using the drugs at significantly lower concentrations than in their current indications.
TLSR: Go ahead with your next idea.
RS: I initiated coverage on Galectin Therapeutics Inc. (GALT) in September of last year, when the stock was trading under $2. It's now at about $4.50.
The company is gearing up for clinical development of a small molecule agent designated GR-MD-02 for the treatment of liver fibrosis. It also has an ongoing, early-stage clinical trial in Germany with another agent that works via the same galectin-inhibiting platform for the treatment of cancer. If you look at the data generated in liver fibrosis in animal models, it is nothing short of stunning. The company has been able to demonstrate reversal of well-established fibrosis in the animal models. In our view, GR-MD-02 could be a best-in-class antifibrotic drug. The company is primarily going after treatment of nonalcoholic steatohepatitis (NASH), not treatment of patients who suffer from alcoholic liver cirrhosis. NASH is classified as fatty, fibrotic liver, and is a chronic condition for which there is currently no approved treatment.
TLSR: Ram, you have noted that Galectin has potential competitors targeting NASH. How do you read them versus Galectin?
RS: Galectin faces competition from a number of other companies, including Raptor Pharmaceutical Corp. (RPTP) with a phase 2b program in NASH in children, and La Jolla Pharmaceutical Co. (LJPC:OTC), which is getting in on the act with an investigational new drug (IND) application and is ready for phase 1. Intercept Pharmaceuticals Inc. (ICPT), which was an IPO last year, also has a phase 2 candidate.
In our view, Galectin has a best-in-class drug because the molecule selectively reverses liver fibrosis by specifically impacting the galectin pathway. Galectins are known to be upregulated in conditions of fibrosis and metastatic cancer disease. You can bind them and inactivate them to shut down inflammation causing fibrosis. There is a very good mechanistic rationale to support Galectin's technology platform.
TLSR: Although Galectin has been weak over the past couple of months, it has nearly doubled over the last six months. Does that worry you?
RS: We think there is significant upside potential. The scientists working with Galectin are top notch. As to valuation, even after its recent run-up, Galectin is still only a $74M market cap company. The potential for additional upside is also clear when you look at how other companies are valued. For instance, Intercept Pharmaceuticals' $839M market cap is more than 10 times that of Galectin's.
TLSR: Your next idea?
RS: I'll mention a couple of the larger-cap names that I follow, which I think still have significant additional upside. We correctly anticipated that Medivation's prostate cancer drug, Xtandi (enzalutamide), currently marketed in the U.S. for treatment of chemotherapy-experienced, hormone-refractory prostate cancer, would get approval in Europe. The company is also in a phase 3 study looking at this drug's activity in chemotherapy-naïve, hormone-refractory prostate cancer. We anticipate the drug's effectiveness will increase the earlier it is deployed in prostate cancer treatment. Since chemo-naïve prostate cancer is clearly an earlier stage, the survival-promoting benefits should be comparatively greater in this patient population. We anticipate interim results from that phase 3 trial, known as PREVAIL, sometime in the next three to four months.
TLSR: Medivation had a huge run-up at the end of 2011 and through the end of 2012. How do you value this company with these upcoming catalysts taken into consideration?
RS: We believe that Medivation's shares are attractively valued, especially in the context of the valuations of comparable companies. For example, Pharmacyclics trades at close to a $7.4B market cap, whereas Medivation only trades at a $4.1B market cap. Medivation does share the revenue from Xtandi with its large pharma Japanese partner, Astellas Pharma Inc. (ALPMY:OTC), but the company still takes home half the profits associated with the drug in the U.S., and gets a substantial double-digit royalty on net sales outside the U.S.
We believe this drug could generate as much as $6–7B/year in sales, especially if approved and commercialized successfully in all of the sub-indications of prostate cancer and for earlier-stage disease. It also appears to have applicability in breast cancer. We think there is significant additional upside for Medivation. It trades currently at about $57/share, and we have a $100 price target on it. We'd also note that this is one of the most attractive potential merger-and-acquisition (M&A) candidates in the oncology sector—and that there is renewed probability of M&A transactions occurring in the space following the recently publicized interest of Amgen Inc. in acquiring Onyx Pharmaceuticals Inc. (ONXX), another oncology-focused specialty company.
TLSR: Do you have another name?
RS: Acorda Therapeutics Inc. (ACOR) trades at about $37/share with a $1.5B market cap. We have a $40 price target, but that is very conservative because we're only ascribing a $150M net present value (NPV) to the usage of Acorda's currently marketed drug Ampyra (dalfampridine) in post-stroke deficit. The drug is already approved to improve walking in patients with multiple sclerosis (MS). But the company has demonstrated positive results from a mid-stage trial in post-stroke deficit, which affects 7M people in the U.S. today. There are only about 500,000 MS patients in the U.S.
If the drug were approved for post-stroke deficit as well, its potential market would be massively expanded. In that context, we believe investors should be looking at Acorda Therapeutics. This is a risk-mitigated company. It's profitable. It's very well run. It has a significant amount of cash with which to do additional strategic acquisitions, if necessary. And there is significant additional upside inherent in Ampyra, which is already a marketed, profitable product.
RS: We continue to be very bullish on Lpath's prospects to deliver positive results in the ongoing NEXUS study, which is looking at the company's proprietary antibody iSonep (sonepcizumab for intravitreal administration) in the treatment of wet age-related macular degeneration (AMD). We anticipate those results sometime early next year.
The company also recently started a phase 2 study in solid tumors with Asonep (sonepcizumab in a systemic formulation for intravenous administration). The same antibody is used in both indications. The company's partner in the AMD program is Pfizer Inc. (PFE), which has also the right of first refusal in the oncology, MS and colitis indications with Asonep. We believe Lpath could be the subject of an acquisition transaction by Pfizer if the NEXUS study demonstrates a positive result. In our view, if iSonep works, Pfizer would want to bring it in-house, and would definitely like to get its hands on Asonep as well, especially considering that Asonep has demonstrated safety advantages versus agents like Avastin (bevacizumab; Genentech/ Roche Holding AG [RHHBY:OTC]) in the solid-tumor setting.
With respect to CytRx, we put out an update on June 19 and slightly lowered our price target from $8 to $7. But we still think there is significant upside for these shares. The company's lead compound, aldoxorubicin, which is being studied for soft tissue sarcoma, is a risk-mitigated opportunity primarily because the drug is based on an approved product, doxorubicin, a chemotherapeutic agent that has been used for years. Aldoxorubicin is essentially doxorubicin conjugated to an acid-sensitive linker that will bind to circulating albumin after it is injected. The acid-sensitive linker is attracted to tumor tissues, which are acidic. Effectively, aldoxorubicin is a targeted version of doxorubicin because it hones in on tumor cells.
The company presented phase 1b data at ASCO detailing the fact that by combining aldoxorubicin with doxorubicin, it is able to significantly drop the dose of doxorubicin, and when it adds aldoxorubicin at a higher concentration to doxorubicin, no additional side effects are introduced, including cardiac toxicity. CytRx also released data very recently demonstrating that aldoxorubicin was much more effective than native doxorubicin for treatment of brain cancer, showcasing animal data that was impressive. The brain cancer indication—glioblastoma multiforme (GBM)—is potentially strategically important for CytRx, since it could qualify aldoxorubicin for breakthrough designation at the FDA. Breakthrough designation is a newly formulated classification for drug candidates that are aimed at addressing drastically unmet medical needs, and that have demonstrated significantly better proof-of-concept clinical efficacy than the standard of care. The FDA allows such candidates to pursue an accelerated path toward approval, which could involve completely waiving the requirement to conduct phase 3 trials.
TLSR: My understanding is that a pivotal phase 3 trial with aldoxorubicin is about to begin under a special protocol agreement as a second-line therapy for soft tissue sarcoma. When could we see an approval for aldoxorubicin?
RS: There is a good likelihood that aldoxorubicin could be approved in 2016 for use in soft tissue sarcoma. The company could also advance additional linker-based chemotherapeutic drugs from its pipeline. We think CytRx is not being given adequate value for either aldoxorubicin, which is a relatively advanced product with proof of concept and clinical data already established—and which is also based on an existing approved medication—nor is the company being given credit for the pipeline of drug candidates behind aldoxorubicin.
TLSR: You said you lowered your target on June 19. Why?
RS: We lowered our price target because the company recently discontinued development of tamibarotene, its non-small cell lung cancer-focused, synthetic retinoid-based drug. But that was only contributing about $90M in NPV to our overall enterprise value calculation. We still believe that the appropriate enterprise value for CytRx should be in excess of $250M. The current enterprise value of CytRx, if you take into account existing cash, is only about $40M. This remains an undervalued, risk-mitigated opportunity in the small-cap oncology space.
TLSR: Go ahead and speak to Galena, please.
RS: We continue to be positive on Galena's prospects in breast cancer with its lead candidate NeuVax (nelipepimut-S or E75), which is proposed to prevent recurrence of breast cancer in disease-free patients who are HER2/neu negative—those expressing very low levels of HER2.
The fact that Roche Holding AG is partially paying for the phase 2 NeuVax study is encouraging. We also note that Galena has been very active on the business development front, bringing in an additional product, Abstral (fentanyl sublingual tablets) for breakthrough cancer pain. Abstral will provide some cash flow. On the diagnostics front, the company has signed an agreement with Leica Biosystems (private) to develop a companion HER2/neu screen. In December it signed a partnership agreement with Teva Pharmaceutical Industries Ltd. (TEVA) to commercialize NeuVax in Israel. We think the company continues to be favorably positioned, and we continue to like the prospects of NeuVax and the ongoing phase 3 study.
TLSR: I understand that the phase 2b study, which led to the phase 3 PRESENT study now in progress, did not deliver statistically significant results, presumably because that study included both node-positive and node-negative patients. The phase 3 PRESENT trial is being conducted in the most aggressive cancers only—those patients recovering from node-positive disease. Can you comment on that?
RS: When Galena looked at the phase 2b data, it became clear the timing at which NeuVax intervention occurs is important because you have to have the most appropriate antigen presentation. We believe the current phase 3 clinical trial design has been optimized to take into account what the company saw in phase 2b. There also is a high likelihood that Galena will capture a significant cross-section of the breast cancer population by combining its agent with Herceptin (trastuzumab; Roche/Genentech). As Galena gets closer to unveiling the results of the phase 3 trial, the stock is most likely going to trend upward because there is a good mechanistic rationale here.
TLSR: What is the next catalyst we're looking at for Galena?
RS: The next meaningful catalyst is completion of enrollment. If the company completes enrollment on target, we should see interim results in H1/14.
TLSR: Would you like to comment on NeoStem Inc. (NBS) briefly? The firm, which is an emerging competitor in the development of autologous stem cell-based therapeutic approaches, recently announced a 1-for-10 reverse stock split.
RS: We recently initiated coverage on NeoStem with a Buy rating and a $2.50 price target. Considering the impact of the recently announced 1-for-10 reverse stock split, our new implied price target would be closer to $25 per share.
In our view, the reverse split is well timed, since the company had roughly 280M fully diluted shares outstanding before the split. The split could pave the way for easier institutional ownership of the stock. The most significant catalyst coming up for NeoStem is phase 2 data for its most advanced clinical candidate, AMR-001, an autologous bone marrow-derived stem cell therapy aimed at treatment of ST-elevation myocardial infarction (STEMI), a form of heart attack. The phase 2 STEMI trial of AMR-001 is slated to report topline results early next year. Positive data could potentially result in a transformative partnership for NeoStem.
TLSR: I enjoyed our conversation very much. Thank you, Ram.
RS: Thank you. My pleasure.
Raghuram "Ram" Selvaraju's professional career started at the Geneva-based biotech firm Serono in 2000, where he discovered the first novel protein candidate developed entirely within the company. He subsequently became the youngest recipient of the company's Inventorship Award for Exceptional Innovation and Creativity. Selvaraju started in the securities industry with Rodman & Renshaw as a biotechnology equity research analyst. He was the top-ranked biotech analyst in The Wall Street Journal's "Best on the Street" survey (2006). Selvaraju went on to become head of healthcare equity research at Hapoalim Securities, the New York-based broker/dealer subsidiary of Bank Hapoalim B. M., Israel's largest financial services group. While at Hapoalim, Selvaraju was regularly featured in The Wall Street Journal, Barron's, BioWorld Today, and Reuters/AP. He was also a regular guest on the Bloomberg TV program "Taking Stock," and was a guest on CNBC's "Street Signs with Herb Greenberg." He is currently an analyst and managing director with Aegis Capital Corp.
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